<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from: to: .
COMMISSION FILE NUMBER 0-22534-LA
MONTEREY PASTA COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0227341
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
353 SACRAMENTO STREET, SUITE 500
SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices)
TELEPHONE: (415) 397-7782
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At April 12, 1996, 7,792,588 shares of common stock, no par value, of the
registrant were outstanding.
This report on Form 10-Q contains 92 pages. The exhibit index is on page 13 of
this report.
1
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MONTEREY PASTA COMPANY
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 (unaudited) 3
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended March 31, 1996 and April 2, 1995 4
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31, 1996 and April 2, 1995 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature Page 12
Exhibit Index 13
2
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PART I. FINANCIAL INFORMATION
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . $ 424,171 $ 1,937,884
Accounts receivable, net . . . . . . 2,078,283 1,241,248
Inventories. . . . . . . . . . . . . 920,300 1,094,976
Prepaid expenses and other . . . . . 2,283,038 1,652,381
------------- ----------------
Total current assets. . . . . . 5,705,792 5,926,489
Property and equipment, net. . . . . . 5,492,543 5,338,968
Intangible assets, net . . . . . . . . 165,430 295,320
Deposits and other . . . . . . . . . . 180,005 130,240
------------- ----------------
Total assets. . . . . . . . . . $ 11,543,770 $ 11,691,017
------------- ----------------
------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . $ 1,316,254 $ 1,511,592
Accrued liabilities. . . . . . . . . 1,194,946 852,815
Current portion of long-term debt. . --- ---
Net liability from discontinued
operations . . . . . . . . . . . . 1,566,281 2,964,415
------------- ----------------
Total current liabilities . . . 4,077,481 5,328,822
------------- ----------------
Long-term debt . . . . . . . . . . . . 2,929,878 4,130,599
Commitments and contingencies. . . . . --- ---
Stockholders' equity:
Common stock . . . . . . . . . . . . 29,813,064 27,268,263
Accumulated deficit. . . . . . . . . (25,276,653) (25,036,667)
------------- ----------------
Total stockholders' equity . . . . . 4,536,411 2,231,596
------------- ----------------
Total liabilities and
stockholders' equity. . . . . $ 11,543,770 $ 11,691,017
------------- ----------------
------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, 1996 APRIL 2, 1995
-------------- -------------
<S> <C> <C>
Net revenues from continuing
operations. . . . . . . . . . . . . . $ 6,261,734 $ 3,840,535
Cost of sales. . . . . . . . . . . . . 3,581,972 2,282,433
------------ --------------
Gross profit . . . . . . . . . . . . . 2,679,762 1,558,102
Selling, general and administrative. . 2,723,330 1,168,294
Depreciation and amortization. . . . . 196,418 191,695
------------ --------------
Operating income (loss). . . . . . . . (239,986) 198,113
------------ --------------
Income (loss) from continuing
operations before provision for
income taxes. . . . . . . . . . . . . (239,986) 198,113
Provision for income taxes. . . . . . --- ---
------------ --------------
Net income (loss) from continuing
operations. . . . . . . . . . . . . . (239,986) 198,113
------------ --------------
Loss from discontinued operations. . . --- (1,986,917)
Net loss . . . . . . . . . . . . . . . $ (239,986) $ (1,788,804)
------------ --------------
------------ --------------
Net income (loss) per share -
Primary and fully diluted:
Continuing operations . . . . . . $ (0.03) $ 0.03
Discontinued operations . . . . . $ (0.00) $ (0.32)
------------ --------------
Total net income (loss) per share. . . $ (0.03) $ (0.29)
------------ --------------
------------ --------------
Weighted average common shares
outstanding . . . . . . . . . . . . . 7,313,925 6,070,809
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, 1996 APRIL 2, 1995
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . $ (239,986) $ 198,113
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization. . . 196,418 191,695
Loss on sale of assets . . . . . . (2,105) ---
Unrealized interest income from:
Held-to-maturity securities. . . --- (14,767)
Changes in assets and liabilities:
Accounts receivable. . . . . . . (837,035) 346,276
Inventories. . . . . . . . . . . 174,676 (223,836)
Prepaid expenses,
intangible assets and other. . . (590,607) (1,399,819)
Accounts payable . . . . . . . . (195,338) 154,382
Accrued liabilities. . . . . . . 342,470 416,009
Deferred income taxes. . . . . . --- (37,400)
------------- ---------------
Net cash used in continuing
operations. . . . . . . . . . . . (1,151,507) (369,347)
Net cash used in discontinued
operations. . . . . . . . . . . . (1,398,473) (2,353,923)
Cash flows from investing activities:
Proceeds from sale of assets . . . 8,821 ---
Purchase of intangibles and
other assets. . . . . . . . . . . (59,445) ---
Redemption of held-to-maturity
securities. . . . . . . . . . . . --- 204,247
Purchase of property and
equipment . . . . . . . . . . . . (337,189) (462,700)
------------- ---------------
Net cash used in investing
activities. . . . . . . . . . . (387,813) (258,453)
Cash flows from financing activities:
Repayment of long-term debt and
capital lease obligations . . . . (684) (14,054)
Proceeds from issuance of common
stock . . . . . . . . . . . . . . --- 91,976
Credit facilities borrowings . . . 1,424,764 78,294
------------- ---------------
Net cash provided by financing
activities. . . . . . . . . . . . 1,424,080 156,216
Net decrease in cash . . . . . . . . . (1,513,713) (2,825,507)
Cash and cash equivalents at
beginning of period . . . . . . . . . 1,937,884 3,117,566
------------- ---------------
Cash and cash equivalents at
end of period . . . . . . . . . . . . $ 424,171 $ 292,059
------------- ---------------
------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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MONTEREY PASTA COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by Monterey
Pasta Company (the "Company") and are unaudited. Certain amounts shown in the
1995 financial statements have been reclassified to conform with the current
presentation. The financial statements have been prepared in accordance with
the instructions for Form 10-Q and, therefore, do not necessarily include all
information and footnotes required by generally accepted accounting principles
and should be read in conjunction with the Company's 1995 Annual Report on Form
10-K, as amended by Form 10-K/A. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position, results of operations and cash
flows as of March 31, 1996 and for all periods presented have been recorded. A
description of the Company's accounting policies and other financial information
is included in the audited consolidated financial statements as filed with the
Securities and Exchange Commission in the Company's Form 10-K for the year ended
December 31, 1995, as amended by Form 10-K/A. The consolidated results of
operations for the interim quarterly periods are not necessarily indicative of
the results expected for the full year.
2. STATEMENT OF CASH FLOWS
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to property, plant and equipment during the quarter ended March 31,
1996, included $91,629 that were financed by advances from the equipment
revolving line of credit. Also, during the quarter ended March 31, 1996, debt
totaling $2,666,666 was converted into common stock (refer to footnote 6).
3. NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995. The new standard defines a
fair value method of accounting for stock options and other equity instruments.
Under the fair value method, compensation is measured at the grant date based on
the fair value of the award and is recognized over the service period, which is
usually the vesting period.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for employee stock-based
transactions under Accounting Principles Board Opinion ("APBO") No. 25,
"Accounting for Stock Issued to Employees", but would be required to disclose in
a note to the financial statements pro forma net income and, if presented,
earnings per share as if the Company had applied the new method of accounting.
The accounting requirements of the new standard are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has elected to continue to account for stock-based compensation under APBO No.
25 and will adopt the disclosure requirements of SFAS No. 123 in 1996.
4. INVENTORIES
Inventories consist of the following:
March 31, 1996 December 31, 1995
-------------- -----------------
Production-ingredients............... $ 418,039 $ 530,511
Production-finished goods............ 270,672 353,484
Paper goods and packaging materials.. 231,589 210,981
-------------- -----------------
$ 920,300 $ 1,094,976
-------------- -----------------
-------------- -----------------
6
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5. PROPERTY AND EQUIPMENT
Investments in property, plant and equipment are comprised of the following;
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Leasehold improvements............... $ 1,561,129 $ 1,550,963
Machinery and equipment.............. 3,507,550 3,398,749
Office furniture and equipment....... 725,238 522,902
Vehicles............................. 718,961 732,424
-------------- -----------------
6,512,878 6,205,038
Less accumulated depreciation and
amortization......................... (1,216,402) (1,049,380)
-------------- -----------------
5,296,476 5,155,658
Construction in progress............. 196,067 183,308
-------------- -----------------
$ 5,492,543 $ 5,338,968
-------------- -----------------
-------------- -----------------
</TABLE>
6. LONG-TERM DEBT
Components of long-term debt included the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Credit Facility:
Receivable and inventory revolver... $ 1,427,375 $ 52,375
Equipment revolver.................. 154,807 63,178
7% Convertible note payable, due
October 1997.......................... 1,333,334 4,000,000
Other................................. 14,362 15,046
-------------- -----------------
2,929,878 4,130,599
Less current portion of
long-term debt........................ --- ---
-------------- -----------------
$ 2,929,878 $ 4,130,599
-------------- -----------------
-------------- -----------------
</TABLE>
During the first quarter of 1996, two-thirds of the 7% convertible note payable
was converted into 611,058 shares of common stock of the Company. The average
conversion price was $4.36 per share. The remaining one-third of the note was
converted into 322,563 shares of common stock on April 4, 1996, including
accrued interest of $17,390, at a price of $4.19 per share.
7. INCOME TAXES
The net operating loss carryforwards generated for the quarter ended March 31,
1996 were fully offset with a valuation allowance due to uncertainties about
their realization.
7
<PAGE>
8. DISCONTINUED OPERATIONS
Subsequent to year-end 1995, the Company decided to discontinue the operations
of its restaurant and franchise subsidiaries. As a result of this decision the
Company wrote off its entire investment in its restaurant and franchise
subsidiaries. Net liabilities of the discontinued operations were as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Current assets...................... $ 1,443,462 $ 1,445,345
Current liabilities................. 8,757,669 10,283,650
Non-current assets.................. 5,842,326 5,968,290
Non-current liabilities............. 94,400 94,400
-------------- -----------------
Net liabilities..................... $ 1,566,281 $ 2,964,415
-------------- -----------------
-------------- -----------------
</TABLE>
Net revenues for the restaurant and franchise subsidiaries were $648,184 and
$1,893,494 for the first quarters of 1996 and 1995.
On April 19, 1996, the Company closed a transaction pursuant to a Stock Purchase
Agreement between itself and Upscale Acquisitions, Inc., a California
corporation ("Upscale"), dated as of April 1, 1996 (the "Agreement"). Pursuant
to the Agreement, the Company sold its shares in a wholly-owned subsidiary,
Upscale Food Outlets, Inc., a California corporation ("UFO"), which owns and
operates restaurants in California, Colorado and Washington which feature pasta
products under the name of "Monterey Pasta Company". The purchase price of the
shares was $1,000 in cash and a note executed by Upscale in the principal amount
of $2,500,000. Lance H. Mortensen, former Chairman of the Board, Chief
Executive Officer and President of the Company, is a director of the Company.
Mr. Mortensen is also the sole shareholder, Chief Executive Officer, President
and a director of Upscale.
9. STOCKHOLDERS' EQUITY
On April 23, 1996, the Company announced that it had received commitments to
purchase approximately $4 million of its common stock in a private offering to
accredited investors at $4.375 per share. The shares of common stock are
restricted securities with registration rights. Purchasers of the common stock
agreed not to sell such shares for one year from the date of purchase without
the consent of the placement agent. Spelman & Co. acted as placement agent (the
"Placement Agent") on a "best efforts", "any or all" basis. The Placement Agent
received no cash commissions in the offering but will receive warrants to
purchase one share of common stock for each $10 in shares sold, exercisable at a
price of $6.50 per share, for a term of seven years. The net proceeds from the
offering will be used by the Company for advertising, marketing, promotion,
capital equipment and working capital.
10. CONTINGENCIES
See footnote 10 of the Company's audited consolidated financial statements which
are included in the Company's Annual Report filed on Form 10-K for the year
ended December 31, 1995, as amended by Form 10-K/A, for a description of such
items.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the financial
statements and related notes and other information included in this report. The
financial results reported herein do not indicate the financial results that may
be achieved by the Company in any future period.
BACKGROUND
Monterey Pasta Company produces and markets premium quality fresh gourmet
pasta and pasta sauces, emphasizing all natural ingredients. Monterey Pasta
seeks to build brand recognition and customer loyalty by employing an aggressive
marketing program that focuses on developing complementary channels of
distribution and multiple points of sale for the Company's products. The
Company markets and sells its products through grocery and club stores, national
food service distributors/contract feeders and nontraditional venues such as
sports coliseums and universities.
Monterey Pasta currently offers 32 varieties of contemporary gourmet pasta
products that are produced using the Company's proprietary recipes, including
refrigerated cut pasta, ravioli, tortelloni, tortellini and pasta sauces.
Examples of the Company's pasta and pasta sauces include Snow Crab Ravioli,
Smoked Salmon Ravioli, Gorgonzola Roasted Walnut Ravioli, Sweet Red Pepper
Fettuccini, Santa Fe Linguini, Sun Dried Tomato Pesto Sauce and Roasted Garlic
Artichoke Sauce. Monterey Pasta believes its pasta products appeal to health-
conscious consumers who are seeking excellent quality, convenience and value.
The Company sells its pasta and pasta sauces through leading grocery store
chains, including Safeway, Vons, Albertsons, Giant Foods, Stop & Shop, Hannaford
Bros., QFC, King Sooper, Cala/Bell, Abco, Smitty's, Nob Hill and Petrini's; and
club store chains such as Price/Costco. As of March 31, 1996, more than 5200
grocery and club stores offered Monterey Pasta's products.
Subsequent to the year ended December 31, 1995, the Company decided to
discontinue the business of its restaurant and franchise subsidiaries. In 1995,
the Company wrote off its entire investment in its restaurant and franchise
subsidiaries and reclassified these susidiaries as discontinued operations. On
April 19, 1996, the Company closed a transaction pursuant to a Stock Purchase
Agreement between itself and Upscale Acquisitions, Inc., a California
corporation ("Upscale"), dated as of April 1, 1996 (the "Agreement"). Pursuant
to the agreement, the Company sold its shares in a wholly-owned subsidiary,
Upscale Food Outlets, Inc., a California corporation ("UFO"), which owns and
operates restaurants in California, Colorado and Washington which feature pasta
products under the name of "Monterey Pasta Company". The purchase price of the
shares was $1,000 in cash and a note executed by Upscale in the principal amount
of $2,500,000. Lance H. Mortensen, former Chairman of the Board, Chief
Executive Officer and President of the Company, is a director of the Company.
Mr. Mortensen is also the sole shareholder, Chief Executive Officer, President
and a director of Upscale.
There can be no assurance that these changes and the sale will lead to
improved operating results for the Company. The success of the Company's efforts
will depend on a number of factors, including whether grocery and club store
chains will continue to expand the number of their stores offering the Company's
products and whether the Company can continue to increase the number of grocery
and club store chains offering its products. Grocery and club store chains
continually re-evaluate the products carried in their stores and no assurances
can be given that the chains currently offering the Company's products will
continue to do so in the future.
RESULTS OF OPERATIONS
Net revenues increased 63% to $6,261,734 for the quarter ended March 31,
1996 as compared to $3,840,535 for the quarter ended April 2, 1995. This
increase is the result of distribution to approximately 5,200 individual grocery
and club stores at March 31, 1996 as compared to approximately 1,600 at April 2,
1995. Future revenues are expected to increase as the full effect of the
additional store participation has been fully assimilated into the Company's
distribution system.
9
<PAGE>
Gross profit was $2,679,762, or 43% of net revenues for the first quarter
of 1996, compared to $1,558,102, or 41% for the first quarter of 1995. Gross
profit has increased in 1996 as sales volumes have increased, primarily due to
gains associated with processing larger production quantities and the positive
impact experienced due to the upgrade and expansion of the Company's plant.
Cost of sales includes raw ingredients, packaging materials, direct production
labor and fixed and variable production overhead. Increases associated with the
cost of raw ingredients and packaging materials were more than offset by gains
in direct production labor and production overhead associated with increased
sales volumes.
Selling, general and administrative expenses increased 133%, to $2,723,330
for the quarter ended March 31, 1996 as compared to $1,168,294 for the first
quarter of 1995. These increases are attributable to the expansion of the
Company's infrastructure which has required additional costs such as
administrative and management salaries, recruiting and training of new personnel
and related indirect costs which are necessary to support the Company's growth.
Additionally, selling costs, particularly costs related to grocery store trade
promotions and club store demonstrations, were higher as a result of the
Company's efforts to obtain new customers and enter new geographic markets.
