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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under section 13 or 15(d) of the Securities and Exchange Act
of 1934
For the fiscal year ended June 30, 1997
[ ] Transition report pursuant to section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER: 0-21932
CALIFORNIA CULINARY ACADEMY, INC.
(Name of small business issuer in its charter)
California 94-3042862
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
625 Polk Street
San Francisco, CA 94102
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (415) 771-3536
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, no par value
--------------------------
(Title of class)
Check whether the issuer (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 .
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Revenues for the most recent fiscal year were: $15,339,000
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the closing sale price on September 30, 1997, was $18,621,000.
The number of shares outstanding of the issuer's Common Stock as of September
30, 1997, was 3,568,454.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format. Yes No X .
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This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results may differ
materially from the results projected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "ITEM 1 - Business," including the section therein entitled
"Risk Factors," and in "ITEM 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PART I
ITEM 1. BUSINESS
The California Culinary Academy, Inc., ("Academy") is one of the largest
publicly held, for-profit professional culinary arts training schools in the
United States (based on the number of students enrolled in its programs)
offering a variety of programs to culinary arts professionals, serious amateurs
and other members of the public who may be interested in specific culinary
subjects. The Academy operates at two locations: the main campus located in San
Francisco, California and at an extension campus in Salinas, California. In
conjunction with its educational activities, the Academy operates two public
restaurants and a small retail shop at its San Francisco campus, serving a
clientele that consists of students, staff and the general public.
The Academy has been in operation since 1977, offering its core programs,
consisting of the Associate of Occupational Studies ("AOS") Culinary Arts Degree
Program ("AOS Program"), the Baking & Pastry Arts Certificate Program ("B&P
Program") and weekend continuing education programs for professionals and other
courses or workshops for interested non-professional students.
In October 1996, the Academy introduced a new concept in culinary education when
it opened its "College of Food," at its extension campus in Salinas. The
strategy of the College of Food is to increase students' basic knowledge of
kitchen skills, sanitation and supervisory skills, as well as offering
specialized courses in baking and pastry. The College of Food concept is
designed to attract students who wish to enter the culinary field, food service
workers who need specialized training or individuals who simply want to expand
their culinary knowledge. Because the curriculum at the Academy focuses on
practical skills and techniques that the Academy believes are critical to
success in the food industry, the Academy has historically enjoyed a high job
placement rate among its graduates.
As of September 1, 1997, the Academy has graduated approximately 4,900 students
from its professional programs. In addition, thousands of individuals have
attended one or more of its continuing education classes. For the year ended
June 30, 1997, the Academy averaged approximately 610 full-time students in its
AOS Program and B&P Program. These programs are designed to accommodate up to 25
students in each of approximately 25 enrollment periods per year for the AOS
Program and nine enrollment periods for the for the B&P Program. The College of
Food, which can accommodate up to approximately 140 students with new
enrollments occurring approximately every three to four weeks, averaged 17
students during the year ended June 30, 1997.
The predecessor to the California Culinary Academy, Inc. was incorporated in
June 1977, as a Pennsylvania corporation. In October 1986, the Academy was
incorporated in the State of California under the name CCA Acquisition
Corporation and was the surviving corporation in a merger with the Pennsylvania
corporation. Upon completion of the merger, CCA Acquisition Corporation changed
its name to California Culinary Academy, Inc.
EDUCATIONAL PROGRAMS
The Academy's professional programs are designed to prepare students for
entry-level professional positions or for individual advancement to supervisory
positions in foodservice operations. The primary educational offerings of the
Academy are the AOS Culinary Arts Degree Program (the "AOS Program") and the
Baking &
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Pastry Arts Certificate Program ("B&P Certificate"). The Academy has also
applied for certification of its Basic Professional Culinary Skills Program at
the College of Food. Completed coursework from the College of Food's Basic
Professional Culinary Skills Program is transferable into the Academy's AOS
Program. In addition to its degree and certificate programs, the Academy also
offers a large variety of non-degree programs for professionals and other
students. All professional programs emphasize "hands on" practical experience.
Full-time classes at the main campus in San Francisco are offered in two
seven-hour shifts, from 7 AM to 10 PM, Monday through Friday. At the College of
Food, classes are offered in a choice of four hours shifts, from 9 AM to 1 PM or
from 6 PM to 10 PM for part-time students. Part-time students typically have
full or part-time jobs and the choice of classes accommodates their employment
schedules. Continuing education courses are offered on weekends at the
Academy's main campus.
AOS PROGRAM
The Culinary Arts Program provides an intensive 18-month course of study leading
to an Associate of Occupational Studies ("AOS") degree in Culinary Arts. The
program is divided into two academic terms. Enrollment periods begin every two
weeks, which provides students with flexible scheduling options and most
efficiently utilizes the services of the Academy's chef instructors and the
Academy's facilities.
The curriculum of the AOS Program, which integrates classical and modern
culinary techniques with strong kitchen management skills, is designed to
prepare students for professional entry into the foodservice industry. Courses
include Food Science and Technology, Food History and Anthropology, Baking and
Pastry, Skill Development, Garde Manger, Hospitality Management, Production
Kitchens, Wine Appreciation and other related subjects. In these courses
students learn how to prepare breads, pastries, desserts, appetizers, soups,
sauces, vegetables, salads, sandwiches, hors d'oeuvres, cold buffets, and
entrees. They also learn to identify, fabricate and portion meats, poultry and
fish. The professional kitchen management courses include such topics as
sanitation, hygiene, safety procedures, cost control, human resource management
and styles of table service.
Integral to the coursework is experience operating the Academy's two restaurants
and participating in an externship. See "-Restaurants, Retail and Media." In
connection with the Academy's restaurant operations, students rotate through
kitchen stations in order to gain proficiency in various skills needed to
perform at professional standards in a commercial kitchen, and serve the general
public clientele in both sit-down and buffet-style settings. The AOS Program
provides a sequential course of study culminating in a three-month off-site
externship where students gain actual experience working under a highly
qualified professional chef.
As of September 1, 1997, tuition and fees for the AOS Program total
approximately $27,000 for the full 18-month course of study. This fee includes
textbooks, uniforms, knife kits, the cost of food used in the classrooms and one
meal per day, in addition to the cost of course instruction. Tuition is payable
in installments during the two academic terms. Financial assistance is
available to eligible students. See "-Government Financial Aid Programs and
Regulation."
BAKING & PASTRY CERTIFICATE PROGRAM
The Baking & Pastry Certificate Program (the "B&P Certificate") is designed for
those students interested in professional baking. The program provides 30 weeks
of comprehensive study, with an emphasis on the hands-on application of
fundamental techniques and ingredients. The program is divided into four
modules, including (i) breads and doughs, (ii) cakes, (iii) service pastry and
desserts, and (iv) chocolate, confectionery and showpieces. In addition, the
curriculum includes professional development courses on safety and sanitation,
nutrition and human resource management. Although not included as a required
part of the curriculum, externships are available. Enrollment periods begin
approximately every five weeks and each session can accommodate up to 25
students.
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As of September 1, 1997, tuition and fees for the B&P Certificate total
approximately $11,000 for the full 30-week course of study. This fee includes
textbooks, uniforms, knife kits, cost of food, one meal per day and supplies.
Deferred payment plans and financial assistance are available to eligible
students. See "-Government Financial Aide Programs and Regulation."
BASIC PROFESSIONAL CULINARY SKILLS PROGRAM
The Academy has applied to the California Council for Private Postsecondary and
Vocational Education ("CPPVE") for certification of its 12-credit course of
study offered at the College of Food. A decision on this certification
application is expected in early 1998. The Academy believes that its College of
Food Basic Skills Program will receive the certification being sought; however,
there can be no assurance that the College of Food Basic Skills Program will be
approved by CPPVE in its current configuration or at all.
The College of Food Basic Skills Program requires completion of 352 hours of
study for 12 credits as follows: 32 hours of Safety and Sanitation; 128 hours of
Kitchen Skills; 64 hours of Basic Baking skills; 64 hours of Garde Manger; 32
hours in Breakfast Cookery, and 32 hours of Current Topics in Mid-Scale Dining.
Credits from the College of Food Basic Skills Program can be applied toward
earning an AOS degree or a B&P Certificate through the Academy's core programs
at the main campus.
As of September 1, 1997, tuition and fees for the Certificate of Basic
Professional Culinary Skills Program is $3,465.
NON-DEGREE OR CERTIFICATE PROGRAMS
In addition to its educational programs leading to the AOS Degree in Culinary
Arts, the B&P Certificate, and the College of Food Certificate of Basic
Professional Culinary Skills (upon approval by CPPVE), the Academy offers
non-degree continuing education courses for professionals and serious amateurs
as well as other courses of interest to anyone who likes to cook. The
professional non-degree continuing education programs address traditional
kitchen skills with emphasis on palate development, cooking techniques, and
sauces.
The courses generally are offered on consecutive weekends, and cover a variety
of subjects. Currently the Academy offers a series of eight-week culinary
courses, a 14 week baking and pastry series. Fees for the non-degree
professional programs range from $1,100 to $1,775.
Completed coursework can be applied toward earning an AOS degree or a B&P
Certificate.
EDUCATIONAL SERVICES
JOB PLACEMENT FOR PROFESSIONAL PROGRAM STUDENTS AND GRADUATES. The Academy's
Career Services staff assists currently enrolled students and graduates in
obtaining positions in the food industry in a number of ways. The Career
Services Office houses reference material containing current job openings
that include entry level through advanced positions throughout the United
States and foreign countries. For students and graduates who are unable to
access the current job openings on campus, these job openings are also
recorded on the Job Hotline, a telephone announcement that is updated weekly.
Twice per year during the Academy's Spring and Fall Recruitment Weekend, the
Career Services staff coordinates a Career Fair featuring representatives
from all areas of the food industry seeking to hire students and graduates of
the Academy. The Career Services staff also coordinates interview schedules
for companies recruiting students and graduates directly from the Academy
during the Recruitment Weekend. In addition, individual counseling sessions,
resume assistance and other career development materials are available
through the Career Services Office. While the Academy does not guarantee
employment or specific positions upon graduation, it believes its name,
reputation, and high job placement rate are factors that attract students to
its professional programs.
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Students interested in part-time or full-time jobs while they are enrolled at
the Academy can contact the Career Services Office. The Academy provides
students with names of prospective employers seeking catering staff or other
part-time and full-time assistance. Additionally, the Academy itself offers
part-time employment. For example, the Academy's Food and Beverage Department
hires students to assist with special functions and events, such as private
parties and corporate events held in its restaurants. The Academy also offers
federal work-study opportunities.
ALUMNI RELATIONS. The California Culinary Academy alumni relations and career
services personnel are available to refer graduates to other alumni, answer
questions, provide programs, activities and professional opportunities.
RECRUITMENT AND ADMISSIONS. Students are recruited both domestically and
internationally. Statistics compiled in August 1997 show that as of June 30,
1997 approximately 80% of the full-time students enrolled in the Academy's AOS
or B&P Certificate programs are from Northern California. Applications for
admission to the professional programs are reviewed by the Academy's admissions
staff. In considering an applicant for admission to the AOS or B&P Certificate
programs, the admissions staff first determines whether an applicant meets
certain minimum prerequisites, including: (I) demonstrated motivation towards a
career in the culinary arts; (II) graduation from high school with at least a
2.0 grade point average or passage of an approved high school equivalency
examination; and (III) for those whose native language is other than English,
passage of the TOEFL test of English as a Foreign Language with a score of at
least 550 out of a total of 665. Experience in the food industry is viewed
favorably by the admissions staff but is not considered a prerequisite for
admission to any of the Academy's programs. Applicants to the Academy's College
of Food programs are required to have a high school diploma or to have passed an
approved high school equivalency examination. In lieu of this requirement, an
applicant must pass an entrance examination and may be required to be
interviewed by the chef instructor.
The Academy has articulation agreements with 18 regional junior colleges
allowing certain courses to be transferred to the Academy for credit. The
Academy believes this arrangement enables it to recruit more effectively from
junior colleges.
The Academy believes that an important recruiting tool is its media exposure. A
13-part series, COOKING AT THE ACADEMY, was developed and written by the Academy
and produced by the San Francisco public television station, KQED. This series
has been shown in its entirety since 1991 through the Public Broadcasting System
to the over 250 major media markets in the United States. In the spring of
1995, a new 26-episode series of COOKING AT THE ACADEMY began airing on public
television stations throughout the country. Additionally, the Academy is
featured in a syndicated radio talk show, FOOD FOR THOUGHT, airing in the
central California Monterey Bay area on KSCO radio, as well as DINING AROUND
WITH GENE BURNS on KGO radio in San Francisco. The Academy believes that such
widespread exposure has enhanced the Academy's name recognition, reputation and
new student recruitment efforts. See "-Restaurants Retail and Media."
On-site admissions representatives, who are full-time salaried employees, are
responsible for recruiting students at the Academy. These admissions
representatives consult with prospective students who are referred by alumni,
respond to the Academy's advertising or are otherwise motivated to contact the
school.
EDUCATIONAL PROGRAM DEVELOPMENT. The Academy's ability to attract new students
and place graduating students depends to a significant extent on its ability to
offer educational and training programs that provide students with skills sought
after in the food industry. Given the continual changes in professional cooking
and professional baking, the Academy believes it is critical that the most
current methods are taught. The Academy's Educational Program Committee
(consisting of members of the Academy's faculty, administration, and focus
groups from the food industry), attempts to respond quickly to both the culinary
and business needs of the food industry. Recent enhancements to the AOS
curriculum address profiling the culinary arts program toward the global cuisine
of today's industry. Coursework in areas such as Foods of the Americas, Asian
Cuisine and a
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computer software course in food industry applications respond directly to
existing and current demands placed upon the Academy's students upon graduation.
EDUCATION-OPERATIONS DEPARTMENT. The Education-Operations Department is
responsible for the quality and delivery of the education process, including
direct responsibility for curriculum content and sequencing, chef instructor
training and development and teaching and evaluation methods. The Director of
Education-Operations is assisted by the heads of each educational area - Basic
Skills, Culinary Production, Baking and Pastry and Related Subjects, each of
whom serves as an instructor in the AOS degree or B&P Certificate programs. In
addition, the Department develops, monitors, and updates the educational
programs offered at the Academy.
STUDENT RETENTION. The Academy continually focuses significant efforts on
maintaining high retention rates for students. For the fiscal years ended June
30, 1997 and 1996, approximately 82% of the then enrolled students successfully
completed the AOS Culinary Arts Degree Program on schedule. An additional 5%
graduated at a later date. However, as is the case at most institutions of
higher education, some of the Academy's students end their studies early for
personal, financial or academic reasons. The Academy faculty maintain weekly
office hours to provide academic assistance and to advise students. The Academy
faculty and administration are also available to provide support and referrals
to students experiencing personal difficulties.
RESTAURANTS, RETAIL AND MEDIA
RESTAURANTS. The Academy operates two public restaurants at its San Francisco
campus: the Careme Room, a fine dining restaurant with seating for approximately
325 diners, and the mid-scale Grill, with seating for approximately 125 diners.
The restaurants are open to the public seven days per week for lunch and dinner,
excluding school holidays. The restaurants are staffed by students under
faculty supervision and serve as an important teaching environment since they
provide "hands-on" experience in restaurant food preparation, service and
management. In addition, the restaurants provide an additional source of
revenue. (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations)." As a part of the AOS Program, the Academy's students
are instructed in dining room service styles, as well as professional cooking
and food and beverage management.
RETAIL. The Academy operates a small retail shop at its San Francisco campus.
The retail shop, which services students, staff and the public, is open five
days per week, offering drinks and a limited deli selection. In addition, the
shop offers various clothing items bearing the Academy name and logo, cookbooks,
videotapes of the two COOKING AT THE ACADEMY series, knife kits bearing the
Academy logo and trademark and other selected cooking tools.
MEDIA. The Academy has a multi-year agreement with Simon & Schuster to author
and publish four cookbooks. Presently manuscripts have been submitted and
accepted for one book. Publication of the first of the series, WRAPS, is
scheduled for February 1998. The agreement provides for the Academy to earn
fees for the delivery of acceptable outlines and completed manuscripts to the
publisher, in addition to royalties ranging from 6% to 10% on the sale of
published works.
The Academy developed and wrote the 13-part television series, COOKING AT THE
ACADEMY, produced in 1991 by San Francisco public television station KQED, which
features cooking instruction on specific topics by the Academy's chef
instructors or former chef instructors. Over 135,000 copies of the accompanying
cookbook, COOKING AT THE ACADEMY, have been distributed under various
distribution agreements. In addition, a series entitled "California Culinary
Academy Cookbooks," which includes 30 titles, has sold over two million copies
since 1985.
In 1995, 26 new episodes of COOKING AT THE ACADEMY began airing on public
television stations throughout the country. Over 85,000 copies of the
accompanying cookbook, FESTIVE FAVORITES, have been distributed under various
distribution agreements.
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The Academy hosts a radio talk show, FOOD FOR THOUGHT, airing in the Monterey
Bay area on KSCO radio as well as DINING AROUND WITH GENE BURNS on KGO radio in
San Francisco.
The Academy maintains a home page on the Internet at "www.baychef.com" as a
promotion and marketing tool to attract new students. The Academy's website
provides information on the Academy's educational programs and personnel,
programs costs, admissions procedures and forms and allows interested parties to
communicate with the Academy via e-mail and to order selected merchandise from
the Academy's retail store.
ACCREDITATION OF THE ACADEMY AND ITS PROFESSIONAL PROGRAMS
Accreditation is a process for evaluating educational institutions and their
professional programs. Such evaluation process recognizes the quality of
educational program offerings and entitles the schools to the confidence of the
educational community, federal and state government agencies and the public at
large.
In the United States, this accreditation is given primarily through
non-government, voluntary, institutional or professional associations. Those
groups establish criteria for accreditation, arrange site visits and evaluate
institutions and professional programs that desire accredited status, publicly
designating those that meet their criteria. Accredited schools are subject to
periodic review by accrediting bodies to ensure that the schools maintain the
level of program performance, content and teaching and administrative quality
required by the accrediting body.
The Academy is recognized in its postsecondary educational programs by the U.S.
Department of Education ("DOE") and by the California Council for Private
Postsecondary and Vocational Education ("CPPVE"). The Academy is accredited by
the American Culinary Federation Educational Institute Accrediting Commission
("ACFEI") and by the Accrediting Commission for Career Schools/Colleges of
Technology ("ACCSCT").
