<PAGE>
As filed with the Securities and Exchange Commission on September 8, 1999
Registration No. 333-67389
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
to
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Mrs. Fields' Great American The Mrs. Pretzelmaker Pretzel Time,
Original Cookie Company, Fields' Brand, Holdings, Inc. Inc.
Cookies, Inc. Inc. Inc. (Exact name of (Exact name
(Exact name of (Exact name of (Exact name of Registrant as of Registrant
Registrant as Registrant as Registrant as specified in as
specified in specified in specified in its charter) specified in
its charter) its charter) its charter) its charter)
DELAWARE
DELAWARE DELAWARE DELAWARE (State or other DELAWARE
(State or other (State or other (State or other jurisdiction of (State or
jurisdiction of jurisdiction of jurisdiction of incorporation other
incorporation incorporation incorporation or jurisdiction
or or or organization) of
organization) organization) organization) incorporation
or
organization)
6749
6749 6749 6749 (Primary
Standard
Industrial
(Primary (Primary (Primary
Standard Standard Standard 6749
Industrial Industrial Industrial Classification (Primary
Classification Classification Classification Code Number) Standard
Code Number) Code Number) Code Number) Industrial
Classification
Code Number)
84-1298591
87-0552899 58-1295221 87-0563472 (I.R.S.
Employer
(I.R.S. (I.R.S. (I.R.S.
Employer Employer Employer Identification 87-0499982
Identification Identification Identification No.) (I.R.S.
No.) No.) No.) Employer
Identification
No.)
2855 East
2855 East 2855 East 2855 East Cottonwood
Cottonwood Cottonwood Cottonwood Parkway,
Parkway, Parkway, Parkway,
Suite 400, Salt 2855 East
Suite 400, Salt Suite 400, Salt Suite 400, Salt Lake City, Cottonwood
Lake City, Lake City, Lake City, Utah 84121 Parkway,
Utah 84121 Utah 84121 Utah 84121 (801) 736-5600 Suite 400,
(801) 736-5600 (801) 736-5600 (801) 736-5600 (Address, Salt Lake
(Address, (Address, (Address, including zip City,
including zip including zip including zip code and Utah 84121
code and code and code and telephone (801) 736-
telephone telephone telephone number, 5600
number, number, number, including area (Address,
including area including including area code, of including zip
code, area code, of code, of Registrant's code and
of Registrant's Registrant's Registrant's principal telephone
principal principal principal executive number,
executive executive executive offices) including
offices) offices) offices) area code, of
Registrant's
principal
executive
offices)
Michael Ward,
Michael Ward, Michael Ward, Michael Ward, Esq.
Esq. Esq. Esq. Pretzelmaker
Great American The Mrs. Holdings, Inc.
Vice President, Cookie Company, Fields' Brand,
General Counsel Inc. Inc.
2855 East
Cottonwood Michael Ward,
Mrs. Fields' 2855 East 2855 East Parkway, Esq.
Original Cottonwood Cottonwood Suite 400, Salt Pretzel Time,
Cookies, Inc. Parkway, Parkway, Lake City, Inc.
2855 East Suite 400, Salt Suite 400, Salt Utah 84121 2855 East
Cottonwood Lake City, Lake City, (801) 736-5600 Cottonwood
Parkway, Utah 84121 Utah 84121 (Name, address, Parkway,
Suite 400, Salt (801) 736-5600 (801) 736-5600 including zip Suite 400,
Lake City, (Name, address, (Name, address, code, and Salt Lake
Utah 84121 including zip including zip telephone City,
(801) 736-5600 code, and code, and number, Utah 84121
(Name, address, telephone telephone including area (801) 736-
including zip number, number, code, of 5600
code, and including area including area agents for (Name,
telephone code, code, of service) address,
number, of agents for agents for including zip
including area service) service) code, and
code, of agents telephone
for service) number,
including
area code, of
agents for
service)
copies to:
Randall H. Doud, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
--------------
Approximate Date of Commencement of Proposed Sale to the Public:
--------------
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
The Mrs. Fields' Brand, Inc. Guarantee with
respect to 10 1/8% Series B Senior Notes due
2004
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Great American Cookie Company, Inc. Guarantee
with respect to 10 1/8% Series B Senior Notes
due 2004
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Pretzelmaker Holdings, Inc. Guarantee with re-
spect to 10 1/8% Series B Senior Notes due 2004
- -----------------------------------------------------------------------------------------------------------
Pretzel Time, Inc. Guarantee with respect to 10
1/8% Series B Senior Notes due 2004
</TABLE>
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--------------
The Registrants hereby amend this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is prohibited. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
MRS. FIELDS' ORIGINAL COOKIES, INC.
PROSPECTUS (Subject to completion)
, 1999
Exchange Offer for
$53,725,000
10 1/8% Series B Senior Notes due 2004
Guaranteed by
The Mrs. Fields' Brand, Inc.
Great American Cookie Company, Inc.
Pretzelmaker Holdings, Inc. and
Pretzel Time, Inc.
Terms of the Exchange Offer
<TABLE>
<S> <C>
. Expires 12:00 midnight, . The notes mature on
New York City time, December 1, 2004, and pay
, 1999, unless interest on June 1 and
extended. December 1 of each year,
beginning on June 1,
. Not subject to any 1999.
condition other than that
the exchange offer not . We will not receive any
violate applicable law or proceeds from the
any interpretation of the exchange offer.
staff of the Securities
and Exchange Commission. . The exchange of notes
will not be a taxable
. We can amend or terminate exchange for U.S. income
the exchange offer. tax purposes.
. We will exchange all . The terms of the notes to
outstanding notes that be issued are identical
are validly tendered and to those of the
not validly withdrawn. outstanding notes, except
for transfer restrictions
. You may withdraw tendered and registration rights.
outstanding notes any
time before the
expiration of the
exchange offer.
. The notes are senior
unsecured debt and are
guaranteed. The
guarantees are senior
general unsecured
obligations of the
guarantors.
</TABLE>
For a discussion of specific risks that you should consider before tendering
your outstanding notes in the exchange offer, see "Risk Factors" beginning on
page 13.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Summary Historical and Pro Forma Financial and Store Data................ 10
Risk Factors............................................................. 13
Forward-Looking Information.............................................. 23
The Transactions......................................................... 24
Recent Developments...................................................... 26
Use of Proceeds.......................................................... 26
Capitalization........................................................... 27
The Exchange Offer....................................................... 28
Selected Historical Financial Data....................................... 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Where You Can Find More Information...................................... 61
Business................................................................. 62
Management............................................................... 76
Beneficial Ownership of Capital Stock.................................... 81
Certain Relationships and Related Transactions........................... 82
Description of Notes..................................................... 85
Description of Certain Indebtedness...................................... 117
Plan of Distribution..................................................... 117
United States Federal Income Tax Considerations.......................... 119
Legal Matters............................................................ 119
Experts.................................................................. 119
Unaudited Pro Forma Condensed Combined Financial Statements.............. P-1
Index to Historical Financial Statements................................. F-1
</TABLE>
----------------
The registrant's principal executive offices are located at 2855 East
Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, and their telephone
number is (801) 736-5600.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus or incorporated by reference in this prospectus.
We are not making offers to exchange notes in the exchange offer or soliciting
offers to exchange outstanding notes in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make an offer or solicitation.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus contains specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage
you to read this prospectus in its entirety.
The Exchange Offer
Registration Rights Holders of 10 1/8% Series C Senior Notes due 2004 are
Agreement.............. entitled to exchange their notes for Series B
registered notes with substantially identical terms.
The exchange offer is intended to satisfy these
rights. After the exchange offer is complete, you
will no longer be entitled to any exchange or
registration rights with respect to your notes. We
are also making the exchange offer available to
holders of Series A 10 1/8% Senior Notes due 2004.
The Exchange Offer...... We are offering to exchange $1,000 principal amount
of 10 1/8% Series B Senior Notes due 2004 of Mrs.
Fields' Original Cookies, Inc. which have been
registered under the Securities Act, for each $1,000
principal amount of our 10 1/8% Series A Senior Notes
due 2004 issued in November 1997 and 10 1/8% Series C
Senior Notes due 2004 issued in August 1998. The
outstanding notes were issued in private offerings.
The registered notes will have guarantees that are
identical in all material respects to the guarantees
on the unregistered notes. All outstanding notes that
are validly tendered and not validly withdrawn will
be exchanged.
As of this date there are $53,725,000 of outstanding
notes that are eligible to be exchanged in the
exchange offer.
We will issue notes registered under the Securities
Act on or promptly after the expiration of the
exchange offer.
Resales................. We believe that you can offer for resale, resell and
otherwise transfer the notes issued in the exchange
offer without complying with the registration and
prospectus delivery requirements of the Securities
Act if:
. you acquire the notes in the ordinary course of
your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the notes;
. you are not an "affiliate" of ours, as defined in
Rule 405 of the Securities Act.
If any of these conditions is not satisfied and you
transfer any new notes without delivering a proper
prospectus or without qualifying for a registration
exemption, you may incur liability under the
Securities Act. We do not assume or indemnify you
against this liability.
4
<PAGE>
Each broker-dealer acquiring notes issued in the
exchange offer for its own account in exchange for
outstanding notes, which it acquired through market-
making or other trading activities, must acknowledge
that it will deliver a proper prospectus when any
notes issued in the exchange offer are transferred. A
broker-dealer may use this prospectus for an offer to
resell, a resale or other retransfer of the notes
issued in the exchange offer.
Expiration Date.... The exchange offer will expire at 12:00 midnight, New
York City time, on , 1999, unless we decide to
extend the expiration date.
Conditions to the
Exchange Offer.... The exchange offer is subject to customary
conditions, some of which we may waive.
Procedures for
Tendering Notes Held
in the Form of
Book-Entry Interests... Most of the outstanding notes were issued as global
securities and were deposited upon issuance with The
Bank of New York. The Bank of New York issued
certificateless depositary interests in those
outstanding notes, which represents a 100% interest
in those notes, to The Depository Trust Company.
Beneficial interests in the outstanding notes, which
are held by direct or indirect participants in The
Depository Trust Company through the certificateless
depositary interests, are shown on, and transfers of
the notes can be made only through, records
maintained in book-entry form by The Depository Trust
Company.
You may tender your outstanding notes:
. through a computer-generated message transmitted by
The Depository Trust Company's Automated Tender
Offer Program system and received by the exchange
agent and forming a part of a confirmation of book-
entry transfer in which you acknowledge and agree
to be bound by the terms of the letter of
transmittal; or
. by sending a properly completed and signed letter
of transmittal, which accompanies this prospectus,
and other documents required by the letter of
transmittal, or a facsimile of the letter of
transmittal and other required documents, to the
exchange agent at the address on the cover page of
the letter of transmittal;
and either:
. a timely confirmation of book-entry transfer of
your outstanding notes into the exchange agent's
account at The Depository Trust Company, under the
procedure for book-entry transfers described in
this prospectus under the heading "The Exchange
Offer--Book Entry Transfers" must be received by
the exchange agent on or before the expiration
date; or
. the documents necessary for compliance with the
guaranteed delivery described in "The Exchange
Offer--Guaranteed Delivery Procedures" must be
received by the exchange agent.
5
<PAGE>
Procedures for
Tendering Notes Held
in the Form of
Registered Notes....... If you hold registered notes, you must tender your
registered notes by sending a properly completed and
signed letter of transmittal, together with other
documents required by it, and your certificates, to
the exchange agent, in accordance with the procedures
described in this prospectus under the heading "The
Exchange Offer--Procedures for Tendering Notes."
Withdrawal Rights....... You may withdraw your tender of outstanding notes at
any time prior to 12:00 midnight, , 1999.
United States Federal
Income Tax
Considerations......... The exchange offer should not result in any income,
gain or loss to the holders or Mrs. Fields for United
States federal income tax purposes. See "United
States Federal Income Tax Considerations."
Use of Proceeds......... We will not receive any proceeds from the issuance of
notes in the exchange offer.
The proceeds from the offering of notes in August
1998 were used to finance the acquisition of Great
American Cookie Company, Inc., other acquisitions,
and a tender offer for outstanding Great American
notes.
Exchange Agent.......... The Bank of New York is serving as the exchange agent
for the exchange offer.
Shelf Registration
Statement.............. In limited circumstances, holders of notes may
require us to register their notes under a shelf
registration statement.
6
<PAGE>
The Company
Overview
Mrs. Fields is one of the largest retailers in the premium snack-food
industry, with cookies and pretzels as its major product lines. Based on
numbers of retail units, Mrs. Fields is the largest retailer of baked on-
premises cookies and the second largest retailer of baked on-premises pretzels
in the United States. Mrs. Fields is one of the most widely recognized and
respected brand names in the premium cookie industry. Mrs. Fields has recently
developed a significant presence in the rapidly growing, health-oriented
pretzel market.
Mrs. Fields operates and franchises stores located predominantly in shopping
malls, and also licenses kiosks and carts at airports, universities, stadiums,
hospitals and office building lobbies.
How We Have Done
For the 52 weeks ended January 2, 1999, Mrs. Fields generated pro forma net
revenue and EBITDA of $191.2 million and $20.7 million, respectively. Actual
net revenue and EBITDA for the 53 weeks ended January 3, 1998 was $134 million
and $18.8 million, respectively. Mrs. Fields generated pro forma net revenue
and EBITDA of $92,640 and $10,334, respectively, during the 26 weeks ended July
4, 1998 and actual net revenue and EBITDA of $84,165 and $10,318, respectively,
during the 26 weeks ended July 3, 1999. EBITDA consists of earnings before
depreciation, amortization, interest, income taxes, minority interest,
preferred stock accretion and dividends of subsidiaries and other income or
expense.
Pro Forma Information
Pro forma information is not indicative of actual results and may not be
indicative of future results. We have presented pro forma information
throughout this prospectus, however, because we believe that the changes to our
business since 1996 make the pro forma information more meaningful to you.
Our condensed pro forma combined statements of operations data in this
prospectus give effect to:
1. our offering of notes in August 1998
2. the acquisitions of Great American and the capital stock and stores of
some Great American franchisees,
3. an offering of units consisting of notes and warrants to purchase common
stock by Mrs. Fields' Holding Company, Inc., the parent company of Mrs.
Fields, and a capital contribution from Mrs. Fields' Holding to Mrs.
Fields and
4. the acquisitions of the capital stock of Pretzelmaker Holdings Inc., and
Cookie Conglomerate Inc.
as if all of these transactions had occurred on January 4, 1998.
Our Strategy
Our objective is to increase sales and profitability by focusing on
continuing company-owned stores.
An additional objective is to increase sales and profitability at both our
continuing company-owned and franchised stores in prime locations by
implementing the key elements of our long-term business strategy. The key
elements of our business strategy are as follows:
. Enhance Quality of Company-Owned Store Base.
. Improve Productivity of Continuing Company-Owned Stores.
. Capitalize on the Strong Mrs. Fields Brand Name.
. Develop the Great American Brand Name.
. Capitalize on the Strong Pretzel Time Brand Name.
. Develop New Company-Owned and Franchised Stores, including
Internationally.
. Realize Purchasing and Overhead Cost Savings As a Result of Recent
Acquisitions.
. Pursue Further Strategic Acquisitions of Related Businesses.
7
<PAGE>
SUMMARY DESCRIPTION OF NOTES
The form and terms of the notes to be issued in the exchange offer are the
same as the form and terms of the outstanding notes except that the notes to be
issued in the exchange offer have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain the registration rights and liquidated damages provisions contained in
the outstanding notes. The notes issued in the exchange offer will evidence the
same debt as the outstanding notes and both the outstanding notes and the notes
to be issued in the exchange offer are governed by the same indenture.
Aggregate Amount ....... $53,725,000 in principal amount of 10 1/8% Series B
Senior Notes due 2004 of Mrs. Fields' Original
Cookies, Inc.
Maturity Date........... December 1, 2004.
Interest Payment June 1 and December 1 of each year, commencing June
Dates.................. 1, 1999.
Guarantee............... The notes issued in the exchange offer will be
guaranteed by our wholly owned subsidiaries, The Mrs.
Fields' Brand, Inc., Great American Cookie Company,
Inc., Pretzelmaker Holdings, Inc. and Pretzel Time,
Inc. The guarantees:
. will be identical in all material respects to the
guarantees on the outstanding notes
. are general unsecured obligations of the
guarantors
. rank senior in right of payment to all
subordinated indebtedness of the guarantors
. rank equal in right of payment with all existing
and future senior indebtedness of the guarantors
Our existing and future subsidiaries may also become
guarantors in the future. You should read
"Description of Notes--the Guarantees."
Ranking................. The notes being issued in the exchange offer:
. are general unsecured obligations of Mrs. Fields
. rank senior in right of payment to all
subordinated indebtedness of Mrs. Fields
. rank equal in right of payment with all existing
and future senior indebtedness of Mrs. Fields
As of July 3, 1999, we had no indebtedness that
ranked equal in right of payment with the notes that
we will issue in the exchange offer.
The notes that we will issue will be effectively
subordinated to:
. all secured debt of Mrs. Fields,
. all secured debt of the guarantors, and
. all debt of our subsidiaries that are not
guarantors of the notes
8
<PAGE>
We and our guarantors together currently have $11.6
million of debt that effectively ranks senior to the
notes.
Optional Redemption..... At our option, we may redeem the notes at any time on
or after December 1, 2001. In addition, at any time
before November 20, 2001, we may redeem up to 35% of
the total principal amount of notes ever issued under
the indenture with the net cash proceeds of one or
more equity offerings to the public. Our optional
redemption prices for the notes are contained in this
prospectus under the heading "Description of Notes--
Optional Redemption."
Change of Control....... Upon the occurrence of a change of control of
ownership of the stock or assets of Mrs. Fields, the
holders of notes have the right to require us to
repurchase their notes at a purchase price equal to
101% of their total principal amount on the date of
purchase, plus accrued interest to the date of
repurchase. For more information, see "Description of
Notes--Repurchase at the Option of Holders--Change of
Control."
Certain Covenants....... The indenture under which the outstanding notes have
been and the new notes will be issued contains
certain covenants that, among other things and
subject to exceptions, restrict our ability to:
. pay dividends
. redeem capital stock
. make restricted payments or investments
. incur additional indebtedness
. issue preferred equity interests
. merge, consolidate or sell all or substantially all
of our assets
. create liens on assets
. sell assets
. enter into transactions with affiliates or related
persons.
All of these limitations and prohibitions are subject
to a number of important qualifications and
exceptions. For more information, see "Description of
Notes--Certain Covenants."
Form of Notes Issued in
the Exchange Offer ....
The notes issued in the exchange offer with respect
to notes currently represented by global securities
will be represented by one or more permanent global
securities in bearer form deposited with The Bank of
New York, as book-entry depositary, for the benefit
of The Depository Trust Company. Notes that are
issued in the exchange offer that have been exchanged
for notes in the form of registered definitive
certificates will be issued in the form of registered
definitive certificates until holders direct
otherwise. For more information, see "Description of
Notes--Book-Entry, Delivery and Form."
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND STORE DATA
The following table presents:
(1) summary historical financial and store data for Mrs. Fields and its
predecessors; namely, Mrs. Fields Inc. and subsidiaries, The Original
Cookie Company, Incorporated and the pretzel business of Hot Sam Company,
Inc., as of December 28, 1996 and for the 52-weeks then ended;
(2) summary consolidated historical financial and store data for Mrs.
Fields as of January 3, 1998 and January 2, 1999 and for the 53 weeks ended
January 3, 1998, the 52 weeks ended January 2, 1999 and the 26 weeks ended
July 4, 1998 and July 3, 1999; and
(3) summary combined pro forma financial and store data for Mrs. Fields,
Great American, Deblan, Chocolate Chip, the eight Great American stores
purchased from a Great American franchisee, Cookie Conglomerate and
Pretzelmaker for the 52 weeks ended January 2, 1999 as if each of the
following had occurred as of January 4, 1998:
. the Mrs. Fields' offering in August 1998,
. the acquisition of Great American,
. the acquisition of the stock of two Great American franchisees,
. the acquisition of eight Great American stores,
. the tender offer for outstanding Great American notes,
. the offering of units consisting of notes and warrants of Mrs. Fields'
Holding and the capital contribution of the net proceeds from the units
offering to Mrs. Fields in August 1998,
. and the acquisitions of Cookie Conglomerate and Pretzelmaker
The summary combined pro forma data do not purport to represent what Mrs.
Fields' results actually would have been had the above mentioned
transactions occurred as of January 4, 1998 nor do these data purport to
project the results of Mrs. Fields for any future period. The summary
historical and pro forma financial and store data should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the "Unaudited Pro Forma Condensed
Combined Financial Statements," "Selected Historical Financial Data," and
the historical financial statements and related notes, contained elsewhere
in this Registration Statement. The following information will also assist
you in understanding the Mrs. Fields and predecessors historical combined
financial and store data:
. On September 17, 1996, Mrs. Fields completed the acquisitions of
substantially all of the assets and assumed certain liabilities of the
predecessors.
. The historical combined data for the 52 weeks ended December 28, 1996
reflects the combined results of the predecessors (for the period
December 31, 1995 through September 17, 1996) and Mrs. Fields (for the
period September 18, 1996 through December 28, 1996). Information for
these periods for the predecessors and Mrs. Fields are set out separately
in the "Selected Historical Financial Data" but are combined here. This
presentation is not in conformity with generally accepted accounting
principles.
. In order for the data to be comparable for the periods presented, some of
the statements of operations data for the predecessors has been
reclassified to be consistent with the Mrs. Fields historical financial
statement presentation.
10
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
and Predecessors Mrs. Fields
---------------- --------------------------------------------------------------
Historical Historical Historical Pro Forma Historical Historical
Combined Consolidated Consolidated Combined Consolidated Consolidated
---------------- ------------ ------------ --------- ------------ ------------
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended 26 Weeks Ended
December January January January July 4, July 3,
28, 1996 3, 1998 2, 1999 2, 1999 1998 1999
---------------- ------------ ------------ --------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales.................. $126,330 $127,845 $140,235 $171,689 $ 58,687 $ 71,915
Net store and food
contribution(1)........ 19,308 25,044 20,166 21,015 6,915 8,686
Franchising and
licensing, net......... 5,103 6,563 14,001 19,557 2,971 11,562
General and
administrative
expenses............... 20,557 16,192 19,017 26,488 8,587 10,873
Store closure
provision.............. -- 538 7,303 7,303 -- --
Income (loss) from
operations............. 1,135 8,415 (5,389) (4,909) (1,536) (945)
Net loss................ (5,988) (974) (19,143) (22,471) (7,301) (10,099)
Other Data:
Cash flows from
operating activities... 6,784 919 9,429 8,967 (3,306) 2,708
Cash flows from
investing activities... (22,716) (15,505) (40,894) (41,260) (4,270) (2,704)
Cash flows from
financing activities... 18,793 24,164 19,929 18,853 (445) (110)
Interest expense........ 4,842 7,830 13,197 17,123 5,626 8,686
Total depreciation and
amortization........... 9,192 10,403 19,820 25,582 6,197 11,263
Capital expenditures.... 3,892 4,678 8,235 N/A 3,342 2,604
EBITDA(2)............... 10,327 18,818 14,431 20,673 4,661 10,318
Negative store
contribution for stores
in the process of being
closed or
franchised(1).......... $ (1,933) $ (1,798) $ (2,054) $ (2,284) $ (1,605) $ (863)
Ratio of earnings to
fixed charges(3)....... -- -- -- -- -- --
Store Data:
Percentage change in
comparable store
sales(4)............... (1.2)% 0.6% (1.6)% NA (1.5)% (0.4)%
Total company-owned
stores open at end of
period................. 482 481 566 566 470 492
Total franchised or
licensed stores open at
end of period.......... 418 553 972 972 554 1,001
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields
Historical
Consolidated
July 3, 1999
----------------------
(Dollars in thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $ 4,645
Total assets........................................... 219,313
Mandatorily redeemable cumulative preferred stock of
subsidiary............................................ 1,440
Total line of credit, debt and capital lease
obligations, including current portion................ 151,026
Total stockholder's equity............................. 32,579
</TABLE>
See footnotes on following page
11
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
and Predecessors Mrs. Fields
---------------- -------------------------------------------------------------
Historical Historical Historical Pro Forma Historical Historical
Combined Consolidated Consolidated Combined Consolidated Consolidated
---------------- ------------ ------------ --------- ------------ ------------
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended 26 Weeks Ended
December January January January July 4, July 3,
28, 1996 3, 1998 2, 1999 2, 1999 1998 1999
EBITDA Data: ---------------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income (loss) from
operations............. $ 1,135 $ 8,415 $(5,389) $(4,909) $(1,536) $ (945)
ADD:
Depreciation and
amortization.......... 9,192 10,403 19,820 25,582 6,197 11,263
------- ------- ------- ------- ------- -------
EBITDA................. $10,327 $18,818 $14,431 $20,673 $ 4,661 $10,318
======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures.
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of operating performance or to cash flows as
a measure of liquidity. EBITDA has been included in this prospectus because
it is one of the indicators by which Mrs. Fields assesses its financial
performance and its capacity to service its debt.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal year 1996, earnings were insufficient to
cover fixed charges by $3,985,000. For the 53 weeks ended January 3, 1998
and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000 and $18,827,000,
respectively. For the 26 weeks ended July 4, 1998 and July 3, 1999 earnings
were insufficient to cover fixed charges by $7,287,000 and $9,889,000,
respectively. For the 52 weeks ended January 2, 1999, pro forma combined
earnings were insufficient to cover pro forma combined fixed charges by
$22,565,000.
(4) Mrs. Fields includes in comparable store sales only those stores that have
been in operation for a minimum of 24 consecutive months. The percentage
change in comparable store sales is calculated from the previous period.
12
<PAGE>
RISK FACTORS
You should consider carefully all of the information in this prospectus,
including the following risk factors and warnings, before deciding whether to
exchange your outstanding notes for the notes to be issued in the exchange
offer. Except for the first three risk factors described below, the risks
factors generally apply to the outstanding notes as well as to the notes to be
issued.
You may have difficulty selling the notes which you do not exchange, since
outstanding notes will continue to have restrictions on transfer and cannot be
sold without registration under securities laws or exemptions from registration
If a large number of outstanding notes are exchanged for notes issued in the
exchange offer, it may be difficult for holders of outstanding notes that are
not exchanged in the exchange offer to sell the notes, since those notes may
not be offered or sold unless they are registered or there are exemptions from
registration requirements under the Securities Act or state laws that apply to
them. In addition, if there are only a small number of notes outstanding, there
may not be a very liquid market in those old notes. There may be few investors
that will purchase unregistered securities in which there is not a liquid
market. See "The Exchange Offer--Consequences of Failure to Exchange Notes."
In addition, if you do not tender your outstanding notes or if we do not
accept some outstanding notes, those notes will continue to be subject to the
transfer and exchange provisions of the indenture and the existing transfer
restrictions of the outstanding notes that are described in the legend on such
notes and in the offering circulars relating to the outstanding notes.
If you do not exchange your outstanding notes in the exchange offer, you will
no longer be entitled to an increase in interest payments on outstanding notes
that the indenture provides for if we fail to complete the exchange offer
Once the exchange offer has been completed, holders of outstanding 10 1/8%
Series C Senior Notes due 2004 will not be entitled to any increase in the
interest rate on their notes, which the indenture provides for if we fail to
complete the exchange offer. Holders of outstanding notes will not have any
further rights to have their outstanding notes registered, except in limited
circumstances, once the exchange offer is completed. Holders of other
outstanding notes are not entitled to any increase in the interest rate on
their notes, regardless of whether the exchange offer is completed.
If you exchange your outstanding notes, you may not be able to resell the notes
you receive in the exchange offer without registering them and delivering a
prospectus
You may not be able to resell notes you receive in the exchange offer without
registering those notes or delivering a prospectus. Based on interpretations by
the Commission in no-action letters, we believe, with respect to notes issued
in the exchange offer, that:
. holders who are not "affiliates" of Mrs. Fields within the meaning of
Rule 405 of the Securities Act,
. holders who acquire their notes in the ordinary course of business, and
. holders who do not engage in, intend to engage in, or have arrangements
to participate in a distribution (within the meaning of the Securities
Act) of the notes
do not have to comply with the registration and prospectus delivery
requirements of the Securities Act.
Holders described in the preceding sentence must tell us in writing at our
request that they meet these criteria. Holders that do not meet these criteria
could not rely on interpretations of the Commission in no-action letters, and
would have to register the notes they receive in the exchange offer and deliver
a prospectus for them. In addition, holders that are broker-dealers may be
deemed "underwriters" within the meaning of the Securities Act in connection
with any resale of notes acquired in the exchange offer. Holders that are
broker-dealers must acknowledge that they acquired their outstanding notes in
market-making activities or other
13
<PAGE>
trading activities and must deliver a prospectus when they resell the notes
they acquire in the exchange offer in order not to be deemed an underwriter.
You should review the more detailed discussion in "The Exchange Offer--
Procedures for Tendering Notes and Consequences of Exchanging Outstanding
Notes."
We have substantial debt, which could adversely affect our financial results
and prevent us from fulfilling our debt obligations, including those under the
notes
We incurred a substantial amount of debt to finance the purchase of Great
American and the other companies and assets we acquired. We continue to have a
substantial amount of debt.
Our substantial indebtedness could have important consequences to you. For
example:
. we may not be able to satisfy our obligations with respect to the notes;
. a substantial portion of our cash flows from operations will be required
to be dedicated to debt service and will not be available for other
purposes;
. our ability to obtain additional financing in the future could be
limited;
. the indenture contains financial and restrictive covenants that limit our
ability to, among other things, borrow additional funds, dispose of
assets or pay cash dividends. If we do not comply with these covenants,
there could be an event of default, which, if not cured or waived, could
have a material adverse effect on us; and
. the amount of debt that we have could prevent us from repurchasing all
the notes tendered to us upon the occurrence of a change of control of
our stock or assets.
See "Description of Notes--Repurchase at the Option of Holders--Change of
Control."
The following chart shows important credit statistics:
<TABLE>
<CAPTION>
At July 3,
1999
------------
<S> <C>
Total indebtedness of Mrs. Fields and subsidiaries............. $151 million
</TABLE>
Of this indebtedness, $11.6 million was senior to the notes.
The number includes liabilities for leases of $1.7 million and preferred
stock required to be repurchased at a future date of $1.4 million outstanding,
together representing 1.4% of our total liabilities and equity. Substantially
all of our subsidiaries' debt is effectively senior to the notes.
<TABLE>
<S> <C>
Stockholders' equity.......................................... $ 32.6 million
Debt to equity ratio.......................................... 4.6 to 1
</TABLE>
Moreover, in recent periods our earnings have not been sufficient to cover
our fixed charges.
<TABLE>
<CAPTION>
26 weeks ended
July 3, 1999
--------------
<S> <C>
Approximate deficiency in earnings to fixed charges
presented on a combined basis............................. $ 9.9 million
</TABLE>
Additional borrowings available--despite current indebtedness levels, we and
our subsidiaries may still be able to incur substantially more debt; this could
further exacerbate the risks described above
Although the indenture and our existing credit agreement with LaSalle
National Bank limits our ability and that of our subsidiaries to incur
additional indebtedness and issue preferred stock, including secured
14
<PAGE>
indebtedness, we can incur additional indebtedness and issue preferred stock.
This can include secured indebtedness, which effectively ranks senior to the
notes with respect to the assets securing indebtedness. See "Unaudited Pro
Forma Condensed Combined Financial Statements," and "Description of Notes--
Certain Covenants." We currently plan to incur additional debt for working
capital purposes, which will be effectively senior to the notes.
Ability to service debt--to service our debt, we will require a significant
amount of cash. Our ability to generate cash depends on many factors beyond our
control
Our ability to make scheduled payments of principal, or to pay interest on,
or to refinance our indebtedness, including the notes, depends on our future
performance. In turn, our future performance depends partly on general
economic, financial, competitive, legislative, regulatory and other factors
beyond our control. These include possible legislation and regulations
affecting franchise businesses or retail food businesses and minimum wage
legislation that affects businesses like ours that rely heavily on minimum-wage
employees, demographic or economic trends that could affect mall traffic that
our business depends on, and food retailing trends, which could include
declining interest in products that are perceived as less healthful. We cannot
be sure that our business will generate enough cash flows from operations or
that future borrowings will be available in an amount that will allow us to pay
principal and interest on our indebtedness, including the notes, or to make
necessary capital expenditures, or to allow us to obtain refinancing on
commercially reasonable terms or at all. In particular, the fact that we have
incurred substantial debt in recent years, coupled with the highly seasonal
nature of our business, creates a particular risk that large interest payments
will come due at a time when the cash flow from our business will not cover
them. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The notes are effectively subordinated to the debt of our credit agreement
We entered into an Amended and Restated Loan Agreement, as amended, dated as
of February 28, 1998, with LaSalle National Bank for $15.0 million under which
we pledged substantially all of our assets as security for amounts that we may
borrow under the agreement, including all of the capital stock of Great
American, Mrs. Fields' Brand, Pretzelmaker and Pretzel Time. As a result of the
pledge, the notes are effectively subordinated to our obligations under the
agreement with respect to our assets, including proceeds from those assets. If
there is a default on the notes, or we go into bankruptcy, liquidation or
reorganization, we would have to use our assets to make payments under the
agreement (or any successor or additional financing) before we could use the
assets to make payments on the notes. If there is not enough collateral granted
under the agreement with LaSalle National Bank (or any successor or additional
financing) to pay amounts owing under the agreement, LaSalle National Bank
would be entitled to share any amount available for payment with you and other
of our creditors. Currently our agreement with LaSalle National Bank would
permit borrowing of up to $15.0 million, subject to certain debt incurrence
limitation ratios, and all of those borrowings, since they are secured, would
be effectively senior to the notes and the guarantees. See "Description of
Certain Indebtedness."
A default under our credit agreement could cause a default under the notes
The agreement with LaSalle National Bank contains restrictive covenants
similar to those in the indenture, requiring us to comply with financial
ratios. If we are not able to comply with these and other provisions of the
agreement because of events beyond our control, there could be a default under
the agreement, as a result of which LaSalle National Bank could elect to
declare all amounts borrowed under the agreement, together with accrued
interest, to be due and payable. If we are unable to repay those borrowings,
LaSalle National Bank could proceed against the assets that we have pledged.
The acceleration of indebtedness under the agreement with LaSalle National Bank
may constitute an event of default under the notes which could also give rise
to an acceleration under the notes. If the indebtedness under the agreement is
accelerated as a result of a breach of a covenant, we cannot be sure that we
would have enough assets to repay in full that indebtedness and our other
15
<PAGE>
indebtedness, including the notes, or that we could continue to operate our
business as a result of the acceleration. Great American, Mrs. Fields' Brand,
Pretzelmaker and Pretzel Time have guaranteed amounts under the agreement with
LaSalle National Bank as well as the notes, and we cannot be sure that their
guarantees would be sufficient for both sets of obligations.
We may not be able to extend or renew the credit agreement or obtain
alternative financing; because our business and cash flow are highly seasonal,
if we do not have a working capital facility, we may not have enough cash to
meet our working capital needs at all times during our fiscal year
The agreement with LaSalle National Bank, which is designed to provide us
seasonal working capital, will expire on March 31, 2001. We cannot be sure that
we will be able to extend or renew the agreement or obtain alternative
financing to meet our seasonal working capital needs when the agreement
expires. If we do not have a revolving credit facility in place, we may not be
able to satisfy our seasonal working capital needs, which would have a material
adverse effect on us and our results of operations.
Our stock has been pledged by Mrs. Fields' Holding; a default on the Mrs.
Fields' Holding notes could trigger a change of control of Mrs. Fields; we may
not have the ability to raise the funds necessary to finance the change of
control offer required by the indenture
Mrs. Fields' Holding, our parent company, has pledged all of our outstanding
common stock to secure its obligations under its notes. If Mrs. Fields' Holding
defaults on its notes, there could be a foreclosure on our common stock, and
the foreclosure would constitute a change of control which would result in an
event of default permitting acceleration under the agreement with LaSalle
National Bank and the indenture. The change of control would also permit you to
require us to repurchase any or all of the notes held by you. We may not have
enough resources to repay in full borrowings under the agreement with LaSalle
National Bank and to repurchase all of the notes required to be repurchased.
We have incurred net losses during the past several years; we may continue to
have losses if our business strategies do not succeed
We and our predecessors have incurred net losses during the past several
years. Although we have put into place new business strategies aimed at
enhancing revenues and operating results and we have recorded positive EBITDA
since our formation in September 1996, economic, financial, competitive, legal
and other factors, many of which are beyond our control, can affect our
operations. We cannot be sure that we will be able to put into place our
planned strategies without delay or that these strategies will result in future
profitability. See "Selected Historical Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Our growth strategy is based on acquisitions, which may not provide the desired
economic benefits if we are unable to integrate our businesses so as to achieve
efficiencies from increased volumes of production
We have achieved growth through acquisitions such as the acquisition of Great
American and some of its franchisees and their stores, the acquisitions of
Pretzel Time and Pretzelmaker, and the business of H&M and Cookie Conglomerate
and intend to continue doing so. While we believe there are significant
opportunities for cost savings and volume efficiencies as a result of
acquisitions, we cannot be sure that these acquisitions will provide the
expected opportunities and economic benefits. Many factors beyond our control,
such as general economic conditions, increased operating costs, our response to
customers or competitors, and regulatory developments, can affect our ability
to realize economic benefits from prior acquisitions and/or any future
acquisitions as well as our ability to integrate successfully our businesses
with any acquired businesses. Consequently, we cannot be sure that these
acquisitions will result in the economic benefits that management expects on a
timely basis or at all. See "Business--Business Strategy."
16
<PAGE>
We may not be able to obtain leases in the future; our success depends in part
on our ability to obtain leases in high quality shopping malls at reasonable
rents
Our success depends in part on our ability to secure leases in high quality
shopping malls at rents we believe to be reasonable. Approximately half of the
leases for such stores expire during the next 5 years and generally do not
provide for renewal options in our favor. In addition, we currently plan to
open approximately 375 new-company owned and franchise stores over the next 5
years. We believe that the market for the type of locations historically leased
by us is highly competitive and, as a result, we cannot be sure that we will
succeed in obtaining such leases in the future at rents that we believe to be
reasonable or at all. See "Business--Properties."
We have continuing obligations under real estate leases; if we close an
unprofitable store but must still make lease payments on it, we will lose money
We lease locations for all the stores we own and, for most of our franchised
stores, have leased locations and sublet these locations to our franchisees.
Accordingly, we are the primary obligor for payments under these leases. If
locations should prove to be unprofitable, we would remain obligated for lease
payments if we determined to withdraw from these locations. Although we cannot
know how many stores we may close but on which we will continue to have to make
lease payments, we will lose money on those leases. If we have a large number
of stores like this, there will be an adverse effect on our results of
operations. See "Business--Properties."
A decline in mall traffic could adversely affect our business, which depends to
a large extent on purchases by pedestrians in malls
We believe that the amount and proximity of pedestrian traffic near our
stores strongly influence sales of our products, which we believe are
frequently impulse purchases. In recent years, visits to major shopping malls,
where a large percentage of our stores are located, have declined from 3.7
visits per month in 1989 to 3.0 visits per month in 1996. This trend has had a
negative impact on our revenues. We cannot be sure that this trend will not
continue or that this trend can be offset by increased sales per customer. A
continued decline in mall traffic could adversely affect our financial
condition and results of operations.
Volatility in cost of ingredients we use may adversely affect our results
The cost of butter, eggs, sugar, flour, chocolate and other ingredients can
fluctuate due to changes in economic conditions, weather, demand and other
factors, many of which are beyond our control. Although we believe that there
are alternative suppliers of these ingredients, we have no control over
fluctuations in the price of commodities and cannot be sure that we will be
able to pass on any price increases in our product ingredients to our
customers.
Failure to integrate our information systems, which is currently underway,
could adversely affect us
We have made a substantial investment in developing a customized,
sophisticated point-of-sale management information system. We are upgrading our
back-office system to a Windows NT environment and are currently upgrading all
Mrs. Fields stores to Pentium computers, and we plan to install our upgraded
back-office system, along with the POS registers and Pentium computers, in our
core Original Cookie stores, Hot Sam stores, Pretzelmaker stores, Pretzel Time
stores and many of our Great American stores by September 1999. We cannot be
sure that we will successfully integrate this system or that we will achieve a
fully integrated system within budget. Therefore, we cannot be sure that our
attempts to integrate the point-of-sale system will not adversely affect our
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Failures in Year 2000 compliance by companies with which we do business could
disrupt our operations
We have assessed Year 2000 issues with respect to our significant vendors and
financial institutions as to their compliance plans and whether any Year 2000
issues will impede the ability of those vendors to continue
17
<PAGE>
providing goods and services to us. Failure of our key suppliers to remedy
their own Year 2000 issues could delay shipments of essential products,
disrupting our operations as a result. Furthermore, we rely on various service
providers, such as utility and telecommunication service companies, which are
beyond our control. Based on the results of the assessment, management is not
aware of any Year 2000 issues relating to our significant vendors, financial
institutions or our non-information technology systems.
We do not have a contingency plan in place to address untimely or incomplete
remediation of Year 2000 issues. We are currently developing contingency plans.
These contingency plans are expected to address issues related to significant
vendors and financial institutions.
The minimum wage increase may adversely impact our financial condition and
results of operations
As of July 3, 1999, 851 of our 4,086 employees that work at stores owned by
us earned the federal hourly minimum wage. As a result of an increase in the
minimum wage from $4.75 to $5.15 on September 1, 1997, we have experienced an
increase of wages of approximately $354,000 annually. These increased labor
costs could adversely affect our financial condition and results of operations.
We cannot be sure that we can fully absorb the increased labor costs through
our efforts to increase efficiencies in other areas of our operations.
We depend upon key franchisees and licensees for revenue; there is no assurance
that franchise and license agreements will not be terminated
We depended upon 11 franchisees for 19.7% of our franchise revenues for the
52 weeks ended January 2, 1999. For the same period, franchise revenues made up
8.1% of our total net revenues. We cannot be sure that these franchise
agreements will not be terminated or that our relations with franchisees will
not change, or that our franchisees will continue to perform as they have in
the past. The termination of these key franchise agreements or poor performance
by our franchisees may have an adverse affect on our financial condition and
results of operations. In addition, we depend on three licensees for 68% of our
licensing revenue. We cannot be sure that our licenses will not be terminated
or that our relations with licensees will not change, or that our licensees
will continue to perform as they have in the past. The termination of key
license agreements or poor performance by our licensees may have an adverse
affect on our financial condition and results of operations.
There may be a negative effect on our financial condition if our trademarks are
challenged
We believe that our trademarks have significant value and are important to
the marketing of our retail outlets and products. Although our trademarks are
registered in all 50 states and registered or pending in many foreign
countries, we cannot be sure that our trademarks cannot be circumvented, or
that our trademarks do not or will not violate the proprietary rights of
others, or would be upheld if challenged or that we would not be prevented from
using our trademarks. Any challenge against us for our use of our trademarks
could have an adverse effect on our financial condition and results of
operations, through either a negative ruling with regards to our use, validity
or enforceability of our trademarks, or through the time consumed and the legal
costs of defending against a claim. In addition, we cannot be sure that we will
have the financial resources necessary to enforce or defend our trademarks.
The loss of key management personnel could adversely affect our operations
Our success depends on the continued services of our senior management,
particularly Larry A. Hodges, our President and Chief Executive Officer. In
addition, our continued growth depends, in part, on attracting and retaining
skilled managers and employees as well as management's ability to effectively
utilize our key personnel in light of recent and future acquisitions. If Mr.
Hodges or other senior management left us, there could be an adverse effect on
our operations. We cannot be sure that management's efforts to integrate,
utilize,
18
<PAGE>
attract and retain personnel will be successful. See "Management." We have
entered into employment agreements with all of our senior managers.
We may suffer adverse effects from competition with other specialty food
retailers, changes in demographic trends and consumer preferences
We compete with other cookie and pretzel retailers, as well as other
confectionery, sweet snack and specialty food retailers, many of which have
greater resources than us. The specialty retail food and snack industry is
highly competitive with respect to price, service, location and food quality.
Consequently, we cannot be sure that we will compete successfully with these
other specialty food retailers. In addition to the risks from current
competitors, we cannot be sure that we can successfully compete with any new
entrants into the specialty foods or snack foods industry who may have new and
successful products or marketing. Inability to compete adequately would result
in price reductions, reduced margins and losses of market share for us.
Changes in consumer preferences, tastes and eating habits, local, regional
and national economic conditions, demographic trends and mall traffic patterns
also affect the specialty or snack foods industry. Factors including increased
food, labor and benefits costs, the availability of experienced management and
hourly employees and difficulties or delays in developing and introducing new
products to suit consumer preferences may adversely affect the specialty retail
industry in general and our outlets in particular. Consequently, our success
will depend on our ability to recognize and react to these trends adequately.
Any changes in these factors could adversely affect our profitability. In
addition, the failure of customers to respond favorably to our marketing or new
products, could have an adverse effect on our profitability. See "Business--
Competition."
Our financial condition and results may be affected by adverse publicity,
particularly about health concerns
Our ability to compete depends in part on maintaining our reputation with the
consumer. Publicity resulting from food quality, illness, injury, or other
health concerns, including food-borne illness claims, or operating issues
stemming from one store, a limited number of stores, or even a competitor's
store can adversely affect multi-unit specialty retail food and snack chains
such as us. In addition, Mrs. Fields' uses ingredients, such as nuts, to which
some people may have allergies, and butter, which is high in fat, and there may
be adverse publicity about the health risks relating to these ingredients. We
cannot be sure that adverse publicity about these factors will not adversely
affect our financial condition and results of operations.
Our financial condition and results of operations may be adversely affected by
government regulation of our business
Numerous governmental authorities have issued regulations that apply to us
and our stores, including, without limitation, federal, state and local laws
and regulations governing health, sanitation, environmental protection, safety
and hiring and employment practices, including laws, such as the Fair Labor
Standards Act, governing such matters as minimum wages, overtime and other
working conditions. The Food and Drug Administration administers regulations
that apply to our products. If we fail to obtain or retain the required food
licenses or to comply with applicable governmental regulations, or if there is
any increase in the minimum wage rate, employee benefit costs or other costs
associated with employees, there could be an adverse effect on our business,
financial condition or results of operations. Even if we obtain regulatory
approval, a marketed product, its manufacturer and its manufacturing facilities
are subject to periodic inspection, and discovery of problems may adversely
affect our business.
In addition, the sale of franchises is regulated by various state laws as
well as by the Federal Trade Commission. The Federal Trade Commission requires
that franchisors make extensive disclosure in a Uniform Franchise Offering
Circular to prospective franchisees but does not require registration. However,
a number of states require registration of the Uniform Franchise Offering
Circular with state authorities or other disclosure in connection with
franchise offers and sales. In addition, several states have franchise
relationship laws or
19
<PAGE>
business opportunity laws that limit the ability of the franchisors to
terminate agreements or to withhold consent to renewal or transfer of these
agreements. While we believe that we are in compliance with existing
regulations, we cannot predict the effect of any future legislation or
regulation on our business operations or financial condition. Additionally,
bills have occasionally been introduced in Congress which would provide for
federal regulation of certain aspects of franchisor-franchisee relationships.
All full-time store managers and assistant managers are able to enroll in a
group health insurance plan. However, there have been a number of proposals
before Congress which would require employers to provide health insurance for
all of their full-time and part-time employees. The approval of similar
proposals could have a material adverse impact on our results of operations and
financial condition in particular and the specialty retail industry as a whole.
Litigation, including product liability litigation, against us could have an
adverse effect on our business, and we may not be able to continue to obtain
adequate insurance
We are involved in routine litigation in the ordinary course of business,
including franchise disputes. Although we have not been adversely affected in
the past by litigation, there can be no assurance as to the effect of any
future disputes.
Although we are not currently subject to any product liability litigation,
there can be no assurance that product liability litigation will not occur in
the future involving our products. Our quality control program is designed to
maintain high standards for food preparation procedures used by stores owned or
franchised by us. Products are periodically inspected by our personnel at both
the point-of-sale locations and the manufacturing facilities to ensure that
they conform to our standards. In addition to insurance held by our suppliers,
we maintain insurance relating to personal injury and product liability in
amounts that we consider adequate for the retail food industry. While we have
been able to obtain insurance in the past, there can be no assurance that we
will be able to maintain these insurance policies in the future. Consequently,
any successful claim against us, in an amount materially exceeding our
coverage, could have a material adverse effect on our business, financial
condition and results of operations.
Our controlling stockholder may take certain actions that may be contrary to
your interests
Capricorn Investors II, L.P. is the controlling stockholder of Mrs. Fields'
Holding, which controls all of our capital stock. As a result, Capricorn is in
a position to elect all of our directors who, in turn, elect all of our
executive officers. In addition, Capricorn, through Mrs. Fields' Holding, is in
a position to amend our certificate of incorporation and by-laws, effect
corporate transactions such as mergers and asset sales and otherwise control
our management and policies without the approval of any other security holder,
subject to the provisions of the indenture. Accordingly, Capricorn will be able
to, directly or indirectly, control all of our affairs in a manner that may be
contrary to your interests. See "Beneficial Ownership of Capital Stock."
We may not continue to have increased sales in the fourth quarter; without
these sales we may experience an adverse effect on our business
Our operating results are subject to seasonal fluctuations. Historically, we
have realized our highest level of sales in the fourth quarter due to increased
mall traffic during the Christmas holiday season. However, we cannot be sure
that this seasonal trend will continue or that we can continue to rely on
increased sales during the fourth quarter. If this seasonal trend changes,
there may be an adverse effect on our financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Seasonality."
We may be unable to repurchase the notes from you upon a change of control due
to insufficiency of funds
Upon the occurrence of a change of control of ownership of our stock or
assets, you may require us to repurchase all or a portion of your notes at 101%
of their total principal amount, together with the accrued and
20
<PAGE>
unpaid interest, if any, and liquidated damages, if any, to the date of
repurchase. If a change of control of ownership of our stock or assets were to
occur, we may not have the financial resources to repay all of our obligations
under the notes and the other indebtedness that would become payable upon that
event. See "Description of Notes--Repurchase at the Option of Holders--Change
of Control."
Fraudulent conveyance risks; federal and state statutes allow courts, under
specific circumstances, to void payments under the notes and guarantees and
require noteholders to return payments received
Fraudulent transfer laws of both the federal bankruptcy law and state laws
permit creditors or a trustee in bankruptcy to set aside or recover a
"fraudulent transfer." Because Mrs. Fields has incurred a substantial amount of
debt in connection with the acquisition of Great American and the other assets
and capital stock of companies it has recently acquired and because Mrs. Fields
and the existing guarantors cannot be sure that their businesses will generate
enough cash flows from operations or that future borrowings will be available
in an amount that will allow Mrs. Fields and the existing guarantors to pay
principal and interest on their indebtedness including the notes and the
guarantees, we cannot be sure that a court would not set aside payments made to
holders of the notes as a fraudulent transfer.
A fraudulent transfer is a payment or obligation that a borrower makes in
exchange for less than reasonably equivalent value, if the borrower, when it
makes the payment or incurs the obligation:
. is insolvent or is rendered insolvent by the payment or the incurring of
the obligation, or
. is engaged or is about to engage in a business or transaction for which
its assets constitute unreasonably small capital, or
. intends to incur, or believes that it will incur, debts beyond its
ability to repay as they mature.
For these purposes, a borrower is generally considered insolvent:
. if the sum of its debts, including contingent liabilities, were greater
than all of its assets at a fair valuation,
. if it had unreasonably small capital to conduct its business, or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay the probable liability on its
existing debts, including contingent liabilities, as they become due.
A payment or obligation that the borrower made with actual intent to hinder,
delay, or defraud any of its creditors is also a fraudulent transfer.
A court may hold any obligation incurred by the borrower in these situations
void or unenforceable, may subordinate the obligation to the claims of other
creditors, or may require the holders of the obligations or the recipients of
any of these payments to return any payments received. If Mrs. Fields or the
existing guarantors met any of the fraudulent transfer law's financial
condition tests described above when they issued the notes or the guarantees,
or when they were called upon to make a payment on the notes or the guarantees,
and did not receive reasonably equivalent value in exchange, a court could
conclude that the issuance of the notes, the making of the guarantees or the
payment under the notes or the guarantees should be set aside or returned.
Mrs. Fields and the existing guarantors believe:
.they were not insolvent when, or as a result of, the issuance of the notes
or the guarantees,
. that they will not engage in a business or transaction for which their
remaining assets would constitute unreasonably small capital, and
. that Mrs. Fields and the existing guarantors did not and do not intend to
incur or believe that they will incur debts beyond their ability to pay
these debts as they mature.
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<PAGE>
Mrs. Fields has incurred, however, a substantial amount of debt in connection
with the purchase of Great American and the other assets and capital stock of
companies it acquired. Mrs. Fields' and its subsidiaries' total indebtedness,
represents 68.8% of its total liabilities and equity. The debt of our guarantor
subsidiaries represents 0.5% of their total liabilities and equity. In
addition, Mrs. Fields' cash flow, and consequently its ability to pay dividends
and service debt, including its obligations under the notes, depends upon its
future performance. In addition, Mrs. Fields and its predecessors have incurred
net losses during the past several years and in recent periods we have not had
earnings sufficient to cover our fixed charges. In any future fraudulent
transfer litigation concerning the notes and the payments made to the holders
of the notes, a court may rely on these facts in determining our solvency, the
adequacy of our capital and our ability to pay our debts as they become due.
The guarantees are limited by their terms so as to not constitute a
fraudulent transfer under applicable law. If the guarantees were challenged
under this provision, the court would have to, among other things, analyze the
direct and indirect benefits obtained by the guarantors in comparison to the
probability that the guarantors would be called upon to pay the guarantees. It
is possible that a court would limit the guarantees under this provision to an
amount that is significantly below the amount of the notes. Management cannot
accurately predict what a court would do in this case.
If Mrs. Fields or a guarantor caused a subsidiary to pay a dividend when the
subsidiary met any of the fraudulent transfer law's financial condition tests
described above, in order to enable Mrs. Fields or the guarantor to make a
payment in respect of the notes or the guarantees, a court could conclude that
the dividend as well as the payment is a fraudulent transfer and that the
holders should be required to return the payment, because in the absence of
other facts, courts generally conclude that a subsidiary that pays a dividend
does not receive reasonably equivalent value in exchange.
In addition, subject to defenses, the holders may have to return payments
made by Mrs. Fields on the notes or the guarantors on the guarantees within 90
days before the commencement of a bankruptcy case by or against them, if, among
other things, Mrs. Fields or the guarantors were insolvent at the time the
payments were made. Mrs. Fields or the guarantor would be presumed insolvent on
and during the 90 days immediately preceding the date of the filing of its
bankruptcy petition.
In any of the preceding cases, there could be no assurance that the holders
would ultimately recover the amounts owing under the notes and the guarantees.
There is no public market for the notes to be issued; transfers of the
outstanding notes are restricted
The notes to be issued are being offered only to the holders of the
outstanding notes. There is no public market for the notes to be issued. If a
public market were to develop, the notes could trade at prices that may be
higher or lower than the initial offering price of the outstanding notes. The
placement agents for the outstanding notes currently make a market in the
outstanding notes. The placement agents have informed us that they currently
intend to make a market in the notes to be issued. However, the placement
agents may cease their market-making at any time. The liquidity of the trading
market in these notes, and the market price quoted for these notes, may be
adversely affected by changes in the overall market for similar securities,
existing interest rates, and by our operating results. As a result, you cannot
be sure that an active market will develop for these notes.
The outstanding 10 1/8% Series A Senior Notes due 2004 were issued on
November 26, 1997 and the outstanding 10 1/8% Series C Senior Notes due 2004
were issued on August 24, 1998, to institutional investors and accredited
investors, and are eligible for trading in the Private Offering, Resale and
Trading Through Automated Linkages ("PORTAL") Market of the National
Association of Securities Dealers, Inc., a screen-based automated market for
trading of securities eligible for resale under Rule 144A. To the extent that
the outstanding notes are tendered and accepted in the exchange offer, the
trading market for the remaining untendered outstanding notes could be
adversely affected.
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<PAGE>
FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events, based on the information currently available to us. These
forward-looking statements relate to future events or our future performance,
including financial performance, growth in net sales and earnings, cash flows
from operations, capital expenditures, the ability to refinance indebtedness,
and the sale of assets. The forward-looking statements also include, among
other things, our expectations and estimates about our business operations
following the acquisitions of Great American and certain of its franchisees and
their stores, the offering by Mrs. Fields' Holding and its capital contribution
to us, other recent transactions discussed in this prospectus and the offering
of notes in August 1998, including the integration of the businesses of Great
American with Mrs. Fields and our ability to achieve cost savings and other
synergies related to those transactions. The forward-looking statements are
principally contained in the sections "Summary," "The Transactions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expects," "plans,"
"contemplates," "anticipates," "believes," "estimates," "projected,"
"predicts," "potential," or "continue" or the negative of these terms or
similar terms. In evaluating these statements, you should specifically consider
various factors, including the risks outlined in the "Risk Factors" section
above. These factors may cause our actual results to differ materially from any
forward-looking statement. Other factors, such as the general state of the
economy, could also cause actual results to differ materially from the future
results covered in the forward-looking statements.
These statements are only predictions, the forward-looking events discussed
in this prospectus may not occur and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
23
<PAGE>
THE TRANSACTIONS
On August 24, 1998, we completed the offering of notes, the acquisition of
Great American and the acquisition of the stock of two Great American
franchisees. We also received as a capital contribution from Mrs. Fields'
Holding the net proceeds of $29.1 million from a simultaneous offering of units
consisting of notes and warrants to purchase common stock by Mrs. Fields'
Holding. In addition, we purchased approximately $38.9 million of Great
American notes that had been tendered in our tender offer for them at that
time. We used the net proceeds of our offering, the capital contribution from
Mrs. Fields' Holding, and available cash of Mrs. Fields and Great American, to
complete these transactions, to pay for the remaining Great American notes that
were tendered after this date, and to pay related expenses. We used the
remaining proceeds to finance other acquisitions that had not yet been
completed as of the date of the offering, including the purchase of eight
stores from a Great American franchisee.
The Great American Transactions
The Great American Acquisition and the Great American Tender Offer
Under a securities purchase agreement, dated as of August 13, 1998, among
Cookies USA, the sellers of Cookies USA securities and Mrs. Fields, we acquired
all of the outstanding capital stock and subordinated indebtedness of Cookies
USA for a total purchase price of approximately $18.4 million. Concurrently, we
completed the merger of Cookies USA into Mrs. Fields and the mergers of Deblan
and Chocolate Chip into Great American. Great American became a wholly owned
subsidiary of Mrs. Fields.
As of the expiration of our tender offer for Great American notes at midnight
on September 14, 1998, all of the notes had been tendered. We accepted and paid
the entire $40.0 million in principal amount of those notes, and none remain
outstanding.
The Acquisition of Great American Franchisees
When we agreed to purchase Cookies USA, we also entered into agreements with
the stockholders of Deblan and Chocolate Chip, two of Great American's
franchisees, to purchase a total of 29 Great American franchises for total
consideration of approximately $15.0 million. The price included the repayment
of approximately $0.6 million of debt. We acquired the franchises by acquiring
100% of the capital stock of the two corporations through which the 29
franchises were held. In connection with these transactions, debt on the
balance sheet of one corporation was retired with cash on hand, and debt on the
balance sheet of the second corporation was retired with funds from the
franchisee that controlled the corporation.
Agreements with Franchisees of Great American
We entered into settlement agreements and waivers with the two franchisees
that sold us 29 Great American franchises and with several other Great American
franchisees. In addition to these franchisees, at least 80% in total of the
Great American franchisees have executed settlement agreements and waivers.