Depreciation and amortization expense was $196,418, or 3% of net revenues
for the quarter ended March 31, 1996 compared to $191,695, or 5% of net revenues
for the first quarter of 1995. These expenses relate primarily to capital
expenditures in our Monterey County production facility. The Company
anticipates increases in depreciation and amortization in future periods as
additional equipment is purchased and placed into service.
IMPACT OF INFLATION
The Company believes that inflation has not had a material impact on its
operations to date. Substantial increases in labor, employee benefits,
ingredients and packaging, rents and other operating expenses could adversely
affect the operations of the Company's business in future periods. The Company
cannot predict whether such increases will occur.
LIQUIDITY AND CAPITAL RESOURCES
During the three month period ended March 31, 1996, $2,937,793 of cash was
used in the Company's operations. The use of this cash primarily related to the
funding of wind down activities associated with the Company's discontinued
restaurant and franchise subsidiaries, investments in retail slotting fees and
general working capital requirements.
On April 23, 1996, the Company announced that it had received commitments
to purchase approximately $4 million of its common stock in a private offering
to accredited investors at $4.375 per share. The shares of common stock are
restricted securities with registration rights. Purchasers of the common stock
agreed not to sell such shares for one year from the date of purchase without
the consent of the placement agent. Spelman & Co. acted as placement agent (the
"Placement Agent") on a "best efforts", "any or all" basis. The Placement Agent
received no, cash commissions in the offering but will receive warrants to
purchase one share of common stock for each $10 in shares sold, exercisable at a
price of $6.50 per share, for a term of seven years.
The Company plans to use approximately $1,500,000 of the net proceeds for
advertising, marketing and promotion. In addition, approximately $1,000,000 of
the net proceeds will be used for capital equipment. The balance will be added
to working capital and used for general corporate purposes. Pending such uses,
the net proceeds will be invested in short-term, interest-bearing securities or
accounts.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits listed in the accompanying exhibit index
on page 13 are sequentially numbered and are filed or
incorporated by reference as part of this report.
(b) Reports on Form 8-K:
(1) Report on Form 8-K filed on February 9, 1996, reported the
execution of the Company's letter of intent to sell its wholly-
owned subsidiary, Upscale Food Outlets, Inc., a California
corporation ("UFO"), which owns and operates restaurants in
California, Colorado and Washington.
(2) Report on Form 8-K filed on May 3, 1996, reported (i) the
closing of the sale of UFO to Upscale Acquisitions, Inc., and (ii) the
Company's receipt of commitments to purchase approximately $4 million of
its common stock in a private offering to accredited investors.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONTEREY PASTA COMPANY
Date: May 3, 1996 By: /s/ NORMAN E. DEAN
-------------------------------
Norman E. Dean
President and Chief
Executive Officer
By: /s/ DAVID J. MASSARA
-------------------------------
David J. Massara
Chief Financial Officer
12
<PAGE>
INDEX TO EXHIBITS
NUMBER EXHIBIT TITLE SEQUENTIALLY
NUMBERED
PAGES
- -------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference from Exhibit 2.01 to the
Company's Registration Statement No. 33-69590-LA on
Form SB-2 (the "SB-2"))............................. **
3.2 Certificate of Determination of Preferences of Series
A Preferred Stock (incorporated by reference from
Exhibit 3.2 to the Company's Annual Report on Form
10-K for the period ended December 31, 1993 (the
"1993 10-K")) ...................................... **
3.3 Certificate of Amendment of Restated Articles of
Incorporation filed with the Secretary of State of
California on January 31, 1996 (incorporated by
reference from Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the period ended
December 31, 1995 (the "1995 Form 10-K")............ **
3.4 Restated Bylaws of the Company, as amended on
January 23, 1996 (incorporated by reference from
Exhibit 3.4 to the Company's 1995 Form 10-K......... **
10.1 First Amended and Restated 1993 Stock Option Plan*
(incorporated by reference from Exhibit 10.01 to
the Company's Annual Report on Form 10-K filed
April 3, 1995 (the "1994 Form 10-K"))............... **
10.2 1995 Employee Stock Purchase Plan* (incorporated by
reference from Exhibit 10.15 to the Company's 1994
Form 10-K).......................................... **
10.3 Blackhawk Plaza Lease of the Company (incorporated by
reference from Exhibit 10.02 to the SB-2)........... **
10.4 353 Sacramento Street Office Lease dated as of
December 27, 1995 with John Hancock Mutual Life
Insurance Company, together with letter agreement
dated March 20, 1996 regarding basement storage
(incorporated by reference from Exhibit 10.4 to the
Company's 1995 Form 10-K ).......................... **
10.5 Monterey County Production Facility Lease of the
Company, as amended (incorporated by reference from
Exhibit 10.03 to the SB-2).......................... **
10.6 Amendment No. 1 dated February 1, 1995 and Amendment
No. 2 dated March 1, 1995 to Monterey County
Production Facility Lease of the Company (incorporated
by reference from Exhibit 10.5 to the Company's
1995 Form 10-K)...................................... **
10.7 Christie Avenue Warehouse Lease of the Company
(incorporated by reference from Exhibit 10.04 to
the SB-2)........................................... **
10.8 Loan and Security Agreement dated December 8, 1995
with Coast Business Credit, a Division of Southern
Pacific Thrift and Loan Association, and Schedule
thereto (incorporated by reference from Exhibit
10.8 to the Company's 1995 Form 10-K )............... **
10.9 Equipment Collateral Security Agreement dated
December 8, 1995 with Coast Business Credit
(incorporated by reference from Exhibit 10.9 to the
Company's 1995 Form 10-K)............................. **
10.10 Secured Promissory Note dated December 8, 1995 in the
original principal amount of $500,000 in favor of
Coast Business Credit (incorporated by reference from
Exhibit 10.10 to the Company's 1995 Form 10-K )...... **
10.11 Secured Promissory Note dated December 8, 1995 in the
original principal amount of $750,000 in favor of
Coast Business Credit (incorporated by reference from
Exhibit 10.11 to the Company's 1995 Form 10-K )...... **
10.12 Investment Agreement dated July 12, 1995 with The
Seychelles Fund, Ltd. (incorporated by reference from
Exhibit 10.12 to the Company's 1995 Form 10-K )...... **
10.13 Master Lease dated August 1, 1995 with Sentry Financial
Corporation (incorporated by reference from
Exhibit 10.13 to the Company's 1995 Form 10-K )...... **
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10.14 Letter Agreement dated July 26, 1995 between Upscale
Food Outlets, Inc. and California Pasta Company
(incorporated by reference from Exhibit 10.21 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended October 2, 1995 ("Q3 10-Q")............ **
10.15 Asset Purchase Agreement dated July 26, 1995 between
Upscale Food Outlets, Inc. and California Pasta
Company (incorporated by reference from Exhibit 10.22
to the Company's Q3-10-Q)............................ **
10.16 Franchise Termination Agreement and Release dated
March 8, 1996 among the Company, Upscale Food Outlets,
Inc., Monterey Pasta Development Company, The Lance H.
Mortensen Unitrust dated December 3, 1994, and LBJ
Restaurants, LLC (incorporated by reference from
Exhibit 10.16 to the Company's 1995 Form 10-K)...... **
10.17 Franchise Termination Agreement and Release dated
March 27, 1996 among the Company, Upscale Food
Outlets, Inc., Monterey Pasta Development Company,
California Pasta Company and James G. Schlicher...... **
10.18 Acquisition Agreement between the Company and Upscale
Food Outlets, Inc. (incorporated by reference from
Exhibit 10.05 to the SB-2)........................... **
10.19 Employment Agreement with Mr. Lance H. Mortensen*
(incorporated by reference from Exhibit 10.06 to
the SB-2)............................................ **
10.20 Employment Agreement dated September 5, 1995 with Mr.
Norman E. Dean* (incorporated by reference from
Exhibit 10.20 to the Company's Q3 10-Q).............. **
10.21 Consulting Agreement dated May 25, 1995 with Daniel J.
Gallery * (incorporated by reference from Exhibit
10.18 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 2, 1995 ("Q2 10-Q"))...... **
10.22 Employment Agreement dated June 30, 1993 with Anthony
W. Giannini* (incorporated by reference from Exhibit
10.21 to the Company's 1995 Form 10-K)............... **
10.23 Employment Agreement with Mr. David J. Massara*
(incorporated by reference from Exhibit 10.17 to the
Company's 1994 Form 10-K)............................ **
10.24 Employment Agreement dated February 12, 1996 with
Mr. Robert J. Otto*.................................. 16
10.25 Trademark Registration -- MONTEREY PASTA COMPANY,
under Registration No.1,664,278, registered on
November 12, 1991 with the U.S. Patent and Trademark
Office (incorporated by reference from Exhibit
10.09 to the SB-2)................................... **
10.26 Trademark Registration -- MONTEREY PASTA COMPANY, under
Registration No. 1,943,602, registered on December
26, 1995 with the U.S. Patent and Trademark Office
(incorporated by reference from Exhibit 10.24 to the
Company's 1995 Form 10-K)............................ **
10.27 Trademark Registration -- MONTEREY PASTA COMPANY and
Design, under Registration No. 1,945,131, registered
on January 2, 1996 with the U.S. Patent and Trademark
Office incorporated by reference from Exhibit 10.25 to
the Company's 1995 Form 10-K)........................ **
10.28 Trademark Registration -- MONTEREY PASTA COMPANY and
Design, under Registration No. 1,951,624, registered
on January 23, 1996 with the U.S. Patent and Trademark
Office incorporated by reference from Exhibit 10.24 to
the Company's 1995 Form 10-K)........................ **
10.29 Trademark Registration -- MONTEREY PASTA COMPANY, under
Registration No. 1,953,489, registered on January 30,
1996 with the U.S. Patent and Trademark Office
(incorporated by reference from Exhibit 10.27 to
the Company's 1995 Form 10-K)........................ **
10.30 Subscription Agreement dated as of June 21, 1995 with
GFL Advantage Fund Limited (incorporated by reference
from Exhibit 10.19 to the Company's Q2 10-Q)......... **
10.31 Registration Rights Agreement dated as of June 15, 1995
with GFL Advantage Fund Limited, as amended on
October 13 and 19, 1995, respectively (incorporated
by reference from Exhibit 10.2 to the Company's Q2
10-Q, and Exhibits 10.6 and 10.7 to the Company's S-3
Registration Statement No. 33-96684, filed on
December 12, 1995 (the "S-3")........................ **
10. 32 Joint Escrow Instructions dated as of October 1995
(incorporated by reference from Exhibit 10.5 to the
Company's S-3)....................................... **
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10.33 Note Purchase Agreement dated as of October 19, 1995
with GFL Advantage Fund Limited (incorporated by
reference from Exhibit 10.3 to the Company's S-3).... **
10.34 Convertible Note dated as of October 25, 1995,
executed by the Company in favor of GFL Advantage
Fund Limited (incorporated by reference from Exhibit
10.32 to the Company's 1995 Form 10-K)............... **
10.35 Trademark Purchase (Burns), incorporated by reference
from Exhibit 10.12 of the SB-2....................... **
10.36 Purchase of Stock and Exhibits (Burns- Mortensen-Hill)
(incorporated by reference from Exhibit 10.13 of
the SB-2)............................................ **
10.37 Non-Recourse Promissory Note (Hill-Mortensen)
(incorporated by reference from Exhibit 10.15 of
the SB-2)............................................ **
10.38 Asset Purchase Agreement dated March 1, 1994 between
Upscale Food Outlets, Inc. Lucca's Pasta Bar, Inc.,
Timothy John Morris and Marian Kathryn Morris
(incorporated by reference from Exhibit 10.16 to the
Company's 1993 Form 10-K)............................ **
10.39 Franchise Termination Agreement and Release dated as
of March 27, 1996, among the Company, Upscale Food
Outlets, Inc., Monterey Pasta Development Company,
California Pasta Company, and James G. Schlicher..... 27
10.40 Stock Purchase Agreement dated April 1, 1996 between
Upscale Acquisitions, Inc. and the Company........... 32
10.41 Placement Agent Agreement dated April 12, 1996, between
the Company and Spelman & Co., Inc................... 71
10.42 Form of Registration Rights Agreement dated April 1996,
among the Company, Spelman & Co., Inc. and investor.. 80
21.1 Subsidiaries of the Company............................ 92
- ----------------------------
* Management contract or compensatory plan or arrangement covering executive
officers or directors of Monterey Pasta Company and its subsidiary, Upscale Food
Outlets, Inc.
** Previously filed and incorporated herein by this reference.
iii
<PAGE>
February 12, 1996
Mr. Robert James Otto
1801 Piedras Circle
Danville, California 94526
Re: Monterey Pasta Company
Compensation Package
Dear Bob:
It certainly was a pleasure spending some time with you last week reflecting on
your distinguished career, and most importantly, how you may fit into the ever-
growing and challenging agenda of Monterey Pasta Company. To that extent, I
wish to confirm in this letter the Company's offer of employment to you. The
material terms of your employment with the Company are as follows:
1. Title: Executive Vice President
2. Base Salary: $150,000.00 per annum
3. Commencement Date: February 12, 1996. Due to personal reasons, we
understand and agree to maintain the confidentiality of your employment with
Monterey Pasta Company until after April 1, 1996, after which date we understand
that we may publicly announce your employment with the Company as Executive Vice
President. We agree that your base salary and benefits will be made retroactive
to February 12, 1996.
4. Bonus Plan: To be formulated
5. Auto Allowance: $400.00 per month
<PAGE>
6. Stock Options: 50,000 shares, to be vested ratably over a three-year
period. The terms and conditions of the grant and exercise of such option,
subject to Board approval, will be addressed specifically in an agreement in
substantially the form attached hereto as EXHIBIT A. The Company will maintain
an effective registration of the shares subject to such option throughout the
period in which any options are exercisable.
7. 401(k) Plan: The Company is presently analyzing several proposals and
intends to implement such a program in the near future. As soon as management
has approved the program, the Company will advise you so that you may
participate.
8. Other Benefits: The Company will provide standard medical, dental,
disability/life insurance coverage and reimbursement for business related travel
and entertainment expenses in accordance with the Company's policy for senior
executives (see enclosed materials).
9. Vacation/Holidays: Vacations and holidays are per standard Company policy
for senior management executives.
We look forward to working with you to grow the Company!
Please indicate your acceptance and agreement of the foregoing by signing below.
Sincerely,
/s/NORMAN E. DEAN
Norman E. Dean
Chief Executive Officer and President
cc: David J. Massara
Carolyn Mar
Wanda Schwartz
ACCEPTED AND AGREED TO THIS 12TH DAY OF FEBRUARY, 1996.
/S/ ROBERT J. OTTO
- ------------------
Robert James Otto
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<PAGE>
FRANCHISE TERMINATION AGREEMENT AND RELEASE
This Franchise Termination Agreement and Release ("Agreement") is made
and entered into as of March 27, 1996 by and among Monterey Pasta Company, a
California corporation ("MPC"), Upscale Food Outlets, Inc., a California
corporation ("UFO") and wholly-owned subsidiary of MPC, Monterey Pasta
Development Company, a California corporation and wholly-owned subsidiary of MPC
("MPDC"), California Pasta Company, a Delaware corporation ("CPC") and James G.
Schlicher, as operator of Monterey Pasta restaurants under a license from MPDC.
RECITALS
A. UFO and MPDC have each entered into certain agreements with CPC in
connection with the franchise of Monterey Pasta restaurants, including three
Franchise Agreements each dated as of July 26, 1995 between MPDC and CPC, as
amended, for the Sacramento-Arden Fair, Sacramento-Downtown Plaza and Fresno-
Fashion Fair sites, the letter agreement dated July 26, 1995 between MPDC and
CPC, the Asset Purchase Agreement dated July 26, 1995 between UFO and CPC, the
Non-Disclosure and Non-Competition Agreement dated as of July 26, 1995 between
Schlicher as operator of Monterey Pasta restaurants and CPC and the
Confidentiality Statement dated as of July 26, 1995 between MPDC and CPC
(collectively, the "Franchise Documents").
B. MPC and James G. Schlicher ("Schlicher") have also entered into the
Nonstatutory Stock Option Agreement, as amended, dated as of November 15, 1995
(the "Stock Option Agreement").
C. MPC has decided to discontinue the franchise segment of its business,
and accordingly, MPC, MPDC, CPC and Schlicher desire to terminate the franchise
relationship as set forth in the Franchise Documents under the terms and
conditions set forth in this Agreement.
AGREEMENT
In consideration of the mutual promises and covenants contained
herein, the receipt, adequacy and sufficiency of which are hereby acknowledged,
MPC, UFO, MPDC and CPC hereby agree as follows:
1. TERMINATION. MPC, MPDC, CPC and Schlicher hereby terminate their
respective rights and obligations under the Franchise Documents.