The Academy is approved by CPPVE to grant to its students who successfully
complete the full-time Culinary Arts Degree program an Associate of Occupational
Studies ("AOS") degree in Culinary Arts and a Certificate in Baking and Pastry
Arts for those students completing the full-time Baking & Pastry program.
Approval from CPPVE is renewed periodically in accordance with the provisions of
the California Education Code.
The Academy has applied for a Certificate of Basic Professional Culinary Skills
for those students completing the Basic Professional Culinary Skills program in
the College of Food from CPPVE.
The Academy's courses of instruction for the AOS and Baking & Pastry Certificate
programs are approved for veterans training by the federal Department of
Veterans Affairs under the GI Bill of Rights and the Veterans Education
Assistance Programs ("VEAP") and for foreign students under the rules and
regulations of the Immigration and Naturalization Service ("INS").
GOVERNMENT FINANCIAL AID PROGRAMS AND REGULATION
The Academy's students finance their education, in whole or part, through
individual resources, with approximately 64% of students receiving some form of
financial aid assistance. Approximately 37% of the Academy's fiscal 1997
educational program revenues were derived from federal and/or state
government-sponsored financial aid. On the basis of financial information
provided by the student and/or the student's family, the Academy develops an
assistance package for students who are eligible for financial aid. To maintain
financial assistance eligibility, students must demonstrate satisfactory
academic progress.
Extensive and complex regulations govern all of the government grant and loan
programs in which the Academy and its students participate. These programs are
required to be administered in accordance with the standard of care and
diligence of a fiduciary and are subject to annual audits. All of the Academy's
financial aid counselors and the Director of Financial Aid are certified by the
State of California. Any regulatory violation could be the
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basis for suspension, limitation, or termination proceedings. No suspension,
limitation, or termination proceedings have ever been instituted against the
Academy.
In July 1995, the Academy was recertified by the DOE that it is eligible to
continue to participate in the federal financial aid programs under Title IV of
the Higher Education Act ("HEA") through July 31, 1999.
An institution is required to meet certain specified financial standards in
order to participate in Title IV financial aid programs administered by the
DOE. Failure of an institution to adhere to those standards may result in the
DOE requiring that institution to post a letter of credit or other surety to
ensure that the institution is able to fulfill its educational commitments to
its students and pay required refunds upon withdrawal. Management believes
that the Academy can demonstrate financial responsibility in accordance with
the standards set forth by the DOE.
The Academy devotes significant effort to properly and satisfactorily
administering the financial aid programs in accordance with applicable
government regulations and responsibilities. The Academy has established an
internal review committee charged with ongoing compliance reviews to identify
problems, to take expeditious corrective action and to implement any and all
mandated changes in regulations affecting these programs on a timely basis.
In addition, the Academy has: (i) developed job descriptions that the Academy
believes comply with Federal Work Study ("FWS") employment at for-profit
postsecondary institutions; (ii) adopted internal written procedures to
ensure compliance with Title IV restrictions; and (iii) established and
maintains general ledger control accounts and related subsidiary accounts to
assist in the accurate and timely reporting of information to the DOE and
other interested parties.
The following is a list of government financial aid programs in which the
Academy's students participate:
Federal PELL Grant
Federal Supplemental Educational Opportunity Grant ("SEOG")
Federal Stafford Loan Program (subsidized)
Federal Stafford Loan Program (unsubsidized)
Federal Perkins Direct Student Loan Programs ("Perkins")
Federal Parent Loans for Undergraduate Students ("PLUS")
Federal Work Study ("FWS")
California State Grants A, B and C
The Academy is also approved to train veterans and, therefore, students may
be eligible to receive benefits from the Veterans Administration.
The Academy's continued eligibility to participate in Title IV student
financial aid loan programs is dependent, in part, on maintaining an
acceptable "cohort" default rate. The cohort default rate is defined as the
default rate of all federal financial aid loan programs, other than the
Perkins program. The Perkins program default rate is calculated separately
and is the smallest of the Academy's federally funded financial aid loan
programs.
Any institution that has a cohort default rate of 25% or greater for three
consecutive years will not be eligible to participate in certain Title IV
student financial aid loan programs for approximately three years. The
Academy's cohort default rate for the two-year period ending September 30,
1996 was 12.9%.
Approximately 37% of educational program revenues during fiscal 1997 were
provided by federal and/or state government-sponsored financial aid programs,
a substantial portion of which were derived from various student loan
programs. Participating students make loan application to one of several
federally approved financial institutions. The ability of private financial
institutions to originate loans to the Academy's students is critical to the
Academy's business.
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Grants are funds made available to eligible students by the government and do
not have to be repaid. The Academy is eligible to participate in federal
PELL Grant and SEOG programs. Both are federal programs for undergraduates
at postsecondary schools in the United States who have demonstrated
sufficient financial need.
All government-subsidized financial assistance programs for students are
subject to political and budgetary consideration outside the control of the
Academy. No assurance can be given that governmental programs that are
currently providing financial assistance and subsidies to students attending
the Academy's education programs will remain available at present levels. A
reduction or curtailment of funding levels, or other unanticipated changes in
federal assistance program participation requirements, would result in lower
enrollments and adversely impact the Academy's business.
COMPETITION
The Academy is one of the largest professional chef training schools in the
United States, according to enrollment statistics in the 1996 SHAW GUIDE.
However, the market for professional training of chefs is fragmented and
regionally oriented. According to the American Culinary Federation
Educational Institute, there are approximately 500 postsecondary culinary
programs offered worldwide. These programs range from simple food programs
offered by vocational training schools to fully accredited four-year programs.
As of June 30, 1997, admissions statistics show that approximately 80% of the
Academy's students reside in Northern California. However, the Academy
believes that it competes in the professional chef training market with,
among others, the Culinary Institute of America, with its main campus in Hyde
Park, New York and Johnson & Wales University in Providence, Rhode Island
with campuses in Maryland, Colorado and Florida, founded in 1946 and 1914,
respectively, both of which are not-for-profit institutions. The Academy
believes that both of these institutions have secured significant financial
and equipment contributions to build new facilities and expand their
classrooms. The Academy's business will be subject to its ability to compete
effectively with the Culinary Institute of America and Johnson & Wales, as
well as other competitors now in, or which subsequently enter, the
professional chef training market.
The Academy believes that competition in the professional chef training
market is based primarily on the quality of an educational institution's
faculty and educational services, the job placement of graduates and the
quality of the academic facilities. The Academy believes that it competes
favorably on these criteria and, in addition, that it is recognized for its
quick reaction time to the industry's needs, and continued improvements in
the quality of its training programs. There is no assurance, however, that
the Academy will continue to be able to do so.
PROPRIETARY RIGHTS
The Academy has registered service marks consisting of the names "California
Culinary Academy" and "College of Food" along with the CCA stylized logo,
which are registered with the U.S. Patent and Trademark Office for various
uses. In addition, the names "California Culinary Academy" and "College of
Food" are tradenames of the Academy also registered with the U.S. Patent and
Trademark Office. Although the Academy's service marks are incontestable by
any party, no assurance can be given that such registrations are not
cancelable on grounds other than prior use. The Academy plans to defend its
marks in the event of unauthorized infringement. Such a defense would be
time consuming and expensive, regardless of the outcome. Failure or
inability to defend its marks could adversely impact the Academy's reputation
and results of operations. Generally, a trademark is protected from
infringement for a period of ten years, with renewal granted for an
additional ten-year period. In 1989, the Academy renewed the registration
for its "California Culinary Academy" trademark and tradename.
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FACULTY AND EMPLOYEES
The Academy employed 153 persons at September 22, 1997, of which 20 were
part-time. Those employees included the Chief Executive Officer, President,
and Chief Financial Officer, 92 members of the administrative and operational
staff and 38 chef instructors and adjunct faculty.
RISK FACTORS
In addition to various risks discussed throughout this report, the following
risk factors might cause the Academy's financial results to differ materially
from the results projected.
REGULATORY ISSUES. The Academy is subject to extensive regulation by state,
federal and accrediting agencies. A substantial portion of the Academy's
revenues are derived in connection with federal financial aid programs. Any
failure to observe the various regulatory standards would have a material
adverse effect on the business of the Academy. While the Academy believes
that it can demonstrate financial responsibility in accordance with the
standards set forth by the DOE, there can be no assurance that it will
continue to be in compliance in the future.
COMPETITION. The market for post-secondary culinary education is highly
competitive and fragmented. Other schools may offer similar programs, and
may do so at lower rates due to government subsidies and tax-deductible
contributions not available to for-profit institutions. The Academy believes
that its programs compete favorably with other institutions providing
culinary arts education: however, there can be no assurance that it will
continue to stay in compliance or that the regulation will not materially
change making it more difficult or impossible for the Academy to comply.
CHANGE OF CONTROL. The Academy would be ineligible to participate in Title
IV financial aid programs in the event there were a "significant" change of
ownership or control. In the event of such a change, the Academy would be
required to apply for recertification, a process that could take several
months. Given that most of the Academy's Common Stock is publicly traded or
available for public sale, there can be no assurance that such a change of
control may not occur.
ITEM 2. PROPERTY
The Academy leases approximately 67,000 square feet of space at 625 Polk
Street in San Francisco, California, an historic building. The monthly
rental obligation is approximately $98,000, with a declining payment schedule
over time. The Academy is also responsible for payment of its pro rata share
of all leasehold expenses including insurance, taxes, utilities and
maintenance, which were approximately $12,000 per month during fiscal year
1997. The lease term extends until March 31, 2013, with three five-year
renewal options thereafter.
Academic facilities at the main campus at 625 Polk Street include lecture
classrooms and 14 kitchens for practical training, including four baking and
pastry kitchens, a confiserie, two garde manger kitchens, a seafood butchery,
a meat butchery, three professional production kitchens, a demonstration
kitchen and a skill development lab. Table service classroom facilities
include two full service, student-run public restaurants, which seat more
than 700 customers for lunch and dinner seven days a week. Other facilities
include a retail shop for the sale of culinary art supplies and student
prepared food products from the garde manger, pastry shop, bakery and
confiserie. The Academy also has a library and offices for administrative,
admissions, financial aid, educational services, faculty and consumer
education.
In February 1994, the Academy entered into a two-year lease for approximately
1,500 square feet at 700 Polk Street in San Francisco, which it uses for
certain of its educational programs. Rental payments on this location are
approximately $2,700 per month. The lease expires in February 1998.
10
<PAGE>
In July 1996, the Academy entered into a five-year lease for approximately
4,000 square feet in the city of Salinas, California for use as a culinary
arts training center, the prototype College of Food. The lessor is a
partnership whose partners include the Chairman of the Board of Directors and
certain shareholders in the Academy. Independent members of the Board of
Directors approved the lease. Management believes that these lease terms are
no less favorable than those that the Academy may have negotiated with an
independent landlord. The monthly rent for the facility is the greater of
approximately $3,900 or 8% of gross sales, plus a share of common area and
exterior maintenance charges that approximate $1,000 per month.
In August 1997, the Academy entered into a master lease of a 68-room hotel in
San Francisco, approximately one block from the main campus, to provide
student housing. The monthly rental obligation is approximately $28,000.
The Academy is also responsible for payment of its pro rata share of
insurance and real property taxes, which were approximately $1,500 per month
during September 1997. The lease term extends until August 31, 2012, with
three five-year renewal options thereafter.
In October 1997, the Academy purchased for approximately $1,900,000 a hotel
building in San Francisco, across the street from its main campus, which it
intends to use for student housing. It secured long-term financing of
$1,200,000 to fund this purchase. No substantial renovation is required or
contemplated.
Academy management estimates that its current facilities can accommodate
approximately 1,230 students which the Academy believes is sufficient for its
foreseeable needs. Once full enrollment in these facilities is achieved, the
Academy believes additional facilities can be located.
ITEM 3. LEGAL PROCEEDINGS
The Academy is subject to routine claims and litigation arising out of the
normal conduct of its business. While the outcomes cannot be predicted with
certainty, the Academy believes that such the resolution of such matters will
not have a material effect on the Academy's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Academy's Common Stock traded in the over-the-counter market and is
quoted on the Nasdaq National Market under the symbol "COOK." The following
table sets forth the high and low closing sale prices for the Common Stock as
reported on the Nasdaq National Market for the periods indicated:
HIGH LOW
---- ---
Fiscal Year Ended June 30, 1996:
--------------------------------
Quarter Ended September 30, 1995 $7.625 $4.375
Quarter Ended December 31, 1995 $7.625 $6.500
Quarter Ended March 31, 1996 $7.375 $6.188
Quarter Ended June 30, 1996 $7.750 $6.500
Fiscal Year Ended June 30, 1997:
--------------------------------
Quarter Ended September 30, 1996 $8.500 $7.500
Quarter Ended December 31, 1996 $8.875 $8.000
Quarter Ended March 31, 1997 $8.687 $7.250
Quarter Ended June 30, 1997 $8.250 $7.000
11
<PAGE>
On September 24, 1997, the last reported sale price for the Common Stock was
$7.938 per share.
As of August 29, 1997, there were approximately 73 record holders of the
Academy's Common Stock.
The Academy has never paid cash dividends on its Common Stock. At present,
the Academy intends to retain any earnings for use in its business and does
not anticipate paying cash dividends in the foreseeable future except as may
be required to be paid on its Series A Preferred Stock. Beginning September
30, 1996, it was required to pay and has paid quarterly dividends on its
outstanding Series A Preferred Stock at the annual rate of $.4125 per share.
An aggregate of $125,313 in cash dividends was paid during the fiscal year
ended June 30, 1997, in addition to a distribution in Series A Preferred
Stock of 6,300 shares on such Preferred Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto located on pages 17 through 22.
The Academy's revenues are derived primarily from culinary arts education as
well as restaurant, retail and media operations. Culinary arts education
primarily consists of the AOS Program, the B&P Certificate program, the
College of Food Basic Professional Culinary Skills Program, and weekend
professional skills program offerings. The AOS Program enrolls students on a
two-week cycle. The program can accommodate up to 25 students per class. The
30-week B&P Program enrolls classes on a five week cycle typically ranging in
size from 15 to 20 students with five classes enrolled as of June 30, 1997.
The College of Food programs commenced October 14, 1996 at the Academy's
prototype facility in Salinas, California. As of September 30, 1997,
approximately 45 students are enrolled in the Basic Professional Culinary
Skills program in Salinas. The College of Food enrolls students every three
to four weeks. Weekend professional programs are currently offered every
eight or fourteen weeks. As of September 30, 1997, the Academy has 44
students enrolled in various weekend professional programs.
Consumer education consists of programs oriented to a part-time audience.
The course length and content address the interests of food industry
professionals, home cooks and career changers. These courses include single
topic classes and various three or four class series current topics and basic
skills.
Restaurant and retail operations include two restaurants and a private dining
room which is generally open to the public seven days per week, banquet
services generally offered seven days per week and a small on-site retail
shop offering student-prepared foods, beverages, cookbooks, video tapes,
kitchen wares and selected clothing. Media operations primarily consist of
the marketing of the COOKING AT THE ACADEMY television series and cookbook
royalties. Certain expenses such as food costs and costs of goods sold
related to both educational services and retail restaurant operations.
Revenues from the Academy's AOS Program and the B&P Program rely exclusively
on enrollments in those programs. Tuition is initially recorded as deferred
revenue at the commencement of each enrollment period and recognized over the
length of program as students complete course work required for graduation.
The Academy believes that manageable growth is achievable through the
addition of extension campuses offering selected courses from the AOS Program
at training facilities such as its College of Food at Salinas, California and
by the addition of contract training programs offered to the food industry.
While management believes that this strategy will enable it to significantly
increase revenues by providing additional educational and training resources
to the food industry, there can be no assurance that management will be able
to successfully implement such a strategy.
Except for historical information contained herein, this report contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
12
<PAGE>
The forward-looking statements contained herein are based upon current
expectations, and actual results may differ materially. Forward-looking
statements contained in this Report involve numerous risks and uncertainties,
including those discussed in this Report, that could cause actual results to
differ materially from those projected. Investors are cautioned not to place
undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Academy undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. See "Business - Risk Factors."
RESULTS OF OPERATIONS
The Academy earned net income of $160,000 for the 1997 fiscal year, or $0.04
per share, compared to a net loss of $999,000, or $(0.32) per share for the
prior year.
Total revenues increased 3.1% for the fiscal year ended June 30, 1997
("Fiscal 1997") to $15,339,000 from $14,882,000 for the prior year. Total
revenues from culinary arts education for Fiscal 1997 were $12,682,000
compared to $12,178,000 for the prior year, an increase of 4.1
Total student count as of June 30, 1997 increased 10.1% to 599 students in
the AOS, B&P and College of Food programs compared to 544 for the prior year.
The increase is primarily attributable to the introduction of the College of
Food programs as well as changes in the frequency of class starts for the AOS
program.
Restaurant, retail, media and other sales were $2,657,000, or 17.3% of total
revenues, during the fiscal year ended June 30, 1997, compared to $2,704,000,
or 18.2% of total revenues for the prior year. Prior year's revenue
reflected a one-time royalty of $150,000 for the use of the Academy's
trademark, logo and certain content in computer CD-ROM software products.
Operating expenses were $11,875,000 or 77.4% of revenues for the fiscal year
ended June 30, 1997, compared to $12,376,000, or 83.2% of revenues, for the
prior year. The decrease was primarily attributable to reduced expenditures
for compensation, advertising, outside services, rent, security, business
taxes, repairs and maintenance and bad debts offset partially by increased
legal expenses and depreciation expenses on capital improvements.
Food and beverage costs were $1,744,000, or 11.4% of revenues for the year
for the fiscal year ended June 30, 1997, compared to $1,692,000, or 11.4% of
revenues, for the prior year. The increase was primarily attributable to
increased food and beverage sales.
For Fiscal 1997, interest income, net of interest expense, was $52,000, or
0.3% of revenues, compared to interest expense, net of interest income, of
$81,000, or 0.5% of revenues, for the prior year. The decrease in net expense
was attributable to lower borrowing levels.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Academy has financed its long-term growth from the issuance
of debt and equity securities in private and public transactions, borrowings
from related parties, lease and debt financing obligations and through cash
flow provided by operations.