These agreements provided that the Great American franchisees that are parties
to them released, subject to exceptions, all of their claims against us, Great
American, Capricorn and other parties, including claims that Great American
franchisees brought in 1997 to prevent a sale of Great American to Mrs. Fields.
On August 24, 1998, a motion was filed dismissing with prejudice the claims
brought in the 1997 litigation.
The settlement agreements and waivers give "tag-along" rights to the Great
American franchisees that hold at least five Great American franchises. The
tag-along rights provide that, in the event that:
(1) either Mrs. Fields or Mrs. Fields' Holding proposes to sell to an
unaffiliated party substantially all of its rights as owner of the Great
American brand or as the franchisor of Great American,
(2) either Mrs. Fields or Mrs. Fields' Holding proposes to make an initial
public offering of its common stock, or
(3) either Mrs. Fields or Mrs. Fields' Holding sells a controlling interest to
an unaffiliated party,
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<PAGE>
we will purchase all of the franchises of those Great American franchisees,
provided that their franchises have had positive cash flow in the most recent
12-month fiscal period and sales not more than 20% below the 12- month fiscal
period immediately preceding such period, or the number of months it has been
operating, if fewer than 12.
The purchase price for the franchises will be 5 times their most recent 12-
month EBITDA or, if the franchises have operated for fewer than 12 months, the
greater of 5 times their most recent EBITDA and documented development cost for
the stores. Great American franchisees that hold fewer than 5 Great American
franchises do not have tag-along rights but will have the right, upon
completion of Mrs. Fields' sale of its rights as owner of the Great American
brand or as the franchisor of Great American, the initial public offering or
the change of control, and provided they are in compliance with their franchise
agreements, to receive in cash the greater of $3,500 or $2,000 per store owned
by the franchisee. In the case of an initial public offering, the franchisees
could receive shares of common stock with an equivalent value. The form of
payment will be at our election.
Under the settlement agreements and waivers, we have also undertaken, among
other things,
(1) to maintain the profit margin over our cost on batter sold to Great
American franchisees,
(2) to extend franchise agreements, and
(3) to permit the Great American franchisees to convert their stores to Mrs.
Fields brand stores at their sole expense in areas where there is no
overlap with existing Mrs. Fields brand franchise stores.
The Mrs. Fields' Holding Units
Mrs. Fields' Holding completed its offering of units consisting of notes and
warrants to purchase common stock of Mrs. Fields' Holding on August 24, 1998
and received net proceeds of $29.1 million. The notes which are part of the
units are senior obligations of Mrs. Fields' Holding and are secured by all of
Mrs. Fields' issued and outstanding capital stock.
The Prior Transactions
Mrs. Fields' Holding acquired substantially all of the assets of H & M on
July 25, 1997 for a total purchase price of $13.8 million, excluding the
assumption of liabilities. Mrs. Fields' Holding acquired 56.0% of the shares of
common stock of Pretzel Time on September 2, 1997 for a total purchase price of
$4.2 million and extended a $500,000 loan to the founder and minority
stockholder of Pretzel Time. At the time of our previous offering of notes on
November 26, 1997:
(1) we received the business of H&M and 56.0% of the shares of common stock of
Pretzel Time from Mrs. Fields' Holding,
(2) we received all of the common stock of Mrs. Fields' Brand from Mrs. Fields'
Holding,
(3) various debt of Mrs. Fields, Mrs. Fields' Brand and Mrs. Fields' Holding
was refinanced, and
(4) we paid a dividend of $1,065,000 and repaid an advance of $1,500,000 to
Mrs. Fields' Holding.
On January 2, 1998, we purchased an additional 4.0% of the shares of the
common stock of Pretzel Time.
Increase in Pretzel Time Ownership
On June 12, 1998, we purchased an additional 10.0% of the common stock of
Pretzel Time for a purchase price of $875,000, increasing our equity interest
in Pretzel Time to 70.0% at that time.
Other Recent Transactions
In June 1998, we acquired 5 additional Pretzel Time stores from a franchisee
for a purchase price of $657,000. We acquired one additional Pretzel Time store
from a franchisee and two cookie stores operating
25
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under other brand names, which we converted into Mrs. Fields brand stores at
purchase prices aggregating $750,000. We have remodeled the two cookie stores,
at a total cost of $156,600. We purchased eight Great American stores from a
Great American franchisee for a total purchase price of $1.75 million on
September 9, 1998. The franchisee was a holder of some of the securities of
Cookies USA that were sold under the agreement to purchase Great American and
was a party to that agreement.
RECENT DEVELOPMENTS
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement dated as of
October 5, 1998, among The Cookie Conglomerate, Inc., The Cookie Conglomerate,
LLP and two individuals who were the partners of Cookie Conglomerate, LLP and
the shareholders of Cookie Conglomerate, Inc. The sellers were franchisees of
Great American. The sellers' rights under franchise agreements and subleases
with Great American were terminated upon closing of the transaction. The
acquisition was funded with financing provided by T&W Financial Services
Company, L.L.C.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately $5.7
million and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1.6 million.
On December 9, 1998, Mrs. Fields purchased three shares of Pretzel Time, Inc.
common stock for $500,000 in cash. On December 30, 1998, Mrs. Fields completed
the acquisition of the remaining outstanding common stock of Pretzel Time, Inc.
under a stock purchase agreement dated December 30, 1998, for a purchase price
of approximately $4.7 million, $2.5 million of which was paid in cash on
January 5, 1999, $2 million was assumed by Mrs. Fields' Holding, Mrs. Fields
sole shareholder as discussed below, and the remaining $200,000 is payable on
or before December 30, 1999.
USE OF PROCEEDS
Neither Mrs. Fields nor the guarantors will receive any cash proceeds in the
exchange offer. In consideration for issuing the notes as contemplated in this
prospectus, Mrs. Fields will receive an equal principal amount of outstanding
notes.
The net proceeds received by Mrs. Fields from the offering in August 1998,
after deducting the underwriting discounts and commissions and estimated
expenses of the offering of notes in August 1998, along with cash from other
sources, including the capital contribution of Mrs Fields' Holding and existing
company cash, were approximately $85.1 million. Of this amount, Mrs. Fields
used approximately $18.4 million for the acquisition of Great American, $41.6
million to pay for the Great American notes tendered, including the tender
offer premium of $1.6 million, $15.0 million to pay for the acquisitions of
Deblan and Chocolate Chip, including the repayment of approximately $0.6
million of debt, $0.9 million to pay accrued interest on debt being retired,
$1.4 million for severance and related expenses, approximately $2.8 million to
pay for other recent acquisitions and approximately $5.0 million of fees and
expenses related to the offering in August 1998 and some of the other
acquisitions described in this prospectus.
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<PAGE>
CAPITALIZATION
The following table shows the cash and cash equivalents and capitalization of
Mrs. Fields' Original Cookies, Inc. and subsidiaries at July 3, 1999. This
table should be read in conjunction with the historical financial statements
and related notes included elsewhere in this Registration Statement. See
"Selected Historical Financial Data" and "Unaudited Pro Forma Condensed
Combined Statement of Operations."
<TABLE>
<CAPTION>
Mrs. Fields'
Original Cookies, Inc.
and Subsidiaries
at July 3, 1999
----------------------
(Dollars in thousands)
<S> <C>
Cash and Cash Equivalents............................... $ 4,645
========
Debt and Capital Lease Obligations, including current
portions:
Credit Facility(1).................................... $ 7,000
10 1/8% Series A, B and C Senior Notes due 2004(2).... 140,000
Original issue discount on 10 1/8% Series C Senior
Notes due 2004....................................... (558)
Pretzel Time Debt..................................... 206
Mrs. Fields' Original Cookies, Inc. Other Debt and
Capital Lease Obligations............................ 4,202
Pretzelmaker Debt and Capital Lease Obligations....... 176
--------
Total Debt and Capital Lease Obligations, including
current portion........................................ 151,026
--------
Mandatorily Redeemable Preferred Stock of Pretzel
Time(3)................................................ 1,440
--------
Stockholder's Equity:
Common Stock (pledged as collateral for parent company
debt)(4)............................................. --
Additional Paid-in Capital(5)......................... 61,899
Accumulated Deficit................................... (29,320)
--------
Total Stockholder's Equity............................ 32,579
--------
Total Capitalization.................................... $185,045
========
</TABLE>
- --------
(1) Under the indenture, Mrs. Fields is permitted to have one or more credit
facilities under which it will be able to borrow up to a maximum total
principal amount of $15.0 million on a secured basis. Mrs. Fields' Amended
and Restated Loan Agreement, dated as of February 28, 1998, with LaSalle
National Bank provides for a maximum commitment of up to $15.0 million
secured by essentially all of the assets of Mrs. Fields. As of July 3,
1999, Mrs. Fields had approximately $276,000 of allowable borrowings under
its credit facility. See "Description of Certain Indebtedness--Credit
Agreement."
(2) Includes $100.0 million of 10 1/8% Series A and Series B Senior Notes of
Mrs. Fields and $40.0 million of 10 1/8% Series C Senior Notes.
(3) Liquidation preference as of July 3, 1999 was approximately $1.5 million.
Date of redemption is January 15, 2000.
(4) Less than $1,000.
(5) Gives effect to the capital contribution of Mrs. Fields' Holding of $29.1
million on August 24, 1998 and $2 million on May 27, 1999.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Outstanding Notes
On August 24, 1998, Mrs. Fields sold notes to Jefferies & Company, Inc. and
BT Alex. Brown. When we sold the notes, we entered into a registration rights
agreement with Jefferies and BT Alex. Brown. The registration rights agreement
requires that we register the notes sold on August 24, 1998 with the Commission
and offer to exchange the new registered notes for the outstanding notes sold
on August 24, 1998. We are also making the exchange offer available to holders
of notes issued in a private placement on November 26, 1997.
We will accept any validly tendered notes that you do not withdraw before
12:00 midnight, New York City time, on the expiration date. We will issue
$1,000 of principal amount of new notes in exchange for each $1,000 principal
amount of your outstanding notes. You may tender some or all of your notes in
the exchange offer.
The form and terms of the new notes are the same as the form and terms of the
outstanding notes except that:
(1) the notes being issued in the exchange offer will be registered
under the Securities Act and will not have legends restricting
their transfer,
(2) the notes being issued in the exchange offer will not contain the
registration rights and liquidated damages provisions contained in
the outstanding notes issued in August 1998, and
(3) interest on the new notes will accrue from the last interest date
on which interest was paid on your notes.
Outstanding notes that we accept for exchange will not accrue interest after
we complete the exchange offer.
The exchange offer will expire at 12:00 midnight, New York City time, on
, 1999, unless we extend it. If we extend the exchange offer, we will issue
a notice by press release or other public announcement before 9:00 a.m., New
York City time, on the next business day after the previously scheduled
expiration date.
We reserve the right, in our sole discretion:
(1) to extend the exchange offer,
(2) to delay accepting your notes,
(3) to terminate the exchange offer and not accept any notes for
exchange if any of the conditions have not been satisfied, or
(4) to amend the exchange offer in any manner.
We will promptly give oral or written notice of any extension, delay, non-
acceptance, termination or amendment. We will also file a post-effective
amendment with the Commission if we amend the terms of the exchange offer.
If we extend the exchange offer, notes that you have previously tendered will
still be subject to the exchange offer and we may accept them. We will promptly
return your notes if we do not accept them for exchange for any reason without
expense to you after the exchange offer expires or terminates.
Procedures for Tendering Notes
Only you may tender your notes in the exchange offer.
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<PAGE>
To tender in the exchange offer, you must:
(1) complete, sign and date the enclosed letter of transmittal, or a
copy of it,
(2) have the signature on the letter of transmittal guaranteed if
required by the letter of transmittal, and
(3) mail, fax or otherwise deliver the letter of transmittal or copy to
the exchange agent
OR
if you tender your notes under The Depository Trust Company's book-
entry transfer procedures, transmit an agent's message to the exchange
agent on or before the expiration date.
In addition, either:
(1) the exchange agent must receive certificates for outstanding notes
and the letter of transmittal, or
(2) the exchange agent must receive a timely confirmation of a book-
entry transfer of your notes into the exchange agent's account at
The Depository Trust Company, along with the agent's message, or
(3) you must comply with the guaranteed delivery procedures described
below.
An agent's message is a computer-generated message transmitted by The
Depository Trust Company through its Automated Tender Offer Program to the
exchange agent.
To tender your notes effectively, you must make sure that the exchange agent
receives a letter of transmittal and other required documents before the
expiration date.
When you tender your outstanding notes and we accept them, the tender will be
a binding agreement between you and us in accordance with the terms and
conditions in this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes, letters of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that you use an overnight or hand delivery service instead of mail.
If you do deliver by mail, we recommend that you use registered mail, properly
insured, with return receipt requested. In all cases, you should allow enough
time to make sure your documents reach the exchange agent before the expiration
date. Do not send a letter of transmittal or notes directly to us. You may
request your brokers, dealers, commercial banks, trust companies, or nominees
to make the exchange on your behalf.
Unless you are a registered holder who requests that the new notes to be
mailed to you and issued in your name, or unless you are an eligible
institution, you must have your signature guaranteed on a letter of transmittal
or a notice of withdrawal by an eligible institution. An eligible institution
is a firm which is a financial institution that is a member of a registered
national securities exchange or a member of the participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program.
If the person who signs the letter of transmittal and tenders the notes is
not the registered holder of the notes, the registered holders must endorse the
notes or sign a written instrument of transfer or exchange that is included
with the notes, with the registered holder's signature guaranteed by an
eligible institution. We will decide whether the endorsement or transfer
instrument is satisfactory.
We will decide all questions about the validity, form, eligibility,
acceptance and withdrawal of tendered notes, and our determination will be
final and binding on you. We reserve the absolute right to:
(1) reject any and all tenders of any particular note not properly
tendered,
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<PAGE>
(2) refuse to accept any note if, in our judgment or the judgment of
our counsel, the acceptance would be unlawful, and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular note either before or after the
expiration date. This includes the right to waive the ineligibility
of any holder who seeks to tender notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. You must cure any defects or irregularities in
connection with tenders of notes as we will determine. Neither we, the exchange
agent nor any other person will incur any liability for failure to notify you
of any defect or irregularity with respect to your tender of notes.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of outstanding notes, the outstanding notes must
be endorsed or accompanied by powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the
outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any notes or power of attorney on
your behalf, those persons must indicate their capacity when signing, and
submit satisfactory evidence to us with the letter of transmittal demonstrating
their authority to act on your behalf.
To participate in the exchange offer, we require that you represent to us
that:
(1) you or any other person acquiring notes for your outstanding notes
in the exchange offer is acquiring them in the ordinary course of
business,
(2) neither you nor any other person acquiring notes in exchange for
your outstanding notes is engaging in or intends to engage in a
distribution of the notes issued in the exchange offer,
(3) neither you nor any other person acquiring notes in exchange for
your outstanding notes has an arrangement or understanding with any
person to participate in the distribution of notes issued in the
exchange offer,
(4) neither you nor any other person acquiring notes in exchange for
your outstanding notes is our "affiliate" as defined under Rule 405
of the Securities Act, and
(5) if you or another person acquiring notes for your outstanding notes
is a broker-dealer, you will receive new notes for your own
account, you acquired new notes as a result of market-making
activities or other trading activities, and you acknowledge that
you will deliver a prospectus in connection with any resale of your
notes
If you are our "affiliate," as defined under Rule 405 of the Securities Act,
you are a broker-dealer who acquired your outstanding notes in the initial
offering and not as a result of market-making or trading activities, or if you
are engaged in or intend to engage in or have an arrangement or understanding
with any person to participate in a distribution of notes acquired in the
exchange offer, you or that person:
(1) may not rely on the applicable interpretations of the staff of the
Commission, and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act when reselling the notes.
Broker-dealers who cannot make the representations in item (5) of the
paragraph above cannot use this exchange offer prospectus in connection with
resales of the notes issued in the exchange offer.
Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the
Exchange Offer
We will accept validly tendered notes when the conditions to the exchange
offer have been satisfied or we have waived them. We will have accepted your
validly tendered notes when we have given oral or written
30
<PAGE>
notice to the exchange agent. The exchange agent will act as agent for the
tendering holders for the purpose of receiving the new notes from us. If we do
not accept any tendered notes for exchange because of an invalid tender or
other valid reason, the exchange agent will return the certificates, without
expense, to the tendering holder. If a holder has tendered notes by book-entry
transfer, we will credit the notes to an account maintained with The Depository
Trust Company. We will return certificates or credit the account at The
Depository Trust Company as promptly as practicable after the exchange offer
terminates or expires.
Book-Entry Transfers
The exchange agent will make a request to establish an account at The
Depository Trust Company for purposes of the exchange offer within two business
days after the date of this prospectus. Any financial institution that is a
participant in The Depository Trust Company's systems must make book-entry
delivery of outstanding notes by causing The Depository Trust Company to
transfer those outstanding notes into the exchange agent's account at The
Depository Trust Company in accordance with The Depository Trust Company's
Automated Tender Offer Procedures. The participant should transmit its
acceptance to The Depository Trust Company on or before the expiration date or
comply with the guaranteed delivery procedures described below. The Depository
Trust Company will verify acceptance, execute a book-entry transfer of the
tendered outstanding notes into the exchange agent's account at The Depository
Trust Company and then send to the exchange agent confirmation of the book-
entry transfer. The confirmation of the book-entry transfer will include an
agent's message confirming that The Depository Trust Company has received an
express acknowledgment from the participant that the participant has received
and agrees to be bound by the letter of transmittal and that we may enforce the
letter of transmittal against the participant. Delivery of notes issued in the
exchange offer may be effected through book-entry transfer at The Depository
Trust Company. However, the letter of transmittal or facsimile of it or an
agent's message, with any required signature guarantees and any other required
documents, must:
(1) be transmitted to and received by the exchange agent at the address
listed below under "Exchange Agent" on or before the expiration
date, or
(2) the guaranteed delivery procedures described below must be complied
with.
Guaranteed Delivery Procedures
If you are a registered holder of outstanding notes who desires to tender
notes but your notes are not immediately available, or time will not permit
your notes or other required documents to reach the exchange agent before the
expiration date, or the procedure for book-entry transfer cannot be completed
on a timely basis, you may effect a tender if:
(1) you tender the notes through an eligible institution,
(2) before the expiration date, the exchange agent received from the
eligible institution a notice of guaranteed delivery in the form we
have provided. The notice of guaranteed delivery will state the
name and address of the holder of the notes being tendered and the
amount of notes being tendered, that the tender is being made and
guarantee that within five New York Stock Exchange trading days
after the notice of guaranteed delivery is signed, the certificates
for all physically tendered notes, in proper form for transfer, or
a book-entry confirmation, together with a properly completed and
signed letter of transmittal with any required signature guarantees
and any other documents required by the letter of transmittal will
be deposited by the eligible institution with the exchange agent,
and
(3) the certificates for all physically tendered outstanding notes, in
proper form for transfer, or a book-entry confirmation, together
with a properly completed and signed letter of transmittal with any
required signature guarantees and all other documents required by
the letter of transmittal, are received by the exchange agent
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
31
<PAGE>
Withdrawal Rights
You may withdraw your tender of outstanding notes at any time before 12:00
midnight, New York City time, on the expiration date.
For a withdrawal to be effective, you must make sure that, before 12:00
midnight on the expiration date, the exchange agent receives a written notice
of withdrawal at one of the addresses below or, if you are a participant of The
Depository Trust Company, an electronic message using The Depository Trust
Company's Automated Tender Offer Program.
A notice of withdrawal must:
(1) specify the name of the person that tendered the notes to be
withdrawn,
(2) identify the notes to be withdrawn, including the principal amount
of the notes,
(3) be signed by the holder in the same manner as the original
signature on the letter of transmittal by which the notes were
tendered or be accompanied by documents of transfer, and
(4) if you have transmitted certificates for outstanding notes, specify
the name in which the notes are registered, if different from that
of the withdrawing holder, and identify the serial numbers of the
certificates.
If you have tendered notes under the book-entry transfer procedure, your
notice of withdrawal must also specify the name and number of an account at The
Depository Trust Company to which your withdrawn notes can be credited.
We will decide all questions as to the validity, form and eligibility of the
notices and our determination will be final and binding on all parties. Any
tendered notes that you withdraw will be not be considered to have been validly
tendered. We will return any outstanding notes that have been tendered but not
exchanged, or credit them to The Depository Trust Company account, as soon as
practicable after withdrawal, rejection of tender, or termination of the
exchange offer. You may retender properly withdrawn notes by following one of
the procedures described above before the expiration date.
Certain Conditions to the Exchange Offer
We are not required to accept for exchange, or to issue notes in exchange
for, any outstanding notes. We may terminate or amend the exchange offer, if at
any time before the acceptance of outstanding notes:
(1) any federal law, statute, rule or regulation has been adopted or
enacted which, in our judgment, would reasonably be expected to
impair our ability to proceed with the exchange offer,
(2) if any stop order is threatened or in effect with respect to this
registration statement or the qualification of the indenture under
the Trust Indenture Act of 1939, or
(3) there is a change in the current interpretation by the staff of the
Commission which permits holders who have made the required
representations to us to resell, offer for resale, or otherwise
transfer notes issued in the exchange offer without registration of
the notes and delivery of a prospectus, as discussed above.
These conditions are for our sole benefit and we may assert or waive them at
any time and for any reason. However, the exchange offer will remain open for
at least five business days following any waiver of the preceding conditions.
Our failure to exercise any of the foregoing rights will not be a waiver of our
rights.
32
<PAGE>
Exchange Agent
You should direct all signed letters of transmittal to the exchange agent,
The Bank of New York. You should direct questions, requests for assistance, and
requests for additional copies of this prospectus, the letter of transmittal
and the notice of guaranteed delivery to the exchange agent addressed as
follows:
Main Delivery to: The Bank of New York,
<TABLE>
<CAPTION>
As Exchange Agent
<S> <C>
By Mail, By Hand and Overnight By Facsimile:
Courier:
(For Eligible Institutions Only)
The Bank of New York (212) 815-6339
101 Barclay Street 7 East Confirm by telephone:
New York, New York 10286 (212) 815-6337
Attention: Odell Romeo
</TABLE>
Delivery or fax of the letter of transmittal to an address or number other
than those above is not a valid delivery of the letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer except for reimbursement of mailing expenses.
We will pay the estimated cash expenses connected with the exchange offer. We
estimate that these expenses will be approximately $500,000.
Transfer Taxes
If you tender outstanding notes for exchange you will not be obligated to pay
any transfer taxes. However, if you instruct us to register new notes in the
name of, or request that your notes not tendered or not accepted in the
exchange offer be returned to, a person other than you, you will be responsible
for paying any transfer tax owed.
You May Suffer Adverse Consequences if You Fail to Exchange Outstanding Notes
If you do not tender your outstanding notes, you will not have any further
registration rights, except for the rights described in the registration rights
agreements and described above, and your notes will continue to be subject to
restrictions on transfer when we complete the exchange offer. Accordingly, if
you do not tender your notes in the exchange offer, your ability to sell your
notes could be adversely affected. Once we have completed the exchange offer,
holders who have not tendered notes will not continue to be entitled to any
increase in interest rate that the indenture provides for if we do not complete
the exchange offer.
Holders of the notes issued in the exchange offer and notes that are not
tendered in the exchange offer will vote together as a single class under the
indenture.
Consequences of Exchanging Outstanding Notes
If you make the representations that we discuss above, we believe that you
may offer, sell or otherwise transfer the new notes to another party without
registration of your notes or delivery of a prospectus.
We base our belief on interpretations by the staff of the Commission in no-
action letters issued to third parties. If you cannot make these
representations, you cannot rely on this interpretation by the Commission's
staff and you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale of the notes. A
broker-dealer that receives new notes for its own account in exchange
33
<PAGE>
for its outstanding notes must acknowledge that it acquired as a result of
market-making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of the new notes. Broker-dealers who
can make these representations may use this exchange offer prospectus, as
supplemented or amended, in connection with resales of notes issued in the
exchange offer.
However, because the Commission has not issued a no-action letter in
connection with this exchange offer, we cannot be sure that the staff of the
Commission would make a similar determination regarding the exchange offer as
it has made in similar circumstances.
Shelf Registration
The registration rights agreement also requires that we file a shelf
registration statement if:
(1) we cannot file a registration statement for the exchange offer
because the exchange offer is not permitted by law,
(2) law or Commission policy prohibits a holder from participating in
the exchange offer,
(3) a holder cannot resell the notes it acquires in the exchange offer
without delivering a prospectus and this prospectus is not
appropriate or available for resales by the holder, or
(4) a holder is a broker-dealer and holds notes acquired directly from
us or one of our affiliates.
We will also register the notes under the securities laws of jurisdictions
that holders may request before offering or selling notes in a public offering.
We do not intend to register notes in any jurisdiction unless a holder requests
that we do so.
Notes will be subject to restrictions on transfer until:
(1) a person other than a broker-dealer has exchanged notes in the
exchange offer,
(2) a broker-dealer has exchanged notes in the exchange offer and sells
them to a purchaser that receives a prospectus from the broker-
dealer on or before the sale,
(3) the notes are sold under an effective shelf registration statement
that we have filed, or
(4) the notes are sold to the public under Rule 144 of the Securities
Act.
34
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents historical financial data for Mrs. Fields'
Original Cookies, Inc. and subsidiaries and its predecessors; namely, Mrs.
Fields Inc. and subsidiaries, The Original Cookie Company, Incorporated and the
pretzel business of Hot Sam Company, Inc. as of the dates and for the periods
indicated. The results of operations for the periods December 31, 1995 through
September 17, 1996 and September 18, 1996 through December 28, 1996 are not
indicative of the results for the full fiscal year. The selected historical
financial data has been derived from the audited financial statements of Mrs.
Fields and its predecessors. Due to the acquisitions of the net assets of Mrs.
Fields Inc., Original Cookie and Hot Sam on September 17, 1996, the financial
data is not comparable for all periods. However, in order for the presentations
to be meaningful for the periods presented, some of the statement of operations
information for the predecessors has been reclassified to be consistent with
the Mrs. Fields historical financial statement presentation. Mrs. Fields and
its predecessors operate using a 52/53-week year ending near December 31. The
selected historical financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes,
contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessors
----------------------------------------------------------------------------
The Original Cookie
Company, Incorporated
and the Carved-
out Portion of Hot
Mrs. Fields Inc. and Subsidiaries Sam Company, Inc. (Combined)
-------------------------------------- -----------------------------------
December December
52 Weeks Ended 31, 1995 52 Weeks Ended 31, 1995
----------------------- through ---------------------- through
December December September December December September
31, 1994 30, 1995 17, 1996 31, 1994 30, 1995 17, 1996
----------- ---------- ------------ ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and fund
sales.................. $ 87,863 $ 59,956 $ 29,674 $ 89,648 $ 85,581 $ 54,366
Net store
contribution(1)........ 8,083 6,591 3,797 13,912 13,063 5,854
Franchising and
licensing, net......... 7,241 5,993 3,786 -- -- --
General and
administrative
expenses............... 16,379 15,612 8,984 12,546 9,216 7,538
Income (loss) from
operations............. (1,691) (3,526) (1,742) (750) 2,435 (2,772)
Net loss................ (5,320) (2,368) (2,304) (5,355) (2,096) (5,645)
Other Data:
Cash flows from
operating activities... 1,728 (4,478) (447) 3,699 4,451 (378)
Cash flows from
investing activities... (2,030) 2,526 (385) (3,779) (568) (1,200)
Cash flows from
financing activities... (732) (185) (58) 3,134 (4,599) (1,380)
Interest expense........ 2,155 51 80 4,381 4,356 2,895
Total depreciation and
amortization........... 4,415 3,525 1,911 7,423 6,902 4,937
Capital expenditures.... 4,895 4,146 1,054 3,779 568 1,200
EBITDA(2)............... 2,724 (1) 169 6,673 9,337 2,165
Store contribution for
stores in the process
of being closed or
franchised(1).......... $ 319 $ (802) $ (695) $ (542) $ (1,542) $ (1,751)
Ratio of earnings to
fixed charges(3)....... -- -- -- -- -- --
Balance Sheet Data:
Working capital
(deficit).............. $ (1,067) $ (3,114) $ (21,704) $ (46) $ 128 $ (3,640)
Total assets............ 30,128 23,033 19,144 74,490 66,282 59,024
Debt and capital lease
obligations, including
current portion........ 22,850 21,226 21,224 36,956 32,357 30,977
Total stockholders'
equity (deficit)....... (25,419) (28,017) (30,318) 24,684 22,588 16,943
</TABLE>
See footnotes on page 36
35
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
------------------------------------------------------
September 18, 53 Weeks 52 Weeks 26 Weeks 26 Weeks
1996 through Ended Ended Ended Ended
December 28, January 3, January 2, July 4, July 3,
1996 1998 1999 1998 1999
------------- ---------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales.................. $ 40,849 $127,845 $140,235 $ 56,687 $ 71,915
Net store
contribution(1)........ 9,707 25,044 20,166 6,915 8,686
Franchising and
licensing, net......... 1,267 6,563 14,001 2,971 11,562
General and
administrative
expenses............... 4,035 16,192 19,017 8,587 10,873
Store closure
provision.............. -- 538 7,303 -- --
Income (loss) from
operations............. 5,649 8,415 (5,389) (1,536) (945)
Net income (loss)....... 1,961 (974) (19,143) (7,301) (10,099)
Other Data:
Cash flows from
operating activities... 7,609 919 9,429 (3,306) 2,708
Cash flows from
investing activities... (21,131) (15,505) (40,894) (4,270) (2,704)
Cash flows from
financing activities... 20,231 24,164 19,929 (445) (110)
Interest expense........ 1,867 7,830 13,197 5,626 8,686
Total depreciation and
amortization........... 2,344 10,403 19,820 6,197 11,263
Capital expenditures.... 1,638 4,678 8,235 3,342 2,604
EBITDA(2)............... 7,993 18,818 14,431 4,661 10,318
Store contribution for
stores in the process
of being closed or
franchised(1).......... $ 513 $ (1,798) $ (2,054) $ (1,605) $ (863)
Ratio of earnings to
fixed charges(3)....... 2.85x -- -- -- --
Balance Sheet Data:
Working capital
(deficit).............. $ (2,889) $ 13,133 $(12,727) $ 8,844 $(13,434)
Total assets............ 110,055 149,684 231,906 137,408 219,313
Mandatorily redeemable
cumulative preferred
stock of subsidiaries.. 3,597 902 1,261 1,081 1,440
Line of credit, debt and
capital lease
obligations, including
current portion........ 67,563 101,081 150,989 100,815 151,026
Total stockholder's
equity................. 16,961 30,765 40,678 23,464 32,579
</TABLE>
<TABLE>
<CAPTION>
Predecessors
---------------------------------------------------------
The Original Cookie
Company, Incorporated
and the Carved-out Portion
of Hot
Mrs. Fields Inc. and Sam Company, Inc.
Subsidiaries (Combined)
----------------------------- ---------------------------
December December
52 Weeks Ended 31, 1995 52 Weeks Ended 31, 1995
------------------ through ----------------- through
December December September December December September
31, 1994 30, 1995 17, 1996 31, 1994 30, 1995 17, 1996
-------- -------- --------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations............. $(1,691) $(3,526) $(1,742) $ (750) $2,435 $(2,772)
ADD:
Depreciation and
amortization.......... 4,415 3,525 1,911 7,423 6,902 4,937
------- ------- ------- ------ ------ -------
EBITDA................. $ 2,724 $ (1) $ 169 $6,673 $9,337 $ 2,165
======= ======= ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields
------------------------------------------------------
September 18, 53 Weeks 52 Weeks 26 Weeks 26 Weeks
1996 through Ended Ended Ended Ended
December 28, January 3, January 2, July 4, July 3,
1996 1998 1999 1998 1999
------------- ---------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations............. $5,649 $ 8,415 $(5,389) $(1,536) $ (945)
ADD:
Depreciation and
amortization.......... 2,344 10,403 19,820 6,197 11,263
------ ------- ------- ------- -------
EBITDA.................. $7,993 $18,818 $14,431 $ 4,661 $10,318
====== ======= ======= ======= =======
</TABLE>
- --------
(1) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures reported by other companies.
(footnotes continue on next page)
36
<PAGE>
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of operating performance or to cash flows as
a measure of liquidity. EBITDA has been included in this prospectus because
it is one of the indicators upon which Mrs. Fields assesses its financial
performance and its capacity to service its debt (see footnote 3 below).
EBITDA may not be comparable to similarly titled measures reported by other
companies.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal years 1994 and 1995 and the period December
31, 1995 through September 17, 1996, Mrs. Fields Inc. and subsidiaries'
earnings were insufficient to cover fixed charges by $5,129,000, $2,127,000
and $2,099,000, respectively. For fiscal years 1994 and 1995 and the period
December 31, 1995 through September 17, 1996, Original Cookie and Hot Sam
(combined) earnings were insufficient to cover fixed charges by $5,131,000,
$1,833,000 and $5,645,000, respectively. For the 53 weeks ended January 3,
1998 and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000 and $18,827,000,
respectively. For the 26 weeks ended July 4, 1998 and July 3, 1999, Mrs.
Fields' earnings were insufficient to cover fixed charges by $7,287,000 and
$9,889,000, respectively.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
In 1996, an investor group led by Capricorn Investors II, L.P. formed Mrs.
Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc. as subsidiaries
of Mrs. Fields' Holding Company, Inc.
On September 17, 1996, Mrs. Fields initiated operations when it purchased
substantially all of the assets and assumed certain liabilities of Mrs. Fields
Inc. and subsidiaries, The Original Cookie Company, Incorporated and the
pretzel business of Hot Sam Company, Inc.
Mrs. Fields set out to increase sales and profitability of its cookie and
pretzel operations by implementing key elements of its business plan coupled
with strategic acquisitions. A key element of the business plan is closing or
franchising certain company-owned stores that do not meet specific financial
and geographical criteria established by management. Implementation of this
element of the business plan is expected to result in enhanced operating
margins as these stores are franchised or closed. In some of our tables we
refer to stores not planned to be franchised or closed as "core" stores,
meaning continuing company-owned stores. Continuing company-owned stores will
be operated by Mrs. Fields into the foreseeable future. As a result of
converting certain stores to franchises, royalty revenues are expected to
increase and net store sales and overhead expenses associated with operating
those stores are expected to be reduced.
As Mrs. Fields exits stores it has identified for closure through closing or
franchising, results from operations are expected to improve on both a short-
term and long-term basis. With respect to these specific stores both ongoing
operating losses and negative cash flows are expected to cease.
Cash payments to landlords for early lease termination costs negatively
impact our immediate liquidity position. However, our overall financial
position is expected to be strengthened over time as cash flows from operating
activities increase. As cash is used to fund the store closure plans,
corresponding store closure reserves are reduced which has a neutral impact on
working capital and financial position. Should Mrs. Fields' cost estimates for
exiting the remaining stores not prove sufficient, it would have a negative
impact on both liquidity and results of operations.
Mrs. Fields believes that it has sufficient liquidity to complete its store
closure plans. A complete analysis of Mrs. Fields' store closure plans is
included in Note 5 to the Consolidated Financial Statements.
Mrs. Fields is pursuing growth in both its cookie and pretzel businesses
through strategic acquisitions. Management expects that significant operating
synergies, expense leveraging and geographic market share can be achieved
through targeted acquisitions. On July 25, 1997, a subsidiary of Mrs. Fields'
Holding, Mrs. Fields' Pretzel Concepts, Inc., acquired substantially all of the
assets and assumed liabilities of H&M Concepts Ltd. Co., the largest franchisee
of Pretzel Time, Inc. On September 2, 1997, Mrs. Fields' Holding acquired 56%
of the common stock of Pretzel Time, the franchisor of the Pretzel Time
concept.
On November 26, 1997, Mrs. Fields received as a contribution from Mrs.
Fields' Holding all of the common stock of The Mrs. Fields' Brand, Inc., the
business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock
of Pretzel Time. On January 2, 1998 and June 12, 1998, Mrs. Fields acquired an
additional 4% and 10%, respectively, of Pretzel Time common stock, bringing its
total ownership to 70%. On December 9, 1998, Mrs. Fields purchased three
percent of Pretzel Time common stock for $0.5 million in cash and on December
30, 1998 Mrs. Fields completed the acquisition of the remaining outstanding
common stock of Pretzel Time under a stock purchase agreement, for a purchase
price of approximately $4.7 million.
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, the parent company of Great
American Cookie Company, Inc., for a total purchase price of $18.4 million.
Mrs. Fields also retired approximately $38.9 million of outstanding Great
38
<PAGE>
American notes. Concurrently, Cookies USA was merged into Mrs. Fields, at which
time Great American became a wholly owned subsidiary of Mrs. Fields. At the
same time Mrs. Fields also purchased the stock of two Great American
franchisees, Deblan Corporation and Chocolate Chip Cookies of Texas, Inc.,
together owning and operating 29 Great American franchised stores, for total
consideration of $14.4 million. Deblan and Chocolate Chip were merged into
Great American at that time. On September 9, 1998, Mrs. Fields acquired eight
Great American franchise stores from a Great American franchisee ("Karp"), for
a purchase price of $1.9 million.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American franchise stores from
a Great American franchisee ("Cookie Conglomerate") for a total purchase price
of $2.8 million.
On November 19, 1998, Mrs. Fields, under a stock purchase agreement among
Pretzelmaker Holdings, Inc., holders of all outstanding capital stock of
Pretzelmaker, and Mrs. Fields, acquired all of the outstanding capital stock of
Pretzelmaker for $5.7 million, including $5.4 million related to outstanding
capital stock and $320,000 related to severance payments in lieu of outstanding
stock options, and assumed liabilities totaling $1.3 million.
Year 2000
Management has assessed the Year 2000 issue and has determined that all
internal information technology systems including financial software, corporate
networks, the AS400 system and all other systems are Year 2000 compliant with
the exception of systems used for collecting and communicating sales data from
retail locations. This assessment was based primarily on independent, third-
party verification from Mrs. Fields' vendors and suppliers.
Mrs. Fields is currently replacing its sales collection systems with software
and hardware that is Year 2000 compliant. Programming and development of the
software is complete and has been installed in approximately 80% of its stores.
Mrs. Fields projects installation will be complete by September 1999. The
estimated cost of this project is $1.9 million and includes software
development and new store computers and registers. The costs to complete this
project are included in Mrs. Fields' 1999 budget. Funding for this project is
being provided by internal cash flow and by a lease finance company.
Upgrades of the plant production and distribution software were completed in
the first and second quarters of 1999 at an estimated cost of $10,000. No
information technology projects have been deferred as a result of Mrs. Field's
Year 2000 efforts.
Mrs. Fields is not dependent on the proper operation of the sales collection
systems to run the day-to-day operations of the business. Therefore, failure or
malfunction of these systems due to untimely or incomplete remediation would
not have a material adverse effect on its results of operations.
Mrs. Fields has assessed Year 2000 issues with respect to its significant
vendors and financial institutions as to their compliance plans and whether any
Year 2000 issues will impede the ability of such vendors to continue providing
goods and services to Mrs. Fields. Failure of Mrs. Fields' key suppliers to
remedy their own Year 2000 issues could delay shipments of essential products,
thereby disrupting Mrs. Fields' operations. Furthermore, Mrs. Fields relies on
various service providers, such as utility and telecommunication service
companies, which are beyond its control. Based upon the results of the
assessment, Mrs. Fields is not aware of any Year 2000 issues relating to its
significant vendors, financial institutions or its non-information technology
systems.
Mrs. Fields does not have a contingency plan in place to address untimely or
incomplete remediation of Year 2000 issues, but it is currently developing
contingency plans. These contingency plans are expected to address issues
related to significant vendors and financial institutions.
39
<PAGE>
Results of Operations of Mrs. Fields and its Predecessors
The following table shows, for the periods indicated, information relating to
the operations of Mrs. Fields and its predecessors expressed in thousands of
dollars and percentage changes from period to period. Annual data in the table
reflects the combined results of the predecessors (for the period December 31,
1995 through September 17, 1996) and Mrs. Fields (for the period September 18,
1996 through December 28, 1996) and the consolidated results of Mrs. Fields for
the 53 weeks ended January 3, 1998 ("fiscal year 1997"), for the 52 weeks ended
January 2, 1999 ("fiscal year 1998") and for the 26 weeks ended July 4, 1998
and July 3, 1999. In order for the presentations to be comparable, some of the
historical financial statement information for the predecessors has been
reclassified to be consistent with the Mrs. Fields historical financial
statement presentation.
<TABLE>
<CAPTION>
For the 26 Weeks
% of Ended
For the 53 Change % of -----------------
For the 52 Weeks from For the 52 Change % Change
Weeks Ended Ended 1996 Weeks Ended from from
December 28, January 3, to January 2, 1997 to July 4, July 3, 1998 to
1996 1998 1997 1999 1998 1998 1999 1999
------------ ---------- ------ ----------- ------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Net store and food
sales................. $126,330 $127,845 1.2 % $140,235 9.7 % $58,687 $ 71,915 22.5 %
Franchising, net....... 3,447 4,535 31.6 12,464 174.8 2,971 11,562 289.2
Licensing, net......... 1,656 2,028 22.5 1,537 (24.2) 683 688 0.7
-------- -------- -------- ------- --------
Total revenues......... 131,433 134,408 2.3 154,236 14.8 62,341 84,165 35.0
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 69,209 66,832 (3.4) 75,003 12.2 33,908 41,118 21.3
Cost of sales.......... 31,340 32,028 2.2 38,482 20.2 15,185 21,856 43.9
General and
administrative
expenses.............. 20,557 16,192 (21.2) 19,017 17.4 8,587 10,873 26.6
Store closure
provision............. -- 538 -- 7,303 1,257.4 -- -- --
Depreciation and
amortization.......... 9,192 10,403 13.2 19,820 90.5 6,197 11,263 81.7
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 130,298 125,993 (3.3) 159,625 26.7 63,877 85,110 33.2
Interest expense........ (4,842) (7,830) 61.7 (13,197) 68.5 (5,626) (8,686) 54.4
Interest income......... 141 246 74.4 623 153.3 417 78 (81.3)
Other income (expense).. (2,422) (1,805) (25.5) (1,180) (34.6) (556) (546) (1.8)
-------- -------- -------- ------- --------
Net loss................ $ (5,988) $ (974) (83.7)% $(19,143) 1,865.4 % $(7,301) $(10,099) 38.3 %
======== ======== ======== ======= ========
Supplemental
Information:
Continuing company-owned
stores:
Net store and food
sales................. $ 95,635 $108,174 13.1 % $122,713 13.4 % $51,695 $ 63,905 23.6 %
-------- -------- -------- ------- --------
Operating costs and ex-
penses:
Selling and store
occupancy costs....... 44,963 50,858 13.1 60,900 19.7 27,550 34,866 26.6
Cost of sales.......... 24,499 26,578 8.5 33,621 26.5 13,204 14,962 13.3
Depreciation and
amortization.......... 4,932 3,896 (21.0) 5,972 53.3 2,421 4,528 87.0
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 74,394 81,332 9.3 100,493 23.6 43,175 54,356 25.9
-------- -------- -------- ------- --------
Continuing company-owned
store contribution..... $ 21,241 $ 26,842 26.4 % $ 22,220 (17.2)% $ 8,520 $ 9,549 12.1 %
======== ======== ======== ======= ========
Stores in the Process of
Being Closed or
Franchised:
Net store and food
sales.................. $ 30,695 $ 19,671 (35.9)% $ 17,522 (10.9)% $ 6,992 $ 8,010 14.6 %
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 24,246 15,974 (34.1) 14,103 (11.7) 6,358 6,252 (1.7)
Cost of sales.......... 6,841 5,450 (20.3) 4,861 (10.8) 1,981 2,431 22.7
Depreciation and
amortization.......... 1,541 45 (97.1) 612 1,260.0 258 190 (26.4)
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 32,628 21,469 (34.2) 19,576 (8.8) 8,597 8,873 3.2
-------- -------- -------- ------- --------
Stores in the process of
being closed or
franchised negative
contribution........... $ (1,933) $ (1,798) (7.0) $ (2,054) 14.2 % $(1,605) $ (863) (46.2)%
======== ======== ======== ======= ========
</TABLE>
40
<PAGE>
26 Weeks Ended July 3, 1999 Compared to the 26 Weeks Ended July 4, 1998
As of July 3, 1999, there were 492 Company-owned stores and 1,001 franchised
or licensed stores in operation. The store activity for the 26 weeks ended July
3, 1999 is summarized as follows:
Company-owned and Franchised or Licensed Store Activity
<TABLE>
<CAPTION>
July 3, 1999 July 4, 1998
-------------------- --------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the 26 weeks ended.................. 566 972 481 553
Stores opened (including
relocations)...................... 10 49 5 42
Stores closed (including
relocations)...................... (23) (38) (7) (42)
Stores sold to franchisees......... (7) 7 (1) 1
Non-core (exit plan) stores closed
(September 18, 1996 forward)...... (43) -- (8) --
Non-core (exit plan) stores
franchised (September 18, 1996
forward).......................... (14) 14 (11) 11
Stores acquired from franchisees... 3 (3) 11 (11)
--- ----- --- ---
Stores open as of the end of the 26
weeks ended......................... 492 1,001 470 554
=== ===== === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store sales increased $13,228,000, or
22.5%, from $58,687,000 to $71,915,000 for the 26 weeks ended July 3, 1999
compared to the 26 weeks ended July 4, 1998.
Net store sales from core stores increased $12,210,000, or 23.6%, from
$51,695,000 to $63,905,000 for the 26 weeks ended July 3, 1999 compared to the
26 weeks ended July 4, 1998. The increase in net store sales from core stores
was primarily attributable to the operation of 66 Great American and 2
Pretzelmaker core stores obtained in connection with the acquisitions in August
and November 1998, respectively.
Net store sales from stores in the process of being closed or franchised
increased $1,018,000, or 14.6%, from $6,992,000 to $8,010,000 for the 26 weeks
ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase
results from the addition of 41 to be closed stores and 13 to be franchised
stores in the fourth quarter 1998.
Franchising Revenues. Franchising revenues increased $8,591,000, or 289.2%,
from $2,971,000 to $11,562,000 for the 26 weeks ended July 3, 1999 compared to
the 26 weeks ended July 4, 1998. The increase in franchising revenues was
primarily attributable to batter sales made to franchisees from the Atlanta
batter facility purchased in August 1998 and the addition of 201 Great American
and 205 Pretzelmaker franchisees due to the acquisitions of these companies in
August and November 1998, respectively.
Licensing Revenues. Licensing revenues increased $5,000, or 0.7%, from
$683,000 to $688,000 for the 26 weeks ended July 3, 1999 compared to the 26
weeks ended July 4, 1998.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $7,210,000, or 21.3%, from $33,908,000 to $41,118,000 for the 26
weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998.
Selling and store occupancy costs for core stores increased by $7,316,000, or
26.6%, from $27,550,000 to $34,866,000 for the 26 weeks ended July 3, 1999
compared to the 26 weeks ended July 4, 1998. Within this
41
<PAGE>
overall increase, selling expenses increased by $4,047,000, or 34.1%, from
$11,865,000 to $15,912,000 for the 26 weeks ended July 3, 1999 compared to the
26 weeks ended July 4, 1998. Store occupancy costs increased $2,112,000, or
18.3%, from $11,569,000 to $13,681,000 for the 26 weeks ended July 3, 1999
compared to the 26 weeks ended July 4, 1998. These increases were primarily
attributable to the 66 Great American and 2 Pretzelmaker core stores obtained
in connection with the acquisitions in August and November 1998, respectively,
coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $106,000, or 1.7%, from $6,358,000 to $6,252,000 for
the 26 weeks ended July 3, 1999 compared to the 13 weeks ended July 4, 1998.
This decrease was primarily the result of closing or franchising 57 stores
during the 26 weeks ended July 3, 1999.
Cost of Sales. Total food cost of sales increased $6,671,000, or 43.9%, from
$15,185,000 to $21,856,000 for the 26 weeks ended July 3, 1999 compared to the
26 weeks ended July 4, 1998.
Food cost of sales for core stores increased $1,758,000, or 13.3%, from
$13,204,000 to $14,962,000 for the 26 weeks ended July 3, 1999. This increase
was primarily the result of the addition of 66 Great American and 2
Pretzelmaker core stores in August and November 1998, respectively.
Food cost of sales for stores in the process of being closed or franchised
increased $450,000, or 22.7%, from $1,981,000 to $2,431,000 for the 26 weeks
ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This increase
was primarily the result of the addition of 41 to be closed stores and 13 to be
franchised stores in the fourth quarter 1998.
General and Administrative Expenses. General and administrative expenses
increased $2,286,000, or 26.6%, from $8,587,000 to $10,873,000 for the 26 weeks
ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. The increase in
general and administrative expenses was primarily attributable to the
acquisitions of Great American and Pretzelmaker. During the 26 weeks ended July
3, 1999, the Company incurred unanticipated consulting and other costs related
to the Company's product offering and marketing programs as well as additional
compensation and other expenses incurred by the Company due to the resignation
of its Chief Financial Officer.
Depreciation and Amortization. Total depreciation and amortization expense
increased by $5,066,000, or 81.7%, from $6,197,000 to $11,263,000 for the 26
weeks ended July 3, 1999 compared to the 26 weeks ended July 4, 1998. This
increase was primarily attributable to increased goodwill and fixed assets from
the Great American and Pretzelmaker acquisitions.
Depreciation and amortization expense for core stores increased $2,107,000,
or 87.0%, from $2,421,000 to $4,528,000 for the 26 weeks ended July 3, 1999
compared to the 26 weeks ended July 4, 1998. This increase in depreciation and
amortization expense was primarily attributable to the acquisitions of 66 Great
American and 2 Pretzelmaker core stores in August and November 1998,
respectively.
Interest Expense. Interest expense increased $3,060,000, or 54.4%, from
$5,626,000 to $8,686,000 for the 26 weeks ended July 3, 1999 compared to the 26
weeks ended July 4, 1998. This increase was primarily attributable to interest
on the $40,000,000 in high yield notes, which were issued in August 1998.
Interest Income. Interest income decreased $339,000, or 81.3%, from $417,000
to $78,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended
July 4, 1998. This decrease was primarily the result of interest income earned
in 1998 on excess cash provided by the $100,000,000 in high yield notes which
were put in place in November 1997 that was not earned in fiscal 1999.
Other Expenses. Other expenses for the 26 weeks ended July 3, 1999 were
comparable to the 26 weeks ended July 4, 1998.
42
<PAGE>
Net Loss. The net loss increased by $2,798,000, or 38.3%, from $7,301,000 to
$10,099,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended
July 4, 1998 due to the combination of factors described above.
Contribution from Core Stores. Contribution from core stores increased by
$1,029,000, or 12.1%, from $8,520,000 to $9,549,000 for the 26 weeks ended July
3, 1999 compared to the 26 weeks ended July 4, 1998, primarily due to the
operation of 66 Great American and 2 Pretzelmaker core stores obtained in
connection with the acquisitions in August and November 1998, respectively.
Negative Contribution from Stores in the Process of Being Closed or
Franchised. The negative contribution from stores in the process of being
closed or franchised decreased by $742,000, or 46.2%, from $1,605,000 to
$863,000 for the 26 weeks ended July 3, 1999 compared to the 26 weeks ended
July 4, 1998. This decrease was primarily the result of closing 43 stores and
franchising 14 stores during the 26 weeks ended July 3, 1999 and the effect of
closing or franchising 19 stores during the 26 weeks ended July 4, 1998. In
addition, 22 stores were closed and 4 franchised over the remainder of fiscal
year 1998, which were in operation during the 26 weeks ended July 4, 1998.
52 Weeks Ended January 2, 1999 Compared to the 53 Weeks Ended January 3, 1998
Company-owned and Franchised or Licensed Store Activity
As of January 2, 1999, there were 566 company-owned stores and 972 franchised
or licensed stores in operation. The store activity for the 53 weeks ended
January 3, 1998 ("fiscal 1997") and the 52 weeks ended January 2, 1999 ("fiscal
1998") is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
-------------------- --------------------
Company- Franchised Company- Franchised
owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 482 418 481 553
Stores opened (including relocations
and acquisitions)................... 86 217 128 504
Stores closed (including
relocations)........................ (7) (89) (20) (78)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (73) -- (30) --
Stores sold to franchisees........... (3) 3 (11) 11
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (9) 9 (15) 15
Stores acquired from franchisees..... 5 (5) 33 (33)
--- --- --- ---
Stores open as of the end of the fis-
cal year............................ 481 553 566 972
=== === === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,390,000, or 9.7%,
from $127,845,000 to $140,235,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998.
Net store sales from continuing company-owned stores and mail order increased
$14,539,000, or 13.4%, from $108,174,000 to $122,713,000 for the 52 weeks ended
January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in
net store sales from continuing company-owned stores was primarily attributable
to:
(1) the operation of 85 Pretzel Time continuing company-owned stores
acquired in connection with the acquisition of H&M and Pretzel Time in July
1997,
(2) the operation of 65 Great American stores acquired in connection with
the acquisitions of Great American, Deblan, Chocolate Chip, and Karp in
August and September 1998, and
43
<PAGE>
(3) a 35.5% increase in mail order sales.
This increase in net store sales from continuing company-owned stores was
offset in part by the negative effect of a calendar shift. Mrs. Fields' year
end was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New
Year's holiday week fell in the first quarter of fiscal 1997 and again in the
fourth quarter of fiscal 1997. The first quarter of 1998 did not benefit from
the New Year's holiday sales.
The increase in net store sales was also offset in part by negative same
store sales. Based on stores that have been open for at least two years
(adjusted for the calendar shift), system-wide continuing company-owned store
sales were down 1.8% during the 52 weeks ended January 2, 1999 compared to the
same period in fiscal 1997. Additionally, there were only 52 weeks in fiscal
1998 compared to 53 weeks in fiscal 1997.
Net store sales from stores in the process of being closed or franchised
decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
This decrease results from closing or franchising 45 stores during the 52 weeks
ended January 2, 1999 and the effect of closing or franchising 82 stores during
the 53 weeks ended January 3, 1998.
Franchising Revenues. Franchising revenues increased $7,929,000, or 174.8%,
from $4,535,000 to $12,464,000 for the 52 weeks ended January 2, 1999 compared
to the 53 weeks ended January 3, 1998. The increase in franchising revenues was
primarily attributable to royalties earned from 141 Pretzel Time franchised
stores obtained in connection with the acquisition of H&M and Pretzel Time in
1997, the 211 Great American franchised stores obtained in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998 and the 199 Pretzelmaker franchised stores acquired in November
1998.
Licensing Revenues. Licensing revenues decreased $491,000, or 24.2%, from
$2,028,000 to $1,537,000 for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended January 3, 1998. The decrease in licensing revenues was
primarily attributable to reduced concept licensing royalties.
Total Revenues. Total revenues increased by $19,828,000, or 14.8%, from
$134,408,000 to $154,236,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998 due to the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
Selling and store occupancy costs for continuing company-owned stores
increased by $10,042,000, or 19.7%, from $50,858,000 to $60,900,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
Within this overall increase, selling expenses for continuing company-owned
stores increased by $4,836,000, or 21.9%, from $22,094,000 to $26,930,000 for
the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. The increase in selling expenses was primarily attributable to the 85
Pretzel Time continuing company-owned stores acquired in connection with the
acquisitions of H&M and Pretzel Time in 1997, the 65 Great American continuing
company-owned stores acquired in connection with the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998, the 2
Pretzelmaker stores acquired in November 1998, and the effect of the minimum
wage increasing to $5.15 from $4.75 on September 1, 1997. Store occupancy costs
for continuing company-owned stores increased $5,206,000, or 18.1%, from
$28,764,000 to $33,970,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998. The increase in store occupancy costs was
primarily attributable to the increase in the number of stores discussed above,
Mrs. Fields' reacquiring 33 continuing company-owned stores from franchisees
during the 52 weeks ended January 2, 1999, rent escalations in existing leases
and lease renewal increases.
44
<PAGE>
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $1,871,000, or 11.7%, from $15,974,000 to $14,103,000
for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January
3, 1998. This decrease was primarily the result of closing or franchising 45
stores during the 52 weeks ended January 2, 1999 and the effect of closing or
franchising 82 stores during the 53 weeks ended January 3, 1998.
Cost of Sales. Total cost of sales increased $6,454,000, or 20.2%, from
$32,028,000 to $38,482,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998.
Cost of sales for continuing company-owned stores increased $7,043,000, or
26.5%, from $26,578,000 to $33,621,000 for the 52 weeks ended January 2, 1999.
This increase was primarily the result of the addition of 85 Pretzel Time
continuing company-owned stores in July 1997, 65 Great American continuing
company-owned stores acquired in connection with the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998 and 2
Pretzelmaker stores acquired in November 1998. Cost of sales also increased due
to the addition of the Great American batter facility in August 1998 which
produces batter for the Great American stores, food costs associated with
increased mail order sales and the increasing cost of butter. Butter is one of
the main ingredients in a variety of our products and is a condiment for other
products. The price of butter has increased from $0.78/lb. at the beginning of
fiscal 1997 to a peak of $2.92/lb. in September 1998. Additionally,
distribution costs increased during the 52 weeks ended January 2, 1999 as Mrs.
Fields' changed distributors to improve product availability and the
reliability of service to the stores.
Cost of sales for stores in the process of being closed or franchised
decreased $589,000, or 10.8%, from $5,450,000 to $4,861,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
decrease was primarily the result of closing or franchising 45 stores during
the 52 weeks ended January 2, 1999 and the effect of closing or franchising 82
stores during the 53 weeks ended January 3, 1998.
General and Administrative Expenses. General and administrative expenses
increased $2,825,000, or 17.4%, from $16,192,000 to $19,017,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The
increase in general and administrative expenses was primarily attributable to
the acquisitions of H&M and Pretzel Time in 1997, the acquisitions of Great
American, Deblan, Chocolate Chip, Karp and Pretzelmaker in 1998.
Store Closure Provision. During the fourth quarter of 1998, management
reassessed its strategy with respect to acceptable levels of contribution from
certain existing stores. This resulted in management setting out a plan to
close or franchise 54 existing stores. Mrs. Fields recorded an additional
$7,303,000 in store closure reserves to cover early lease termination costs.
Management believes that the level of store closure reserves is adequate to
provide for all closure costs for these stores.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $9,417,000, or 90.5%, from $10,403,000 to $19,820,000 for
the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. This increase was primarily attributable to increased goodwill
amortization from the acquisitions of H&M and Pretzel Time in fiscal 1997 and
the acquisitions of Great American, Deblan, Chocolate Chip and Pretzelmaker in
fiscal 1998.
For stores with negative contribution that were determined to be closed or
franchised, Mrs. Fields wrote down the related long-lived assets to net
realizable value. This expense is included in depreciation and amortization in
the 1998 statement of operations and totaled $3,098,000. Mrs. Fields also
assessed the realization of goodwill associated with these stores and recorded
an impairment of goodwill totaling $1,033,000 during fiscal 1998.
Depreciation and amortization expense for continuing company-owned stores
increased $ 2,076,000, or 53.3%, from $3,896,000 to $5,972,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
increase in depreciation and amortization expense was primarily attributable to
the
45
<PAGE>
addition of 85 Pretzel Time continuing company-owned stores in July 1997, 65
Great American continuing company-owned stores in August and September 1998 and
the acquisition of 2 Pretzelmaker continuing company-owned stores in 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $33,632,000, or 26.7%, from $125,993,000 to $159,625,000 for the
52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998,
for the reasons discussed above.