<PAGE>
2. RIGHTS AND OBLIGATIONS UPON TERMINATION. Following termination of the
Franchise Documents, the parties agree that:
a. CONTINUING LIABILITIES. CPC shall remain fully liable for any
and all obligations incurred under the Franchise Documents prior to the date
hereof.
b. MARKS. CPC and Schlicher will (i) not at any time in any manner
identify itself or any business as a current or former Monterey Pasta Restaurant
(as defined in the Franchise Agreements), or as a franchisee or licensee of or
as otherwise associated with MPC or MPDC, or use any Mark (as defined in the
Franchise Agreements), any imitation thereof or other indicia of Monterey Pasta
in any manner or for any purpose, or utilize for any purpose any trade name,
trade or service mark or other commercial symbol that suggests or indicates a
connection or association with MPC or MPDC, including but not limited to the
complete and immediate cessation of the sale of Proprietary Products (as defined
in the Franchise Agreements); notwithstanding the foregoing, CPC and Schlicher
may make disclosures of its relationship with MPC or MPDC to the extent required
by law, provided that, CPC and Schlicher restrict such disclosures to the extent
possible in such circumstances; (ii) remove all signs, signfaces, and return to
MPC or destroy all marketing materials and other materials containing any Mark
or otherwise identifying or relating to Monterey Pasta; (iii) remove all
materials under the Trade Dress (as defined in the Franchise Agreements);
(iv) take such action as may be required to cancel all fictitious or assumed
name or equivalent registrations relating to its use of any Mark;
(v) discontinue use of any and all telephone numbers used in connection with the
Restaurant (as defined in the Franchise Agreements) or Monterey Pasta and take
any and all steps necessary to transfer ownership of such telephone numbers to
MPC or its designee; (vi) comply with all further requirements set forth in the
Operating Manual (as defined in the Franchise Agreements); and (vi) furnish to
MPC, within sixty (60) to ninety (90) days after the date hereof, evidence
satisfactory to MPC of CPC's and Schlicher's compliance with the obligations in
this Section 2b.
c. MODIFICATION OF RESTAURANT DESIGN AND DECOR. CPC and Schlicher
shall use their best efforts to modify the design, decor and color scheme of any
restaurant location lawfully retained by CPC, in a manner acceptable to MPC, so
that the design and decor no longer suggests or indicates a connection with
Monterey Pasta within ninety (90) days after the date hereof.
d. TRADE SECRETS; TRADE DRESS. CPC and Schlicher shall immediately
cease to use the System (as defined in the Franchise Agreements), any Trade
Secret (as defined in the Franchise Agreements) or item of Trade Dress (as
defined in the Franchise Agreements) and return to MPC all copies of the
Operating Manual and any other confidential materials which have been loaned to
CPC or Schlicher by MPC, UFO or MPDC.
3. RELEASE. CPC and Schlicher hereby release and forever relinquish,
waive, forfeit and disclaim any and all rights, claims, defenses, demands,
damages, causes of action or demands, whether asserted or unasserted, whether
known or
2
<PAGE>
unknown, whether absolute or contingent, whether disclosed or undisclosed, and
whether based on contract, tort, statutory, or any other legal or equitable
theory of recovery, against MPC, UFO and MPDC, their successors and assigns.
4. SCOPE OF RELEASE. CPC and Schlicher hereby acknowledge that they are
familiar with and understand Section 1542 of the California Civil Code, which
provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
CPC and Schlicher expressly waive and relinquish any and all rights and benefits
which they may have under or which may be conferred upon them by the provisions
of Section 1542 of the California Civil Code as well as under any other similar
state or federal statute or common law principle.
5. PAYMENT; CANCELLATION OF PROMISSORY NOTES. In consideration of the
foregoing, the parties agree to the following:
a. Upon receipt by facsimile of this Agreement, duly executed by CPC
and Schlicher, MPC shall pay to CPC $15,000 which represents the initial
franchise fees paid by CPC to MPDC in connection with the rights granted to CPC
under the Franchise Agreement.
b. MPDC shall cancel that certain Promissory Note dated July 26,
1995 in the principal amount of $30,000 made by CPC in favor of MPDC.
c. CPC and Schlicher shall return to Lance Mortensen of UFO by April
1, 1996, the Purchased Assets (as defined in the Asset Purchase Agreement) and
ensure that the premises are in good, clean working order and condition.
d. UFO shall cancel that certain Nonrecourse Promissory Note dated
July 26, 1995 in the principal amount of $664,770 made by CPC in favor of UFO
upon receipt of the keys to the Monterey Pasta Restaurants.
e. MPDC and UFO shall release the security interests granted to them
pursuant to the Franchise Documents to secure CPC's obligations under the notes
specified in this Section 5.
6. STOCK OPTION AGREEMENT. The termination of the parties' respective
rights and obligations under the Franchise Documents shall not be construed to
cancel the Stock Option Agreement or modify the terms thereof.
3
<PAGE>
MISCELLANEOUS PROVISIONS
7. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof.
8. AMENDMENT; WAIVER. This Agreement may be amended or modified and the
terms hereof may be waived only by a written instrument signed by the party
against whom the enforcement of any modification, amendment or waiver is sought.
No oral modification or amendment of this Agreement shall be enforceable even if
such oral amendment or modification is claimed to be supported by consideration.
9. GOVERNING LAW. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of California without regard
to the principles of conflict of laws thereof.
10. ATTORNEYS' FEES AND COSTS. In the event of any dispute or default
with respect to this Agreement, the prevailing party shall be entitled to its
reasonable attorneys' fees, costs and expenses.
11. CONFIDENTIALITY. CPC and Schlicher agree that the terms of this
Agreement are confidential and they shall not disclose such terms to any other
person or entity.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MONTEREY PASTA COMPANY, a California corporation
By: /s/ Norman E. Dean
---------------------------------------------------
Norman E. Dean, President and Chief Executive
Officer
UPSCALE FOOD OUTLETS, INC., a California corporation
By: /s/ Norman E. Dean
---------------------------------------------------
Norman E. Dean, President and Chief Executive
Officer
4
<PAGE>
MONTEREY PASTA DEVELOPMENT COMPANY, a California
corporation
By: /s/ Norman E. Dean
---------------------------------------------------
Norman E. Dean, President and Chief Executive
Officer
CALIFORNIA PASTA COMPANY, a Delaware corporation
By: /s/ James G. Schlicher
---------------------------------------------------
--------------------------, -----------------------
JAMES G. SCHLICHER
/s/ James G. Schlicher
------------------------------------------------------
5
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of April 1, 1996 (the "Agreement")
between UPSCALE ACQUISITIONS, INC., a California corporation (the "Buyer"), and
MONTEREY PASTA COMPANY, a California corporation ("MPC").
A. MPC owns One Thousand (1,000) shares of common stock of Upscale Food
Outlets, Inc., a California corporation ("UFO") constituting all of the issued
and outstanding shares of capital stock of UFO (the "Shares").
B. UFO currently owns and/or operates the eighteen (18) restaurants (the
"Operating Monterey Pasta Company Restaurants") described on attached EXHIBIT A
which are located in the States of California, Colorado and Washington which
feature pasta products sold under the name "Monterey Pasta Company." UFO
previously owned and operated a number of additional restaurants, which have
ceased operations (the "Closed Monterey Pasta Restaurants"), and in addition to
the assets of UFO used in connection with the operation of the Operating
Monterey Pasta Company Restaurants, UFO also owns a substantial inventory of
restaurant equipment previously used in connection with the operation of the
Closed Monterey Pasta Company Restaurants and which UFO holds in storage.
C. Lance H. Mortensen ("Mortensen") was formerly Chairman of the Board,
Chief Executive Officer and President of MPC and was primarily responsible for
UFO and is intimately familiar with its business and operations. Mortensen is
the sole director of UFO and is directly involved in its business operations.
D. Mortensen is also a principal of the Buyer.
E. MPC announced on March 6, 1996, that it is exiting the restaurant
business by divesting its remaining restaurant and franchise operations.
F. MPC desires to sell the Shares to the Buyer, and the Buyer desires to
purchase the Shares from MPC, on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
In consideration of the premises and the representations, warranties,
covenants and agreements herein contained and subject to the provisions herein
contained, the parties agree as follows:
<PAGE>
ARTICLE 1
PURCHASE AND SALE OF THE SHARES
1.1 BASIC TRANSACTION. On the basis of the representations,
warranties, covenants and agreements set forth herein and subject to the
satisfaction or waiver of the conditions set forth herein, MPC agrees to and
will sell, transfer, assign and deliver to the Buyer at the Closing (as defined
below) and the Buyer agrees to and will purchase and accept from MPC the Shares
on the Closing Date (as defined below).
1.2 PURCHASE PRICE OF SHARES; ASSUMPTION OF LIABILITIES. In exchange
for the Shares, the Buyer agrees to deliver to MPC at Closing One Thousand
Dollars ($1,000) in cash, payable by delivery of immediately available funds,
and the Promissory Note in the form attached hereto as Exhibit B (collectively,
the "Purchase Price"). Buyer also acknowledges and agrees that in acquiring the
Shares, it is assuming all liabilities of UFO, including, but not limited to,
claims by lessors regarding termination of leases and litigation associated
therewith, including, but not limited to, those set forth on SCHEDULE 1.2.
1.3 TIME AND PLACE OF CLOSING. The closing of the purchase and sale
of the Shares (the "Closing") shall take place at the offices of Graham & James,
1 Maritime Plaza, San Francisco, California at 10:00 a.m. local time, on
April 19, 1996, or at such other date as is mutually acceptable to the parties;
PROVIDED, HOWEVER, that if any of the conditions to Closing set forth in this
Agreement have not been satisfied or waived by the party entitled to the benefit
of such condition, the Closing shall take place on the third business day after
such condition has been satisfied or waived. The date and time of the Closing
are herein referred to as the "Closing Date."
1.4 DELIVERIES AT THE CLOSING. At or prior to the Closing, (i) MPC
shall have received the various certificates, instruments and documents referred
to in ARTICLE 8 below and the Purchase Price specified in SECTION 1.2 above, and
(ii) the Buyer shall have received the various certificates, instruments and
documents referred to in ARTICLE 7 below, and (iii) MPC will deliver to the
Buyer the stock certificate representing all of the Shares, duly endorsed in
blank or accompanied by duly executed stock power. On or before the Closing
Date, MPC shall have paid, or caused to be paid, all stock transfer and other
similar taxes required to be paid in connection with the sale and delivery to
the Buyer of the Shares.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF MPC
MPC hereby represents and warrants to the Buyer as set forth in this
ARTICLE 2, provided that each of the representations and warranties of MPC
contained in this Agreement is qualified in its entirety by the knowledge of
Mortensen such that MPC shall have no liability to the extent that any
representation or warranty made by MPC in this Agreement is a representation or
warranty as to which Mortensen has knowledge.
2
<PAGE>
2.1 AUTHORIZATION OF TRANSACTION. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby have
been duly authorized and approved by all requisite corporate action and MPC has
taken all action required by law, its Articles of Incorporation, Bylaws to
authorize all action to be taken by MPC with respect to this Agreement and the
consummation of the transactions contemplated hereby. MPC has full corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder. This Agreement constitutes the lawful, valid and legally binding
obligation of MPC, enforceable in accordance with its terms. Except as set
forth in SCHEDULE 2.1 or as known to Mortensen, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, or other restriction of any government,
governmental agency, or court to which MPC or UFO is subject or any provision of
the Articles of Incorporation or Bylaws of MPC or UFO or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice or consent under, any contract, lease, license, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, security interest, or other arrangement to which MPC or UFO is
party or by which it is bound or to which any of its assets are subject.
Neither MPC nor UFO is required to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated hereby.
2.2 ORGANIZATION; QUALIFICATION AND CORPORATE POWERS. Each of MPC
and UFO is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. Each of MPC and UFO has full
corporate power and authority to carry on the business in which it is engaged
and to own and use the properties owned and used by it. Except as known to
Mortensen, UFO is duly qualified or licensed to do business as a foreign
corporation and in good standing in each jurisdiction where the nature of its
business or the ownership or leasing of its properties requires such
qualification or license.
2.3 OWNERSHIP OF STOCK. MPC holds of record and owns beneficially
the Shares, free and clear of any restrictions on transfer, liens, pledges,
encumbrances, claims, security interests, options, warrants, rights and equities
of every kind (collectively, the "Encumbrances"), and MPC has the right, power
and capacity to transfer and deliver such Shares to the Buyer free and clear of
any Encumbrances. MPC is not a party to any option, warrant, right, contract,
call, put or other agreement or commitment providing for the disposition or
acquisition of any capital stock of UFO (other than this Agreement), except as
known to Mortensen. MPC is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock of
UFO. At the Closing, MPC will deliver to the Buyer good, valid and marketable
title to its Shares, free and clear of any Encumbrances, except as known to
Mortensen.
2.4 CAPITALIZATION. UFO's entire authorized capital stock consists
of One Million (1,000,000) shares of common stock (the "UFO Common Stock"), of
which One Thousand (1,000) shares are issued and outstanding and are held of
record and owned beneficially
3
<PAGE>
by MPC. All of the issued and outstanding shares of UFO Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable, and
free of preemptive or other rights that entitle or entitled any person to
acquire such shares upon the issuance or sale thereof by UFO. There are no
outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which UFO is a party or which are binding on UFO providing for the issuance,
disposition, or acquisition of any of its capital stock, except as known to
Mortensen. There are no outstanding or authorized stock appreciation, phantom
stock, or similar rights with respect to UFO, except as known to Mortensen.
2.5 SUBSIDIARIES. Except as set forth in SCHEDULE 2.5 or as known to
Mortensen, UFO does not own directly or indirectly any interest or investment
(whether equity or debt) in any corporation, partnership, business trust, joint
venture or other legal entity.
2.6 FINANCIAL STATEMENTS. MPC has previously delivered to the Buyer
(i) the audited financial statements of UFO for the fiscal years ended December
31, 1993, and January 1, 1995, certified by Arthur Andersen (collectively, the
"Financial Statements"), and (ii) the unaudited balance sheets of UFO at
December 31, 1995, and the related statements of earnings, shareholders' equity
and changes in financial condition for the (collectively, the "Interim Financial
Statements"). The Financial Statements and the Interim Financial Statements are
complete and correct, are in accordance with the books and records of the
Company and present fairly the financial condition and results of operations of
UFO as the dates and for the periods shown, subject, with respect to the Interim
Financial Statements, to normal year-end adjustments which in the aggregate will
not be material. The Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods. Since December 31, 1995, (i) there has been no change in the
business, assets, liabilities, condition (financial or otherwise) or operations
of UFO except for changes in the ordinary course of business which, individually
or in the aggregate, have not been materially adverse, and (ii) none of the
business, prospects, condition (financial or otherwise), operation, property or
affairs of UFO has been materially adversely affected by any occurrence or
development, individually or in the aggregate, whether or not insured against,
except as known to Mortensen.
2.7 INTERIM CHANGE. Except as set forth in SCHEDULE 2.7, or except
as known to Mortensen, since December 31, 1995, there has not been (a) any
material adverse change in the financial condition, results of operations,
assets, liabilities, business or prospects of UFO; (b) any change in any of the
assets, licenses, permits or franchises which change is material and adverse to
the business, financial condition or results of operations of UFO, or any change
in the nature of the business, or manner of conducting the business, of UFO,
which has had or insofar as UFO can reasonably foresee, will have a material
adverse effect on the business, financial condition, results of operations,
assets, licenses or permits of UFO; (c) any damage, destruction or loss, whether
or not covered by insurance, materially and adversely affecting UFO or assets of
UFO; (d) any forgiveness or cancellation of debts or claims, or waiver of any
rights, other than in the ordinary course of business; (e) any increase in the
compensation or benefits payable or
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to become payable by UFO to any of its employees over the levels in effect at
December 31, 1995, other than normal increases made in the ordinary course of
business consistent with past practices; (f) any work stoppage or labor dispute
involving UFO; (g) any disposition by UFO of any assets outside the ordinary
course, (h) any employment, bonus, or deferred compensation agreement entered
into between UFO and any of its directors, officers or other employees, (i) any
indebtedness incurred by UFO for or in respect of borrowed money for itself or
others, other than borrowing in the normal course of business pursuant to
existing commitments at a level generally consistent with past practice; (j) any
declaration or payment or distribution to shareholders or purchase or redemption
of any shares of UFO's capital stock or other securities; (k) any consummation,
amendment or termination of any material contract, agreement, lease, franchise,
permit or license any of which commits UFO or has a value to UFO of greater than
$50,000, whether individually or in the aggregate; or (l) any accrual of any
other material liabilities, whether fixed or contingent, except in the ordinary
course of business.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the December 31, 1995 balance sheet included in
the Interim Financial Statements (the "December 31, 1995 Balance Sheet") or
incurred thereafter in the ordinary course of business consistent with past
practices or except as known to Mortensen, UFO has no material liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
whether written or oral, and whether due or to become due.