At June 30, 1997, the Academy's principal sources of liquidity included cash
and cash equivalents of $2,308,000 and net accounts receivable of $2,847,000.
At June 30, 1997, the Academy had working capital of $951,000. During Fiscal
1997, the Academy generated $448,000 in positive cash flow from operations.
13
<PAGE>
Subsequent to year-end, the Academy purchased a building in San Francisco,
which it intends to use for student housing, for approximately $1,900,000,
including closing costs. It secured long-term financing of approximately
$1,200,000 to fund this purchase. See "Properties."
ITEM 7. FINANCIAL STATEMENTS
The Balance Sheet of the Academy at June 30, 1997, and the related Statements
of Operations, Shareholders' Equity and Cash Flows for the years ended June
30, 1997 and 1996, and notes to the financial statements are located on pages
15 through 29.
Form 10-KSB Page
----------------
Report of Independent Public Accountants
Deloitte & Touche, LLP 15
Balance Sheets at June 30, 1997 and 1996 16
Statements of Operations for the years ended
June 30, 1997 and 1996 17
Statements of Shareholders' Equity for the years
ended June 30, 1997 and 1996 18
Statement of Cash Flows for the years ended
June 30, 1997 and 1996 19
Notes to Financial Statements 20
14
<PAGE>
DELOITTE & TOUCHE OPINION
[Letterhead]
Board of Directors and Shareholders
California Culinary Academy, Inc.:
We have audited the accompanying balance sheets of the California Culinary
Academy, Inc. (the "Academy") as of June 30, 1997 and 1996 and the related
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of Academy's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Academy at June 30, 1997 and 1996, and
the results of operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
September 15, 1997 (October 3, 1997 as to Note 12)
15
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,308 $3,283
Accounts receivable, net of allowance of $360 and $280 2,847 2,786
Inventories 341 208
Prepaid expenses and other assets 343 160
Deferred tax asset 188 145
--------- ---------
Total Current Assets 6,027 6,582
--------- ---------
Property and equipment, net of depreciation and amortization 4,965 4,117
Intangible assets, net 419 546
Long-term investments - restricted 646
Other assets 215 967
--------- ---------
TOTAL ASSETS $11,626 $12,858
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $680 $749
Accrued liabilities 508 477
Deferred revenue 3,212 3,795
Student prepayments 356 258
Current portion of term loans 50 292
Current portion of capital lease obligations 67 76
Other current liabilities 88
--------- ---------
Total Current Liabilities 4,961 5,647
--------- ---------
Note payable to bank 500
Capital lease obligations 148 215
Other non-current liabilities 441
Subordinated convertible notes payable 1,400
Shareholders' Equity:
Convertible Preferred stock, no par value, 5,000,000 shares
authorized, 254,500 issued and outstanding; liquidation
preference $5.50 per share 953
Common stock, no par value, 20,000,000 shares authorized,
3,393,900 issued and outstanding 9,649 8,741
Retained deficit (4,085) (4,086)
--------- ---------
Total Shareholders' Equity 6,517 4,655
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,626 $12,858
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE AMOUNTS)
Year Ended June 30,
----------------------
1997 1996
---------- ----------
Revenues:
Culinary arts education $12,682 $12,178
Restaurants & catering 2,299 1,965
Retail, media and other 358 739
---------- ----------
Total revenues 15,339 14,882
Cost of sales
Food & beverage 1,744 1,692
Program supplies 791 614
Scholarships & grants 216 215
Merchandise & other 498 544
---------- ----------
3,249 3,065
---------- ----------
Gross Margin 12,090 11,817
Operating expenses
Occupancy 1,725 1,744
Repairs & maintenance 393 434
Telephone, security & other 388 442
Depreciation & amortization 1,157 991
Compensation & benefits 5,844 5,986
Outside services 515 784
Advertising & promotion 573 666
Legal & other 1,280 1,329
---------- ----------
11,875 12,376
Severance and other (359)
Interest income (expense) 52 (81)
---------- ----------
Income (loss) before provision for income taxes 267 (999)
Income tax provision (benefit) 107
---------- ----------
Net income (loss) $160 $(999)
---------- ----------
---------- ----------
Net income (loss) per share $0.04 $(0.32)
---------- ----------
---------- ----------
Weighted average common shares and equivalents 3,656,601 3,114,732
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ------------------------- Retained
Shares Amount Shares Amount Deficit Total
---------- ---------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $0 3,095,600 $8,281 ($3,087) $5,194
Exercise of Stock Options 87,500 447 447
Stock issued in exchange for services 3,000 13 13
Net loss for the year (999) (999)
---------- ---------- ------------- ----------- ------------ -----------
Balance at June 30, 1996 0 0 3,186,100 8,741 (4,086) 4,655
---------- ---------- ------------- ----------- ------------ -----------
Issuance of Preferred Stock 254,500 953 953
Exercise of Stock Options & Warrants
(net of tax benefit) 325,300 1,665 1,665
Repurchase of Common Stock (117,500) (757) (757)
Preferred Stock Dividend Declared (159) (159)
Net income for the year 160 160
0
---------- ---------- ------------- ----------- ------------ -----------
Balance at June 30, 1997 254,500 $953 3,393,900 $9,649 ($4,085) $6,517
---------- ---------- ------------- ----------- ------------ -----------
---------- ---------- ------------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $160 $(999)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,157 991
Tax provision 107
Provision for losses on accounts receivable 80 275
Accrued liabilities and accounts payable 13
Gain on disposal of property 2
Deferred rent (27)
Changes in assets and liabilities:
Accounts receivable (122) 522
Inventories (133) 50
Prepaid expenses and other assets (234) (244)
Accounts payable (69) (52)
Deferred revenues (583) (563)
Accrued and other liabilities 110 44
Other non-current liabilities (19)
---------- -----------
Net cash provided by operating activities 448 18
---------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (1,877) (464)
(Increase) decrease in long-term investments 646 (646)
---------- -----------
Net cash used in investing activities (1,231) (1,110)
---------- -----------
Cash flows from financing activities:
Borrowings under term loan agreement 500
Borrowings under Convertible Note 1,400
Principal payments on term loan agreements (742) (250)
Principal payments on capital lease obligations (76) (81)
Proceeds from exercise of stock options and warrants 1,480 447
Repurchase of common stock (757)
Payment of Preferred Stock dividends (63)
Cost of Offering - Preferred Stock (34)
---------- -----------
Net cash provided by (used in) financing activities (192) 2,016
---------- -----------
Net increase (decrease) in cash and cash equivalents (975) 924
Cash and cash equivalents, beginning of period 3,283 2,359
---------- -----------
Cash and cash equivalents, end of period $2,308 $3,283
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
CALIFORNIA CULINARY ACADEMY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 -- THE COMPANY
The California Culinary Academy, Inc. (the "Academy") was founded in 1977 and
operates a professional school for chef training that stresses the
fundamental techniques of modern classical cooking and baking. The
operations of the Academy include an Associate of Occupational Studies
("AOS") Degree Program in Culinary Arts, a Certificate Program in Baking and
Pastry Arts, weekend and short-course professional and vocational cooking
classes, two public restaurants and a retail shop located in San Francisco.
The Academy is accredited by the Accrediting Commission of Career Schools and
Colleges of Technology of the Career College Association and the American
Culinary Federation Educational Institute's Accrediting Commission.
Enrollment revenues from the Academy's AOS Degree Program and the Baking and
Pastry Arts Certificate Program rely exclusively on enrollments in those
programs. Starting in June 1996, AOS classes started every two weeks,
allowing for more time slots, scheduling convenience and control over
enrollment.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS The Academy considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
INVENTORIES Inventories are stated at the lower of cost or market and consist
primarily of food and beverage. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years. Leasehold
improvements are amortized using the straight-line method over the remaining
term of the lease or the useful life of the improvements, whichever is
shorter.
Property and equipment consists of the following (dollars in thousands):
Year Ended June 30,
----------------------
1997 1996
---------- -----------
Kitchen equipment $1,817 $ 1,663
Furniture, fixtures and equipment 3,542 2,543
Construction-in-progress 20 30
Leasehold improvements 4,485 3,777
---------- -----------
9,864 8,013
Less accumulated depreciation and
amortization (4,899) (3,896)
---------- -----------
$4,965 $ 4,117
---------- -----------
---------- -----------
20
<PAGE>
INTANGIBLE ASSETS
Intangible assets are stated at cost and consist primarily of the excess of
the purchase price over the net tangible assets acquired in the original
purchase of the Academy. Intangible assets consist of the following
(dollars in thousands):
Year Ended June 30,
----------------------
1997 1996
---------- -----------
Favorable lease rights $1,476 $ 1,476
Goodwill 249 249
Other 4
---------- -----------
1,729 1,725
Less accumulated amortization (1,310) (1,179)
---------- -----------
$419 546
---------- -----------
---------- -----------
Amortization is computed using the straight-line method over the estimated
useful lives of the respective assets. The estimated useful lives used in
computing amortization are: favorable lease rights - 15 years; goodwill - 20
years; and other -one-year.
LONG-TERM INVESTMENTS
Long-term investments represent certificates of deposit, which were pledged
as collateral for long-term bank debt.
REVENUE RECOGNITION
Tuition is initially recorded as deferred revenue at the commencement of each
enrollment period and is recognized as revenue over the length of program as
students complete course work required for graduation. Revenue on
restaurant, retail and media sales is recognized at the time services are
performed or goods are sold.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of shares
outstanding during each of the respective periods, including the dilutive
effect of stock options, warrants and convertible preferred stock using the
treasury stock method.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Academy to concentrations
of credit risk consist of cash, short-term cash investments, such as money
market investments, and accounts receivable. The Academy invests
substantially all of its excess cash funds in money market funds through
high-quality financial institutions and grants credit to its students. The
Academy believes that the investment risks associated with money market funds
are minimal due to the high quality of the financial institutions through
which the investments are made. The Academy believes the credit risk
associated with its student accounts receivable is minimal as the majority of
students receive some type of financial aid paid directly to the Academy. To
reduce credit risk, the Academy performs ongoing evaluations of its students'
financial condition and assists qualified students in obtaining student
financial aid.
21
<PAGE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash paid for (dollars in thousands):
Year Ended June 30,
----------------------
1997 1996
---------- ----------
Interest $89 $66
Income taxes 17 0
Supplemental disclosure of non-cash investing and financing activities:
The Academy issued 254,500 shares of Series A Preferred Stock upon conversion
of $1,400,000 of Convertible Subordinated Debt during the year ended June 30,
1997.
The Academy issued a promissory note of approximately $157,000 for the
repurchase of Common Stock for the year ended June 30, 1997.
The Academy entered into a $190,000 capital lease obligation for office
equipment for the year ended June 30, 1996.
NEW PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE. The Academy
is required to adopt SFAS No. 128 in the second quarter of fiscal 1998 and
will restate earnings per share (EPS) data for prior periods to conform to
SFAS No. 128 at that time. Earlier application is not permitted.
SFAS No. 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average number of shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted in to common
stock.
Pro-forma amounts for basic and diluted EPS assuming SFAS No. 128 had been in
effect for the years ended June 30, 1997 and June 30, 1997, respectively are
as follows:
Year Ended June 30,
----------------------
1997 1996
---------- ----------
Basic earnings per share $0.00 ($0.33)
Diluted earnings per share $0.00 ($0.33)
STOCK-BASED COMPENSATION
The Academy accounts for stock-based awards to employees using the intrinsic
value method in accordance with ASPB No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE 3 -- BANK DEBT
As of June 30, 1997, the Academy had no outstanding loans with banks.
22
<PAGE>
As of June 30, 1996, the Academy had available a revolving line of
credit and term loan with a bank. The line of credit provided for borrowings
up to $500,000 with interest at the prime rate of the bank, and was were used
to finance working capital requirements. The term loan provided for
borrowings up to $750,000 with interest at 1% above the prime rate of the
bank. The line of credit and term loan were collateralized by certain fixed
assets of the Academy. The term loan was further collateralized by a
certificate of deposit. As of June 30, 1996, the Academy maintained a
certificate of deposit of $355,000 with the bank, of which $146,000 was
collateral for the term loan. As of June 30, 1996 there were no amounts
outstanding on the line of credit; and in September 1996, the Academy
canceled the line of credit. The term loan agreement with the bank contained
certain affirmative covenants that the Academy was required to maintain. As
of June 30, 1996, the Academy was in violation of certain covenants. The loan
was classified as current and was repaid on October 9, 1996.
In June 1996, the Academy obtained a term loan from a bank in the amount
of $500,000, the proceeds of which were used for working capital requirements
and provided for interest paid monthly at 1% above the bank's index rate for
90-day certificates of deposits. The line of credit was collateralized by a
certificate of deposit at the same bank in the amount of $500,000. The term
loan was repaid during fiscal 1997.
NOTE 4 -- CAPITAL LEASE OBLIGATIONS
The Academy leases computers, photocopiers and other equipment under various
capital lease agreements. Certain lease agreements include purchase options
and renewal provisions at the option of the Academy.
Future minimum lease payments at June 30, 1997 are as follows (dollars in
thousands):
Years Ending June 30, Amount
--------------------- ----------
1998 $84
1999 77
2000 56
2001 29
2002 and thereafter 0
----------
Total minimum lease payments 246
Less amount representing interest (31)
----------
Present value of minimum lease payments 215
Less current portion of capital lease obligations (67)
----------
Long term portion of capital lease obligations $148
----------
----------
NOTE 5 -- RELATED-PARTY TRANSACTIONS
In January 1995, the Academy entered into a month-to-month consulting
agreement with a principal shareholder and Chairman of the Board of Directors
to provide consulting services regarding investor relations and other
strategic services. The agreement provides for fees not to exceed $6,000 per
month. The Academy paid fees of $72,000 for the years ended June 30, 1996 and
1997 under this agreement.
In July 1996, the Academy entered into a five-year lease for an approximately
3,800 square foot facility in Salinas, California. The lease is with a
partnership whose partners include a member of the Board of Directors and
another shareholder of the Academy. The facility is an extension campus, which
opened in October 1996. The monthly rent for the facility is the greater of
$3,900 or 8% of gross sales plus a share of common area and exterior maintenance
charges. The Academy paid a lease acquisition fee of $150,000 upon execution of
the lease agreement. The lease acquisition fee will be amortized over the term
of the lease. The lease agreement includes a termination clause subject to
revenue performance at the extension campus during the first twelve months of
operations and a termination fee should the Academy invoke the termination
clause. This termination clause was not invoked.
In July 1992 and from time to time prior to August 1, 1991, the Chairman of the
Board and two other individuals who were then members of the Board of Directors,
all shareholders, made unsecured loans to the Academy. These loans were
evidenced by promissory notes and subsequently repaid. The loans carried
interest at then prevailing interest rates and called for warrants to be issued
that entitled the holders thereof to purchase an aggregate of 94 shares of the
Academy's then-existing Series A Preferred Stock. Warrants issued in
conjunction with these loans were converted, concurrently with the completion of
the Initial Public Offering in July 1993, into warrants to purchase 102,770
shares of common stock at an exercise price of $4.18 per share. In August 1996,
all warrants were exercised to purchase 102,770 shares of common stock.
In August 1992, the Academy issued warrants to a shareholder who is related to
the Chairman of the Board of Directors to purchase 20 shares of its
then-existing Series A preferred stock at $8,000 per share. These warrants were
converted, concurrently with the completion of the Initial Public Offering in
July 1993, into warrants to purchase 23,900 shares of common stock at an
exercise price of $4.18. In August 1996, all warrants were exercised to
purchase 23,900 shares of common stock.
In June 1996, the Academy issued 25,454 warrants with an exercise price of
$6.625 per share to the company serving as the selling agent of Convertible
Subordinated Notes ("Notes"). The Chairman and President of the selling agent
company is a member of the Academy's Board of Directors. As selling agent of
the Notes, the selling agent was paid
23
<PAGE>
$189,000 for commission and fees and was entitled to warrants to purchase Common
Stock equal to 10% of the number of shares issued upon conversion of the Notes
to Series A Preferred Stock.
NOTE 6 -- PREFERRED STOCK
During March 1996 and July 1996, the Board of Directors and shareholders,
respectively, authorized the Academy to issue up to 5,000,000 shares of
Preferred Stock in one or more series to be determined by the Board of Directors
from time to time. An amendment to the Articles of Incorporation authorizing
the issuance of Preferred Stock was filed with the California Secretary of State
in August 1996. On August 23, 1996, the Academy became legally authorized to
issue up to 700,000 shares of Series A Preferred Stock. On the same date, the
entire issue of Convertible Subordinated Notes in the aggregate principal amount
of $1,400,000 automatically converted to 254,500 shares of Series A Preferred
Stock. The preferred stock was recorded net of $447,000 of issuance costs.
The non-redeemable Series A Preferred Stock into which the Notes converted
provides for quarterly dividends at an annual rate of 7.5% per share from the
date of first issuance, when and if declared by the Board of Directors, with a
liquidation preference of $5.50 per share, plus accrued dividends. Although the
Series A Preferred Stock is nonvoting, in the event the Academy fails to pay a
quarterly dividend, a meeting of the Board of Directors can be called at which
the holders of the Series A Preferred Stock will be entitled to elect one-third
of the Academy's Board of Directors. Upon payment of the missed dividend(s),
the right to elect one-third of the Board will be rescinded. Each share of
Series A Preferred Stock is convertible at the option of the holder into the
Academy's Common Stock at the conversion price of $5.50 per share. After
February 23, 1997, each share of Series A Preferred Stock will convert
automatically if the closing price of the Common Stock equals or exceeds $8.00
for 20 consecutive trading days. Certain provisions for price protection are
set forth in the terms of the Series A Preferred Stock, but in no event will the
conversion price be less than $3.50.
The Academy granted certain registration rights to the holders of the
Convertible Notes (and subsequently, the Preferred shareholders). Certain
penalties were payable to the holders of the Series A Preferred Stock if the
Academy did not use its best efforts to file a registration statement to
register for resale the Common Stock underlying the Series A Preferred Stock
conversion right with an effective date not later than November 23, 1996.
Such registration statement was declared effective on April 15, 1997.
Penalties payable to the Series A Preferred shareholders were accrued as of
June 30, 1997 and paid in July 1997. A total of 6,300 shares of Series A
Preferred Stock and $35,000 in cash was distributed in connection with this
penalty.
In July 1997, certain Series A Preferred Stock shareholders elected to convert
approximately 145,000 into Common Stock.