Interest Expense. Interest expense increased $5,367,000, or 68.5%, from
$7,830,000 to $13,197,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998. This increase was primarily attributable to
interest expense on the $100,000,000 notes that were placed in November 1997
and the $40,000,000 notes placed in August 1998.
Interest Income. Interest income increased $377,000, or 153.3%, from $246,000
to $623,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998. This increase was primarily the result of interest
earned on excess cash provided by the $100,000,000 notes that were placed in
November 1997 and the $40,000,000 notes placed in August 1998.
Other Expenses. Other expenses decreased $625,000, or 34.6%, from $1,805,000
to $1,180,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998. This decrease was primarily attributable to minority
interest from the acquisitions of H&M and Pretzel Time in 1997 and a decrease
in the income tax provision during the 52 weeks ended January 2, 1999.
Net Loss. The net loss increased by $18,169,000, or 1,865.4%, from $974,000
to $19,143,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998 due to the combination of factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased by $4,622,000, or 17.2%, from $26,842,000 to $22,220,000
for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January
3, 1998. Income from continuing company-owned stores was negatively impacted by
a 1.8% decline in sales from stores that have been open at least two years and
by the increases in selling and store occupancy costs, food cost of sales and
depreciation and amortization described above. Income from continuing company-
owned stores was also negatively impacted by a calendar shift whereby Mrs.
Fields' year end was December 28 for fiscal 1996 and January 3, 1998 for fiscal
1997. As a result, the New Year's holiday week fell in the first quarter of
1997 and again in the fourth quarter fiscal 1997. The first quarter of fiscal
1998 did not benefit from the New Year's holiday sales. Additionally, there
were only 52 weeks in fiscal year 1998 compared to 53 weeks in fiscal 1997.
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised increased by $256,000, or
14.2%, from $1,798,000 to $2,054,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998. The increased loss was
primarily attributable to the addition of 65 stores from the acquisitions of
Great American, Deblan, Chocolate Chip and Karp in August and September 1998,
offset in part by closing or franchising 45 stores during the 52 weeks ended
January 2, 1999.
46
<PAGE>
53 Weeks Ended January 3, 1998 ("Fiscal Year 1997") Compared to the 52 Weeks
Ended December 28, 1996 ("Fiscal Year 1996") (Comprised of the Mrs. Fields
Inc., Original Cookie and Hot Sam Pre-Acquisition Period of December 31, 1995
through September 17, 1996 and the Mrs. Fields Post-Acquisition Period of
September 18, 1996 through December 28, 1996)
Company-owned and Franchised or Licensed Store Activity
As of January 3, 1998, there were 481 company-owned stores and 553 franchised
or licensed stores in operation. The store activity for the 52 weeks ended
December 28, 1996 and the 53 weeks ended January 3, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
-------------------- --------------------
Company- Franchised Company- Franchised
owned or Licensed owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 540 415 482 418
Stores opened (including
relocations)........................ 5 118 3 76
Stores acquired through business
acquisitions........................ -- -- 83 141
Stores closed (including
relocations)........................ (39) (122) (7) (89)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (17) -- (73) --
Stores sold to franchisees........... (9) 9 (3) 3
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (3) 3 (9) 9
Stores acquired from franchisees..... 5 (5) 5 (5)
--- ---- --- ---
Stores open as of the end of the
fiscal year......................... 482 418 481 553
=== ==== === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $1,515,000, or 1.2%,
from $126,330,000 to $127,845,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996.
Net store sales from continuing company-owned stores and mail order increased
$12,539,000, or 13.1%, from $95,635,000 to $108,174,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in net store sales from continuing company-owned stores was primarily
attributable to the operation of Pretzel Time continuing company-owned stores
obtained in connection with the acquisitions of H&M and Pretzel Time in July
1997 and an increase in average transaction amounts resulting from the
introduction of product line extensions and aggressive marketing initiatives,
offset in part by declining transaction counts in some of our product lines.
Also, three new continuing company-owned stores were opened and five stores
were acquired from franchises during the 53 weeks ended January 3, 1998.
Based on stores that have been open for at least two years (adjusted for the
calendar shift), system-wide continuing company-owned store sales were up 0.8%
during the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996.
Net store sales from stores in the process of being closed or franchised
decreased $11,024,000, or 35.9%, from $30,695,000 to $19,671,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
This decrease results from the partial year effect of closing 73 stores and
franchising 7 (net) stores during fiscal year 1997 and the full year effect of
closing 56 stores and franchising 7 (net) stores during fiscal year 1996.
Franchising Revenues. Franchising revenues increased $1,088,000, or 31.6%,
from $3,447,000 to $4,535,000 for the 53 weeks ended January 3, 1998 compared
to the 52 weeks ended December 28, 1996. The
47
<PAGE>
increase in franchising revenues was primarily attributable to royalties earned
from Pretzel Time franchised stores obtained in connection with the
acquisitions of H&M and Pretzel Time coupled with new franchise openings in
fiscal year 1997 and the full year effect of new franchise openings in fiscal
year 1996.
Licensing Revenues. Licensing revenues increased $372,000, or 22.5%, from
$1,656,000 to $2,028,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. The increase in licensing revenues is
primarily attributable to licensing fees earned on new license agreements
entered into during the 53 weeks ended January 3, 1998, and increased royalties
received from existing licensees.
Total Revenues. Total revenues increased by $2,975,000, or 2.3%, from
$131,433,000 to $134,408,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996, for the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
decreased $2,377,000, or 3.4%, from $69,209,000 to $66,832,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Selling and store occupancy costs for continuing company-owned stores
increased by $5,895,000, or 13.1%, from $44,963,000 to $50,858,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Within this overall increase, selling expenses increased by $4,029,000, or
15.7%, from $25,650,000 to $29,679,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The increase in selling
expenses was primarily attributable to an increase in the minimum wage during
the third quarter of 1996 from $4.15 to $4.75 an hour and an increase in labor
hours to support the increase in sales. Store occupancy costs increased
$1,866,000, or 9.7%, from $19,313,000 to $21,179,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in store occupancy costs was primarily attributable to the addition of Pretzel
Time continuing company-owned stores in July 1997, and the opening of three
continuing company-owned stores and acquiring five stores from franchises
during the 53 weeks ended January 3, 1998 coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $8,272,000, or 34.1%, from $24,246,000 to $15,974,000
for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December
28, 1996. This decrease is primarily the result of closing 73 stores and
franchising seven (net) stores during fiscal year 1997 and the full year effect
of closing 56 stores and franchising seven (net) stores during fiscal year
1996.
Cost of Sales. Total cost of sales increased $688,000, or 2.2%, from
$31,340,000 to $32,028,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996.
Cost of sales for continuing company-owned stores increased $2,079,000, or
8.5%, from $24,499,000 to $26,578,000 for the 53 weeks ended January 3, 1998.
This increase is primarily the result of the addition in July 1997 of Pretzel
Time continuing company-owned stores, offset by an aggressive product waste
control program which was uniformly applied to all product lines early in the
year. Additionally, Mrs. Fields re-negotiated certain vendor contracts to
capitalize on Mrs. Fields' economies of scale.
Cost of sales for stores in the process of being closed or franchised
decreased $1,391,000, or 20.3%, from $6,841,000 to $5,450,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This
decrease is primarily the result of closing 73 stores and franchising seven
(net) stores during fiscal year 1997 and the full year effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996.
General and Administrative Expenses. General and administrative expenses
decreased $4,365,000, or 21.2%, from $20,557,000 to $16,192,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks
48
<PAGE>
ended December 28, 1996. The decrease in expenses was primarily attributable to
the cost savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie, Hot Sam and Pretzel Time which resulted in:
(1) reduced headcount with corresponding decreases in administrative
salaries and benefits;
(2) decreased professional service fees, including legal and accounting
services; and
(3) decreased corporate office expenditures, including general insurance,
repairs and maintenance and utilities as a direct result of closing the
Original Cookie and Hot Sam headquarters in Cleveland, Ohio, the
Pretzel Time headquarters in Harrisburg, Pennsylvania and the H&M
headquarters in Boise, Idaho.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $1,211,000, or 13.2%, from $9,192,000 to $10,403,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996.
Depreciation and amortization expense for continuing company-owned stores
decreased $1,036,000, or 21.0%, from $4,932,000 to $3,896,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in depreciation and amortization expense was primarily attributable to
Mrs. Fields recording the acquired assets of Mrs. Fields Inc. and subsidiaries,
Original Cookie and Hot Sam at their fair values at the time of purchase on
September 17, 1996, resulting in an overall reduction to the store asset base
and the corresponding depreciation. This decrease is partially offset by
additional depreciation expense resulting from the addition of Pretzel Time
continuing company-owned stores in July 1997, three newly opened continuing
company-owned stores and five stores acquired from franchises in fiscal year
1997.
Total Operating Costs and Expenses. Total operating costs and expenses
decreased by $4,305,000, or 3.3%, from $130,298,000 to $125,993,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996,
for the reasons discussed above.
Interest Expense. Interest expense increased $2,988,000, or 61.7%, from
$4,842,000 to $7,830,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This increase is primarily attributable to an
increase in interest expense as a result of the debt incurred to fund the
purchase of the assets of Mrs. Fields Inc. and subsidiaries, Original Cookie
and Hot Sam on September 17, 1996.
Other Expenses. Other expenses decreased $617,000, or 25.5%, from $2,422,000
to $1,805,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996. This decrease was primarily attributable to a decrease
in income tax provision, offset in part by an increase in accretion and
dividends on preferred stock of subsidiaries.
Net Loss. The net loss decreased by $5,014,000, or 83.7%, from $5,988,000 to
$974,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996. The net loss equaled 0.7% of total revenues during the 53
weeks ended January 3, 1998 compared to 4.6% of total revenues during the 52
weeks ended December 28, 1996. The decrease in net loss is primarily due to
cost savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie and Hot Sam, cost savings associated with the
acquisitions of H&M and Pretzel Time and improved store operations.
Income from Continuing Company-Owned Stores. The income from continuing
company-owned stores increased by $5,601,000, or 26.4%, from $21,241,000 to
$26,842,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996 due to the combination of the factors described above.
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised decreased by $135,000, or
7.0%, from $1,933,000 to $1,798,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The decrease in negative
income
49
<PAGE>
was primarily attributable to closing 73 stores and franchising seven (net)
stores during fiscal year 1997 and the full year effect of closing 56 stores
and franchising seven (net) stores during fiscal year 1996.
Liquidity and Capital Resources
General
Mrs. Fields' principal sources of liquidity are cash flows from operations,
cash on hand and available borrowings under Mrs. Fields' existing lease and
revolving credit facilities. As of July 3, 1999, Mrs. Fields has $4,645,000 of
cash and cash equivalents on hand and $276,000 additional borrowings allowable
under its revolving credit facilities. Mrs. Fields expects to use its existing
cash, cash flows from operating activities and its credit facilities to provide
working capital, finance capital expenditures and to meet debt service
requirements. Based on current operations and anticipated cost savings, Mrs.
Fields believes that its sources of liquidity will be adequate to meet its
anticipated requirements for working capital, capital expenditures, scheduled
debt service requirements and other general corporate purposes. There can be no
assurance, however, that Mrs. Fields' business will continue to generate cash
flows at or above current levels or that cost savings can be achieved.
July 3, 1999 Compared to January 2, 1999
As of July 3, 1999, Mrs. Fields had liquid assets (cash and cash equivalents
and accounts receivable) of $11,023,000, a decrease of 21.0%, or $2,939,000,
from January 2, 1999 when liquid assets were $13,962,000. Cash decreased
$106,000, or 2.2%, to $4,645,000 at July 3, 1999 from $4,751,000 at January 2,
1999. Accounts receivable decreased $2,833,000, or 30.8%, to $6,378,000 at July
3, 1999 from $9,211,000 at January 2, 1999 due to the seasonality of the
business and improved collections.
Mrs. Field's working capital decreased by $707,000 to a negative $13,434,000
at July 3, 1999 from a negative $12,727,000 at January 2, 1999. This decrease
is due to decreases in current assets, as discussed above, which more than
offset decreases in current liabilities.
Long-term assets decreased $8,915,000, or 4.3%, to $198,648,000 at July 3,
1999 from $207,563,000 at January 2, 1999. This decrease was primarily the
result of scheduled depreciation and amortization of fixed assets, goodwill and
deferred loan costs.
During the 26 weeks ended July 3, 1999, Capricorn Investors II L.P., the
majority shareholder in Mrs. Fields' Holdings, Mrs. Fields' 100% owner, assumed
a $2,000,000 contract payment due in the future. This transaction enhanced Mrs.
Fields' tax planning and financial flexibility.
Mrs. Fields' cash flows from operating activities of $2,708,000 for the 26
weeks ended July 3, 1999, resulted primarily from store sales and franchising
and licensing revenues net of costs and expenses incurred to generate these
sales and better management of cash flows.
Mrs. Fields utilized $2,704,000 of cash in investing activities during the 26
weeks ended July 3, 1999, primarily for capital expenditures relating to store
remodels and renovations.
Mrs. Fields utilized $110,000 of cash in financing activities during the 26
weeks ended July 3, 1999, primarily for the payment of debt related to the
Pretzel Time acquisition.
The specialty cookie and pretzel businesses do not require the maintenance of
significant receivables or inventories; however, Mrs. Fields continually
invests in its business by upgrading and remodeling stores and adding new
stores, carts, and kiosks as opportunities arise. Investments in these long-
term assets, which are key to generating current sales, reduce Mrs. Fields'
working capital. During the 26 weeks ended July 3, 1999 and July 4, 1998, Mrs.
Fields expended $2,604,000 and $3,342,000, respectively, for capital assets and
expects to
50
<PAGE>
expend a total of approximately $7,000,000 in 1999. Management anticipates that
these expenditures will be funded with cash generated from operating activities
and short-term borrowings under its credit facility as needed.
Year 2000
Management has assessed the Year 2000 issue and has determined that all
internal information technology systems including financial software, corporate
networks, the AS400 system and all other systems are Year 2000 compliant with
the exception of systems used for collecting and communicating sales data from
retail locations.
This assessment was based primarily on independent, third-party verification
from Mrs. Fields' vendors and suppliers.
Mrs. Fields is currently replacing its sales collection systems with software
and hardware that is Year 2000 compliant. Programming and development of the
software is complete and has been installed in approximately 80% of its stores.
Mrs. Fields projects installation will be complete by August 1999. The
estimated cost of this project is $1.9 million and includes software
development and new store computers and registers. The costs to complete this
project are included in Mrs. Fields' 1999 budget. Funding for this project is
being provided by internal cash flow and by a lease finance company.
Upgrades of the plant production and distribution software were completed in
the first and second quarters of 1999 at an estimated cost of $10,000. No
information technology projects have been deferred as a result of Mrs. Field's
Year 2000 efforts.
Mrs. Fields is not dependent on the proper operation of the sales collection
systems to run the day-to-day operations of the business. Therefore, failure or
malfunction of these systems due to untimely or incomplete remediation would
not have a material adverse effect on its results of operations.
Mrs. Fields has assessed Year 2000 issues with respect to its significant
vendors and financial institutions as to their compliance plans and whether any
Year 2000 issues will impede the ability of such vendors to continue providing
goods and services to Mrs. Fields. Failure of Mrs. Fields' key suppliers to
remedy their own Year 2000 issues could delay shipments of essential products,
thereby disrupting Mrs. Fields' operations. Furthermore, Mrs. Fields relies on
various service providers, such as utility and telecommunication service
companies, which are beyond its control. Based upon the results of the
assessment, Mrs. Fields is not aware of any Year 2000 issues relating to its
significant vendors, financial institutions or its non-information technology
systems.
Mrs. Fields does not have a contingency plan in place to address untimely or
incomplete remediation of Year 2000 issues, but it is currently developing
contingency plans. These contingency plans are expected to address issues
related to significant vendors and financial institutions.
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' leases contain escalation
clauses (however, such leases are accounted for on a straight-line basis as
required by generally accepted accounting principles which minimizes
fluctuations in operating income) and many of Mrs. Fields' employees are paid
hourly wages at the Federal minimum wage level. Minimum wage increases will
negatively impact Mrs. Fields' payroll costs in the short term, but management
believes such impact can be offset in the long term through operational
efficiency gains and, if necessary, through product price increases.
51
<PAGE>
Consolidated Results of Operations of Cookies USA and Its Wholly Owned
Operating Subsidiary, Great American, Prior to the Great American Acquisition
As Great American is a significant subsidiary of Mrs. Fields, management's
discussion and analysis of financial condition and results of operations is
also included for the consolidated operations of Cookies USA and Great American
for the 52 weeks ended June 28, 1998 compared to the 52 weeks ended June 29,
1997, for the 52 weeks ended June 29, 1997 compared to the 52 weeks ended June
30, 1996, and the 52 weeks ended June 30, 1996 compared to the 52 weeks ended
June 29, 1995. See the historical financial statements and the related notes to
the historical financial statements of Cookies USA, Inc. and subsidiary
contained elsewhere in this prospectus.
References to the beliefs of the management of Great American or Cookies USA
in this discussion are to management prior to the acquisition of Great American
by Mrs. Fields. As used in this discussion, "management" refers to David Barr,
the chief executive officer of Great American and Cookies USA at the time of
its acquisition by Mrs. Fields. The factors cited in the following discussion
as contributing to changes in operating results are listed in order of
importance; however, unless otherwise indicated in the discussion, the
quantitative importance of any such factors cannot be determined by Great
American management and have not been stated.
The "forward-looking statements" contained in this section represent Great
American's expectations or beliefs concerning future events, including
statements regarding unit growth and cash requirements. Management cautions
that a number of important factors could, individually or in the total, cause
actual results to differ materially from those stated in the forward-looking
statements including, without limitation, the following:
. consumer spending trends and habits,
. mall traffic trends,
. increased competition among snack retailers,
. economic conditions in the regions where Great American and its
franchisees operate stores,
. the ability to identify and secure suitable locations for new stores,
. the availability of experienced management and hourly employees, and
. the laws and regulations affecting labor and employee benefit costs.
Accounting Period
During the 52 weeks ended June 30, 1996, Great American changed its year end
from the last Thursday in the month of June to the last Sunday in the month of
June. As a result, three days were added to the fifty-two week period ended
Thursday, June 27, 1996 to effectively change Great American's fiscal year end
to Sunday, June 30, 1996. This change does not materially impact the
comparability of the years presented in the accompanying consolidated financial
statements.
52
<PAGE>
52 Weeks Ended June 28, 1998 ("Fiscal Year 1998") Compared to 52 Weeks Ended
June 29, 1997 ("Fiscal Year 1997")
Company and Franchise Store Activity
As of June 28, 1998, there were 77 company-operated stores and 247
franchised stores in operation. The store activity for fiscal year 1997 and
for fiscal year 1998 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
------------------- -------------------
Company- Company-
operated Franchised operated Franchised
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Stores open as of beginning of the
fiscal year.......................... 104 225 91 233
Stores opened (including
relocations)......................... 1 12 3 7
Stores closed (including
relocations)......................... (10) (8) (2) (8)
Stores sold to franchisees............ (12) 12 (15) 15
Stores acquired from franchisees...... 8 (8) 0 0
--- --- --- ---
Stores open as of the end of the
year................................. 91 233 77 247
Satellite locations as of the end of
the year............................. 9 30 4 32
--- --- --- ---
Total outlets as of the end of the
year............................... 100 263 81 279
=== === === ===
</TABLE>
The above activity results in 5,161 company-operated equivalent store weeks
and 11,858 franchisee-operated equivalent store weeks during the fiscal year
ended June 29, 1997 compared to 4,288 company-operated equivalent store weeks
and 12,581 franchisee-operated equivalent store weeks during the fiscal year
ended June 28, 1998.
Total Revenue
Total revenue decreased approximately $2,696,000, or 6.7%, during the fiscal
year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. Each
of Great American's revenue sources is discussed below:
. Cookie and beverage sales at company-operated retail stores decreased
approximately $3,521,000, or 15.7%, during the fiscal year ended June 28,
1998 compared to the fiscal year ended June 29, 1997. The decrease in
revenue from company-operated retail stores was attributable to:
(a) a 16.9% decrease in company-operated equivalent store weeks offset
by
(b) a 1.2% increase in the average retail sales volume for company-
operated stores.
Based on those stores which were company-operated during the entire 1998 and
1997 fiscal years, sales volumes did not change.
. Batter sales to franchisees increased approximately $944,000, or 8.4%,
during the fiscal year ended June 28, 1998 compared to the fiscal year
ended June 29, 1997. The increase in batter sales to franchisees was
primarily attributable to
(a) a 6.1% increase in franchisee-operated equivalent store weeks and
(b) a 2.3% increase in the volume of batter sold per franchisee-
operated equivalent store week.
. Franchise royalties increased approximately $538,000, or 11.4%, during
the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The increase in franchise royalties was attributable to:
(a) a 6.1% increase in franchisee-operated equivalent store weeks and
(b) an increase in the average retail sales volume per franchisee-
operated store of 5.3%.
53
<PAGE>
Based on those stores which were franchisee-operated during the entire 1998
and 1997 fiscal years, management estimates franchisees' sales volumes
increased 3.5%.
. Revenue from franchise license fees decreased approximately $172,000, or
25.5%, during the fiscal year ended June 28, 1998 compared to the fiscal
year ended June 29, 1997. Revenue from selling existing and new stores to
franchisees is summarized as follows (rounded):
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees
--existing stores................................ 15 12
--new stores..................................... 5 12
Cash and notes from sale of existing stores........ $1,980,000 $2,045,000
Less: net book value of existing stores sold....... 1,235,000 818,000
---------- ----------
Revenue from sale of existing stores............... 745,000 1,227,000
---------- ----------
Revenue from license fees for new stores........... 125,000 300,000
Revenue from other fees............................ 3,000 75,000
---------- ----------
Revenue from license fees for new stores and other
fees.............................................. 128,000 375,000
---------- ----------
Total revenue from sale of existing and new stores
to franchisees.................................... 873,000 1,602,000
Less: Gain on sale of existing stores.............. 370,000 927,000
---------- ----------
Revenue from franchise license fees................ $ 503,000 $ 675,000
========== ==========
</TABLE>
. Other revenue increased approximately $73,000, or 111.6%, during the
fiscal year ended June 28, 1998 compared to the fiscal year ended June
29, 1997. The increase in other revenue was primarily attributable to:
(a) an increase in construction assistance revenue derived from
construction assistance performed by the company for the benefit of
franchisees and
(b) an increase in sales of miscellaneous supplies to franchise stores,
offset by
(c) an increase in batter discounts given to franchisees as a result of
increased batter sales to franchisees in fiscal 1998.
Cost of Sales
Cost of sales decreased approximately $1,559,000, or 8.4%, during the fiscal
year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The
decrease in cost of sales was primarily attributable to:
(a) a decline in cookie and beverage sales due to less company-operated
equivalent store weeks and
(b) an improvement in batter facility margins, offset by
(c) an increase in batter sales to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $1,318,000, or 18.7%,
during the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The decrease was primarily attributable to a 16.9% decrease in
company-operated equivalent store weeks.
Other Retail Store Expenses
Other retail store expenses decreased approximately $149,000, or 14.6%,
during the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The decrease in other retail store expenses was primarily
attributable to a 16.9% decrease in company-operated equivalent store weeks.
54
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately
$399,000, or 5.2%, during the fiscal year ended June 28, 1998 compared to the
fiscal year ended June 29, 1997. This decrease was primarily attributable to:
(a) a decrease in development and testing expense,
(b) a decrease in salaries and benefits at the support center, and
(c) a decrease in expenses associated with the franchise convention because
a franchise convention was not held in fiscal 1998, offset by
(d) an increase in marketing expenses and
(e) an increase in the cost of training materials related to the rollout of
a new training program.
In addition, in 1998 Great American revised its estimate of the useful life
of some of its computer equipment from five to three years decreasing pre-tax
income by $111,000. Management believes that this revision better reflects the
equipment's economic useful life.
Other Expenses, Net
Other expenses, net, increased approximately $557,000, or 60.0%, during the
fiscal year ended June 28, 1998 compared to the fiscal year ended June 29,
1997. The increase was primarily attributable to a decrease in gains on the
sale of existing stores.
Net Loss
Net loss decreased approximately $544,000, or 72.9%, for the fiscal year
ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The
decrease in net loss was primarily attributable to:
(a) a 12.7% increase in operating income,
(b) a 1.7% decrease in other expenses, net, offset by
(c) a 111.0% increase in state and federal income tax expense.
52 Weeks Ended June 29, 1997 ("Fiscal Year 1997") Compared to 52 Weeks Ended
June 30, 1996 ("Fiscal Year 1996")
Great American-owned and Franchise Store Activity
As of June 29, 1997, there were 91 Great American-owned stores and 233
franchised stores in operation. The store activity for fiscal year 1996 and for
fiscal year 1997 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997
-------------------------- --------------------------
Great American- Great American-
owned Franchised owned Franchised
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Stores open as of
beginning of the fiscal
year................... 108 215 104 225
Stores opened (including
relocations)........... 12 14 1 12
Stores closed (including
relocations)........... (10) (10) (10) (8)
Stores sold to
franchisees............ (9) 9 (12) 12
Stores acquired from
franchisees............ 3 (3) 8 (8)
--- --- --- ---
Stores open as of the
end of the year........ 104 225 91 233
Satellite locations as
of the end of the
year................... 11 28 9 30
--- --- --- ---
Total outlets as of the
end of the year........ 115 253 100 263
=== === === ===
</TABLE>
55
<PAGE>
The above activity resulted in 5,661 Great American-owned equivalent store
weeks and 11,544 franchised equivalent store weeks during fiscal year 1996
compared to 5,161 Great American-owned equivalent store weeks and 11,858
franchised equivalent store weeks during fiscal year 1997.
Total Revenue
Total revenue decreased approximately $342,000, or 0.9%, during fiscal year
1997 compared to fiscal year 1996. Each of Great American's revenue sources is
discussed below:
Cookie and beverage sales at Great American-owned retail stores decreased
approximately $2,344,000, or 9.5%, during fiscal year 1997 compared to fiscal
year 1996. The decrease in revenue from Great American-owned retail stores was
attributable to:
(a) an 8.8% decrease in Great American-owned equivalent store weeks and
(b) a 0.7% decrease in the average retail sales volume for Great American-
owned stores.
Based on those stores which were Great American-owned during the entire 1996
and 1997 fiscal years, sales volumes increased 1.3%. The change in average
store volume does not equal the change in sales volume from stores that have
been open at least two years due to differences in the stores being compared as
a result of opening, closing, selling, and acquiring stores throughout the
year.
Batter sales to franchisees increased approximately $1,166,000, or 11.5%,
during fiscal year 1997 compared to fiscal year 1996. The increase in batter
sales to franchisees was primarily attributable to:
(a) an 8.8% increase in the volume of batter sold per franchised equivalent
store week and
(b) a 2.7% increase in franchised equivalent store weeks.
Franchise royalties increased approximately $440,000, or 10.3%, during fiscal
year 1997 compared to fiscal year 1996. The increase in franchise royalties was
attributable to:
(a) an increase in the average retail sales volume per franchised store of
7.6% and
(b) a 2.7% increase in franchised equivalent store weeks.
Based on those stores which were franchised during the entire 1996 and 1997
fiscal years, management estimates franchisees' sales volumes increased 5.5%.
Revenue from franchise license fees increased approximately $154,000, or
29.6%, during fiscal year 1997 compared to fiscal year 1996. Revenue from
selling existing and new stores to franchisees is summarized as follows
(rounded):
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1997
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees:
Existing stores.................................... 9 12
New stores......................................... 11 12
Cash and notes from sale of existing stores.......... $1,602,000 $2,045,000
Less: net book value of existing stores sold......... (741,000) (818,000)
---------- ----------
Revenue from sales of existing stores................ 861,000 1,227,000
---------- ----------
Revenue from license fees for new stores............. 275,000 300,000
Revenue from other fees.............................. 21,000 75,000
---------- ----------
Revenue from license fees for new stores and other
fees................................................ 296,000 375,000
---------- ----------
Total................................................ 1,157,000 1,602,000
Less: Gain on sale of existing stores................ 636,000 927,000
---------- ----------
Revenue from franchise licensing fees................ $ 521,000 $ 675,000
========== ==========
</TABLE>
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<PAGE>
Other revenue, net decreased approximately $49,000, or 42.6%, during fiscal
year 1997 compared to fiscal year 1996. The decrease in other revenue, net was
primarily attributable to:
(a) a decrease in construction assistance revenue derived from construction
assistance performed by Great American for the franchisees and
(b) an increase in batter discounts given to franchisees as a result of
increased batter sales to franchisees in fiscal year 1997.
Cost of Sales
Cost of sales decreased approximately $908,000, or 4.7%, during fiscal year
1997 compared to fiscal year 1996. The decrease in cost of sales was primarily
attributable to:
(a) a decline in cookie and beverage sales due to less Great American-owned
equivalent store weeks, and
(b) a decrease in the cost of packaging and freight for Great American-
owned retail stores, offset by
(c) an increase in batter sales to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $324,000, or 4.4%,
during fiscal year 1997 compared to fiscal year 1996. The decrease was
primarily attributable to an 8.8% decrease in Great American-owned equivalent
store weeks.
Other Retail Store Expenses
Other retail store expenses decreased approximately $297,000, or 22.6%,
during fiscal year 1997 compared to fiscal year 1996. The decrease in other
retail store expenses was primarily attributable to:
(a) a decrease in operating supplies expense within Great American-owned
stores in fiscal year 1997 due to
(1) the opening of 11 less Great American-owned stores in fiscal year
1997 versus fiscal year 1996 and
(2) additional costs incurred in fiscal year 1996 related to the
rollout of a new cookie merchandising program, and
(b) an 8.8% decrease in Great American-owned equivalent store weeks, offset
by
(c) an increase in point-of-sale marketing expenses in Great American-owned
stores.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses increased approximately
$310,000, or 4.2%, during fiscal year 1997 compared to fiscal year 1996. This
increase was primarily attributable to:
(a) an increase in professional service fees,
(b) an increase in point-of-sale marketing expenses on behalf of franchisee-
owned stores, and
(c) an increase in salaries, offset by
(d) a decrease in travel expense, and
(e) a decrease in insurance costs.
Other Expenses, Net
Other expenses, net decreased approximately $484,000, or 8.7%, during fiscal
year 1997 compared to fiscal year 1996. The decrease was primarily
attributable to an increase in gains on the sale of existing stores.
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<PAGE>
Net Loss
Net loss decreased approximately $615,000, or 45.2%, for fiscal year 1997
compared to fiscal year 1996. The decrease in net loss was primarily
attributable to:
(a) an $877,000 increase in operating income, and
(b) a $193,000 decrease in other expenses, net, offset by
(c) a $455,000 increase in state and federal income tax expense.
52 Weeks Ended June 30, 1996 ("Fiscal Year 1996") Compared to 52 Weeks Ended
June 29, 1995 ("Fiscal Year 1995")
Great American-owned and Franchise Store Activity
As of June 30, 1996 there were 104 Great American-owned stores and 225
franchised stores in operation. The store activity for fiscal year 1995 and for
fiscal year 1996 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1996
-------------------------- --------------------------
Great American- Great American-
owned Franchised owned Franchised
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Stores open as of
beginning of the
fiscal................. 111 204 108 215
Stores opened (including
relocations)........... 16 11 12 14
Stores closed (including
relocations)........... (8) (11) (10) (10)
Stores sold to
franchisees............ (12) 12 (9) 9
Stores acquired from
franchisees............ 1 (1) 3 (3)
--- --- --- ---
Stores open as of the
end of the fiscal
year................... 108 215 104 225
Satellite locations as
of the end of the
fiscal year............ 12 36 11 28
--- --- --- ---
Total outlets as of the
end of the fiscal
year................... 120 251 115 253
=== === === ===
</TABLE>
The activity reflected above resulted in 5,879 and 5,661 Great American-owned
equivalent store weeks and 10,716 and 11,544 franchised equivalent store weeks
during fiscal year 1995 and fiscal year 1996, respectively.
Total Revenue
Total revenue decreased approximately $1,024,000, or 2.5%, during fiscal year
1996 compared to fiscal year 1995, primarily attributable to the following:
Cookie and beverage sales at Great American-owned retail stores decreased
approximately $1,629,000, or 6.2%, during fiscal year 1996 compared to
fiscal year 1995. The decrease in revenue from Great American-owned retail
stores was primarily attributable to:
(a) an approximately 3.7% decrease in Great American-owned equivalent
store weeks and
(b) a decrease in the average retail sales volume for Great American-
owned stores. Specifically, the average retail sales volume for
Great American-owned stores decreased approximately 2.6% per
equivalent store week. Based on those stores which were Great
American-owned during the entire 1995 and 1996 fiscal years, sales
volumes decreased 0.3%.
Batter sales to franchisees increased approximately $729,000, or 7.8%,
during fiscal year 1996 compared to fiscal year 1995. The increase in
batter sales to franchisees was primarily attributable to:
(a) an increase of approximately 7.7% in franchised equivalent store
weeks and
(b) a 0.1% increase in the volume of batter sold per franchised
equivalent store week.
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<PAGE>
Franchise royalties increased approximately $313,000, or 7.9%, during
fiscal year 1996 compared to fiscal year 1995. The increase in franchise
royalties was primarily attributable to:
(a) an increase of approximately 7.7% in equivalent franchised retail
store weeks and
(b) an increase in the average franchised equivalent store sales volume
of 0.2%.
Based on those stores which were franchised during the entire 1995 and
1996 fiscal years, management estimates that franchisees' sales volumes did
not change materially.
Revenue from franchise license fees decreased approximately $391,000, or
25.3%, during fiscal year 1996 compared to fiscal year 1995. Revenue from
selling existing and new stores to franchisees is summarized below
(rounded):
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1995 1996
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees:
Existing stores................................. 12 9
New stores...................................... 11 11
Cash proceeds from sale of existing stores........ $ 2,558,000 $1,602,000
Less: net book value of existing stores sold...... (1,346,000) (741,000)
----------- ----------
Revenue from sales of existing stores............. 1,212,000 861,000
----------- ----------
Revenue from license fees for new stores.......... 280,000 275,000
Revenue from other fees........................... 56,000 21,000
----------- ----------
Revenue from license fees for new stores and other
fees............................................. 336,000 296,000
----------- ----------
Total............................................. 1,548,000 1,157,000
Less: Gain on sale of existing stores............. 912,000 636,000
----------- ----------
Revenue from franchise license fees............... $ 636,000 $ 521,000
=========== ==========
</TABLE>
Other revenue, net decreased approximately $46,000, or 28.6%, during fiscal
year 1996 compared to fiscal year 1995. The decrease in other revenue, net is
primarily attributable to:
(a) an increase in batter discounts taken by franchisees, which was
consistent with the increase in batter sales to franchisees, partially
offset by
(b) an increase in sales of miscellaneous supplies to franchise stores.
Cost of Sales
Cost of sales decreased approximately $452,000, or 2.3%, during fiscal year
1996 compared to fiscal year 1995. The decrease was primarily attributable to:
(a) a decline in retail cookie and beverages sales volume in Great
American-owned stores and
(b) an improvement in wholesale batter margins, partially offset by
(c) an increase in the volume of batter sold to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $209,000, or 2.8%,
during fiscal year 1996 compared to fiscal year 1995. The decrease in retail
store occupancy costs was primarily attributable to:
(a) a decrease of approximately 3.7% in Great American-owned store weeks,
partially offset by
(b) an increase in depreciation due to Great American revising its estimate
of the useful life of certain leasehold improvements.
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<PAGE>
Great American began amortizing leasehold improvements using accelerated
methods over an average of eight years instead of using the straight-line
method over ten years. The effect of this change in estimate was to increase
fiscal year 1996 pre-tax loss by $214,000. Management believes that this
revision better reflects the leasehold improvements' useful life.
Other Retail Store Expenses
Other retail store expenses decreased approximately $223,000, or 14.5%,
during fiscal year 1996 compared to fiscal year 1995. The decrease in other
retail store expenses was primarily attributable to:
(a) a decrease in marketing expenses and
(b) a decrease in bank charges and supplies expense as a result of cost
containment efforts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately
$376,000, or 4.9%, during fiscal year 1996 compared to fiscal year 1995. The
decrease in selling, general and administrative expenses was primarily
attributable to:
(a) a reduction in administrative salaries and benefits,
(b) a decrease in professional service fees, including legal and accounting
services, and
(c) a decrease in various home office expenditures, including postage,
supplies, and training materials, partially offset by
(d) an increase in travel costs due to additional review of stores by field
supervisors.
Other Expenses, Net
Other expenses, net increased approximately $231,000, or 4.4%, during fiscal
year 1996 compared to fiscal year 1995. The increase was primarily
attributable to:
(a) decrease gains on the sale of existing stores,
(b) a decrease in interest income due to lower average cash balances, and
(c) an increase in interest expense due to an increase in capital lease
obligations.
Non-Recurring Litigation Charge
During the third quarter of fiscal year 1995, a non-recurring litigation
charge of $439,000 was recorded to cover a potential forthcoming judgment
against Great American in the Haagen-Burbank lawsuit. In June 1993, Great
American won a judgment for breach of written contract to a lease entered into
with a developer, Haagen-Burbank. On appeal, the Court of Appeals of the State
of California Second Appellate District overturned the jury's verdict and
directed the trial court to determine the amount of attorney fees and costs
due to Haagen-Burbank as the prevailing party in the litigation. Haagen-
Burbank had submitted to the court a request for legal fees totaling $439,000;
however, on April 27, 1995, the trial court entered a judgment of $417,985. On
September 15, 1995 Great American paid $395,966 to Haagen-Burbank as
settlement of the judgment against Great American.
Net Loss
Net loss decreased approximately $469,000, or 25.6%, for fiscal year 1996
compared to fiscal year 1995. The decrease in net loss was primarily
attributable to:
(a) a $236,000 increase in operating income, and the occurrence of the non-
recurring litigation charge in fiscal 1995, offset by
(b) a $118,000 decrease in state and federal income tax benefit, and
(c) a $45,000 increase in other expenses, net.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Commission under the Exchange
Act. We have agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, we will deliver to The Bank of New York, as
trustee under the indenture, to each holder of notes and to each prospective
purchaser of notes identified to us by a placement agent for the offering in
August 1998, annual and quarterly financial statements substantially equivalent
to financial statements that would be included in reports filed with the
Commission, if we were subject to the reporting and other informational
requirements of the Exchange Act.
Mrs. Fields and Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel
Time, the guarantors of the notes, have filed with the Commission a
registration statement on Form S-4 (in this prospectus, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act, with respect to the notes offered in this prospectus. This
prospectus, which forms a part of the Registration Statement, does not contain
all of the information in the Registration Statement and its exhibits, parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to Mrs. Fields, the guarantors
and the notes offered in this prospectus, we refer you to the Registration
Statement. With respect to any statements made in this prospectus concerning
the provisions of any documents, we refer you to the copy of that document
filed as an exhibit to the Registration Statement otherwise filed with the
Commission.
Great American, Pretzelmaker and Pretzel Time intend to submit separately and
Mrs. Fields' Brand has separately submitted to the staff of the Commission, no-
action requests that they not be subject to the informational requirements of
the Exchange Act in connection with the notes offered in this prospectus. If
the Commission grants these requests, Great American, Mrs. Fields' Brand,
Pretzelmaker and Pretzel Time would not be required to make such filings but
Mrs. Fields, as the issuer of the notes offered in this prospectus, would be
required to include summarized financial information regarding Great American,
Mrs. Fields' Brand, Pretzelmaker and Pretzel Time in the periodic reports and
certain other documents that Mrs. Fields files with the Commission. If this
request is not granted, Great American, Mrs. Fields' Brand, Pretzelmaker and
Pretzel Time would be required to file with the Commission periodic reports,
but would not be required to file proxy or information statements. You may read
and copy the Registration Statement, the exhibits forming a part of it and the
reports and other information filed by Mrs. Fields with the Commission in
accordance with the Exchange Act, at the Public Reference Section of the
Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the following regional offices of the Commission: 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10004; and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. You may obtain copies
of all or any portion of the material by mail from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. This information is also available electronically on the
Commission's home page on the Internet (http://www.sec.gov).
If Mrs. Fields is not required to be subject to the reporting requirements of
the Exchange Act in the future, Mrs. Fields will be required under the
indenture to furnish the holders of the notes with:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if Mrs. Fields were required to file those forms, including a
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information
only, a report on the financial information by Mrs. Fields' independent
public accountants, and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Mrs. Fields were required to file those
reports, in each case, within the time periods specified in the
Commission's rules and regulations.
This prospectus incorporates documents by reference that are not presented in
or delivered with this prospectus. These documents are available upon request
from Michael Ward, Esq., Mrs. Fields' Original Cookies, Inc., 2855 East
Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, (801) 736-5600. In
order to ensure timely delivery, any request should be made by , 1999.
61
<PAGE>
BUSINESS
General
Mrs. Fields is one of the largest retailers in the premium snack-food
industry, with cookies and pretzels as its major product lines. Mrs. Fields is
the largest retailer of baked on-premises cookies and the second largest
retailer of baked on-premises pretzels in the United States. Mrs. Fields is one
of the most widely recognized and respected brand names in the premium cookie
industry. Based on a 1994 study that we commissioned from Corey, Canapary and
Galanis, 94% of customers in the study were aware of the Mrs. Fields brand.
Twenty percent named our brand without prompting, and 74% knew of our brand
when prompted. Mrs. Fields has recently developed a significant presence in the
rapidly growing, health-oriented pretzel segment as a result of the
acquisitions of the pretzel businesses of Hot Sam, Pretzel Time, Pretzelmaker
and H&M, which was formerly the largest Pretzel Time franchisee. As of July 3,
1999, our retail network consisted of 1,493 locations, of which 986 were cookie
stores and 507 were pretzel stores. Of the total 1,493 stores, 492 were
company-owned and 1,001 were franchised or licensed. Mrs. Fields' stores
average approximately 600 to 700 square feet in size and are located
predominantly in shopping malls. Mrs. Fields, through licensed locations, also
operates kiosks and carts at airports, universities, stadiums, hospitals and
office building lobbies. Mrs. Fields' objective is to increase sales and
profitability by focusing on its continuing company-owned stores. As a result,
by the end of fiscal year 2000, Mrs. Fields plans to close or franchise
approximately 40 company-owned cookie stores and 7 company-owned pretzel stores
that do not meet certain financial and geographical criteria established by
management after giving effect to the acquisitions of Great American and the
stock and stores of several of its franchises. For the year ended January 2,
1999, Mrs. Fields generated pro forma net revenue and EBITDA of $191.2 million
and $20.7 million, respectively. Actual net revenue and EBITDA for the year
ended January 3, 1998 was $134.4 million and $18.8 million, respectively. For
the 26 weeks ended July 4, 1998 and July 3, 1999, Mrs. Fields generated pro
forma net revenue and EBITDA of $92,640 and $10,334, and actual net revenue and
EBITDA of $84,165 and $10,318, respectively.
Cookies
We operate and franchise 986 retail cookie stores: 574 under the Mrs. Fields
brand, 105 under the Original Cookie brand and 307 under the Great American
brand. As a result of the acquisition of Great American, Mrs. Fields has cookie
stores in 48 states, with Great American stores concentrated in the
southeastern and south central states and Mrs. Fields and Original Cookie
stores strongly represented in the western, midwestern and eastern states.
There is little overlap between Mrs. Fields and Great American stores, with a
dual presence in 9 malls. Management believes that Mrs. Fields is positioned in
the premium quality, baked on-premises segment of the approximately $12 billion
U.S. cookie industry. We offer over 50 different types of cookies, brownies and
muffins, which are baked continuously and served fresh throughout the day.
Baked products are made using only high quality ingredients, and all dough is
centrally manufactured and frozen or refrigerated to maintain product quality
and consistency. All products pass strict quality assurance and control steps
at both the manufacturing plants and the stores. In addition, Mrs. Fields
continually creates and tests new products to attract new customers and satisfy
current customers. Product development is currently focused on sugar-free dough
and reduced-fat cookies and brownies.
Mrs. Fields Inc., one of the predecessors of Mrs. Fields, was founded in 1977
by Debbi Fields and, following its initial success, embarked on an aggressive
national expansion program in the early 1980s. By the late 1980s, however, Mrs.
Fields Inc. experienced financial difficulty as a result of excessive debt
levels, certain poor real estate locations, and a recessionary retailing
environment. In connection with a financial restructuring by its lenders, Mrs.
Fields put a new management team into place in mid-1994 under the leadership of
Larry A. Hodges, who has extensive experience in the food and retailing
industries. Mr. Hodges introduced a new strategic plan for Mrs. Fields, which
involved the following key elements:
(1) identifying stores to close or franchise,
(2) introducing company-wide operating procedures to improve store income
before interest, taxes and other expenses
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<PAGE>
(3) developing a marketing strategy and promotional calendar to turn around
sales of stores that have been open at least two years, and
(4) improving employee morale through selective new senior hires, increased
training and various incentive plans.
Mrs. Fields reinvested the savings from the improved store operations in
marketing and other measures designed to improve sales from stores that have
been open at least two years.
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of Mrs. Fields Inc., Original Cookie and Hot
Sam by Mrs. Fields' Holding, a subsidiary of Capricorn. As of January 2, 1999,
Capricorn had invested more than $28 million in Mrs. Fields through Mrs.
Fields' Holding. Capricorn retained Mr. Hodges as Chief Executive Officer of
Mrs. Fields.
Great American, incorporated in 1977, is a leading operator and franchisor of
mall-based specialty retail cookie outlets, including full-size stores and
satellite sites, consisting of carts, wagons and kiosks. As of July 3, 1999,
Great American had 307 in-line stores, including 100 Great American-operated
and 207 franchised retail units, operating primarily in the southeastern and
south central United States, generating $109.3 million in estimated system-wide
annual sales for the 52-week period ended June 28, 1998. Great American derives
its revenue principally from:
(1) the sale of cookies and beverages at Great American-operated stores,
(2) the sale of proprietary batter to franchised stores, and
(3) the receipt of royalty payments based on gross sales of franchisees.
In addition, Great American generates revenues from initial franchise fees
and the sale of existing Great American-operated stores to franchisees.
Great American outlets sell a variety of cookies and brownies, including
"cookie cakes," as well as assorted soft drinks, frozen drinks, coffee and tea.
Cookie cakes are extra-large cookies, decorated with customer-selected
personalized messages, for special occasions. Although cookie sales are
generally the result of impulse buying, we believe that cookie cakes, which are
often purchased as gifts for special occasions, differentiate Great American
from other specialty cookie retailers by making Great American stores
destination outlets.
Pretzels
We operate and franchise 507 retail pretzel stores: 235 under the Pretzel
Time brand, 56 under the Hot Sam brand and 216 under the Pretzelmaker brand,
which offer "sweet dough" soft pretzels and "Bavarian" style pretzels with a
variety of toppings. Pretzel Time's primary product is an all-natural, hand-
rolled soft pretzel, freshly baked from scratch at each store location. Pretzel
Time stores prepare pretzels with a variety of flavors and specialty toppings,
including cheddar cheese, cream cheese and pizza sauce. The stores also offer
soft drinks and freshly squeezed lemonade. The Hot Sam pretzel stores
specialize in the Bavarian style pretzel. This product has declined in
popularity in recent years as sweet dough pretzel sales have grown
dramatically. In addition, Pretzel Time stores have, during fiscal year 1998,
achieved higher average revenue for the continuing company-owned stores than
Hot Sam stores ($277,000 versus $232,000). As a result, Mrs. Fields intends to
continue converting its continuing company-owned and to-be-franchised Hot Sam
stores to Pretzel Time stores, which it believes will result in an increase in
net sales, sales from stores that have been open at least two years, and income
from store operations.
Management believes that retail pretzel stores have similar operating
characteristics to retail cookie stores that will permit us to offer our
products with those of other well-known brand names. In addition, the retail
pretzel business has grown more quickly than the retail cookie business in
recent years. Hot Sam was acquired by
63
<PAGE>
Mrs. Fields in connection with the acquisition of Original Cookie. In order to
expand its presence in the retail pretzel industry, Mrs. Fields acquired the
business of H&M and the common stock of Pretzel Time and Pretzelmaker.
Business Strategy
Mrs. Fields' objective is to increase sales and profitability at its
continuing company-owned and franchised stores by implementing the key elements
of its long-term business strategy. The percentage change in sales from stores
that have been open at least two years was a negative 1.6% for the fiscal year
ended January 2, 1999 compared to a positive 0.6% for the fiscal year ended
January 3, 1998 and a negative 0.4% for the 26 weeks ended July 3, 1999
compared to a negative 1.5% for the same period of 1998. Net franchising and
licensing revenues increased by 29.9% for the fiscal year ended January 3, 1998
over the fiscal year ended December 28, 1996, by 113.3% for the fiscal year
ended January 2, 1999 compared to the fiscal year ended January 3, 1998 and by
235.2% for the 26 weeks ended July 3, 1999 compared to the same period of 1998.
The key elements of Mrs. Fields' business strategy are as follows:
. Enhance Quality of Company-Owned Store Base. Since current management
assumed responsibility in 1994, we have focused on closing and
franchising company-owned stores that do not meet certain financial and
geographical criteria. From June 1994 through January 2, 1999, Mrs.
Fields closed 178 Mrs. Fields brand stores and franchised an additional
136 Mrs. Fields brand stores. We have targeted 129 additional stores that
sell our various products to be either closed or franchised by the end of
2000. These measures are expected to result in increased income before
interest, tax and other expenses, as unprofitable stores are closed and
other stores are converted into franchises, with the result of increasing
royalty payments and eliminating administrative and other costs of Mrs.
Fields associated with those stores.
. Improve Productivity of Continuing Company-Owned Stores. We have embarked
on a program to improve the performance of our continuing company-owned
stores by:
(1) expanding product offerings to include breakfast items, such as
muffins, croissants and bagels, and low-fat cookies, brownies and
muffins,
(2) raising the average sales by tying sales of products together,
(3) promoting catering services by individual stores to corporate
customers,
(4) decreasing store expenses by reducing waste in the cookie baking
process and controlling the cost of ingredients and supplies,
(5) improving merchandising by enhancing product presentation and
refining the selection of products and
(6) increasing training and various incentive programs for management
and sales staff.
. Capitalize on the Strong "Mrs. Fields" Brand Name. Management believes
that the Mrs. Fields brand is the most widely recognized and respected
brand name in the retail premium cookie industry, and that Mrs. Fields
brand stores, for fiscal year 1998, achieved higher average revenue
($347,000 versus $276,000) for the continuing company-owned Mrs. Fields
stores than Original Cookie stores. As a result, we intend to continue
selectively converting our continuing company-owned and to-be-franchised
Original Cookie stores to Mrs. Fields brand stores, which we believe will
result in an increase in net sales, sales from stores that have been open
at least two years, and income from store operations. We will also test
the success of converting selected Great American company-owned stores to
Mrs. Fields brand stores. In addition, any Great American franchisee will
have the option to convert to Mrs. Fields brand stores, at its sole
expense, in areas where there is no overlap with existing Mrs. Fields
brand franchise stores. Original Cookie stores represent 31% and Great
American stores represent 29% of all
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company-owned cookie stores. In addition, we intend to further capitalize
on the Mrs. Fields brand name by:
(1) further developing and expanding the ways we distribute our
products, including kiosks and carts in malls, airports,
convention centers, office buildings, street fronts and sports
complexes,
(2) increasing the emphasis on the mail order business, and
(3) developing and capitalizing on licensing opportunities, such as
linking sales of Mrs. Fields with prominent names in the
retailing and food service industry, expanding licensing
agreements with our existing licensees, entering into new
licensing agreements with food service operators and developing
product line extensions, such as frozen cookie dough and in-store
bakery products to be sold in supermarkets and other convenient
locations.
. Develop Great American Brand Name. Management believes that the Great
American brand name has high consumer awareness in the southeast United
States. We intend to build on the Great American brand name by continuing
to franchise additional Great American stores and by testing the success
of converting selected company-owned Original Cookie stores into Great
American stores.
. Capitalize on the Strong "Pretzel Time" Brand Name. Through the
acquisition of Pretzel Time, we have obtained the use of the "Pretzel
Time" brand name, one of the leading brand names in pretzel retailing.
Management believes that there are significant opportunities to improve
its existing Hot Sam store operations by continuing to convert our
continuing company-owned and to-be-franchised Hot Sam stores to Pretzel
Time stores. Pretzel Time stores have, during fiscal year 1998, achieved
higher average revenue per continuing company-owned store than Hot Sam
stores ($277,000 vs. $232,000). Hot Sam stores represent 38% of all
company-owned pretzel stores. Management believes that the conversion to
the Pretzel Time name will result in an increase in net sales, sales from
stores that have been open at least two years, and income from store
operations for Mrs. Fields' pretzel business. In addition, we believe
there are significant new Pretzel Time franchising opportunities.
. Develop New Company-Owned and Franchised Stores. We plan to build and
franchise new stores, as well as carts and kiosks, in existing and new
markets. We have identified over 100 mall and non-traditional locations,
such as amusement parks and other entertainment centers, that we believe
would be ideal for cookie and pretzel stores. By the end of fiscal year
2000, we intend to franchise approximately 27 existing cookie and 15
existing pretzel stores. Beginning in fiscal year 1999, we intend to add
approximately 20 new company-owned stores per year and to franchise
approximately 38 new cookie and 36 new pretzel stores per year. In
addition to pursuing new store development opportunities within the
United States, we plan to grow internationally by expanding our franchise
operations. As of July 3, 1999, there were 125 franchised Mrs. Fields and
Pretzelmaker brand stores open internationally.
. Realize Purchasing and Overhead Cost Savings. As a result of the
acquisitions of Great American and the stock and stores of several of its
franchisees, we expect to realize significant cost savings from the
elimination of duplicative administrative functions, the consolidation of
management information systems and the reduction of the cost of food and
other supplies as a result of our enhanced purchasing power with vendors.
Management believes that incremental pre-tax cost savings would have
totaled approximately $4.1 million for the year ended January 2, 1999.
The savings include $2.2 million of savings on administrative and other
costs associated with stores of Mrs. Fields and $1.9 million of cost
savings related to one-time expenses of eliminating multiple headquarter
facilities.
. Pursue Further Strategic Acquisitions of Related Businesses. We intend to
selectively pursue strategic acquisitions, in addition to the
acquisitions of Great American and the stock and stores of several of its
franchises and other recent acquisitions, in order to expand our
geographic presence and to achieve efficiencies from consolidating and
reducing administrative and other costs shared by stores. Our management
has demonstrated its ability to identify and integrate new businesses
through its acquisitions of the cookie and pretzel businesses of Original
Cookie and Hot Sam, respectively, in September 1996 and the majority
interest in Pretzel Time and the business of H&M in 1997.
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Product Offerings
Our product offerings consist primarily of:
(1) fresh baked cookies, brownies, muffins, and other baked goods and
(2) fresh baked sweet dough and "Bavarian" style pretzels.
During the fiscal year 1998, pro forma for the acquisitions of Great American
and the stock and stores of several of its franchisees, our revenue by product
category consisted of the following:
<TABLE>
<S> <C>
Cookies and Brownies................................................... 56%
Pretzels............................................................... 21%
Beverages.............................................................. 22%
Other.................................................................. 1%
</TABLE>
Cookies. The primary products of our cookie stores are a variety of cookies,
which are baked in view of customers throughout the day. Secondary product
lines include several varieties of brownies, muffins, other baked goods,
gourmet coffees, frozen drinks and other beverages. Mrs. Fields stores,
Original Cookie stores and Great American stores also sell decorated cookie
cakes, which are extra-large cookies decorated with customer-selected slogans
purchased as gifts for special occasions, such as birthdays, Valentine's day,
Father's day and Easter. Based on pounds of batter shipped, cookie cakes
constitute the second largest volume product of Great American stores. We plan
to utilize Great American's superior expertise in baking and marketing cookie
cakes to enhance sales of the existing cookie cake products in Mrs. Fields and
Original Cookie stores.
Baked products are made using only pure, high quality, vanilla, chocolate,
raisins, nuts and other ingredients. To maintain product quality and
consistency at both company-owned and franchised stores, Mrs. Fields and
Original Cookie stores use centrally manufactured frozen dough, which is
manufactured by outside suppliers according to proprietary formulas of Mrs.
Fields. Great American stores use refrigerated batter that is shipped daily
from the Atlanta production facility. All products must pass strict quality
assurance and control steps at both the manufacturing plants and the stores.
Pretzels. Through its Hot Sam and Pretzel Time stores, Mrs. Fields offers a
wide variety of fresh-baked pretzels. Pretzels have become a popular snack due
to consumers' attraction to salted snacks and the increased demand for snacks
that are low in fat and cholesterol.
Hot Sam is the largest U.S. retailer of fresh-baked "Bavarian" style
pretzels. Pretzel Time stores offer all natural, hand-rolled sweet dough
pretzels prepared with a variety of flavors and special toppings, including
cheddar cheese, cream cheese and pizza sauce. In addition, Pretzel Time stores
offer specialty pretzels and related products, such as cinnamon pretzels and
cinnamon twists, as well as several recently introduced pretzel products, such
as pretzel dogs, chocolate chip pretzels and caramel crunch pretzels.
Product Development. We maintain a product development department which
continually creates and tests new products to attract new customers and
revitalize the interest of current customers. Once a new product is identified,
we develop prototypes to determine the initial formula. For Mrs. Fields
products, the formula is then scaled up for test production runs at one or more
approved facilities. Once the product has been successfully produced,
ingredient specifications, formulas, manufacturing processes, finished product
specifications, shelf life, storage and distribution procedures are
established. The new product is either immediately launched throughout the
system, as in the case of seasonal items or simple line extensions, or test
marketed in a limited number of stores. After a trial period to evaluate both
consumer response and store operations' ability to handle the new product, it
is fully commercialized, modified or discontinued. We continually review our
selection of products in an effort to maximize daytime offerings and
profitability. For example, new muffin flavors, bagels, croissants and a
revitalized coffee program were recently introduced to enhance morning
offerings, as cookies begin selling primarily after mid-day.
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In the cookie business, product development efforts are currently focused on
a fresh-baked, sugar-free cookie dough and other products, such as low-fat
brownies, reduced-fat cookies and seasonal items that are designed to
capitalize on consumer trends and draw interest to our store locations. In the
pretzel business, we have been testing "made-from-scratch" hand rolled
pretzels, which serve as a platform for a variety of other products, such as
jalapeno, cinnamon raisin and garlic pretzels with a sweet dough base, meat and
cheese filled pretzel pockets and pretzelwiches (pretzel bun sandwiches).
Store Operations
Store Base. As of July 3, 1999, Mrs. Fields' store portfolio consisted of 492
company-owned stores, 705 domestic franchised locations, 125 international
franchised locations and 171 licensed locations. By brand, the stores are
distributed as follows:
<TABLE>
<CAPTION>
Company-owned
----------------------------
Continuing
Company- To Be To Be Domestic International
Owned Closed Franchised Franchised Franchised Licensed Total
---------- ------ ---------- ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Mrs. Fields............. 131 2 6 190 86 159 574
Original Cookie......... 86 7 12 -- -- -- 105
Great American.......... 59 31 10 207 -- -- 307
--- --- --- --- --- --- -----
Cookie Subtotal........ 276 40 28 397 86 159 986
--- --- --- --- --- --- -----
Pretzel Time............ 86 2 -- 147 -- -- 235
Hot Sam................. 46 2 8 -- -- -- 56
Pretzelmaker............ 1 3 -- 161 39 12 216
--- --- --- --- --- --- -----
Pretzel Subtotal....... 133 7 8 308 39 12 507
--- --- --- --- --- --- -----
Totals................ 409 47 36 705 125 171 1,493
=== === === === === === =====
</TABLE>
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As of July 3, 1999, Mrs. Fields' domestic stores were located in 48 states.