2.9 TITLE TO ASSETS. UFO has good and marketable title to all of the
assets of the Company reflected in the December 31, 1995 Balance Sheet, except
for (i) assets disposed of in the ordinary course of business consistent with
past practices of UFO since such date and (ii) assets being leased under
capitalized leases. Such assets are subject to liens, claims, encumbrances or
security interests of third parties incurred in the ordinary course of business.
2.10 INTELLECTUAL PROPERTY. UFO does not own any registered patents,
registered trademarks, registered trademark rights, registered trade names,
registered service marks, registered brand names, registered copyrights and/or
applications for any of the foregoing. UFO has used the trademarks set forth on
SCHEDULE 2.10. Except as set forth on SCHEDULE 2.10 or except as known to
Mortensen, UFO is not a party to any license or agreement relating to the
foregoing. SCHEDULE 2.10 contains a true and correct list of all trademarks,
trade names, trademark rights, service marks, brand names and copyrights used by
UFO in the conduct of its business. To the best of MPC's knowledge, UFO has not
been charged or threatened with infringement or violation of any patent,
license, copyright, service mark, trademark or trade name or with any other kind
of unfair competition with respect to any patent, trademark or trade name.
2.11 EMPLOYEES.
(a) SCHEDULE 2.11 lists all officers and employees of UFO whose
total compensation for the year ended December 31, 1995 exceeded $50,000, and
also lists
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any and all compensation, pension or benefit arrangements or other financial
obligations or understandings, whether written or oral, between UFO and its
officers and employees.
(b) Except as disclosed in SCHEDULE 2.11 or except as known by
Mortensen, no director, officer or employee of UFO, and no member of the
immediate family (if any such director, officer or employee (i) owns 5% or more
of the stock or other securities, or has any other direct or indirect interest
in, any person, firm, corporation or entity which has a material business
relationship (as creditor, lessor, lessee, supplier, dealer, distributor,
franchisee, customer or otherwise) with UFO, (ii) owns, or has any other direct
or indirect interest in, any invention, process, know-how, formula, trade
secret, patent, trademark, trade name, service mark, service name, copyright or
other right, property or asset which is used in or which may be required in the
ownership or operation by UFO or its properties and assets, or to otherwise
carry on and conduct its or their business and affairs, or (iii) has, directly
or indirectly, any contractual relationship with UFO other than as an employee.
2.12 INSURANCE. Except as known to Mortensen, SCHEDULE 2.12 is a
complete and correct list (including the name of the carrier, summary
description of coverage, premium, deductible and expiration date) of all
policies of insurance or fidelity bonds maintained by MPC naming UFO as an
additional insured.
2.13 BANK ACCOUNTS. Except as known to Mortensen, SCHEDULE 2.13
contains a complete and accurate list of all bank accounts, safe deposit boxes
and lock boxes maintained by UFO, together with a list of all authorized
signatories thereto.
2.14 ACCOUNTS RECEIVABLE. Except as known to Mortensen, all notes and
accounts receivable shown on the December 31, 1995 Balance Sheet arose in the
ordinary course of business and reflect bona fide accounts payable to UFO
subject to no set-offs or counterclaims and will be collected in accordance with
their terms at their recorded amounts, subject to the reserve for bad debts set
forth in the Interim Financial Statements.
2.15 BOOKS AND RECORDS. Except as known by Mortensen, the book and
records of UFO have been maintained in accordance with good business practices
and in accordance with all laws, regulations and other requirements applicable
to the business operations of UFO.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
THE BUYER
Buyer represents and warrants to MPC as follows:
3.1 ORGANIZATION; QUALIFICATION AND CORPORATE POWERS. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Buyer has full corporate power and authority to
carry on the
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business in which it is engaged and to own and use the properties owned and used
by it.
3.2 AUTHORIZATION OF TRANSACTION. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized and approved by all requisite corporate action and the Buyer has
taken all action required by law, its articles of incorporation and bylaws to
authorize all action to be taken by the Buyer, as the case may be, with respect
to this Agreement and the consummation of the transactions contemplated hereby.
Buyer has full corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. This Agreement constitutes the lawful, valid
and legally binding obligations of the Buyer, enforceable against Buyer in
accordance with its terms. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of the articles of
incorporation and bylaws of the Buyer or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent, under any contract, lease, license, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
security interest, or other arrangement to which the Buyer is party or by which
Buyer is bound or to which any of its assets are subject. Buyer is not required
to give any notice, to make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated hereby.
ARTICLE 4
COVENANTS OF UFO AND MPC
4.1 COVENANTS OF UFO. UFO hereby covenants to keep, perform and
fully discharge the following covenants and agreements;
(a) INTERIM CONDUCT OF BUSINESS. From the date hereof until the
Closing or except as authorized by Buyer, UFO shall operate its business as a
going concern consistent with prior practice and in the ordinary course of
business (except as may be authorized pursuant to this Agreement or except as
authorized by Buyer), without limiting the generality of the foregoing, from the
date hereof until the Closing, except for transactions contemplated by this
Agreement or expressly approved by the Buyer, UFO shall not:
(i) enter into or amend any employment, bonus, severance or
retirement contract or arrangement, not increase any salary or other form of
compensation payable or to become payable to any executives or employees other
than in the ordinary course of business consistent with prior practice;
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(ii) purchase, lease or otherwise acquire any real estate or any
interest therein;
(iii) declare, set aside or pay any dividend or make any
other distribution with respect to its capital stock;
(iv) merge or consolidate with or agree to merge or consolidate with,
or purchase or agree to purchase all or substantially all of the assets of, or
otherwise acquire any corporation, partnership, or other business organization;
(v) sell, lease or otherwise dispose, of or agree to sell, lease or
otherwise dispose of any of its assets, properties, rights or claims, except in
the ordinary course of business consistent with prior practice;
(vi) authorize for issuance, issue, sell or deliver any additional
shares of its capital stock or any securities or obligations convertible into
shares of its capital stock or issue or grant any option, warrant or other right
to purchase any shares of its capital stock;
(vii) split, combine or reclassify any shares of its capital stock or
any class or redeem or otherwise acquire, directly or indirectly any shares of
its capital stock;
(viii) incur any liability, guarantee or obligation (fixed or
contingent) other than in the ordinary course of business consistent with prior
practice;
(ix) mortgage, pledge or subject to lien or security interest any of
its assets or properties, other than statutory liens arising in the ordinary
course of business;
(x) make any amendments to its articles of incorporation or bylaws;
(xi) make any investment in excess of $10,000, whether singly or in
the aggregate, in property, plant and equipment and other items of capital
expenditure;
(xii) accelerate receivables or delay payables, except in the ordinary
course of business consistent with prior practices; and
(xiii) abandon any part of its business.
(b) ACCESS. UFO shall, upon reasonable notice, give the Buyer and
its representatives full and free access to all properties, books, contracts,
commitments and records of UFO during reasonable business hours and shall
promptly furnish the Buyer with all financial and operating data and other
information as to the business, properties and assets of UFO as the Buyer may
from time to time reasonably request.
(c) SATISFACTION OF CONDITIONS. UFO agrees to use its good faith,
reasonable best efforts to accomplish the satisfaction of the conditions
precedent to Closing contained in Article 7 herein on or prior to the Closing
Date.
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4.2 COVENANTS OF MPC. MPC agrees to keep, perform and fully
discharge the following covenants and agreements:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. MPC and its
representatives will not take any action from the date hereof to the Closing
Date, whether as officers, directors or shareholders of UFO, that would cause
the representations and warranties contained in Article 2 to become untrue or
cause the breach of any agreements hereof or covenants contained in Article 4,
except in such case as the Buyer may otherwise consent. MPC will promptly bring
to the attention of the Buyer any facts which come to its attention that would
cause any of the representations and warranties of MPC to be untrue.
(b) SATISFACTION OF CONDITIONS. MPC agree to use its good faith,
reasonable efforts to accomplish the satisfaction of the conditions precedent to
Closing contained in Article 7 herein on or prior to the Closing Date.
(c) NO SOLICITATION, CONFIDENTIALITY, ETC. UFO and MPC agree that,
prior to the termination of this Agreement pursuant to Article 6 hereof, UFO and
MPC will not, except as may be required by applicable law, (i) solicit or
negotiate with respect to any inquiries or proposals relating to (x) the
possible direct or indirect acquisition of the capital stock of UFO or of all or
a portion of the assets or business of UFO or (y) any business combination with
UFO, or (ii) discuss or disclose either this Agreement or other confidential
information pertaining to UFO (except as may be required by law or except as may
be required in connection with the transaction to affiliates, officers,
directors, employees, agents and other professional consultants of UFO or MPC),
with any corporation, firm, government agency, association or other person
without the prior written approval of the Buyer. UFO and MPC shall advise such
parties of the existence of this Agreement and shall refrain from entering into
further discussions with such parties concerning the sale of UFO to the extent
otherwise prohibited by this paragraph (c).
ARTICLE 5
COVENANTS OF THE BUYER
The Buyer hereby agrees to keep, perform and fully discharge the following
covenants and agreements:
5.1 CONFIDENTIALITY. The Buyer agrees to hold, and to cause its
respective officers, employees, representatives, advisors, consultants and
members to hold, all information heretofore, or hereafter obtained from UFO or
its advisors in strict confidence and to use the information so obtained only
for the purpose of evaluating the purchase of UFO; provided however, that the
Buyer shall also be entitled to share such information with any person with whom
it is discussing the possibility of providing funds to finance the transactions
contemplated hereby. The Buyer shall promptly return all such information to
UFO in the event the Closing is not consummated.
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5.2 SATISFACTION OF CONDITIONS. The Buyer agrees to use its good
faith reasonable efforts to accomplish the satisfaction of the conditions
precedent to Closing contained in Article 8 herein on or prior to the Closing
Date.
ARTICLE 6
TERMINATION
6.1 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may (at the option of the party having the right to do so)
be terminated at any time on or prior to the Closing Date:
(a) MUTUAL CONSENT. By mutual written consent of the Buyer and MPC;
(b) COURT ORDER. By MPC or the Buyer if any court of competent
jurisdiction shall have issued an order pursuant to the request of a third party
restraining, enjoining or otherwise prohibiting the consummation of the
transactions as contemplated by this Agreement;
(c) FAILURE TO CLOSE BY MAY 31, 1996. By the Buyer or MPC if the
transactions contemplated hereby shall not have been consummated on or before
May 31, 1996; provided, however, that such right to terminate this Agreement
shall not be available to any party whose failure to fulfill any obligation of
this Agreement has been the cause of, or resulted in, the failure of the
consummation of the transactions contemplated hereby to have occurred on or
before the aforesaid date;
(d) TERMINATION BY MPC. By MPC upon notice to the Buyer at any time
prior to May 31, 1996 if (i) a condition to the performance of MPC set forth in
Article 8 hereunder shall not be fulfilled at the time specified for the
fulfillment thereof, or (ii) a material default under or a material breach of
this Agreement shall be made by the Buyer, or (iii) any representation set forth
in this Agreement or in any instrument delivered by the Buyer pursuant hereto
shall be materially false or misleading; or
(e) TERMINATION BY THE BUYER. By the Buyer by notice to MPC at any
time prior to May 31, 1996 if (i) a condition to the performance of the Buyer
set forth in Article 7 hereunder shall not be fulfilled at the time specified
for the fulfillment thereof, or (ii) a material default under or a material
breach of this Agreement shall be made by UFO or MPC or (iii) any representation
set forth in this Agreement or in any instrument delivered by the MPC pursuant
hereto shall be materially false or misleading.
6.2 EFFECT OF TERMINATION AND RIGHT TO PROCEED. In the event that
this Agreement shall be terminated pursuant to this Article 6, except as
provided below, all further obligations of the Buyer, MPC and UFO under this
Agreement shall terminate without further liability of the Buyer to MPC or UFO
or of MPC or UFO to the Buyer, except, in the case of termination pursuant to
Section 6.1(d) or Section 6.1(e), as to liability for misrepresentation, breach
or default in connection with any warranty, representation, covenants or
obligation given, occurring or arising to the date of
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termination. In addition, anything in this Agreement to the contrary
notwithstanding, if any of the conditions to obligations specified in Article 7
hereof have not been satisfied, the Buyer, in addition to any other rights which
may be available to it, shall have the right to waive their rights to have such
conditions satisfied and shall have the right to proceed with the transactions
contemplated hereby and, if any of the conditions to the obligations of MPC
under Article 8 hereof have not been satisfied, MPC, in addition to any other
rights which may be available to it, shall have the right to waive their rights
to have such conditions satisfied and shall have the right to proceed with the
transactions contemplated hereby.
6.3 SUBSEQUENT SALE OF UFO. Notwithstanding any other provision of
this Agreement, if: (a) the transactions contemplated by this Agreement are not
consummated on or before May 31, 1996; (b) such failure to consummate said
transactions is not attributable to the Buyer's failure to satisfy a condition
described in Article 8 hereof which is within the control of the Buyer and
(c) MPC or UFO, prior to May 31, 1996, accepts an offer to sell (whether by sale
of stock or assets) UFO to any person other than the Buyer or an affiliate of
the Buyer, MPC shall immediately reimburse the Buyer for the reasonable fees and
expenses incurred in connection with the negotiation of this Agreement and
consummation of the transactions contemplated hereby.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
Each and all of the obligations of the Buyer to consummate the transactions
contemplated by this Agreement are subject to fulfillment prior to or at the
Closing of the following conditions:
7.1 ACCURACY OF WARRANTIES; PERFORMANCE OF COVENANTS. The
representations and warranties of MPC contained herein shall be accurate in all
material respects as if made on the Closing Date, as well as on the date when
made. MPC and UFO shall have performed in all material respects all of its
respective obligations and complied in all material respects with each and all
of its respective covenants required to be performed or complied with on or
prior to the Closing, including without limitation, the execution and delivery
of the agreements and undertakings provided for in this Agreement. The Buyer
shall have received certificates dated as of the Closing Date from MPC and UFO
certifying as to the continued accuracy of the representations and warranties
made by it and compliance with conditions precedent to the Closing.
7.2 NO PENDING ACTION. No injunctive action or proceeding before any
court or governmental body will be pending wherein an unfavorable judgment,
decree or order would prevent the carrying out of this Agreement or any of the
transactions contemplated hereby, declare unlawful the transactions contemplated
by this Agreement or cause such transactions to be rescinded.
7.3 TRANSFER OF RIGHTS TO NAME. MPC shall have transferred and
assigned to UFO all of its rights, title and interest in and to the use of the
name "Lucca's Pasta Bar."
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7.4 ADDITIONAL FUNDING. MPC shall have committed to advance Buyer no
more than Three Hundred Fifty Thousand Dollars ($350,000), One Hundred Thousand
Dollars ($100,000) to be paid at Closing, One Hundred Fifty Thousand Dollars
($150,000) to be paid thirty (30) days after Closing, and the remaining One
Hundred Thousand Dollars ($100,000) to be paid sixty (60) days after Closing.
Any and all additional funds so advanced to Buyer by MPC shall increase the
principal amount of the Promissory Note attached hereto as Exhibit B.
7.5 CORPORATE DOCUMENTS. The Buyer shall have received:
(a) Certificates of the Secretary of UFO certifying the incumbency of
officers and genuineness of signatures of all officers of UFO executing any
documents delivered by UFO at Closing, copies of the Bylaws, minute book and
stock record book of UFO, and the Articles of Incorporation, and any amendments
thereto, of UFO certified as of a recent date by the Secretary of State of
California; and
(b) A Certificate of Status of UFO, evidencing the corporation's good
legal standing, certified as of a recent date from the Secretary of the State of
California, and a letter issued by the Franchise Tax Board of the State of
California, as of the status of taxes paid.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF MPC
Each and all of the obligations of MPC to consummate the transactions
contemplated by this Agreement are subject to fulfillment prior to or at the
Closing of the following conditions:
8.1 ACCURACY OF WARRANTIES; PERFORMANCE OF COVENANTS. The
representations and warranties of the Buyer contained herein shall be accurate
in all material respects as if made on and as of the Closing Date, as well as on
the date when made. The Buyer shall have performed in all material respects all
of the obligations and complied in all material respects with each and all of
the covenants required to be performed or complied with on or prior to the
Closing, including without limitation, the execution and delivery of the
agreements and undertakings provided for in this Agreement. MPC shall have
received a certificate of the Buyer certifying as to the continued accuracy of
representations and warranties of the Buyer and compliance with conditions
precedent to the Closing.