NOTE 7 -- SHAREHOLDERS' EQUITY
STOCK OPTION PLANS
The Academy established the 1992 Stock Option Plan (the "Plan") during the year
ended August 31, 1993 and allocated a total of 383,595 shares to be granted
under the Plan. Under the Plan, incentive stock options can be granted at
prices not less than 100 percent of the fair market value of the stock at the
date of grant, and non-
24
<PAGE>
qualified options can be granted at not less than 85 percent of the fair market
value of the stock at the date of grant. Options are exercisable from one to
five years from the date of grant.
The Academy established the 1997 Stock Option Plan (the "1997 Plan") during
the year ended June 30, 1997 and reserved a total of 600,000 shares of Common
Stock to be granted under the Plan. Under the Plan, incentive stock options
can be granted at prices not less than 100 percent of the fair market value
of the stock at the date of grant, and non-qualified options can be granted
at not less than 85 percent of the fair market value of the stock at the date
of grant. Options are exercisable from one to ten years from the date of
grant.
Option activity under the 1992 and 1997 Plans are as follows:
<TABLE>
<CAPTION>
Shares Options Option
Available Outstanding Price
------------ ------------ ------------------
<S> <C> <C> <C>
Balance as of June 30, 1995 172,000 591,000 $4.18 to $8.00
Shares authorized 100,000 0
Options granted (weighted average
fair value of $4.68) (26,000) 26,000 $4.25 to $6.50
Options exercised 0 (88,000) $4.18 to $6.25
Options canceled 97,000 (97,000) $4.18 to $8.00
------------ ------------
Balance as of June 30, 1996
(exercisable at a weighted
average price of $4.68) 343,000 432,000 $4.18 to $8.00
Shares authorized 600,000
Options granted (weighted average
fair value of $7.11) (524,000) 524,000 $6.27 to $7.75
Options exercised (198,000) $4.18 to $6.25
Options canceled 31,000 (31,000) $6.25 to $8.00
------------ ------------
Balance as of June 30, 1997
(exercisable at a weighted
average price of $6.61) 450,000 727,000 $4.18 to $8.00
------------ ------------
------------ ------------
Exercisable options 567,000 $4.18 to $8.00
------------
------------
</TABLE>
Additional information regarding options outstanding as of June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
Range of Weighted Average Weighted Weighted
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$5.56 - 8.00 91,750 2.3 $7.24 91,750 $7.24
$4.18 118,620 1.2 $4.18 118,620 $4.18
$4.25 - 6.50 13,100 3.6 $4.68 12,267 $4.68
$7.75 43,000 4.1 $7.75 14,340 $7.75
$6.70 220,000 9.6 $6.70 90,000 $6.70
$7.375 241,000 9.9 $7.375 240,000 $7.375
- ------------ ----------- ---------------- -------------- ----------- --------------
$6.61 727,470 7.0 $6.61 566,977 $6.61
</TABLE>
Of the options outstanding at June 30, 1997 and 1996, 495,000 and 321,000,
respectively, were non-qualified stock options.
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 2, the Academy continues to account for its stock-based
awards using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees, and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) requires disclosure of pro forma net
income and earnings per share had the Academy adopted the fair value method
as of the beginning of fiscal 1996. The Accademy's calculations were made
using the Black-Scholes option pricing model with the following weighted
average assumptions: expected life, 12 months following vesting; stock
volatility, 18%; risk free interest rate of 6%; and no dividends during the
expected term. The Academy's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1996 and 1997 awards had been amortized to
expense over the vesting period of the awards, pro forma net income would not
have changed significantly in the year ended June 30, 1996 and would have
been $135,000 ($.04 per share) in the year ended June 30, 1997. However, the
impact of outstanding non-vested stock options granted prior to 1996 has been
excluded from the pro forma calculation; accordingly, the 1996 and 1997 pro
forma adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.
25
<PAGE>
NOTE 8 -- INCOME TAXES
The provision (benefit) for income taxes for the year ended June 30, 1997 and
the year ended June 30, 1996 consists of the following (dollars in thousands):
Year Ended June 30,
-------------------------
1997 1996
---------- ---------
Current $175 $0
Deferred (68) 0
---------- ---------
$107 $0
---------- ---------
---------- ---------
A reconciliation of the effective tax rate for income taxes by applying the
Federal statutory rate to the pre-tax income (loss) is as follows:
Year Ended June 30,
-------------------------
1997 1996
---------- ---------
Federal statutory rate 34.0% 34.0%
State tax, net of federal
income tax deferral 7.1%
Other items (1.1%)
Valuation allowance (34.0%)
---------- ---------
Income tax provision 40.0% 0.0%
---------- ---------
---------- ---------
Deferred tax assets and liabilities result from differences in the timing of the
recognition of certain income and expense items for tax and financial accounting
purposes. The components of the net deferred tax asset include the following
deferred tax assets and liabilities (dollars in thousands):
26
<PAGE>
Year ended June 30,
----------------------
1997 1996
---------- ---------
Deferred tax assets (liabilities)
Accrued vacation $38 $33
Allowance for doubtful accounts 154 112
Net operating loss carryforward 637 715
Depreciation (40) (195)
Amortization (179) (219)
Other (87)
Valuation allowance (200) (200)
---------- ---------
Net deferred tax asset $323 $246
---------- ---------
---------- ---------
As of June 30, 1997 the Academy has federal and California net operating loss
carryforwards, for ax return purposes, of approximately $1,779,000 and $356,000,
respectively, which are available to offset future taxable income, if any. The
federal net operating losses begin expiring in 2005 through 2011. California
net operating loss carryforwards begin expiring in 2001 through 2002.
A valuation allowance has been provided for that portion of deferred tax assets
where it is more likely than not that the future tax benefits of these items
will not be realized. The factors affecting the realizability of the deferred
asset balance at June 30, 1996 have not changed significantly from the previous
year.
NOTE 9 -- PROMISSORY NOTES
In July 1996, a former executive officer of the Academy elected to exercise
approximately 112,000 vested stock options. The Academy subsequently entered
into a transaction with this former officer, wherein the Academy purchased and
retired this stock in exchange for approximately $717,000, which approximated
fair market value and was comprised of approximately $560,000 in cash and
$157,000 in promissory notes bearing an interest rate of 8.75%. As of June 30,
1997, the outstanding balance of these notes was approximately $38,000.
Interest is to be paid monthly on the notes until January 1, 1998, when the note
is due.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
PURCHASE AGREEMENT
In September 1994, the Academy entered into an agreement with a company to
purchase $1,650,000 of knives, tools, gadgets and equipment over an unlimited
period of time. In exchange, the company underwrote one-third of the production
costs of the Academy's new television cooking series "Cooking at the Academy."
As of June 30, 1997, the Academy had purchased approximately $458,000 of knives,
tools, gadgets and equipment.
FACILITY LEASE
The Academy leases restaurant, school and office facilities under an operating
lease. The lease provides for rent payments of approximately $97,000 per month
adjusting downward to approximately $77,000 per month in the fifth year of the
lease and requires the Academy to pay its pro rata share of common area
maintenance, insurance and tax expenses of approximately $13,000 per month. The
Academy leases facilities in Salinas, California for its College of Food under
an operating lease. The lease payment is the greater of approximately $3,900
per month or 8% of gross sales and requires the Academy to pay its pro rata
share of common area and exterior maintenance charges, which are approximately
$1,000 each month. The Academy leases space in another building close to its
main campus, which is used for its educational programs. The lease payment is
$2,700 per month.
27
<PAGE>
Future minimum lease payments for all operating leases are approximately as
follows (dollars in thousands):
Year Ending June 30,
--------------------
1998 $1,122
1999 1,173
2000 1,118
2001 1,045
2002 928
2003 and thereafter 9,974
-----------
$15,360
-----------
-----------
Rent expense for the years ended June 30, 1997 and 1996, was approximately
$1,295,000 and $1,394,000, respectively.
STUDENT FINANCIAL ASSISTANCE PROGRAMS
Approximately 37% percent of the Academy's education program revenues are
provided by students participating in student financial assistance programs
administered by the Department of Education ("DOE")and the State of California.
The Academy is subject to periodic audit by the DOE of its compliance with
DOE funding requirements. While management believes that the Academy can
demonstrate financial responsibility in accordance with the standards set
forth by the DOE, the possibility of adverse DOE findings exist. The
financial statement effect of potential adverse findings is unknown.
LITIGATION
There are various claims and lawsuits pending by and against the Academy that,
in the opinion of management after consultation with legal counsel, will not
result in any material adverse effect on the results of operations or financial
position of the Academy.
NOTE 11 -- 401(K) RETIREMENT PLAN
Employees become eligible to participate in a defined 401(k) plan immediately
upon hire, assuming that other eligibility requirements are also satisfied. The
401(k) plan allows for employee contributions and discretionary employer
matching contributions. On January 1, 1997, the Academy amended the 401(k) plan
to permit discretionary employer matching contributions in the form of the
Academy's Common Stock, which matching contribution is determined quarterly and
contributed at the end of the plan year. The Academy contributions to the
401(k) plan for the years ended June 30, 1997 and 1996 were approximately
$35,000 and $89,000, respectively.
28
<PAGE>
NOTE 12 -- SUBSEQUENT EVENTS
In August 1997, the Academy entered into a master lease of a 68-room hotel
approximately one block from the Academy's main campus in San Francisco to
provide student housing. The lease becomes effective on September 2, 1997. The
initial monthly rent for the facility is approximately $28,000. The Academy is
also responsible for payment of its pro rata share of insurance and property
taxes, which are approximately $1,000 per month. In conjunction with the lease,
the Academy paid $25,000 for existing furniture and fixtures. The lease terms
extend until August 2012, with three five-year renewal options thereafter.
In October 1997, the Academy purchased for approximately $1,900,000 a 70 room
residential hotel adjacent to the Academy's main campus in San Francisco to
provide student housing and obtained long term debt financing thereon for
$1,200,000.
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and equivalents, accounts receivable and payable
and term loans are reasonable estimates of their fair values.
Rates currently available to the Academy for debt with similar terms and
remaining maturities are used to estimate fair value of debt.
29
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The executive officers and directors of the Academy as of September 29, 1997 are
as follows:
Name Age Positions
Theodore G. Crocker (1) 51 Chairman of the Board and Chief
Executive Officer
W. Bruce C. Bailey (1,2) 43 Director
James Cockman (1,2) 64 Director
Frederick L. Dame 44 Director
Paul Prudhomme 57 Director
Grover T. Wickersham (2) 47 Director
Keith H. Keogh 44 President and Chief Operating Officer
Robert A. Stoffregen 48 Executive Vice President, Chief
Financial Officer, Director of Corporate
Development
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
The bylaws of the Academy provide for a board of between seven and nine
members. The board is currently fixed at seven members and has one vacancy.
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Officers serve
at the discretion of the Board of Directors. There are no family
relationships between any of the Academy's directors and executive officers.
Mr. Crocker has served as Chairman of the Board since March 1987. In May
1996, he was appointed Chief Executive Officer. Since 1980, Mr. Crocker has
also been primarily employed as the President of Crocker & Associates, a real
estate development company located in Watsonville, California. Mr. Crocker
holds an Associate of Arts degree from Cabrillo Junior College.
Mr. Bailey was elected to the Board in March 1996. Mr. Bailey founded the
investment banking firm of Bailey & Company Inc., Toronto, Canada, in
December 1988, and has been employed by such firm since that date as Chairman
of the Board. Bailey & Company is currently serving as an investment banker
to the Academy. Mr. Bailey hold a BA [Hons.] degree from Queen's
University, Kingston, Canada, an LL.B. from Dalhousie University, Halifax,
Canada, an LL.M. from Columbia University, New York, New York, and Call to
the Bar, Law Society of Upper Canada, Toronto, Canada.
Mr. Cockman has served as a member of the Board of Directors since January
1997. He currently serves as the Chairman and Chief Executive Officer of
American Culinary Equipment, Inc., Greenville, South Carolina, a manufacturer
and marketer of stainless steel professional kitchen equipment to the
foodservice industry. Mr. Cockman serves on the boards of Ryans Family Steak
House, Greenville, South Carolina, Clayton Homes, Inc., Knoxville Tennessee,
Clemson University, College of Commerce and Industry, Clemson, South
Carolina, Greenville Technical College Foundation, Greenville, South Carolina.
30
<PAGE>
Mr. Dame has served as a member of the Board of Directors since January 1997.
He has served in various senior level management capacities in the Seagram
organization since 1988, and is currently the Vice President of National
Accounts for Seagram Chateau Estate Wine Company, San Mateo, California. Mr.
Dame is a columnist for the "Wine Trader" as well as for a number of gourmet
and hotel-restaurant publications in Japan. He received his degree in
Journalism and Communications from Washington & Lee University.
Chef Prudhomme has served as a member of the Board of Directors since June
1997. Chef Paul Prudhomme is the proprietor of K-Paul's Louisiana Kitchen,
located in the French Quarter of New Orleans. Chef Prudhomme also has
developed and distributes a line of natural herbs and spices, "Chef Paul
Prudhomme's Magic Seasoning Blends," nationally and in more than thirty other
countries. Chef Prudhomme is the author of several cookbooks: CHEF PAUL
PRUDHOMME'S LOUISIANA KITCHEN; THE PRUDHOMME FAMILY COOKBOOK; SEASONED
AMERICA, FORK IN THE ROAD, PURE MAGIC; FIERY FOODS THAT I LOVE and KITCHEN
EXPEDITION.
Mr. Wickersham was elected to the Board in March 1996. Mr. Wickersham has
practiced corporate and securities law since 1976. The law firm of Grover T.
Wickersham, P.C., Palo Alto, California, which he co-founded in July 1986,
serves as securities law counsel to the Academy. Mr. Wickersham manages
Glenbrook Capital, LP, an investment fund established in December 1996, and
is the co-manager of Oxcal Venture Fund, LLP, a venture capital fund. Mr.
Wickersham also serves on the Board of Directors of Telepartner A/S, a Danish
telecommunications company. Mr. Wickersham holds a BA degree in American
Studies from University of California at Berkeley, a JD degree from Hastings
College of the Law, and an MBA degree from Harvard Business School.
Mr. Keogh joined the Academy as Executive Vice President and Chief Operating
Officer in July 1995 and was promoted to President in May 1996. From 1971
until joining the Academy, Mr. Keogh was employed at Walt Disney World in
Florida and held various positions, most recently as Executive Chef, Research
and Development-Theme Parks. Mr. Keogh was the Manager of the Culinary Team
USA (the US Culinary Olympic Team) from 1988-96 and past President of the
World Association of Cooks Societies and The American Culinary Federation.
Mr. Stoffregen joined the Academy in June 1996. Prior to his appointment as
Executive Vice president, Chief Financial Officer and Director of Corporate
Development, Mr. Stoffregen was a member of the public accounting firm of
Jones, Henley & Schunck. From August 1991 to September 1994, Mr. Stoffregen
was Chief Financial Officer of Sharper Image Corporation. Prior to 1991, Mr.
Stoffregen was a partner in the public accounting firm of Deloitte & Touche.
Mr. Stoffregen holds a BA degree in accounting from the University of
Minnesota -Duluth and a JD from William Mitchell College of Law, Saint Paul,
Minnesota.
During the fiscal year ended June 30, 1997, the Board of Directors held five
meetings. No member of the Board attended fewer than 75% of the meetings in
the last fiscal year.
COMMITTEES OF THE BOARD
The Academy's Board of Directors has established a Compensation Committee and
an Audit Committee. Each Committee has at least one outside director. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for directors, officers and other employees of the Academy. The
Audit Committee oversees actions taken by the Academy's independent auditors
and reviews the Academy's internal financial controls. The Compensation and
Audit Committees each held one meeting during the fiscal year ended June 30,
1997. The Board has delegated certain advisory authority to each committee,
but the decision making and management responsibilities of the Academy remain
with the full Board. No committee member attended fewer than 75% of the
meetings of the committees of which he was a member in the last fiscal year.
31
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Academy's executive officers and directors are required under the
Securities Exchange Act of 1934 to file with the Securities and Exchange
Commission reports of ownership and changes in ownership in their holdings of
the Academy's Common Stock. Based on an examination of these reports and on
written representations provided to the Academy, all such reports required to
be filed for the fiscal year ended June 30, 1997 have been timely filed
except that Theodore G. Crocker, a director and executive officer of the
Academy, inadvertently did not timely file a statement of changes in
beneficial ownership with respect to four sales, aggregating 5,482 shares in
April 1997. These transactions have been reflected in a subsequent filing by
Mr. Crocker.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the General Corporation Law of California (the "Corporations
Code"), the Academy's Articles of Incorporation eliminate, to the fullest
extent permitted under California law, the personal liability of a director
to the Academy for monetary damages in an action brought by or in the right
of the Academy for breach of a director's duties to the Academy and its
shareholders. Under current California law, liability is not eliminated for
(i) acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law; (ii) acts or omissions that a director believed
to be contrary to the best interests of the corporation or its shareholders
or that involve the absence of good faith on the part of the director; (iii)
any transaction from which a director derived an improper personal benefit;
(iv) acts or omissions that show a reckless disregard for the director's duty
to the corporation or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders; (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders; (vi) contracts or other transactions
between corporations and directors having interrelated directors in violation
of Section 310 of the Corporations Code; and (vii) distributions, loans or
guarantees made in violation of Section 316 of the Corporations Code. In
addition, the Academy's Articles of Incorporation and bylaws provide for
indemnification, to the fullest extent permitted under the Corporations Code,
of directors, officers and agents of the Academy and persons who serve at the
request of the Academy as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
The Academy has also entered into indemnification agreements with its
directors and executive officers, as permitted under the bylaws. The
indemnification agreements provide that the directors and executive officers
will be indemnified to the fullest extent permitted by applicable law against
all expenses (including attorneys' fees), judgments, fines and amounts
reasonably paid or incurred by them for settlement in any threatened, pending
or completed action, suit or proceeding, including any derivative action, on
account of their services as a director or executive officer of the Academy
or of any subsidiary of the Academy or of any other company or enterprise in
which they are serving at the request of the Academy. No indemnification
will be provided under the indemnification agreements, however, to any
director or executive officer in certain limited circumstances, including on
account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may
be unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy. In addition, in the
opinion of the Securities and Exchange Commission, indemnification for
liabilities arising under the Securities Act of 1933, as amended (the "Act"),
is against public policy and, therefore, unenforceable. Accordingly, these
indemnification provisions may not limit the liability of directors and
executive officers under the Act.