The following table represents states with ten or more outlets:
STORE GEOGRAPHY LIST
<TABLE>
<CAPTION>
% of Domestic
Company- Retail
State owned Franchised Licensed Total Outlets
- ----- -------- ---------- -------- ----- -------------
<S> <C> <C> <C> <C> <C>
California..................... 70 89 17 176 12.90%
Texas.......................... 43 57 5 105 7.70%
Florida........................ 20 42 14 76 5.57%
New York....................... 33 23 16 72 5.28%
Ohio........................... 49 9 9 67 4.91%
Illinois....................... 28 20 11 59 4.33%
Georgia........................ 14 27 3 44 3.23%
Michigan....................... 27 16 -- 43 3.15%
Missouri....................... 3 38 1 42 3.08%
Pennsylvania................... 16 12 13 41 3.01%
Virginia....................... 20 17 3 40 2.93%
Colorado....................... 3 23 10 36 2.64%
Arizona........................ 12 17 4 33 2.42%
North Carolina................. 6 22 3 31 2.27%
New Jersey..................... 10 12 8 30 2.20%
Indiana........................ 14 10 6 30 2.20%
Utah........................... 7 20 1 28 2.05%
Iowa........................... 3 24 -- 27 1.98%
Washington..................... 9 17 -- 26 1.91%
Louisiana...................... 12 10 2 24 1.76%
Wisconsin...................... 16 7 -- 23 1.69%
Tennessee...................... 2 19 2 23 1.69%
Minnesota...................... 3 17 3 23 1.69%
Massachusetts.................. 7 8 7 22 1.61%
Connecticut.................... 7 10 5 22 1.61%
Alabama........................ -- 19 3 22 1.61%
Maryland....................... 10 8 3 21 1.54%
Nevada......................... 3 9 8 20 1.47%
South Carolina................. 9 6 3 18 1.32%
Oklahoma....................... 5 6 2 13 0.95%
Nebraska....................... 4 8 -- 12 0.88%
Kentucky....................... 3 8 1 12 0.88%
Kansas......................... 2 9 1 12 0.88%
West Virginia.................. 4 6 1 11 0.81%
</TABLE>
Configuration. We have developed a number of retail configurations that have
wide application and adaptability to a variety of retail environments. In
addition to the stores that have been designed for prime mall locations, we
have developed other formats intended to extend our presence within and beyond
mall locations. The introduction of frozen dough technology has led to a number
of new store configurations, expanded product offerings in smaller outlets and
non-traditional formats.
Cookie Stores. All stores are uniformly designed in accordance with the Mrs.
Fields, Original Cookie or Great American prototype, making extensive use of
glass, painted wood, brass, mirrors, lighting and point-of-sale displays
intended to create an upscale, open and inviting look. Stores also attractively
and efficiently display their fresh-baked products using custom-made showcases.
Store size ranges from 350 to 800 square
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feet, and the typical company-owned store is about 600 to 700 square feet with
a minimum of about 15 linear feet of counter space. Locational possibilities
for new stores include high traffic regional malls, central downtown shopping
districts and recreational shopping environments.
Mrs. Fields and its franchisees and licensees also operate cookie kiosks and
carts in a number of malls on a year-round basis. Kiosks have 100 to 250 square
feet of retail space, supported by off-site storage and preparation space.
Carts range in size from 30 to 92 square feet. Currently only the Great
American kiosks have self-contained baking ovens. Because of their small size,
carts and kiosks do not have baking equipment, and are supplied cookie products
by a fully-equipped store usually located in the same mall. We plan to add
baking equipment to carts and kiosks in malls, airports, convention centers,
office buildings, street fronts and sports complexes, giving these outlets
greater flexibility in the products they can offer. All designs contain retail
display, small freezers and cash registers. We see expansion opportunities from
the use of carts, which create incremental revenue at a relatively low cost.
All of the retail store configurations are executed to include the same high-
quality marketing, merchandising and design features which customers have come
to expect from Mrs. Fields. The store designs are bright with high-profile
trademark identity. All products are baked throughout the day on the premises
with ovens located in full view of the customer to support the "fresh-baked"
image.
Pretzel Stores. Hot Sam stores are uniformly designed in accordance with the
Hot Sam brand, making extensive use of tile, stained wood, lighting and point-
of-sale displays intended to create an upscale, open and inviting look. Stores
also attractively and efficiently display their products using custom-made
showcases. The typical company-owned pretzel store is about 500 square feet.
Pretzel Time outlets have an average size of 700 square feet in both kiosks
and store locations. Pretzel Time stores are designed to enable customers to
enjoy watching the pretzels being rolled, twisted and baked, which underscores
freshness and lends to the product's growing appeal.
Location and Leasing. Locational possibilities include any high pedestrian
traffic areas, including second locations within malls, airport concourses,
office building lobbies, hospitals, universities, stadiums, and supermarket
foyers. Taking the impulse nature of its business into consideration, Mrs.
Fields tries to locate its outlets in areas of high pedestrian traffic, with
easy proximity to pedestrian traffic flow and at a distance from other food
providers of any kind.
The majority of Mrs. Fields' stores are located in shopping malls, with the
vast majority of Mrs. Fields brand stores in malls falling into the "A" and "B"
classifications, or the better-quality malls in the country. As of July 3,
1999, Mrs. Fields, including franchise locations, has a presence in 90% of the
top 150 (as measured in sales per foot) "A" and "B" malls in the country. Malls
in "A" and "B" classifications generally have the following characteristics:
. Size greater than 700,000 square feet
. Sales per square foot greater than $300
. Population density greater than 150,000 people within a five-mile radius
. Median family income greater than $50,000
. Generally supported by national fashion anchor tenants
. Located to minimize competition from other malls
Great American stores are located primarily in high-traffic "B" malls.
Marketing and Advertising. Mrs. Fields' in-house marketing department and an
outside promotional agency emphasize product sampling, local store marketing
and brand name identification. We advertise at the
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store level, using the aroma of fresh-baked cookies and the attractive
arrangement of finished products to create a store ambiance that is conducive
to sales. Recently we experimented with an advertising campaign with nationally
televised commercials during peak holiday periods. We cultivate local customer
loyalty by offering regular 20% discounts to employees in malls where stores
are located and occasional other discounts. Historically we have spent
relatively little on paid advertising, relying mainly on in-store signage,
promotions and the public relations of Debbi Fields, who makes store visits and
local media appearances throughout the country and internationally for Mrs.
Fields. In addition to posters and display of products, we promote products by
offering special packaging and selling other promotional items. A promotion for
Mrs. Fields' 20th anniversary featured a tie-in with the popular Peanuts
characters from the syndicated comic strip, a sweepstakes, and gifts with
purchases. Mrs. Fields is currently working on developing catered corporate
accounts for both company-owned and franchised stores and will be building
awareness of products geared toward corporate accounts at the store level for
the local market area and through catalogue sales. We also promote our products
as gifts, particularly at holiday time.
Great American's marketing strategy has emphasized strong merchandising of
its products and the use of proactive sales techniques, including the free
sampling of products and other methods intended to increase the size of
customer orders.
Mail Order Business. Our mail order division markets a variety of fresh-baked
and other gift items through its mail order gift catalogue using toll free
telephone numbers, including "1-800-COOKIES." The mail order division had $5.2
million in revenues during fiscal year 1998. We believe that there is
significant potential in the mail order business and are developing this
division by targeting both corporate customers and individuals with a history
of purchases at Mrs. Fields stores. Sales from the mail order division for the
fiscal year 1999 have increased approximately 9.4% over sales for the prior
fiscal year.
Customer Profile. We believe that our products are best targeted to a
demographic profile which is relatively young, with upper-middle income levels.
At the time of a May 1994 study, 66% of Mrs. Fields' customers were female and
34% were male, the mean age of a customer was 35.1 years of age, and 57% of
customers had a household income of $50,000 or more. We believe that this
demographic profile remains valid.
Seasonality. Our sales and profitability in both the cookie business and the
pretzel business are subject to seasonal fluctuation and are traditionally
higher during the Thanksgiving and Christmas holiday season and other gift-
giving holidays due to increased mall traffic and holiday gift purchases.
Supplies and Distribution
Ingredients and Supplies. We rely primarily on outside suppliers and
distributors for the ingredients used in our products and other items used in
our stores. Mrs. Fields stores receive frozen products, made according to
proprietary recipes of Mrs. Fields, from its primary supplier, Pennant Food
Corp. Pennant uses stringent quality controls in testing ingredients and
manufacturing, and products are not released for distribution unless they pass
all quality control steps, including an evaluation of the finished baked
product. Pennant's contract for making frozen products for Mrs. Fields expires
on December 31, 2000 and is renewable every three years. Pennant supplies the
majority of Mrs. Fields and Original Cookie frozen bakery product. J&J Foods,
Inc. supplies the majority of the frozen pretzel dough to Hot Sam Stores. We
have identified alternative suppliers for frozen dough at Mrs. Fields and Hot
Sam. Pretzel Time stores buy a proprietary dry mix from selected distributors
and mix and bake pretzels at individual stores. Pretzel Time franchisees buy
from various distributors.
Most supplies other than dough are ordered from distributors by either Mrs.
Fields or the franchisee and are directly shipped to the store. We sell
exclusively Coca-Cola soft drinks in Mrs. Fields, Original Cookie, Pretzel
Time, Hot Sam and Great American stores under agreements with Coca-Cola USA
Fountain.
Great American stores receive "ready to bake" refrigerated batter from a
batter facility in Atlanta, which Mrs. Fields acquired in the acquisition of
Great American. The batter, which has a shelf life of about 90 days,
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is stored at the batter facility for an average of one to three weeks,
depending on demand, before being shipped. Most other supplies are ordered from
third-party vendors by Great American or the franchisee and are shipped
directly to the store.
Distribution. Regional distributors handle distribution of perishable and
non-perishable items to Mrs. Fields and Original Cookie stores weekly. Regional
distributors own and maintain all of the inventory, but are authorized to
purchase inventory items only from authorized vendors at prices that have been
negotiated by Mrs. Fields. Hot Sam distributes perishable and non-perishable
items weekly to stores using seven different regional distribution companies.
Pretzel Time franchisees use a variety of distributors. Mrs. Fields ships
equipment related items, including smallwares equipment and oven parts,
directly from public warehouses. Great American stores receive batter from the
Atlanta batter facility by refrigerated common carrier.
Management Information Systems
We have made a substantial investment in developing our point-of-sale system,
which gathers information transmitted daily to corporate headquarters from most
of our Mrs. Fields brand continuing company-owned stores. We also plan to
install our upgraded back-office system, along with the point-of-sale registers
and Pentium computers, in our continuing company-owned Original Cookie stores,
Hot Sam stores, Pretzelmaker stores, Pretzel Time stores and certain Great
American stores by September 1999.
We are currently replacing our sales collection systems with software and
hardware that is Year 2000 compliant. Replacement of the plant production and
distribution software was completed in the first half of 1999 at an estimated
cost of $10,000. For more information on our information technology, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Year 2000."
Management has assessed Year 2000 issues with respect to its significant
vendors and financial institutions as to their compliance plans and whether any
Year 2000 issues will impede the ability of such vendors to continue providing
goods and services to us. See "Risk Factors--failures in Year 2000 compliance
could disrupt our operations."
Store Management
Management Structure. We monitor all company-owned stores with a regionally
based staff of district sales managers. District sales managers are responsible
for monitoring all cookie and pretzel stores in their territory. Until
recently, a separate staff of regionally based franchise operations consultants
had monitored franchisees. We plan to consolidate the franchise operations
consultants with the district sales managers. As a result, each district sales
manager is responsible for overseeing approximately 30 company-owned or
franchised cookie and pretzel stores within his or her region. Each district
sales manager reports to one of the four regional vice-presidents of store
operations. The field staff is also responsible for introducing new products
and processes to the stores, ensuring proper implementation and quality
control.
Management Incentives. Each store has an on-site management team consisting
of a manager and an assistant manager. The store manager is responsible for
hiring, training and motivating store personnel. Each manager of a company-
owned store is eligible for salary increases and bonuses based upon the
performance of his or her store, including sales, profits and store appearance.
We believe that our incentive and other programs for management have achieved a
strong retention rate for managers. Without giving effect to the acquisition of
Great American, 72% of Mrs. Fields' district sales managers have been with Mrs.
Fields for at least four years (67% for over five years), and 51% of Mrs.
Fields' store managers have been with Mrs. Fields for at least four years (40%
for over five years).
Training. We believe store managers are a critical component in creating an
effective retail environment, and accordingly have developed ongoing programs
to improve the quality and effectiveness of our store managers and to increase
retention rates. New store managers are required to attend a two-week training
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program at our Salt Lake City training facility and ongoing training courses in
new products, standards, and procedures are available throughout the year to
all Mrs. Fields personnel. New franchisees and store managers of Great American
are required to attend a one-week training program at Great American's Atlanta
training facility, known as "Cookie University." In addition, training courses
are available throughout the year to all Great American and franchisee
personnel.
Franchise Operations
In accordance with our business strategy, we have been selling, and expect to
continue to sell, selected company-owned stores to franchisees to reduce costs,
increase profitability and provide for liquidity and development of additional
stores in the future. We are also actively seeking to franchise new stores.
Cookie Business. Each franchisee pays Mrs. Fields an initial licensing fee of
$25,000 per Mrs. Fields store location and is responsible for funding the
building-out of the new store and purchasing initial dough inventory and
supplies, at a total cost of approximately $200,000, including the initial
franchise fee. However, the cost of opening a new store can vary based on
individual operating and location costs. We also charge franchisees a fee to
handle equipment purchases and to provide other assistance in helping the
franchisee to set up operations. After a store is set up, a franchisee pays
royalty fees to us of 6% of the franchised store's annual gross sales, and an
advertising fee of 1% of annual gross sales. We do not currently anticipate
franchising Original Cookie stores.
Franchisees come from a wide variety of business backgrounds and bring with
them different operating styles and business objectives. Among our franchisees
are full-time store operators, passive investors, retired professionals and
people seeking a second source of income. The majority of Mrs. Fields
franchisees own one store. As of January 2, 1999, the 22 largest Mrs. Fields
franchisees operated 164 stores, and the largest Mrs. Fields franchisee
operated 14 stores.
Each Great American franchisee pays an initial licensing fee of $25,000 per
store and is responsible for funding the build-out of the new store and
purchasing initial batter inventory and supplies, at a total cost of
approximately $164,000, including the initial licensing fee. However, the cost
of opening a new store can be significantly higher for franchisees who purchase
existing company-owned stores and otherwise varies based on individual
operating and location costs. We also charge franchisees a fee to purchase
equipment and to provide other assistance in helping the franchisee to set up
operations.
Pretzel Business. We do not franchise Hot Sam stores. We are a franchisee of
87 Pretzel Time stores, with rights to sub-franchise, if desired. Each
franchisee pays Pretzel Time an initial licensing fee of $25,000 per new
Pretzel Time store location and is responsible for funding the building-out of
the new store and supplies, at a total cost of approximately $190,000 to
$240,000, including the initial franchise fee. However, the cost of opening a
new store can vary based on individual operating and location costs. Pretzel
Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After
a store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual
gross sales.
Franchisee Recruiting and Training. We have been successful in recruiting
franchisees and completing franchise transactions and believe we will continue
to realize significant cash flow from franchising by:
(1) emphasizing the use of proprietary dough that minimizes product quality
issues and ensures a consistent product across all outlets,
(2) frequent quality, service and cleanliness evaluations of franchised
stores by operations support staff, and
(3) initial and continuing training of franchisees to improve their
financial and retail sales skills.
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We believe our franchisees are a critical component in creating an effective
retail environment, and accordingly we make our ongoing programs available to
franchisees to improve their quality and effectiveness. Franchisees are
required to attend a two-week training program at our Salt Lake City training
facility and ongoing training courses in new products, standards, and
procedures are available throughout the year to all franchisee personnel.
Licensing
In the past few years, we have utilized a "branding" strategy which has
capitalized on the highly-recognized Mrs. Fields brand to build traffic, expand
sales, improve market share, and to increase profits through cultivating
different ways of distributing our products. The following is a comprehensive
list of branding strategies, with examples of current licensees within Mrs.
Fields' system:
Concept Licensing. We have developed a licensing program for non-mall
retail outlets that enables us to enter difficult-to-reach markets and
facilitate brand exposure through "presence" and "prestige" marketing. Our
licensees duplicate the Mrs. Fields store concept and purchase dough from
our various distributors. Several of these licensees are contract
management companies that manage and operate food service in host
locations. Our licensees include Host Marriott, which sells our product in
airports and travel plazas, ARAMark, which sells our product in stadiums
and convention centers and Holiday Inn Worldwide, which sells our product
in hotels.
Retail Licensing. We plan to capitalize on our brand awareness and the
perception of quality among consumers to expand the product line to include
products sold in other retail environments, including refrigerated dough,
dry-mix and non-food products, and other applications outside the original
scope of our retail cookie store concept. A current example is Maxfield's
Chocolates, which has the exclusive United States rights to retail boxed
chocolates. Another licensee is Wham-O, Inc., which has a license to market
the Mrs. Fields Baking Oven for children sold in most toy stores and
through mass merchandisers.
Supply Licensing. We currently have arrangements with United Airlines and
TWA under which our mail order division sells cookies to the airlines and
allows the airlines to promote the Mrs. Fields brand and products to their
first-class customers. We are pursuing similar relationships to compete
with other manufacturers' brands selling in this business.
Competition
We compete for both leasing opportunities and customers with other cookie and
pretzel retailers, as well as other confectionery, sweet snack and specialty
food retailers, including cinnamon rolls, yogurt, ice cream, baked goods and
candy shops. The specialty retail food and snack industry is highly competitive
with respect to price, service, location and food quality, and there are many
well-established competitors with greater resources than those of Mrs. Fields.
We compete with these retailers on the basis of price, quality, location and
service. We face competition from a wide variety of sources, including such
companies as Cinnabon, Inc., TCBY Yogurt Inc., Auntie Anne's Soft Pretzels, and
Baskin-Robbins 31 Flavors.
Properties
As of July 3, 1999, we leased 796 retail stores, of which 304 were subleased
to franchisees under terms which cover all obligations of Mrs. Fields
thereunder. Under our franchise agreements, we have rights to gain control of a
retail site in the event of default under the lease or the franchise agreement.
Most of our operating leases provide for the payment of lease rents plus real
estate taxes, utilities, insurance, common area charges and certain other
expenses, as well as contingent rents which generally range from 8% to 10% of
net retail store sales in excess of stipulated amounts. See "Risk Factors--We
may not be able to obtain leases in the future; our success depends in part on
our ability to obtain leases in high quality shopping malls at reasonable
rents" and "--We have continuing obligations under real estate leases; if we
close an unprofitable store but must still make lease payments on it, we will
lose money."
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We lease 31,000 square feet of office space in Salt Lake City, Utah, which we
use as our corporate headquarters. We also lease approximately 20,000 square
feet of office space in Salt Lake City, Utah for our product development,
training and mail order operations. We own substantially all of the equipment
used in both of these facilities and in company-owned retail outlets. Great
American owned its headquarters and batter production facility, located in a
building of approximately 28,000 square feet in Atlanta, Georgia. We acquired
this facility in the acquisition of Great American. Great American's
headquarters have been transferred to Salt Lake City since the acquisition of
Great American. The batter facility remains in Atlanta.
Employees
As of July 3, 1999, we had approximately 4,086 employees in company-owned
stores, of whom approximately 802 were store managers and assistant store
managers and 3,284 were part-time sales assistants. The typical Mrs. Fields
store employs 5 to 13 employees. During the period from November through
February, we may hire as many as 750 additional part-time employees to handle
additional mall traffic. Most employees are paid on an hourly basis, except
store managers. Our employees are not unionized. We have never experienced any
significant work stoppages and believe that our employee relations are good.
Many of our employees are paid hourly rates based upon the federal minimum
wage. The federal minimum wage increased from $4.75 to $5.15 on September 1,
1997. As of July 3, 1999, 851 of our 4,086 employees in company-owned stores
earned the federal minimum wage. The September 1, 1997 minimum wage increase is
expected to negatively impact our labor costs, increasing wages by
approximately $354,000 annually, but management believes this impact can be
negated in the long-term through increased efficiencies in our operations and,
as necessary, through retail price increases.
Trademarks
We are the holder of numerous trademarks that have been federally registered
in the United States and in other countries located throughout the world. We
are a party to disputes with respect to trademarks, none of which, in the
opinion of management of Mrs. Fields, is material to our business, financial
condition or results of operations.
We currently hold 52 trademarks that are federally registered in the United
States and 141 trademarks that are registered in 48 countries outside the
United States. Our trademarks consist of various brand and product names and
logos. Trademarks are registered under United States laws for periods of 7 to
10 years and in other countries for periods of 7 to 20 years, and at any time,
we may have trademarks whose registration will soon expire and must be renewed.
Under our license agreements, our licensees receive the rights to use our
recipes and our registered trademarks. We view our trademarks and the ability
to license them to third parties, as some of our most valuable assets.
Legal Proceedings; Government Regulation
In the ordinary course of business, we are involved in routine litigation,
including franchise disputes and trademark disputes. Except as described below,
we are not a party to any legal proceedings which, in the opinion of management
of Mrs. Fields, after consultation with legal counsel, is material to our
business, financial condition or results of operations.
In connection with the initial discussions relating to the acquisition of
Great American, on or about September 12, 1997, 9 franchisees of Great American
filed an action challenging a possible acquisition of Great American by Mrs.
Fields. Under settlement agreements and waivers with most Great American
franchisees, those franchisees released all claims with respect to this
litigation. It was a condition of the acquisition of Great
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<PAGE>
American that this litigation be dismissed with prejudice. A motion dismissing
the litigation with prejudice was filed on August 24, 1998. See "The
Transactions--The Great American Transactions."
Our stores and products are subject to regulation by numerous governmental
authorities, including, without limitation, federal, state and local laws and
regulations governing health, sanitation, environmental protection, safety and
hiring and employment practices.
75
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the executive
officers and directors of Mrs. Fields as of July 3, 1999. The directors are
also directors of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Larry A. Hodges.......... 50 Director, President and Chief Executive Officer
Pat W. Knotts............ 44 Senior Vice President of Operations
Garry Remington.......... 47 Senior Vice President of Real Estate
Mark S. Tanner........... 45 Senior Vice President and Chief Financial Officer
Michael R. Ward.......... 41 Vice President, General Counsel and Secretary
Herbert S. Winokur, Jr... 55 Chairman of the Board of Directors
Richard Ferry............ 61 Director
Debbi Fields............. 43 Director
Nat Gregory.............. 50 Director
Walker Lewis............. 54 Director
Peter Mullin............. 58 Director
Gilbert Osnos............ 69 Director
</TABLE>
Mr. Hodges has been President and Chief Executive Officer of Mrs. Fields Inc.
and Mrs. Fields since March 1994, and a Director of Mrs. Fields and Mrs. Fields
Holding since April 1993. From 1992 to 1994, Mr. Hodges was the Chief Executive
Officer of Food Barn Stores, Inc. (Kansas City, Missouri). Earlier Mr. Hodges
was a consultant to various manufacturers and retailers. For 25 years, Mr.
Hodges was with American Stores Company where he served as President of two of
its subsidiaries ranging in annual sales from $600 million to $2.3 billion. Mr.
Hodges has over 32 years of experience in the retail field serving as president
of four supermarket chains and consultant and director to large food companies.
Mr. Hodges is a director of Ameristar Casinos, Inc. and Coinstar, Inc.
Mr. Knotts has been Senior Vice President of Mrs. Fields since October 1996.
Mr. Knotts' responsibilities include all aspects of store operations and
related support functions. Between January 1992 and October 1996, Mr. Knotts
served as Executive Vice President of Operations for Original Cookie and Hot
Sam, where he was responsible for store operations, marketing, purchasing,
construction and store design. Mr. Knotts also held the position of Regional
Vice President of Stores for Silo Inc., a $1 billion consumer electronics and
major appliance chain.
Mr. Remington has been Senior Vice President of Real Estate of Mrs. Fields
since July 1997. Mr. Remington's responsibilities include all aspects of real
estate, store construction, remodels and lease negotiations. Between October
1996 and July 1997, Mr. Remington served as Vice President of Real Estate for
Sbarro, Inc. From 1994 to 1996, Mr. Remington held the position of Senior Vice
President of Leasing for the Woolworth Corporation, with responsibilities for
Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other
divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director
of Leasing for the Woolworth Corporation, which he joined in 1972.
Mr. Tanner has been Chief Financial Officer and Senior Vice President of
Finance & Administration since June 1999. Prior to Mrs. Fields, Mr. Tanner held
the position of CFO and Sr. Vice President with the Salt Lake Organizing
Committee for the XIX Olympic Winter Games, where he was responsible for
finance and administration. Prior to SLOC, Mr. Tanner was Vice President and
CFO for Pepsi Cola International's operations in Asia, the Middle East, and
Africa (AMEA). He also held the positions of Vice President of Strategic
Planning & Finance for Pepsi Cola North America, and Chief Financial Officer,
Eastern Division of Pepsi Cola during his tenure with Pepsi Cola.
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<PAGE>
Mr. Ward serves as Vice President, General Counsel and Secretary for Mrs.
Fields. Mr. Ward's responsibilities include management of our Legal Department.
Between 1991 and 1996, Mr. Ward's responsibilities were overseeing the Legal
Department and the Human Resources Department for Mrs. Fields Inc. He is
admitted to practice law in the State of Utah. Mr. Ward was appointed acting
Chief Financial Officer on April 30, 1999 and acted in that capacity prior to
Mr. Tanner's assuming responsibilities of Chief Financial Officer.
Mr. Winokur has been Chairman of the Board of Directors of Mrs. Fields and
Mrs. Field's Holding since their inception in September 1996. Mr. Winokur is
managing member of Capricorn Holdings, L.L.C., the General Partner of
Capricorn. Mrs. Fields is owned by Mrs. Fields' Holding, a portfolio company of
Capricorn which owns the majority of Mrs. Field's Holding's stock. Mr. Winokur
is President of Winokur Holdings, Inc. (an investment company) and Managing
General Partner of Capricorn Investors, L.P. and Capricorn, private investment
partnerships concentrating on investments in restructure situations, organized
by Mr. Winokur in 1987 and 1994, respectively. Prior to his current
appointment, Mr. Winokur was Senior Executive Vice President and Director of
Penn Central Corporation. Mr. Winokur is also a Director of NAC Re Corporation,
The WMF Group, Ltd., C.C.C. Information Services Corp., Inc., DynCorp., and
Enron Corp.
Mr. Ferry has been a Director of Mrs. Fields since its inception in September
1996. Mr. Ferry is co-founder and Chairman of Korn/Ferry International, the
world's leading executive search firm. Mr. Ferry is on the Board of Directors
of Avery Dennison, Dole Food Company and Pacific Life Insurance Company.
Debbi Fields has been a Director of Mrs. Fields since its inception in
September 1996. Debbi Fields founded a predecessor to Mrs. Fields in 1977 and
served as President and Chief Executive Officer until 1993. She currently
serves on the Board of several non-profit organizations and lectures throughout
the United States to Fortune 500 companies. Debbi Fields is a director of
Outback Steakhouse, Inc.
Mr. Gregory has been a Director of Mrs. Fields since its inception in
September 1996. Since 1993, Mr. Gregory has served as Chairman and Chief
Executive Officer of NATCO, an international supplier of oilfield production
equipment, which is a portfolio company of Capricorn. Mr. Gregory is a member
and managing director of Capricorn Holdings, L.L.C., the General Partner of
Capricorn, and a director of Marine Drilling Companies, Inc.
Mr. Lewis has been a Director of Mrs. Fields since its inception in September
1996. Mr. Lewis is the Chairman of Devon Value Advisers. Mr. Lewis served as
Chairman of Strategic Planning Associates, specializing in shareholder value
strategies. Mr. Lewis was a Senior Advisor at Dillon Read & Co., Inc. and his
company, Devon Value Advisors, continues to act as a consultant to Dillon Read.
He was a Managing Director of Kidder, Peabody & Co., Inc., President of Avon
North America and Executive Vice President of Avon Products, Inc. Mr. Lewis has
served on the Board of Directors of Owens Corning, American Management Systems,
Incorporated, Jostens, Inc., Marakon Associates and London Fog.
Mr. Mullin has been a Director of Mrs. Fields since its inception in
September 1996. Mr. Mullin founded Mullin Consulting, Inc. in Los Angeles in
1969, and serves as its Chairman and Chief Executive Officer. He also co-
founded Strategic Compensation Associates and serves as Chairman of the firm's
Executive Committee. Mr. Mullin is a member of the Board of Directors of Avery
Dennison Corporation, 1st Business Bank, Process Technology Holdings, Inc.,
Golden State Vintners, M Life Insurance Company and the Board of Advisors of
CMS Companies.
Mr. Osnos has been a Director of Mrs. Fields since its inception in September
1996. Mr. Osnos has served since 1992 as Chairman of Osnos & Company, which
provides interim management to companies. He has served as Interim
President/CEO/COO to a large array of companies in manufacturing, distribution,
retailing and service industries. In 1979 he joined the predecessor firm and
became a partner in 1981. He has been Chairman of the Turnaround Management
Association and a member of its Board since prior to 1993. He is also on the
Board of Directors of Furr's/Bishop's, Inc. He serves on the Advisory Committee
of Business Executive for National Security in the New York Chapter.
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<PAGE>
Executive Compensation
The following table sets forth information with regard to compensation for
services rendered in all capacities to Mrs. Fields by its Chief Executive
Officer and the four other most highly compensated executive officers of Mrs.
Fields other than the CEO who were serving as executive officers at the end of
the last completed fiscal year. Information described in the table reflects
compensation earned by these individuals for services with Mrs. Fields or its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
-------------------------------------- ----------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Salary Bonus Compensation Award(s) Options/SARS(7) Compensation
Principal Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- -------- -------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry Hodges 1998 $339,583 $150,000 $4,833 $ -- -- $471,000(8)
President and CEO 1997 300,000 185,412 2,177 50,000(6) -- --
1996 262,834 -- 1,656 -- 229,992 --
L. Tim Pierce(9) 1998 193,430 70,000 2,634 -- -- --
Senior Vice President 1997 175,000 103,607 1,287 -- -- 71,867(8)
and CFO 1996 167,723 -- 1,107 -- 32,856 33,000(1)
Pat Knotts 1998 191,699 70,000 -- -- -- --
Senior Vice President 1997 162,500 27,321 -- -- -- 23,920(3)
Operations 1996 172,490 267,212(2) -- -- 32,856 2,912(4)
Michael Ward 1998 135,385 50,000 1,370 -- -- --
Vice President 1997 109,904 56,393 619 -- -- 39,488(8)
Legal and
Administration 1996 83,020 -- 526 -- 24,642 --
Garry Remington 1998 180,000 33,945 -- -- -- --
Senior Vice President 1997 82,859 -- -- -- 24,642 46,707(5)
Real Estate 1996 -- -- -- -- -- --
</TABLE>
- --------
(1) Represents forgiveness of a loan made by Mrs. Fields Inc. in 1993.
(2) Represents payments under retention and employment agreements from Original
Cookie/Hot Sam.
(3) Represents payment of relocation expenses of $20,920 and a grant of $3,000
under the Original Cookie 401(k) plan.
(4) Represents a grant under the Original Cookie 401(k) plan.
(5) Represents payment of relocation expenses.
(6) 50% of the restricted shares vested on January 1, 1999 and the other 50%
vest on January 1, 2000.
(7) The stock options for common stock of Mrs. Fields' Holding have 10-year
terms and were granted as of September 1996, with the exception of Garry
Remington's, which were granted as of July 1997. All options have an
exercise price of $10.00 per share, with the exception of Garry
Remington's, which have an exercise price of $13.00 per share.
(8) Represents payment under Mrs. Field's Inc. Management Value Creation Plan.
(9) Mr. Pierce resigned from Mrs. Fields on April 30, 1999. Mrs. Fields bought
back his vested shares of stock for $291,560 and entered into a severance
agreement with him for $20,000.
Option Grants and Exercises
The Board of Directors of Mrs. Fields' Holding approved the provisions of a
director stock option plan (the "Director Stock Option Plan"), providing for
the issuance of common stock, par value $.001 per share, of Mrs. Fields'
Holding to directors of Mrs. Fields' Holding, and an employee stock option plan
(the "Employee Stock Option Plan" and, together with the Director Stock Option
Plan, the "Plans"), providing for the issuance of options to purchase common
stock of Mrs. Fields' Holding to officers and other employees of Mrs. Fields'
Holding and its subsidiaries, including Mrs. Fields. The Plans provide for the
issuance of options to purchase an total of 542,840 shares of common stock of
Mrs. Fields' Holding to directors of Mrs. Field's Holding and officers and
employees of Mrs. Fields' Holding's subsidiaries, including Mrs. Fields, of
which 375,840 shares, representing approximately 10% of the total common stock
of Mrs. Fields' Holding on a fully
78
<PAGE>
diluted basis, after giving effect to the issuance of stock under the warrants
to purchase common stock of Mrs. Fields' Holding and to issuances of stock
under options currently issued to directors and employees under the Plans, have
been issued. See "Beneficial Ownership of Capital Stock."
Board Compensation
The Board of Directors of Mrs. Fields meets regularly on a quarterly basis
and more often as required. Board members, other than officers of Mrs. Fields
and Mr. Winokur, Mr. Gregory and Ms. Fields, are compensated for services
rendered annually as follows:
(1) $12,000 cash; and
(2) grants of options to purchase common stock of Mrs. Fields' Holding,
under the Director Stock Option Plan.
The Board of Directors of Mrs. Fields' Holding approved the award of options
under the Director Stock Option Plan to purchase 3,350 shares of common stock
of Mrs. Fields' Holding to each of Messrs. Ferry, Gregory, Lewis, Osnos and
Winokur as of January 1, 1997, at an exercise price of $10.00 per share, and
the award of options to purchase 1,792 shares of common stock of Mrs. Fields'
Holding as of January 1, 1998, at an exercise price of $16.74 to each of the
same directors, with the options of Messrs. Gregory and Winokur being issued to
Capricorn.
The Board members were also offered an opportunity to acquire shares of
common stock of Mrs. Fields' Holding under a director stock purchase plan (the
"Director Stock Purchase Plan"). The compensation in shares that would be
payable or issuable to Messrs. Winokur and Gregory will be paid to Capricorn. A
total of 51,667 vested shares of common stock of Mrs. Fields' Holding and
28,333 restricted shares of common stock of Mrs. Fields' Holding have been
issued to directors and officers of Mrs. Fields under the Director Stock
Purchase Plan.
Board Committees
Three functioning committees of the Board have been organized: an Executive
Committee, a Compensation Committee and an Audit Committee. Following is a
brief description of each of these committees.
Executive Committee. The Executive Committee is composed of Messrs. Winokur
(Chairman), Gregory and Hodges. The purpose of this committee is to act on the
behalf of the entire Board of Directors between Board meetings.
Compensation Committee. The Compensation Committee is composed of Messrs.
Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to
ensure that Mrs. Fields has a broad plan of executive compensation that is
competitive and motivating to the degree that it will attract, hold and inspire
performance of managerial and other key personnel of a quality and nature that
will enhance the growth and profitability of Mrs. Fields.
Audit Committee. The Audit Committee is comprised of Messrs. Ferry (Chairman)
and Osnos. The purpose of the Audit Committee is to provide oversight and
review of Mrs. Fields' accounting and financial reporting process in
consultation with Mrs. Fields' independent and internal auditors.
Indemnification and Compensation
Mrs. Fields' By-Laws authorize Mrs. Fields to indemnify its present and
former directors and officers and to pay or reimburse expenses for those
individuals in advance of the final disposition of a proceeding upon receipt of
an undertaking by or on behalf of those individuals to repay any amounts if so
required.
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<PAGE>
Employment Agreements
All of the executive officers are parties to employment agreements with Mrs.
Fields. Each employment agreement provides for a period of employment of two
years (or three years, in the case of Larry Hodges) from the date of the
agreement, subject to termination provisions and to automatic extension of the
agreement. Each employment agreement permits the employee to participate in any
incentive compensation plan adopted by Mrs. Fields to replace the Fiscal 1994
Incentive Compensation Plan of Mrs. Fields Inc., benefit plans and an equity-
based plan or arrangement. If Mrs. Fields terminates employment for cause or if
the employee terminates employment without good reason, Mrs. Fields has no
further obligation to pay the employee. If Mrs. Fields terminates employment
without cause, or the employee terminates employment with good reason, the
employee can receive in severance pay the amount equal to the product of his or
her then current semi-monthly base salary by the greater of the number of semi-
monthly periods from the notice of termination or 36 semi-monthly periods, plus
a portion of any discretionary bonus that would otherwise have been payable.
The employment agreement prohibits the employee, for a year from the date of
termination of employment under the agreement, from becoming an employee,
owner, officer, agent or director of a firm or person that directly competes
with Mrs. Fields in a line or lines of business of Mrs. Fields' that accounts
for 10% or more of Mrs. Fields' gross sales, revenues or earnings before taxes.
An exception is made for investments of not more than 3% of the equity of a
company listed or traded on a national securities exchange or an over-the-
counter securities exchange. The employment agreements have customary
provisions for vacation, fringe benefits, payment of expenses and automobile
allowances. The employees who have employment agreements, and their base
salaries, are: Larry Hodges, President and Chief Executive Officer, $350,000,
Pat Knotts, Senior Vice President of Operations, $215,000, Michael Ward, Vice
President, General Counsel and Secretary, $150,000 and Garry Remington, Senior
Vice President of Real Estate, $190,000.
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<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
As of the date of this prospectus, all of the capital stock of Mrs. Fields is
owned by Mrs. Fields' Holding, whose address is 2855 East Cottonwood Parkway,
Suite 400, Salt Lake City, Utah 84121. The following table shows certain
information, as of June 1, 1999, believed by us to be accurate based on
information provided to it concerning the beneficial ownership of common stock
by each stockholder who is known by Mrs. Fields to own beneficially in excess
of 5% of the outstanding common stock, and by each director, Mrs. Fields' Chief
Executive Officer, each of Mrs. Fields' other four most highly compensated
executive officers and all officers and directors as a group, as of June 1,
1999. The stockholders listed below are deemed beneficial owners of common
stock of Mrs. Fields as a result of their ownership of common stock of Mrs.
Fields' Holding, the owner of 100% of the capital stock of Mrs. Fields. Except
as otherwise indicated, all persons listed below have (1) sole voting power and
investment power with respect to their shares, except to the extent that
authority is shared by spouses under applicable law, and (2) record and
beneficial ownership with respect to their shares. The shares and percentages
described below include shares of common stock which were outstanding or
issuable within 60 days upon the exercise of options outstanding as of June 1,
1999 and give effect to the exercise of the warrants issued by Mrs. Fields'
Holding. See "Management--Option Grants and Exercises" and "--Board
Compensation," As of June 1, 1999, there were eight record holders of common
stock of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Common Stock
--------------------
Number of Percentage
Title of Class Name of Beneficial Owner Shares of Class
-------------- ------------------------ --------- ----------
<C> <S> <C> <C>
Capricorn Investors II,
Common stock, par L.P.(1)(2)(3).................. 3,181,513 86.1%
value $0.001 per share, Larry Hodges(2)(3)............. 89,141 2.5%
of Mrs. Fields' Holding Peter Mullin(2)(3)............. 17,123 0.5%
Richard Ferry(2)(3)............ 12,123 0.3%
Walker Lewis(2)(3)............. 9,623 0.3%
Gilbert Osnos(2)(3)............ 9,623 0.3%
Pat Knotts(3).................. 14,785 0.4%
Michael Ward(3)................ 11,500 0.3%
Garry Remington(3)............. 6,435 0.2%
All executive officers and
directors
as a group (8
persons)(2)(3)(4)............. 3,351,866 90.9%
</TABLE>
- --------
(1) The address of Capricorn is 30 East Elm Street, Greenwich, CT 06830.
(2) Larry Hodges, Peter Mullin, Richard Ferry, Walker Lewis and Gilbert Osnos
are directors of the Company. Herbert Winokur and Nat Gregory are managing
member and member, respectively, of Capricorn Holdings, L.L.C., the General
Partner of Capricorn, and are directors of Mrs. Fields. See "Management."
(3) The shares and percentages include shares subject to options granted to
directors and officers of Mrs. Fields that are currently vested as of June
1, 1999, as follows: Capricorn, 4,246 shares; Mr. Hodges, 59,141 shares;
Mr. Mullin, 2,123 shares; Mr. Ferry, 2,123 shares; Mr. Lewis, 2,123 shares;
Mr. Osnos, 2,123 shares; Mr. Knotts, 14,785 shares; Mr. Ward, 11,500
shares; and Mr. Remington, 6,434 shares; all executive officers and
directors as a group, 104,598. Capricorn's shares include the 101,419
shares to be issued under the Assignment and Assumption Agreement. An
economically equivalent transaction may be entered into instead. See
"Certain Relationships and Related Transactions."
(4) Includes shares beneficially owned by Capricorn.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with Debbi Fields and Affiliates. In November 1996, Mrs. Fields
entered into a consulting agreement with Debbi Fields, a director of Mrs.
Fields, under which Debbi Fields travels and performs public relations and
advertising activities on behalf of Mrs. Fields for at least 50 days a year for
a fee of $250,000 per year, with an option to perform 20 additional days a year
for additional pay of $5,000 per day. The compensation increased by 10% a year
beginning on January 1, 1999. The consulting agreement expires on December 31,
1999. Mrs. Fields may terminate the consulting agreement for cause and Debbi
Fields may terminate the consulting agreement at any time. Under the consulting
agreement, Debbi Fields may not disclose any confidential information of Mrs.
Fields, including recipes and trade secrets, and may not, without the prior
written consent of Mrs. Fields, compete with Mrs. Fields.
In addition, Mrs. Fields has a license agreement with FSG Holdings, Inc., a
Delaware Corporation, under which Debbi Fields has a nonexclusive license to
use certain trademarks, names, service marks and logos of Mrs. Fields in
connection with book and television series projects. Debbi Fields is required
to pay 50 percent of any gross revenues in excess of $200,000 that she receives
from the book and television series projects to Mrs. Fields as a license fee.
Mrs. Fields, until recently, leased certain office space to an entity which
is owned in part by Debbi Fields. Billings to the entity for the fiscal years
ended January 3, 1998 and January 2, 1999 totaled approximately $274,000 and
$0, respectively, of which approximately $23,000 and $0 is included in accounts
receivable as of January 3, 1998 and January 2, 1999, respectively. The lease
was terminated in the first quarter of fiscal year 1998. Mrs. Fields believes
that the arrangements were on terms that could have been obtained from an
unaffiliated third party.
Arrangements with Walker Lewis. Mr. Lewis, a director of Mrs. Fields, acts as
a consultant and an advisor to Dillon Read. Mr. Lewis' company, Devon Value
Advisers, received a fee of $250,000, plus expenses, from Mrs. Fields in the
first quarter of 1998 under an agreement to provide advisory acquisition and
consulting services to Mrs. Fields. Mrs. Fields believes that the arrangements
were on terms that could have been obtained from an unaffiliated third party.
Korn/Ferry Agreement. Mrs. Fields has paid fees of approximately $157,000 and
$70,600 during the years ended January 3, 1998 and January 2, 1999,
respectively, to Korn/Ferry International, an executive search firm of which
Richard Ferry, a director of Mrs. Fields, is the Chairman, in connection with
the hiring of employees for Mrs. Fields. Mrs. Fields believes that the
arrangements are on terms that could have been obtained from an unaffiliated
third party.
Arrangements With Mrs. Fields' Holding. Mrs. Fields and Mrs. Fields' Holding
expect to enter into a Tax Sharing Agreement as defined in and permitted by the
indenture. See "Description of Notes--Certain Covenants."
As of January 3, 1998 and January 2, 1999, Mrs. Fields had payables of
$105,000 and $150,000 due to Mrs. Fields' Holding, respectively, and as of July
3, 1999, a receivable of $16,500 due from Mrs. Fields' Holding. The receivables
stem primarily from goods sold and an allocation of payroll and other operating
expenses. Mrs. Fields believes that the terms of the sale and allocations are
essentially equivalent to the terms that would have been obtained from an
unaffiliated third party in a similar transaction.
Incentive Arrangements. Under a senior management value creation plan that
was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of its
formation in September 1996, the following payments were made in 1998: $471,484
to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a
vice president of Mrs. Fields Inc. Mr. Hodges used $250,000, representing
substantially all of this payment after his payment of related taxes, to
purchase 25,000 shares of common stock of Mrs. Fields' Holding at $10.00 per
share.
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Director Stock Purchase Plan. Each of the directors of Mrs. Fields was
offered an opportunity to purchase common stock of Mrs. Fields Holding under
the Director Stock Purchase Plan. Under the Director Stock Purchase Plan,
shares of common stock of Mrs. Fields' Holding, either restricted or vested,
can be issued to outside directors of Mrs. Fields' Holding and its
subsidiaries, including Mrs. Fields. Restricted shares vest 50% on January 1,
1999 and 50% on January 1, 2000, or earlier, upon a change of control of Mrs.
Fields' Holding or Mrs. Fields. See "Management--Board Compensation." A total
of 51,667 vested shares of common stock of Mrs. Fields Holding and 28,333
restricted shares of common stock of Mrs. Fields Holding have been issued to
directors and officers of Mrs. Fields under the Director Stock Purchase Plan.
The Plans. Under the Employee Stock Option Plan, a committee of the Board of
Directors is authorized to administer the Employee Stock Option Plan and has
the power, among other things, to grant awards to officers and other employees
of Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields, of options
for common stock of Mrs. Fields' Holding. The Employee Stock Option Plan
provides for the issuance of three types of options. Performance vested options
are deemed to be vested 20% for fiscal year 1997 and vest an additional 20% per
year for each subsequent fiscal year in which there is a 10% increase in the
implied valuation of Mrs. Fields, which is equal to the excess of 5.5 times
Adjusted EBITDA for that fiscal year over net debt at the end of that fiscal
year. Time vested options vest 25% per year on the anniversaries of the dates
on which they are granted, and vest in full upon a change of control of Mrs.
Fields' Holding or Mrs. Fields. Upside options vest upon the earlier to occur
of the expiration of the option and a change of control, in accordance with
internal rate of return targets:
(1) if the IRR through the vesting date is less than 20%, the option
will not vest;
(2) if the IRR is from 20% to 24.99%, the option will vest one-third;
(3) if the IRR is from 25% to 29.99%, the option will vest two-thirds;
and
(4) if the IRR is at least 30%, the option will vest in full.
IRR means, as of any date, the internal rate of return, determined in
accordance with generally accepted practice, on one share of common stock of
Mrs. Fields' Holding calculated from September 18, 1996, through the date as of
which the determination is being made, using
(1) a value of $10.00 per share at September 18, 1996 (subject to
adjustments),
(2) if the relevant date is the date of a change of control, the value
paid under or implicit in the change of control transaction (as
determined in good faith by a committee of the Board of Directors),
and
(3) if the relevant date of determination is the expiration of such
option, the value determined in good faith based on the implied
valuation for the four most recent fiscal quarters for which
financial statements are available.
A total of 492,840 shares of common stock of Mrs. Fields' Holding have been
reserved for issuance under the Employee Stock Option Plan. Stock issued under
the Employee Stock Option Plan is subject to customary restrictions on
transfer.
Under the Director Stock Option Plan, a committee of the Board is authorized
to administer the Director Stock Option Plan and has the power, among other
things, to grant awards of options for common stock of Mrs. Fields' Holding to
outside directors of Mrs. Fields' Holding and its subsidiaries, including Mrs.
Fields. The Director Stock Option Plan provides for the issuance of time vested
options, which vest 25% per year on the anniversaries of the dates on which
they are granted, and vest in full upon a change of control of Mrs. Fields'
Holding or Mrs. Fields. An total of 50,000 shares of common stock of Mrs.
Fields' Holding are reserved for issuance under the Director Stock Option Plan.
Common stock of Mrs. Fields' Holding issued under the Director Stock Option
Plan is subject to customary restrictions on transfer. Options have been
awarded under the Director Stock Option Plan to each of Messrs. Ferry, Gregory,
Lewis, Osnos and Winokur
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<PAGE>
to purchase 3,350 shares of common stock of Mrs. Fields' Holding as of January
1, 1997, at an exercise price of $10.00 per share, and to purchase 1,792 shares
of common stock of Mrs. Fields' Holding as of January 1, 1998, at an exercise
price of $16.74 per share, with the options of Messrs. Gregory and Winokur
being issued to Capricorn.
The Stockholders' Agreement. Mrs. Fields' Holding has entered into a
stockholders' agreement with its stockholders. The stockholders' agreement
gives rights of first refusal to Mrs. Fields' Holding if any Mrs. Fields'
Holding stockholder receives an offer to purchase common stock of Mrs. Fields'
Holding and, if Mrs. Fields' Holding does not exercise its rights, gives the
rights of first refusal to other Mrs. Fields' Holding stockholders. In the
event of a sale to a third party approved by Capricorn, Capricorn has the right
to require the other Mrs. Fields' Holding stockholders to sell their common
stock of Mrs. Fields' Holding (the "Drag Along"). If Capricorn sells any common
stock of Mrs. Fields' Holding, the other Mrs. Fields' Holding stockholders will
have the opportunity to sell their common stock of Mrs. Fields' Holding in
proportion to their holdings (the "Tag Along"). The stockholders' agreement
also provides for piggyback registration rights for all Mrs. Fields' Holding
stockholders, and gives one Mrs. Fields' Holding stockholder demand
registration rights. The stockholders' agreement gives Mrs. Fields' Holding the
option to purchase all of the common stock of Mrs. Fields' Holding held by an
officer or director that holds common stock of Mrs. Fields' Holding if the
officer or director is terminated. If an officer or director is terminated
other than for cause, the officer or director has the right to sell shares to
Mrs. Fields' Holding. The stockholders' agreement provides for customary
restrictions on transfer of common stock of Mrs. Fields' Holding. The holders
of warrants to purchase common stock of Mrs. Fields' Holding will be subject to
the Drag Along and benefit from the Tag Along.
Arrangements With Capricorn. On May 27, 1999, Mrs. Fields, Mrs. Fields'
Holding, Pretzel Time, Martin Lisiewksi and Capricorn entered into an
assignment and assumption agreement under which Capricorn agreed to assume a
payment obligation of Mrs. Fields of $2,000,000 for Pretzel Time stock held by
Mr. Lisiewksi that is due on December 31, 1999. In a related transaction on the
same date, Capricorn and Mrs. Fields' Holding entered into a contribution
agreement under which Mrs. Fields' Holding and Capricorn agreed to treat the
assumption by Capricorn of the Mrs. Fields payment obligation described above
as a capital contribution from Capricorn to Mrs. Fields' Holding, and Mrs.
Fields' Holding agreed either to issue 101,419 shares of its common stock to
Capricorn at the request of Capricorn or to enter into an economically
equivalent transaction that is permitted under the debt instruments of Mrs.
Fields' Holding and its subsidiaries or no consideration. This transaction
enhanced Mrs. Fields' tax planning and financial flexibility.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Mrs.
Fields" refers only to Mrs. Fields' Original Cookies, Inc. and not to any of
its subsidiaries.
We will issue the new notes under an indenture among Mrs. Fields, the
guarantors and The Bank of New York, as trustee. The terms of the new notes
being offered in the exchange offer include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of these notes. We have filed copies of the indenture
and the registration rights agreement as exhibits to the registration statement
which includes this prospectus.
Brief Description of the Notes and the Guarantees
The notes
These notes:
. are general unsecured obligations of Mrs. Fields;
. are senior in right of payment to all subordinated Indebtedness of
Mrs. Fields;
. are equal in right of payment to all existing and future senior
Indebtedness of Mrs. Fields; and
. are unconditionally guaranteed on a senior basis by the guarantors.
As of July 3, 1999, Mrs. Fields had approximately $11.6 million in
Indebtedness other than the notes.
The Guarantees
"guarantors" means each of:
(1) The Mrs. Fields' Brand; and
(2) any other Subsidiary that executes a guarantee in accordance with
the provisions of the indenture
and their respective successors and assigns.
A "Subsidiary" means, with respect to any person,
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is
at the time owned or controlled, directly or indirectly, by that
person or one or more of the other Subsidiaries of that person (or
a combination of the preceding) and
(2) any partnership (a) the sole general partner or the managing
general partner of which is that person or a Subsidiary of that
person or (b) the only general partners of which are that person or
of one or more Subsidiaries of such person (or any combination of
the preceding).
These notes are guaranteed by the following subsidiaries of Mrs. Fields:
The Mrs. Fields' Brand, Inc.
Great American Cookie Company, Inc.
Pretzelmaker Holdings, Inc.
Pretzel Time, Inc.
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The guarantees of these notes:
. are general unsecured obligations of each guarantor;
. are senior in right of payment to all subordinated Indebtedness of
each guarantor; and
. are equal in right of payment to any existing and future senior
Indebtedness of each guarantor.
As of July 3, 1999, Mrs. Fields' subsidiaries had approximately $382,000 in
indebtedness and had preferred stock with a value upon liquidation of $1.5
million, substantially all of which is senior in right of payment to the notes.
The indenture will permit us and the guarantors to incur additional
Indebtedness.
The notes will be guaranteed by any additional guarantors.
Principal, Maturity and Interest
Mrs. Fields can issue up to $200.0 million of notes under the indenture.
Before August 1998, Mrs. Fields had issued $100.0 million of notes under the
indenture. Mrs. Fields issued an additional $40.0 million of notes on August
24, 1998.
. Interest on the notes will accrue at the rate of 10 1/8% per annum.
. We will pay interest on the new notes semi-annually in arrears on
June 1 and December 1 of each year, commencing June 1, 1999. We will
make each interest payment to holders of record of the new notes on
the immediately preceding May 15 and November 15.
. Interest on the new notes will accrue from the date it was most
recently paid. We will compute interest on the basis of a 360-day
year comprised of twelve 30-day months.
. Old notes that are accepted for exchange will cease to accrue
interest from and after the date the exchange offer is completed.
. The notes mature on December 1, 2004.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to us, we will make all
principal, premium and interest and, if any, liquidated damages, payments on
those notes in accordance with those instructions. All other payments on the
notes will be made at the office or agency that we maintain within the City and
State of New York unless we elect to make interest payments by check mailed to
the holders at their addresses described in the register of holders. Until we
designate otherwise, our office or agency in New York will be the office of the
trustee.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and Mrs. Fields may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Guarantees
The guarantors will, jointly and severally, unconditionally guarantee Mrs.
Fields' obligations under these notes on a senior unsecured basis. The
obligations of each guarantor under its guarantee will be limited as
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necessary to prevent that guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--Fraudulent conveyance risks; federal
and state statutes allow courts, under specific circumstances, to void payments
under the notes and guarantees and require noteholders to return payments
received."
A guarantor may not consolidate with or merge with or into (whether or not
such guarantor is the surviving person), another person unless:
(1) the person formed by or surviving the consolidation or merger
assumes all the obligations of that guarantor under a supplemental
indenture satisfactory to the trustee;
(2) immediately after giving effect to that transaction, no Default or
Event of Default exists;
(3) the guarantor, or any person formed by or surviving the
consolidation or merger, would have Consolidated Net Worth
immediately after giving effect to the transaction equal to or
greater than the Consolidated Net Worth of the guarantor
immediately preceding the transaction; and
(4) Mrs. Fields would be permitted by virtue of giving effect to its pro
forma Fixed Charge Coverage Ratio, immediately after giving effect to
the transaction, to incur at lest $1.00 of additional Indebtedness
under the Fixed Charge Coverage Ratio test described in the covenant
described below under the caption: "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
A Default means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default. Events of Default are listed
under "Event of Default and Remedies" below.
The guarantee of a guarantor will be released:
(1) in connection with any sale or other disposition of all of the
assets of that guarantor (including by way of merger or
consolidation), if Mrs. Fields applies the Net Proceeds of that
sale or other disposition, in accordance with the applicable
provisions of the indenture; or
(2) in connection with any sale of all of the capital stock of a
guarantor (including by way of a merger or consolidation), if Mrs.
Fields applies the Net Proceeds of that sale in accordance with the
applicable provisions of the indenture.
In the event of a sale or other disposition of all of the assets of a
guarantor, the corporation acquiring the property will be released.
See "Redemption at the Option of Holders--Asset Sales."
Optional Redemption
Until November 20, 2001, Mrs. Fields may on any one or more occasions redeem
up to 35% of the total principal amount of notes ever issued under the
indenture at a redemption price of 110.125% of the principal amount of those
notes, plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that
(1) at least 65% of the in total principal amount of notes ever issued
under the indenture remains outstanding immediately after the
occurrence of the redemption; and
(2) the redemption must occur within 60 days of the date of the closing
of the Public Equity Offering.
Except under the preceding paragraph, the notes will not be redeemable at
Mrs. Fields' option prior to December 1, 2001.
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After December 1, 2001, Mrs. Fields may redeem all or a part of these notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) described below plus accrued and
unpaid interest and liquidated damages, if any, on those notes, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on December 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001.............................................................. 103.375%
2002.............................................................. 101.688%
2003 and thereafter............................................... 100.000%
</TABLE>
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require Mrs. Fields to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes under the Change of Control
Offer. In the Change of Control Offer, Mrs. Fields will offer a Change of
Control Payment in cash equal to 101% of the total principal amount of notes
repurchased plus accrued and unpaid interest on those notes, if any, and
liquidated damages, if any, to the date of purchase. Within 60 days following
any Change of Control, Mrs. Fields will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase notes on the Change of Control Payment Date specified in
the notice, under the procedures required by the indenture and described in the
notice. Mrs. Fields will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations under the Exchange
Act to the extent those laws and regulations are applicable in connection with
the repurchase of the notes as a result of a Change of Control.
On the Change of Control Payment Date, Mrs. Fields will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
under the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes so
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an officers' certificate stating the total
principal amount of notes or portions of notes being purchased by
Mrs. Fields.
The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for those notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each new note will be in a principal amount
of $1,000 or an integral multiple of $1,000. Mrs. Fields will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The provisions described above that require Mrs. Fields to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that Mrs.
Fields repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
Indebtedness of Mrs. Fields currently prohibits, and it is expected that
future Indebtedness of Mr. Fields will prohibit, events that would constitute a
Change of Control. In addition, the exercise by the holders of notes
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of their right to require Mrs. Fields to repurchase the notes could cause a
default under that Indebtedness, even if the Change of Control itself does not,
due to the financial effect of those repurchases on Mrs. Fields. Finally, Mrs.
Fields' ability to pay cash to the holders of notes upon a repurchase may be
limited by Mrs. Fields' then existing financial resources.
Mrs. Fields will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
described in the indenture applicable to a Change of Control Offer made by Mrs.
Fields and purchases all notes validly tendered and not withdrawn under the
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Mrs. Fields and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting, the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of notes to require Mrs. Fields to
repurchase its notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of Mrs. Fields and its
Subsidiaries taken as a whole to another person or group may be uncertain.
Asset Sales
Mrs. Fields will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless:
(1) Mrs. Fields (or the Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2) the fair market value is
(a) evidenced by an officers' certificate delivered to the trustee,
in the case of an Asset Sale or Asset Sales aggregating $10,000
or more; or
(b) determined by Mrs. Fields' Board of Directors and evidenced by a
resolution of the Board of Directors described in an officers'
certificate delivered to the trustee, in the case of any Asset
Sale having a fair market value or resulting in net proceeds in
excess of $5.0 million; and
(3) at least 75% of the consideration therefor received by Mrs. Fields
or the Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on Mrs. Fields' or the Subsidiary's
most recent balance sheet), of Mrs. Fields or any Subsidiary
(other than contingent liabilities and liabilities that are by
their terms subordinated to the notes or any guarantee of those
liabilities) that are assumed by the transferee of any assets
under a customary novation agreement that releases Mrs. Fields or
the Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Mrs.