8.2 NO PENDING ACTION. No injunctive action or proceeding before any
court or governmental body will be pending wherein an unfavorable judgment,
decree or order would prevent the carrying out of this Agreement or any of the
transactions contemplated hereby declare unlawful the transactions contemplated
by this Agreement or cause such transactions to be rescinded.
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8.3 PROMISSORY NOTE. The promissory note attached hereto as
Exhibit B shall have been executed.
8.4 FAIRNESS OPINION. MPC shall have received a fairness opinion,
regarding the transactions contemplated by this Agreement, which opinion shall
be satisfactory to MPC in its sole discretion.
ARTICLE 9
POST-CLOSING COVENANTS AND OBLIGATIONS
9.1 NAME CHANGE. Buyer agrees to cause UFO to change the name under
which the UFO Restaurants operate to a name other than "Monterey Pasta Company"
and to cease using the trademarks set forth on Schedule 2.10 within ninety (90)
days from the date of Closing. In connection therewith, all exterior signage
will be changed within the prescribed period.
9.2 DELIVERY OF NOTICES. Buyer agrees to deliver to all landlords
and any other third parties of contracts to which UFO is a party within ten (10)
days of Closing written notification of the change in ownership of UFO.
9.3 INSURANCE. Within ninety (90) days from the Closing Date, UFO
shall cease to be a named insured in the policies of insurance set forth on
Schedule 2.12, and UFO shall obtain such insurance as is necessary and
appropriate for the operation of its business.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND INDEMNIFICATION
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The parties hereto
agree the representations and warranties made herein shall not survive after the
Closing Date.
10.2 AGREEMENT TO INDEMNIFY. From and after the Closing Date, upon
the terms and subject to the conditions of this Article 10, the Buyer hereby
agrees to indemnify, defend and hold harmless MPC from and against any and all
loss, liability, damage or deficiency (including interest, penalties and
reasonable attorneys' fees) that MPC may suffer, sustain, incur or become
subject to based upon, arising out of, or resulting from (i) any breach by UFO
or the Buyer of any representation or warranty contained in this Agreement or in
any closing document delivered to MPC in connection herewith, (ii) the failure
of the Buyer to perform its respective covenants, undertakings and obligations
under this Agreement, and (iii) the operations of UFO before and after the
Closing Date.
10.3 NOTICE AND OPPORTUNITY TO DEFEND. If there occurs an event which
MPC asserts is an indemnifiable event pursuant to Section 10.2, MPC shall notify
Buyer promptly. If such event involves (i) any claim or (ii) the commencement
of any action or proceeding by a third person, MPC will give the Buyer prompt
written notice of such claim
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or the commencement of such action or proceeding. Such notice shall be a
condition precedent to any liability of the Buyer hereunder; provided that the
failure to provide prompt notice as provided herein will relieve the Buyer of
its obligations hereunder only to the extent that such failure prejudices the
Buyer hereunder. In case any such action shall be brought against MPC and it
shall notify the Buyer of the commencement thereof, the Buyer shall be entitled
to participate therein and, to the extent that it shall wish, to assume the
defense thereof, with counsel reasonably satisfactory to MPC and, after notice
from the Buyer to MPC of such election so to assume the defense thereof, the
Buyer shall not be liable to MPC hereunder for any legal expenses of other
counsel or any other expenses in each case subsequently incurred by MPC, in
connection with the defense thereof other than reasonable costs of
investigation. MPC agrees to cooperate fully with the Buyer and its counsel in
the defense against any such asserted liability. MPC shall also have the right
to participate at its own expense in the defense of such asserted liability.
Any compromise of such asserted liability by the Buyer shall require the prior
written consent of MPC. If MPC refuses its consent to a BONA FIDE offer of
settlement which the Buyer wishes to accept (which must include the
unconditional release of MPC from all liability with respect to the claim at
issue), MPC may continue to pursue such matter, free of any participation by the
Buyer, at the sole expense of MPC. In such event, the obligation of the Buyer
to MPC shall be equal to the lesser of (i) the amount of the offer or settlement
which MPC refused to accept plus the costs and expenses of MPC prior to the date
the Buyer notifies MPC of the offer of settlement and (ii) the actual out-of-
pocket amount MPC is obligated to pay as a result of MPC's continuing to pursue
such matter.
ARTICLE 11
GENERAL PROVISIONS
11.1 AMENDMENT AND WAIVER. No amendment or waiver of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing and signed by the parties hereto, and then such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
11.2 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be sent by personal delivery or
registered or certified mail postage prepaid, as follows:
If to MPC: Monterey Pasta Company
353 Sacramento Street, Suite 500
San Francisco, CA 94111
Attn: Norman E. Dean, President
and Chief Executive Officer
With a copy to: James E. Topinka, Esq.
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
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If to Buyer: Upscale Acquisitions, Inc.
170-F Alamo Plaza, Suite 504
Alamo, CA 94507
Attn: Lance H. Mortensen
With a copy to: R.M. Bonnifield
Andersen, Bonnifield & Stevens
1355 Willow Way, Suite 255
Concord, CA 94520
Any party may change its address for receiving notice by written notice given to
the others named above. All such notices shall be effective when delivered by
personal delivery or if mailed, when deposited in the mail addressed as set
forth above.
11.3 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
11.4 PARTIES IN INTEREST. This Agreement shall bind and inure to the
benefits of the parties named herein and their respective heirs, successors and
assigns. This Agreement is not assignable by any party hereto.
11.5 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
Schedules attached hereto and the documents delivered pursuant hereto,
constitutes the entire agreement among the parties with respect to the
transactions contemplated hereby and supersedes all other agreements and
understandings among the parties, whether written or verbal.
11.6 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California. Each of the parties
hereto agrees to submit to the jurisdiction of the courts of the State of
California in any action or proceeding arising out of or relating to this
Agreement.
11.7 HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.8 EXPENSES. Except as otherwise provided in this Agreement, each
of the parties shall bear its own respective expenses in connection with the
transactions contemplated by this Agreement. MPC shall be responsible for all
expenses incurred in connection with the preparation and rendering of the
fairness opinion.
11.9 PUBLICITY. Any publicity relating to this transaction and the
method of its release shall be approved by each of Buyer and MPC, which approval
shall not be unreasonably withheld.
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11.10 ATTORNEYS' FEES. In the event that any action is brought to
enforce any of the provisions of this Agreement, or to obtain money damages for
the breach thereof, and such action results in the award of a judgment for money
damages or in the granting of any injunction in favor of one of the parties to
this Agreement, all expenses, including reasonable attorneys' fees, shall be
paid by the nonprevailing party.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first written above.
MONTEREY PASTA COMPANY
By:
------------------------------
Name: Norman E. Dean
Title: President and Chief Executive Officer
UPSCALE ACQUISTIONS, INC.
By:
------------------------------
Name: Lance H. Mortensen
Title: President
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EXHIBIT A
List of Operating Monterey Pasta Company Restaurants
AS OF APRIL 1, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
MKT UNIT # CENTER ADDRESS CITY OPEN CLOSED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NCAL 004 STONERIDGE MALL 1024 STONERIDGE MALL ROAD PLEASANTON, CA 94588 10/04/93
NCAL 006 CROCKER GALLERIA 50 POST STREET SAN FRANCISCO, CA 94104 12/23/93
NCAL 007 SF SHOPPING CENTRE 865 MARKET STREET C18 SAN FRANCISCO, CA 94103 02/23/94
NCAL 013 ARDEN FAIR 1689 ARDEN WAY, #110 SACRAMENTO, CA 95815 05/29/94
SCAL 019 PLAZA AT W. COVINA 1200 WEST COVINA PARKWAY #1554 WEST COVINA, CA 91790 03/28/95
NCAL 024 DOWNTOWN PLAZA 515 L STREET, #1047 SACRAMENTO, CA 95814 05/06/94
SCAL 025 PROMENADE 6100 TOPANGA CANYON #201 WOODLAND HILLS, CA 91367 12/31/94 03/31/96
COLO 027 SOUTHWEST PLAZA 8501 W BOWLES AVENUE LITTLETON, CO 80123 06/15/94 03/00/96
SCAL 029 FASHION VALLEY 353 FASHION VALLEY SAN DIEGO, CA 92108 06/29/94
NCAL 030 HILLSDALE S.C. 440 HILLSDALE MALL, SPACE 2228 SAN MATEO, CA 94403 08/04/94
COLO 032 THE CITADEL 750 CITADEL DRIVE EAST COLORADO SPRINGS, CO 80909 08/22/94
COLO 033 CROSSROADS 160 28TH STREET, # 220 BOULDER, CO 80301 09/09/94
COLO 034 WESTMINSTER 5433 W 88TH AVENUE WESTMINSTER, CO 80030 08/18/94
WA 039 BELLEVUE SQUARE BELLEVUE SQUARE #140 BELLEVUE, WA 98009 03/01/94
WA 040 TACOMA MALL 4502 SO. STEELE STREET #509 TACOMA, WA 98409 03/01/94
WA 041 ALDERWOOD MALL 3000 184TH S.W. #294 LYNNWOOD, WA 98036 03/01/94
WA 042 NORTHGATE WA 502 NORTHGATE MALL SEATTLE, WA 98125 03/01/94
NCAL 068 HARTZ AVE 501 HARTZ AVENUE DANVILLE, CA 94526 10/16/95
</TABLE>
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$2,500,000 April 1, 1996
Prime Rate San Francisco, California
FOR VALUE RECEIVED, the undersigned, Upscale Acquisitions, Inc., a
California corporation ("Maker"), promises to pay to the order of Monterey Pasta
Company, a California corporation ("Payee"), at 353 Montgomery Street,
Suite 500, San Francisco, California 94111, or at such other place as Payee may
from time to time designate by written notice to Maker, the aggregate principal
amount of Two Million Five Hundred Thousand Dollars ($2,500,000) in the manner
set forth below, together with interest on the unpaid balance of such principal
amount, from the date hereof until payment in full, at the prime rate per annum
as published by Bank of America, N.A., San Francisco, California, during the
term of this Note, not to exceed ten percent (10%).
(a) ADJUSTMENT OF PRINCIPAL. Any amounts advanced to Maker by
Payee pursuant to Section 7.4 of the Stock Purchase Agreement dated April 1,
1996, between Maker and Payee shall be added to the principal amount of this
Note and thereafter shall accrue interest at the rate specified above. On
November 15, 1996, the principal amount of this Note shall be increased or
decreased as agreed by Maker and Payee to reflect the business operations of
Maker from the date hereof through November 15, 1996.
(b) TERMS OF PAYMENT. Beginning on the second anniversary of
this Note, principal plus all accrued interest shall be paid in eighty-four (84)
equal successive monthly installments on the first day of every month. All
outstanding principal and accrued but unpaid interest shall be paid no later
than April 10, 2005.
(c) EVENTS OF DEFAULT. Each of the following events shall
constitute an Event of Default hereunder:
(i) Maker shall fail to perform any of its obligations pursuant
to this Note.
(ii) Maker (A) shall admit in writing its inability generally to
pay its debts when due, (B) shall make a general assignment for the benefit of
creditors, or (C) shall be adjudicated a bankrupt or insolvent or file a
voluntary petition, have a petition filed against it which shall not be
dismissed within forty-five (45) days after the filing thereof, or consent to a
petition, or file an answer admitting the material allegations of the petition,
in any bankruptcy, reorganization, insolvency, dissolution or similar
proceedings; and
(iii) An order, judgment or decree shall be entered, appointing
a receiver, trustee, custodian or liquidator for Maker.
1
<PAGE>
(d) ACCELERATION UPON DEFAULT. Upon the occurrence and during
the continuance of an Event of Default hereunder, Payee may declare this Note to
be immediately due and payable, whereupon the principal amount of this Note and
all accrued but unpaid interest thereon shall become immediately due and payable
without further notice, demand, presentment or protest, the requirement for any
of which is expressly waived by Maker.
(e) PREPAYMENT. The principal amount may be prepaid in whole or
in part, at any time or from time to time without premium or penalty.
(e)
(f) GOVERNING LAW. This Note shall be governed by the laws of
the State of California, without giving effect to principles of conflicts of law
thereof.
(g) EXPENSES. Maker agrees to pay, in addition to principal and
interest due and payable hereunder, all costs and expenses (including reasonable
legal fees) of any nature incurred by Payee in connection with enforcing the
terms hereof.
(h) AMENDMENT AND WAIVER. This Note may be amended or modified
and the terms hereof may be waived only by a written instrument signed by the
party against whom the enforcement of any modification, amendment or waiver is
sought. No oral amendment or modification of this Note shall be enforceable
even if such oral amendment or modification is claimed to be supported by
consideration. No delay on the part of Payee in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of Payee of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
(i) NOTICES. Any notices given pursuant to this Note shall be
given in accordance with the provisions of the Stock Purchase Agreement.
(j) ASSIGNMENT. This Note shall not be assignable nor delegable
by Maker without the prior written consent of Payee. Payee may assign any of
its rights hereunder without Maker's consent which shall inure to the benefit of
Payee's successors and assigns.
IN WITNESS WHEREOF, Maker has caused this Note to be executed and
delivered as of the date and year first above written.
UPSCALE ACQUISITIONS, INC., a California
corporation
By:
----------------------------------------------
Its:
---------------------------------------------
2
<PAGE>
SCHEDULE 1.2
Claims by Lessors Regarding Termination of Leases and Litigation
Associated Therewith
1. Upscale Food Outlets, Inc. ("UFO") v. Midsouth Data Systems, Inc. dba
"Monterey Pasta Company," v. Allie Rooks, an individual; Midsouth Data Systems,
Inc., a corporation; Midsouth Data Systems, Inc. v. UFO, Monterey Pasta Company,
a corporation and Does 1 through 25, inclusive (Superior Court of the State of
California for the County of Contra Costa, Case No. C 95-05007)
2. La Salle Street Fund Incorporated of Delaware v. UFO d/b/a The Monterey
Pasta Company (also known as "Valley View") (95th Judicial District Court,
Dallas County, Texas, Case No. 96-03279)
3. Tarlos & Associates, Inc., a California corporation v. Monterey Pasta
Company, and Does 1 to 10; UFO v.Tarlos & Associates, Inc., a California
corporation; R.A.S. Builders, Inc.; and Roes 1-50 (Superior Court of California,
County of Orange, Harbor Judicial District, Case No. 752052)
4. Plaza Camino Real v. UFO (Superior Court of California, County of San Diego,
North County Judicial District, Case No. N69429)
5. Peninsula Center Partners, L.P. v. UFO; UFO v. Peninsula Center Partners,
L.P., a California limited partnership, Grubb & Ellis Company, Jeffrey M.
Axtell, and Roes 1-10 (Superior Court of California, County of Los Angeles, Case
No. BC138043)
6. Pacific Acquisition Corporation v. UFO, a California corporation, dba The
Monterey Pasta Company, Morweg Construction Company, Inc., a California
corporation and Does 1-10, inclusive (Superior Court of California, City and
County of San Francisco, Case No. 972333)
7. Northgate Mall Partnership, a Delaware general partnership, et al. v. UFO
dba Monterey Pasta Company, a California corporation, Lucca's Pasta Bar, Inc., a
Washington corporation, Timothy Morris, G. Patrick Morris, and J. Mickey Morris;
UFO dba Monterey Pasta Company, a California corporation v. Northgate I Real
Estate Corporation, a Delaware corporation, and John Does 1-5 (Superior Court of
the State of Washington in and for the County of King, Case No. 95-2-32972-1
SEA)
8. Charles M. Lusk, III, Ted Beilman, and Richard Ethun, d/b/a/PSTS-Texas
Company v. Monterey Pasta Company, Monterey Pasta Development Company, and UFO
(U.S. District Court for the So. District of Texas Houston Division, Civil
Action No. H 95-1840)
[Requested transfer of venue to Federal District Court in San Francisco,
California]
9. Lakeshore Bay Retail, Inc., c/o AMB Institutional Realty Advisors, as
landlord, and UFO (also known as Lakeshore Plaza) - lease termination
<PAGE>
10. Great Mall of the Bay Area Partnership, a California general partnership v.
UFO, a California corporation dba Monterey Pasta Company, et al. (Superior Court
of California, County of Santa Clara, Case No. CV 750241), together with
mechanics liens' claims filed by Dasco Construction and Drywall and Ciari
Plumbing; Central Wholesale Electrical v. UFO
11. UFO v. Glendale Associates, and related cross-action (Superior Court of
California for the County of Los Angeles, Case No. EC018286)
12. UFO, a California corporation v. Galleria Joint Venture, a California joint
venture (Superior Court of the State of California for the County of Los
Angeles, Case No. BC 134 167) (also known as Sherman Oaks Galleria)
13. UFO v. Federal Way Joint Venture,et al. (Superior Court of the State of
Washington for King County, Case No. 95-2-22562-4SEA) (also known as Gateway
Center in Federal Way, WA)
14. DSC 4, a California limited partnership v. UFO, a California corporation
d/b/a Monterey Pasta Company, and Does 1-20, inclusive (Superior Court of
California, County of Orange, Case No. 748817) (also known as Fountain Valley)
15. Corporate Property Investors, a Massachusetts Business Trrust, and EMI
Santa Rosa Limited Partnership, a California limited partnership, v. Monterey
Pasta Company, a California corporation; UFO, a California corporation; the
Morweg Construction Company, a California corporation; and Does 1-20, inclusive
(Superior Court of the State of California, Contra Costa County, Case No. C95-
03878) Covers the Brea, Westminster and Santa Rosa lease terminations
16. Centermark Properties of Vancouver, Inc. d/b/a Vancouver Mall, a general
partnership v. UFO, a California corporation and Monterey Pasta Company, a
California corporation (Superior Court of Washington for Clark County, Case No.