ITEM 10. Executive Compensation
The following table sets forth certain information regarding compensation
paid by the Academy for services rendered during each of the Academy's last
two completed fiscal years for the Academy's Chief Executive
32
<PAGE>
Officer and all other executive officers whose total annual salary and bonus
exceeded $100,000 for the fiscal year ended June 30, 1997 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation All Other
Name and Principal Position Year Salary Awards Compensation
($$) Options/SAR's (#) ($$)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Theodore G. Crocker 1997 72,000(1)
CEO and Chairman of the Board 1996 72,000(1)
Keith H. Keogh 1997 184,769 10,010(2)
President and Chief Operating
Officer 1996 153,846 120,000 564(3)
1995 73,846 60,000
Robert A. Stoffregen 1997 181,328 75,000 9,066(4)
Executive Vice President,
Chief Financial Officer,
Director of Corporate development 1996 3,365 25,000
</TABLE>
- ------------------------
(1) Represents $72,000 reimbursement for office space and costs.
(2) Includes $772 in payments on life insurance policies and $9,238 in employer
contributions to the 401(k) Plan.
(3) Represents payments on life insurance policies.
(4) Represents employer contributions to the 401(k) Plan.
Directors who are employees of the Academy are not separately compensated for
their services as directors or as members of committees of the Board of
Directors. During fiscal 1997, directors who were not employees of the
Academy and who resided in Northern California received $9,000 per annum as
an annual retainer for serving on the Board. During fiscal 1997, directors
who were not employees of the Academy and who resided in outside Northern
California received $12,000 per annum as an annual retainer for serving on
the Board.
Other than the 401(k) Plan described below, the Academy has no retirement,
pension or profit sharing program for the benefit of its directors, officers
or other employees, but the Board of Directors may recommend one or more such
programs for adoption in the future.
STOCK OPTIONS
The Academy's 1992 Stock Option Plan (the "1992 Plan") permits the granting
of incentive stock options ("ISO's"), or non-qualified stock options
("NQSO's") at the discretion of the Board or a committee designated by the
Board to administer the Plan (the "Administrator"). Subject to the terms of
the 1992 Plan, the Administrator determines the terms and conditions of
options granted under the 1992 Plan, including the exercise price and option
term. The 1992 Plan provides that the Administrator must establish an
exercise price for ISO's that is not less than the fair market value per
share at the date of grant. The exercise price of NQSO's may not be less
than 85% of the fair market value per share on the date of grant. Each ISO
must expire within ten years of the date of grant. However, if ISO's are
granted to persons owning more than 10% of the voting stock of the Academy,
the 1992 Plan provides that the exercise price must be not less than 110% of
the fair market value per share at the date of grant and that the term of the
option may not exceed five years. No ISO may be granted to an employee who,
when aggregated with all other ISO's granted to such employee by the Academy
or any parent, subsidiary or affiliate (as defined by the 1992 Plan) would
result in the vesting of shares having an aggregate fair market
33
<PAGE>
value (determined for each share as of the date of grant of the ISO covering
such share) in excess of $l00,000 in any calendar year. No such limit
applies to the grant of NQSO's.
As of April 1994, the number of shares authorized for issuance under the 1992
Plan was 450,000 shares. In March 1996, the Board of Directors voted to
increase the number of shares reserved for issuance under the plan by 100,000
shares. Such increase was approved by an affirmative vote of the shareholders
at the annual shareholders meeting in March 1996. Unless sooner terminated
by the Board of Directors, the 1992 Plan terminates in December 2002.
In June 1997, the Directors adopted California Culinary Academy 1997 Stock
Option Plan (the "1997 Plan"). The adoption of 1997 Plan will be submitted
to a shareholder vote at the next annual meeting. Subject to the terms of
the 1997 Plan, the Administrator determines the terms and conditions of
options granted under the 1997 Plan, including the exercise price and option
term. The 1997 Plan provides that the Administrator must establish an
exercise price not be less than 85% of the fair market value per share on the
date of grant. The number of options available for grant under the 1997 Plan
is 600,000.
In the event of a merger in which at the Academy is not the surviving
corporation the sale of substantially all of the assets of the Academy, all
outstanding options under each of the Academy's Plans shall, notwithstanding
any contrary terms of the grant, accelerate and become exercisable in full
prior to the consummation of such merger at such times and on such conditions
as the Administrator shall determine, unless the successor corporation
assumes the outstanding options or substitutes substantially equivalent
options. Shares subject to options granted under each of the Plans that have
lapsed or terminated are returned to the Plan.
The following table sets forth information regarding exercises of stock
options during the fiscal year ended June 30, 1997 by the executive officers
named in the Summary Compensation Table:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number of Unexercised Value of in-the-Money
Shares Options/SAR's at Fiscal Year-end Options/SAR's at Fiscal Year-end
Acquired on Value end Year-end
Name Exercise Realized Exercisable / Unexercisable Exercisable / Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Theodore G. Crocker 0 $0 97,990 0 $362,073 (1) 0
10,000 0 $23,150 (2) 0
40,000 0 $64,200 (3) 0
Keith H. Keogh 0 $0 60,000 0 $0 (4) 0
40,000 80,000 $47,000 (5) $94,000(5)
Robert A. Stoffregen 0 $0 25,000 0 $29,375 (6) 0
25,000 50,000 $29,375 (7) $58,750(7)
</TABLE>
- -----------------
(1) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $4.18 per
share.
(2) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $5.56 per
share.
(3) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $6.27 per
share.
34
<PAGE>
(4) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $8.00 per
share.
(5) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $6.70 per
share.
(6) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $6.70 per
share.
(7) Calculated as the difference between the fair market value of the Common
Stock at June 30, 1997 of $7.875 and the option exercise price of $6.70 per
share.
401(K) RETIREMENT PLAN
The Academy maintains an employee benefit plan qualified under Section 401(k)
of the Internal Revenue Code (the "401(k) Plan"). Employees become eligible
to participate in the 401(k) Plan after one year of service, assuming other
eligibility requirements are also satisfied. Under the 401(k) Plan, there is
no fixed dollar amount of retirement benefits, and actual benefits received
by employees will depend on the amount of each employee's account balance at
the time of retirement. The account balance will reflect annual allocations,
the period of time an employee participates in the 401(k) Plan and the
success of the 401(k) Plan in investing and reinvesting the assets of the
trust fund. A participant's vested benefit is distributed upon death,
disability or termination of employment, however, terminated employees may
elect to keep vested benefits in the plan if such vested benefits are greater
than an amount stipulated on the Plan. The Plan is not insured by the
Pension Benefit Guaranty Corporation.
The 401(k) Plan includes an arrangement under which employees may elect to
have the Academy contribute a portion of their compensation to the 401(k)
Plan. The Plan does not allow an employee to make direct contributions to the
trust fund. Such contributions are elective deferrals, and the amount may not
exceed certain dollar limitations established by the Internal Revenue Service.
The Academy has the option of matching employee contributions to the 401(k)
plan with cash or Academy Common Stock.
ITEM 11. SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 1, 1997, with
respect to the beneficial ownership of Common Stock by each shareholder
owning 5% or more of the Academy's Common Stock, by each director, the Named
Executive Officers, and by all executive officers and directors as a group.
SHARES BENEFICIALLY OWNED (1)
DIRECTORS AND 5% SHAREHOLDERS NUMBER PERCENT
-------------------------------------------------------------------------
Theodore G. Crocker 1,330,117 (2) 30.6%
625 Polk Street
San Francisco, CA 94102
Grover T. Wickersham 56,350 (3) 1.3%
625 Polk Street
San Francisco, CA 94102
W. Bruce Bailey 40,000 (4) 1.5%
625 Polk Street
San Francisco, CA 94102
James D. Cockman 40,000 (5) *
625 Polk Street
San Francisco, CA 94102
35
<PAGE>
Frederick L. Dame 40,500 (6) *
625 Polk Street
San Francisco, CA 94102
Paul H. Prudhomme 40,000 (7) *
625 Polk Street
San Francisco, CA 94102
All Executive Officers and Directors as a Group (8 persons) 1,723,456 39.7%
- ------------------
* Indicates less than 1%.
(1) Beneficial ownership of shares by directors, officers and 5% or more
shareholders includes both outstanding Common Stock and shares
issuable upon exercise of warrants or options that are currently
exercisable or will be exercisable within 60 days after the date of
this table. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws the persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(2) Includes 147,990 shares of Common Stock issuable upon exercise of
currently exercisable options.
(3) Includes 54,850 shares of Common Stock issuable upon exercise of
currently exercisable options.
(4) Includes 65,454 shares of Common Stock issuable upon exercise of
currently exercisable options and warrants.
(5) Includes 40,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(6) Includes 40,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(7) Includes 40,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1992, and from time to time prior to August 1, 1991, the Mr. Crocker,
along with Robert J. Marani and William G. DeMar, then members of the Board
of Directors, and all principal shareholders, made unsecured loans to the
Academy. These loans were evidenced by promissory notes and subsequently
repaid. The loans carried interest at then prevailing interest rates and
called for warrants to be issued that entitled the holders thereof to
purchase an aggregate of 82 shares of the Academy's then Series A Preferred
Stock. Warrants issued in conjunction with these loans were converted,
concurrently with the completion of the Initial Public Offering in July 1993,
into warrants to purchase 97,990 shares of Common Stock at an exercise price
of $4.18 per share. During 1994, the original expiration date of the
warrants was extended for an additional two years to August 31, 1996. On
August 31, 1996, such warrants were exercised.
In January 1995, the Academy entered into a month-to-month consulting
agreement whereby Mr. Crocker provides investor relations and other strategic
services in return for a fixed monthly payment for office rent and costs.
The agreement provides for fees not to exceed $6,000 per month. The Academy
paid $72,000 in fees in both the years ended June 30, 1997 and 1996 to Mr.
Crocker.
In January 1996, the Academy entered into an agreement with Bailey & Company
Inc. to serve as the selling agents for the placement of up to $5,000,000 in
Convertible Subordinated Notes ("Notes"). Bruce bailey, the Chairman and
President of Bailey & Company Inc. is a member of on the Academy's Board of
Directors. The agent was entitled to receive a commission of 7% of the gross
proceeds sold, a non-accountable expense allowance of 3% and warrants to
purchase 10% of the number of shares sold in the offering. In April 1996,
the Academy issued $1,400,000 of Notes and the selling agent received the
warrants and $189,000 commissions and fees.
During the year ended June 30, 1997, the Academy paid Grover T. Wickersham,
P.C. approximately $22,000 for legal services. Grover T. Wickersham, the
principal member of such firm, is a member of the Academy's Board of
Directors.
36
<PAGE>
In July 1996, the Academy entered into a five-year lease for approximately a
3,800 square foot facility in Salinas, California. The lessor is a
partnership controlled by Mr. Crocker and Robert J. Marani, a shareholder and
then member of the Academy's Board of Directors. Independent members of the
Board of Directors have approved the lease. Management believes that these
lease terms are no less favorable than those which it may have negotiated
with an independent landlord. The new facility is an extension campus, which
opened in October 1996. The monthly rent for the facility is the greater of
approximately $3,900 or 8% of gross sales plus a share of common area and
exterior maintenance charges. The Academy paid a lease acquisition fee of
$150,000 upon execution of the lease agreement.
(7) ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits in the accompanying Index to Exhibits on page 44 of this
report are filed or incorporated by reference as part of this report.
(b) The Academy filed no Current reports on Form 8-K during the quarter
ended June 30, 1997.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized;
Dated: October 13, 1997 California Culinary Academy, Inc.
By: /s/ Theodore G. Crocker
----------------------------
Theodore G. Crocker
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
(Principal executive officer)
/s/ Theodore G. Crocker
- ----------------------------------------------
Theodore G. Crocker Chief Executive Officer and October 13, 1997
Chairman of the Board
(Principal financial and accounting officer)
/s/ Robert A. Stoffregen
- ----------------------------------------------
Robert A. Stoffregen Chief Financial Officer October 13, 1997
/s/ Grover T. Wickersham
- ----------------------------------------------
Grover T. Wickersham Director October 13, 1997
/s/ W. Bruce Bailey
- ----------------------------------------------
W. Bruce Bailey Director October 13, 1997
/s/ James D. Cockman
- ----------------------------------------------
James D. Cockman Director October 13, 1997
/s/ Frederick L. Dame
- ----------------------------------------------
Frederick L. Dame Director October 13, 1997
/s/ Paul H. Prudhomme
- ----------------------------------------------
Paul H. Prudhomme Director October 13, 1997
</TABLE>
38
<PAGE>
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT
NUMBER EXHIBIT
3.1 1 Amended and Restated Articles of Incorporation
3.2 1 Bylaws, as currently in effect
4.1 1 Specimen of Common Stock Certificate
4.2 2 Form of Representative's Warrant
10.1 1
1992 Stock Option Plan, form of Incentive Stock Option
Agreement, form of Nonqualified Stock Option Agreement
10.2 1 Form of Indemnification Agreement with Directors and
Officers of the Registrant and Schedule of Indemnities
10.3 1 Lease for Premises at 625 Polk Street, San Francisco, as
amended
10.5 1 U.S. Department of Education Program Letter of Agreement
dated March 1993
10.6 1 Form of Enrollment Agreement
10.18 5 Consulting Agreement between Registrant and Theodore G.
Crocker dated January 1, 1994
10.21 5 Agreement between Registrant and Trident Trading Company,
Inc. (Wusthof (w)--Trident) dated August 5,
1994
10.25 7 Lease Agreement between Registrant and Toshiba America
Information Systems, Inc. dated November 2, 1995
10.25 8 Amended Financing Agreement between Registrant and Wells
Fargo Bank dated February 1, 1996
10.26 8 Agreement between Registrant and Simon & Schuster, Inc.
dated February 22, 1996
10.27 Loan Agreement between Registrant and Mid-Peninsula Bank
dated June 14, 1996
10.29 10 Lease for premises at Natividad Plaza, Salinas, CA
10.30 10 Agreement between Registrant and Noel-Levitz, Inc. dated
July 1, 1996
10.31 Lease Agreement between Registrant and 625 Polk Investment
Company, a limited partnership, dated as of May 1, 1997
10.32 1997 Stock Option Plan
10.33 Executive Employment Agreement between Registrant and
Keith H. Keogh, Dated May 31, 1995
11.0 Statement re: Computation of Earnings per Share
27.0 Financial Data Schedule
- ------------
(1) Previously filed as an exhibit to the original filing of the Registration
Statement on Form SB-2 filed May 14, 1993
(2) Previously filed as an exhibit to Amendment No. 1 of the Registration
Statement filed June 7, 1993
(3) Previously filed as an exhibit to Form 10-KSB/A for the fiscal year ended
August 31, 1994
(4) Previously filed as an exhibit to Form 10-QSB for the quarter ended
May 31, 1994
(5) Previously filed as an exhibit to Form 10-QSB for the fiscal year ended
June 30 1994
(6) Previously filed as an exhibit to Form 10-QSB for the fiscal year ended
June 30 1995
(7) Previously filed as an exhibit to Form 10-QSB for the quarter ended
December 31, 1995
(8) Previously filed as an exhibit to Form 10-QSB for the quarter ended
March 31, 1996
(9) Previously filed as an exhibit to Form 10-QSB for the quarter ended
June 30, 1996
(10) Previously filed as an exhibit to Form 10-QSB for the quarter ended
September 30, 1996
39
<PAGE>
EXHIBIT 10.31
EIGHTH AMENDMENT TO LEASE
This instrument (the "Amendment") is dated as of May 1, 1997 and is
effective as of that date.
RECITALS
A. By a lease dated July 31, 1984 (the "Original Lease"), 625 Polk
Investment Company, a California limited partnership ("Landlord"), leased to
the predecessor in interest of California Culinary Academy, Inc., a
California corporation ("Tenant") certain premises (the "Premises") located
in the building whose address is 625 Polk Street, San Francisco, California.
B. The Original Lease has previously been amended seven times by that
certain Amendment to Lease dated June 2, 1987, Second Amendment to Lease
dated December 29, 1989, Third Amendment to Lease dated December 19, 1990,
Fourth Amendment to Lease dated April 13, 1992, Fifth Amendment to Lease
dated November 17, 1992, Sixth Amendment to Lease dated May 11, 1993 and
Seventh Amendment to Lease dated May 14, 1997. The Original Lease was also
modified by that certain letter agreement dated December 19, 1990. The
Original Lease and all amendments and modifications are collectively referred
to as the "Lease".
C. Since commencement of the Original Lease, the portions of the
Building included within the Premises has increased. On some occasions when
the Premises has been expanded, Tenant has performed alterations that were
required by its new uses for the added space, including the performance of
work required by local building code requirements. In executing this
Amendment, Landlord and Tenant anticipate further expansion by Tenant in the
Building and that Tenant will assume more control over the operation and
management of the Building. Among other purposes, this Amendment is intended
to reflect an appropriate allocation of certain rights and obligations based
on Tenant's expanded occupancy in the Building.
D. The parties now wish to amend the Lease so as to redefine the
Premises, extend the term, modify the rental obligations of Tenant and amend
various other provisions of the Lease.
NOW THEREFORE, the parties hereto in consideration of the mutual
covenants set forth herein and intending to be legally bound hereby agree as
follows:
1.1 DEFINITIONS. Unless otherwise specified in this Amendment, the
terms as used herein have the meanings given them by the Lease. In the event
of any conflict or inconsistency between the provisions of this Amendment and
provisions of the balance of the Lease, the provisions of this Amendment
control. However, in the event any term or condition is held invalid or
unenforceable, the remainder of this Amendment and the Lease will not be
affected thereby, and each of the other terms and conditions of this
Amendment and the Lease will be valid and enforceable.
1.2 PREMISES. Effective as of the date of this Amendment, the Premises
includes space located in the Basement and on the Ground Floor, Mezzanine,
Second Floor, Third Floor and Fourth Floor of the Building all as shown on
Exhibit A attached hereto and by this reference incorporated herein. Landlord
and Tenant agree and stipulate that the Premises are deemed to contain 66,992
rentable square feet and that the total rentable square footage of the
Building, including the Premises, is 78,116. Tenant's
1
<PAGE>
Proportionate Share is 85.76%. All portions of the Premises as depicted on
Exhibit A are leased by Landlord to Tenant for the entire Term, as extended
by this Amendment including any options hereunder that are exercised by
Tenant.