Fields or any the Subsidiary from the transferee that are
immediately converted by Mrs. Fields or the Subsidiary into cash
(to the extent of the cash received in that conversion).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
Mrs. Fields may apply the Net Proceeds at its option:
(1) to repay senior Indebtedness of Mrs. Fields or any guarantor;
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(2) to make a Permitted Investment;
(3) to make a capital expenditure in the same or a similar line of
business as Mrs. Fields and its Subsidiaries were engaged in on
November 26, 1997, including, without limitation, the specialty
retail snack-food business; or
(4) to acquire long-term assets in the same or a similar line of
business as Mrs. Fields and its Subsidiaries were engaged in on
November 26, 1997, including, without limitation, the specialty
retail snack-food business.
Pending the final application of the Net Proceeds, Mrs. Fields may
temporarily reduce Indebtedness under a credit facility with a maximum total
amount of $15.0 million that is permitted under the indenture, including the
credit agreement with La Salle National Bank, or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
total amount of Excess Proceeds exceeds $5.0 million, Mrs. Fields will make an
Asset Sale Offer to all holders of notes to purchase the maximum principal
amount of notes that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of principal amount plus
accrued and unpaid interest, if any, and liquidated damages, if any, to the
date of purchase, and will be payable in cash. If any Excess Proceeds remain
after completion of an Asset Sale Offer, Mrs. Fields may use those Excess
Proceeds for general corporate purposes. If the total principal amount of notes
tendered into the Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee shall select the notes to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are
listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
any method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder of that note upon
cancellation of the original note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
Mrs. Fields will not, and will not permit any of its Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Mrs. Fields' or any of its Subsidiaries'
Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving Mrs. Fields)
or to the direct or indirect
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holders of Mrs. Fields' or any of its Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of Mrs.
Fields or dividends or distributions payable to Mrs. Fields or any
Wholly Owned Subsidiary of Mrs. Fields that is a guarantor);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Mrs. Fields) any Equity Interests of Mrs.
Fields or any direct or indirect parent of Mrs. Fields or other
Affiliate of Mrs. Fields (other than the Equity Interests owned by
Mrs. Fields or any Wholly Owned Subsidiary of Mrs. Fields);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the notes, except a payment of interest or
principal at the Stated Maturity of that Indebtedness; or
(4) make any Investment other than a Permitted Investment
(all of the payments and other actions (1) through (4) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to that Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence of the Restricted
Payment, and
(2) Mrs. Fields would, at the time of the Restricted Payment and after
giving pro forma effect to it as if the Restricted Payment had been
made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
under the Fixed Charge Coverage Ratio test described in the first
paragraph of the covenant described below under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(3) the Restricted Payment, together with the total amount of all other
Restricted Payments made by Mrs. Fields and its Subsidiaries after
November 26, 1997 (excluding Restricted Payments permitted by
clauses (2), (3) or (4) of the next succeeding paragraph), is less
than the sum of
(a) 50% of the Consolidated Net Income of Mrs. Fields for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter commencing after November 26, 1997 to the end of Mrs.
Fields' most recently ended fiscal quarter for which internal
financial statements are available at the time of the Restricted
Payment (or, if the Consolidated Net Income for that period is a
deficit, less 100% of the deficit), plus
(b) 100% of the total net cash proceeds (other than proceeds referred to
in the proviso to the first sentence of the definition of
"Investments") received by Mrs. Fields since November 26, 1997 of
Equity Interests of Mrs. Fields (other than Disqualified Stock, but
including the capital contribution from Mrs. Fields Holding on August
24, 1998) or Disqualified Stock or convertible debt securities that
have been converted into Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold
to a Subsidiary of Mrs. Fields and other than Disqualified Stock or
convertible debt securities that have been converted into
Disqualified Stock), plus
(c) to the extent that any Investment other than a Permitted Investment
that was made after November 26, 1997 is sold for cash or otherwise
liquidated or repaid for cash, the lesser of
(1) the cash return of capital with respect to that Investment (less
the cost of disposition, if any) and
(2) the initial amount of that Investment.
"Wholly Owned Subsidiary" of any person means a Subsidiary of that person,
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be
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owned by that person or by one or more Wholly Owned Subsidiaries of that person
and one or more Wholly Owned Subsidiaries of that person.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at said date of declaration the
payment would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
Mrs. Fields in exchange for, or out of the net cash proceeds of,
the substantially concurrent sale (other than to a Subsidiary of
Mrs. Fields) of, other Equity Interests of Mrs. Fields (other than
Disqualified Stock); provided that the amount of any net cash
proceeds that are utilized for that redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Subsidiary of Mrs. Fields to the
holders of any Equity Interests on a pro rata basis; and
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Mrs. Fields or any Subsidiary of
Mrs. Fields held by any member of Mrs. Fields' (or any of its
Subsidiaries') management under any management equity subscription
agreement or stock option agreement; provided that the total price
paid for all of those repurchased, redeemed, acquired or retired
Equity Interests shall not exceed, in any twelve-month period,
$250,000, plus the amount of cash proceeds received by Mrs. Fields
from any reissuance of Equity Interests by Mrs. Fields to members
of management of Mrs. Fields or its Subsidiaries during such
period, which total amount shall in no event exceed $500,000 in
that period, and no Default or Event of Default shall have occurred
and be continuing immediately after the transaction;
(6) payments to Mrs. Fields Holding under the Tax Sharing Agreement;
(7) payments pursuance to the Employment Agreement, dated as of
September 2, 1997, between Pretzel Time and Martin E. Lisiewski and
the Management Agreement, dated as of September 2, 1997, between
Mrs. Fields and Pretzel Time; and
(8) the redemption or repurchase of preferred stock of Pretzel Time
outstanding on November 26, 1997.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Mrs. Fields or its
Subsidiary, as the case may be, under the Restricted Payment. The fair market
value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect to it shall be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $2.0 million. Not later than the date of making any
Restricted Payment, Mrs. Fields shall deliver to the trustee an officers'
certificate stating that the Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
Mrs. Fields will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Indebtedness),
and Mrs. Fields will not
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issue any Disqualified Stock and will not permit any of its Subsidiaries to
issue any shares of preferred stock; provided that Mrs. Fields may incur
Indebtedness (including Acquired Indebtedness) or issue Disqualified Stock, if:
(1) the Fixed Charge Coverage Ratio for Mrs. Fields' most recently
ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which
the additional Indebtedness is incurred or the Disqualified Stock
is issued would have been at least
(a) From the date of the indenture to December 31, 1999, 2.25 to 1
and
(b) thereafter, 2.5 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of that four-
quarter period; and
(2) the Weighted Average Life to Maturity of the Indebtedness is equal
to or greater than the remaining Weighted Average Life to Maturity
of the notes, provided that this clause (2) shall not apply in the
case of Acquired Indebtedness.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following, items of Indebtedness (collectively, "Permitted
Indebtedness"):
(1) the incurrence by Mrs. Fields and its Subsidiaries of the Existing
Indebtedness other than the notes;
(2) the incurrence by Mrs. Fields and its Subsidiaries on November 26,
1997 of Indebtedness represented by the notes in a total principal
amount not to exceed $100.0 million and the guarantees of that
Indebtedness by the guarantors;
(3) the incurrence by Mrs. Fields or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred
for the purpose of improvement of property, plant or equipment used
in the business of Mrs. Fields or the Subsidiary, in a total
principal amount not to exceed $5.0 million at anytime outstanding;
(4) the incurrence by Mrs. Fields or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness that was permitted by the indenture to be incurred;
(5) the incurrence by Mrs. Fields or any of its Subsidiaries of
intercompany Indebtedness between or among Mrs. Fields and any of
its Wholly Owned Subsidiaries; provided, that:
(a) if Mrs. Fields is the obligor on that Indebtedness, the
Indebtedness must be expressly subordinated to the prior payment
in full in cash of all obligations with respect to the notes;
and
(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any of that Indebtedness being held by a person
other than Mrs. Fields or a Wholly Owned Subsidiary of Mrs.
Fields and
(2) any sale or other transfer of that Indebtedness to a person that
is not either Mrs. Fields or a Wholly Owned Subsidiary of Mrs.
Fields shall be deemed, in each case, to constitute an incurrence
of that Indebtedness by Mrs. Fields or that Subsidiary, as the
case may be;
(6) the incurrence by Mrs. Fields of Hedging Obligations in the
ordinary course of business;
(7) the incurrence of Indebtedness in connection with one or more
standby letters of credit, guarantees, performance or surety bonds
or other reimbursement obligations, in each case, issued
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in the ordinary course of business and not in connection with the
borrowing of money or the obtaining of advances or credit other than:
(a) advances or credit on open account, includible in current
liabilities, for goods and services in the ordinary course of
business and on terms and conditions customary in the same or a
similar line of business as Mrs. Fields and its Subsidiaries were
engaged in on November 26, 1997, including, without limitation, the
speciality retail snack-foods business and
(b) the extension of credit represented by the letter of credit,
guarantee, bond or other obligation itself,
provided that any draw under or call upon any of the foregoing is repaid
in full within 45 days, and provided further that the total amount of
all Indebtedness incurred under this clause (7) shall not exceed $5.0
million at any time outstanding;
(8) the incurrence of Indebtedness arising from agreements of Mrs. Fields or
a Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or Subsidiary (other than
guarantees of Indebtedness incurred by any person acquiring all or a
portion of the business, assets or Subsidiary for the purpose of
financing the acquisition), provided that the maximum total liability of
that Indebtedness shall at no time exceed 50% of the gross proceeds
actually received by Mrs. Fields or the Subsidiary in connection with the
disposition;
(9) the guarantee by Mrs. Fields or any of the guarantors of Indebtedness of
Mrs. Fields or a Subsidiary of Mrs. Fields that is a guarantor that was
permitted to be incurred by another provision of this covenant;
(10) the incurrence by Pretzel Time of Indebtedness under a working
capital facility, provided that the total principal amount of all
Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of
Pretzel Time thereunder) outstanding thereunder after giving
effect to the incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred under this clause (10), does not exceed an
amount equal to $1.0 million;
(11) the incurrence by Mrs. Fields of additional Indebtedness
(including Indebtedness under a credit facility) in a total
principal amount (or accreted value, as applicable), including all
Permitted Refinancing Indebtedness incurred to refund, refinance
or replace any other Indebtedness incurred under this clause (11),
not to exceed $15.0 million at any time outstanding;
(12) the incurrence by Mrs. Fields or any of its subsidiaries of
Acquired Indebtedness in a total amount not to exceed $5.0 million
at any time outstanding;
(13) the guarantee by Mrs. Fields or any of its Subsidiaries (other
than Mrs. Fields' Brand) of operating store lease obligations of
Mrs. Fields or any of its Subsidiaries or any franchisee of Mrs.
Fields or any of its Subsidiaries in the ordinary course of
business and consistent with past practice;
(14) the guarantee by any Subsidiary of Mrs. Fields of Indebtedness of
the Mrs. Fields under any credit facility with a maximum total
amount of $15.0 million otherwise permitted to be incurred under
the indenture;
(15) the incurrence by Mrs. Fields of Indebtedness in the form of notes
issued in connection with the repurchase, redemption, acquisition
or retirement of Equity Interests of Mrs. Fields or any Subsidiary
of Mrs. Fields in an amount not to exceed $500,000 at any time
outstanding and subordinated in right of payment to the notes; and
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(16) the incurrence by Mrs. Fields of Indebtedness or the guarantee by
Mrs. Fields of Indebtedness incurred by franchisees in connection
with the cost of purchasing a franchise and the cost of equipment
in connection with the set-up of a franchise, provided that the
Indebtedness or guarantee does not exceed $3.0 million at any time
outstanding.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (1) through (16) above, or is
entitled to be incurred under the first paragraph of this covenant, Mrs. Fields
will be permitted to classify that item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant. Accrual of interest
and the accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Liens
Mrs. Fields will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Mrs. Fields will not, and will not permit any of its Subsidiaries, directly
or indirectly, to create or permit to exist or become effective any encumbrance
or restriction on the ability of any Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Mrs. Fields or any of Mrs. Fields' Subsidiaries, or with respect
to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to Mrs. Fields or any of Mrs.
Fields' Subsidiaries;
(2) make loans or advances to Mrs. Fields or any of Mrs. Fields'
Subsidiaries; or
(3) transfer any of its properties or assets to Mrs. Fields or any of
Mrs. Fields' Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on November 27, 1997
(2) the indenture and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a person
acquired by Mrs. Fields or any of its Subsidiaries as in effect at
the time of the acquisition (except to the extent the Indebtedness
was incurred in connection with or in contemplation of the
acquisition), which encumbrance or restriction is not applicable to
any person, or the properties or assets of any person, other than
the person, or the property or assets of the person, so acquired,
provided that, in the case of Indebtedness, the Indebtedness was
permitted by the terms of the indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (4) above;
(7) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing the Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
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(8) customary restrictions imposed on the transfer of copyrighted or
patented materials and customary provisions in agreements that
restrict the assignees of the agreements or any rights thereunder;
or
(9) restrictions with respect to a Subsidiary of Mrs. Fields imposed
under a binding agreement relating to the sale or disposition of
all or substantially all of the Capital Stock or assets of the
Subsidiary.
Merger, Consolidation, or Sale of Assets
Mrs. Fields may not:
(1) consolidate or merge with or into another person (whether or not
Mrs. Fields is the surviving corporation); or
(2) sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more
related transactions, to another person; unless:
(a) either:
(1) Mrs. Fields is the surviving corporation; or
(2) the person formed by or surviving the consolidation or
merger (if other than Mrs. Fields) or the entity to which
the sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state
of the United States or the District of Columbia;
(b) the person formed by or surviving the consolidation or merger
(if other than Mrs. Fields) or the person to which the sale,
assignment, transfer, conveyance or other disposition shall have
been made assumes all the obligations of Mrs. Fields under the
notes and the indenture under a supplemental indenture
reasonably satisfactory to the trustee;
(c) immediately after the transaction no Default or Event of Default
exists; and
(d) except in the case of a merger of Mrs. Fields with or into a
Wholly Owned Subsidiary of Mrs. Fields, Mrs. Fields or the
person formed by or surviving the consolidation or merger (if
other than Mrs. Fields), or to which the sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made:
(1) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth
of Mrs. Fields immediately preceding the transaction; and
(2) will, on the date of the transaction after giving pro forma
effect to it and any related financing transactions as if the
same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness under the Fixed Charge Coverage Ratio test described
in the first paragraph of the covenant described above under the
caption "Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
Mrs. Fields will not, and will not permit any of its Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less favorable to
Mrs. Fields or the relevant Subsidiary than those that would have
been obtained in a comparable transaction by Mrs. Fields or the
Subsidiary with an unrelated person; and
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(2) Mrs. Fields delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving total consideration in excess of $1.0
million, a resolution of the Board of Directors contained in an
officers' certificate certifying that the Affiliate Transaction
complies with this covenant and that the Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving total consideration in excess of $5.0
million, an opinion as to the fairness to the holders of the Affiliate
Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) payments to Mrs. Fields Holding under the Tax Sharing Agreement;
(2) any employment agreement entered into by Mrs. Fields or any of its
Subsidiaries in the ordinary course of business and consistent with
the past practice of Mrs. Fields or the Subsidiary;
(3) transactions between or among Mrs. Fields and/or its Subsidiaries;
(4) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "Restricted Payments";
(5) the payment of reasonable fees, expense reimbursements and
customary indemnification, advances and other similar arrangements
to directors and officers of Mrs. Fields and its Subsidiaries; and
(6) reasonable loans or advances to employees of Mrs. Fields and its
Subsidiaries in the ordinary course of business of Mrs. Fields or
the Subsidiary.
Additional Subsidiary Guarantees
If:
(1) Mrs. Fields or any of its Subsidiaries acquires or creates another
domestic wholly owned Subsidiary after the date of the Indenture
having assets
(a) with a fair market value in excess of $100,000 or
(b) consisting of one or more stores; or
(2) Mrs. Fields acquires all remaining common stock of Pretzel Time,
then the newly acquired or created Subsidiary or Pretzel Time, as the case may
be, must become a guarantor and execute a supplemental indenture and deliver an
opinion of counsel, in accordance with the terms of the indenture.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
Mrs. Fields will not, and will not permit any of its Wholly Owned
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any Wholly Owned Subsidiary of Mrs. Fields to any person
(other than Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields), unless:
(1) the transfer, conveyance, sale, lease or other disposition is of
all the Capital Stock of the Wholly Owned Subsidiary; and
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(2) the cash Net Proceeds from the transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant
described above under the caption "Repurchase at the Option of
Holders--Asset Sales."
In addition, Mrs. Fields will not permit any Wholly Owned Subsidiary of Mrs.
Fields to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any person
other than to Mrs. Fields or a Wholly Owned Subsidiary of Mrs. Fields.
Limitations on Issuances of Guarantees of Indebtedness
Mrs. Fields will not permit any of its Subsidiaries, directly or indirectly,
to guarantee or pledge any assets to secure the payment of (other than as a
result of a Permitted Lien) any other Indebtedness of Mrs. Fields or any
subsidiary of Mrs. Fields unless the Subsidiary simultaneously executes and
delivers a supplemental indenture providing for the guarantee of the payment of
the notes by the Subsidiary, which guarantee shall be senior to or rank equal
in right to payment with the Subsidiary's guarantee of or pledge to secure the
other Indebtedness.
Notwithstanding the preceding paragraph, any guarantee by a Subsidiary of the
notes will provide by its terms that it will be automatically and
unconditionally released and discharged under the circumstances described above
under the caption "Guarantees." The form of the guarantee is attached as an
exhibit to the indenture.
Business Activities
Mrs. Fields will not, and will not permit any Subsidiary to, engage in any
business other than the same or a similar line of business as Mrs. Fields and
its Subsidiaries were engaged in on November 26, 1997, including, without
limitation, the specialty retail snack-food business, except to an extent as
would not be material to Mrs. Fields and its Subsidiaries taken as a whole.
In addition,
(1) Mrs. Fields will not engage in any Asset Sale involving Mrs.
Fields' Brand,
(2) neither Mrs. Fields nor Mrs. Fields' Brand will engage in any
Asset Sale involving the "Mrs. Fields" or "Pretzel Time" brand
name, and
(3) for so long as Mrs. Fields' Brand is a Subsidiary of Mrs. Fields,
Mrs. Fields' Brand will not incur any Indebtedness (other than its
guarantee of the notes and any guarantee of Indebtedness under a
credit facility with a maximum total amount of $15.0 million that
is permitted under the indenture).
Payments for Consent
Mrs. Fields will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the indenture or the notes
unless the consideration is offered to be paid and is paid to all holders of
the notes that consent, waive or agree to amend in the time frame described in
the solicitation documents relating to the consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, Mrs. Fields will furnish to the holders of notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K if Mrs. Fields were required to file those Forms,
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including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by
Mrs. Fields' certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Mrs. Fields were required to file those
reports.
In addition, whether or not required by the Commission, Mrs. Fields will file
a copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept the filing) and make the information available to securities
analysts and prospective investors upon request.
In addition, Mrs. Fields and the guarantors have agreed that, for so long as
any notes remain outstanding, they will furnish to the holders of notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered under Rule 144A(d)(4) under the Securities
Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest or liquidated
damages, if any, with respect to the notes;
(2) default in payment when due of the principal of or premium, if any, on
the notes;
(3) failure by Mrs. Fields for 30 days after notice to comply with any of
its other agreements in the indenture or the notes;
(4) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Mrs. Fields or any of its
Subsidiaries (or the payment of which is guaranteed by Mrs. Fields or
any of its Subsidiaries) whether the Indebtedness or guarantee now
exists, or is created after November 26, 1997, if that default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on that Indebtedness prior to the expiration of the grace
period provided in that Indebtedness on the date of that default (a
"Payment Default"); or
(b) results in the acceleration of that Indebtedness prior to its
express maturity,
and, in each case, the principal amount of that Indebtedness, together with the
principal amount of any other Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, totals $2.5 million
or more;
(5) failure by Mrs. Fields or any of its Subsidiaries to pay final
judgments aggregating in excess of $2.5 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(6) events of bankruptcy or insolvency with respect to Mrs. Fields or any
of its Subsidiaries; and
(7) except as permitted by the indenture, any guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any
guarantor, or any person acting on behalf of any guarantor, shall
deny or disaffirm its obligations under its guarantee.
In the case of an Event of Default arising from events of bankruptcy or
insolvency, with respect to Mrs. Fields, any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a
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Significant Subsidiary, all outstanding notes will become due and payable
without further action or notice. If any other Event of Default occurs and is
continuing, the trustee or the holders of at least 25% in principal amount of
the then outstanding notes may declare all the notes to be due and payable
immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The holders of a majority in total principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of Mrs. Fields with the
intention of avoiding payment of the premium that Mrs. Fields would have had to
pay if Mrs. Fields then had elected to redeem the notes under the optional
redemption provisions of the indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to December 1,
2001 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of Mrs. Fields with the intention of avoiding the prohibition on
redemption of the notes before December 1, 2001, then the premium specified in
the indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the notes. If an Event of Default
occurs prior to December 1, 2001 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of Mrs. Fields with the intention of
avoiding the prohibition on redemption of the notes prior to December 1, 2001,
then the premium specified in the indenture shall also become immediately due
and payable to the extent permitted by law upon acceleration of the notes.
Mrs. Fields is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Mrs. Fields is required to deliver to the trustee a statement
specifying the Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Mrs. Fields or
any guarantor, as such, shall have any liability for any obligations of Mrs.
Fields or the guarantor under the notes, the guarantees the indenture, or for
any claim based on, in respect of, or by reason of, those obligations or their
creation. Each holder of notes by accepting a note waives and releases all
liability of this kind. The waiver and release are part of the consideration
for issuance of the notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
Legal Defeasance and Covenant Defeasance
Mrs. Fields may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and
liquidated damages, if any, on those notes when those payments are
due from the trust referred to below;
(2) Mrs. Fields' obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
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(3) the rights, powers, trusts, duties and immunities of the trustee,
and Mrs. Fields' obligations in connection with them; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Mrs. Fields may, at its option and at any time, elect to have
the obligations of Mrs. Fields released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
some of the events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute a Default or an Event of Default with
respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Mrs. Fields must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
amounts that will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and liquidated damages,
if any, on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and Mrs. Fields
must specify whether the notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, Mrs. Fields shall have delivered
to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that
(a) Mrs. Fields has received from, or there has been published by,
the Internal Revenue Service a ruling or
(b) since November 26, 1997, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based on which the opinion of counsel shall confirm
that, the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a
result of the Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if the Legal Defeasance
had not occurred;
(3) in the case of Covenant Defeasance, Mrs. Fields shall have
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of the Covenant Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if the Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either:
(a) on the date of the deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to the
deposit); or
(b) insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(5) the Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Mrs.
Fields or any of its Subsidiaries is a party or by which Mrs.
Fields or any of its Subsidiaries is bound;
(6) Mrs. Fields must have delivered to the trustee an opinion of
counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
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(7) Mrs. Fields must deliver to the trustee an officers' certificate
stating that the deposit was not made by Mrs. Fields with the
intent of preferring the holders of notes over the other creditors
of Mrs. Fields with the intent of defeating, hindering, delaying or
defrauding creditors of Mrs. Fields or others; and
(8) Mrs. Fields must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Amendment, Supplement and Waiver
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
(other than provisions relating to the covenants described above
under the caption "Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission
of acceleration of the notes by the holders of at least a majority
in total principal amount of the notes and a waiver of the payment
default that resulted from the acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of or premium, if any, or interest on
the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Mrs. Fields and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Mrs. Fields' obligations to
holders of notes in the case of a merger or consolidation or sale
of all or substantially all of Mrs. Fields' assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect
the legal rights under the indenture of any holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act.
Concerning the Trustee
If the trustee becomes a creditor of Mrs. Fields, the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise.
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The trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate the conflict within 90
days, apply to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to those provisions, the trustee will be under no obligation
to exercise any of its rights or powers under the indenture at the request of
any holder of notes, unless that holder shall have offered to the trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
The new notes exchanged for old notes through the Book-Entry Transfer
Facility will be represented by a Global Note (the "New Global Note"). One New
Global Note shall be issued with respect to each $100 million or less in total
principal amount at maturity of the New Global Note. The New Global Note will
be issued on the date of the closing of the exchange offer with the trustee, as
custodian of The Depository Trust Company, under a FAST Balance Certificate
Agreement between the trustee and The Depository Trust Company and registered
in the name of Cede & Co., as nominee of The Depository Trust Company (that
nominee being referred to as the "Global Holder").
New notes exchanged for old notes which are in the form of registered
definitive certificates will be issued in the form of certificated notes. The
certificated notes may, unless the New Global Note has previously been
exchanged for certificated notes, be exchanged for an interest in the New
Global Note representing the principal amount of new notes being transferred.
The Depository Trust Company has advised us that it is a limited-purchase
trust company that was created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the placement agents for the old notes), banks and trust companies,
clearing corporations and certain other organizations. Access to The Depository
Trust Company's system is also available to the other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of The Depository Trust
Company only through the Participants or the Indirect Participants.
We expect that under procedures established by The Depository Trust Company:
(1) upon deposit of the New Global Note, The Depository Trust Company
will credit the accounts of Participants with portions of the New
Global Note; and
(2) ownership of the notes will be shown on, and the transfer of
ownership thereof will be effected only through, records
maintained by The Depository Trust Company, the Participants and
the Indirect Participants.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer notes may be limited.
For so long as the Global Holder is the registered owner of any New Global
Notes, the Global Holder will be considered the sole owner of those new notes
represented by those New Global Notes outstanding under the indenture. Except
as provided below, owners of beneficial interests in a New Global Note will not
be entitled to have new notes represented by the New Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
certificated notes, and will not be considered the owners or holders thereof
under
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the indenture for any purpose. As a result, the ability of a person having a
beneficial interest in new notes represented by a New Global Note to pledge
that interest to persons or entities that do not participate in The Depository
Trust Company's system or to otherwise take actions in respect of that
interest, may be affected by the lack of physical certificate evidencing that
interest. Accordingly, each person owning a beneficial interest in a New Global
Note must rely on the procedures of The Depository Trust Company, if that
person is not a Participant or an Indirect Participant, on the procedures of
the Participant through which that person owns its interest, to exercise any
rights of a holder under that New Global Note of the indenture.
Neither Mrs. Fields nor the trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of new
notes by The Depository Trust Company, or for maintaining, supervising or
reviewing any records of The Depository Trust Company relating to those new
notes.
The trustee will make payments in respect of the principal of, premium, if
any, interest and liquidated damages, if any, on any new notes registered in
the name of a Global Holder on the applicable record date to or at the
direction of such Global Holder in its capacity as the registered holder under
the indenture. Under the terms of the indenture, Mrs. Fields and the trustee
may treat the persons in whose name the notes, including the New Global Notes,
are registered as the owners of such notes for the purpose of receiving such
payments and all other purposes.
We expect that The Depository Trust Company or its nominee, upon receipt of
payments of principal, premium, if any, interest and liquidated damages, if
any, on the New Global Notes, will credit their Participants' or Indirect
Participants' accounts with payments in amounts proportionate to their
respective interests in the principal amount of the New Global Notes as shown
on the records of The Depository Trust Company. Neither Mrs. Fields nor the
trustee has any responsibility or liability for those payments. Payments by the
Participants and the Indirect Participants to the beneficial owners of new
notes will be governed by standing instructions and customary practice. Those
payments will be the responsibility of the Participants or the Indirect
Participants.
Certificated Securities
If:
(1) Mrs. Fields notifies the trustee in writing that The Depository
Trust Company is no longer willing or able to act as a depository
and Mrs. Fields is unable to locate a qualified successor within 90
days or
(2) Mrs. Fields, at its option, notifies the trustee in writing that it
elects to cause the issuance of the new notes in definitive form
under the indenture, then, upon surrender by the relevant Global
Holder of its New Global Note, new notes in that form will be
issued to each person that the Global Holder and The Depository
Trust Company identifies as the beneficial owner of the related new
notes.
In addition, subject to certain conditions, any person having a beneficial
interest in the New Global Note may, upon request to the trustee, exchange that
beneficial interest for certificated notes. Upon issuance, the trustee is
required to register the new notes in the name of, and cause the same to be
delivered to, that person or persons (or the nominee of any of them). The new
notes would be issued in fully registered forms.
Exchange Offer; Registration Rights
Mrs. Fields, Mrs. Fields Brand, Great American and the placement agents for
the 10 1/8% Series C Senior Notes due 2004 entered into the registration rights
agreement on August 24, 1998. The registration rights agreement requires Mrs.
Fields and the guarantors to file with the Commission the Registration
Statement on the appropriate form under the Securities Act with respect to an
offer to exchange the 10 1/8% Series C Senior Notes due 2004 for the new notes,
which will have terms substantially similar in all material respects to the old
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notes. Upon the effectiveness of the Registration Statement, Mrs. Fields will
offer to the holders of notes that are subject to restrictions on transfer
under the exchange offer who are able to make the necessary representations the
opportunity to exchange their notes for new notes.
If:
(1) Mrs. Fields and the guarantors had not been required to file the
exchange offer Registration Statement or are not permitted to
consummate the exchange offer because the exchange offer is not
permitted by applicable law or Commission policy; or
(2) any holder of notes that are subject to restrictions on transfer
notifies Mrs. Fields prior to the 20th day following consummation
of the exchange offer that:
(a) it is prohibited by law or Commission policy from participating
in the exchange offer or
(b) that it may not resell the new notes acquired by it in the
exchange offer to the public without delivering a prospectus
and the prospectus contained in the Registration Statement is
not appropriate or available for resales;
(c) that it is a broker-dealer and owns 10 1/8% Series C Senior
Notes due 2004 acquired directly from Mrs. Fields or an
affiliate of Mrs. Fields,
then Mrs. Fields and the guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the 10 1/8% Series C Senior Notes
due 2004 by the holders of those notes who satisfy specific conditions relating
to the provision of information in connection with the Shelf Registration
Statement. Mrs. Fields and the guarantors will use their best efforts to cause
the applicable registration statement to be declared effective as promptly as
possible by the Commission. Notes will be subject to restrictions on transfer
until:
(1) a person other than a broker-dealer has exchanged notes in the
exchange offer,
(2) a broker-dealer has exchanged notes in the exchange offer and sells
them to a purchaser that receives this prospectus from the broker-
dealer on or before the sale,
(3) the notes are sold under an effective shelf registration statement
that we have filed, or
(4) the notes are sold to the public under Rule 144 of the Securities
Act.
The registration rights agreement requires that:
(1) Mrs. Fields and the guarantors must file a Registration Statement
with the Commission on or prior to 90 days after August 24, 1998,
(2) Mrs. Fields and the guarantors must use their best efforts to have
the Registration Statement declared effective by the Commission on
or prior to 150 days after August 24, 1998,
(3) unless the exchange offer would not be permitted by applicable law
or Commission policy, Mrs. Fields will commence the exchange offer
and use its best efforts to issue on or prior to 30 business days
after the date on which the exchange offer Registration Statement
was declared effective by the Commission, new notes in exchange for
all old notes tendered prior to it in the exchange offer, and
(4) if obligated to file the Shelf Registration Statement, Mrs. Fields
and the guarantors will use their best efforts to file the Shelf
Registration Statement with the Commission on or prior to 90 days
after that filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior
to 150 days after that obligation arises.
If:
(1) Mrs. Fields and the guarantors fail to file any of the
Registration Statements required by the registration rights
agreement on or before the date specified for the filing,
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(2) any of the Registration Statements is not declared effective by
the Commission on or prior to the date specified for effectiveness
(the "Effectiveness Target Date"), or
(3) Mrs. Fields fails to consummate the exchange offer within 30
business days of the Effectiveness Target Date with respect to the
Registration Statement, or
(4) the Shelf Registration Statement or the Registration Statement is
declared effective but thereafter ceases to be effective or usable
in connection with resales of notes that are subject to
restrictions on transfer during the periods specified in the
registration rights agreement
each event referred to in clauses (1) through (4) above a "Registration
Default", then Mrs. Fields and the guarantors will pay liquidated damages to
each holder of old notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal
to $.05 per week per $1,000 principal amount of 10 1/8% Series C Senior Notes
due 2004 held by the holder. The amount of the liquidated damages will increase
by an additional $.05 per week per $1,000 principal amount of notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.50 per week per
$1,000 principal amount of 10 1/8% Series C Senior Notes due 2004. Mrs. Fields
will pay all accrued liquidated damages on each damages payment date to the
Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to holders of certificated old notes by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no accounts have been specified. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease.
Since the Registration Statement was not effective by January 21, 1999, Mrs.
Fields has incurred liquidated damages of approximately $56,000 as of July 3,
1999. On June 1, 1999, Mrs. Fields paid $42,000 of this amount to the holders
of 10 1/8% Series C Senior Notes due 2004.
Holders of old notes will be required to make certain representations to Mrs.
Fields in order to participate in the exchange offer and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within
the time periods described in the registration rights agreement in order to
have their notes included in the Shelf Registration Statement and benefit from
the provisions regarding liquidated damages described above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is
made to the indenture for a full disclosure of all of these terms, as well as
any other capitalized terms used in this prospectus for which no definition is
provided.
"Accounting Firm" means any of Arthur Andersen LLP, Deloitte & Touche LLP,
Ernst & Young LLP, KPMG Peat Marwick LLP and PricewaterhouseCoopers LLP or any
of their successor firms.
"Acquired Indebtedness" means, with respect to any specified person:
(1) Indebtedness of any other person existing at the time the other
person is merged with or into or became a Subsidiary of the
specified person, excluding, however, Indebtedness incurred in
connection with, or in contemplation of, the other person merging
with or into or becoming a Subsidiary of the specified person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
the specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
as used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the person, whether through the ownership of
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voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting stock of a person shall be deemed to be
control. For purposes of this definition, the terms "controlling," "controlled
by" and "under common control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale,
conveyance or other disposition of all or substantially all of the
assets of Mrs. Fields and its Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above under
the caption "Change of Control" and/or the provisions described
above under the caption "Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests of any of Mrs. Fields'
Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that:
(a) involves assets having a fair market value equal to or less
than $1.0 million; or
(b) results in net proceeds equal to or less than $1.0 million;
(2) a transfer of assets between or among Mrs. Fields and its Wholly
Owned Subsidiaries,
(3) an issuance of Equity Interests by a Wholly Owned Subsidiary to
Mrs. Fields or to another Wholly Owned Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described
above under the caption "Restricted Payments";
(5) arrangements providing for the receipt by Mrs. Fields of franchise
and royalty fees but not otherwise involving the sale of assets of
Mrs. Fields or any of its Subsidiaries (other than inventory in the
ordinary course of business); and
(6) a disposition of any Non-Core Stores.
"Beneficial Owner" has the meaning assigned to that term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), that "person" shall be deemed to have beneficial
ownership of all securities that the "person" has the right to acquire, whether
that right is currently exercisable or is exercisable only upon, the occurrence
of a subsequent condition.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance
with generally accepted accounting principles in effect on November 26, 1997.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(4) any other interest or participation that confers on a person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing person.
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"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of
any of them having maturities of not more than six months from the
date of acquisition;
(3) marketable direct obligations issued by any State of the United
States or any local government or other political subdivision of
any of them rated (at the time of the acquisition of the security)
at least "AA" by Standard & Poor's Rating Service or an equivalent
rating by Moody's Investors Service, Inc. and having maturities of
not more than one year from the acquisition of the security;
(4) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers acceptances with maturities not exceeding six months and
overnight bank deposits, in each case, with any domestic commercial
bank having capital and surplus in excess of $500 million and a
Keefe Bank Watch Rating of B or better or with any registered
broker-dealer whose commercial paper is rated at least A-1 by
Standard & Poor's Rating Service or an equivalent rating by Moody's
Investors Service, Inc.;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (4)
above entered into with any financial institution meeting the
qualifications specified in clause (4) above;
(6) commercial paper rated at least A-1 by Standard & Poor's Rating
Service or an equivalent rating by Moody's Investors Service, Inc.
and, in each case, maturing within six months after the date of
acquisition; and
(7) investments in money market funds all of whose assets consist of
securities described in clauses (2) through (6) above.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Mrs.
Fields and its Subsidiaries taken as a whole to any "person" (as
that term is used in Section 13(d)(3) of the Exchange Act) other
than Herbert S. Winokur, Jr. and Capricorn Investors II, L.P. or
their Related Parties.
(2) the adoption of a plan relating to the liquidation or dissolution
of Mrs. Fields;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any
"person" (as defined above), other than Herbert S. Winokur, Jr. and
Capricorn Investors II, L.P. or their Related Parties becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the
voting stock of Mrs. Fields, measured by voting power rather than
number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of Mrs. Fields are not Continuing Directors;
For purposes of this definition, any transfer of an equity interest of an
entity that was formed for the purpose of acquiring voting stock of Mrs. Fields
will be deemed to be a transfer of that portion of the voting stock as
corresponds to the portion of the equity of the entity that has been so
transferred.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of that person for that period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent those
losses were deducted in computing the Consolidated Net Income; plus
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(2) provision for taxes based on income or profits of that person and
its Subsidiaries for that period, to the extent that the provision
for taxes was deducted in computing the Consolidated Net Income;
plus
(3) consolidated interest expense of that person and its Subsidiaries
for that period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments, if any, under Hedging
Obligations), to the extent that the expense was deducted in
computing the Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash
expenses (excluding the non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a
prior period) of the person and its Subsidiaries for that period to
the extent that the depreciation, amortization and other non-cash
expenses were deducted in computing the Consolidated Net Income;
minus
(5) non-cash items increasing the Consolidated Net Income for that
period, in each case, on a consolidated basis and determined in
accordance with generally accepted accounting principles in effect
on November 26, 1997.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of the specified person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent and in the same
proportion that the net income of the Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended to Mrs. Fields by the Subsidiary
without prior governmental approval (that has not been obtained), under the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified person for any
period, the total of the Net Income of the Person and its Subsidiaries for that
period, on a consolidated basis, determined in accordance with generally
accepted accounting principles in effect on November 26, 1997; provided that:
(1) the Net Income (but not loss) of any person that is not a
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the specified person or
a Wholly Owned Subsidiary of the person that is a guarantor;
(2) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of the acquisition
shall be excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
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"Consolidated Net Worth" means, with respect to any person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of the person
and its consolidated Subsidiaries as of that date plus
(2) the respective amounts reported on that person's balance sheet as
of that date with respect to any series of preferred stock (other
than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless those dividends may be declared and
paid only out of net earnings in respect of the year of declaration
and payment, but only to the extent of any cash received by the
person upon issuance of the preferred stock, less
(a) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a
going concern business made within 12 months after the
acquisition of such business) subsequent to November 26,
1997 in the book value of any asset owned by the person or a
consolidated Subsidiary of the person,
(b) all investments as of that date in unconsolidated
Subsidiaries and in persons that are not Subsidiaries
(except, in each case, Permitted Investments), and
(c) all unamortized debt discount and expense and unamortized
deferred charges as of that date, all of the foregoing
determined in accordance with generally accepted accounting
principles in effect on November 26, 1997.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Mrs. Fields who:
(1) was a member of the Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to the Board of Directors
with the approval of a majority of the Continuing Directors who
were members of the Board at the time of the nomination or
election.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, under a sinking fund obligation or otherwise, or redeemable at the
option of its holder, in whole or in part, on or prior to the date that is 91
days after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely as
a result of any maturity or redemption of that Capital Stock shall not
constitute Disqualified Stock if that maturity or redemption or redemption
complies with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Existing Indebtedness" means Indebtedness of Mrs. Fields and its
Subsidiaries (including preferred stock of Pretzel Time outstanding on November
26, 1999 but excluding any Indebtedness of Mrs. Fields or any of its
Subsidiaries under any credit facility with a maximum total amount of $15.0
million that is permitted under the indenture existing on November 26, 1999) in
existence on November 26, 1999, until those amounts are repaid.
"Fixed Charges" means, with respect to any person for any period, the sum,
without duplication, of
(1) the consolidated interest expense of the Person and its
Subsidiaries for that period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers acceptance
financings, and net payments (if any) under Hedging Obligations);
(2) the consolidated interest expense of the Person and its
Subsidiaries that was capitalized during that period;
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(3) any interest expense on Indebtedness of another person that is
guaranteed by that person or one of its Subsidiaries or secured by
a Lien on assets of that person or one of its Subsidiaries (whether
or not that guarantee or Lien is called upon); and
(4) the product of
(a) all dividend payments, whether or not in cash, on any series of
preferred stock of the Person or any of its Subsidiaries, other
than dividend payments on Equity Interests payable solely in Equity
Interests of Mrs. Fields, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of the person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with generally
accepted accounting principles in effect on August 29, 1998.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of that person for that period
to the Fixed Charges of that person for that period. In the event that Mrs.
Fields or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to that incurrence, assumption, guarantee or redemption
of Indebtedness, or that issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by Mrs. Fields or any of its
Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-
quarter reference period or subsequent to that reference period and
on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for that reference period shall be
calculated without giving effect to clause (3) of the proviso
described in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with generally accepted accounting
principles in effect on November 26, 1997, and operations or
businesses disposed of prior to the Calculation Date, shall be
excluded,
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with generally accepted accounting
principles in effect on November 26, 1997, and operations or
businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise
to those Fixed Charges will not be obligations of the specified
person or any of its Subsidiaries following the Calculation Date;
and
(4) the financial information of Mrs. Fields with respect to any
portion of the four fiscal quarters prior to generally accepted
accounting principles in effect on November 26, 1997 may be
adjusted to eliminate certain historical expenses that are not
expected to recur after the consummation of the Pretzel
Contributions so long as those adjustments are not deemed to be
contrary to the requirements of Regulation S-X under the Securities
Act by an Accounting Firm.
In calculating the Fixed Charge Coverage Ratio for any period, to the extent
that the proceeds from the incurrence of any Indebtedness are to be used to
fund the acquisition of Equity Interests or assets in the same or a similar
line of business as Mrs. Fields and its Subsidiaries were engaged in on
November 26, 1997, including, without limitation, the specialty retail snack-
food business, Mrs. Fields may include any pro forma adjustments permitted by
Regulation S-X under the Securities Act in its calculation of the amount of
Consolidated Cash Flow that relate solely to the acquisition, so long as these
pro forma adjustments are not deemed to be contrary to the requirements of Rule
11-02 of Regulation S-X under the Securities Act in writing by an Accounting
Firm.
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"Hedging Obligations" means, with respect to any person, the obligations of
that person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect that person
against fluctuations in interest or foreign currency exchange
rates.
"Indebtedness" means, with respect to any specified person, any indebtedness
of that person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect of those
instruments);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of the
specified person prepared in accordance with generally accepted accounting
principles in effect on November 26, 1997. In addition, the term "Indebtedness"
includes all Indebtedness of others secured by a Lien on any asset of the
specified person (whether or not such Indebtedness is assumed by the specified
person) and, to the extent not otherwise included, the guarantee by the person
of any Indebtedness of any other person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness that does not require current payments of interest;
and
(2) the principal amount of the Indebtedness, together with any
interest on the Indebtedness that is more than 30 days past due, in
the case of any other Indebtedness.
"Investments" means, with respect to any person, all investments by that
person in other persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
generally accepted accounting principles in effect on November 26, 1997,
provided that an acquisition of assets, Equity Interests or other securities by
Mrs. Fields for consideration consisting of common stock of Mrs. Fields shall
not be deemed to be an Investment. If Mrs. Fields or any Subsidiary of Mrs.
Fields sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of Mrs. Fields such that, after giving effect to the sale
or disposition, the person is no longer a Subsidiary of Mrs. Fields, Mrs.
Fields shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of the
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "Certain
Covenants--Restricted Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of that asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof,
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any option or other agreement to sell or give a security interest in and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction), provided that
the definition of Lien shall not include any option, call or similar right
relating to treasury shares of Mrs. Fields to the extent that the option, call
or right is granted:
(1) under any employee stock option plan, employee stock ownership plan
or similar plan or arrangement of Mrs. Fields or its Subsidiaries
or
(2) in connection with the issuance of Indebtedness permitted to be
incurred under the covenant described under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock".
"Net Income" means, with respect to any person, the net income (loss) of that
person, determined in accordance with generally accepted accounting principles
in effect on November 26, 1997 and before any reduction in respect of preferred
stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on that gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions under
sale and leaseback transactions) or
(b) the disposition of any securities by the person or any of its
Subsidiaries or the extinguishment of any Indebtedness of the
person or any of its Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on that extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the total cash proceeds received by Mrs. Fields or any
of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale but only as and when received),
net of the direct costs relating to the Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required
to be applied to the permanent repayment of, or permanent reduction in
availability or commitment under, Indebtedness secured by a Lien on the asset
or assets that were the subject of the Asset Sale and any reserve for
adjustment in respect of the sale price of the asset or assets established in
accordance with generally accepted accounting principles in effect on November
26, 1997.
"Non-Core Stores" means the stores listed in Exhibit B to the Indenture.
"Permitted Investments" means:
(1) any Investment in Mrs. Fields or in a Wholly Owned Subsidiary of
Mrs. Fields that is a guarantor and that is engaged;
(2) any Investment in Cash Equivalents;
(3) any Investment by Mrs. Fields or any Subsidiary of Mrs. Fields in a
person, if as a result of the Investment
(a) the person becomes a Wholly Owned Subsidiary of Mrs. Fields and a
guarantor that is engaged in the same or a similar line of business
as Mrs. Fields and its Subsidiaries were engaged in on November 26,
1997, including without limitation, the specialty retail snack-food
business or
(b) the person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Mrs. Fields or a Wholly Owned Subsidiary of Mrs.
Fields that is a guarantor and that is engaged in the same or a
similar line of business as Mrs. Fields and its Subsidiaries were
engaged in on November 26, 1997, including without limitation, the
specialty retail snack-food business;
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(4) any Investment other than a Permitted Investment made as a result
of the receipt of non-cash consideration from an Asset Sale that
was made under and in compliance with the covenant described above
under the caption "Repurchase at the Option of Holders -- Asset
Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Mrs. Fields;
(6) any Investments in accounts and notes receivable acquired in the
ordinary course of business;
(7) any Investments in notes of employees, officers, directors and
their transferees and Affiliates issued to Mrs. Fields representing
payment of the exercise price of options to purchase common stock
of Mrs. Fields;
(8) any Investments by Mrs. Fields in Hedging Obligations otherwise
permitted to be incurred under the indenture;
(9) any Investments existing on November 26, 1997 (including, without
limitation, a $500,000 loan to Martin E. Lisiewski outstanding as
of November 26, 1997); and
(10) any purchase of any and all remaining common stock of Pretzel
Time.
"Permitted Liens" means:
(1) Liens securing Indebtedness under a credit facility with a maximum
total amount of $15.0 million that is permitted under the indenture
that was permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Mrs. Fields;
(3) Liens on property of a person existing at the time the person is
merged into or consolidated with Mrs. Fields or any Subsidiary of
Mrs. Fields, provided that those Liens were in existence prior to
the contemplation of the merger or consolidation and do not extend
to any assets other than those of the person merged into or
consolidated with Mrs. Fields;
(4) Liens on property existing at the time of acquisition thereof by
Mrs. Fields or any Subsidiary of Mrs. Fields, provided that those
Liens were in existence prior to the contemplation of the
acquisition and do not extend to any assets of Mrs. Fields other
than the property so acquired;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clauses (3) and (10) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness" and Issuance of
Preferred Stock, provided that, in the case of Indebtedness
permitted by clause (3), covering only the assets acquired with
that Indebtedness;
(7) Liens existing on November 26, 1997;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with generally accepted
accounting principles in effect on November 26, 1997 shall have
been made therefor; and
(9) Liens incurred in the ordinary course of business of Mrs. Fields or
any Subsidiary of Mrs. Fields that
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the
ordinary course of business) and
(b) do not in the total materially detract from the value of the
property or materially impair the use thereof in the operation of
business by Mrs. Fields or the Subsidiary.
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"Permitted Refinancing Indebtedness" means any Indebtedness of Mrs. Fields or
any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Mrs. Fields or any of its Subsidiaries, provided that
(1) the principal amount (or accreted value, if applicable) of the
Permitted Refinancing Indebtedness does not exceed the principal
amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith);
(2) the Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the
notes, the Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in
right of payment to, the notes on terms at least as favorable to
the holders of notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) the Indebtedness is incurred either by Mrs. Fields or by the
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Public Equity Offering" means a public offering registered under the
Securities Act (except for any registration under Form S-8) of common stock of:
(1) Mrs. Fields or
(2) Mrs. Fields Holding to the extent that the net proceeds thereof are
contributed to Mrs. Fields as a capital contribution,
provided that the total proceeds from the public offering shall in no event be
less than $20.0 million.
"Related Party" with respect to Herbert S. Winokur, Jr. and Capricorn
Investors II, L.P. means:
(1) any greater than 50% owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of Herbert S. Winokur,
Jr. or Capricorn Investors II, L.P. or
(2) trust, corporation, general partnership or other entity, the
beneficiaries, stockholders, partners, owners or persons
beneficially holding a greater than 50% controlling interest of
which consist, or a limited partnership, the general partner of
which consists, of Herbert S. Winokur, Jr. or Capricorn Investors
II, L.P. and/or any other persons referred to in the immediately
preceding clause (1).
"Significant Subsidiary" means any Subsidiary that would be a significant
subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as that Regulation is in effect on November 26, 1997.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which that payment of
interest or principal was scheduled to be paid in the original documentation
governing that Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any that interest or principal prior to the date
originally scheduled for the payment thereof.
"Tax Sharing Agreement" means any tax allocation agreement between Mrs.
Fields or any of its Subsidiaries with Mrs. Fields or any direct or indirect
shareholder of Mrs. Fields with respect to consolidated or combined tax returns
including Mrs. Fields or any of its Subsidiaries, but, in each case, only to
the extent that
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amounts payable from time to time by Mrs. Fields or any Subsidiary under any
agreement do not exceed the corresponding tax payments that Mrs. Fields or the
Subsidiary would have been required to make to any relevant taxing authority
had Mrs. Fields or the Subsidiary not joined in those consolidated or combined
returns, but instead had filed returns including only Mrs. Fields and its
Subsidiaries.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between
that date and the making of that payment; by
(2) the then outstanding principal amount of that Indebtedness.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Agreement
Mrs. Fields entered into an Amended and Restated Loan Agreement, dated as of
February 28, 1998, with LaSalle National Bank. Under the agreement, LaSalle
National Bank will provide Mrs. Fields with a revolving loan commitment of up
to $15.0 million until the maturity date of March 31, 2001 or until the
agreement is otherwise terminated or accelerated by LaSalle National Bank.
Principal amounts due on revolving loans made under the agreement bear interest
at Mrs. Fields option at either the Prime rate or LIBOR plus two percent per
annum. Any amount of principal or interest that is not paid when due bears
interest payable on demand at the default rate of interest, which is the
regular interest rate plus two percent. The agreement also provides that
LaSalle National Bank may issue letters of credit on behalf of Mrs. Fields in a
total amount not to exceed $500,000. The total amount of letters of credit
issued plus the total amount of revolving loans outstanding cannot exceed $15.0
million. Substantially all of the assets of Mrs. Fields have been pledged to
LaSalle National Bank under the agreement, as a result of which the notes to be
issued in the exchange offer will be effectively subordinated to amounts
outstanding under the agreement. The agreement contains certain restrictions
on, among other things, payments, the incurrence of indebtedness and liens,
which are substantially similar to the restrictions in the indenture. As of
July 3, 1999, there was $7.0 million outstanding under the agreement. Under the
borrowing base, Mrs. Fields is limited to borrowing an additional $ 276,000 in
accordance with restrictions of the indenture.
On May 27, 1999, Pretzel Time entered into agreements with LaSalle National
Bank under which Pretzel Time borrowed, on May 28, 1999, $1,000,000 in
aggregate principal amount from LaSalle. Pretzel Time issued a revolving note
to LaSalle to evidence its borrowing, which bears interest at the Prime rate,
or Prime plus 2% for any balance payable after the note has matured on June 30,
2000. Pretzel Time has pledged its assets to LaSalle to secure its obligations,
and Mrs. Fields has guaranteed Pretzel Time's obligations to LaSalle.
PLAN OF DISTRIBUTION
Each broker-dealer that receives notes issued in the exchange offer for its
own account must acknowledge that it will deliver a prospectus in connection
with any resale of those notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of notes received in exchange for outstanding notes where those
outstanding notes were acquired as a result of market-making activities or
other trading activities. Mrs. Fields has agreed that, for a period of 120 days
after the consummation of the exchange offer, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any resale. In addition, until , 1999, all dealers effecting
transactions in the notes issued in the exchange offer may be required to
deliver a prospectus.
Mrs. Fields will not receive any proceeds from any sale of notes issued in
the exchange offer by broker-dealers. Notes issued in the exchange offer
received by broker-dealers for their own account under the exchange offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the notes
issued in the exchange offer or a combination of these methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any resale may be made directly
to purchasers or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any broker-dealer or the
purchasers of any of the notes issued in the exchange offer. Any broker-dealer
that resells notes that were received by it for its own account in the exchange
offer and any broker or dealer that participates in a distribution of those
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any resale of notes issued in the exchange offer and any
commission or concessions received by those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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For a period of 120 days after the consummation of the exchange offer, Mrs.
Field will promptly send additional copies of this prospectus and any amendment
or supplement to this prospectus to any broker-dealer that requests those
documents in the letter of transmittal or agent's message. Mrs. Fields has
agreed to pay all expenses incident to the exchange offer (including the
expenses of one counsel for the holders of the notes in an amount up to
$50,000) other than commissions or concessions of any brokers or dealers and
will indemnify the holders of the notes (including any broker-dealer) against
some related liabilities, including liabilities under the Securities Act.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of U.S. federal income tax consequences
associated with the exchange of the outstanding notes for the notes issued in
the exchange offer. The summary is based upon current laws, regulations,
rulings and judicial decisions all of which are subject to change, possibly
with retroactive effect. The discussion below does not address all aspects of
U.S. federal income taxation that may be relevant to particular holders of
outstanding notes or notes issued in the exchange offer. In addition, the
discussion does not address any aspect of state, local or foreign taxation.
The exchange of the outstanding notes for the notes issued in the exchange
offer should not be treated as an "exchange" for U.S. federal income tax
purposes because the notes issued in the exchange offer should not be
considered to differ materially in kind or extent from the outstanding notes.
Rather, the notes issued in the exchange offer received by a holder should be
treated as a continuation of the outstanding notes in the hands of such holder.
As a result there should be no U.S. federal income tax consequences to holders
exchanging the outstanding notes for the notes issued in the exchange offer,
and any exchanging holder of outstanding notes should have the same tax basis
and holding period in, and income in respect of, the notes as such holder had
in the outstanding notes immediately prior to the exchange.
Prospective holders of the notes being issued in the exchange offer are being
urged to consult their tax advisors concerning the particular tax consequences
of exchanging such holders' outstanding notes for the notes being issued in the
exchange offer including the applicability and effect of any state, local or
foreign income and other tax laws.
LEGAL MATTERS
The validity of the notes and the guarantees of Mrs. Fields' Brand and Great
American offered in this prospectus will be passed upon by Skadden, Arps,
Slate, Meagher & Flom LLP. The validity of the guarantee of Pretzelmaker will
be passed upon by Smith, McCullough, P.C. and Skadden, Arps, Slate, Meagher &
Flom LLP. The validity of the guarantee of Pretzel Time will be passed upon by
Mette, Evans & Woodside and Skadden, Arps, Slate, Meagher & Flom LLP.
EXPERTS
The historical consolidated financial statements of Mrs. Fields' Original
Cookies, Inc. and subsidiaries as of January 3, 1998 and January 2, 1999, and
for the period from inception (September 18, 1996) to December 28, 1996 and for
the years ended January 3, 1998 and January 2, 1999; the historical financial
statements of Mrs. Fields Inc. and subsidiaries as of September 17, 1996 and
for the period from December 31, 1995 to September 17, 1996; the historical
combined financial statements of The Original Cookie Company, Incorporated and
the Carved-Out Portion of Hot Sam Company, Inc. as of September 17, 1996 and
for the year ended December 30, 1995 and for the period ended September 17,
1996; the historical financial statements of Chocolate Chip Cookies of Texas,
Inc. as of September 30, 1996 and 1997 and for the years ended September 30,
1995, 1996 and 1997; the historical financial statements of the Combined Karp
Entities as of December 31, 1996 and 1997 and for the years ended December 31,
1995, 1996 and 1997 included in this prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect to it, and are included in this prospectus in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The financial statements of Mrs. Fields Inc. and subsidiaries for the year
ended December 30, 1995 included in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing in this prospectus, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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The financial statements of Deblan Corporation as of December 31, 1996 and
1997, and for the years ended December 31, 1995, 1996 and 1997 included in this
prospectus, have been audited by Weinstein Spira & Company, P.C., independent
auditors, as stated in their report appearing in this prospectus.
The financial statements of Cookies USA, Inc. and subsidiary as of June 29,
1997 and June 28, 1998 and for each of the three years in the period ended June
28, 1998 included in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing in this prospectus.
The financial statements of Cookie Conglomerate, Inc. as of December 31, 1997
and 1996, and for the years ended December 31, 1997 and 1996 included in this
prospectus, have been audited by Habif, Arogeti & Wynne, P.C., independent
auditors, as stated in their report appearing in this prospectus.
The financial statements of Pretzelmaker Holdings, Inc. and subsidiaries as
of December 31, 1997 and for the year ended December 31, 1997 included in this
prospectus, has been audited by AJ. Robbins, PC, independent public accountants
as stated in their report appearing in this prospectus.
The financial statements of Pretzelmaker Holdings, Inc. as of December 31,
1996 and for the period from inception (February 24, 1995) to December 31, 1995
and for the year ended December 31, 1996 included in this prospectus, have been
audited by BDO Seidman, LLP, independent public accountants, as stated in their
report appearing in this prospectus.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 24, 1998, Mrs. Fields sold $40,000,000 in total principal amount of
Series C Senior Notes due 2004. The net proceeds of the Mrs. Field's offering
and the capital contribution of the net proceeds of the offering of units
consisting of notes and warrants of Mrs. Fields' Holding to Mrs. Fields,
together with existing Mrs. Field's cash were used to: (i) finance the
acquisition of all of the outstanding capital stock of Great American; (ii)
finance the tender offer to repurchase all of Great American's $40,000,000
total principal amount of 10 7/8% Senior Secured Notes due 2001, including
accrued but unpaid interest and a premium of $1,600,000; (iii) finance the
repayment of all of Great American's $10,000,000 total principal amount of
12.5% Subordinated Notes, including accrued but unpaid interest; (iv) finance
the retirement of Great American's Senior Redeemable Preferred Stock and Junior
Redeemable Preferred Stock at an total discounted purchase price of $8,400,000;
(v) finance the acquisition of all of the outstanding capital stock of Deblan
and Chocolate Chip, two franchisees of Great American, including the repayment
of assumed debt; and (vi) finance the asset purchase of eight stores controlled
by another Great American franchisee, defined as the Combined Karp Entities.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of Cookie Conglomerate for an total purchase
price of $2,800,000. The Cookie Conglomerate acquisition was funded with
financing provided by T&W Financial Services, L.L.C. and such funding is
secured by the assets of the acquired stores.