95-2-05425-4)
17. Shopping Center Associates, a New York general partnership v. UFO, a
California corporation d/b/a/ the Monterey Pasta Company, also d/b/a/ Monterey
Pasta Company (County of Los Angeles, Case No. 96B01655) (also known as The
Promenade at Woodland Hills (unit #025))
18. Hulen Mall Joint Venture, as landlord and UFO, as tenant - lease
termination
19. Anita Associates, a California limited partnership, as landlord, and UFO
d/b/a The Monterey Pasta Company, as tenant - Santa Anita Fashion Park (Unit #
31) lease termination and settlement
20. DPA, L.P., a California limited partnership, as landlord, and UFO, as
tenant - Downtown Plaza (Unit #024) - amendment to lease with respect to
advertising
21. H and H-Cerritos, a California general partnership, as landlord, and UFO
d/b/a/ The Monterey Pasta Company, as tenant - Los Cerritos (Unit # 015) lease
termination and settlement
2
<PAGE>
22. Aquiport Seven Corporation, a Delaware corporation, c/o The Edward J.
DeBartolo Corporation, as landlord, and UFO, as tenant (lease was originally
entered into with Lucca's Pasta Bar, Inc., a Washington corporation, as tenant)
for lease of the Alderwood Mall Shopping Center in Lynnwood, Washington (Unit
#041)
23. Bellevue Square Managers, Inc., a Washington corporation, as landlord and
UFO, as tenant (lease was originally entered into with Lucca's Pasta Bar, Inc.,
formerly known as Lombardi's, Inc., a Washington corporation, and Timothy John
Morris and Marian Kathryn Morris, husband and wife, collectively, as tenant) for
lease of Bellevue Square in King County, Washington
24. Southwest Properties Venture, as landlord, and UFO d/b/a Monterey Pasta
Company - lease termination of Southwest Plaza, Colorado (Unit #027) [Amended
Notice of Default dated 4-3-96 also served upon Monterey Pasta Company)
25. Stoneridge Properties, as landlord, and UFO d/b/a/ Monterey Pasta Company,
as tenant - change of control is deemed to be a default under the lease. By
letters dated February 20 and March 19, 1996, The Taubman Company, property
manager, advised Norman E. Dean that UFO provide him with the details of the
proposed transaction so that Landlord can determine whether the sale of stock of
UFO to an affiliate of Lance H. Mortensen might be deemed to violate the lease
for Stoneridge Mall (Unit #004). (Monterey Pasta Company is a guarantor of that
lease)
26. Shopping Center Lease Agreement dated November 8, 1995 between Richard E.
Cornwell and Kathleen D. Cornwell, as landlord, and LBJ Restaurants, LLC, a
Colorado limited liability company, former franchisee, dated November 8, 1995.
Former franchisee terminated lease; Monterey Pasta Company is guarantor of that
lease. Vacating the premises might be deemed to violate the lease
27. Taubman-Cherry Creek Limited Partnership ("Taubman") v. UFO (Denver
District Court, Case No. 95-CV-4194). Although a Settlement Agreement and
Release dated as of November 15, 1995 was entered into among Taubman, UFO and
LBJ Restaurants, LLC, a Colorado limited liability company, former franchisee,
in connection with that civil action, there are possible claims that may be made
against RAS Builders, Inc. and Holland & Hart, counsel for Upscale Food Outlets,
Inc.
28. Post-Montgomery Associates, a California general partnership, as landlord,
and UFO, as tenant, entered into a Retail Lease dated as of August 1993 for
lease of premises located in the retail portion of the retail and office complex
known as the Pacific Telesis Center in San Francisco, California. First
Amendment to Retail Lease providing for a reduction of rent upon landlord's
receipt of a marketing plan has not yet been executed
3
<PAGE>
SCHEDULE 2.1
Consents Required
Consents are required under the leases entered into by Upscale Food Outlets,
Inc. d/b/a/ The Monterey Pasta Company listed below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
UNIT LOCATION FOOD LANDLORD LEASED LEASE DATES
# COURT SQ FT COMMENCE OPENED EXPIRES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
003 BROADWAY PLAZA N MaceRich N.W Assoc 2681 08/23/93 07/27/93 06/30/00
004 STONERIDGE N Stoneridge Properties 1055 10/01/93 10/04/93 09/30/00
005 CORTE MADERA N Hahn 647 11/08/93 11/08/94 11/03/00
006 CROCKER GALLERIA N Post Montgomery 1190 12/01/93 12/23/93 12/31/00
007 SF SHOPPING CENTRE N S.F. Shpng Ctr Assc 814 01/08/94 02/23/94 01/31/03
008 STONESTOWN N Pacific Acquisitions 1152 03/01/94 03/01/94 10/31/03
009 SANTA ROSA N Corp Property Inv. 2421 12/01/93 12/16/93 02/28/04
010 MALL AT NORTHGATE N Northgate Mall Assoc 500 03/07/94 03/07/94 01/31/01
011 FRESNO FASHION FAIR Y MCA Fresno Assoc 458 05/13/94 05/13/94 06/30/04
012 SHERMAN OAKS GALLERIA Y LaSalle Partners 520 07/22/94 07/22/94 01/31/04
013 ARDEN FAIR N Arden Fair Assoc. 1346 04/01/94 05/29/94 03/31/04
014 LAKEWOOD CTR MALL N Lakewood Ctr Mall 1060 06/03/94 06/03/94 05/31/04
015 LOS CERRITOS CENTER Y H&H Cerritos 649 05/01/94 05/13/94 04/30/04
016 BREA MALL N Corp Prop Investors 2270 07/14/94 09/21/94 05/31/04
017 PLAZA CAMINO REAL N Plaza Camino Real 1485 05/15/94 05/22/94 01/31/05
018 VILLA MARINA MRKTPLC N Copley Investors LP 1200 06/23/94 06/23/94 12/31/03
020 WESTMINSTER MALL N Corp. Prop. Investors 1781 08/15/94 09/27/94 08/14/04
021 GLENDALE GALLERIA Glendale Assoc Ltd 705 05/01/94 09/18/94 04/30/04
022 CHERRY CREEK S.C. N Taubman Ch. Crk. LP 1255 06/23/94 06/23/94 06/22/01
024 DOWNTOWN PLAZA N DPA, L.P. 1686 05/06/94 05/06/94 03/31/04
025 PROMENADE N Shopping Ctr Assc 2500 01/05/95 12/31/94 01/31/03
027 SOUTHWEST PLAZA N SW Properties Ventur 1437 06/09/94 06/15/94 06/08/04
029 FASHION VALLEY S.C. N Fashion Vly Venture 960 06/29/94 06/29/94 12/31/02
030 HILLSDALE MALL N Bohannon Developmt 1326 08/01/94 08/04/94 07/31/04
031 S.ANITA FASHION PARK Y Anita Assoc (Hahn) 640 05/01/94 08/24/94 04/30/04
032 THE CITADEL Y Tristate J.V. 954 08/01/94 08/22/94 06/30/01
033 CROSSROADS MALL N Macerich Partnership 1793 08/30/94 09/09/94 06/30/04
034 WESTMINSTER MALL Y Westminster Mall Co 504 08/01/94 08/18/94 07/31/04
035 HULEN MALL Y Hulen Mall J.V. 560 08/24/94 08/24/94 08/31/99
037 VALLEY VIEW CENTER Y La Salle Partners 1308 08/13/94 08/13/94 12/31/04
038 VANCOUVER MALL Y Vancouver Mall 533 06/03/94 06/03/94 01/31/05
039 BELLEVUE SQUARE N Bellevue Square Mgrs 1393 03/01/94 03/01/94 09/30/98
040 TACOMA MALL N Tacoma Mall #509 1274 03/01/94 03/01/94 11/30/99
041 ALDERWOOD MALL N Acquiport Seven 1648 03/01/94 03/01/94 02/28/03
042 NORTHGATE MALL N Northgate Mall Ptrns 2442 03/01/94 03/01/94 06/30/03
046 PROSPECT SQUARE N John Burnham & Co 1461 12/31/94 12/31/94 03/31/02
047 GREAT MALL N Great Mall of the Bay 1805 11/16/94 11/16/94 11/15/04
048 PENINSULA CENTER N Peninsula Partners 1850 12/13/94 12/13/94 12/12/04
048 PENINSULA CENTER N Peninsula Partners 1850 12/13/94 12/13/94 12/12/04
052 ENCINITAS N Sudberry Properties 2100 03/01/95 02/28/00
052 ENCINITAS N Sudberry Properties 2100 03/01/95 n/a 02/28/00
059 GATEWAY N Federal Way J.V 2240 03/03/95 Not Opened 03/02/05
061 FOUNTAIN VALLEY N DSC4, LP 1957 04/16/95 Not Opened 04/15/05
067 LAKESHORE PLAZA N Menlo Management 2520 06/12/95 n/a 06/11/00
068 HARTZ AVENUE N Nine of Hartz 2833 07/01/95 10/16/95 06/30/05
TATUM POINT N Richard Cornwell, et ux 3737 12/15/95 n/a 02/28/01
</TABLE>
<PAGE>
SCHEDULE 2.5
Subsidiaries of Upscale Food Outlets, Inc.
None.
<PAGE>
SCHEDULE 2.7
Material Changes Since December 31, 1995
See attached list incorporated herein by this reference.
<PAGE>
UPSCALE FOOD OUTLETS
COMPARATIVE BALANCE SHEET
December 31, 1995 - March 31, 1996
<TABLE>
<CAPTION>
31-Dec-95 31-Mar-96 Period Change
<S> <C> <C> <C>
Cash
Cash on Hand 11,250.00 11,050.00 200.00
Cash - B of A Payroll (24,556.45) (92,867.53) 68,311.08
Cash - B of A Checking (112,924.44) (23,362.65) (89,561.79)
Cash - B of A Deposits 98,045.34 68,281.71 29,763.63
Cash - Seattle Seafirst 15,009.08 16,944.64 (1,935.56)
Cash - B of A Texas (120.43) (120.43)
Marketable Securities 66.81 2.49 64.32
--------------- --------------- ---------------
Total Cash (13,230.09) (19,951.34) 6,721.25
-
Receivables -
Accts Receivable - Customers 32,412.00 33,780.00 (1,368.00)
Accts Receivable - Credit Cards 2,429.10 2,232.57 196.53
Employee Receivable 2,319.55 3,319.55 (1,000.00)
Accts Receivable - Other 84,757.60 94,412.41 (9,654.81)
--------------- --------------- ---------------
-
Total Receivables 121,918.25 133,744.53 (11,826.28)
-
Inventories -
Inventory - Food 24,046.29 18,816.63 5,229.66
Inventory - Beverages 9,804.16 7,619.30 2,184.86
Inventory - Retail 2,485.42 2,500.00 (14.58)
Inventory - Disposables 10,446.82 8,426.15 2,020.67
Inventory - Supplies 20,358.23 20,358.23 -
Inventory - Danville 77,366.23 78,501.62 (1,135.39)
Inventory - Concord 1,059,470.83 1,075,151.23 (15,680.40)
--------------- --------------- ---------------
-
Total Inventories 1,203,977.98 1,211,373.16 (7,395.18)
-
Prepaids and Other Expenses -
Prepaid Rent 92,102.22 92,893.83 (791.61)
Prepaid Taxes 6,101.82 5,333.37 768.45
Prepaid Tenant Improvements 10,000.00 10,000.00 -
Prepaid Expenses - Other 24,432.32 18,426.17 6,006.15
--------------- --------------- ---------------
-
Total Prepaids and Other Expense 132,636.36 126,653.37 5,982.99
</TABLE>
Page 1
<PAGE>
UPSCALE FOOD OUTLETS
COMPARATIVE BALANCE SHEET
December 31, 1995 - March 31, 1996
<TABLE>
<CAPTION>
31-Dec-95 31-Mar-96 Period Change
<S> <C> <C> <C>
-
Fixed Assets -
Restaurant Equipment 884,586.10 885,586.55 (1,000.45)
Furniture and Fixtures 430,732.83 430,831.33 (98.50)
Office Equipment 2,062.14 2,062.14 -
Computer Equipment 69,848.25 69,848.25 -
Leasehold Improvements 2,839,200.50 2,848,282.78 (9,082.28)
Lease Acquisition Costs 69,550.81 69,550.81 -
Pre Opening 318,649.35 314,072.53 4,576.82
Accum Deprec/Amortz (828,961.94) (1,010,788.89) 181,826.95
--------------- --------------- ---------------
-
Net Fixed Assets 3,785,668.04 3,609,445.50 176,222.54
-
Intangible Assets -
Tradename 5,293.03 5,293.03 -
Accum Amortz - Tradename (1,056.54) (1,188.57) 132.03
Goodwill - Luccas 893,195.33 893,195.33 -
Accum Amortz - Goodwill (161,271.29) (183,601.16) 22,329.87
--------------- --------------- ---------------
Net Intangible Assets 736,160.53 713,698.63 22,461.90
-
Other Assets -
Lease Deposits 42,317.89 42,317.89 -
Notes Receivable 1,284,027.70 1,278,872.20 5,155.50
Construction in Progress 90,756.76 92,658.91 (1,902.15)
Deposits - Current 29,077.39 22,006.00 7,071.39
Deposits - Rest. Concepts 7,500.00 (7,500.00)
--------------- --------------- ---------------
Total Other Assets 1,446,179.74 1,443,355.00 2,824.74
-
TOTAL ASSETS 7,413,310.81 7,218,318.85 194,991.96
</TABLE>
Page 2
<PAGE>
UPSCALE FOOD OUTLETS
COMPARATIVE BALANCE SHEET
December 31, 1995 - March 31, 1996
<TABLE>
<CAPTION>
31-Dec-95 31-Mar-96 Period Change
<S> <C> <C> <C>
Current Liabilities
Payables
Accounts Payable Trade 327,098.03 231,620.91 95,477.12
Bank Credit Line 5,600.07 4,619.52 980.55
Notes Payable - Current 75,681.21 75,047.76 633.45
--------------- --------------- ---------------
-
Total Payables 408,379.31 311,288.19 97,091.12
-
Accrued Liabilities -
Employee Related Accruals -
Garnishments 470.09 (470.09)
Accrued Salaries & Wages 45,155.93 45,155.93
--------------- --------------- ---------------
-
Total Employee Related Accruals 45,155.93 470.09 44,685.84
Accrued Taxes
Property Tax Payable 3,299.56 5,761.98 (2,462.42)
Sales Tax Payable 61,049.87 43,248.08 17,801.79
Franchise Tax Payable (800.00) (800.00)
--------------- --------------- ---------------
Total Accrued Taxes 63,549.43 49,010.06 14,539.37
-
-
Other Accrued Liabilities -
Accounts Payable - Accrued 2,442.49 (1,400.00) 3,842.49
Accounts Payable - Accrued Rents 249,536.15 253,851.25 (4,315.10)
Accounts Payable - Other 74,242.08 59,000.00 15,242.08
Gift Certificates Payable 412.34 187.34 225.00
Deferred Rent 71,884.83 77,041.55 (5,156.72)
Other Accrued Liabilities (165.53) (165.53)
--------------- --------------- ---------------
Total Other Accruals 398,352.36 388,680.14 9,672.22
--------------- --------------- ---------------
Total Current Liabilities 915,437.03 749,448.48 165,988.55
</TABLE>
Page 3
<PAGE>
UPSCALE FOOD OUTLETS
COMPARATIVE BALANCE SHEET
December 31, 1995 - March 31, 1996
<TABLE>
<CAPTION>
31-Dec-95 31-Mar-96 Period Change
<S> <C> <C> <C>
Long Term Liabilities
Intercompany Payables
Due MPC 27,034,521.63 27,072,729.75 (38,208.12)
Due MPDC 146,951.52 149,305.20 (2,353.68)
--------------- --------------- ---------------
-
Total Intercompany Payables 27,181,473.15 27,222,034.95 (40,561.80)
-
-
Other Long Term Liabilities -
Accrued Restructure
Liabilities 1,512,141.53 1,443,103.54 69,037.99
Notes Payable - Long Term
Portion 94,399.93 94,399.93 -
--------------- --------------- ---------------
-
Total Other Long Term Liabilities 1,606,541.46 1,537,503.47 69,037.99
--------------- --------------- ---------------
-
Total Long Term Liabilities 28,788,014.61 28,759,538.42 28,476.19
-
TOTAL LIABILITIES 29,703,451.64 29,508,986.90 194,464.74
-
-
EQUITY -
-
Shareholders Equity -
Common Stock 1,000.00 1,000.00 -
Retained Earnings (1,848,376.34) (22,291,140.83) 20,442,764.49
Net Profit/Loss (20,442,953.09) (0.64) (20,442,952.45)
--------------- --------------- ---------------
-
Total Shareholders Equity (22,290,329.43) (22,290,141.47) (187.96)
-
TOTAL LIABILITIES AND EQUITY 7,413,122.21 7,218,845.43 194,276.78
</TABLE>
Page 4
<PAGE>
SCHEDULE 2.10
Intellectual Property
The following trademarks are registered in the name of Monterey Pasta
Company; however, Upscale Food Outlets, Inc. has used such trade name and mark
in its business and operations:
1. Trademark Registration -- MONTEREY PASTA COMPANY, under Registration No.
1,664,278, registered on November 12, 1991 with the U.S. Patent and
Trademark Office
2. Trademark Registration -- MONTEREY PASTA COMPANY, under Registration No.
1,943,602, registered on December 26, 1995 with the U.S. Patent and
Trademark Office
3. Trademark Registration -- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,945,131, registered on January 2, 1996 with the U.S.