1.3 RIGHT OF FIRST REFUSAL.
(a) If, at any time during the Term including any extensions
thereof, the fifth floor of the Building (containing 7,200 rentable square
feet) ("Expansion Space "A") or the south side of the fourth floor of the
Building (that portion containing 3,924 rentable square feet not already part
of the Premises) ("Expansion Space "B") becomes available for lease, then
Landlord must offer Tenant in writing the opportunity to lease the space
prior to making any other efforts to lease the space to any other party,
including any other tenants of the Building. The locations of Expansion Space
A and Expansion Space B are shown on Exhibit A. Landlord represents and
warrants that as of the date of this Amendment, Expansion Space A and
Expansion Space B are each leased under a single lease agreement. When a
space becomes available, Landlord must notify Tenant which space is available
and the date on which Landlord is able to deliver possession to Tenant.
Tenant has thirty days after receipt of Landlord's notice to accept or reject
the available space by written notice to Landlord. If Tenant accepts the
additional space, then on the date Landlord delivers the space to Tenant it
will be deemed part of the Premises leased under this Lease in its "as is"
condition, subject to all the terms and conditions of this Lease, including
that "Base Rent", as defined in Section 1.7, will be increased by an amount
equal to the number of rentable square feet in the expansion space multiplied
by the applicable rate per square foot then applicable under Section 1.7 of
this Amendment and Tenant's Proportionate Share will increase accordingly. If
Tenant fails to timely exercise its right to lease expansion space under this
Section 1.3(a), then for a period of one year (the "Window Period"), Landlord
has the right to lease the expansion space that Tenant did not accept to any
third party on economic terms and conditions that are less favorable than
those applicable under this Lease. If, after the expiration of the Window
Period, the space has not been leased, then Landlord must offer the space to
Tenant again under this Section 1.3(a). Without limitation on the foregoing,
Landlord agrees that it will not execute a new lease with any existing tenant
in the Building or amend the lease of an existing tenant to extend its term
without first offering the existing tenant's space to Tenant under this
section upon the expiration of the existing tenant's lease agreement.
(b) If, at any time during the Term including any extensions
thereof, Landlord makes or receives an offer to lease Expansion Space A or
Expansion Space B on economic terms and conditions that are more favorable
than those that apply under this Lease, or if, at any time during the Term,
including any extensions thereof, outside of a Window Period, Landlord makes
or receives an offer to lease Expansion Space A or Expansion Space B
regardless of the economic terms and conditions, then in either such event
Landlord must give Tenant a copy of the offer and Tenant has the right, by
written notice to Landlord within 30 days after Tenant's receipt of the
offer, to lease the space on the same terms and conditions as set forth in
the offer, provided that any terms of the offer that are impractical or
impossible for Tenant to perform will be modified to permit performance by
Tenant, if reasonably possible, or otherwise be deemed waived. Any additional
space leased by Tenant under this Section 1.3(b) will be added to the
Premises leased under this Lease as of the date Landlord delivers possession
of the space to Tenant. Tenant's lease of any additional space pursuant to
this Section 1.3(b) will be on all the terms and conditions set forth in this
Lease except for those terms set forth in the offer and not waived under the
terms of this section.
(c) If Tenant leases additional space in the Building under either
Section 1.3(a) or Section 1.3(b), then Landlord shall prepare an amendment
that correctly sets forth the addition of the new space to the Premises, the
adjustment to Tenant's rental obligations and all other terms and conditions
as appropriate in accordance with the provisions of Section 1.3(a) or Section
1.3(b) as applicable. Landlord and Tenant each agree to promptly execute such
an amendment prepared by Landlord. If there is a dispute regarding the
drafting of the amendment that Landlord prepares and the parties do not agree
upon language for the amendment within sixty days of Landlord's submission of
its
2
<PAGE>
initial draft, then either party can submit the dispute to arbitration under
the provisions of Article 17, provided that the failure of either party to
promptly execute an amendment will not limit or impair the rights and
obligations of the parties with respect to additional space leased by Tenant
under Section 1.3(a) or Section 1.3(b).
1.4 LANDLORD'S RESERVED RIGHTS. Section 1.3 of the Lease is hereby
amended by the addition of the following provision at the end thereof:
"Notwithstanding anything to the contrary in the
Lease, from June 1, 1997 through the expiration of the
Term, as extended, Landlord may not make any
alterations, improvements, additions or changes
(collectively "Alterations") to the Premises or the
Building without Tenant's consent unless Landlord is
obligated to perform the Alterations under the terms of
this Lease or under applicable legal requirements. If
Landlord is obligated to perform Alterations under the
terms of this Lease, then Landlord may perform them
without Tenant's consent, but subject to all other
terms and conditions of this Lease. With respect to
proposed Alterations to the Premises or common areas
located on floors that include portions of the Premises
that require Tenant's consent, Tenant may withhold its
consent in its sole discretion. With respect to other
proposed Alterations that require Tenant consent,
Tenant may not unreasonably withhold its consent. If
Landlord performs Alterations, then Landlord must use
its best efforts to minimize the effect of the
performance of the Alterations on Tenant's business. If
the performance of Alterations by Landlord materially
interferes with Tenant's business, then Tenant's
payment obligations under the lease will equitably
abate."
1.5 TERM. The Term of the Lease is extended to March 31, 2013.
1.6 OPTIONS. Tenant may extend the Term of the Lease for three,
consecutive additional periods of five years each on the terms and conditions
set forth in the Lease as amended by this Amendment, except that the number
of option periods remaining to be exercised will, in each case, be reduced by
one, by notifying the Landlord, in writing, not less than 360 days prior to
the expiration of the Term, or each option period, as the case may be. If
Tenant neglects to exercise any option by the required date specified above,
then Tenant will have no further options to extend the term of this Lease
1.7 BASE RENT. From the date of this Amendment through March 31, 1998,
Base Rent for the entire Premises is $96,956 per month. Thereafter Base Rent
for the Premises is as follows:
<TABLE>
<CAPTION>
STIPULATED ANNUAL RATE
----------------------
PAYMENT PERIOD MONTHLY RENT PER RENTABLE SQUARE
--------------- ------------ -------------------
FOOT
----
<S> <C> <C>
April 1, 1998 through March 31, 1999 $94,905 per month $17.00
April 1, 1999 through March 31, 2000 $90,718 per month $16.25
April 1, 2000 through March 31, 2001 $85,136 per month $15.25
April 1, 2001 through March 31, 2003 $77,320 per month $13.85
</TABLE>
From April 1, 2003 through March 31, 2013 and during the options
periods, if any, Base Rent will be $77,320 per month ($13.85 per Rentable
Square Foot), but subject to the following adjustments:
On April 1, 2003, April 1, 2008 and on the first day of each option
period (each date being a "CPI Adjustment Date"), Base Rent will adjusted to
an amount equal to the lesser of (a) the Base Rent in effect during the
period immediately prior to the CPI Adjustment Date multiplied by a fraction
the numerator of which is the Extension Index, as defined below and the
denominator of which is the Beginning Index, as defined below, and (b) the
Base Rent in effect during the period immediately prior to the CPI Adjustment
Date multiplied by 1.15, provided that Base Rent after a CPI Adjustment Date
will not be less than the
4
<PAGE>
Base Rent in effect immediately prior to the CPI Adjustment Date. The base
for computing the adjustment is the Consumer Price Index, all urban
consumers, all items, San Francisco-Oakland-San Jose, CA, published by the
United States Department of Labor, Bureau of Labor Statistics, in which
1982-1984 equals one hundred (100) ("Index"). The Index most recently
published as of an CPI Adjustment Date is the "Extension Index". The Index
which was most recently published as of the date sixty months prior to the
date the Extension Index was published is the "Beginning Index".
If the Index is changed so that the base year is altered, the Index
shall be converted in accordance with the conversion factor published by the
United States Department of Labor, Bureau of Labor Statistics. If the Index
is discontinued or revised during the term, such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index has not been
discontinued or revised.
From and after the date of this Amendment, Sections 3.2(c) and 3.2(d) of
the Lease are null and void and without further effect. From and after the
date of this Amendment, "Base Rent" as provided in this Section 1.7 is
Tenant's sole fixed rent obligation for the entire Premises. Tenant's only
other regularly scheduled payment obligations to Landlord are Tenant's
Proportionate Share of Real Property Taxes under Article 4 of the Lease and
Tenant's Proportionate Share of Operating Expenses under Article 5 of the
Lease.
1.8 Intentionally omitted.
1.9 REAL ESTATE TAXES. The following provision is added to the end of
Section 4.2(a):
"Notwithstanding anything to the contrary in this Section 4.2(a),
except as specified below, if there is a change of ownership of the
Building or the Property or any portion thereof that results in an
increase in Real Property Taxes, then for purposes of calculating
Tenant's payment obligations under Section 4.2, the increase in Real
Property Taxes subsequent to and caused by a change of ownership in the
Building or Property or any portion thereof will be deemed to include
only the portion of the increase in Real Property Taxes caused by the
change in ownership as set forth in the table below:
PERIOD
First 12 Months
following change 14% of increase
Second 12 Months
following change 28% of increase
Third 12 Months
following change 42% of increase
Fourth 12 Months
following change 56% of increase
Fifth 12 Months
following change 70% of increase
Sixth 12 Months
following change 84% of increase
Seventh 12 Months
following change 100% of increase
4
<PAGE>
The foregoing limitation on the increase in Real Property Taxes
resulting from a change in ownership does not apply to changes of
ownership that result from foreclosure proceedings, exercises of a
power of sale under a deed of trust and transfers by deed in lieu of
foreclosure."
1.10 OPERATING EXPENSES. Section 5.3(i) is hereby amended by (i)
deleting the phrase "or which may be required by applicable laws, ordinances,
rules or regulations in force with respect to the Premises from and after the
Rent Commencement Date" and (ii) adding the following provisions at the end
thereof: "For purposes of this Lease, capital improvements that are included
in Operating Expenses, if any, must be amortized in accordance with generally
accepted accounting principles and Tenant's Proportionate Share of Operating
Expenses each year will only include the portion of the cost of such capital
improvements that are amortized that year. Tenant has no responsibility for
portions of the cost of capital improvements that are amortized after the
expiration or earlier termination of the Lease. Notwithstanding anything to
the contrary in this Lease, Operating Expenses do not include the cost to
repair damage to the Building or any portion thereof caused by a casualty."
1.11 OPERATING EXPENSE BUDGET. Section 5.4 is hereby amended by
substituting "five percent (5%)" in place of "ten percent (10%)" in both
sentences where such phrase appears.
1.12 TENANT AUDIT. Section 5.6 is hereby amended by the addition of the
following provisions at the end thereof:
"Tenant may once per calendar year audit all of Landlord's (or
Landlord's agents') records pertaining to Operating Expenses and Real
Property Taxes. Any net overbilling discovered in the course of an
audit must be refunded to Tenant within thirty days of Landlord's
receipt of a full and complete copy of the auditor's report including
all supporting documentation, data and calculations related to the
amounts overbilled. If Landlord has issued its annual reconciliation
for a particular year and an audit of that year determines that Tenant
was overbilled by five percent or more of the total sum which properly
should have been billed by Landlord to Tenant in respect of Operating
Expenses and Real Property Taxes, then Landlord must reimburse Tenant
for all expenses of its audit. Landlord must retain its records
regarding Operating Expenses and Real Property Taxes for a period of at
least three years following the final billing for the calendar year,
tax or fiscal year in question. At any time during that three year
period upon notice to Landlord, Tenant may conduct its audit. Tenant's
audit is binding upon Landlord unless within 30 days following
notification to Landlord of audit result, Landlord gives Tenant notice
("dispute notice") specifying reasonable grounds for disputing such
result. In the event of such a dispute, the dispute shall be resolved
by a second audit accomplished by an neutral, experienced, qualified
and independent auditor (who may not have performed work for either
Landlord or Tenant during the preceding five year period), named by
Tenant and approved by Landlord which approval may not be unreasonably
withheld. Notwithstanding the foregoing, if Landlord does not estimate
any portion of Operating Expenses for a calendar year and instead bills
Tenant for Operating Expenses by submitting copies of paid invoices and
other reasonable documentation of the amounts actually expended by
Landlord, then with respect to such year Tenant will not be entitled to
audit Landlord's records."
1.13 ALTERATIONS.
(a) Section 7.2(a) is hereby amended and restated in its entirety
as follows:
"(a) "Minor Work" means repairs, reconstruction, alterations or
additions to the Premises and the placement of HVAC equipment and
communication facilities on the
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roof of the Building so long as such work does not affect the
structural integrity of the Building or the integrity of the roof and
does not materially alter demising or structural walls, the exterior
appearance of the Building or any significant architectural feature of
the Building."
(b) The last three sentences of Section 7.3(a)(1) are hereby
deleted.
(c) Section 7.3(a)(7) is hereby amended by inserting the following
phrase at the beginning of the Section: "For any work costing in excess of
$500,000.00,".
(d) Section 7.3(b)is amended by substituting "ten (10)" for
"twenty-one (21) in the first sentence of the section.
(e) Section 7.4 is hereby amended and restated in its entirety as
follows:
"7.4 PERFORMANCE OF MINOR WORK. Tenant may without Landlord's
consent perform Minor Work. The provisions of Section 7.3(b) apply
to all Minor Work. Tenant will supply Landlord with "as built"
plans and specifications for all Minor Work."
1.14 LEASED FIXTURES. Section 7.6 is hereby amended and restated in its
entirety as follows:
"7.6 LEASED FIXTURES. Except as provided in the last sentence of
this Section 7.6, Landlord waives all liens, if any, to which it may
have a right with respect to the merchandise, furniture, Trade Fixtures
and other personal property of Tenant located on or about the Premises
and will from time to time within 15 days following Tenant's request
execute and deliver to Tenant those documents as Tenant may reasonably
request (i) to acknowledge that waiver and/or (ii) to subordinate, the
liens, if any, which Landlord may have in that personal property to the
interest of any lender of Tenant or Tenant's parent corporation (if
any) which has taken or (is taking) a security interest in that
personal property as security for loan. At Tenant option those
instruments may provide that if the lender undertakes to enforce its
security interest in the personal property, Landlord must cooperate
with the Lender, or its designated representative, in its efforts to
assemble the personal property located at the Premises and may not
hinder the lender's actions in enforcing its liens on the personal
property. In the event that the Premises is abandoned, or Landlord
recovers possession by any means, lender may remove the personal
property from the Premises within thirty (30) days after written notice
by Landlord. Landlord does not waive or agree to subordinate any lien
to which it becomes entitled as a result of a judgment entered against
Tenant in connection with a default of Tenant under this Lease."
1.15 LANDLORD REPAIRS. Section 9.1 is hereby amended by adding the
following provision at the end thereof:
"Tenant may give Landlord notice of maintenance, repairs or other
work as may be required under the terms of this section, and Landlord
must proceed forthwith to perform that work with reasonable diligence,
but in no event later than 60 days after receipt of Tenant's notice. In
the event of an emergency Tenant may immediately perform work that is
Landlord's responsibility, and notify the Landlord promptly after the
work has been undertaken. If Landlord fails to repair or perform its
obligations within the 60 day period stated above, or in case of
emergency, Tenant may perform the Landlord work and Landlord must
reimburse Tenant for the reasonable cost of the work performed by
Tenant within thirty days after the date Tenant requests such
reimbursement and supplies reasonable supporting documentation for
those costs. With respect to repairs performed due to an emergency,
Tenant may only perform those
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repairs that are necessary, in Tenant's reasonable, good faith
judgment, to minimize damage to Tenant's property and its business
operations."
1.16 CONDITION UPON SURRENDER. Section 9.2(c) is hereby amended and
restated in its entirety as follows:
"(c) CONDITION UPON SURRENDER. At the expiration or earlier
termination of this Lease, Tenant will surrender the Premises,
including any leasehold improvements constructed by Tenant, in good
condition, ordinary wear and tear and casualty damage excepted. If
Tenant is not in default under this Lease after notice and expiration
of applicable cure period, then Tenant may remove all property that
belongs to Tenant, including Tenant's Trade Fixtures so long as Tenant
repairs any damage caused by that removal."
1.17 USE. Section 10.1 is hereby amended and restated in its entirety as
follows:
"PERMITTED USE. The Premises may be used for any lawful use.
Tenant may occupy the Premises under any name and trade names as
Tenant, in its sole discretion, elects."
1.18 USES PROHIBITED. Section 10.3(a) is hereby amended by deleting the
phrase "in any way increase the premiums on any insurance or".
1.19 COMPLIANCE WITH LAWS. Section 10.4 is hereby amended by the
addition of the following provision at the end thereof:
"Tenant's continuing remodeling, reconfiguring and growing will be
based on business decisions as to cost/benefit, including the costs of
meeting code compliance in each instance. Landlord cannot be
responsible for compliance costs in any way triggered by Tenant's new
uses or cumulative uses, or by Tenant's improvements or modifications.
Landlord's sole responsibility for compliance with code and other legal
requirements is related to generic enforcement of matters not triggered
by any use or action of Tenant."
1.20 SIGNS. Section 10.6 is hereby amended and restated in its entirety
as follows:
"10.6 SIGNS. Tenant may erect and maintain within the Premises,
upon the exterior of the Building (including each elevation of the
Building if there is more than one) and in the building common areas
such signs as Tenant deems appropriate to the conduct of its business
subject only to any applicable legal requirements. Tenant may attach
its signs to the Building exterior and common areas in a commercially
reasonable fashion. Except for signs, if any, that are legally
required, and as otherwise expressly permitted in this Section, no
signs may be placed on the exterior of the Building or in common areas
without Tenant's consent, which consent Tenant may withhold in its sole
discretion. If signs are placed without Tenant's consent, then, within
three days after notice to Landlord, Landlord must remove such signs
and if Landlord fails to do so, then Tenant may remove such signs and
deduct all reasonable costs and expenses incurred in connection with
such removal from rent. If during the Term there are third party
tenants in the Building, then Landlord may maintain directory signage
for those tenants, and those tenants will be permitted to place
reasonable identity signage on the entrance to their premises. During
the last nine months of the Term, Landlord may place "For Rent" or "For
Lease" signs on the exterior of the Building in reasonable locations
that do not in any manner affect the visibility of Tenant's signs."