On November 19, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Pretzelmaker for $5,739,000, including $5,419,000 related to
outstanding capital stock and $320,000 related to severance payments in lieu of
outstanding stock options, and assumed liabilities totaling $1,299,000. The
transaction was financed with notes issued to the sellers that were paid by
Mrs. Fields in installments through January 4, 1999. Of the assumed
indebtedness, $722,000 was paid by Mrs. Fields in installments through January
4, 1999.
The unaudited pro forma condensed combined statements of operations for the
52 weeks ended January 2, 1999 are based upon the historical financial
statements of Mrs. Fields, Great American, Deblan, Chocolate Chip, the Combined
Karp Entities, Cookie Conglomerate and Pretzelmaker, and should be read in
conjunction with the audited and unaudited financial statements and related
notes of these entities included elsewhere in this Registration Statement. The
unaudited pro forma condensed combined financial statements have been prepared
using the purchase method of accounting for the acquisitions of Great American,
Deblan, Chocolate Chip, the Combined Karp Entities, Cookie Conglomerate and
Pretzelmaker. Mrs. Fields operates using a 52/53-week year ending near December
31. Great American operates using a 52/53-week year ending near June 30.
Deblan, Cookie Conglomerate and Pretzelmaker operate using a year ending
December 31, Chocolate Chip operates using a year ending September 30, and the
Combined Karp Entities operate using a year ending December 31. We have recast
the historical financial statements for those entities that did not operate
using a year ending near December 31 to be comparable for the 52 weeks ended
January 2, 1999. None of the revenues and income (loss) of any entity has been
excluded or included more than once in the unaudited pro forma condensed
combined financial statements.
The unaudited pro forma condensed combined statements of operations for the
52 weeks ended January 2, 1999 assumes that the above transactions occurred as
of January 4, 1998 (the first day of fiscal 1998) and combine the historical
results of operations of the entities for those periods with pro forma
adjustments to give effect to Mrs. Fields' offering in August 1998, the capital
contribution of the net proceeds of the offering of units consisting of notes
and warrants of Mrs. Fields' Holding to Mrs. Fields and the acquisitions.
The unaudited pro forma condensed combined financial statements included in
this Registration Statement are for illustrative purposes only. Such
information does not purport to be indicative of the results which would
actually have been effected on the date and for the periods indicated, nor is
it indicative of actual or future operating results or financial position that
may occur. See also "Risk Factors" included elsewhere in this Registration
Statement.
P-1
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MRS. FIELDS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the 52 Weeks Ended January 2, 1999
(unaudited)
<TABLE>
<CAPTION>
Combined
Great Chocolate Karp
American Deblan Chip Entities
Mrs. Fields (See Note 2) (See Note 3) (See Note 4) (See Note 5)
----------- ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net store and food
sales................ $140,235 $18,932 $6,370 $1,873 $1,489
Franchising, net...... 12,464 3,531 -- -- --
Licensing, net........ 1,537 -- -- -- --
-------- ------- ------ ------ ------
Total revenues...... 154,236 22,463 6,370 1,873 1,489
-------- ------- ------ ------ ------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 75,003 7,645 3,523 1,000 914
Cost of sales......... 38,482 6,428 1,108 454 373
General and
administrative....... 19,017 5,288 1,067 421 141
Store closure
provision 7,303 -- -- -- --
Depreciation and
amortization......... 19,820 1,510 182 22 82
-------- ------- ------ ------ ------
Total operating
costs and
expenses........... 159,625 20,871 5,880 1,897 1,510
-------- ------- ------ ------ ------
Income (loss) from
operations....... (5,389) 1,592 490 (24) (21)
INTEREST EXPENSE........ (13,197) (4,077) (43) (2) (8)
INTEREST INCOME......... 623 258 24 4 --
OTHER INCOME (EXPENSE),
net.................... (409) (149) 40 11 --
-------- ------- ------ ------ ------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of subsidi-
aries and minority
interest............. (18,372) (2,376) 511 (11) (29)
PROVISION (BENEFIT) FOR
INCOME TAXES........... 316 (38) 115 27 6
-------- ------- ------ ------ ------
Income (loss) before
preferred stock ac-
cretion and dividends
of subsidiaries and
minority interest.... (18,688) (2,338) 396 (38) (35)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ (444) -- -- -- --
MINORITY INTEREST....... (11) -- -- -- --
-------- ------- ------ ------ ------
Net income (loss)..... $(19,143) $(2,338) $ 396 $ (38) $ (35)
======== ======= ====== ====== ======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
P-2
<PAGE>
MRS. FIELDS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
For the 52 Weeks Ended January 2, 1999
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Cookie Conglomerate Pretzelmaker Adjustments Pro Forma
(See Note 6) (See Note 7) (See Note 1) Combined
------------------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
REVENUES:
Net store and food
sales................ $2,906 $1,222 $(1,338)(a) $171,689
Franchising, net...... -- 2,634 (609)(b) 18,020
Licensing, net........ -- -- -- 1,537
------ ------ ------- --------
Total revenues...... 2,906 3,856 (1,947) 191,246
------ ------ ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 1,580 1,401 (609)(b) 90,457
Cost of sales......... 733 85 (1,338)(a) 46,325
General and
administrative....... 303 2,085 (1,834)(c) 26,488
Store closure
provision -- -- -- 7,303
Depreciation and
amortization......... 118 657 3,191 (d) 25,582
------ ------ ------- --------
Total operating
costs and
expenses........... 2,734 4,228 (590) 196,155
------ ------ ------- --------
Income (loss) from
operations....... 172 (372) (1,357) (4,909)
INTEREST EXPENSE........ (17) (179) 400 (e) (17,123)
INTEREST INCOME......... -- -- -- 909
OTHER INCOME (EXPENSE),
net.................... 32 -- -- (475)
------ ------ ------- --------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
minority interest.... 187 (551) (957) (21,598)
PROVISION (BENEFIT) FOR
INCOME TAXES........... -- (8) -- 418
------ ------ ------- --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
minority interest.... 187 (543) (957) (22,016)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- -- -- (444)
MINORITY INTEREST....... -- -- -- (11)
------ ------ ------- --------
Net income (loss)..... $ 187 $ (543) $ (957) $(22,471)
====== ====== ======= ========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
P-3
<PAGE>
MRS. FIELDS
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
1. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(a) Adjustment to reflect the elimination of batter sales and batter cost of
sales as a result of combining Great American, Deblan, Chocolate Chip, the
Combined Karp Entities and Cookie Conglomerate.
(b) Adjustment to reflect the elimination of franchise fees and related costs
as a result of combining Great American, Deblan, Chocolate Chip, the Combined
Karp Entities and Cookie Conglomerate.
(c) Adjustment to reflect the impact of the reduction in salaries and payroll
expenses related to employees of Great American, Deblan, Chocolate Chip, the
Combined Karp Entities, Cookie Conglomerate and Pretzelmaker terminated at the
date of the acquisitions assuming that the acquisitions were completed at
January 4, 1998. The terminations were a contractual component of the
acquisition agreements and occurred concurrent with and were a direct result of
the acquisitions. These terminations will have a continuing impact, as the
positions occupied by the terminated employees have been eliminated. The
terminated employees will not be replaced as Mrs. Fields has sufficient
resources with existing staff to fulfill the applicable responsibilities. Other
costs will not be incurred that will offset these reductions. The impact is
factually supportable as the employees were terminated at the time of the
acquisitions.
(d) Adjustment to reflect amortization of goodwill totaling $84,404,000
(including acquisition costs of $1,003,000), which was recorded in connection
with the purchase of the net assets of Great American, Deblan, Chocolate Chip,
the Combined Karp Entities, Cookie Conglomerate and Pretzelmaker. Goodwill is
being amortized over a 15-year period. Also includes adjustment to reflect a
reduction in depreciation expense as a result of reducing Great American,
Deblan, Chocolate Chip and the Combined Karp Entities property and equipment
and increasing Cookie Conglomerate's property and equipment to estimated fair
market value in connection with each respective acquisition. The average
estimated depreciable lives for these assets is seven years.
(e) Adjustment to reflect the reduction in interest expense related to: (i)
the retirement of $40,000,000 of Great American 10.875% Senior Secured Notes;
(ii) the retirement of $10,000,000 of Great American 12.5% Subordinated Notes;
(iii) the elimination of Great American's original issue discount; (iv) the
elimination of Great American's deferred loan costs; (v) the additional
interest expense related to approximately $5,007,000 of new deferred loan costs
amortized over a seven-year period; and (vi) the additional interest expense on
the $40,000,000 of Series C Senior Notes and amortization of $600,000 of
assumed discount; (vii) the interest expense on $2,800,000 of financing related
to the acquisition of Cookie Conglomerate, and (viii) the interest expense on
$4,682,000 of financing related to the acquisition of Pretzelmaker.
2. GREAT AMERICAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
and subordinated indebtedness of Great American for an total purchase price of
$18,400,000. The purchase price was allocated based on the estimated fair
values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired........................................... $ 11,439,000
Fixed assets acquired............................................. 2,978,000
Other assets acquired............................................. 3,128,000
Current liabilities acquired...................................... (7,825,000)
Other liabilities acquired........................................ (42,194,000)
Goodwill acquired................................................. 50,874,000
------------
Total purchase price............................................ $ 18,400,000
============
</TABLE>
P-4
<PAGE>
In the accompanying pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999, Great American's results of operations from
December 29, 1997 to August 23, 1998 are included under the "Great American"
column heading. Great American's results of operations from August 24, 1998 to
January 2, 1999 are included under the "Mrs. Fields" column heading. None of
Great American's revenues and income (loss) has been excluded from or included
more than once in the pro forma condensed combined statements of operations for
the 52 weeks ended January 2, 1999.
The following data reconciles the key components of Great American's results
of operations in the pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999 with the key components of Great American's
results of operations in its historical financial statements for the 52 weeks
ended June 28, 1998:
<TABLE>
<CAPTION>
Less Add
52 Weeks Ended 26 Weeks Ended June 29, 1998 To December 29, 1997
June 28, 1998 December 28, 1997 August 23, 1998 To August 23, 1998
-------------- ----------------- ---------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $18,854 $10,382 $2,753 $11,225
Batter sales to
franchisees............ 12,214 6,140 1,633 7,707
Franchising, net........ 5,770 2,884 563 3,449
Other, net.............. 139 72 15 82
Operating costs and
expenses............... 31,133 16,044 5,782 20,871
Income (loss) from
operations............. 5,844 3,738 (514) 1,592
Net income (loss)....... (202) 1,182 (954) (2,338)
</TABLE>
3. DEBLAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
of Deblan for an total purchase price of $10,465,000. Accordingly, in the
accompanying pro forma condensed combined statement of operations for the 52
weeks ended January 2, 1999, Deblan's results of operations from January 1,
1998 to August 23, 1998 are included under the "Deblan" column heading.
Deblan's results of operations from August 24, 1998 to January 2, 1999 are
included under the "Mrs. Fields" column heading. The purchase price was
allocated based on the estimated fair values of the net assets acquired, as
presented below:
<TABLE>
<S> <C>
Current assets acquired............................................ $ 1,241,000
Fixed assets acquired.............................................. 1,649,000
Other assets acquired.............................................. 245,000
Current liabilities acquired....................................... (1,006,000)
Other liabilities acquired......................................... (565,000)
Goodwill acquired.................................................. 8,901,000
-----------
Total purchase price............................................. $10,465,000
===========
</TABLE>
The following data reconciles the key components of Deblan's results of
operations in the pro forma condensed combined statement of operations for the
52 weeks ended January 2, 1999 with the key components of Deblan's results of
operations in its unaudited historical financial statements for the six months
ended June 30, 1998:
<TABLE>
<CAPTION>
Six Months Ended July 1, 1998 To January 1, 1998 To
June 30, 1998 August 23, 1998 August 23, 1998
---------------- --------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net store sales........... $4,768 $1,602 $6,370
Operating costs and
expenses................. 4,418 1,462 5,880
Income from operations.... 350 140 490
Net income................ 232 164 396
</TABLE>
P-5
<PAGE>
4. CHOCOLATE CHIP ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
of Chocolate Chip for a total purchase price of $3,965,000. The purchase price
was allocated based on the estimated fair values of the net assets acquired, as
presented below:
<TABLE>
<S> <C>
Current assets acquired............................................. $ 174,000
Fixed assets acquired............................................... 108,000
Other assets acquired............................................... 46,000
Current liabilities acquired........................................ (111,000)
Goodwill acquired................................................... 3,748,000
----------
Total purchase price.............................................. $3,965,000
==========
</TABLE>
In the accompanying pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999, Chocolate Chip's results of operations from
January 1, 1998 to August 23, 1998 are included under the "Chocolate Chip"
column heading. Chocolate Chip's results of operations from August 24, 1998 to
January 2, 1999 are included under the "Mrs. Fields" column heading. None of
Chocolate Chip's revenues and income (loss) has been excluded or included more
than once in the pro forma condensed combined statements of operations for the
52 weeks ended January 2, 1999.
The following data reconciles the key components of Chocolate Chip's results
of operations in the pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999 with the key components of Chocolate Chip's
results of operations in its historical financial statements for the nine
months ended June 30, 1998:
<TABLE>
<CAPTION>
Less
Nine Months Three Months Add
Ended Ended July 1, 1998 To January 1, 1998
June 30, 1998 December 31, 1997 August 23, 1998 To August 23, 1998
------------- ----------------- --------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $2,266 $803 $410 $1,873
Operating costs and
expenses............... 2,100 646 443 1,897
Income (loss) from
operations............. 166 157 (33) (24)
Net income (loss)....... 116 155 1 (38)
</TABLE>
5. COMBINED KARP ENTITIES ACQUISITION
On September 9, 1998, Mrs. Fields acquired the Combined Karp Entities for a
total purchase price of $1,888,000. Accordingly, in the accompanying pro forma
condensed combined statement of operations for the 52 weeks ended January 2,
1999, the Combined Karp Entities' results of operations from January 1, 1998 to
September 9, 1998 are included under the "Combined Karp Entities" column
heading. The Combined Karp Entities' results of operations from September 10,
1998 to January 2, 1999 are included under the "Mrs. Fields" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired............................................. $ 54,000
Fixed assets acquired, net.......................................... 1,054,000
Goodwill acquired................................................... 780,000
----------
Total purchase price.............................................. $1,888,000
==========
</TABLE>
P-6
<PAGE>
The following data reconciles the key components of the Combined Karp
Entities' results of operations in the pro forma condensed combined statement
of operations for the 52 weeks ended January 2, 1999 with the key components of
the Combined Karp Entities' results of operations in its historical financial
statements for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Six Months Ended July 1, 1998 To January 1, 1998 To
June 30, 1998 September 9, 1998 September 9, 1998
---------------- ----------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net store sales......... $1,181 $308 $1,489
Operating costs and
expenses............... 1,259 251 1,510
Income (loss) from
operations............. (78) 57 (21)
Net income (loss)....... (91) 56 (35)
</TABLE>
6. COOKIE CONGLOMERATE ACQUISITION
On October 5, 1998, Mrs. Fields acquired Cookie Conglomerate for a total
purchase price of $2,800,000. Accordingly, in the accompanying pro forma
condensed combined statement of operations for the 52 weeks ended January 2,
1999, Cookie Conglomerate's results of operations from January 1, 1998 to
September 30, 1998 are included under the "Cookie Conglomerate" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Fixed assets acquired............................................... $1,270,000
Other intangibles acquired.......................................... 100,000
Goodwill acquired................................................... 1,430,000
----------
Total purchase price.............................................. $2,800,000
==========
</TABLE>
7. PRETZELMAKER ACQUISITION
On November 19, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Pretzelmaker for $5,419,000 and assumed liabilities of $320,000
related to severance payments in lieu of outstanding stock options to be paid
at closing. Mrs. Fields paid $1,100,000 in cash upon closing of the acquisition
and signed a promissory note for $4,319,000, which was paid in three
installments through January 4, 1999. Accordingly, in the accompanying pro
forma condensed combined financial statements of operations for the 52 weeks
ended January 2, 1999, Pretzelmaker's results of operations from January 1,
1998 to November 19, 1998 are included under the "Pretzelmaker" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets (liabilities) acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired............................................ $ 577,400
Fixed assets acquired.............................................. 248,700
Other assets acquired.............................................. 50,000
Current liabilities acquired....................................... (1,991,700)
Other liabilities acquired......................................... (1,108,400)
Goodwill acquired.................................................. 7,643,000
-----------
Total purchase price............................................. $ 5,419,000
===========
</TABLE>
P-7
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mrs. Fields' Original Cookies, Inc. and Subsidiaries
Report of Independent Public Accountants................................. F-4
Consolidated Balance Sheets as of January 3, 1998 and January 2, 1999 ... F-5
Consolidated Statements of Operations for the period from inception
(September 18, 1996) to December 28, 1996, for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999 ............. F-7
Consolidated Statements of Stockholder's Equity for the period from
inception (September 18, 1996) to December 28, 1996, for the 53 weeks
ended January 3, 1998 and for the 52 weeks ended January 2, 1999........ F-8
Consolidated Statements of Cash Flows for the period from inception
(September 18, 1996) to December 28, 1996, for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999.............. F-9
Notes to Consolidated Financial Statements............................... F-12
Unaudited Condensed Consolidated Balance Sheets as of January 2, 1999 and
July 3, 1999............................................................ F-43
Unaudited Condensed Consolidated Statements of Operations for the 26
weeks ended July 4, 1998 and July 3, 1999............................... F-45
Unaudited Condensed Consolidated Statements of Cash Flows for the 26
weeks ended July 4, 1998 and July 3, 1999............................... F-46
Unaudited Notes to Condensed Consolidated Financial Statements........... F-47
Mrs. Fields Inc. and Subsidiaries
Report of Independent Public Accountants (Arthur Andersen LLP)........... F-56
Independent Auditors' Report (Deloitte & Touche LLP)..................... F-57
Consolidated Balance Sheet as of September 17, 1996...................... F-58
Consolidated Statements of Operations for the year ended December 30,
1995 and for the period ended September 17, 1996........................ F-60
Consolidated Statements of Stockholders' Deficit for the year ended
December 30, 1995 and for the period ended September 17, 1996........... F-61
Consolidated Statements of Cash Flows for the year ended December 30,
1995 and for the period ended September 17, 1996........................ F-62
Notes to Consolidated Financial Statements............................... F-64
The Original Cookie Company, Incorporated and the Carved-out Portion of
Hot Sam Company, Inc. (Combined)
Report of Independent Public Accountants................................. F-72
Combined Balance Sheet as of September 17, 1996.......................... F-73
Combined Statements of Operations for the year ended December 30, 1995
and for the period ended September 17, 1996............................. F-75
Combined Statements of Stockholders' Equity for the year ended December
30, 1995 and for the period ended September 17, 1996.................... F-76
Combined Statements of Cash Flows for the year ended December 30, 1995
and for the period ended September 17, 1996............................. F-77
Notes to Combined Financial Statements................................... F-78
Cookies USA, Inc. and Subsidiary
Report of Independent Accountants........................................ F-82
Consolidated Balance Sheets as of June 29, 1997 and June 28, 1998........ F-83
Consolidated Statements of Operations for the fifty-two week periods
ended June 30, 1996, June 29, 1997 and June 28, 1998.................... F-85
Consolidated Statements of Changes in Stockholders' Deficit for the
fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28,
1998.................................................................... F-86
Consolidated Statements of Cash Flows for the fifty-two week periods
ended June 30, 1996, June 29, 1997 and June 28, 1998.................... F-87
Notes to Consolidated Financial Statements............................... F-89
</TABLE>
F-1
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Deblan Corporation
Independent Auditors' Report............................................ F-101
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-102
Statements of Earnings for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................................ F-104
Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1998
(unaudited)............................................................ F-105
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................................ F-106
Notes to Financial Statements........................................... F-108
Chocolate Chip Cookies of Texas, Inc.
Report of Independent Public Accountants................................ F-114
Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-115
Statements of Operations for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-117
Statements of Stockholders' Equity for the years ended September 30,
1995, 1996, and 1997 and for the nine months ended June 30, 1998
(unaudited)............................................................ F-118
Statements of Cash Flows for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-119
Notes to Financial Statements........................................... F-121
The Combined Karp Entities
Report of Independent Public Accountants................................ F-126
Combined Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)....................................................... F-127
Combined Statements of Operations for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1997 (unaudited)
and 1998 (unaudited)................................................... F-129
Combined Statements of Stockholders' Equity for the years ended December
31, 1995, 1996, and 1997 and for the six months ended June 30, 1998
(unaudited)............................................................ F-130
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1997 (unaudited)
and 1998 (unaudited)................................................... F-131
Notes to Combined Financial Statements.................................. F-133
The Cookie Conglomerate
Independent Auditors' Report............................................ F-140
Combined Balance Sheets as of December 31, 1997 and 1996................ F-141
Combined Statements of Operations for the years ended December 31, 1997
and 1996............................................................... F-143
Combined Statements of Changes in Equity for the years ended December
31, 1997 and 1996...................................................... F-144
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1996............................................................... F-145
Notes to Combined Financial Statements.................................. F-146
Combined Balance Sheet as of September 30, 1998 (unaudited)............. F-150
Combined Statements of Operations for the nine month periods ended
September 30, 1998 and 1997 (unaudited)................................ F-151
Combined Statements of Cash Flows for the nine month periods ended
September 30, 1998 and 1997 (unaudited)................................ F-152
Notes to Combined Financial Statements.................................. F-153
Pretzelmaker Holdings, Inc.
Report of Independent Certified Public Accountants (AJ. Robbins, PC).... F-154
Report of Independent Certified Public Accountants (BDO Seidman, LLP)... F-155
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)......................................... F-156
</TABLE>
F-2
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Consolidated Statements of Operations For the Period from February 24
(Inception) to December 31, 1995 and the Years Ended December 31, 1996
and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and
1998 (unaudited)........................................................ F-158
Consolidated Statements of Stockholders' Equity For the Period from
February 24 (Inception) to December 31, 1995 and the Years Ended
December 31, 1996 and 1997 and the Nine Months Ended September 30, 1998
(unaudited)............................................................. F-159
Consolidated Statements of Cash Flows For the Period from February 24
(Inception) to December 31, 1995 and the Years Ended December 31, 1996
and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and
1998 (unaudited)........................................................ F-160
Notes to the Consolidated Financial Statements........................... F-161
</TABLE>
F-3
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields' Original Cookies, Inc.:
We have audited the accompanying consolidated balance sheets of Mrs. Fields'
Original Cookies, Inc. (a Delaware corporation) and subsidiaries as of January
3, 1998 and January 2, 1999, and the related consolidated statements of
operations, stockholder's equity and cash flows for the period from inception
(September 18, 1996) to December 28, 1996 and for each of the two years in the
period ended January 2, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of January 3, 1998
and January 2, 1999, and the consolidated results of their operations and their
cash flows for the period from inception (September 18, 1996) to December 28,
1996 and for each of the two years in the period ended January 2, 1999 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
April 1, 1999
F-4
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 16,287 $ 4,751
Accounts receivable, net of allowance for doubtful
accounts of $32 and $74, respectively................ 1,535 3,208
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $582 and $1,078,
respectively......................................... 2,176 6,003
Inventories........................................... 3,100 5,503
Prepaid rent and other................................ 2,960 4,017
Deferred income tax assets............................ 2,765 861
-------- --------
Total current assets................................ 28,823 24,343
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................................ 21,099 29,914
Equipment and fixtures................................ 14,100 17,108
Land.................................................. 128 240
-------- --------
35,327 47,262
Less accumulated depreciation and amortization........ (6,125) (15,465)
-------- --------
Net property and equipment.......................... 29,202 31,797
-------- --------
DEFERRED INCOME TAX ASSETS.............................. 734 2,638
-------- --------
GOODWILL, net of accumulated amortization of $4,980 and
$11,231, respectively.................................. 68,501 145,782
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $1,409 and $2,615, respectively........ 15,193 14,296
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$70 and $1,320, respectively........................... 5,906 11,718
-------- --------
OTHER ASSETS............................................ 1,325 1,332
-------- --------
$149,684 $231,906
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-5
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
--------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt....................... $ 472 $ 8,046
Current portion of capital lease obligations............ 142 299
Accounts payable........................................ 3,805 10,723
Bank overdraft.......................................... -- 4,133
Accrued liabilities..................................... 2,826 3,597
Current portion of store closure reserve................ 3,664 4,577
Accrued salaries, wages and benefits.................... 1,891 3,155
Accrued interest payable................................ 1,082 1,260
Sales taxes payable..................................... 937 962
Deferred credits........................................ 871 318
-------- --------
Total current liabilities............................. 15,690 37,070
LONG-TERM DEBT, net of current portion and discount....... 100,284 141,647
STORE CLOSURE RESERVE, net of current portion............. 1,802 10,134
CAPITAL LEASE OBLIGATIONS, net of current portion......... 183 997
-------- --------
Total liabilities..................................... 117,959 189,848
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 8)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of
Pretzel Time (a wholly owned subsidiary), aggregate
liquidation preference of $1,437 and $1,495,
respectively............................................. 902 1,261
-------- --------
MINORITY INTEREST......................................... 58 119
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized
and 400 shares outstanding............................. -- --
Additional paid-in capital.............................. 30,843 59,899
Accumulated deficit..................................... (78) (19,221)
-------- --------
Total stockholder's equity............................ 30,765 40,678
-------- --------
$149,684 $231,906
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-6
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception 53 52
(September 18, Weeks Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
-------------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net store and food sales................ $40,849 $127,845 $140,235
Franchising, net........................ 503 4,535 12,464
Licensing, net.......................... 764 2,028 1,537
------- -------- --------
Total revenues........................ 42,116 134,408 154,236
------- -------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs....... 19,492 66,832 75,003
Cost of sales........................... 10,596 32,028 38,482
General and administrative.............. 4,035 16,192 19,017
Store closure provision................. -- 538 7,303
Depreciation and amortization........... 2,344 10,403 19,820
------- -------- --------
Total operating costs and expenses.... 36,467 125,993 159,625
------- -------- --------
Income (loss) from operations....... 5,649 8,415 (5,389)
------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest expense........................ (1,867) (7,830) (13,197)
Interest income......................... 74 246 623
Other expense........................... -- (368) (409)
------- -------- --------
Total other expense, net.............. (1,793) (7,952) (12,983)
------- -------- --------
Income (loss) before provision for
income taxes, preferred stock accretion
and dividends of subsidiaries and
minority interest...................... 3,856 463 (18,372)
PROVISION FOR INCOME TAXES................ (1,798) (655) (316)
------- -------- --------
Income (loss) before preferred stock
accretion and dividends of subsidiaries
and minority interest.................. 2,058 (192) (18,688)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES............................. (97) (644) (444)
MINORITY INTEREST......................... -- (138) (11)
------- -------- --------
Net income (loss)..................... $ 1,961 $ (974) $(19,143)
======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
BALANCE, September 18, 1996..... -- $-- $ -- $ -- $ --
Issuance of common stock for
cash......................... 400 -- 15,000 -- 15,000
Net income.................... -- -- -- 1,961 1,961
--- ---- ------- -------- -------
BALANCE, December 28, 1996...... 400 -- 15,000 1,961 16,961
Parent contribution of
investment in Pretzel Time... -- -- 4,200 -- 4,200
Parent contribution of note
receivable due from Pretzel
Time's minority stockholder
and founder.................. -- -- 500 -- 500
Parent contribution of
investment in Mrs. Fields'
Brand........................ -- -- 6,500 -- 6,500
Conversion to equity of note
payable to parent............ -- -- 4,643 -- 4,643
Dividend paid to parent....... -- -- -- (1,065) (1,065)
Net loss...................... -- -- -- (974) (974)
--- ---- ------- -------- -------
BALANCE, January 3, 1998........ 400 -- 30,843 (78) 30,765
Parent equity infusion........ -- -- 29,056 -- 29,056
Net loss...................... -- -- -- (19,143) (19,143)
--- ---- ------- -------- -------
BALANCE, January 2, 1999........ 400 $-- $59,899 $(19,221) $40,678
=== ==== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception
(September 18, 53 Weeks 52 Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
-------------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 1,961 $ (974) $(19,143)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities, net of effects from
acquisitions:
Depreciation and amortization............ 2,344 10,403 19,820
Amortization of discount on notes........ -- -- 32
Amortization of deferred loan costs...... -- -- 1,250
Loss on disposition of assets............ -- 368 409
Deferred income taxes.................... 1,511 210 --
In-kind interest expense on note payable
to stockholder.......................... 97 338 --
Preferred stock accretion and dividends
of subsidiaries......................... 97 644 444
Minority interest........................ -- 234 11
Changes in assets and liabilities, net
of effects from acquisitions:
Accounts receivable..................... (294) (353) (1,673)
Amounts due from franchisees and
licensees.............................. (339) (514) (866)
Inventories............................. (159) 136 (822)
Prepaid rent and other.................. (31) (895) 932
Other assets............................ 39 427 1,437
Accounts payable and accrued
liabilities............................ 239 (6,651) 2,769
Store closure reserve................... (305) (1,666) 5,196
Accrued salaries, wages and benefits.... 212 80 1,264
Accrued interest payable................ 1,668 (586) (713)
Sales taxes payable..................... 542 261 (80)
Deferred credits........................ 27 (543) (838)
-------- -------- --------
Net cash provided by operating
activities............................ 7,609 919 9,429
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and
related costs........................... (19,508) (10,949) (32,835)
Purchase of property and equipment, net
of effects from acquisitions............ (1,638) (4,678) (8,235)
Proceeds from the sale of assets......... 15 122 176
-------- -------- --------
Net cash used in investing activities.. (21,131) (15,505) (40,894)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt.................................... -- 108,250 39,400
Principal payments on long-term debt..... (1,769) (77,009) (41,257)
Payment of debt financing costs.......... -- (5,976) (7,062)
Cash advance from Mrs. Fields' Holding... -- 1,500 --
Repayment of cash advance to Mrs. Fields'
Holding................................. -- (1,500) --
Payment of cash dividend to Mrs. Fields'
Holding................................. -- (1,065) --
Equity infusion from Mrs. Fields'
Holding................................. -- -- 29,056
Principal payments on capital lease
obligations............................. -- (36) (123)
Proceeds from the issuance of common
stock................................... 15,000 -- --
Proceeds from the issuance of mandatorily
redeemable cumulative preferred stock of
subsidiary.............................. 3,500 -- --
Reduction in preferred stock of Pretzel
Time.................................... -- -- (85)
Proceeds from the issuance of note
payable to related party................ 3,500 -- --
-------- -------- --------
Net cash provided by financing
activities............................ 20,231 24,164 19,929
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 6,709 9,578 (11,536)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD............................... -- 6,709 16,287
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD................................... $ 6,709 $ 16,287 $ 4,751
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-9
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $28, $8,416, and $12,440 for the
period ended December 28, 1996, and for the years ended January 3, 1998 and
January 2, 1999, respectively.
Cash paid for income taxes was approximately $0, $217, and $209 for the
period ended December 28, 1996, and for the years ended January 3, 1998 and
January 2, 1999, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
On September 18, 1996, the Company acquired certain assets and assumed
certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation,
Mrs. Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam
Company, Inc. In conjunction with the acquisitions, the following net
liabilities were assumed. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 93,494
Net cash paid.................................................... (19,508)
Notes payable issued............................................. (65,735)
--------
Liabilities assumed............................................ $ 8,251
========
On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") converted to common equity of the Company $4,643 total principal
amount of convertible subordinated notes and contributed to the Company all of
the common equity of Mrs. Fields' Brands after converting its preferred stock
interests totaling $3,935 to common equity.
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc.
("Pretzel Concepts") as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
Fair value of assets acquired.................................... $ 15,780
Net cash paid.................................................... (5,750)
Notes payable issued............................................. (8,000)
--------
Liabilities assumed............................................ $ 2,030
========
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("Pretzel Time") were acquired by Mrs. Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other
accruals were recorded (see Note 1).
Fair value of assets acquired.................................... $ 8,311
Net cash paid.................................................... (4,200)
--------
Liabilities assumed............................................ $ 4,111
========
</TABLE>
On November 26, 1997, Mrs. Fields' Holding contributed all of the assets and
liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note receivable from Pretzel
Time's founder and minority stockholder to the Company. Mrs. Fields' Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs. Fields.
F-10
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
During the period from the acquisition of the majority ownership of Pretzel
Time (September 2, 1997) to January 2, 1999, Pretzel Time increased its
mandatorily redeemable cumulative preferred stock liquidation preference by
approximately $212, in lieu of paying cash dividends. In addition, for the same
period, Pretzel Time's mandatorily redeemable cumulative preferred stock was
increased by approximately $538 for the accretion required over time to
amortize the original issue discount.
In August 1998, the Company acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for a total
purchase price of approximately $18,400. During August and September 1998, the
Company also entered into agreements with three franchisees of Cookies USA (the
"Great American Franchisees") under which the Company purchased a total of 37
Great American Cookies franchises for a total purchase price of $16,328. The
total purchase price for all of these acquisitions of $34,728 was allocated, on
a preliminary basis, as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 77,410
Net cash paid.................................................... (27,771)
--------
Liabilities assumed............................................ $ 49,639
========
In October 1998, the Company acquired the assets of the Cookie Conglomerate,
Inc. ("Cookie Conglomerate") for a total purchase price of $2,800. The total
purchase price was allocated as follows:
Fair value of assets acquired.................................... $ 2,800
Net cash paid.................................................... --
--------
Liabilities assumed............................................ $ 2,800
========
In November 1998, the Company acquired all of the outstanding stock of
Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase
price was allocated as follows:
Fair value of assets acquired.................................... $ 8,519
Net cash paid.................................................... (1,100)
--------
Liabilities assumed............................................ $ 7,419
========
</TABLE>
F-11
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation,
is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc. Mrs. Fields'
Holding is a majority owned subsidiary of Capricorn Investors II, L.P.
("Capricorn"). The Company has eight wholly owned operating subsidiaries;
namely, Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc.,
Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs. Fields' Cookies
Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of
Canada; and three partially owned subsidiaries.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through six specialty
retail chains. As of January 2, 1999, the Company owned and operated 147 Mrs.
Fields Cookies stores, 120 Original Cookie Company stores, 119 Great American
Cookies stores, 77 Hot Sam Pretzels stores, 93 Pretzel Time stores, 9
Pretzelmaker stores in the United States and one Pretzel Time store in Canada.
Additionally, the Company has franchised or licensed 859 stores in the United
States and 113 stores in several other countries. As of January 2, 1999, the
Company owned and operated 437 core stores and 129 stores which are in the
process of being closed or franchised. All of the stores in the process of
being closed or franchised are expected to be closed or franchised by the end
of fiscal year 2000.
The Company holds legal title to certain trademarks for the "Mrs. Fields"
name and logo and licenses the uses of these trademarks to third parties for
the establishment and operation of Mrs. Fields' cookie and bakery operations
and other merchandising activities. In connection with these licensing
activities, the Company authorizes third-party licensees to use certain
business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries. Additionally, the Company markets and distributes its products
through catalogs, other print media and mail order.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
Mrs. Fields, Inc. and Affiliates and Original Cookie Company and Affiliates
The Company began operations on September 18, 1996, following the completion
of two simultaneous but separate asset purchase transactions wherein the
Company (i) acquired certain assets and assumed certain liabilities of Mrs.
Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in
accordance with two Asset Purchase Agreements dated August 7, 1996, among these
parties and Capricorn, and (ii) acquired certain assets and assumed certain
liabilities of The Original Cookie Company, Incorporated and Hot Sam Company,
Inc. in accordance with an Asset Purchase Agreement dated August 7, 1996, as
amended by the First Amendment dated as of September 17, 1996, among these
parties and Capricorn.
The combined purchase price for the acquired net assets was approximately
$85,243,000. The Company paid net cash of $19,508,000 and issued approximately
$65,735,000 in senior and subordinated notes to the selling shareholders. The
acquisitions were accounted for as purchases. The total purchase price was
allocated to the net assets acquired, based on their estimated fair values. The
organization of the Company and the acquisitions resulted in the recording of
intangible assets of approximately $49,942,000 principally made up of goodwill,
trademarks and organization costs. An additional $17,680,000 of goodwill and
$4,520,000 of deferred income tax assets (net of valuation allowances) were
recorded in connection with the Company recording certain other accruals
totaling $11,300,000 and providing reserves totaling $10,921,000 for impaired
property
F-12
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and equipment (see Note 5) at Company-owned stores the Company intends to exit
through closing or franchising. Goodwill and trademarks are amortized using the
straight-line method over 15 years. The $11,300,000 of accruals established at
the date of the acquisitions consisted of $5,060,000 for obligations incident
to store closures (see Note 5), $2,450,000 for contingent legal and lease
obligations that were firmed up before December 28, 1996, $3,135,000 for
transaction and finders' fees and $655,000 for severance and related costs. The
Company terminated all of the Original Cookie Company and Affiliates corporate
employees as planned.
As of January 2, 1999, approximately $2,068,000 of the $2,450,000 accrual for
legal and lease obligations has been utilized. The remaining amount as of
January 2, 1999 of approximately $382,000 is expected to be utilized by the end
of 1999. All of the $3,135,000 accrual established for transaction and finders'
fees and the $655,000 accrual for severance and related costs associated with
the acquisitions were fully utilized for the purposes intended during fiscal
1997.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc., a wholly owned
subsidiary of Mrs. Fields' Holding, acquired substantially all of the assets
and assumed certain liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H
& M"). H & M owned and operated stores which engage in retail sales of
pretzels, toppings and beverages under a franchise agreement with Pretzel Time,
Inc. The total consideration of $13,750,000 consisted of (i) $5,750,000 of
cash, financed through an advance from Mrs. Fields' Holding of $1,500,000 and a
$4,250,000 bank loan to Pretzel Concepts, (ii) a $4,000,000 principal amount
bridge note of Pretzel Concepts and (iii) a $4,000,000 principal amount
subordinated note of Mrs. Fields' Holding retained by the sellers (all such
debt collectively referred to as the "H & M Debt"). The acquisition was
accounted for using the purchase method of accounting (based on the estimated
fair values of the net assets acquired) and resulted in recording approximately
$9,618,000 of goodwill that is being amortized using the straight-line method
over 15 years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
assets and liabilities of Pretzel Concepts to the Company and, in consideration
thereof, the Company assumed the H & M Debt, including all accrued but unpaid
interest. Pretzel Concepts and the Company merged on the same date with the
Company being the surviving entity. The contribution was accounted for in a
manner similar to that of pooling-of-interests accounting. There was no step-up
in the historical basis of Pretzel Concepts' assets or liabilities. Beginning
with July 25, 1997, the Company has included Pretzel Concepts' results of
operations in the Company's consolidated results of operations.
Pretzel Time, Inc.
On September 2, 1997, Mrs. Fields' Holding acquired 56 percent of the shares
of common stock of Pretzel Time for a total cash purchase price of $4,200,000,
$750,000 of which was paid to Pretzel Time for working capital purposes, and
the balance of which was paid to the selling shareholders. In connection with
the acquisition, Mrs. Fields' Holding extended a $500,000 loan to the founder
of Pretzel Time who continued to own 44 percent of the shares of common stock
of Pretzel Time. The note bears interest at an annual rate of ten percent (see
Note 8). Pretzel Time is a franchisor of hand rolled soft pretzel outlets
located in North America. The outlets are primarily located in shopping malls.
The acquisition was accounted for using the purchase method of accounting
(based on the estimated fair values of the net assets acquired) and resulted in
recording approximately $5,882,000 of goodwill that is being amortized using
the straight-line method over 15 years. The goodwill recorded was $1,682,000
more than the purchase price as the Company assumed more liabilities than it
acquired in assets at their fair values. Additionally, severance and legal
accruals were established in accordance with EITF 95-3.
F-13
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective November 26, 1997, Mrs. Fields' Holding contributed its 56 percent
of the shares of common stock of Pretzel Time to the Company. Mrs. Fields'
Holding also contributed to the Company the $500,000 note due from Pretzel
Time's founder and minority stockholder. The contribution was accounted for in
a manner similar to that of pooling-of-interests accounting. There was no step-
up in the book basis of Pretzel Time's assets or liabilities.
On January 2, 1998, the Company purchased an additional four percent of the
shares of common stock of Pretzel Time from the founder for $300,000 in cash.
The purchase was accounted for using the purchase method of accounting (based
on the estimated fair values of the net assets acquired) and resulted in
recording approximately $311,000 of goodwill. In June 1998, the Company
acquired an additional ten percent of the shares of common stock of Pretzel
Time from the founder for $875,000 in cash. On December 9, 1998, Mrs. Fields
purchased three shares of Pretzel Time common stock for $500,000 in cash. On
December 30, 1998, Mrs. Fields completed the acquisition of the remaining
outstanding common stock of Pretzel Time under a stock purchase agreement dated
December 30, 1998, for a purchase price of approximately $4,700,000, $2,500,000
of which was paid in cash on January 5, 1999 and $2,000,000 of which is payable
on or before December 30, 1999. The Company has included the appropriate
percentage of Pretzel Time's results of operations for each respective period
in its consolidated results of operations.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, Mrs. Fields' Holding owned 50.1 percent of the
shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand holds
legal title to certain trademarks for the "Mrs. Fields" name and logo and
licenses the use of these trademarks to third parties for the establishment and
operation of Mrs. Fields' cookie and bakery operations and other merchandising
activities. In connection with these licensing activities, Mrs. Fields' Brand
authorizes third-party licensees to use certain business formats, systems,
methods, procedures, designs, layouts, specifications, trade names and
trademarks in the United States and other countries.
On November 26, 1997, Mrs. Fields' Holding acquired the remaining 49.9
percent of the shares of the common stock of Mrs. Fields' Brand from Harvard
Private Capital Holdings, Inc. for approximately $2,565,000. The consideration
consisted of $1,065,000 in cash and $1,500,000 in rights to common equity of
Mrs. Fields' Holding. Mrs. Fields' Holding's Board of Directors determined the
value of Harvard's rights to the common equity based on a fair value analysis.
This analysis appropriately considered a discount for lack of controlling
interest and marketability as Mrs. Fields' Holding's common equity is not
publicly traded. The acquisition was accounted for using the purchase method of
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording approximately $2,565,000 of intangible assets (primarily
goodwill) that are being amortized using the straight-line method over 15
years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
common stock of Mrs. Fields' Brand to the Company. As a result of this capital
contribution, Mrs. Fields' Brand became a wholly owned subsidiary of the
Company. The contribution was accounted for in a manner similar to that of
pooling-of-interests accounting. There was no step-up in the book basis of Mrs.
Fields' Brand's assets or liabilities. Although the Company owned 50.1 percent
of Mrs. Fields' Brand until November 25, 1997, the Company has included 100
percent of Mrs. Fields' Brand's results of operations with the Company's
consolidated results of operations for all periods presented as a result of
Mrs. Fields' Brand incurring net losses for these periods.
Great American Cookie Company, Inc.
On August 24, 1998, the Company acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, Inc., the sole stockholder of
Great American Cookie Company, Inc., for a total
F-14
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purchase price of $18,400,000. Great American is an operator and franchisor of
mall-based specialty retail cookie outlets and a manufacturer of cookie batter
which is distributed to Great American operated retail stores and sold to
franchised retail stores. Concurrently with the acquisition of Cookies USA, the
Company entered into agreements with two Great American franchisees under which
the Company purchased a total of 29 Great American franchises for a total
purchase price of $14,430,000. The Company acquired the franchises through the
acquisition of 100 percent of the capital stock of the two corporations through
which the franchises operated. On September 9, 1998, the Company acquired eight
additional Great American franchised retail stores from a Great American
franchisee, under an asset purchase agreement, for a total purchase price of
$1,898,000. These acquisitions will be collectively referred to as the "Great
American Acquisitions."
The Great American Acquisitions have been accounted for using the purchase
method of accounting (based on preliminary estimates of fair values of the net
assets acquired) and resulted in recording approximately $69,390,000 of
goodwill that is being amortized using the straight-line method over 15 years.
Additionally, the Company caused Cookies USA to be merged with and into the
Company and caused the acquired franchisees corporations and/or net assets to
be merged with and into Great American. Great American became a wholly owned
subsidiary of the Company. The acquired entities' results of operations have
been included with those of the Company since the applicable dates of
acquisition.
The Great American Acquisitions were financed by (i) the net proceeds from
the Company issuing $40,000,000 Series C Senior Notes; (ii) the contribution of
the net proceeds totaling $29,056,000 from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement among The Cookie
Conglomerate, Inc., The Cookie Conglomerate, LLP and two individuals who were
the partners of Cookie Conglomerate, LLP and the shareholders of Cookie
Conglomerate, Inc. The sellers were franchisees of Great American. The sellers'
rights under franchise agreements and subleases with Great American were
terminated upon closing of the transaction. The acquisition was funded through
borrowings.
Pretzelmaker Holdings, Inc.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately
$5,400,000 and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1,600,000.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net assets
of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
$600,000 of goodwill and $53,000 of other assets. The goodwill is being
amortized using the straight-line method over 15 years.
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the period from inception
(September 18, 1996) to December 28, 1996, and for the years ended January 3,
1998 and January 2, 1999, presents the results of operations of the Company
assuming the H & M, Pretzel Time and Mrs. Fields' Brand acquisitions and the
F-15
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Refinancing, as defined in Note 3, had occurred at the date of inception
(September 18, 1996) and that the Great American Acquisitions, Cookie
Conglomerate acquisition, Pretzelmaker acquisition and related financing had
occurred at December 29, 1996. The results of operations give effect to certain
adjustments, including amortization of intangible assets and interest expense
on acquisition debt. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted or the results which may occur in the
future.
<TABLE>
<CAPTION>
Inception
(September 18, 1996)
to December 28, 53 Weeks Ended 52 Weeks Ended
(Unaudited) 1996 January 3, 1998 January 2, 1999
- ----------- -------------------- --------------- ---------------
<S> <C> <C> <C>
Total revenues........... $48,090,000 $200,574,000 $191,246,000
Store closure provision.. -- (538,000) (7,303,000)
Depreciation and
amortization............ (2,344,000) (19,405,000) (25,582,000)
Income (loss) from
operations.............. 6,718,000 12,738,000 (4,909,000)
Net income (loss)........ 1,029,000 (3,638,000) (22,471,000)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
four suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of January
2, 1999, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As
of January 2, 1999, the Company had restricted cash of $225,000.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
F-16
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pre-Opening Costs
Pre-opening costs associated with new Company-owned stores are charged to
expense as incurred. These amounts were not significant for the periods
presented in the accompanying consolidated financial statements. Pre-opening
costs associated with new franchised stores are the responsibility of the
franchisee.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
Intangible assets consist primarily of goodwill and trademarks and are
amortized using the straight-line method over 15 years. Other intangible assets
such as covenants not to compete are not significant and are being amortized
using the straight-line method over two to five years.
Deferred Loan Costs
Deferred loan costs totaling $13,038,000 resulted from the sale of
$100,000,000 total principal amount of 10 1/8 percent Series A Senior Notes
(the "Series A Senior Notes") on November 26, 1997 and the sale of $40,000,000
total principal amount of 10 1/8 percent Series C Senior Notes (the "Series C
Senior Notes") on August 24, 1998. These costs are being amortized to interest
expense over the approximate seven-year life of the Series A Notes and the
approximate six-year life of the Series C Senior Notes (see Note 3).
Discount on Series C Senior Notes
The Series C Senior Notes were issued at a discount which is being amortized
to interest expense over the approximate six-year life of the related notes.
Long-Lived Assets
The Company reviews for impairment of long-lived assets when events or
changes in circumstances indicate that the book value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred that indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset or
group of assets over the remaining life in measuring whether the assets are
recoverable. The Company assesses impairment of long-lived assets at the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets.
During the year ended January 2, 1999, the Company wrote down approximately
$4,131,000 of impaired long-lived assets. The write-down included approximately
$3,098,000 of equipment and leasehold improvements at company-owned stores that
the Company intends to close or franchise (see Note 5) and approximately
$1,033,000 of goodwill that had been allocated to the impaired assets. These
assets have been written-down to their estimated net realizable value. The
impairment provision was included in depreciation and amortization in the
accompanying fiscal year 1998 statement of operations.
F-17
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a
nonperforming store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchising and licensing fee revenues are recognized when all
material services or conditions relating to the sale have been substantially
performed or satisfied. Franchise and license royalties, which are based on a
percentage of gross store sales, are recognized as earned. Revenues from the
sale of batter that the Company produces and sales to franchisees are
recognized at the time of shipment and are classified in franchising revenue.
The Company receives rebates or other payments from suppliers based (directly
or indirectly) on sales to franchisees and company-owned stores. Rebates
related to franchisees are recorded as franchising revenue when earned. Rebates
related to company-owned stores are recorded as a reduction to cost of sales
when earned.
Leases
The Company has various operating lease commitments on both company-owned and
franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases. The Company accrues contingent rental expense on a monthly
basis for those retail stores where contingent rental expense is probable.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the applicable balance sheet date exchange
rates, while revenues and expenses are translated using the average exchange
rates for the periods presented. Translation gains or losses are insignificant
for the periods presented.
Fair Value of Financial Instruments
The Company estimates that the total fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$101,250,000 and $135,100,000 as of January 3, 1998 and January 2, 1999,
respectively. These estimates are based on quoted market prices. The book
values of the Company's other financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
other long-term debt obligations, approximate fair values at the respective
balance sheet dates.
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards requiring that every derivative
F-18
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. This statement is effective for fiscal years
beginning after June 15, 1999 and is not expected to have a material impact on
the Company's consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior periods' consolidated
financial statements to conform with the current period presentation.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
------------ ------------
<S> <C> <C>
Series A/B senior unsecured notes, interest at 10
1/8 percent payable semi-annually in arrears on
June 1 and December 1, commencing June 1, 1998,
due December 1, 2004............................. $100,000,000 $100,000,000
Series C senior unsecured notes, interest at 10
1/8 percent payable semi-Annually in arrears on
June 1 and December 1, commencing December 1,
1998, due December 1, 2004....................... -- 40,000,000
Discount related to the issuance of $40,000,000
Series C senior unsecured notes, net of
accumulated amortization of $0 and $33,000,
respectively..................................... -- (566,000)
Notes payable to individuals or corporations with
interest terms ranging from non-interest bearing
to 15 percent, due at various dates from 1999
through 2001, requiring monthly payments......... 756,000 10,259,000
------------ ------------
100,756,000 149,693,000
Less current portion.............................. (472,000) (8,046,000)
------------ ------------
$100,284,000 $141,647,000
============ ============
</TABLE>
On November 26, 1997, the Company issued $100,000,000 total principal amount
of Series A Senior Notes due December 1, 2004 pursuant to an indenture between
the Company and the Bank of New York (the "Indenture"). The Series A Senior
Notes were issued pursuant to a private transaction that was not subject to the
registration requirements of the Securities Act of 1933. On June 12, 1998, a
majority of the Series A Senior Notes were exchanged for 10 1/8% Series B
Senior Notes due December 1, 2004 (collectively, the "Series A/B Senior
Notes"), which were registered under the Securities Act.
On August 24, 1998, the Company issued $40,000,000 total principal amount of
Series C Senior Notes due December 1, 2004 in connection with the Great
American Acquisitions. The Series C Senior Notes were issued under the
Indenture which also governs the terms of the Series A/B Senior Notes in a
private transaction that was not subject to the registration requirements of
the Securities Act. The Series A/B Senior Notes and the Series C Senior Notes
will be collectively referred to as the "Senior Notes."
In connection with the issuance of the Series C Senior Notes, the Company
recorded a discount of approximately $600,000. This discount is being amortized
to interest expense over the approximate six-year life of the Series C Senior
Notes.
F-19
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 2001 in cash at redemption prices
defined in the Indenture, plus accrued and unpaid interest. In addition, at any
time prior to December 1, 2001, the Company may redeem up to a total of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that limit, among other things,
the ability of the Company and its subsidiaries to: (i) declare or pay
dividends or make any other payment or distribution on account of the Company's
or any of its subsidiaries' equity interest (including without limitation, any
payment in connection with any merger or consolidation involving the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any equity interest of the Company or any direct or indirect
parent of the Company or other affiliate of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any indebtedness that is subordinated to the Senior Notes,
except as payment of interest or principal at stated maturity; or (iv) make any
restricted investments except under conditions provided for in the Indenture.
The total amount of principal maturities of debt at January 2, 1999 are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................ $ 8,046,000
2000............................................................ 648,000
2001............................................................ 539,000
2002............................................................ 583,000
2003............................................................ 443,000
Thereafter...................................................... 140,000,000
------------
$150,259,000
============
</TABLE>
Line of Credit
On February 28, 1998, the Company entered into an amended and restated line
of credit agreement with a commercial bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all of the assets of the
Company. The availability under the line of credit was limited by the Company's
Indenture to $4,777,000 as of January 2, 1999. Borrowings under the agreement
bear interest, at the Company's option, at either the bank's prime rate or the
applicable LIBOR rate plus two percent, with interest payable monthly in
arrears. The Company is also obligated to pay the bank a commitment fee in the
amount of one quarter of one percent of the unused portion of the revolving
loan commitment. As of January 2, 1999, the Company had no outstanding
borrowings under the agreement, which expires March 31, 2001. The agreement
requires the Company to maintain certain financial ratios including a minimum
debt service coverage ratio. At January 2, 1999, the Company was in compliance
with the terms of the agreement.
F-20
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 2, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................. $ 415,000
2000............................................................. 357,000
2001............................................................. 358,000
2002............................................................. 287,000
2003............................................................. 182,000
----------
Total future minimum lease payments............................ 1,599,000
Less amount representing interest................................ (303,000)
----------
1,296,000
Less current portion........................................... (299,000)
----------
$ 997,000
==========
</TABLE>
As of January 3, 1998 and January 2, 1999, total assets held under capital
lease arrangements were approximately $376,000 and $1,024,000 with accumulated
amortization of approximately $59,000 and $108,000, respectively.
4. INCOME TAXES
The components of the provision for income taxes for the years ended January
3, 1998 and January 2, 1999 are as follows:
<TABLE>
<CAPTION>
December 28, January 3, January 2,
1996 1998 1999
------------ ---------- -----------
<S> <C> <C> <C>
Current:
Federal................... $ 207,000 $ 70,000 $ --
State..................... 75,000 228,000 245,000
Foreign................... 5,000 57,000 71,000
Deferred:
Federal................... 1,112,000 367,000 (3,021,000)
State..................... 277,000 55,000 (469,000)
Change in valuation
allowance................ 122,000 (122,000) 3,490,000
---------- --------- -----------
Total provision for
income taxes........... $1,798,000 $ 655,000 $ 316,000
========== ========= ===========
</TABLE>
F-21
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the consolidated statements of operations are as
follows for the period ended December 28, 1996 and for the year ended January
3, 1998:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ ----------
<S> <C> <C>
Federal statutory income tax rate.................... 34.0% 34.0%
Dividends paid by subsidiary....................... -- 34.5
Amortization of non-deductible goodwill............ -- 12.3
Net operating losses utilized...................... -- (3.9)
State income taxes, net of federal benefit......... 5.3 5.3
State franchise minimum taxes...................... -- 44.0
Foreign taxes...................................... -- 12.3
Change in valuation allowance...................... 3.2 (26.3)
Other.............................................. 4.1 29.3
---- -----
Effective income tax rate............................ 46.6% 141.5%
==== =====
</TABLE>
No rate reconciliation is provided for the year ending January 2, 1999 due to
the fact that the Company incurred a net loss before income taxes but incurred
a tax provision due to state franchise minimum taxes and foreign taxes.
The significant components of the Company's deferred income tax assets and
liabilities at January 3, 1998 and January 2, 1999 are as follows:
<TABLE>
<CAPTION>
December 28, January 3, January 2,
1996 1998 1999
------------ ----------- ------------
<S> <C> <C> <C>
Deferred income tax assets:
Property and equipment reserve....... $ 3,501,000 $ 2,014,000 $ 3,311,000
Store closure reserve................ 1,868,000 2,202,000 5,845,000
Transaction cost accrual............. 789,000 565,000 514,000
Net operating loss carryforward...... 782,000 4,875,000 12,268,000
Legal reserve........................ 470,000 302,000 150,000
Lease accrual........................ 403,000 92,000 --
Other reserves....................... -- 81,000 388,000
Accrued expenses..................... 334,000 230,000 529,000
Alternative minimum tax credit
carryforward........................ 207,000 207,000 215,000
----------- ----------- ------------
Total deferred income tax assets... 8,354,000 10,568,000 23,220,000
Valuation allowance.................. (4,482,000) (5,160,000) (15,560,000)
----------- ----------- ------------
Deferred income tax assets net of
valuation allowance............... 3,872,000 5,408,000 7,660,000
----------- ----------- ------------
Deferred income tax liabilities:
Accumulated depreciation and
amortization........................ (850,000) (1,548,000) (3,464,000)
Other................................ (13,000) (361,000) (697,000)
----------- ----------- ------------
Total deferred income tax
liabilities....................... (863,000) (1,909,000) (4,161,000)
----------- ----------- ------------
Net deferred income tax assets..... $ 3,009,000 $ 3,499,000 $ 3,499,000
=========== =========== ============
</TABLE>
Management has provided valuation allowances on portions of the deferred
income tax assets arising from the Company's business combinations. The
valuation allowances established in connection with purchase
F-22
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounting are not recorded through the provision for income taxes, but rather,
as an increase to goodwill. During the years ended January 3, 1998 and January
2, 1999, valuation allowances of $800,000 and $6,910,000, respectively, were
recorded in connection with accounting for business combinations. As of January
2, 1999, the Company had net operating losses of $31,232,000 that can be
carried forward to reduce federal income taxes. If not utilized, the tax net
operating loss carryforwards begin to expire in 2009. As defined in Section 382
of the Internal Revenue Code, the Company has acquired companies which have had
a greater than 50 percent ownership change. Consequently, a certain amount of
these companies' tax net operating loss carryforwards available to offset
future taxable income in any one year may be limited. The maximum amount of
carryforwards available in a given year is limited to the product of these
companies' value on the date of ownership change and the federal long-term tax-
exempt rate, plus any limited carryforwards not utilized in prior years.
Although realization of the net deferred income tax assets of $3,499,000 is not
assured, management believes that it is more likely than not that these assets
will be realized. The amount of net deferred tax assets considered realizable,
however, could be reduced in the near term based on changing conditions.
5. STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
The Company's management reviews the historical and projected operating
performance of its stores on a periodic basis to identify underperforming
stores for impairment of net property investment or for targeted closing. The
Company's policy is to recognize a loss for that portion of the net property
investment determined to be impaired. Additionally, when a store is identified
for targeted closing, the Company's policy provides for the costs of closing
the store, which are predominantly estimated lease termination costs. Lease
termination costs include both one-time settlement payments and continued
contractual payments over time under the original lease agreements where no
settlement can be resolved with the landlord. No operating losses are accrued
for. If and when a reserve that was established as part of purchase accounting
is not fully utilized, the Company reduces the reserve to zero and goodwill is
adjusted for the corresponding amount.
Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates
In connection with the Mrs. Fields Inc. and Original Cookie Company
acquisitions (see Note 1), the Company formulated a plan to exit certain stores
that did not meet certain financial and geographical criteria. In general the
plan entailed closing stores that were not profitable and franchising stores
that were profitable but contributed less than $50,000 in store annual cash
contribution for cookie stores and less than $35,000 in annual store cash
contribution for pretzel stores. Management identified 138 stores to be closed
(13 of these stores were closed prior to the acquisition but had continuing
lease obligations) and 64 stores to be franchised. As of January 2, 1999, there
were 23 stores remaining to be exited. The timing to implement the plan was
developed based on discussions and relationships with major shopping mall
developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3 ("EITF 95-3"), the Company established a store closure reserve
of $5,060,000 for the 138 stores the Company intended to close. The reserve was
established to provide for estimated early lease termination costs and
penalties. There was no reserve established related to the 64 stores to be
franchised. Management continued to refine the plan for closing the stores
after the date of the acquisitions which entailed further analysis of lease
agreements and meeting with developers to assess timing and estimated lease
termination costs.
Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions. At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized
plan estimates of lease termination costs and adjusted goodwill by a comparable
amount under the
F-23
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
provisions of purchase accounting. The increase in the reserve related solely
to the 138 stores originally identified to be closed. During the year ended
January 2, 1999, the Company reassessed the adequacy of the store closure
reserve related to the remaining stores left to be closed and recorded an
additional $1,693,000 to the reserve. This portion of the store closure reserve
was expensed in the Company's statement of operations for the fiscal year ended
January 2, 1999 as the decision to increase the reserve was made subsequent to
finalization of the original plan. No other significant changes have been made
to the plan.
Pursuant to the exit plan, at the date of the acquisitions, the Company
established an impairment reserve of $10,921,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value. The property and equipment of 117 of the total
stores to be closed were recorded at net values of zero. The property and
equipment of 54 of the total stores to be franchised were recorded at the
estimated net realizable amount recoverable through a franchise sale. The
property and equipment of the remainder of the stores to be closed or
franchised had already been reduced to net realizable value prior to the
acquisitions.
H&M
In connection with the H&M acquisition (see Note 1), the Company formulated a
plan to exit certain pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed. All of the
stores identified for closure are planned to be closed by the end of fiscal
year 1999. The timing to implement the plan was developed based on discussions
and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $1,000,000 for the 11 stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. Additionally, the Company established an
impairment reserve of $2,500,000 against the property and equipment of the
stores the Company planned to exit, in order to record those assets at net
realizable value.
Pretzel Time
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit certain pretzel stores that did not meet certain
financial and geographical criteria. Management identified four stores to be
closed. All of the stores identified for closure are planned to be closed by
the end of fiscal year 1999. The timing to implement the plan was developed
based on discussions and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the four stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties.
Great American
In connection with the Great American Acquisitions (see Note 1), the Company
formulated a plan to exit certain cookie stores that did not meet certain
financial and geographical criteria. Management identified 54 stores to be
closed and 11 stores to be franchised. All of the stores identified for closure
are planned to be closed by the end of fiscal year 2000. The timing to
implement the plan was developed based on discussions and relationships with
major shopping mall developers.
F-24
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At the date of the acquisitions, in accordance with EITF 95-3, the Company
established a store closure reserve of $3,548,000 for the 54 stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. There was no reserve established related
to the 11 stores to be franchised. The Company established an impairment
reserve of $2,150,000 against the property and equipment of the stores the
Company planned to exit, in order to record those assets at net realizable
value.
Pretzelmaker
In connection with the Pretzelmaker acquisition (see Note 1), the Company
formulated a plan to exit certain pretzel stores that did not meet certain
financial and geographical criteria. Management identified seven stores to be
closed. All of the stores identified for closure are planned to be closed by
the end of fiscal year 2000. The timing of implementation of the plan was
developed based on discussion and relationships with major shopping mall
developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven stores the
Company intended to close. The reserve was established to provide for estimated
early lease termination costs and penalties. Additionally, the Company
established an impairment reserve of $327,000 against the property and
equipment of the stores the Company planned to exit in order to record those
assets at net realizable value.
Store Closure Reserves Established for Continuing Company-Owned and
Franchised Stores
During the fiscal year ended January 3, 1998, the Company increased its store
closure reserve by $538,000 for seven continuing company-owned stores that were
closed during fiscal year 1997 and for three continuing company-owned stores
targeted for closure. This portion of the store closure reserve was expensed in
the Company's consolidated statement of operations for the year ended January
3, 1998, as these stores were not identified for closure as part of any of the
Company's store closure plans associated with the business combinations.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit 41 stores across all
concepts that are not meeting certain financial and geographical criteria. The
plan also committed the Company to exit 13 underperforming franchised stores
that the Company determined to disenfranchise as of January 2, 1999. The
identified stores to be exited under this plan are not part of the stores in
the process of being closed in connection with the various business combination
exit plans discussed above. These stores were originally identified as
continuing company-owned stores at the date of acquisition, however, the stores
have not performed as expected. The Company intends to exit the stores
primarily through closing and franchising. In connection with this plan, the
Company increased the store closure reserve by $5,610,000. The charge was
included in the store closure provision in the accompanying consolidated
statement of operations for the year ended January 2, 1999.
F-25
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Analysis
The following table presents a summary of the activity in the store closure
reserve for the periods indicated for stores to be closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields
Inc. and
Original Pretzel Great
Cookie Co. H&M Time American Pretzelmaker Consolidated
----------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $ 5,060,000 $ -- $ -- $ -- $ -- $ 5,060,000
Utilization from
inception (September
18, 1996) to December
28, 1996............... (305,000) -- -- -- -- (305,000)
----------- ---------- -------- ---------- -------- -----------
Balance, December 28,
1996................... 4,755,000 -- -- -- -- 4,755,000
To record obligations
related to stores
identified for closure
upon acquisition, July
25, 1997............... -- 1,000,000 -- -- -- 1,000,000
To record obligations
related to stores
identified for closure
upon acquisition,
September 2, 1997...... -- -- 500,000 -- -- 500,000
Finalization of store
closure plan for
obligations related to
stores originally
identified............. 1,357,000 -- -- -- -- 1,357,000
Provision for continuing
company-owned operating
stores targeted for
closure................ 538,000 -- -- -- -- 538,000
Utilization from
December 28, 1996 to
January 3, 1998........ (2,683,000) -- (1,000) -- -- (2,684,000)
----------- ---------- -------- ---------- -------- -----------
Balance, January 3,
1998................... 3,967,000 1,000,000 499,000 -- -- 5,466,000
To record obligations
related to stores
identified for closure
upon acquisition,
August 24, 1998........ -- -- -- 3,548,000 -- 3,548,000
To record obligations
related to stores
identified for closure
upon acquisition,
November 19, 1999...... -- -- -- -- 500,000 500,000
Additional reserves for
stores originally
identified for closure,
January 2, 1999........ 1,693,000 -- -- -- -- 1,693,000
Additional reserves for
continuing company-
owned and franchised
stores targeted for
closure, January 2,
1999................... 4,674,000 367,000 264,000 305,000 -- 5,610,000
Utilization for the 52
weeks ended January 2,
1999................... (1,932,000) (19,000) (6,000) (149,000) -- (2,106,000)
----------- ---------- -------- ---------- -------- -----------
Balance, January 2,
1999................... $ 8,402,000 $1,348,000 $757,000 $3,704,000 $500,000 $14,711,000
=========== ========== ======== ========== ======== ===========
</TABLE>
F-26
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores originally
identified to be closed or franchised in connection with the applicable
business combination for the periods indicated:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and
Original Cookie H&M Pretzel Time Great American Pretzelmaker Consolidated
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stores
identified for
closure or
franchise at
inception,
September 18,
1996........... 138 64 -- -- -- -- -- -- -- -- 138 64
Stores closed
prior to
Inception...... (13) -- -- -- -- -- -- -- -- -- (13) --
Stores closed or
franchised from
Inception
(September 18,
1996) to
December 28,
1996........... (17) (3) -- -- -- -- -- -- -- -- (17) (3)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance,
December 28,
1996........... 108 61 -- -- -- -- -- -- -- -- 108 61
Stores
identified for
Closure or
franchise Upon
acquisition,
July 25, 1997.. -- -- 11 -- -- -- -- -- -- -- 11 --
Stores
identified for
Closure or
franchise upon
acquisition,
September 2,
1997........... -- -- -- -- 4 -- -- -- -- -- 4 --
Stores closed or
franchised from
December 28,
1996 to January
3, 1998........ (70) (9) (3) -- -- -- -- -- -- -- (73) (9)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
3, 1998........ 38 52 8 -- 4 -- -- -- -- -- 50 52
Stores
identified for
closure or
franchise upon
acquisition,
August 24,
1998........... -- -- -- -- -- -- 54 11 -- -- 54 11
Stores
identified for
closure or
franchise upon
acquisition,
November 19,
1998........... -- -- -- -- -- -- -- -- 7 -- 7 --
Stores closed or
franchised for
the 52 weeks
ended January
2, 1999........ (15) (16) (2) -- (1) -- (11) -- -- -- (29) (16)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
2, 1999........ 23 36 6 -- 3 -- 43 11 7 -- 82 47
=== === === === === === === === === === === ===
</TABLE>
F-27
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the periods indicated for stores to be
closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields,
Inc. and
Original Great
Cookie Co. H&M American Pretzelmaker Consolidated
------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $10,921,000 $ -- $ -- $ -- $10,921,000
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be closed.... (854,000) -- -- -- (854,000)
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be
franchised............. (215,000) -- -- -- (215,000)
----------- ---------- ---------- -------- -----------
Balance, December 28,
1996................... 9,852,000 -- -- -- 9,852,000
To record property and
equipment impairment
upon acquisition, July
25, 1997............... -- 2,500,000 -- -- 2,500,000
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
closed................. (3,299,000) (208,000) -- -- (3,507,000)
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
franchised............. (492,000) -- -- -- (492,000)
----------- ---------- ---------- -------- -----------
Balance, January 3,
1998................... 6,061,000 2,292,000 -- -- 8,353,000
To record property and
equipment impairment
upon acquisition,
August 24, 1998........ -- -- 2,150,000 -- 2,150,000
To record property and
equipment impairment
upon acquisition,
September 9, 1998...... -- -- 973,000 -- 973,000
To record property and
equipment impairment
upon acquisition,
November 19, 1998...... -- -- -- 327,000 327,000
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be closed........... (1,782,000) (93,000) (246,000) -- (2,121,000)
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be franchised....... (435,000) (819,000) -- -- (1,254,000)
----------- ---------- ---------- -------- -----------
Balance, January 2,
1999................... $ 3,844,000 $1,380,000 $2,877,000 $327,000 $ 8,428,000
=========== ========== ========== ======== ===========
</TABLE>
6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.
The mandatorily redeemable cumulative preferred stock of Pretzel Time (the
"Pretzel Time Preferred Stock") is nonvoting and the preferred stockholders are
entitled to cumulative preferred dividends of ten percent for three years,
accrued and payable upon redemption. The Pretzel Time Preferred Stock must be
redeemed at $10,000 per share, plus unpaid and accumulated dividends, on
September 1, 1999. The excess of the redemption price over the carrying value
is being accreted over the period from issuance to September 1, 1999, using the
effective interest method and is being charged to the accumulated deficit of
Pretzel Time. In the event of a liquidation or sale of Pretzel Time, the
preferred stockholders are entitled to receive payment of $10,000 per share,
plus accumulated dividends.
During the period from the acquisition of a majority ownership in Pretzel
Time (September 2, 1997) to January 2, 1999, Pretzel Time increased the
liquidation preference of the Pretzel Time Preferred Stock by $212,000, in lieu
of paying cash dividends. In addition, the Pretzel Time Preferred Stock was
increased by $538,000, for the accretion required over time to amortize the
original issue discount incurred at the time of issuance. As of January 2,
1999, accrued dividends of $339,000, were unpaid.
During the period from September 2, 1997 to January 2, 1999, Pretzel Time
repurchased 17.5 shares of the Pretzel Time Preferred Stock for an total of
$175,000 in cash, or $10,000 per share, plus accrued dividends totaling
approximately $20,200. As of January 2, 1999, there are 127 shares of Pretzel
Time Preferred Stock issued and outstanding with a total liquidation preference
of approximately $1,495,000.
F-28
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. COMMITMENTS AND CONTINGENCIES
Stock Pledged as Collateral
Mrs. Fields' Holding has pledged all of the Company's capital stock as
collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the " Mrs. Fields' Holding Discount Notes"). Mrs. Fields'
Holding issued the Mrs. Fields' Holding Discount Notes on August 24, 1998, in
connection with the Great American Acquisitions and the Mrs. Fields' Holding
Equity Infusion (see Note 1). In connection with the issuance of the
$55,000,000 principal amount at maturity of Mrs. Fields' Holding Discount
Notes, Mrs. Fields' Holding recorded an total original issue discount of
approximately $24,136,000. The principal amount of the Mrs. Fields' Holding
Discount Notes will accrete at a rate of 14 percent compounded semi-annually to
a total principal amount of $55,000,000 at December 1, 2002. Thereafter, the
Mrs. Fields' Holding Discount Notes will accrue interest at the annual rate of
14 percent, payable semi-annually on June 1 and December 1 of each year,
commencing June 1, 2003.
Mrs. Fields' Holding is a holding company and does not have separate
operations from which it can generate cash flows. Under the circumstances, Mrs.
Fields' Holding would likely be dependent on its owners' and the Company's cash
flows to make principal and interest payments when due. Interest payments
totaling $7,700,000 per year will commence in 2003. The Company has not
guaranteed, nor is it obligated to make principal or interest payments related
to the Mrs. Fields' Holding Discount Notes. However, in accordance with the
Company's Indenture, the Company may pay dividends to Mrs. Fields' Holding, in
order for Mrs. Fields' Holding to service the debt, if no default or event of
default occurs under the Indenture and certain fixed charge coverage ratios and
consolidated net income tests are met. The Mrs. Fields' Holding Discount Notes
are effectively subordinated to the Company's Senior Notes.
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. Management, after consultation with legal
counsel, believes that the potential liability to the Company under any such
actions is adequately accrued for or will not materially affect the Company's
consolidated financial position or results of operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to ten years. Certain of the retail store leases provide for contingent rentals
based on gross revenues. Additionally, as part of the Company's franchising
program, certain locations have been subleased to franchisees.
Rent expense was as follows for the periods presented:
<TABLE>
<CAPTION>
Inception
(September 18, 53 Weeks 52 Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
-------------- ----------- ------------
<S> <C> <C> <C>
Minimum rentals....................... $ 8,216,000 $30,654,000 $ 36,834,000
Contingent rentals.................... 105,000 432,000 553,000
Sub-lease rentals..................... (2,220,000) (8,756,000) (12,550,000)
----------- ----------- ------------
$ 6,101,000 $22,330,000 $ 24,837,000
=========== =========== ============
</TABLE>
F-29
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 2, 1999, the future minimum lease payments due under operating
leases (including future minimum lease payments for stores in the process of
being closed or franchised), which include required lease payments for those
stores that have been subleased, are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................ $ 37,686,000
2000............................................................ 32,337,000
2001............................................................ 27,066,000
2002............................................................ 23,033,000
2003............................................................ 18,246,000
Thereafter...................................................... 33,504,000
------------
$171,872,000
============
As of January 2, 1999, the future minimum sublease payments due to the
Company under these leases are as follows:
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................ $ 12,550,000
2000............................................................ 10,676,000
2001............................................................ 8,741,000
2002............................................................ 7,277,000
2003............................................................ 5,716,000
Thereafter...................................................... 8,717,000
------------
$ 53,677,000
============
</TABLE>
Contractual Arrangements
The Company entered into a supply agreement to buy frozen dough products
through 2000. The agreement stipulates minimum annual purchase commitments of
not less than 23,000,000 pounds of the products each year through the end of
the contract. The Company also entered into two supply agreements to buy
chocolate products through August 1999 and January 2000. The agreements
stipulate minimum purchase commitments of which 1.9 million and 1.5 million
pounds, respectively, had not been purchased as of January 2, 1999. The terms
the frozen dough and chocolate purchase agreements include certain volume
incentives and penalties. Under each, the Company and the supplier may
terminate the supply agreement if the other party defaults on any of the
performance covenants. The Company also entered into several other immaterial
purchase agreements to buy products.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 3, 1998 and January 2, 1999 were approximately
$550,000 and $295,000, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee obligations which are in default
as defined. As of January 2, 1999, the Company has assumed obligations totaling
approximately $54,000, respectively, which are included in capital lease
obligations.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred credits represent volume rebates associated
with the assumption of a long-term marketing and supply
F-30
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
agreement with a supplier in connection with the Mrs. Fields Inc. and
affiliates and Original Cookie Company and affiliates business combinations
discussed in Note 1. Under terms of the agreement, the Company is obligated to
purchase a minimum amount of product from the supplier. The supplier
periodically prepays rebates to the Company for anticipated purchases. The
Company records the prepayments as deferred credits and amortizes them ratably
as purchases are made from the supplier. This agreement was amended in January
1997 and an additional $600,000 in deferred credits were recorded. The amended
agreement expires on the later of December 31, 2003 or when the Company has met
its revised purchase commitment. In conjunction with this amendment, certain
minimum commitments from the previous agreement were carried forward and others
were forgiven. Additionally, in November 1997, Pretzel Time entered into a
long-term marketing and supply agreement with a supplier. Under terms of the
agreement, the Company is obligated to purchase a minimum amount of product
from the supplier. An additional $437,000 in deferred credits were recorded
under this agreement. The termination date of this agreement will be the later
of December 31, 2003 or when Pretzel Time has met its purchase commitment.
Under these agreements, the Company recognized approximately $1,393,000, and
$812,000 primarily as a reduction to food cost of sales during the years ended
January 3, 1998 and January 2, 1999.
In November 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Debbi Fields, a director of the Company, under
which Debbi Fields travels and performs public relations and advertising
activities on behalf of the Company for at least 50 days a year for a fee of
$250,000 per year, with an option to perform these services for 20 additional
days a year for additional pay of $5,000 per day. The compensation increases by
10 percent a year beginning on January 1, 1999. The Consulting Agreement
expires on December 31, 1999. Under the Consulting Agreement, Debbi Fields may
not disclose any confidential information of the Company, such as recipes and
trade secrets, and may not, without the prior written consent of the Company,
compete with the Company.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for a total annual base
salary of $1,095,000. If the Company terminates employment without cause, or
the employee terminates employment with good reason, the employee can receive
in severance pay the amount equal to the product of his or her then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the notice of termination or 36 to 48 semi-monthly periods, plus a portion
of any discretionary bonus that would otherwise have been payable. The
agreements have customary provisions for other benefits and also include
noncompetition clauses.
8. RELATED-PARTY TRANSACTIONS
As of January 3, 1998 and January 2, 1999, the Company had receivables due
from franchisees and licensees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $2,176,000
and $6,003,000, respectively. These amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $582,000 and $1,078,000, respectively.
As of January 3, 1998 and January 2, 1999, the Company had net payables of
approximately $105,000 and $150,000, respectively, due to Mrs. Fields' Holding.
The amounts due to or from Mrs. Fields' Holding are recorded in prepaid rent
and other in the accompanying consolidated balance sheets.
During the years ended January 3, 1998 and January 2, 1999, the Company
accrued approximately $441,000 and $0, respectively, of interest expense due to
Mrs. Fields' Holding related to the convertible subordinated notes Mrs. Fields'
Holding purchased. As part of the Refinancing, Mrs. Fields' Holding converted
all of the $4,643,000 convertible subordinated notes to equity and the notes
were cancelled (see Note 3).
F-31
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling
approximately $157,000 and $70,600, during the years ended January 3, 1998 and
January 2, 1999, respectively. Korn/Ferry is an executive search firm of which
one of the Company's directors is the Chairman.
A director of the Company is a consultant and an advisor to Dillon Read &
Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the restructuring of the Company in
September 1996. The director's company did not receive a fee from the Company
during the fiscal year ended January 2, 1999. The Company believes that the
arrangements were on terms that could have been obtained from an unaffiliated
third party.
As of January 2, 1999, the Company has a loan due from the founder and
minority stockholder of Pretzel Time totaling $567,000. The note bears interest
at an annual rate of ten percent and is payable in monthly installments of
principal and interest beginning January 1998 by setoff of, and to the extent
of, the founder's bonus payments and dividends received by the founder in his
Pretzel Time stock; provided that in any calendar year no more than $100,000
may be so offset. In addition, as of January 2, 1999, the Company is due
approximately $451,000 from the founder in connection with certain lease
payments related to the purchase of Pretzel Time for which the Company is
indemnified. These amounts are recorded in accounts receivable and other assets
in the accompanying consolidated balance sheets.
The Company and Mrs. Fields' Holding expect to enter into a tax-sharing
arrangement but as of the date of these financial statements no such agreement
has been finalized.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k)
Retirement Savings Plan (the "Plan") for all eligible employees. Under the
terms of the Plan, employees may make contributions to the Plan, a portion of
which is matched by contributions from the Company. The total Company
contributions to the Plan for the years ended January 3, 1998 and January 2,
1999 were approximately $97,900 and $171,000, respectively.
10. REPORTABLE SEGMENTS
Operating segments are components of the Company for which separate financial
information is available that is evaluated regularly by the Chief Operating
decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance. Mrs. Fields has two reportable
operating segments; namely, company-owned stores and related activity and
franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise or license fee and monthly royalties based on a percentage of
gross sales and other licensing activity not related to cookie or pretzel
stores. The accounting policies for the segments are discussed in the summary
of significant accounting policies (see Note 2). Sales and transfers between
segments are eliminated in consolidation.
F-32
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mrs. Fields evaluates performance of each segment based on contribution
margin. Mrs. Fields does not allocate any interest income, interest expense,
depreciation and amortization or assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table.
<TABLE>
<CAPTION>
Company-owned Franchising and
Stores Licensing Total
------------- --------------- -----------
<S> <C> <C> <C>
Period ended December 28, 1996
Revenue.............................. $40,849,000 $1,267,000 $42,116,000
Contribution Margin.................. 10,761,000 1,267,000 12,028,000
Year ended January 3, 1998
Revenue.............................. 127,845,000 6,563,000 134,408,000
Contribution Margin.................. 28,985,000 6,563,000 35,548,000
Year ended January 2, 1999
Revenue.............................. 140,235,000 14,001,000 154,236,000
Contribution Margin.................. 30,337,000 10,414,000 40,751,000
</TABLE>
The reconciliation of contribution margin to net income (loss) is as follows:
<TABLE>
<CAPTION>
Period Ended
December 28, 1996 Fiscal 1997 Fiscal 1998
----------------- ------------ ------------
<S> <C> <C> <C>
Contribution margin............. $12,028,000 $ 35,548,000 $ 40,751,000
General and administrative
expense........................ (4,035,000) (16,192,000) (19,017,000)
Store closure provision......... -- (538,000) (7,303,000)
Depreciation and amortization... (2,344,000) (10,403,000) (19,820,000)
Interest expense................ (1,793,000) (7,584,000) (12,574,000)
Other expense, net.............. (1,895,000) (1,805,000) (1,180,000)
----------- ------------ ------------
Net income (loss)............... $ 1,961,000 $ (974,000) $(19,143,000)
=========== ============ ============
</TABLE>
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic International Domestic International
Company-owned Company-owned Franchising Franchising
Stores Stores and Licensing and Licensing
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue
Period ended December
28, 1996............... $ 40,849,000 $ -- $ 1,158,000 $109,000
Fiscal 1997............. 127,736,000 109,000 6,150,000 413,000
Fiscal 1998............. 140,018,000 217,000 13,738,000 263,000
</TABLE>
Revenues from international franchising and licensing are secured from Canada
and Australia with no other countries having material representation. Revenues
from international company-owned stores are immaterial.
There were no customers who accounted for more than 10% of Mrs. Fields' total
revenue or either segment's revenue.
F-33
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's obligation related to its $140,000,000 total principal amount
of Senior Notes due 2004 (see Note 3) is guaranteed on a joint and several
basis and on a senior basis by four of the Company's wholly owned subsidiaries
(the "Guarantors"). These guarantees are general unsecured obligations of the
Guarantors, rank senior in right of payment to all subordinated indebtedness of
the Guarantors and rank pari passu in right of payment with all existing and
future senior indebtedness of the Guarantors. There are no restrictions on the
Company's ability to obtain cash dividends or other distributions of funds from
the Guarantors, except those imposed by applicable law. The following
supplemental financial information sets forth, on a condensed consolidating
basis, balance sheets, statements of operations and statements of cash flows
for Mrs. Fields' Original Cookies, Inc. (the "Parent Company"), Great American
Cookie Company, Inc., The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings,
Inc., which are Guarantors, and Pretzel Time, Inc., which will become a
Guarantor (collectively, the "Guarantor Subsidiaries") and Mrs. Fields' Cookies
Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of
Canada, and three partially owned subsidiaries, (collectively, the "Non-
guarantor Subsidiaries"). The Company has not presented separate financial
statements and other disclosures concerning the Guarantor Subsidiaries because
management has determined that such information is not material to investors.
F-34
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $41,557 $ 559 $-- $-- $42,116
------- ----- ---- ---- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 19,492 -- -- -- 19,492
Cost of sales......... 10,596 -- -- -- 10,596
General and
administrative....... 3,871 146 18 -- 4,035
Depreciation and
amortization......... 2,027 317 -- -- 2,344
------- ----- ---- ---- -------
Total operating
costs and
expenses........... 35,986 463 18 -- 36,467
------- ----- ---- ---- -------
Income (loss) from
operations......... 5,571 96 (18) -- 5,649
INTEREST EXPENSE AND
OTHER, net............. (1,410) (383) -- -- (1,793)
------- ----- ---- ---- -------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 4,161 (287) (18) -- 3,856
PROVISION FOR INCOME
TAXES.................. (1,798) -- -- -- (1,798)
------- ----- ---- ---- -------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 2,363 (287) (18) -- 2,058
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (97) -- -- (97)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (402) -- -- 402 --
------- ----- ---- ---- -------
NET INCOME (LOSS)....... $ 1,961 $(384) $(18) $402 $ 1,961
======= ===== ==== ==== =======
</TABLE>
F-35
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES.. $ 6,990 $ 589 $ 30 $-- $ 7,609
-------- ------- ---- ---- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses.... (12,508) (7,000) -- -- (19,508)
Purchase of property
and equipment, net.. (1,622) (1) -- -- (1,623)
-------- ------- ---- ---- --------
Net cash used in
investing
activities........ (14,130) (7,001) -- -- (21,131)
-------- ------- ---- ---- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of common
stock............... 15,000 -- -- -- 15,000
Proceeds from the
issuance of
mandatorily
redeemable
cumulative preferred
stock of
subsidiary.......... -- 3,500 -- -- 3,500
Proceeds from the
issuance of note
payable............. -- 3,500 -- -- 3,500
Principal payments on
long-term debt...... (1,769) -- -- -- (1,769)
-------- ------- ---- ---- --------
Net cash provided by
financing
activities.......... 13,231 7,000 -- -- 20,231
-------- ------- ---- ---- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS.. 6,091 588 30 -- 6,709
CASH AND CASH
EQUIVALENTS, beginning
of period............. -- -- -- -- --
-------- ------- ---- ---- --------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 6,091 $ 588 $ 30 $-- $ 6,709
======== ======= ==== ==== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid........ $ 28 $ -- $-- $-- $ 28
</TABLE>
F-36
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 14,270 $ 725 $1,292 $ -- $ 16,287
Accounts receivable,
net.................. 1,388 -- 147 -- 1,535
Amounts due from (to)
franchisees and
licensees, net....... 1,517 659 -- -- 2,176
Inventories........... 3,094 -- 6 -- 3,100
Other current assets.. 6,593 (615) (253) -- 5,725
-------- ------- ------ -------- --------
Total current
assets............. 26,862 769 1,192 -- 28,823
PROPERTY AND EQUIPMENT,
net.................... 28,907 1 294 -- 29,202
INTANGIBLES, net........ 59,928 17,725 6,041 -- 83,694
INVESTMENT IN
SUBSIDIARIES........... 23,089 -- -- (23,089) --
OTHER ASSETS............ 7,902 -- 63 -- 7,965
-------- ------- ------ -------- --------
$146,688 $18,495 $7,590 $(23,089) $149,684
-------- ------- ------ -------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ -- $ -- $ 614 $ -- $ 614
Accounts payable...... 3,621 36 148 -- 3,805
Accrued liabilities... 10,499 25 747 -- 11,271
-------- ------- ------ -------- --------
Total current
liabilities........ 14,120 61 1,509 -- 15,690
LONG-TERM DEBT AND
CAPITAL
LEASE OBLIGATIONS, net
of current portion..... 100,000 -- 467 -- 100,467
OTHER ACCRUED
LIABILITIES............ 1,802 -- -- -- 1,802
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- -- 902 -- 902
MINORITY INTEREST....... -- -- -- 58 58
STOCKHOLDER'S EQUITY.... 30,766 18,434 4,712 (23,147) 30,765
-------- ------- ------ -------- --------
$146,688 $18,495 $7,590 $(23,089) $149,684
======== ======= ====== ======== ========
</TABLE>
F-37
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $125,991 $ 2,004 $7,077 $ (664) $134,408
-------- ------- ------ ------ --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 63,765 -- 3,731 (664) 66,832
Cost of sales......... 31,173 -- 855 -- 32,028
General and
administrative....... 14,215 1,066 911 -- 16,192
Store closure
provision............ 538 -- -- -- 538
Depreciation and
amortization......... 8,745 1,125 533 -- 10,403
-------- ------- ------ ------ --------
Total operating
costs and
expenses........... 118,436 2,191 6,030 (664) 125,993
-------- ------- ------ ------ --------
Income (loss) from
operations......... 7,555 (187) 1,047 -- 8,415
INTEREST EXPENSE AND
OTHER, net............. (6,329) (1,230) (393) -- (7,952)
-------- ------- ------ ------ --------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 1,226 (1,417) 654 -- 463
PROVISION FOR INCOME
TAXES.................. (535) (25) (95) -- (655)
-------- ------- ------ ------ --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 691 (1,442) 559 -- (192)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (338) (306) -- (644)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (1,665) -- -- 1,527 (138)
-------- ------- ------ ------ --------
NET INCOME (LOSS)....... $ (974) $(1,780) $ 253 $1,527 $ (974)
======== ======= ====== ====== ========
</TABLE>
F-38
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH (USED IN)
PROVIDED BY OPERATING
ACTIVITIES............. $ (766) $387 $1,298 $-- $ 919
------- ---- ------ ---- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses..... (10,949) -- -- -- (10,949)
Purchase of property
and equipment, net... (4,556) -- -- -- (4,556)
------- ---- ------ ---- -------
Net cash used in
investing
activities......... (15,505) -- -- -- (15,505)
------- ---- ------ ---- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt.... 108,250 -- -- -- 108,250
Principal payments on
long-term debt and
capital lease
obligations.......... (76,759) (250) (36) -- (77,045)
Payment of debt
financing costs...... (5,976) -- -- -- (5,976)
Payment of cash
dividend to Mrs.
Fields' Holding...... (1,065) -- -- -- (1,065)
------- ---- ------ ---- -------
Net cash provided by
(used in) financing
activities......... 24,450 (250) (36) -- 24,164
------- ---- ------ ---- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 8,179 137 1,262 -- 9,578
CASH AND CASH
EQUIVALENTS, beginning
of year................ 6,091 588 30 -- 6,709
------- ---- ------ ---- -------
CASH AND CASH
EQUIVALENTS, end of
year................... $14,270 $725 $1,292 $-- $16,287
======= ==== ====== ==== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid....... $ 7,607 $789 $ 20 $-- $ 8,416
Taxes paid.......... 181 25 11 -- 217
</TABLE>
F-39
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
Accounts receivable,
net.................. 2,860 304 44 -- 3,208
Amounts due from
franchisees and
licensees, net....... 1,297 4,706 -- -- 6,003
Inventories........... 4,631 863 9 -- 5,503
Other current assets
and amounts due from
(to) affiliates,
net.................. 39,368 (33,898) (592) -- 4,878
-------- ------- ---- -------- --------
Total current
assets............. 51,695 (26,891) (461) -- 24,343
PROPERTY AND EQUIPMENT,
net.................... 29,900 1,654 243 -- 31,797
INTANGIBLES, net........ 75,875 95,601 320 -- 171,796
INVESTMENT IN
SUBSIDIARIES........... 66,484 -- -- (66,484) --
OTHER ASSETS............ 3,688 252 30 -- 3,970
-------- ------- ---- -------- --------
$227,642 $70,616 $132 $(66,484) $231,906
======== ======= ==== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 7,141 $ 1,204 $-- $ -- $ 8,345
Accounts payable...... 14,223 564 69 -- 14,856
Accrued liabilities... 10,956 2,895 18 -- 13,869
-------- ------- ---- -------- --------
Total current
liabilities........ 32,320 4,663 87 -- 37,070
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,367 216 61 -- 142,644
OTHER ACCRUED
LIABILITIES............ 10,134 -- -- -- 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,261 -- -- 1,261
MINORITY INTEREST....... -- -- -- 119 119
STOCKHOLDERS' EQUITY.... 42,821 64,476 (16) (66,603) 40,678
-------- ------- ---- -------- --------
$227,642 $70,616 $132 $(66,484) $231,906
======== ======= ==== ======== ========
</TABLE>
F-40
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES........... $144,057 $13,939 $377 $(4,137) $154,236
-------- ------- ---- ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs..... 76,437 -- 334 (1,768) 75,003
Cost of sales........ 37,165 3,587 99 (2,369) 38,482
General and
administrative...... 21,213 5,107 -- -- 26,320
Depreciation and
amortization........ 16,624 3,196 -- -- 19,820
-------- ------- ---- ------- --------
Total operating
costs and
expenses.......... 151,439 11,890 433 (4,137) 159,625
-------- ------- ---- ------- --------
(Loss) income from
operations.......... (7,382) 2,049 (56) -- (5,389)
INTEREST EXPENSE AND
OTHER, net............ (13,064) 81 -- -- (12,983)
-------- ------- ---- ------- --------
(Loss) income before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (20,446) 2,130 (56) -- (18,372)
PROVISION FOR INCOME
TAXES................. (197) (119) -- -- (316)
-------- ------- ---- ------- --------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (20,643) 2,011 (56) -- (18,688)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.......... -- (444) -- -- (444)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES.......... 1,500 -- -- (1,511) (11)
-------- ------- ---- ------- --------
NET (LOSS) INCOME...... $(19,143) $ 1,567 $(56) $(1,511) $(19,143)
======== ======= ==== ======= ========
</TABLE>
F-41
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............. $(23,820) $ 33,382 $(133) $-- $ 9,429
-------- -------- ----- ---- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses..... $(39,873) 7,038 -- -- $(32,835)
Purchase of property
and equipment, net... (8,228) (7) -- -- (8,235)
Proceeds for asset
sales................ 176 -- -- -- 176
-------- -------- ----- ---- --------
Net cash (used in)
provided by
investing
activities......... (47,925) 7,031 -- -- (40,894)
-------- -------- ----- ---- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 39,400 -- -- -- 39,400
Payment of debt
financing costs...... (7,062) -- -- -- (7,062)
Equity infusion from
Mrs. Fields'
Holding.............. 29,056 -- -- -- 29,056
Principal payments on
long-term debt and
capital lease
obligations.......... (257) (41,000) -- -- (41,257)
Capital lease
repayments........... (123) -- -- -- (123)
Reduction in preferred
stock of Pretzel
Time................. -- (85) -- -- (85)
-------- -------- ----- ---- --------
Net cash provided by
(used in) financing
activities......... 61,014 (41,085) -- -- 19,929
-------- -------- ----- ---- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS....... (10,731) (672) (133) -- (11,536)
CASH AND CASH EQUIVA-
LENTS, beginning of pe-
riod................... 14,270 1,806 211 -- 16,287
-------- -------- ----- ---- --------
CASH AND CASH EQUIVA-
LENTS, end of Period... $ 3,539 $ 1,134 $ 78 $-- $ 4,751
======== ======== ===== ==== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMA-
TION:
Interest paid......... $ 12,405 $ 35 $ -- $-- $ 12,440
Taxes paid............ 141 68 -- -- 209
</TABLE>
F-42
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
January 2, July 3,
1999 1999
---------- -------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 4,751 $ 4,645
Accounts receivable, net of allowance for doubtful
accounts of $74 and $69, respectively.................. 3,208 1,570
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $1,078 and $897
respectively........................................... 6,003 4,808
Inventories............................................. 5,503 4,913
Prepaid rent and other.................................. 4,017 3,868
Deferred income tax assets, current portion............. 861 861
-------- --------
Total current assets.................................. 24,343 20,665
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................. 29,914 32,889
Equipment and fixtures.................................. 17,108 11,913
Land.................................................... 240 240
-------- --------
47,262 45,042
Less accumulated depreciation and amortization.......... (15,465) (15,487)
-------- --------
Net property and equipment............................ 31,797 29,555
-------- --------
DEFERRED INCOME TAX ASSETS, net of current portion........ 2,638 2,638
-------- --------
GOODWILL, net of accumulated amortization of $11,231 and
$16,446, respectively.................................... 145,782 140,417
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $2,615 and $3,239, respectively.......... 14,296 13,772
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$1,320 and $2,341, respectively.......................... 11,718 11,852
-------- --------
OTHER ASSETS.............................................. 1,332 414
-------- --------
$231,906 $219,313
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
F-43
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
January 2, July 3,
1999 1999
--------- --------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft........................................... $ 4,133 $ 2,902
Current portion of long-term debt........................ 8,046 929
Current portion of capital lease obligations............. 299 444
Line of credit........................................... -- 7,000
Accounts payable......................................... 10,723 10,436
Accrued liabilities...................................... 3,597 2,878
Current portion of store closure reserve................. 4,577 4,577
Accrued salaries, wages and benefits..................... 3,155 3,065
Accrued interest payable................................. 1,260 1,298
Sales taxes payable...................................... 962 378
Deferred income.......................................... 318 192
-------- --------
Total current liabilities.............................. 37,070 34,099
LONG-TERM DEBT, net of current portion..................... 141,647 141,424
STORE CLOSURE RESERVE, net of current portion.............. 10,134 8,419
CAPITAL LEASE OBLIGATIONS, net of current portion.......... 997 1,229
-------- --------
Total liabilities...................................... 189,848 185,171
-------- --------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of PTI (a
wholly owned subsidiary), aggregate liquidation preference
of $1,495 and $1,525, respectively........................ 1,261 1,440
-------- --------
MINORITY INTEREST.......................................... 119 123
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized and
400 shares outstanding.................................. -- --
Additional paid-in capital............................... 59,899 61,899
Accumulated deficit...................................... (19,221) (29,320)
-------- --------
Total stockholder's equity............................. 40,678 32,579
-------- --------
$231,906 $219,313
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
F-44
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
July 4, 1998 July 3, 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
REVENUES:
Net store and food sales....................... $58,687 $ 71,915
Franchising, net............................... 2,971 11,562
Licensing, net................................. 683 688
------- --------
Total revenues............................... 62,341 84,165
------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.............. 33,908 41,118
Cost of sales.................................. 15,185 21,856
General and administrative..................... 8,587 10,873
Depreciation and amortization.................. 6,197 11,263
------- --------
Total operating costs and expenses........... 63,877 85,110
------- --------
Loss from operations........................... (1,536) (945)
------- --------
OTHER INCOME (EXPENSE), net:
Interest expense............................... (5,626) (8,686)
Interest income................................ 417 78
Other expense.................................. (144) (110)
------- --------
Total other expense, net..................... (5,353) (8,718)
------- --------
Loss before provision for income taxes,
preferred stock accretion and dividends of
subsidiaries and minority interest............ (6,889) (9,663)
PROVISION FOR INCOME TAXES....................... (14) (210)
------- --------
Loss before preferred stock accretion and
dividends of subsidiaries and minority
interest...................................... (6,903) (9,873)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES.................................... (222) (222)
MINORITY INTEREST................................ (176) (4)
------- --------
Net loss....................................... $(7,301) $(10,099)
======= ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-45
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
July 4, 1998 July 3, 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $(7,301) $(10,099)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 6,197 11,263
Amortization of deferred loan costs............ 427 1,021
Loss on sale of assets......................... 144 117
Preferred stock accretion and dividends of
subsidiaries.................................. 222 222
Minority interest.............................. 176 4
Changes in assets and liabilities:
Accounts receivable, net...................... 387 1,638
Amounts due from franchisees and licensees,
net.......................................... 181 1,195
Inventories................................... 240 590
Prepaid rent and other........................ 523 149
Other assets.................................. 261 918
Accounts payable and accrued liabilities...... (2,518) (1,006)
Bank overdraft................................ -- (1,231)
Store closure reserve......................... (946) (1,311)
Accrued salaries, wages and benefits.......... 32 (90)
Accrued interest payable...................... (171) 38
Sales taxes payable........................... (562) (584)
Deferred income............................... (598) (126)
------- --------
Net cash provided by (used in) operating
activities.................................. (3,306) 2,708
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition expenses.......... (928) (100)
Purchase of property and equipment.............. (3,342) (2,604)
------- --------
Net cash used in investing activities........ (4,270) (2,704)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt..................... -- (5,340)
Payment of debt financing costs................. -- (1,155)
Borrowings under line of credit................. -- 7,000
Collection of common stock subscriptions
receivable..................................... (265) --
Principal payments on capital lease
obligations.................................... (138) (572)
Reduction in preferred stock.................... (42) (43)
------- --------
Net cash used in financing activities........ (445) (110)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (8,021) (106)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD.......................................... 16,287 4,751
------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD... $ 8,266 $ 4,645
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................... $ 5,370 $ 7,588
======= ========
Cash paid for income taxes..................... $ 36 $ 164
======= ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
F-46
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Mrs. Fields' Original Cookies, Inc. and subsidiaries ("Mrs.
Fields") in accordance with the rules and regulations of the Securities and
Exchange Commission for Form 10-Q, and accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, these condensed consolidated financial statements
reflect all adjustments, which consist only of normal recurring adjustments
necessary to present fairly the financial position of Mrs. Fields as of July 3,
1999 and January 2, 1999, and the results of its operations and its cash flows
as of and for the periods presented herein. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
January 2, 1999 contained in Mrs. Fields' Annual Report on Form 10-K.
The results of operations for the 26 weeks ended July 3, 1999 are not
necessarily indicative of the results that may be expected for the remainder of
the fiscal year ending January 1, 2000. Loss per share is not presented as Mrs.
Fields is wholly owned by Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") and therefore, its shares are not publicly traded.
(2) RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's condensed
consolidated financial statements to conform with the current period's
presentation.
(3) PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma information presents a summary of the
consolidated results of operations of Mrs. Fields assuming the Great American,
Deblan, Chocolate Chip, Karp, Cookie Conglomerate and Pretzelmaker acquisitions
and related financings had occurred at the beginning of the 26 weeks ended July
4, 1998. Pro forma adjustments have been made to give effect to amortization of
goodwill, interest expense on acquisition debt and certain other adjustments.
The pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually would
have resulted had the acquisitions been consummated at the beginning of the 26
weeks ended July 4, 1998.
<TABLE>
<CAPTION>
26 Weeks Ended
July 4, 1998
--------------
(Unaudited)
<S> <C>
Total revenues........................................... $92,640
Income from operations................................... 630
Net loss................................................. (8,064)
</TABLE>
(4) REPORTABLE SEGMENTS
Management evaluates performance at Mrs. Fields using two reportable
operating segments, namely, (1) company-owned stores and related activity and
(2) franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise fee and monthly royalties based on a percentage of gross
sales and other licensing activity not related to cookie or pretzel stores.
Sales and transfers between segments are eliminated in consolidation.
F-47
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
Mrs. Fields evaluates performance of each segment based on contribution
margin. Mrs. Fields does not allocate any interest income, interest expense,
depreciation and amortization or assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table.
<TABLE>
<CAPTION>
Company- Franchising
owned and
Stores Licensing Total
-------- ----------- -------
<S> <C> <C> <C>
26 weeks ended July 4, 1998
Total revenues................................. $58,687 $ 3,654 $62,341
Contribution margin............................ 9,594 3,654 13,248
26 weeks ended July 3, 1999
Total revenues................................. $71,915 $12,250 $84,165
Contribution margin............................ 13,404 7,787 21,191
</TABLE>
The reconciliation of contribution margin to net loss is as follows:
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
July 4, 1998 July 3, 1999
-------------- --------------
<S> <C> <C>
Contribution margin............................ $13,248 $ 21,191
General and administrative expense............. (8,587) (10,873)
Depreciation and amortization.................. (6,197) (11,263)
Interest expense............................... (5,626) (8,686)
Other income (expense), net.................... (139) (468)
------- --------
Net loss....................................... $(7,301) $(10,099)
======= ========
</TABLE>
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic Domestic
Company- International Franchising International
owned Company-owned and Franchising
Total revenues Stores Stores Licensing and Licensing
-------------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
26 weeks ended July 4,
1998..................... $58,609 $78 $ 3,467 $187
26 weeks ended July 3,
1999..................... 71,894 21 12,050 200
</TABLE>
Revenues from international franchising and licensing are generated from
Canada and Australia with no other countries having material representation.
Revenues from international company-owned stores are immaterial. As of July 3,
1999, there are no remaining international company-owned stores.
There were no customers who accounted for more than 10% of Mrs. Fields' total
revenues or either segment's revenues.
(5) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Mrs. Fields' obligation related to its $140,000,000 aggregate principal
amount of 10 1/8 percent Series A, B and C Senior Notes due 2004 is fully and
unconditionally guaranteed (the "Guarantee") on a senior basis by four of Mrs.
Fields' wholly owned subsidiaries. The Guarantee is a general unsecured
obligation of The Mrs. Fields' Brand, Inc., Great American Cookies, Inc.,
Pretzel Time, Inc. and Pretzelmaker Holdings, Inc. (the "Guarantors"), rank
senior in right of payment to all subordinated indebtedness of the Guarantors
and rank equal in right of payment with all existing and future senior
indebtedness of the Guarantors. There are no restrictions on Mrs. Fields'
ability to obtain cash dividends or other distributions of funds from the
Guarantors,
F-48
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Unaudited)
except those imposed by applicable law. The following supplemental financial
information sets forth, on a condensed consolidating basis, balance sheets,
statements of operations and statements of cash flows for Mrs. Fields' Original
Cookies, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the Non-
guarantor Subsidiaries (which include Mrs. Fields' Cookies Australia, Mrs.
Fields' Cookies (Canada) Ltd., Pretzelmaker Canada, H & M Canada, and Fairfield
Foods, Inc. and three partially owned subsidiaries). Mrs. Fields has not
presented separate financial statements and other disclosures concerning the
Guarantors because management has determined that such information is not
material.
(6) SUBSEQUENT EVENT
On September 1, 1999, the Preferred Shareholders of Pretzel Time, Inc. agreed
to extend the payment to retire the preferred stock to January 2000.
F-49
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 3, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 2,636 $ 1,892 $ 117 $ -- $ 4,645
Accounts receivable,
net.................. 1,558 -- 12 -- 1,570
Amounts due from
franchisees and
licensees, net....... 996 3,812 -- -- 4,808
Inventories........... 3,957 950 6 -- 4,913
Other current assets
and amounts due from
(to) affiliates,
net.................. 24,017 (18,561) (727) -- 4,729
-------- -------- ----- -------- --------
Total current
assets............. 33,164 (11,907) (592) -- 20,665
PROPERTY AND EQUIPMENT,
net.................... 27,923 1,462 170 -- 29,555
INTANGIBLES, net........ 80,878 84,865 298 -- 166,041
INVESTMENT IN
SUBSIDIARIES........... 64,984 -- -- (64,984) --
OTHER ASSETS............ 2,895 125 32 -- 3,052
-------- -------- ----- -------- --------
$209,844 $ 74,545 $ (92) $(64,984) $219,313
======== ======== ===== ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 8,105 $ 268 $ -- $ -- $ 8,373
Accounts payable...... 11,724 1,636 (22) -- 13,338
Accrued liabilities... 10,458 1,930 -- -- 12,388
-------- -------- ----- -------- --------
Total current
liabilities........ 30,287 3,834 (22) -- 34,099
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,539 114 -- -- 142,653
OTHER ACCRUED
LIABILITIES............ 8,419 -- -- -- 8,419
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,440 -- -- 1,440
MINORITY INTEREST....... -- -- 4 119 123
STOCKHOLDER'S EQUITY
(DEFICIT).............. 28,599 69,157 (74) (65,103) 32,579
-------- -------- ----- -------- --------
$209,844 $ 74,545 $ (92) $(64,984) $219,313
======== ======== ===== ======== ========
</TABLE>
F-50
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 26 WEEKS ENDED JULY 3, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES.......... $ 74,365 $12,764 $104 $(3,068) $ 84,165
-------- ------- ---- ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 41,634 -- 120 (636) 41,118
Cost of sales......... 19,787 4,463 38 (2,432) 21,856
General and
administrative....... 10,819 54 -- -- 10,873
Depreciation and
amortization......... 7,967 3,296 -- -- 11,263
-------- ------- ---- ------- --------
Total operating
costs and
expenses........... 80,207 7,813 158 (3,068) 85,110
-------- ------- ---- ------- --------
(Loss) income from
operations......... (5,842) 4,951 (54) -- (945)
INTEREST EXPENSE AND
OTHER, net............. (8,638) (80) -- -- (8,718)
-------- ------- ---- ------- --------
(Loss) income before
provision for income
taxes and equity in
net loss of
consolidated
subsidiaries......... (14,480) 4,871 (54) -- (9,663)
PROVISION FOR INCOME
TAXES.................. (210) -- -- -- (210)
-------- ------- ---- ------- --------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... (14,690) 4,871 (54) -- (9,873)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (222) -- -- (222)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... 4,595 -- -- (4,599) (4)
-------- ------- ---- ------- --------
NET (LOSS) INCOME....... $(10,095) $ 4,649 $(54) $(4,599) $(10,099)
======== ======= ==== ======= ========
</TABLE>
F-51
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 26 WEEKS ENDED JULY 3, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............ $ 1,138 $1,531 $ 39 $-- $ 2,708
------- ------ ---- ---- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition
Expenses............ (100) -- -- -- (100)
Purchase of property
and equipment, net.. (2,520) (84) -- -- (2,604)
------- ------ ---- ---- -------
Net cash used in
investing
activities........ (2,620) (84) -- -- (2,704)
------- ------ ---- ---- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Reduction of long-
term debt and
capital lease
obligations......... (5,291) (621) -- -- (5,912)
Payment of debt
financing fees...... (1,130) (25) -- -- (1,155)
Reduction in
preferred stock..... -- (43) -- -- (43)
Proceeds from line of
credit.............. 7,000 -- -- -- 7,000
------- ------ ---- ---- -------
Net cash used in
financing
activities........ 579 (689) -- -- (110)
------- ------ ---- ---- -------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... (903) 758 39 -- (106)
CASH AND CASH
EQUIVALENTS, beginning
of the period......... 3,539 1,134 78 -- 4,751
------- ------ ---- ---- -------
CASH AND CASH
EQUIVALENTS, end of
the period............ $ 2,636 $1,892 $117 $-- $ 4,645
======= ====== ==== ==== =======
</TABLE>
F-52
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
Accounts receivable,
net.................. 2,860 304 44 -- 3,208
Amounts due from
franchisees and
licensees, net....... 1,297 4,706 -- -- 6,003
Inventories........... 4,631 863 9 -- 5,503
Other current assets
and amounts due from
(to) affiliates,
net.................. 39,368 (33,898) (592) -- 4,878
--------- -------- ----- -------- --------
Total current
assets............. 51,695 (26,891) (461) -- 24,343
PROPERTY AND EQUIPMENT,
net.................... 29,900 1,654 243 -- 31,797
INTANGIBLES, net........ 75,875 95,601 320 -- 171,796
INVESTMENT IN
SUBSIDIARIES........... 66,484 -- -- (66,484) --
OTHER ASSETS............ 3,688 252 30 -- 3,970
--------- -------- ----- -------- --------
$ 227,642 $ 70,616 $ 132 $(66,484) $231,906
========= ======== ===== ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 7,141 $ 1,204 $ -- $ -- $ 8,345
Accounts payable...... 14,223 564 69 -- 14,856
Accrued liabilities... 10,956 2,895 18 -- 13,869
--------- -------- ----- -------- --------
Total current
liabilities........ 32,320 4,663 87 -- 37,070
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,367 216 61 -- 142,644
OTHER ACCRUED
LIABILITIES............ 10,134 -- -- -- 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,261 -- -- 1,261
MINORITY INTEREST....... -- -- -- 119 119
STOCKHOLDER'S EQUITY
(DEFICIT).............. 42,821 64,476 (16) (66,603) 40,678
--------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
========= ======== ===== ======== ========
</TABLE>
F-53
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 26 WEEKS ENDED JULY 4, 1998
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $60,370 $ 683 $1,867 $(579) $62,341
------- ------ ------ ----- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 34,309 -- 178 (579) 33,908
Food cost of sales.... 15,142 -- 43 -- 15,185
General and
administrative....... 7,261 554 772 -- 8,587
Depreciation and
amortization......... 5,331 640 226 -- 6,197
------- ------ ------ ----- -------
Total operating
costs and
expenses........... 62,043 1,194 1,219 (579) 63,877
------- ------ ------ ----- -------
(Loss) income from
operations......... (1,673) (511) 648 -- (1,536)
INTEREST EXPENSE AND
OTHER, net............. (5,372) 14 5 -- (5,353)
------- ------ ------ ----- -------
(Loss) income before
provision for income
taxes and equity in
net loss of
consolidated
subsidiaries......... (7,045) (497) 653 -- (6,889)
PROVISION FOR INCOME
TAXES.................. (14) -- -- -- (14)
------- ------ ------ ----- -------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... (7,059) (497) 653 -- (6,903)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- -- (222) -- (222)
EQUITY IN NET (LOSS)
INCOME OF CONSOLIDATED
SUBSIDIARIES........... (242) -- (176) 242 (176)
------- ------ ------ ----- -------
NET (LOSS) INCOME....... $(7,301) $ (497) $ 255 $ 242 $(7,301)
======= ====== ====== ===== =======
</TABLE>
F-54
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 26 WEEKS ENDED JULY 4, 1998
(dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH USED IN
OPERATING ACTIVITIES.. $(2,824) $(379) $ (103) $-- $(3,306)
------- ----- ------ ---- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions........ (928) -- -- -- (928)
Purchase of property
and equipment, net.. (3,335) -- (7) -- (3,342)
------- ----- ------ ---- -------
Net cash used in
investing
activities........ (4,263) -- (7) -- (4,270)
------- ----- ------ ---- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Reduction of long-
term debt and
capital lease
obligations......... (138) -- (265) -- (403)
Reduction in
preferred stock..... -- -- (42) -- (42)
------- ----- ------ ---- -------
Net cash used in
financing
activities........ (138) -- (307) -- (445)
------- ----- ------ ---- -------
NET DECREASE IN CASH
AND CASH EQUIVALENTS.. (7,225) (379) (417) -- (8,021)
CASH AND CASH
EQUIVALENTS, beginning
of period............. 14,270 725 1,292 -- 16,287
------- ----- ------ ---- -------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 7,045 $ 346 $ 875 $-- $ 8,266
======= ===== ====== ==== =======
</TABLE>
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields Inc.:
We have audited the accompanying consolidated balance sheet of Mrs. Fields
Inc. (a Delaware corporation) and subsidiaries as of September 17, 1996, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the period from December 31, 1995 to September 17, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mrs. Fields
Inc. and subsidiaries as of September 17, 1996, and the results of their
operations and their cash flows for the period from December 31, 1995 to
September 17, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 27, 1997
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Mrs. Fields Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of Mrs. Fields Inc. and subsidiaries for
the year ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Mrs. Fields Inc.
and subsidiaries for the year ended December 30, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 9, 1996
F-57
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,883
Accounts receivable, net of allowance for doubtful accounts of
$269.......................................................... 1,611
Inventories.................................................... 1,296
Prepaid rent................................................... 420
Other prepaid expenses......................................... 1,042
--------
Total current assets......................................... 6,252
--------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements......................................... 23,223
Equipment and fixtures......................................... 18,422
--------
41,645
Less accumulated depreciation and amortization................. (29,409)
--------
Net property and equipment................................... 12,236
--------
DEPOSITS......................................................... 656
--------
Total assets..................................................... $ 19,144
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
F-58
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
CURRENT LIABILITIES:
Notes payable.................................................. $ 18,352
Premium on restructured debt................................... 2,872
Accounts payable............................................... 3,708
Accrued liabilities............................................ 1,329
Current portion of store closure reserve....................... 1,270
Current portion of deferred credits............................ 425
---------
Total current liabilities.................................... 27,956
STORE CLOSURE RESERVE, net of current portion.................... 294
DEFERRED CREDITS, net of current portion......................... 1,212
---------
Total liabilities............................................ 29,462
---------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 8)
MINORITY INTEREST IN MAJORITY OWNED SUBSIDIARY:
20,000,000 cumulative preferred stock; involuntary liquidation
preference of $24,834, including $4,834 of unrecorded
dividends in arrears.......................................... 20,000
---------
STOCKHOLDERS' DEFICIT:
Cumulative preferred stock, $.001 par value; 21,885,000 shares
authorized and issued, involuntary liquidation preference of
$32,085, including $10,200 of unrecorded dividends in
arrears....................................................... 22
Common stock, $.001 par value; 200,000,000 shares authorized
and outstanding............................................... 200
Additional paid-in capital..................................... 83,863
Accumulated deficit............................................ (114,371)
Cumulative translation adjustment.............................. (32)
---------
Total stockholders' deficit.................................. (30,318)
---------
Total liabilities and stockholders' deficit.................. $ 19,144
=========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet
F-59
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Period Ended
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
REVENUES:
Net store sales.................................... $59,956 $29,674
Net franchising.................................... 1,870 1,793
Net licensing...................................... 2,031 892
Net other.......................................... 2,092 1,101
------- -------
Total revenues................................... 65,949 33,460
------- -------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................. 36,965 17,782
Food cost of sales................................. 13,373 6,525
General and administrative......................... 12,612 7,984
Depreciation and amortization...................... 3,525 1,911
Provision for store closure costs.................. 3,000 1,000
------- -------
Total operating costs and expenses............... 69,475 35,202
------- -------
Loss from operations............................. (3,526) (1,742)
INTEREST EXPENSE..................................... (51) (80)
(LOSS) GAIN ON SALE OF ASSETS........................ 1,450 (277)
------- -------
Loss before provision for income taxes........... (2,127) (2,099)
PROVISION FOR INCOME TAXES........................... (241) (205)
------- -------
Net loss......................................... $(2,368) $(2,304)
======= =======
</TABLE>
The accompany notes to consolidated financial statements are an integral part
of these statements.
F-60
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock Additional Cumulative
----------------- ------------------ Paid-in Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
---------- ------ ----------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995................... 21,885,000 $22 200,000,000 $200 $83,863 $(109,699) $195 $(25,419)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (230) (230)
Net loss............... -- -- -- -- -- (2,368) -- (2,368)
---------- --- ----------- ---- ------- --------- ---- --------
BALANCE, December 30,
1995................... 21,885,000 22 200,000,000 200 83,863 (112,067) (35) (28,017)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- 3 3
Net loss............... -- -- -- -- -- (2,304) -- (2,304)
---------- --- ----------- ---- ------- --------- ---- --------
BALANCE, September 17,
1996................... 21,885,000 $22 200,000,000 $200 $83,863 $(114,371) $(32) $(30,318)
========== === =========== ==== ======= ========= ==== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-61
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended Period Ended
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(2,368) $(2,304)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 3,525 1,911
Amortization of premium on restructured debt.... -- (1,541)
In-kind expense on note payable................. (1,610) 1,598
Provision for store closure costs............... 3,000 1,000
Net loss (gain) on asset sales, disposals and
store closures................................. (1,450) 277
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable.... (163) 2,039
Decrease in inventories....................... 853 267
Increase in prepaid rent...................... -- (420)
Increase in other prepaid expenses............ (337) (673)
Increase in deposits.......................... -- (15)
Decrease in accounts payable and accrued
liabilities.................................. (5,821) (194)
Decrease in store closure reserve............. -- (1,696)
Decrease in deferred credits.................. (107) (696)
------- -------
Net cash used in operating activities....... (4,478) (447)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................ (4,146) (1,054)
Proceeds from the sale of assets.................. 6,672 669
------- -------
Net cash provided by (used in) investing
activities................................. 2,526 (385)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable............... (145) (58)
Payments for debt restructuring................... (40) --
------- -------
Net cash used in financing activities....... (185) (58)
------- -------
EFFECT OF FOREIGN EXCHANGE RATES.................... -- 3
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS........... (2,137) (887)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD............................................. 4,907 2,770
------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD...... $ 2,770 $ 1,883
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-62
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in Thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $1,661 and $24 for the year ended
December 30, 1995 and for the period ended September 17, 1996, respectively.