Patent and Trademark Office
4. Trademark Registration -- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,951,624, registered on January 23, 1996 with the U.S.
Patent and Trademark Office
5. Trademark Registration -- MONTEREY PASTA COMPANY, under Registration No.
1,953,489, registered on January 30, 1996 with the U.S. Patent and
Trademark Office
<PAGE>
SCHEDULE 2.11
List of Officers and Employees as of Last Fiscal Year whose Compensation
Exceeded $50,000
Each of the following officers also received grants of stock options for
Monterey Pasta Company Common Stock at an exercise price of $6.00 per share,
unless otherwise indicated, which options expire ten years from the date of
grant.
WILLIAM H. BENDER*
VICE PRESIDENT OF FOOD SERVICES
Executive Employment Agreement dated July 1, 1993 with Upscale Food Outlets,
Inc.
GRANT OF STOCK OPTIONS:
30,000 shares on 8-31-93, with shares to be vested as follows:
33.3% after 8-31-94; 66.6% after 8-31-95; and fully exercisable after 8-31-96
Option Term: Expires six years from date of grant
5,000 shares at an exercise price of $6.50 per share on 5-25-95, with shares to
be vested as follows:
33.3% each year after 5-25-95 over a three-year period
Option Term: Expires ten years from date of grant
Oral Agreement per Bender: Agreement was not for stock options but for stock
equity, and that he was to receive 31,200 shares of Monterey Pasta Company
Common Stock to afford him a 4% equity position or 31,200 shares.
JON FORSMAN
VICE PRESIDENT OF RESTAURANT OPERATIONS
Letter dated August 31, 1995 from Monterey Pasta Company to Mr. Forsman
confirming offer of employment to Mr. Forsman as Vice President of Restaraunt
Operations
GRANT OF STOCK OPTIONS: (No executed stock option agreement in files):
20,000 shares on 5-25-95, with shares to be vested immediately
20,000 additional shares on 5-25-97, with shares to be vested in second year
from issue date
Option Term: Expires ten years from date of grant
Termination: If terminated during the first 12 months of employment, Forsman to
receive an amount equal to six months salary computed at the rate that he was at
upon date of termination
- -----
* Mr. Bender's salary was charged to Monterey Pasta Development Company
<PAGE>
Oral agreement: Forsman to receive 1,000 shares of Monterey Pasta Company
Common Stock or $10,000 in cash per August 1995 restructuring of Upscale Food
Outlets, Inc. Per the President and CEO, a bonus was paid to certain executive
officers, including Messrs. Bender and Milan. Forsman was to have received such
a bonus or 1,000 shares of Monterey Pasta Company Common Stock. In January
1996, Forsman agreed to accept 1,000 shares of Monterey Pasta Company Common
Stock in lieu of the cash bonus. However, upon Forsman's termination
(as described below), he has now elected to receive $10,000 in cash.
Forsman was terminated effective 3-29-96.
DONALD L. MILAN
VICE PRESIDENT OF CONSTRUCTION
No written employment agreement
GRANT OF STOCK OPTIONS:
30,000 shares on 8-31-93, with shares to be vested as follows:
33.3% after 8-31-94; 66.6% after 8-31-95; and fully exercisable after 8-31-96
Option Term: Expires six years from date of grant
5,000 shares at an exercise price of $6.50 per share on 5-25-95, with shares to
be vested as follows:
33.3% each year after 5-25-95 over a three-year period
Option Term: Expires tenyears from date of grant
Oral Agreement per Milan: 5,000 shares are to be fully vested after one year
2
<PAGE>
SCHEDULE 2.12
Insurance Coverage
Monterey Pasta Company maintains the insurance policies listed below and
incorporated herein by this reference. Upscale Food Outlets, Inc. as a
subsidiary of Monterey Pasta Company is named as an additional insured on all of
the policies listed below, except for the workers compensation insurance policy
with Allianz. Monterey Pasta Company's workers compensation insurance policy
currently underwritten by Liberty Mutual Insurance Company, expired on April 17,
1996. Monterey Pasta Company has elected to place that coverage with Allianz
through Tanner Insurance Brokerage, and the binder for that coverage is attached
hereto. It is our understanding that Upscale Acquisitions, Inc. has also
obtained workers compensation insurance with Allianz, effective April 17, 1996,
through Tanner Insurance Brokerage.
<TABLE>
<CAPTION>
Coverage
Policy # Term Carrier Premium Deductible
- -------- ---- ------- ------- ----------
<S> <C> <C> <C> <C>
PACKAGE
MMX80642609 2-22-96/97 Firemans Fund $76,092 $500 Rest/
$1000 Mfg
AUTOMOBILE
MXA80159695 2-22-96/97 Firemans Fund $18,374 $1000 Comp/
$1000
Collision
UMBRELLA
AUO365443700 2-22-96/97 Zurich American $15,000 Nil
Underwriters/
D&O 12-20-95/96 Lloyds $119, 025 See Attached
LC68372
1203499 Admiral $50,715
Workers Comp
WCPO350525 4-17-96/97 Allianz $97,021
Medical-
Managed Choice
698548-010- Aetna Life &
00700 3-22-94 Casualty $108,840
<PAGE>
Medical -
PPO/Traditional
698548-010- Aetna Life &
00701 3-22-94 Casualty $11,820
Medical-Cobra
698548-010- Aetna Life &
00702 3-22-94 Casualty $34,824
Life Insurance
502940 3-15-94 Unum Life Ins $16,260
Dental Insurance
GH26179 3-15-94 ReliaStar Ins $24,000 $50/Person
Medical-Salinas
59T05A 3-15-94 Blue Cross $282,516
</TABLE>
<PAGE>
[TANNER INSURANCE BROKERS LETTERHEAD]
April 17, 1996
Wanda Schwartz
Monterey Pasta Company
353 Sacramento Street #500
San Francisco, CA 94111
RE: Workers' Compensation Coverage
Allianz Insurance Company
April 17, 1996 to April 17, 1997
Dear Wanda:
Enclosed you will find our insurance binder confirming that coverage has been
placed with Allianz Insurance Company effective 4-17-96. This insurance binder
will serve as temporary proof of insurance until such time as the actual policy
is received.
Should you have any questions regarding your insurance program, please do not
hesitate to contact our office.
Sincerely,
/s/ Lori Bodmer
Lori A. Bodmer
Account Manager
cc: Steven J. Tanner
Tom Daggett
<PAGE>
4/17/96
- --------------------------------------------------------------------------------
THIS BINDER IS A TEMPORARY INSURANCE CONTRACT, SUBJECT TO THE CONDITIONS SHOWN
ON THE REVERSE SIDE OF THIS FORM
- --------------------------------------------------------------------------------
PRODUCER COMPANY BINDER NO.
ALLIANZ INSURANCE COMPANY b961b1046
--------------------------------------------
EFFECTIVE EXPIRATION
DATE TIME DATE TIME
--------------------------------------------
TANNER INSURANCE BROKERS 4/17/96 12:01 X AM 6/17/96 12:01 X AM
6000 STONERIDGE MALL RD, #480 --- PM --- NOON
PLEASANTON, CA 94588 --------------------------------------------
THIS BINDER IS ISSUED TO EXTEND COVERAGE
IN THE ABOVE NAMED COMPANY PER EXPIRING
POLICY NO:
--------------------------------------------
CODE SUB-CODE DESCRIPTION OF OPERATIONS/VEHICLES/PROPERTY
(INCLUDING LOCATION)
- ------------------------------------
INSURED WORKERS' COMPENSATION
MONTEREY PASTA COMPANY
353 SACRAMENTO STREET #500
SAN FRANCISCO, CA 94111
- --------------------------------------------------------------------------------
COVERAGES LIMITS
- --------------------------------------------------------------------------------
TYPE OF INSURANCE COVERAGE/FORMS AMOUNT DEDUCTIBLE COINSUR.
- --------------------------------------------------------------------------------
PROPERTY
CAUSES OF LOSS
/ /BASIC / /BROAD / /SPEC.
/ /
------------------------
- --------------------------------------------------------------------------------
GENERAL LIABILITY GENERAL AGGREGATE
-------------------------------
/ /COMM. GENERAL LIABILITY PROD. COMP/OP AGG.
-------------------------------
/ /CLAIMS MADE / /OCCUR PERS. & ADV. INJURY
-------------------------------
/ /OWNER'S & CONTRACTS PROT. EACH OCCURRENCE
-------------------------------
FIRE DAMAGE (One Fire)
-------------------------------
/ / MED. EXPENSE (One Per)
------------------------ -------------------------------
RETRO DATE FOR CLAIMS MADE:
- --------------------------------------------------------------------------------
AUTOMOBILE LIABILITY COMBINED SINGLE LIMIT
-------------------------------
/ /ANY AUTO BODILY INJ. (Per Person)
-------------------------------
/ /ALL OWNED AUTOS BODILY INJ. (Per Acc.)
-------------------------------
/ /SCHEDULED AUTOS PROPERTY DAMAGE
-------------------------------
/ /HIRED AUTOS MEDICAL PAYMENTS
-------------------------------
/ /NON-OWNED AUTOS PERSONAL INJ. PROT.
-------------------------------
/ /GARAGE LIABILITY UNINSURED MOTORIST
- --------------------------------------------------------------------------------
AUTO PHYSICAL DAMAGE / /ALL VEHICLES
DEDUCTIBLE / /SCHEDULED VEHICLES / /ACTUAL CASH VAL.
/ /COLLISION: / /STATED AMOUNT
-------
/ /OTH THAN COL: / /OTHER
-----
- --------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE
-------------------------------
/ /UMBRELLA FORM AGGREGATE
-------------------------------
/ /OTHER THAN UMBRELLA FORM SELF-INSURED RETEN.
-------------------------------
RETRO DATE FOR CLAIMS MADE:
- --------------------------------------------------------------------------------
/ /STATUTORY LIMITS
-------------------------------
WORKER'S COMPENSATION EACH ACCIDENT 1000000
-------------------------------
AND DISEASE-POLICY LIMIT 1000000
-------------------------------
EMPLOYER'S LIABILITY DISEASE-EACH EMP. 1000000
- --------------------------------------------------------------------------------
SPECIAL CONDITIONS/OTHER COVERAGES
WORKERS' COMPENSATION POLICY
- --------------------------------------------------------------------------------
NAME & ADDRESS
- --------------------------------------------------------------------------------
/ /MORTGAGEE / /ADDITIONAL INSURED
/ /LOSS PAYEE / /
----------------------------------------------
LOAN#
----------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ S J Tanner
- --------------------------------------------------------------------------------
ACORD-75-9 (7/90) 2-20
- --------------------------------------------------------------------------------
<PAGE>
CONDITIONS
This Company binds the kind(s) of insurance stipulated on the attached form.
The insurance is subject to the terms, conditions and limitations of the
policy(ies) in current use by the Company.
This binder may be canceled by the Insured by surrender of this binder or by
written notice to the Company stating when cancellation will be effective. This
binder may be cancelled by the Company by notice to the Insured in accordance
with the policy conditions. This binder is cancelled when replaced by a policy.
If this binder is not replaced by a policy, the Company is entitled to charge a
premium for the binder according to the Rules and Rates in use by the Company.
APPLICABLE IN NEVADA
Any person who refuses to accept a binder which provides coverage of less than
$1,000,000.00 when proof is required: (A) Shall be fined not more than $500.00
and (B) is liable to the party presenting the binder as proof of insurance for
actual damages sustained therefrom.
<PAGE>
SCHEDULE 2.13
List of Bank Accounts
Name of Financial Type of Account Account No. Authorized Signatories
Institution
Bank of America Deposit 14165-00271 Norman E. Dean
David J. Massara
Nina Mauricio
Robert J. Otto
Bank of America Accounts Payable 14160-00325 Norman E. Dean
David J. Massara
Nina Mauricio
Robert J. Otto
Bank of America Payroll 14163-00272 Norman E. Dean
David J. Massara
Nina Mauricio
Robert J. Otto
Montgomery Securities 107-89330 Norman E. Dean
David J. Massara
Nina Mauricio
Robert J. Otto
Seattle Seafirst Checking 67525618 Norman E. Dean
David J. Massara
Robert McCulloch
<PAGE>
SCHEDULE 7.7
List of Directors
Lance H. Mortensen is the sole director of Upscale Food Outlets, Inc.
<PAGE>
PLACEMENT AGENT AGREEMENT
Spelman & Co., Inc.
2355 Northside Drive, Suite 200
San Diego, California 92108
Dear Sirs:
Monterey Pasta Company, a California corporation (the "Company"),
proposes to offer and sell to selected purchasers, upon the terms and subject
to the conditions set forth in the enclosed Private Placement Memorandum
dated April 10, 1996 (the "Memorandum"), up to 915,000 shares of its common
stock (the "Shares"), at a purchase price of $4.375 per Share all as more
particularly described in the Memorandum.
1. APPOINTMENT AND EXCLUSIVITY. The Company hereby appoints Spelman &
Co., Inc., a California corporation ("Placement Agent"), to act as its exclusive
placement agent in connection with the offer and sale of the Shares. By its
acceptance hereof, Placement Agent agrees to act in such capacity and to use its
best efforts to find purchasers for the Shares in accordance with the terms and
conditions of the Memorandum and this Agreement.
2. PRIVATE PLACEMENT. Offers and sales of the Shares will not be
registered under the Securities Act of 1933 (the "Securities Act") and the
qualification requirements of state securities laws in reliance on the exemption
from registration or qualification for offers and sales made only to "accredited
investors" in accordance with the provisions of Sections 4(2) and 4(6) of the
Securities Act and the rules and regulations promulgated thereunder. Except in
the event that this Agreement terminates without a purchase of the Shares, the
Company will not offer any securities of the same class as, or securities
similar to, the Shares from the date hereof to six months following the closing
of the sale of the Shares if such further offering might cause the offering of
the Shares to be deemed to be a public offering for purposes of the Securities
Act. Placement Agent will furnish prospective accredited investors with a
Memorandum and such further documents as are designated by the Company for
delivery to prospective investors (the "Disclosure Documents"). All Disclosure
Documents shall contain such materials and information, and shall be in such
form, as counsel for the Company shall deem necessary or advisable. The
accuracy and completeness of the Disclosure Documents shall be the
responsibility of the Company.
3. SALE OF THE SHARES
3.1 A Subscription Agreement and Registration Rights Agreement must
be completed by each subscriber and returned by Placement Agent, together with
any other documents that may be required under state securities laws, to the
Company at such address as may be specified in the Subscription Agreement or
Memorandum. The Placement Agent shall ascertain that the
<PAGE>
Subscription Agreement and Registration Rights Agreement have been properly
completed in full prior to its return.