1.21 CASUALTY INSURANCE. Section 11.1 is hereby amended and restated in
its entirety as follows:
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"11.1 CASUALTY INSURANCE. Landlord must maintain at all times
during the Term an all risk property insurance policy insuring against
damage to any portion of the Building, except any leasehold
improvements installed by tenants in their premises or to personal
property, including Trade Fixtures, placed by tenant in their
premises. That insurance must be Replacement Cost Coverage. The term
all risk policy as used in this lease means a policy of fire and other
property insurance in the form commonly referred to in the insurance
industry as "Special Form". Landlord's property policies required
under this Section 11.1 may not provide for any deductible or self
insured retention in excess of $25,000, unless approved by Tenant.
Landlord may maintain any of its required insurance under blanket
policies of insurance covering the Building and any other properties
owned by Landlord or companies affiliated with the Landlord, provided
that the coverage afforded will not be reduced or diminished by reason
of the use of such blanket policy of insurance. In addition, Landlord
may from time to time carry earthquake insurance, based upon price,
availability and common practice.
Tenant must at all times during the Term maintain in full
force and effect a policy(s) of all risk property insurance covering
all of Tenant's alterations, improvements and betterments to the
Premises now existing or to be added, to the extent of their full
replacement costs as updated from time to time during the Term of this
lease. Tenant must maintain in full force and effect at all times
during the Term a policy(s) of boiler and machinery breakdown
insurance covering all of its boilers, fired or unfired pressure
vessels, heating, ventilating and air-conditioning units or any other
mechanical equipment which may malfunction or cause damage to property
or injury to persons that may be caused by or results from any
equipment which equipment is used exclusively by the Tenant, and if
said coverage is not included within the policy(s) providing coverage
for the Tenant's alterations, improvements and betterments required
under this Lease, then said insurance shall be by separate policy in
an amount not less than $100,000.00."
1.22 LIABILITY INSURANCE. Section 11.2 is hereby amended by the addition
of the following provision at the end thereof:
"Landlord must at all times during the Term keep in force a
policy or policies of lessor liability insurance or an endorsement on
a blanket liability insurance policy or policies against any and all
damages and liability on account of, or arising out of injuries to
persons or property or the death of any person or for property damage
resulting from acts or omissions of Landlord, its agents or
representatives in the minimum amount of $5,000,000.00 combined single
limit in any one accident. That policy or policies must include
Contractual Liability Insurance recognizing the liability assumed by
Landlord under Section 11.7. Tenant's liability insurance will be
deemed primary to the liability insurance that Landlord carries."
1.23 WAIVER OF SUBROGATION. Section 11.5 is hereby amended by the
insertion of the phrase "or required to be carried" in the tenth line of the
section between the words "carried" and "by"
1.24 INDEMNIFICATION. Section 11.7 is hereby amended and restated in its
entirety as follows:
"11.7 INDEMNIFICATION.
(a) BY TENANT. Except for Landlord's gross negligence
or wilful misconduct, Tenant hereby agrees to and shall indemnify,
defend, protect and hold Landlord and its general and limited
partners, employees, agents and representatives free and harmless from
and against all injury, loss, damage, liability and costs or expenses
(including, without limitation, reasonable attorneys' fees, costs of
suit, expert witness fees, investigative fees and discovery costs) of
whatever nature, to any person or property
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resulting from Tenant's use and occupancy of the Building or any negligent
act or omission of Tenant or its officers, directors, shareholders,
employees, agents, guests, invitees and representatives.
(b) BY LANDLORD. Landlord hereby agrees to and shall
indemnify, defend, protect and hold Tenant and its officers,
directors, shareholders, employees, agents and representatives free
and harmless from and against all injury, loss, damage, liability and
costs or expenses (including, without limitation, reasonable
attorneys' fees, costs of suit, expert witness fees, investigative
fees and discovery costs) of whatever nature, to any person or
property resulting from any grossly negligent act or wilful omission
of Landlord.
The provisions of this Section 11.7 are subject and subordinate to
the provisions of Section 11.5."
1.25 ASSIGNMENT AND SUBLETTING.
(a) Section 12.1 is hereby amended and restated in its entirety as
follows:
"12.1 ASSIGNMENT AND SUBLEASE OF PREMISES. Except as
expressly provided below, Tenant may not assign this Lease or sublet
the Premises, or any part thereof, without Landlord's consent, which
consent Landlord may not unreasonably withhold. Any assignment or
sublease that requires Landlord consent that is made without such
consent will be void. Tenant may without Landlord's consent assign
this Lease or sublet the Premises to a corporation with which it may
merge or consolidate or in connection with the sale of at least a
majority of its assets, or an operating division, or to any parent or
subsidiary of Tenant or a subsidiary of Tenant's parent. For purposes
of this Section 12.1, a parent-subsidiary relationship is deemed to
exist between two corporations if one corporation owns a majority of
the voting stock of the other corporation. No assignment of this Lease
or sublease of the Premises will serve to release Tenant from
liability under this Lease unless Landlord expressly does so at the
time of such assignment or sublease."
(b) Section 12.2 is hereby amended by inserting the phrase "Except
as expressly provided in Section 12.1," at the beginning of the second
sentence of the section.
(c) Section 12.3 is hereby amended and restated in its entirety as
follows:
"12.3 ASSIGNMENT DEFINED. As used in this Article 12, the term
"assignment" includes any sale, transfer or other disposition of all or
any portion of Tenant's estate under this Lease (including any transfer
for security), whether voluntary or involuntary, and whether by
operation of law of otherwise."
1.26 RIGHTS OF ENTRY. Section 13.1 is hereby amended and restated in its
entirety as follows:
"13.1 RIGHTS OF ENTRY. Upon 24 hours prior notice, Landlord and
its authorized representatives may enter the Premises during regular
business hours for the purpose of showing the Premises to prospective
lenders and purchasers, and inspecting and determining the condition of
the Premises, provided that in the event of emergency Landlord may
immediately enter the Premises without notice. In addition, upon notice
to Tenant during hours reasonably designated by Tenant, Landlord may
enter the Premises to perform repairs, reconstruction, alterations and
improvements that Landlord is obligated or entitled to perform under
the other provisions of this Lease. During the last nine months of the
Term, as extended, upon 24 hours prior notice, Landlord and its
authorized representatives may enter the Premises during regular
business hours for the
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purpose of showing the Premises to prospective tenants. Landlord must
use best efforts when exercising its rights of Premises entry not to
interfere with the access to or visibility of the Premises, or the
conduct of business within. Landlord must reimburse Tenant for costs in
good faith incurred to protect Tenant property and improvements from
theft or damage in respect of Landlord entry; and must repair, to
Tenant's satisfaction all damage caused by its work within the
Premises. If Landlord entry continues for 24 hours or more and has an
adverse effect upon Tenant business operations, then Tenant rent will
abate proportionate to the percentage of the Premises usable floor area
adversely affected by Landlord entry unless basis for Landlord entry
was cure of Tenant default after notice and expiration of applicable
cure period."
1.27 CASUALTY AND TAKING. Article 14 is hereby amended and restated in
its entirety as follows:
"14.1 After any casualty event, Landlord must, within 30 days
after the casualty, notify Tenant of Landlord's reasonable, good faith
estimate of how long from the date of the casualty it will take
Landlord to repair and restore the damaged portions of the Premises. If
the Premises or its appurtenances are damaged or destroyed by a
casualty to the extent that Landlord cannot reasonably complete its
restoration and repair obligations within twelve months from the date
of the casualty, then Tenant may terminate this Lease as of the date of
the casualty by notice to Landlord within 45 days after the date that
Landlord notifies Tenant of the time period required to repair and
restore the damaged portions of the Premises. If neither party elects
to terminate the Lease under the terms of this Article, then Landlord
must commence its repair and restoration of the damage caused by the
casualty as soon as possible after the date of the casualty. Landlord
must repair and restore the all portions of the Premises and its
appurtenances that are damaged by the casualty to substantially their
condition immediately prior to the casualty except for the leasehold
improvements constructed by Tenant. Landlord must diligently pursue its
repairs and restoration to completion. If Landlord does not complete
its repairs and restoration within eighteen months from the date of the
casualty (subject to extension for force majeure events), Tenant may
terminate this Lease by written notice to Landlord at any time prior to
completion. Once Landlord has completed its repair and restoration
obligations, Tenant must commence the repair and restoration of the
leasehold improvements constructed by Tenant that were damaged by the
casualty. All rent payable under this Lease will abate from the date of
the casualty to the earlier of (i) 180 days following the date Landlord
completes its repair and restoration obligations and (ii) the date on
which Tenant completes its repairs and restoration, provided that if
Tenant continues to conduct business in the Premises during the period
that Landlord and Tenant are repairing and restoring the Premises, then
Tenant's rent obligations during the period of repairs and restoration
will abate in proportion to the percentage of the Premises usable floor
area damaged by the casualty.
If the Premises are substantially damaged by a casualty that is
covered by neither (i) the insurance actually carried by Landlord nor
(ii) the insurance Landlord is required to carry under the terms of
this Lease, then Landlord may elect to terminate this Lease by giving
notice of its election to terminate within ninety days after the
casualty event. If Landlord elects to terminate the Lease, then the
rights and obligations of the parties will cease as of the date of
Landlord's notice, and rent and additional charges will be adjusted as
of the date of such termination. Damage to the Premises is substantial
if the cost to repair the damage is equal to or greater than 15% of the
full replacement cost of the Premises.
14.2 Intentionally omitted.
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14.3 Tenant is not entitled to any compensation or damages, other
than stated in this Lease, from Landlord for the loss of the use of the
whole or any part of the Premises or damage to tenant's personal
property or any inconvenience or annoyance occasioned by the casualty
event.
14.4 If Landlord is obligated to repair and restore under the
terms of this Article, but does not commence those repairs and
restoration within 90 days of the casualty, and continue its repairs
and restoration thereafter with reasonable dispatch, then Tenant may,
upon notice to Landlord, perform Landlord's repair and restoration
obligations at Landlord's sole cost and expense. If Tenant elects to do
so, then Landlord must promptly pay to Tenant any insurance proceeds
received by Landlord in connection with the casualty. Landlord must pay
Tenant on demand for any cost or expense incurred by Tenant in
connection with its performance of Landlord's repair and restoration
obligations (not including any amount by which the cost and expense of
restoration is increased by any change or changes made by Tenant).
14.5 The parties waive those rights of Lease termination as are
granted to them under the laws of the state where the Premises are
located, it being their agreement that the rights of termination in the
event of casualty, as set forth in this Article, are exclusive.
14.6 EFFECT OF TAKING.
(a) In the event the whole or any part of the Premises is taken
for public or quasi-public use or condemnation under eminent domain,
this Lease will terminate as to the part so taken on the date
possession is yielded to the condemning authority.
(b) In the event a portion of the Premises, Building or Property
is taken and such taking substantially impairs the usefulness of the
Premises for the purposes hereinbefore granted to the Tenant, then
Tenant may terminate the Lease by written notice within thirty days
after to the actual physical taking.
(c) For the purposes of this Article, a sale or conveyance in
lieu of condemnation that is made because of the threat of condemnation
will be deemed an appropriation or taking under the power of eminent
domain.
(d) If this Lease is not terminated as above provided following a
taking, then Landlord must, at its expense, make all necessary repairs
or alterations to the basic building and exterior work so as to
constitute the remaining Premises a complete architectural unit and a
proportionate reduction will be made in the Base Rent and additional
charges based on the proportion of the Premises taken.
14.7 COMPENSATION AND AWARDS. All compensation awarded for any
taking of the fee and the leasehold, or any part thereof, will belong
to and be the property of Landlord. Tenant hereby assigns to the
Landlord all right, title and interest of Tenant in and to any award
made for leasehold damages and/or diminution in the value of Tenant's
leasehold estate. Tenant may claim all compensation as may be
separately awarded or allocated including without limitation relocation
costs and the value of Tenant's leasehold improvements. Compensation as
used in this section means any award given to the Landlord for such
taking in excess of, and free and clear of, all prior claims of the
holders of any mortgages or other security interests.
1.28 LATE PAYMENTS. Section 15.4 is hereby amended and restated in its
entirety as follows:
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"15.4 LATE CHARGES. If Tenant fails for any reason to pay Base
Rent, Tenant's Proportionate Share of Real Property Taxes or Operating
Expenses, additional Rent or any other amount fee, or charge due
hereunder within five (5) days of the date when due, then Landlord may
impose a late charge equal to 10% of the amount overdue. If Landlord
fails for any reason to pay any amount payable to Tenant under this
Lease within five (5) days of the date when due, then Tenant may impose
a late charge equal to 10% of the amount overdue. In addition, any sum
accruing to Landlord or Tenant under the provisions of this Lease that
is not paid within 10 days following written notice that it is overdue
("Notice Period") bears interest from the expiration of the Notice
Period, at the rate of the lesser of (i) the maximum rate legally
permitted and (ii) 12% per annum, until paid."
1.29 LANDLORD DEFAULT. The following Section 15.6 is hereby added to the
Lease:
"15.6 LANDLORD DEFAULT. If Landlord fails to perform any of its
obligations under this Lease and that failure continues for a period of
more than 30 days after receipt of written notice from Tenant
specifying that failure, or if the failure is of a nature to require
more than 30 days for remedy and continues beyond the time reasonably
necessary to cure (provided Landlord must have undertaken procedures to
cure the default within 30 days of Tenant's notice and diligently
pursue such efforts to cure to completion), then Tenant may, upon
written notice, incur any reasonable expense necessary to perform the
obligation of Landlord specified in such notice and Landlord must
reimburse Tenant for the reasonable expense incurred by Tenant within
thirty days after the date Tenant requests such reimbursement and
supplies reasonable supporting documentation for those expenses."
1.30 NON-DISTURBANCE. Section 16.1 is hereby amended and restated in its
entirety as follows:
"16.1 NONDISTURBANCE AND SUBORDINATION TO MORTGAGE.
(a) Landlord must obtain from every lender, ground lessor or
other party whose interest is superior to Tenant's leasehold interest,
a fully executed nondisturbance agreement assuring Tenant that
notwithstanding any default by Landlord, or any foreclosure or deed in
lieu thereof or lease termination proceedings, or the exercise of any
other right or remedy, Tenant's rights under the Lease will continue in
full force and effect and its possession of the Premises will remain
undisturbed except in accordance with the provisions of this Lease so
long as Tenant is not in default hereunder after notice and expiration
of applicable cure period. Those agreements must be in a form
reasonably satisfactory to Tenant.
(b) Upon Landlord's request, Tenant's interest under this lease
will be subordinated to any mortgage, deed of trust, sale/leaseback
transaction or any other hypothecation for security hereafter placed
upon the Building, the Property or both by the execution, delivery and
recordation of a subordination, non-disturbance and attornment
agreement that is reasonably acceptable to Tenant."
1.31 ARBITRATION. Section 5.10 of the Lease is hereby deleted in its
entirety. The first sentence of Article 17 is hereby deleted and the
following provisions substituted in its place: "Either Landlord or Tenant may
at any time require that any non-monetary dispute regarding a matter that
cannot result in Lease termination be submitted to arbitration. Upon the
mutual agreement of the parties, monetary disputes and disputes that could
result in Lease termination may also be submitted to arbitration."
1.32 Lease Status. Landlord and Tenant each represent that to its best,
current knowledge as of the date of this Amendment (i) neither Landlord nor
Tenant is in default under the terms of the Lease, (ii)
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no event exists that with the passage of time or the giving of notice or both
would constitute a default by either party to the Lease, and (iii) each party
has fully performed its obligations under the Lease that have accrued under
the Lease through the date of this Amendment and no claims are outstanding
for any unperformed obligations except as to the items listed on an attached
Exhibit B containing obligations of Landlord and Tenant.
1.34 FORCE MAJEURE. The following Section 18.14 is hereby added to the
Lease:
"18.14 Force Majeure. As used herein the term force majeure event
means any prevention, delay or stoppage due to strikes, lockouts, labor
disputes, acts of God, inability to obtain labor, materials, or merchandise,
governmental restrictions, governmental regulations, governmental controls,
judicial orders, enemy or hostile governmental actions, civil commotion,
fire, or other casualty, and other causes beyond a party's reasonable control
(but not financial inability). If a party's performance of a non-monetary
obligation is delayed by a force majeure event, then the period for
performing that non-monetary obligation will be extended for a period equal
to the period of delay caused by the force majeure event. A party whose
performance of a non-monetary obligation is delayed by a force majeure event
must give prompt notice of that delay to the other party."
1.35 AUTHORITY. The individuals executing this Amendment on behalf of
each party hereto warrant that they have been duly authorized to execute and
deliver this instrument on behalf of and by the party for whom they are
signing, and by delivery hereof each individual warrants that execution by no
other signatory is necessary to bind the part for whom they sign. A certified
copy of the board of directors' resolution authorizing the execution of this
Amendment by Tenant is attached hereto as Exhibit C.
1.36 RATIFICATION. The parties ratify and affirm the Lease as amended
hereby.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first recited above.
TENANT LANDLORD
CALIFORNIA CULINARY ACADEMY, INC. 625 POLK INVESTMENT COMPANY
A CALIFORNIA CORPORATION A CALIFORNIA LIMITED PARTNERSHIP
By: By:
------------------------------ ----------------------------
Its: Its: General Partner
------------------------------
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EXHIBIT B
TO
EIGHTH AMENDMENT TO LEASE
REPAIR OBLIGATIONS OF LANDLORD:
1. Roof on flat section of third floor to be replaced within the next five
years
2. Cosmetic restoration of ceiling plaster molds in Careme utilizing
lightweight materials reasonably replicating the same architectural style
3. Elevator safety edge sensors to be completed
4. Sump backup pump to be repaired or replaced if not already completed and
Landlord to provide periodic training to maintenance staff of Tenant in
proper sump pump maintenance procedures
5. Building exterior painting of lower casements
6. Restoration and repair of exterior terra cotta element near front entrance
REPAIR OBLIGATIONS OF TENANT:
1. Perform project work as necessary to finalize Permit #9318061 (currently
being bid for Tenant by Brayer Electric, Fine Line and PAFA), and finalize
any other open permits or related code "correction" items currently cited
in the Premises by the City of San Francisco.