3.2 The Company shall have the right to accept or reject any and all
subscriptions. Upon receipt of the Subscription Agreement, the Company will
determine promptly (and in any event within five (5) business days after such
receipt) whether to accept the proposed subscriber. Should the Company
determine to accept the subscriber, it shall (i) execute an acceptance on the
Subscription Agreement, (ii) execute the Registration Rights Agreement, (iii)
cause a Certificate to be issued in accordance with the instructions in the
Subscription Agreement, and (iv) deliver each of the foregoing to the Placement
Agent, for delivery to the subscriber upon clearance of the subscription check.
If the Company determines to reject any subscription, it will promptly return to
Placement Agent the Subscription Agreement and Registration Rights Agreement.
Placement Agent shall then promptly return the tendered Subscription Agreement,
Registration Rights Agreement and subscription check to the subscriber.
4. COMPENSATION. For its services as Placement Agent in soliciting and
obtaining purchasers of the Shares, the Company shall grant and issue to
Placement Agent warrants to purchase 1 Share of Common Stock (the "Warrants")
for each $10 in Shares sold, exercisable at a price of $6.50, for a term of
seven (7) years commencing on the Effective Date. The Warrants will provide for
customary registration rights and shall be substantially in the form of Exhibit
"A". Upon execution of this Agreement, the Company shall pay to Placement Agent
a non-refundable execution and expense fee of $25,000 for non-accountable
expenses.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to Placement Agent and that:
5.1 The Company has been duly incorporated and is validly existing as
a corporation under the laws of the State of California, and has full corporate
power and authority to conduct business as described in the Memorandum under the
laws of the State of California and every other jurisdiction in which it
conducts business or owns or leases property.
5.2 The Company has prepared the Memorandum to be used in connection
with the offer and sale of the Shares to purchasers only and may prepare
amendments or supplements thereto. The offer and sale of the Shares is intended
to be exempt from registration pursuant to Section 4(2) or 4(6) of the
Securities Act and the rules and regulations promulgated thereunder.
5.3 From the time of this Agreement and at all times subsequent
thereto up to and including the Termination Date (as defined below) the
Disclosure Documents will fully comply with the provisions of the Securities Act
and the published rules and regulations thereunder and will not contain any
untrue statements of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph shall apply to statements in, or omissions from, the Disclosure
2
<PAGE>
Documents based upon and in conformity with written information furnished to the
Company by Placement Agent or on Placement Agent's behalf specifically for use
with reference to Placement Agent in the preparation of the Disclosure
Documents.
5.4 The accountants who have certified or shall certify the financial
statements filed and/or incorporated by reference as part of the Memorandum are
independent public accountants, as required by the Securities Act and the rules
and regulations thereunder.
5.5 Subsequent to the respective dates as of which information is
given in the Memorandum and up to and including the Termination Date (defined
below) and except as contemplated by or reflected in the Memorandum or any
supplement to the Memorandum, (i) the Company has not incurred or will have
incurred any material liabilities or obligations, direct or contingent, not in
the ordinary course of business, or entered into any transaction not in the
ordinary course of business, and (ii) there has not and will not have been any
material adverse change in the condition (financial or other) of the Company and
the Company has not become nor will have become a party to any legal or
governmental proceedings which may result in any material adverse change in
condition (financial or other) of the Company.
5.6 The financial statements (including the related notes and
schedules if any) of the Company and affiliates set forth in the Memorandum
fairly present the financial positions of the entity to which they relate at the
dates thereof. Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied (except as
otherwise noted) throughout the periods involved; and since the dates of such
financial statements there has been no material adverse change in the financial
position of such entities.
5.7 The Shares (including Shares issuable upon exercise of the
Warrants) have been duly authorized by the Company, and when subscriptions for
the Shares have been accepted by the Company as contemplated in the Memorandum
(or the Warrants are exercised in accordance with their terms), the Shares will
have been validly issued and will be fully paid and nonassessable and will
conform to the description thereof contained in the Memorandum.
5.8 The execution and delivery of this Agreement and the incurrence
of the obligations and consummation of the transactions herein contemplated will
not conflict with, or constitute a breach of or default under, the Articles of
Incorporation or Bylaws of the Company or any material contract, indenture,
mortgage, loan agreement or lease, to which the Company is a party or by which
it may be bound, or any law, administrative regulation or court decree.
5.9 The Company is not in violation of its charter or in default in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which it is a party or by which it or any of them
may be bound whereby such violation or default (whether taken singly or in the
aggregate) would have a material adverse effect upon the Company.
3
<PAGE>
5.10 The person or persons who have signed this Agreement on behalf of
the Company are duly authorized to so sign, and this Agreement is a valid,
legal, and binding agreement of the Company enforceable in accordance with its
terms.
5.11 At all times subsequent to the date of this Agreement and up to
and including the Termination Date, the representations and warranties made in
this Section 5 will be true and correct with the same effect as if they had been
made on and as of such time, except as may subsequently be disclosed in writing
to the Placement Agent.
6. FURTHER AGREEMENTS OF THE COMPANY
6.1 The Company covenants and agrees that it will pay or cause to be
paid (i) all expenses and fees in connection with the preparation, printing,
filing, delivery and shipping of the Memorandum and any amendments or
supplements thereto, and (ii) filing fees, Placement Agent counsel's fees and
expenses paid and incurred (in an amount not to exceed $500 per state) in
connection with the exemption from qualification or registration of the Shares
for offer and sale by Placement Agent under the securities laws of the
applicable Blue Sky states.
6.2 If at any time during the term of this Agreement any event shall
have occurred as a result of which, in the opinion of counsel for the Company,
the Memorandum as amended or supplemented includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Memorandum to comply with the Securities Act, the Company promptly
will prepare and deliver to the Placement Agent an appropriate amendment or
supplement.
6.3 The Company will deliver to Placement Agent from time to time
without charge as many copies of the Disclosure Documents (and, in the event of
an amendment or supplement to the Disclosure Documents pursuant to the
provisions of this Agreement, of such amended or supplemented Disclosure
Documents) as the Placement Agent may reasonably request.
6.4 The Company will use its best efforts to qualify the Shares for
sale, or perfect exemptions from the qualification of the Shares for sale, in
such jurisdiction as Placement Agent shall reasonably designate and will
continue such qualifications or exemptions so long as required for the offering
of the Shares as contemplated herein. The Company covenants and agrees that
neither the Company nor any officer, director, shareholder, partner or employee
of the Company will make any offer or sale of the Shares unless such offer or
sale is made in compliance with the Securities Act, and the rules and Agent
regulations thereunder, and applicable Blue Sky securities laws.
6.5 Placement Agent may arrange for one or more due diligence
meetings during which the Company's senior officers will deliver an appropriate
presentation to prospective institutional and retail investors. It is
anticipated that the majority of any such meeting(s), if any, would be conducted
at the Company's offices in San Francisco, California.
4
<PAGE>
6.6 Until the offering is completed or abandoned, the Company agreed
that, until May 31, 1996, it will not negotiate with any other underwriter or
other person relating to a possible public or private offering or placement of
the Company's securities. The Company represents and warrants that, except as
disclosed to Placement Agent, its subsidiaries are wholly owned by it and that
it has not granted any other person any right to underwrite or register shares
thereof or agreed to pay any finders or financial services fees in connection
with this offering.
7. AGREEMENTS OF PLACEMENT AGENT
7.1 Placement Agent covenants and agrees to comply with any
applicable requirements of the Securities Act, the Securities Exchange Act of
1934 ("Exchange Act"), applicable Blue Sky securities laws and the published
rules and regulations thereunder (including, but not limited to, Sections 3(b),
4(2) and 4(6) of the Securities Act and Rules 505 and 506 thereunder, and the
Rules of Fair Practice of the National Association of Securities Dealers
("NASD"). Placement Agent confirms that Placement Agent is registered as a
broker-dealer and is in good standing under the Exchange Act, the California
Corporate Securities Law and the securities laws of each state in which offers
and sales of the Shares will be conducted by Placement Agent. Placement Agent
also confirms that Placement Agent is a member in good standing of the NASD.
7.2 Placement Agent is not authorized to act as agent of the Company
in any connection or transaction, and Placement Agent agrees not to act as such
agent and not to purport to do so without the prior written approval of the
Company. Placement Agent agrees that if and when the Company supplies Placement
Agent with copies of any supplement to the Disclosure Documents, Placement Agent
will affix such copies of such supplement to copies of the Disclosure Document
already in Placement Agent's possession, and that thereafter Placement Agent
will only distribute offering materials containing such supplement and that
Placement Agent will accept subscriptions only from investors who have received
a copy of the Disclosure Document containing such supplement. Placement Agent
further agrees to comply with all instructions from the Company concerning the
destruction of out-dated Disclosure Documents and the use of supplemented or
amended Disclosure Documents.
7.3 Placement Agent will not sell the Shares pursuant to this
Agreement unless the Disclosure Documents and any amendments or supplements
thereto are furnished to the subscriber a reasonable time prior to sale of the
Shares.
7.4 Placement Agent will use reasonable efforts to select investors
who Placement Agent reasonably believes meet the investor suitability
requirements which are set forth in the Memorandum and Subscription Agreement.
Placement Agent will, for a period of two years, maintain in Placement Agent's
files a copy of the Subscription Agreement for each investor for whom Placement
Agent acts as Placement Agent.
5
<PAGE>
8. INDEMNIFICATION
8.1 The Company agrees to indemnify and hold harmless Placement Agent
and each person, if any, who controls Placement Agent within the meaning of the
Securities Act against any losses, claims, damages or liabilities, including
reasonable attorneys fees, to which Placement Agent or such controlling persons
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Disclosure Documents or any amendment or
supplement to the Disclosure Documents or furnished to Placement Agent for use
in selling the Shares, or (ii) the omission or alleged omission to state in the
Disclosure Documents or any amendment or supplement to the Disclosure Documents
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse Placement Agent and each
such controlling person for any reasonable legal or other expenses reasonably
incurred by Placement Agent or such controlling person in connection with
defending any such claim, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company by
Placement Agent specifically for use with reference to Placement Agent in the
preparation of the Disclosure Documents or any amendment thereof or supplement
thereto. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
8.2 Placement Agent agrees to indemnify and hold harmless the Company
and each person who controls the Company within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or liabilities, including
attorneys fees, to which the Company or such person or control persons may
become subject, under the Securities Act or otherwise insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Disclosure Documents or any amendment or
supplement to the Disclosure Documents or (ii) the omission or alleged omission
to state in the Disclosure Documents or any amendment or supplement to the
Disclosure Documents a material fact required to be stated therein or necessary
to make the statements therein not misleading; in each case as to subparagraphs
(i) and (ii) above to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by Placement Agent or on Placement Agent's behalf specifically for use
with reference to Placement Agent in the preparation of the Memorandum or any
such amendment thereof or supplement thereto; or (iii) Placement Agent's failure
to comply with the provisions of Section 7 of this Agreement; and will reimburse
any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such loss, claim, damage, liability or
action. This indemnity agreement will be in addition to any liability which
Placement Agent may otherwise have.
6
<PAGE>
8.3 Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, notify in writing the indemnifying party of the commencement thereof;
and the omission so to notify the indemnifying party will relieve it from any
liability under this Section 8 as to the particular item for which
indemnification is then being sought, but not from any other liability which it
may have to any indemnified party. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and, to
the extent that it may wish, jointly with any other indemnifying party,
similarly notified, to assume the defense thereof, with counsel who shall be to
the reasonable satisfaction of such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Any such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of any claim
or action effected without the consent of such indemnifying party.
9. EFFECTIVE DATE AND TERMINATION
9.1 This Agreement shall become effective upon the execution and
delivery of this Agreement by the parties hereto (the "Effective Date"). This
Agreement shall terminate upon earliest to occur of (i) the date upon which
subscriptions for the maximum number of Shares offered have been accepted by the
Company, which date the Company shall designate by notice to Placement Agent in
writing; or (ii) May 31, 1996 or such later date as may be mutually agreed upon
by the Company and Placement Agent (the "Termination Date").
9.2 Notwithstanding the foregoing, Placement Agent, at its option,
may terminate this Agreement by giving notice to the Company if: (i) the Company
shall have become a defendant in any litigation which, in Placement Agent's
opinion, may reasonably be expected to result in a judgment having materially
adverse consequences for the Company or there shall have been, since the
respective dates as of which information is given in the Disclosure Documents,
any material adverse change in the condition, financial or otherwise, of the
Company, which change in Placement Agent's judgment shall render it inadvisable
to proceed with the delivery of the Shares, or (ii) there shall have been any
important change in market levels, major catastrophe, substantial change in
national, international or world affairs, national calamity, act of God, or
other event or occurrence which, in Placement Agent's judgment, will materially
disrupt the financial markets of the United States, or (iii) trading in
securities generally on the New York Stock Exchange shall have been suspended or
minimum prices shall have been established on such Exchange by the Commission or
by such Exchange, or (iv) a general banking moratorium shall have been declared
by federal or state authorities.
7
<PAGE>
10. SURVIVAL OF WARRANTIES AND REPRESENTATIONS AND INDEMNIFICATION. The
representations and warranties of the Company set forth in Section 5, the
covenants of Placement Agent in Section 7 and the respective indemnity
agreements of the Company and Placement Agent contained in Section 8, shall
remain operative and in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of the
Company, Placement Agent or any controlling person referred to in Section 8, and
shall survive the delivery of and payment for the Shares, and any successor of
Placement Agent or the Company or of any such controlling person or any legal
representative of any such controlling person, as the case may be, shall be
entitled to the benefit of the respective indemnity agreements.
11. NOTICES. Except as in this Agreement otherwise provided, (a) whenever
notice is required by the provisions of this Agreement or otherwise to be given
to the Company, such notice shall be in writing addressed to the Company at 353
Sacramento Street, San Francisco, California 94111, Attn: President, and
(b) whenever notice is required by the provisions of this Agreement or otherwise
to be given to Placement Agent, such notice shall be in writing addressed to
Placement Agent at the address set forth on the first page of this Agreement.
Any notice referred to herein may be given in writing or by telegraph or
telephone and if by telegraph or telephone shall be immediately confirmed in
writing. Notice (unless actual) shall be effective upon mailing or telegraphic
transmission, as the case may be.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. Except as provided in the
next sentence, this Agreement is made solely for the benefit of Placement Agent,
the Company or controlling persons thereof, and their respective successors and
assigns, and no other person shall acquire or have any right by virtue of this
Agreement, and the term "successors and assigns," as used in this Agreement,
shall not include any purchaser, as such purchaser, of any of the Shares.
13. NO PARTNERSHIP. Nothing herein contained shall constitute the
Placement Agent and the Company an association, partnership, unincorporated
business or other separate entity.
8
<PAGE>
Please confirm your agreement to become Placement Agent under the terms and
conditions herein set forth by signing and returning the enclosed duplicate copy
of this Agreement at once to the Company at the address specified in Section 11
above.
Very truly yours,
MONTEREY PASTA COMPANY
a California corporation
By: /s/ Norman E. Dean
--------------------------
Norman E. Dean, President and CEO
AGREED AND ACCEPTED:
SPELMAN & CO., INC.
a California corporation
By: /s/ Richard P. Woltman
-----------------------------------
Richard P. Woltman, President
DATED: April 12, 1996
9
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
(AS OF APRIL 19, 1996)
MONTEREY PASTA DEVELOPMENT COMPANY,
A CALIFORNIA CORPORATION
INCORPORATED ON MAY 16, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-29-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-02-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> 424 1,938
<SECURITIES> 0 0
<RECEIVABLES> 2,078 1,241
<ALLOWANCES> 0 0
<INVENTORY> 920 1,095
<CURRENT-ASSETS> 5,706 5,926
<PP&E> 6,513 6,388
<DEPRECIATION> 1,216 1,049
<TOTAL-ASSETS> 11,544 11,691
<CURRENT-LIABILITIES> 4,077 5,329
<BONDS> 2,930 4,131
0 0
0 0
<COMMON> 29,813 27,268
<OTHER-SE> (25,277) (25,036)
<TOTAL-LIABILITY-AND-EQUITY> 11,544 11,691
<SALES> 6,262 18,716
<TOTAL-REVENUES> 6,262 18,716
<CGS> 3,582 10,712
<TOTAL-COSTS> 6,502 19,571
<OTHER-EXPENSES> 0 91
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 40
<INCOME-PRETAX> (240) (764)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (240) (764)
<DISCONTINUED> 0 (21,279)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (240) (22,044)
<EPS-PRIMARY> (0.03) (3.42)
<EPS-DILUTED> (0.03) (3.42)
</TABLE>