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EXHIBIT 10.32
CALIFORNIA CULINARY ACADEMY, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options are, or will be, granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means California Culinary Academy, Inc., a
California corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
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(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulation promulgated thereunder.
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option. The Notice
of Grant is part of the Option Agreement.
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(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1997 Stock Option Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee or Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is Six Hundred Thousand (600,000) Shares. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated);
provided, however, that Shares that have actually been issued under the Plan,
whether upon exercise of an Option, shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
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4. FORM OF OPTION.
(a) INCENTIVE OR NONSTATUTORY STOCK OPTIONS. Options issued under
the Plan may be either Nonstatutory Stock Options or Incentive Stock Options
or a combination of both. Whether an Option or a portion thereof is a
Nonstatutory Stock Option or an Incentive Stock Option shall be clearly
stated in the Option Agreement.
(b) RECLASSIFICATION OF OPTIONS. Any Incentive Stock Option may be
reclassified into a Nonstatutory Stock Option upon the written request of the
Optionee and the consent of the Company (which consent may be withheld in the
sole discretion of the Administrator) by the amendment of its designation and
the deletion or modification of any provision which, under the terms of the
Plan, is applicable only to Incentive Stock Options. The number of shares
which may be purchased pursuant to an Incentive Stock Option which is so
reclassified into a Nonstatutory Stock Option may be increased by amendment
but not in excess of the number of additional shares necessary to provide the
Optionee with the same economic benefit after federal income taxes upon the
exercise of the Option as a Nonstatutory Stock Option as the Optionee would
have obtained upon the exercise of the Option as an Incentive Stock Option.
In no event shall (i) the provisions of this subsection be interpreted or
construed to grant any rights, powers or privileges to reclassify or
otherwise amend an Incentive Stock Option to any person or body other than
the Administrator; or (ii) any Option Agreement contain any provision which
purports to grant any such rights, powers or privileges.
(c) CANCELLATION OF OPTIONS. With the Optionee's consent, the
Administrator may cancel any Option issued under the Plan and issue a new
Option to such Optionee.
5. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of
Service Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
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(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to grant Incentive Stock Options, in accordance with
Section 422 of the Code or Nonstatutory Stock Options;
(ii) to determine the Fair Market Value;
(iii) to select the Service Providers to whom Options may be
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(xi) to modify or amend each Option (subject to Section 15(c)
of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
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(xii) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal
to the amount required to be withheld. The Fair Market Value of the Shares to
be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;
(xiii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options.
5. ELIGIBILITY.
(a) INCENTIVE AND NONSTATUTORY STOCK OPTIONS. Options may be
granted only to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. Nonstatutory Stock Options may be granted to
Employees and Consultants. An Employee or Consultant who has been granted an
Option may, if he is otherwise eligible, be granted additional Options.
(b) INCENTIVE STOCK OPTIONS TO PROSPECTIVE EMPLOYEES. No
Incentive Stock Option shall be granted to any prospective employee prior to
the date upon which such person becomes an Employee; provided, however, that
the Administrator may grant an Incentive Stock Option to a prospective
employee prior to such person's employment, subject to the condition that
such person become an Employee, in which case, the date of grant shall be the
date upon which such person becomes an Employee (unless a later date shall be
specified in the Notice of Grant).
6. LIMITATIONS.
(a) INCENTIVE STOCK OPTIONS. Each Option shall be designated in
the Notice of Grant as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that
the aggregate Fair Market Value: (i) of Shares subject to an Optionee's
incentive stock options granted by the Company, any Parent or Subsidiary,
which (ii) become exercisable for the first time during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 7(a), incentive stock options shall be taken
into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time of grant.
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(b) NO RIGHT TO CONTINUED STATUS AS A SERVICE PROVIDER. Neither
the Plan nor any Option shall confer upon an Optionee any right with respect
to continuing the Optionee's relationship as a Service Provider with the
Company, nor shall they interfere in any way with the Optionee's right or the
Company's right to terminate such relationship at any time, with or without
cause.
(c) NUMERICAL LIMITATIONS. The following limitations shall apply
to grants of all Options under the Plan:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 100,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 20 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or
its approval by the shareholders of the Company. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of
the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such
shorter term as may be provided in the Notice of Grant. However, in the case
of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Notice of Grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be such price as
determined by the Administrator, but shall be subject to the following:
(i) INCENTIVE STOCK OPTIONS. In the case of an Incentive
Stock Option:
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(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than One
Hundred Ten Percent (110%) of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than One Hundred Percent (100%) of the Fair Market
Value per Share on the date of grant.
(ii) NONSTATUTORY STOCK OPTIONS. In the case of a
Nonstatutory Stock Option granted to any person, the per Share exercise price
shall be no less than Eighty-five Percent (85%) of the Fair Market Value per
Share on the date of Grant.
(iii) PERFORMANCE-BASED COMPENSATION. In the case of an Option
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(iv) MERGER OR OTHER CORPORATE TRANSACTION. Notwithstanding
the foregoing, Options may be granted with a per Share exercise price of less
than 100% of the Fair Market Value per on the date of grant pursuant to a
merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
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(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's
death or Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
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(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement to the extent the Option is vested on the date of termination (but
in no event later than the expiration of the term of such Option as set forth
in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE.
(i) WHILE A SERVICE PROVIDER. If an Optionee dies while a
Service Provider, the Option may be exercised within such period of time as
is specified in the Option Agreement (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant) by
the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option
would have vested had the Optionee remained a Service Provider for six (6)
months after the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination.
If, at the time of death, the Optionee is not vested (or is not deemed
vested by this Section 10(d)(i)) as to his or her entire Option, the Shares
covered by the unvested portion of the Option shall immediately revert to the
Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If
the Option is not so exercised within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(ii) WITHIN THREE MONTHS OF TERMINATION AS A SERVICE PROVIDER.
If an Optionee dies within three (3) months of ceasing to be a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option
vested on the date of death. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee
is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under
the Optionee's will or the laws of descent or distribution. If the Option is
not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
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(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
12. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions
as the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.
In addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option shall lapse as
to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor
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corporation refuses to assume or substitute for the Option, the Optionee
shall fully vest in and have the right to exercise the Option as to all of
the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of
assets, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to
the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
or sale of assets is not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise
of the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each Optionee
within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the and the
Company. Termination of the Plan shall not affect the Administrator's ability
to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
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(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
19. GRANTS EXCEEDING ALLOTTED SHARES. If the Shares covered by an
Option exceeds, as of the date of grant, the number of Shares that may be
issued under the Plan without additional shareholder approval, such Option
shall be void with respect to such excess Shares, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the
Plan is timely obtained in accordance with Section 15(b) of the Plan.
20. SHAREHOLDER APPROVAL. Shareholder approval of the Plan shall be
obtained in the manner and to the degree required under Applicable Laws.
21. INFORMATION TO OPTIONEES. The Company shall provide each Optionee,
while such Optionee has one or more Options outstanding, with copies of all
annual reports and other information that are provided to all shareholders of
the Company. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key employees whose
duties in connection with the Company assure their access to equivalent
information.
22. OTHER PROVISIONS. Notwithstanding the express provisions of the
Plan, any Option may be granted on such additional or more restrictive terms
as the Administrator shall deem advisable consistent with the Plan.
23. REGISTRATION AND RESALE. The Plan, the shares of Common Stock
subject thereto, and the Options granted thereunder may, in the discretion of
the Board, be registered under the Securities Act of 1933, as amended, or
qualified for sale under the securities laws of any state. As a condition to
the grant of any Option under the Plan or the issuance of Shares upon the
exercise thereof, the Board may require that the Optionee agree to comply
with such provisions of federal and state securities laws as may be
applicable to such grant or issuance or to the sale of Shares acquired
thereby and deliver to the Company a written agreement in form and substance
satisfactory to the Company and its counsel implementing such agreement.
13
<PAGE>
24. EFFECTIVE DATE AND TERM OF PLAN.
(a) EFFECTIVE DATE. The Plan is effective as of March 15, 1997,
subject to receipt of shareholder approval, to the extent required by
Applicable Laws.
(b) TERM. The Administrator may terminate the Plan at any time.
The Plan will, in all events, terminate on the earlier of (i) March 15, 2007
or (ii) the date all shares available for issuance are issued or cancelled.
Each Option outstanding at the time of such termination will remain in force
in accordance with the provisions of the instruments evidencing such grant.
14
<PAGE>
[LETTERHEAD]
May 31, 1995
Mr. Keith Keogh
1166 Crescent Bay Boulevard
Clermont, Florida 34711
Dear Keith:
As we discussed, this letter will set forth the terms of your employment as an
officer of California Culinary Academy, Inc. ("CCA").
1) You will be a corporate officer with the title of Executive Vice President
and Chief Operating Officer. You will be a key member of senior management
and will help formulate and execute corporate policies and overall
strategic direction for CCA. Your duties will also include: (1) overall
supervision and management of the faculty including all full-time and
adjunct chef and related subject instructors; (2) developing and revising
educational curricula in conjunction with the action team assigned to the
task; (3) educational matters, including assisting in developing continuing
education and consumer education and professional courses; (4) overall
management and profit center responsibility for all of CCA's restaurant and
food and beverage operations; (5) purchasing of all food, beverages and
smallwares; 6) as time permits, you may teach at the CCA; 7) active
assistance in the CCA's retail and product licensing program as requested,
including giving and organizing chef demonstrations, meeting with
manufacturers, distributors and retailers and having the faculty assist in
product evaluations and selections; 8) active participation in the CCA's
media and publishing program as requested, including organizing the faculty
to work with you to create books, tapes and CD-ROM's to be commercially
published in both the text book and trade markets; 9) actively assisting in
developing new businesses such as commercial catering and baking; 10)
assisting, as appropriate, in alumni events, recruiting new students, and
retention of existing students; 11) actively assisting with industry
organizations including ACF matters, such as being approved for
certification programs including the Certified Master Chef examination.
You will also undertake other duties that may be assigned to you from time
to time by the President and the Board of Directors of CCA.
2) You will report directly to the President and Chief Executive Officer who
will be responsible for your performance and compensation reviews.
<PAGE>
Mr. Keith Keogh
May 31, 1995
Page Two
3) You agree, as reasonably requested, and as part of your duties, to act as a
spokesperson for the CCA, including making live personal appearances and
performances for video taping, photography for books, television, video,
CD-ROM programs and all other media and derivative products. As part of
your duties, your name, likeness, image, biography, quotes and narrative
statements attributed to (and reasonably approved by) you may be used in
books, tapes, CD-ROM, TV and video programs and ancillary and derivative
products. Also, CCA and its authorized agents can use, reproduce, print,
publish and broadcast your picture, likeness, voice, signature and
biographical material for sale, promotion, advertising and trade purposes
in connection with, and in endorsement for, books, television and video
programs, CD-ROM and all other media, including ancillary and derivative
products. Those rights can be exercised by CCA for the entire period of
the copyright of any product utilizing such rights, regardless of your
employment status with CCA.
4) Your employment will commence on the date you select, but no later than
June 30, 1995. Your office will be in the corporate headquarters of CCA in
San Francisco. While you are employed by CCA, you agree to devote your
full productive time, energies and abilities to its affairs. Your
employment is "at will" and thus is for no definite term. Employment may
be terminated either by CCA or by you at any time, with or without cause.
However if your termination is without cause, you will receive three months
base salary and medical insurance benefits as severance pay. Grounds for
termination "for cause" include but are not limited to one of the
following: a willful material breach of duty, habitual neglect of duty, or
action or inaction which places CCA in circumstances of financial peril.
Notwithstanding the above, if CCA is sold or if neither the present
Chairman or President are in those positions at CCA and you are terminated
without cause, then you will receive two years of base salary plus
continuing medical insurance benefits as severance pay.
5) For all of the services to be rendered by you and all the rights granted to
CCA by you, your base salary will be $160,000 per annum, paid biweekly as
are salaries of other employees of CCA. Within ten days of your commencing
full time employment, the Board of Directors will grant you stock options
under the CCA's stock option plan to purchase shares at their fair market
value on the date of grant. The options will be for 60,000 (sixty
thousand) shares of stock.
<PAGE>
Mr. Keith Keogh
May 31, 1995
Page Three
Vesting will be 30,000 (thirty thousand) on the grant date and 30,000
(thirty thousand) one year from the grant date (assuming you are still
employed by the CCA). The options will expire five years from the date of
grant.
You will have the opportunity to receive additional options on the
following basis: on June 19, 1996 and on June 19, 1997 the total Stock
Market Value of the Company will be calculated. Stock Market Value is the
number of CCA common shares issued and outstanding times the reported
market value of the common stock on NASDAQ as of the market close on that
day (or if that day is a holiday or weekend the value of the last previous
day the market was open). That Stock Market Value shall be subtracted from
the Stock Market Value on the same day the previous year. If the Stock
Market Value for the current year is higher, you will receive additional
stock options, at the then current fair market value, expiring in five
years and vesting fifty percent on date of grant and fifty percent one year
later. The number of options will be calculated by multiplying the
percentage difference between the Stock Market Values, times 60,000. (In
other words, if the Stock Market Value were 100% higher, you would receive
options to purchase 60,000 shares of stock.)
6) You and your wife and dependent children will be eligible, subject to any
qualifications required under CCA's insurance plans, to be covered under
the employee health insurance plan and group life insurance plan of CCA.
Terms and conditions of your participation will be the same as those for
other management employees. Under its current policy CCA will pay all of
the premiums. Provided you qualify for coverage as a non-smoker in
excellent health, the CCA will pay the entire premium on a $400,000 term
life policy where you designate the beneficiary. You can pay for
additional coverage if you wish. You will be eligible for four weeks
vacation per annum, under the terms and conditions of CCA's vacation
policies. The Company will also pay for your monthly parking at the Opera
Plaza Garage.
7) In addition, subject to policies established from time to time and approved
by the President or Chairman of the Board, you will be reimbursed for
pre-approved out of pocket expenses such as travel and entertainment,
participation in educational events, and professional seminars.
<PAGE>
Mr. Keith Keogh
May 31, 1995
Page Four
8) The CCA will assist you and your family in the following ways in relocating
to the San Francisco Bay Area, which they will do within six months of
commencement of your employment: 1) CCA will pay for one round trip,
economy class tickets for your wife and two daughters, plus $1,000.00 to
help cover other expenses to visit the Bay Area, plus one way economy class
tickets when they relocate; 2) CCA will pay for three round trip,
economy class tickets for you to visit Florida during the first seven
months of employment; 3) CCA will pay your out of pocket expenses (up to a
maximum of $15,000) to pack, move and unpack your household effects to move
them to San Francisco from Florida.
9) The above and all other benefits will be administered as described in the
Personnel Policy Manual which you have received.
10) You can participate as Captain or Manager of the U.S. Culinary Olympic Team
during the rest of 1995 and during 1996, (and thereafter on terms approved
by the Board of Directors). Training is done once a month from late Friday
through noon Monday. CCA (without having any obligation to contribute
money) will work with you to attempt to facilitate the relocation of the
Culinary Olympics headquarters to the San Francisco Bay Area. The CCA will
make its facilities available to the Team on a reasonable basis. You can
also participate in the Cook's World Tour event organized by WACF from July
9-19, 1996.
11) In the course of your employment you will have access to records and data
pertaining to CCA. Such information is considered confidential and
proprietary. Therefore, during your employment and thereafter, you will
not disclose any such information to any third party except as required in
the course of your employment with CCA.
12) This letter contains our entire agreement and supersedes all prior oral and
written agreements, understandings and commitments. No amendments to this
agreement may be made except in writing sign by both parties.
<PAGE>
Mr. Keith Keogh
May 31, 1995
Page Five
13) Formation, construction and performance of this agreement shall be
construed in accordance with the laws of the State of California.
If this letter is agreeable to you, would you please sign the enclosed copy and
return it to me.
I and the others at our company are confident that you will make a substantial
and meaningful contribution to CCA. We all look forward to working with you.
Sincerely,
CALIFORNIA CULINARY ACADEMY, INC.
By: /s/ Alexander M. Hehmeyer
-------------------------
Alexander M. Hehmeyer
President and Chief Executive Officer
AGREED:
/s/ Keith Keogh Date: June 7, 1995
-------------------------- ---
Keith Keogh
<PAGE>
Exhibit 11
CALIFORNIA CULINARY ACADEMY, INC.
STATEMENT RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996
---- ----
Primary Fully Diluted Primary Fully Diluted
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) $160,000 $160,000 $(999,000) $(999,000)
--------- ------------- --------- -------------
Weighted average common shares outstanding:
Common shares 3,308,394 3,308,394 3,114,732 3,114,732
Common equivalent shares:
Stock options and warrants* 93,666 93,666
Convertible Preferred shares 254,541 254,541
--------- ------------- --------- -------------
Weighted average common and common
equivalent shares outstanding 3,656,601 3,656,601 3,114,732 3,114,732
--------- ------------- --------- -------------
--------- ------------- --------- -------------
Earnings (loss) per share $0.04 $0.04 $(0.32) $(0.32)
--------- ------------- --------- -------------
--------- ------------- --------- -------------
</TABLE>
* For the year ended June 30, 1996 all common stock equivalents were
anti-dilutive.
5
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-93266 on Form S-8 and Registration Statement No. 33-17205 on Form S-3 of our
report dated September 15, 1997 (October 3 with respect to Note 12) appearing in
this Annual Report on Form 10-KSB of the California Culinary Academy, Inc. for
the years ended June 30, 1997 and 1996.
/s/ Deloitte and Touche LLP
San Francisco, California
October 13, 1997
[LOGO]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2308
<SECURITIES> 0
<RECEIVABLES> 3207
<ALLOWANCES> 360
<INVENTORY> 341
<CURRENT-ASSETS> 6027
<PP&E> 9864
<DEPRECIATION> 4899
<TOTAL-ASSETS> 11626
<CURRENT-LIABILITIES> 4961
<BONDS> 0
0
953
<COMMON> 9649
<OTHER-SE> (4085)
<TOTAL-LIABILITY-AND-EQUITY> 11626
<SALES> 212
<TOTAL-REVENUES> 15339
<CGS> 160
<TOTAL-COSTS> 3249
<OTHER-EXPENSES> 11766
<LOSS-PROVISION> 109
<INTEREST-EXPENSE> (52)
<INCOME-PRETAX> 267
<INCOME-TAX> 107
<INCOME-CONTINUING> 160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