Cash paid for income taxes was approximately $128 and $39 for the year ended
December 30, 1995 and for the period ended September 17, 1996, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
During the year ended December 30, 1995 and the period ended September 17,
1996, the Company, in accordance with the Amended and Restated Restructuring
Agreement, entered into the following noncash financing activities:
. The Company converted accrued interest payable incurred from January 1,
1995 through March 31, 1995 and from July 1, 1994 through December 31,
1994 into approximately $520 and $1,000 of Series A interest deferral
notes, respectively. In addition, the Company amortized approximately
$2,100 of its premium on restructured debt as a reduction to interest
expense during the year ended December 30, 1995.
. The Company converted accrued interest payable from December 31, 1995
through September 17, 1996 into $1,598 of 15 percent interest bearing
Series A interest deferral notes.
During the year ended December 30, 1995 and for the period ended September
17, 1996, the Company entered into the following noncash investing and
financing activities:
. In accordance with the Company's franchise financing arrangement, the
Company assumed long-term debt of franchisees which was in default
totaling approximately $132 and $0 during the year ended December 30,
1995 and the period ended September 17, 1996, respectively.
. In connection with its sale of several cookie stores, the Company
accepted notes receivable in the approximate amount of $305 during the
year ended December 30, 1995. In addition, during the year ended
December 30, 1995 and the period ended September 17, 1996, the Company
charged off approximately $1,960 and $651 of assets against accrued
expenses.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-63
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Mrs. Fields Inc. ("MFI"), a Delaware corporation, was incorporated on May 2,
1986 and is a holding company for its wholly owned subsidiaries Mrs. Fields
Cookies Australia, Mrs. Fields Cookies, Ltd. (Canada) plus other inactive
subsidiaries (collectively termed "Mrs. Fields International") and its majority
owned subsidiary, Mrs. Fields Development Corporation ("MFD") and MFD's wholly
owned subsidiary, Mrs. Fields Cookies ("MFC"). Collectively, these entities are
referred to in this prospectus as the "Company".
Nature of Operations
The most significant part of the Company's operations are its retail stores
which sell freshly baked cookies, brownies and other food products. As of
September 17, 1996, the Company operates 147 "Mrs. Fields Cookies" stores all
of which are located in the United States. Additionally, the Company has
franchised approximately 163 stores in the United States and approximately 55
stores in nine other countries.
Additionally, the Company holds legal title to certain trademarks for the
"Mrs. Fields" name and logo, and licenses the use of these trademarks to third
parties for the establishment and operation of Mrs. Fields cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, the Company authorizes third-party licensees to use
certain business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company usually experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
somewhat dependent on the performance of those malls. The results for the
period ended September 17, 1996 presented in the accompanying consolidated
financial statements may not be indicative of results that would have been
achieved for an entire calendar year.
Effective September 18, 1996, the Company sold substantially all of its net
assets to Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc.
(see Note 11). Subsequently, the Company has been solely involved in
liquidating remaining assets and collecting certain outstanding notes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of MFI, Mrs.
Fields International, MFD and MFC. All significant intercompany balances and
transactions have been eliminated in consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
three suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and
F-64
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
September 17, 1996 and at various times during the period then ended, the
Company had demand deposits at various banks in excess of the $100,000 limit
for insurance by the Federal Deposit Insurance Corporation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventory consisted of the following at September 17, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Food and beverages............................................. $ 792,000
Smallwares..................................................... 504,000
----------
$1,296,000
==========
</TABLE>
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are included in the determination of net
income or loss.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an
asset may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable. As of September 17, 1996, the
Company has reserved for any of its long-lived assets that are considered to be
impaired.
Revenue Recognition
The Company recognizes franchising and licensing revenues on an accrual basis
as those revenues are earned. Product sales are recognized as the product is
delivered or shipped to the customer.
F-65
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leases
The Company has various operating lease commitments on both Company-owned and
franchised store locations and equipment. Operating leases with escalating
payment terms, including leases underlying subleases with franchisees, are
expensed on a straight-line basis over the life of the related lease.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Fair Value of Financial Instruments
The notes payable and cumulative preferred stock (see Note 6) are presented
in the accompanying consolidated balance sheet at a total of $60,237,000 as of
September 17, 1996. All such obligations were subsequently settled in two sales
transactions (see Note 11) for $41,800,000.
Cumulative Foreign Currency Translation Adjustment
The assets and liabilities of foreign operations are translated into United
States dollars using exchange rates in effect at the end of the accounting
period. Revenues and expenses are translated using the average exchange rate
during the period. Differences in exchange rates arising from foreign currency
translation are recorded as a separate component of stockholders' deficit. In
connection with a sale or liquidation of an investment in a foreign subsidiary,
the accumulated translation adjustment attributable to that subsidiary is
transferred from stockholders' deficit and is reported as a gain or loss.
3. NOTES PAYABLE
On June 30, 1994, the Company entered into the Amended and Restated
Restructuring Agreement (the "Restructuring Agreement") with its lenders of
long-term debt (the "Lenders"). In connection with the Restructuring Agreement,
the Lenders exchanged approximately $56,900,000 of existing long-term notes
payable for $15,000,000 of new Series A secured notes, 51,292,000 shares of the
Company's common stock, 21,885,000 shares of cumulative preferred stock of MFI
and 20,000,000 shares of cumulative preferred stock of MFD.
After the issuances of common stock, the Lenders' total ownership interest in
the Company's common stock was approximately 85 percent. Because the total
estimated future cash payments (including interest and principal) required as
of June 30, 1994 under the terms of the new Series A secured notes was less
than the principal amount plus the previous carrying amount of the unamortized
premium on restructured debt by approximately $25,200,000, the Company reduced
the premium on restructured debt by that amount. The remaining unamortized
premium on restructured debt is being amortized over the life of the Series A
secured notes to produce an effective interest rate of zero percent.
F-66
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes payable consist of the following as of September 17, 1996:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Series A secured notes, interest at 13 percent, payable
quarterly, secured by all common stock and essentially all
assets of the Company, principal due in varying installments
through March 31, 1998...................................... $ 15,000,000
Series A interest deferral notes, interest at 13 percent,
payable quarterly, secured by all common stock and
essentially all assets of the Company, principal due March
31, 1998.................................................... 1,511,000
Series A interest deferral notes, interest at 15 percent,
secured by all common stock and essentially all assets of
the Company, principal and interest originally due August
15, 1996, subsequently extended through September 20, 1996.. 1,598,000
Other........................................................ 243,000
Premium on restructured debt................................. 2,872,000
21,224,000
Less current portion......................................... (21,224,000)
------------
$ --
============
</TABLE>
The Series A secured notes and the Series A interest deferral notes were paid
by the Company on September 20, 1996 in connection with the receipt of proceeds
from two simultaneous but separate asset sale transactions (see Note 11). As a
result, all of the Series A notes referred to above are reflected as current
liabilities in the accompanying September 17, 1996 consolidated balance sheet.
4. INCOME TAXES
The components of the provision (benefit) for income taxes for the year ended
December 30, 1995 and for the period ended September 17, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -----------
<S> <C> <C>
Current:
Federal.............................................. $ -- $ --
State................................................ 241,000 205,000
Deferred:
Federal.............................................. -- (1,125,000)
State................................................ -- (109,000)
Change in valuation allowance........................ -- 1,234,000
-------- -----------
Total provision for income taxes................... $241,000 $ 205,000
======== ===========
</TABLE>
The Company incurred financial reporting losses for the year ended December
30, 1995 and for the period ended September 17, 1996 for which no benefits have
been recorded in the accompanying consolidated statements of operations due to
appropriate valuation allowances being provided. The provisions for income
taxes are solely related to minimum state income tax requirements.
Current deferred income tax assets relate to temporary differences between
financial statement and income tax recognition of bad debts, unearned revenues,
and the store closure reserve. Long-term deferred income tax assets relate to
temporary differences between financial statement and income tax recognition of
depreciation and write-downs of certain property and equipment, net operating
losses and other income tax credit carryforwards.
F-67
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management has provided a valuation allowance equal to the amount of the
deferred income tax assets arising from the Company's net operating loss
carryforwards. As of September 17, 1996, the Company had net operating loss
carryforwards for tax reporting purposes totaling approximately $90,900,000.
These net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2001......................................................... $ 214,000
2002......................................................... 4,600,000
2003......................................................... 19,993,000
2004......................................................... 7,693,000
2005......................................................... 9,143,000
Thereafter (through 2011).................................... 49,257,000
-----------
$90,900,000
===========
</TABLE>
Subsequent to the sale of substantially all of its assets (see Note 1), the
Company utilized certain of its net operating loss carryforwards to offset the
related gain. The remainder of the net operating loss carryforwards may not be
used.
5. STORE CLOSURE RESERVE
As of December 30, 1995, the Company had a store closure reserve of
approximately $2,510,000 for the anticipated costs to franchise or close 26
stores during 1996. During the period from December 31, 1995 to September 17,
1996, the Company closed 12 stores and provided for additional store closure
expenses totaling $1,000,000. As of September 17, 1996, the remaining store
closure reserve totaled approximately $1,564,000, of which approximately
$1,270,000 is current and approximately $294,000 is long-term. In management's
opinion, the store closure reserve is adequate for stores identified to be
closed.
The Company's management reviews the historic and projected operating
performance of its stores on an annual basis to identify underperforming stores
for impairment of property investment or targeted closing. The Company's policy
is to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. When a store is
identified for targeted closing, the Company's policy is to provide for the
costs of closing the store, which are predominantly estimated lease settlement
costs.
6. CUMULATIVE PREFERRED STOCK
In connection with the Restructuring Agreement, the Company issued 21,885,000
and 20,000,000 shares of cumulative preferred stock of MFI and MFD,
respectively. The MFD preferred stock is reflected as "minority interest in
majority owned subsidiary" in the accompanying consolidated balance sheet. The
MFI and MFD cumulative preferred stocks have dividend rates of 18 percent and
10 percent, respectively, which accumulate on a semi-annual basis. The
dividends are computed based upon the liquidation preference rates which are
defined in the Restructuring Agreement as $1.00 per share plus any unrecorded
dividends in arrears for each issue and are payable only as declared by the
Board of Directors. As of September 17, 1996, the Board of Directors had not
declared dividends for either series of preferred stock. Accordingly, dividends
in arrears on the MFI and MFD preferred stocks which have not been recorded in
the accompanying consolidated financial statements as of September 17, 1996
totaled $10,200,000 and $4,834,000, respectively.
In the event of liquidation or dissolution of the Company, the holders of the
cumulative preferred stocks of MFI and MFD will be entitled to receive from the
assets of the Company available for distribution prior to any distribution to
common stockholders an amount per share equal to the sum of (i) $1.00 for each
outstanding
F-68
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
preferred share and (ii) an amount equal to all unpaid dividends on such
preferred shares through the distribution date. As of September 17, 1996, the
distribution preference for the MFI and MFD preferred stockholders totaled
$32,085,000 and $24,834,000, respectively. Also, if a change in control of the
Company occurs, preferred stockholders shall have the right to convert all (but
not less than all) of their preferred shares into notes payable in an amount
equal to the liquidation preference value of their preferred shares. The
Company also has the right at any time to redeem shares of the MFI and MFD
preferred stocks at a price of $1.00 per share plus all accrued but unpaid
dividends through the date of redemption.
Subsequent to period end, the Company completed two sales transactions (see
Note 11) wherein all of the cumulative preferred stock was redeemed at a
discount.
7. OPTION AGREEMENT
As part of the Restructuring Agreement, the Lenders granted two directors an
option to acquire common stock from the Lenders which, if the option was
exercised as of September 17, 1996, would constitute approximately 51 percent
of the Company's issued common stock. The option is exercisable through
September 30, 1999 in whole, but not in part, at a price approximating the
amount of debt forgiven by the Lenders plus interest at nine percent from the
date of the grant of the option. In the event the option is exercised, the
directors are also required to offer other minority stockholders the same price
per share for their common stock.
In connection with the two sales transactions described in Note 11, the two
directors waived their options to acquire common stock from the Lenders.
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of September 17, 1996, management, after
consultation with legal counsel, believes that the potential liability to the
Company under such actions is adequately accrued or insured for, or will not
materially affect the Company's consolidated financial position or results of
operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to 10 years. The future minimum lease payments due under these operating
leases, which include required lease payments for those stores that have been
subleased, as of September 17, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997.......................................................... $12,395,000
1998.......................................................... 10,684,000
1999.......................................................... 8,376,000
2000.......................................................... 5,737,000
2001.......................................................... 3,757,000
Thereafter.................................................... 4,855,000
-----------
$45,804,000
===========
</TABLE>
Certain of the leases provide for contingent rentals based on gross revenues.
Total rental expense including contingent rentals and net of sublease rentals
received, under the above operating leases for the year ended
F-69
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 30, 1995 and for the period ended September 17, 1996 was approximately
$13,697,000 and $7,405,000, respectively. As part of the Company's franchising
program, certain leases have been subleased to franchisees. The future minimum
sublease payments due to the Company under these leases as of September 17,
1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997.......................................................... $ 3,741,000
1998.......................................................... 3,119,000
1999.......................................................... 2,512,000
2000.......................................................... 1,776,000
2001.......................................................... 1,038,000
Thereafter.................................................... 374,000
-----------
$12,560,000
===========
</TABLE>
Contractual Arrangements
The Company has entered into a supply agreement to buy frozen dough products
through 1998. The agreement stipulates minimum annual purchase commitments for
1997 and 1998. The Company and the supplier may terminate the supply agreement
if the other party defaults on any of the performance covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at September 17, 1996 were approximately $707,400. Under the
terms of the agreement, the Company is required to assume any franchisee
borrowings which are in default as defined. As of September 17, 1996, the
Company has assumed loans totaling approximately $240,000, which are included
in notes payable.
As of December 30, 1995, the Company had recorded deferred credits,
representing vendor rebates, of approximately $1,486,000 under a long-term
marketing and supply agreement with a supplier. Under the terms of the
agreement, the Company was obligated to purchase a minimum amount of product
from the supplier. The supplier periodically prepays rebates to the Company for
anticipated purchases. The Company records the prepayments as deferred credits
and amortizes them ratably as purchases are made from the supplier. In April
1996, the Company and the supplier renegotiated the agreement whereby the
supplier would reduce the unearned portion of the deferred credits to $504,000
and advance the Company a rebate of $800,000 in exchange for an extension of
the termination date and a modification of the purchase commitment. The
termination date of the renegotiated agreement will be the later of March 31,
2001 or when the Company has met its purchase commitment. The Company reduced
food costs by approximately $1,082,000 during the period ended September 17,
1996 related to this arrangement and its renegotiation. The remaining balance
of approximately $1,204,000 is included in deferred credits as of September 17,
1996.
9. RELATED-PARTY TRANSACTIONS
Under the terms of a licensing agreement with an entity which is owned in
part by a former director of the Company, the Company is required to pay an
annual software maintenance fee. During the year ended December 30, 1995 and
for the period ended September 17, 1996, the Company paid maintenance fees of
approximately $100,000 and $17,000, respectively, which are included in general
and administrative expenses.
F-70
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company leases certain office space to an entity which is owned in part
by a former director of the Company. Billings to the entity during the year
ended December 30, 1995 and the period ended September 17, 1996 totaled
approximately $152,000 and $136,000, respectively, of which approximately
$9,000 is included in accounts receivable as of September 17, 1996.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields 401(k) Plan (the "Plan") for all
eligible employees. Under the terms of the Plan, employees can make
contributions to the Plan, a portion of which is matched by contributions from
the Company. The total Company contributions to the Plan for the year ended
December 30, 1995 and for the period ended September 17, 1996 were
approximately $42,000 and $23,000, respectively.
11. SUBSEQUENT EVENT
On September 17, 1996, the Company completed two simultaneous but separate
asset sale transactions wherein the Company (i) sold certain assets and
relinquished certain liabilities of the Company in accordance with an Asset
Purchase Agreement dated August 7, 1996, among the Company, Mrs. Fields'
Original Cookies, Inc. and Capricorn Investors II, L.P., and (ii) sold certain
assets of the Company in accordance with an Asset Purchase Agreement dated
August 7, 1996, as amended by the First Amendment dated as of September 17,
1996, among the Company, The Mrs. Fields' Brand, Inc. and Capricorn Investors
II, L.P.
The combined sales price for the net assets sold was approximately
$41,800,000. The Company received approximately $12,157,000 in cash and
approximately $29,643,000 in senior and subordinated notes.
The proceeds from these net asset sales were used in part to repay the Series
A notes and the Series A interest deferral notes on September 20, 1996 (see
Note 3).
F-71
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Original Cookie Company, Incorporated and Hot Sam Company, Inc.:
We have audited the accompanying combined balance sheet of The Original
Cookie Company, Incorporated and the carved-out portion of Hot Sam Company,
Inc., both Delaware corporations (subsidiaries of Chocamerican, Inc.), as of
September 17, 1996, and the related combined statements of operations,
stockholders' equity and cash flows for the year ended December 30, 1995, and
for the period December 31, 1995 to September 17, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The
Original Cookie Company, Incorporated and the carved-out portion of Hot Sam
Company, Inc. as of September 17, 1996, and the results of their operations and
their cash flows for the year ended December 30, 1995, and for the period
December 31, 1995 to September 17, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Cleveland, Ohio
July 11, 1997
F-72
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 655
Accounts receivable........................................... 340
Inventories................................................... 1,728
Prepaids and other............................................ 984
--------
Total current assets........................................ 3,707
--------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements........................................ 31,329
Furniture and fixtures........................................ 7,719
Buildings and improvements.................................... 639
Land.......................................................... 69
--------
39,756
Accumulated depreciation and amortization..................... (22,687)
--------
Net property and equipment.................................. 17,069
--------
OTHER ASSETS, net............................................... 256
--------
COST IN EXCESS OF FAIR VALUE OF NET ASSETS OF PURCHASED
BUSINESS, net of accumulated amortization of $9,092............ 37,992
--------
$ 59,024
========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this combined balance sheet.
F-73
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEET (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 1,696
Accrued payroll and related expenses............................ 2,208
Accrued liabilities............................................. 3,443
-------
Total current liabilities..................................... 7,347
-------
LONG-TERM LIABILITIES:
Deferred lease credit........................................... 1,653
Store closure reserve........................................... 1,002
Related-party notes payable..................................... 30,977
Other........................................................... 1,102
-------
Total long-term liabilities................................... 34,734
-------
COMMITMENTS (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock.................................................... 10,000
Additional paid-in capital...................................... 15,873
Accumulated deficit............................................. (8,930)
-------
Total stockholders' equity.................................... 16,943
-------
Total liabilities and stockholders' equity.................... $59,024
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this combined balance sheet.
F-74
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Year Ended 1995 to
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
NET SALES............................................ $85,581 $54,366
------- -------
OPERATING COSTS AND EXPENSES:
Food cost of sales................................. 19,996 12,728
Selling and occupancy expenses..................... 47,032 31,935
General and administrative expenses................ 8,425 5,538
Severance and related expenses..................... -- 2,000
Depreciation and amortization...................... 6,902 4,937
Provision for store closure costs.................. 791 --
------- -------
Total operating costs and expenses............... 83,146 57,138
------- -------
INCOME (LOSS) FROM OPERATIONS........................ 2,435 (2,772)
INTEREST EXPENSE, net................................ (4,268) (2,828)
OTHER EXPENSE........................................ -- (45)
------- -------
LOSS BEFORE INCOME TAXES............................. (1,833) (5,645)
PROVISION FOR INCOME TAXES........................... 263 --
------- -------
NET LOSS............................................. $(2,096) $(5,645)
======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-75
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-in Earnings Stockholders'
Stock Capital (Deficit) Equity
------- ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $10,000 $15,873 $(1,189) $24,684
Net loss.......................... -- -- (2,096) (2,096)
------- ------- ------- -------
BALANCE, DECEMBER 30, 1995.......... 10,000 15,873 (3,285) 22,588
Net loss.......................... -- -- (5,645) (5,645)
------- ------- ------- -------
BALANCE, SEPTEMBER 17, 1996......... $10,000 $15,873 $(8,930) $16,943
======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-76
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Year Ended 1995 to
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(2,096) $(5,645)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities--
Depreciation and amortization...................... 6,902 4,937
Changes in assets and liabilities--
Increase in accounts receivable.................. (61) (279)
Decrease (increase) in related-party
receivables/payables............................ 18 (169)
Decrease (increase) in inventories............... 461 (65)
Decrease in prepaids and other................... 695 967
Decrease (increase) in other assets.............. 64 (60)
(Decrease) increase in accounts payable.......... (476) 410
Decrease in accrued payroll and related
expenses........................................ (331) (384)
Increase (decrease) in accrued liabilities....... (1,196) 330
Increase in other long-term liabilities.......... 231 73
Increase (decrease) in deferred lease credit..... 38 (111)
Increase (decrease) in store closure reserve..... 202 (382)
------- -------
Net cash provided by (used in) operating
activities.................................... 4,451 (378)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net........... (568) (1,200)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to related party........................ (4,599) (1,380)
------- -------
CASH AND CASH EQUIVALENTS:
Net decrease during the period..................... (716) (2,958)
Balance, beginning of the period................... 4,329 3,613
------- -------
Balance, end of the period......................... $ 3,613 $ 655
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
State and local income taxes paid.................. $ 234 $ 82
======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-77
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Original Cookie Company, Incorporated ("OCCI") and Hot Sam Company, Inc.
("HSCI") (collectively, the "Companies") are wholly owned subsidiaries of
Chocamerican, Inc., which is a wholly owned subsidiary of Midial S.A., a French
company (collectively, the "Parent"). The Companies operated specialty
retailing outlets providing prepared goods. OCCI operated approximately 240
stores in over 35 states, offering a variety of fresh baked cookies and
brownies and beverages. HSCI operated approximately 190 stores in over 30
states providing a variety of fresh baked pretzels and pretzel sticks, toppings
and beverages.
On September 17, 1996, all of the operations of the Companies including
certain assets and liabilities were sold to a nonrelated party (the "Buyer")
who assumed responsibility for all retail locations as of that date. Except for
approximately $2,000,000 of payments to employees for severance and related
costs which is included in the operating results for the period December 31,
1995 to September 17, 1996, these combined financial statements do not reflect
any effect of such sale.
The Companies traditionally experienced their highest revenues in the fourth
calendar quarter. Because the Companies' stores were heavily concentrated in
shopping malls, the Companies' sales performance was somewhat dependent on the
performance of those malls. Because of such seasonality and the extra payroll
costs noted above, the results for the period December 31, 1995 to September
17, 1996 are not necessarily indicative of results that would have been
achieved for an entire calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Companies' fiscal year ends on the Saturday closest to December 31, which
results in a 52 or 53-week year.
Basis of Presentation
The combined financial statements include the accounts of OCCI and HSCI
except that these statements do not reflect the results of the operations and
the related assets and liabilities of a group of retail food locations owned
and operated by HSCI primarily under the name of Corn Dog. The Corn Dog
operations were sold to a nonrelated entity in April 1996 and the accompanying
combined financial statements exclude these operations and net assets, as well
as the results of the sale. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-78
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Inventories
The Companies' inventories were stated at the lower of cost (first-in, first-
out method) or market value. Inventories consisted of the following at
September 17, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Food and beverages................................................ $1,215,000
Small wares....................................................... 513,000
----------
$1,728,000
==========
</TABLE>
Property and Equipment
The Companies' policy is to provide depreciation using the straight-line
method over a period which is sufficient to amortize the cost of the asset
during its useful life.
The estimated useful lives for depreciation purposes are:
<TABLE>
<S> <C>
Leasehold improvements........................................ 5 to 10 years
Furniture and fixtures........................................ 3 to 10 years
Buildings and improvements.................................... 10 to 50 years
</TABLE>
Intangible Assets
Cost in excess of fair value of net assets of purchased business which was
recorded as part of the acquisition of the Companies by the Parent was
amortized on a straight-line basis over 40 years. Management evaluated the
expected cash flows of such assets periodically and determined no adjustments
were appropriate. Subsequent to September 17, 1996, the Companies expensed all
such intangibles in connection with recording the effects of the sales of the
operations.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Companies consider all
temporary cash investments purchased with an original maturity of three months
or less to be cash equivalents.
Leases
The Companies have various operating lease commitments on their retail store
locations. Operating leases with escalating payment terms are expensed on a
straight-line basis over the life of the related lease.
Asset Impairment
The Companies adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" for the period December 31, 1995 to September 17,
1996. SFAS No. 121 requires the Companies to evaluate the recoverability of
long-lived assets based on expected future cash flows. Prior to the adoption of
SFAS No. 121, the Companies accounted for long-lived operating assets as
discussed both above and in Note 6. The adoption of this standard did not have
a material impact on the Companies' financial position or results of
operations.
Revenue Recognition
Revenues from product sales are recognized at the point of sale to the
customer.
F-79
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Companies recognize deferred income tax assets or liabilities for
expected future income tax consequences of events that have been recognized in
the financial statements or income tax returns. Under this method, deferred
income tax assets or liabilities are determined based upon the difference
between the financial and income tax bases of assets and liabilities using
enacted tax rates expected to apply when differences are expected to be settled
or realized.
3. STOCKHOLDERS' EQUITY
The Companies' common stock at December 30, 1995 and September 17, 1996 is
comprised of the following:
OCCI has common stock with a par value $1 per share, 10,000,000 shares
authorized, issued and outstanding.
HSCI has common stock with a par value $1 per share, 10 shares authorized,
issued and outstanding.
4. RELATED-PARTY NOTES PAYABLE
In addition to debt incurred as part of the purchase by the Parent, the
Companies' cash requirements were provided for by the Parent. These amounts
were evidenced by notes, bearing interest rates ranging from 8% to 12%, and
consisted of $30,977,000 as of September 17, 1996. The notes were paid in part
by the Companies subsequent to September 17, 1996 in connection with the
receipt of proceeds from the sale of certain assets and liabilities to the
Buyer.
5. INCOME TAXES
The Companies have been included in the consolidated income tax returns of a
subsidiary of the Parent which was in a cumulative loss carryforward position
during all of the periods presented in the accompanying combined financial
statements.
The Companies incurred financial reporting losses for the year ended December
30, 1995 and the period December 31, 1995 to September 17, 1996 for which no
benefits have been recorded in the accompanying combined statements of
operations due to appropriate valuation allowances being provided. The
provisions for income taxes are solely related to minimum state income tax
requirements.
Deferred income tax assets relate to temporary differences between financial
statement and income tax recognition of depreciation, store closure reserve and
other accrued liabilities. Management has provided a valuation allowance equal
to the amount of the deferred income tax assets.
6. STORE CLOSURE RESERVE
The Companies annually reviewed the historic and projected operating
performance of their stores and identified underperforming stores for
impairment of property investment and/or targeted closing. The Companies'
policy was to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. Additionally, when a
store was identified for targeted closing, the Companies' policy was to provide
for the costs of closing the store, which are predominantly estimated lease
settlement costs and/or estimated lease payments after the date of the store
closing.
F-80
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
An analysis of the activity in the store closure reserve is as follows for
the year ended December 30, 1995 and for the period December 31, 1995 to
September 17, 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Beginning Balance.................................... $1,182,000 $1,384,000
Provision............................................ 791,000 --
Payments and Other Deductions........................ (589,000) (382,000)
---------- ----------
Ending Balance....................................... $1,384,000 $1,002,000
========== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Companies' employees participate in a defined contribution saving plan
which was funded by voluntary employee contributions and by contributions from
the Companies. The Companies' expense for the year ended December 30, 1995, and
for the period December 31, 1995 to September 17, 1996 was $143,000 and
$106,000, respectively.
The Companies do not provide for any other post-retirement benefits.
8. RELATED-PARTY TRANSACTIONS
The Parent provides certain services to the Companies, such as human
resources, accounting and legal, among others. Charges to the Companies for
such administrative services totaled $520,000 for the year ended December 30,
1995 and $175,000 for the period December 31, 1995 to September 17, 1996. In
management's opinion, these charges approximate the fair market value of such
services.
9. COMMITMENTS
Operating Leases
The Companies leased all of their retail store locations. These leases
typically had initial terms of up to 10 years. Certain leases provided for
contingent rentals based on store sales. Generally, the Companies were required
to pay taxes and normal expenses of operating the premises under retail store
leases. Total rental expense was approximately $15,038,000 for the year ended
December 30, 1995. Total rental expense for the period ended September 17, 1996
was approximately $11,165,000.
The minimum rentals under operating leases subsequent to September 17, 1996
are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
Remaining 1996................................................... $ 5,346,000
1997............................................................. 15,886,000
1998............................................................. 13,763,000
1999............................................................. 11,691,000
2000............................................................. 9,712,000
Thereafter....................................................... 20,190,000
-----------
$76,588,000
===========
</TABLE>
Effective September 17, 1996, the Buyer assumed responsibility for all open
store leases but the Companies remain contingently liable under certain of
these leases. However, management is not aware of any actual or threatened
claims under these leases.
F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cookies USA, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' deficit, and
of cash flows present fairly, in all material respects, the financial position
of Cookies USA, Inc. and its subsidiary at June 29, 1997 and June 28, 1998, and
the results of their operations and their cash flows for each of the three
fifty-two week periods in the period ended June 28, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
August 24, 1998
F-82
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,885 $ 8,382
Accounts receivable--trade................................. 1,702 2,042
Inventory (Notes 1 and 2).................................. 1,292 1,212
Prepaid expenses (Note 3).................................. 1,227 1,245
Current deferred income tax benefit (Notes 1 and 10)....... 392 872
Current portion of notes receivable (Note 4)............... 867 88
Other receivables.......................................... 8 8
------- -------
Total current assets..................................... 10,373 13,849
------- -------
Property and equipment, net of accumulated depreciation (Note
5).......................................................... 6,304 4,916
Construction in progress, net of construction deposits
received from franchisees................................... 92 163
------- -------
6,396 5,079
------- -------
Other assets:
Deferred loan costs, net of accumulated amortization of
$2,050 and $2,626, respectively (Note 1).................. 2,050 1,474
Notes receivable, net of current portion (Note 4).......... 302 352
Deferred income tax benefit (Notes 1 and 10)............... 2,372 1,438
Deposits................................................... 50 49
Accrued straight-line minimum rent receivable for subleases
to franchisees (Note 1)................................... 1,267 1,388
------- -------
6,041 4,701
------- -------
Cost in excess of fair value of net assets acquired
(goodwill), net of accumulated amortization of $3,104 and
$3,975, respectively (Note 1)............................... 31,848 30,977
------- -------
$54,658 $54,606
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-83
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable......................................... $ 376 $ 913
Sales taxes payable...................................... 105 102
Accrued interest payable................................. 2,202 2,202
Accrued expenses (Note 6)................................ 1,568 1,075
Deposits................................................. 673 727
-------- --------
Total current liabilities.............................. 4,924 5,019
-------- --------
Capital lease obligations (Note 9)......................... 62 36
-------- --------
Accrued straight-line minimum rent payable (Note 1)........ 2,113 2,164
-------- --------
Long-term debt (Note 7):
Senior secured notes..................................... 40,000 40,000
Original issue discount, net of accumulated amortization
of $102 and $131, respectively.......................... (98) (69)
Subordinated unsecured notes payable..................... 10,000 10,000
-------- --------
Total long-term debt................................... 49,902 49,931
-------- --------
Commitments and contingencies (Note 9)
Mandatorily redeemable preferred stock (Note 11):
Senior cumulative (6.00%) convertible; $1.00 par value;
10,500 shares authorized, issued and outstanding........ 12,739 13,369
Junior Class A cumulative ($50 per annum); $1.00 par
value; 2,500 shares authorized, issued and outstanding.. 2,944 3,069
Junior Class B cumulative ($50 per annum); $1.00 par
value; 750 shares authorized, issued and outstanding.... 883 921
-------- --------
Total mandatorily redeemable preferred stock........... 16,566 17,359
-------- --------
Common stock and other stockholders' deficit:
Common stock, $.01 par value; 115,000 shares authorized;
82,800 shares issued and outstanding.................... 1 1
Additional paid-in capital............................... 449 449
Excess of purchase price over predecessor basis.......... (10,164) (10,164)
Accumulated deficit...................................... (9,195) (10,189)
-------- --------
Total stockholders' deficit............................ (18,909) (19,903)
-------- --------
$ 54,658 $ 54,606
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-84
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Fifty-Two For the Fifty-Two For the Fifty-Two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Cookie and beverage
sales................ $24,719 $22,375 $18,854
Batter sales to
franchisees.......... 10,104 11,270 12,214
Franchise royalties... 4,289 4,729 5,267
Franchise license
fees--existing and
new stores........... 521 675 503
Other, net............ 115 66 139
------- ------- -------
Total revenue....... 39,748 39,115 36,977
------- ------- -------
Operating expenses:
Cost of sales......... 19,523 18,615 17,056
Retail store
occupancy............ 7,379 7,055 5,737
Other retail store
expenses............. 1,316 1,019 870
Selling, general and
administrative
expenses............. 7,309 7,619 7,220
Management fee expense
(Note 14)............ 250 250 250
------- ------- -------
Total operating
expenses........... 35,777 34,558 31,133
------- ------- -------
Income from operations.. 3,971 4,557 5,844
------- ------- -------
Other (income) expenses,
net:
Interest income....... (56) (251) (346)
Interest expense...... 5,646 5,634 5,635
Amortization of
deferred loan costs.. 572 586 576
Gain on sale of
existing stores...... (636) (927) (370)
------- ------- -------
Total other
expenses, net...... 5,526 5,042 5,495
------- ------- -------
Income (loss)
before income
taxes............ (1,555) (485) 349
State and federal income
tax expense (benefit)
(Note 10).............. (194) 261 551
------- ------- -------
Net loss.......... $(1,361) $ (746) $ (202)
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statement are an integral part
to these statements.
F-85
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Excess of
Purchase
Common Stock Additional Price Over Total
------------- Paid-in Predecessor Accumulated Stockholders'
Shares Amount Capital Basis Deficit Deficit
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 29,
1995................... 82,800 $ 1 $449 $(10,164) $ (5,503) $(15,217)
Net loss for the
fifty-two week period
ended June 30, 1996.. -- -- -- -- (1,361) (1,361)
Redeemable preferred
stock accretion...... -- -- -- -- (792) (792)
------ ---- ---- -------- -------- --------
Balance at June 30,
1996................... 82,800 1 449 (10,164) (7,656) (17,370)
Net loss for the
fifty-two week period
ended June 29, 1997.. -- -- -- -- (746) (746)
Redeemable preferred
stock accretion...... -- -- -- -- (793) (793)
------ ---- ---- -------- -------- --------
Balance at June 29,
1997................... 82,800 1 449 (10,164) (9,195) (18,909)
Net loss for the
fifty-two week period
ended June 28, 1998.. -- -- -- -- (202) (202)
Redeemable preferred
stock accretion...... -- -- -- -- (792) (792)
------ ---- ---- -------- -------- --------
Balance at June 28,
1998................... 82,800 $ 1 $449 $(10,164) $(10,189) $(19,903)
====== ==== ==== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-86
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Fifty- For the Fifty- For the Fifty-
Two Week Two Week Two Week
Period Ended Period Ended Period Ended
June 30, 1996 June 29, 1997 June 28, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(1,361) $ (746) $ (202)
Adjustments to reconcile net loss
to net cash provided by (used
for) operating activities:
Depreciation..................... 1,854 1,940 1,604
Amortization of cost in excess of
fair value of net assets
acquired (goodwill)............. 870 871 871
Amortization of deferred loan
costs........................... 572 586 576
Amortization of original issue
discount........................ 29 29 29
Net gain on sales and disposals
of property, equipment and
inventory....................... (402) (550) (247)
Net (decrease) increase in
accrued straight-line minimum
rent receivable and payable..... 86 (29) (70)
Changes in assets and
liabilities:
Decrease (increase) in accounts
receivable.................... (550) (195) (340)
Decrease (increase) in
inventory..................... (140) 95 80
Decrease (increase) in prepaid
expenses...................... (100) (52) (18)
Decrease (increase) in current
deferred tax benefit.......... (50) (195) (480)
Decrease (increase) in other
receivables................... 165 56 --
Decrease (increase) in deferred
tax benefit................... (186) 348 934
Decrease (increase) in other
assets........................ (7) 11 1
Increase (decrease) in accounts
payable....................... (462) (456) 538
Increase (decrease) in sales
taxes payable................. 2 (25) (3)
Increase (decrease) in accrued
interest payable.............. -- (3) --
Increase (decrease) in accrued
expenses...................... (913) 172 (493)
Increase (decrease) in
deposits...................... (22) (66) 54
------- ------- -------
Net cash provided by (used
for) operating activities.... (615) 1,791 2,834
------- ------- -------
Cash flows from investing
activities:
Acquisitions of property and
equipment, including net
increase in construction in
progress, net of construction
deposits received from
franchisees..................... (1,913) (1,084) (1,263)
Proceeds from sales and disposals
of property and equipment....... 1,146 453 1,005
Proceeds from collection of notes
receivable...................... 448 474 947
------- ------- -------
Net cash provided by (used
for) investing activities.... (319) (157) 689
------- ------- -------
Cash flows from financing
activities:
Payments of deferred loan costs.. -- (27) --
Principal repayments under
capital lease obligations....... (15) (25) (26)
------- ------- -------
Net cash used for financing
activities................... (15) (52) (26)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents during
period........................... (949) 1,582 3,497
Cash and cash equivalents,
beginning of period.............. 4,252 3,303 4,885
------- ------- -------
Cash and cash equivalents, end of
period........................... $ 3,303 $ 4,885 $ 8,382
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-87
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
For the Fifty- For the Fifty- For the Fifty-
Two Week Two Week Two Week
Period Ended Period Ended Period Ended
June 30, 1996 June 29, 1997 June 28, 1998
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash paid for:
Interest......................... $5,617 $5,609 $5,606
State and federal income taxes... $ 119 $ 91 $ 286
</TABLE>
Cash paid for state and federal income taxes represents payments made to
government authorities during the periods presented.
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the fifty-two weeks ended June 30, 1996, June 29,1997 and June 28,
1998, the Company recorded accretion on mandatorily redeemable preferred stock
totaling $792,000, $793,000 and $793,000, respectively.
During the fifty-two weeks ended June 30, 1996, the Company exchanged
accounts receivable from unrelated franchisees totaling $156,000 for fixtures
and equipment and leasehold improvements representing retail cookie stores
previously licensed by franchisees.
During the fifty-two weeks ended June 30, 1996, notes receivable with face
amounts totaling $296,000 were received from unrelated franchisees in
connection with the sale of two Company-operated stores.
During the fifty-two weeks ended June 29, 1997, notes receivable with face
amounts totaling $1,353,000 were received from unrelated franchisees in
connection with the sale of eight Company-operated stores.
During the fifty-two weeks ended June 29, 1997, the Company exchanged
accounts receivable from unrelated franchisees totaling $91,000 for fixtures
and equipment and leasehold improvements representing retail cookie stores
previously licensed by the franchisees.
During the fifty-two weeks ended June 28, 1998, notes receivable with face
amounts totaling $217,000 were received from unrelated franchisees in
connection with the sale of five Company-operated stores.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-88
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Cookies USA, Inc. ("Cookies USA") was incorporated in December 1993 and was
formed by the Jordan Company to acquire 100% of the common stock of The
Original Great American Chocolate Chip Cookie Company, Inc. ("Great American
Cookies"). Great American Cookies is in the business of franchising cookie
stores and manufacturing cookie batter which is sold to Company-operated and
franchised retail stores. The financial statements include the consolidated
accounts of Cookies USA and Great American Cookies (the "Company").
On December 10, 1993, Cookies USA acquired Great American Cookies in several
transactions. Immediately following the acquisition, Great American Cookies
changed its name from The Original Great American Chocolate Chip Cookie
Company, Inc. to Great American Cookie Company, Inc. Due to the 22% interest
retained by the selling stockholders of Great American Cookies via their common
and convertible preferred stock interest in Cookies USA, the excess of purchase
price over predecessor basis as reflected in the stockholders' deficit section
of the accompanying consolidated balance sheets represents the limitation on
the write-up of the assets acquired.
The Company's business follows seasonal trends and experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
significantly dependent on the performance of those malls.
Consolidation
The consolidated financial statements include the accounts of Cookies USA and
its subsidiary, Great American Cookies. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Accounting Periods
During the fiscal year ended June 30, 1996, the Company changed its year end
from the last Thursday in the month of June to the last Sunday in the month of
June. As a result, three days were added to the fifty-two week period ended
Thursday, June 27, 1996 to effectively change the Company's fiscal year end to
Sunday, June 30, 1996. This change does not materially impact the comparability
of the years presented in these financial statements.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value at the
respective balance sheet dates due to the relatively short period to maturity
of these instruments. The long-term notes payable with fixed interest rates are
recorded at face values of $50.0 million at June 29, 1997 and June 28, 1998;
however, the fair values of such long-term notes, based on quoted market
values, are approximately $50.5 million and $51.4 million at June 29, 1997 and
June 28, 1998, respectively.
F-89
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenues from the Company-operated stores are recognized in the period the
related cookies and beverages are sold. Revenues from the sale of batter are
recognized at the time of shipment. Franchise royalties, which are based on a
percentage of franchised store sales, are recognized in the same period related
franchise store revenues are generated. Franchise license fee revenues are
recognized at the time that all Company obligations regarding the franchise
sale have been met. Fees received under development agreements which grant the
right to develop franchised units in future periods in specific geographic
areas are deferred and recognized as income on a pro rata basis as the
Company's obligations regarding the franchised units subject to the development
agreements are met.
Cash Equivalents
The Company considers all highly liquid, short-term investments with original
maturities of three months or less to be cash equivalents. Cash equivalents at
June 29, 1997 and June 28, 1998 consist of short-term commercial paper. These
investments are stated at cost, which approximates market.
Inventories
Inventories of cookie and brownie products, beverage products, paper and
supplies and smallwares are stated at the lower of cost or market with cost
determined based on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are expensed in the year incurred, while renewals and betterments
that materially extend the life of an asset are capitalized. The cost of assets
sold, retired, or otherwise disposed, and the related accumulated depreciation,
are eliminated from the accounts, and any resulting gain or loss is recognized
in the statement of operations.
Depreciation is provided using straight-line and accelerated methods over the
estimated lives of the assets which are as follows:
<TABLE>
<S> <C>
Building................ 20 years
Furniture, fixtures and
equipment.............. 3-7 years
Building and leasehold
improvements........... Lesser of 8 years or the life of the related lease
</TABLE>
During fiscal year 1996, the Company revised its estimate of the useful life
of certain leasehold improvements. The Company began amortizing leasehold
improvements using accelerated methods over an average of eight years instead
of using the straight-line method over an average of ten years. The effect of
this change in estimate was to increase fiscal year 1996 pre-tax loss by
$214,000.
During fiscal year 1998, the Company revised its estimate of the useful life
of certain computer equipment from five to three years. The effect of this
change in estimate was to decrease fiscal 1998 pre-tax income by $111,000.
Store Opening and Closing Costs
Non-capital expenditures incurred in opening new stores or remodeling
existing stores are expensed in the year incurred. When a store is closed, the
store's unamortized investment in leasehold improvements and fixtures and
equipment is recorded as a loss on store closing.
F-90
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Loan Costs
Debt issue costs of approximately $4.0 million were incurred in connection
with the issuance of the 10.875% senior secured notes payable due 2001 (see
Note 7). Deferred loan costs are being amortized over the life of the related
notes (85 months), with annual charges to income of approximately $576,000.
Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)
Cost in excess of fair value of net assets acquired (goodwill) is being
amortized over a forty-year period, with annual charges to income of
approximately $870,000.
The carrying value of goodwill is periodically evaluated for indications of
possible impairment. The review is based on comparing the carrying amount to
the undiscounted estimated cash flows from continuing operations over the
remaining amortization period.
Operating Leases
The Company has various operating lease commitments on both Company-operated
and franchised store locations and equipment. Operating leases with escalating
payment terms, including those subleased to franchisees, are recorded on a
straight-line basis over the life of the related lease.
Original Issue Discount
The Company has issued warrants to the holders of the senior secured notes.
The value of the warrants has been accounted for as an original issue discount
and is being amortized over the life of the related notes (85 months), with
annual charges to income of approximately $29,000.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Concurrent with the acquisition and its termination of the S Corporation
status (see Note 10), the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). In accordance
with the provisions of SFAS 109, deferred income taxes are determined based on
the estimated future tax effects of differences between the financial statement
and tax basis of assets and liabilities given the provisions of the enacted tax
laws.
Earnings Per Share
Earnings per share is not presented, as the Company is a non-public entity
that is closely held.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
F-91
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Raw ingredients...................................... $ 237,000 $ 279,000
Batter, including retail stores...................... 368,000 254,000
Beverage syrup....................................... 56,000 43,000
Paper goods and packaging supplies................... 168,000 149,000
Purchased icing and decorative toppings held for
resale.............................................. 52,000 57,000
Equipment held for resale............................ 75,000 43,000
Marketing and miscellaneous supplies held for
resale.............................................. 336,000 387,000
---------- ----------
$1,292,000 $1,212,000
========== ==========
</TABLE>
3. PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Rent................................................... $1,158,000 $1,178,000
Other.................................................. 69,000 67,000
---------- ----------
$1,227,000 $1,245,000
========== ==========
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- --------
<S> <C> <C>
Notes receivable....................................... $1,169,000 $440,000
Less current portion................................... (867,000) (88,000)
---------- --------
Notes receivable, net of current portion............... $ 302,000 $352,000
========== ========
</TABLE>
Notes receivable are due from various franchisees and principally result from
the sale of existing Company-operated stores to franchisees. Each note is
guaranteed by the purchaser and collateralized by the assets sold. Short-term
notes generally carry an interest rate of 15% per annum and are intended to
serve as interim financing until the franchisee can secure long-term financing
from a third-party lender. Notes classified as non-current are generally due in
monthly installments of principal and interest, with the interest rates ranging
from between 9% and 12.5% per annum. The total maturities of the notes
receivable are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending June
1999................................................................. $ 88,000
2000................................................................. 140,000
2001................................................................. 94,000
2002................................................................. 41,000
2003................................................................. 8,000
Thereafter........................................................... 69,000
--------
$440,000
========
</TABLE>
F-92
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
Land................................................ $ 240,000 $ 240,000
Building............................................ 761,000 761,000
Building and leasehold improvements................. 6,829,000 6,189,000
Furniture, fixtures and equipment................... 3,228,000 3,067,000
----------- -----------
11,058,000 10,257,000
Less accumulated depreciation....................... (4,754,000) (5,341,000)
----------- -----------
Property and equipment, net......................... $ 6,304,000 $ 4,916,000
=========== ===========
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
Employee compensation including payroll taxes....... $ 379,000 $ 388,000
Bonuses payable..................................... 480,000 475,000
Construction expenses............................... 15,000 --
Professional fees................................... 293,000 88,000
Management fees..................................... 188,000 62,000
Other............................................... 213,000 62,000
----------- -----------
$ 1,568,000 $ 1,075,000
=========== ===========
7. LONG-TERM DEBT
Notes payable at June 29, 1997 and June 28, 1998 are described as follows:
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
10.875% senior secured notes payable due January
15, 2001, Series B. Interest accrues daily and is
payable semi-annually on January 15 and July 15.
(The notes are secured by certain tangible and
intangible assets, including, but not limited to,
the equipment constituting Great American
Cookies' batter production facility, the capital
stock of all current and future subsidiaries of
Great American Cookies, intellectual property
rights and other intangible assets of Great
American Cookies)................................ $40,000,000 $40,000,000
Original issue discount related to the issuance of
7,200 detachable warrants with the 10.875% senior
secured notes.................................... (98,000) (69,000)
12.5% subordinated unsecured note payable due
October 31, 2003 with initial annual prepayment
thereof due October 31, 2001. Interest accrues
daily and is payable semi-annually on April 30
and October 31................................... 10,000,000 10,000,000
----------- -----------
$49,902,000 $49,931,000
=========== ===========
</TABLE>
F-93
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The $10 million of subordinated notes issued by Cookies USA have principal
payments due as follows: $2.5 million due October 31, 2001; $2.5 million due
October 31, 2002; and $5.0 million due October 31, 2003. As Great American
Cookies is the sole operating unit of the consolidated entity, Great American
Cookies is the sole source of any cash to be paid by Cookies USA as interest
and principal payment on such debt. Such payments will be made primarily via
dividends to Cookies USA. Such dividends are subject to certain covenants
provided for under the senior secured notes (see Note 11).
Great American Cookies is subject to certain covenants provided for under the
indenture including limitations on restricted payments, incurrence of
indebtedness and issuances of preferred stock, asset sales, granting of liens,
restrictions on subsidiary dividends, mergers, consolidations, sale of assets,
and on transactions with affiliates, various reporting requirements to the
holders of the senior secured notes and the Securities and Exchange Commission
and maintenance of a fixed charge coverage ratio. If a violation of a covenant
occurs, the holders of at least 25% in principal amount of the then outstanding
senior secured notes may declare all outstanding senior secured notes to be due
and payable immediately (see Note 11).
Upon the occurrence of a change of control as defined in the note agreements,
the Company will be required to (i) offer to repurchase all of the 10.875%
senior secured notes then outstanding at a purchase price equal to 101% of the
total principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase and (ii) repurchase the 12.5% subordinated notes at par plus
accrued and unpaid interest, if any, to the date of repurchase.
8. 401(K) PROFIT-SHARING PLAN
The Company provides a defined contribution profit-sharing plan (the "Plan")
for all employees meeting certain requirements. On February 14, 1997, the
Company amended the Plan to include a pre-tax savings provision in accordance
with Section 401(k) of the Internal Revenue Code.
Under the Plan, eligible employees may contribute as much as 15% of
compensation up to the federal statutory limit, with the Company matching 25%
of the first 6% of compensation contributed by the employee. The Company's
matching portion of the Plan contributions resulted in expense of $9,000 and
$39,000 in fiscal years 1997 and 1998, respectively. During fiscal year 1996,
no amounts were expensed for profit-sharing plan contributions.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has various operating lease commitments on both Company-operated
and franchised store locations. These leases generally contain escalating
rental payments and various provisions for contingent rental payments based on
sales volume. Future minimum lease payments, including scheduled escalating
rental payments, as of June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Subleases to
Leases Franchises Net
----------- ------------ -----------
<S> <C> <C> <C>
Fiscal Year Ending June
1999.................................. $ 9,796,000 $ 7,071,000 $ 2,725,000
2000.................................. 8,797,000 6,369,000 2,428,000
2001.................................. 7,586,000 5,589,000 1,997,000
2002.................................. 6,540,000 4,747,000 1,793,000
2003.................................. 5,368,000 3,909,000 1,459,000
Thereafter............................ 9,737,000 7,331,000 2,406,000
----------- ----------- -----------
$47,824,000 $35,016,000 $12,808,000
=========== =========== ===========
</TABLE>
F-94
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operating leases with escalating payment terms, including those subleased to
franchisees, are expensed on a straight-line basis over the life of the related
lease.
For the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, gross rent expense (including mall pass-through charges) was
approximately $13,332,000, $14,135,000 and $13,593,000, respectively, while
sublease income (including mall pass-through charges) was approximately
$9,628,000, $10,533,000 and $10,571,000, respectively.
Capital Leases
The Company leases various office equipment under capital lease agreements
expiring on various dates through 2000. The Company's total future obligation
under these agreements, net of interest expense, is $62,000 as of June 29, 1997
and $36,000 as of June 28, 1998.
Lease Guarantees
In connection with the sale of existing Company-operated stores to
franchisees, the Company has guaranteed certain lease renewals to the
prospective franchisee. If such leases are not obtained, then predetermined
payments shall be made to the franchisees as follows:
<TABLE>
<CAPTION>
Number
of
Lease Amount of
Renewals Guarantee
-------- ---------
<S> <C> <C>
Fiscal Year of Lease Expiration
1999.................................................... 1 $ 75,000
2000.................................................... 1 24,000
2001.................................................... -- --
2002.................................................... 1 60,000
-- --------
$159,000
========
</TABLE>
As of June 28, 1998, the Company has not recorded any liability with respect
to these guarantees as these amounts represent loss contingencies which
management believes are not probable.
Purchase Commitments
The Company is committed to purchase certain raw materials from various
suppliers over the next year at fixed prices. As of June 28, 1998, such
purchase commitments totaled approximately $1,750,000.
Employment Agreements
On December 10, 1993, the Company entered into annual renewable employment
agreements with the founders of Great American Cookies ("Founders"), who are
also directors of the Company. Under these employment agreements, each Founder
receives a salary of $150,000 and a payment in connection with an agreement not
to compete of $100,000 per year. Additionally, whether employed or not, each
Founder is also entitled to receive an annual $100,000 bonus if Great American
Cookies advances funds to Cookies USA to permit Cookies USA to pay interest on
its subordinated notes. The Company's employment of the two Founders ended on
December 7, 1995 and December 9, 1996. Under the above agreements, the Company
made total payments to the Founders of $564,000, $285,000 and $200,000, during
the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28,
1998, respectively. As of June 30, 1996, June 29, 1997 and June 28, 1998,
$200,000 was due to the Founders and included in accrued liabilities in the
accompanying consolidated balance sheets.
F-95
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has entered into employment agreements with its Executive Vice
President of Development, Vice President of Operations and Director of
Production with terms of one to two years. The agreements are for an total
annual base salary of $355,000. The agreements have customary provisions for
benefits and noncompetition.
Incentive and Severance Agreements
In connection with the Company's negotiations (see Note 15) with Mrs. Fields'
Original Cookies, Inc. ("Mrs. Fields"), the Company has entered into agreements
with a number of employees incenting them to assist with the sale process and
to stay until the closing of such sale. In addition, the Company has informed
its home office employees of the severance payments to be paid to them in the
event their employment is terminated without cause subsequent to the closing of
the proposed sale. The total amount of these incentives and severance payments,
as well as any severance payments to employees with employment agreements, is
$1,623,000. These amounts are conditional upon the closing of the sale and no
amounts will be due or paid if a sale to Mrs. Fields does not occur.
Legal
On September 22, 1997, nine Great American Cookies franchisees filed a
lawsuit against Great American Cookies and certain other parties alleging
certain anticipatory breaches of contract and violations of certain state,
franchise and unfair trade practice laws. These allegations resulted from
discussions held be Cookies USA and Mrs. Fields regarding the possibility of
Mrs Fields acquiring all of the outstanding shares of Common Stock of Cookies
USA, Inc. As of August 14, 1998, a settlement has been reached whereby the
franchisees have been granted certain rights upon the sale of the Company to
Mrs. Fields for a period of three years. In exchange, Cookies USA has been
released from further legal action.
10. INCOME TAXES
Cookies USA and Great American Cookies file consolidated federal income tax
returns. The following information has been determined based upon the
provisions of SFAS 109 for the fifty-two week periods ended June 30, 1996, June
29, 1997 and June 28, 1998.
<TABLE>
<CAPTION>
Fifty-two Fifty-two Fifty-two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Income tax (benefit) provision:
Current:
Federal......................... -- -- --
State........................... $ 48,000 $107,000 $ 97,000
--------- -------- --------
48,000 107,000 97,000
Deferred:
Federal......................... (217,000) 131,000 386,000
State........................... (25,000) 23,000 68,000
--------- -------- --------
(242,000) 154,000 454,000
--------- -------- --------
Total (benefit) provision for
income taxes................. $(194,000) $261,000 $551,000
========= ======== ========
</TABLE>
F-96
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences between income taxes at the statutory federal and state
income tax rates and the income tax expense reported in the statements of
operations for the fifty-two week periods ended June 30, 1996, June 29, 1997
and June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory tax rate....... (34.0)% 34.0% 34.0%
State income taxes, net of
federal benefit................. (4.0)% 4.0% 4.0%
Goodwill amortization and other.. 25.5 % 15.8% 119.9%
----- ---- -----
(12.5)% 53.8% 157.9%
===== ==== =====
</TABLE>
Deferred income tax assets are comprised of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Current:
NOL carryforward..................................... $ 350,000 $ 872,000
Other................................................ 42,000 --
---------- ----------
$ 392,000 $ 872,000
========== ==========
Non-current:
NOL carryforward..................................... $1,079,000 $ --
Depreciation......................................... 841,000 1,191,000
Other................................................ 452,000 247,000
---------- ----------
$2,372,000 $1,438,000
========== ==========
</TABLE>
As of June 28, 1998, the Company had net operating loss carryforwards for
income tax reporting purposes of approximately $2.2 million, which are
scheduled to expire in varying amounts in the years 2009 to 2011. The Company's
net operating loss carryforwards are limited under Section 382 of the Internal
Revenue Code regarding changes in ownership.
11. PREFERRED STOCK
In connection with Cookies USA's acquisition of Great American Cookies on
December 10, 1993, Cookies USA issued $2.5 million of Junior Class A Preferred
Stock and $750,000 of Junior Class B Preferred Stock. Additionally, Cookies USA
issued $10.5 million of Senior Preferred Stock to the Founders of Great
American Cookies in exchange for a portion of the stock of Great American
Cookies ($3.5 million) and the assets of other entities owned by the Founders
($7.0 million). As Great American Cookies is a wholly owned subsidiary of
Cookies USA and is the sole operating unit of the consolidated entity, Great
American Cookies is the sole source of any cash to be paid by Cookies USA as
dividends on such securities.
The 10,500 shares of $1.00 par Senior Preferred Stock issued by Cookies USA
on December 10, 1993 are 6% cumulative convertible shares. A share of the
Senior Preferred Stock is convertible at any time at the option of the holder
into 1.1308 shares of Cookies USA Common Stock. The holders of Senior Preferred
Stock are entitled to certain antidilution protections to maintain their
percentage of ownership in Cookies USA. Accumulated dividends on the Senior
Preferred Stock have priority over any dividends of "Junior Securities" (Junior
Class A and Class B Preferred and Common Stock), but are subordinate to any
debt payments of
F-97
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cookies USA or the Company. Such preferred shares may be redeemed at any time
for $1,000 per share plus accrued but unpaid dividends at the option of Cookies
USA; however, all such shares not previously converted or redeemed shall be
redeemed by payment in cash of $1,000 per share plus accrued but unpaid
dividends on November 30, 2003. As of June 28, 1998, Cookies USA has accrued
$2,869,000 for unpaid dividends due to the holders of the Senior Preferred
Stock.
The 2,500 shares of $1.00 par Junior Class A Preferred Stock and the 750
shares of $1.00 par Junior Class B Preferred Stock issued by Cookies USA are
entitled to receive, when legally available and when declared, dividends at the
rate of $50 per share per annum. Such shares may be redeemed by Cookies USA at
any time for $1,000 per share plus all dividends accrued and unpaid; however,
all such shares not previously redeemed shall be redeemed by payment of cash of
$1,000 per share plus all accrued and unpaid dividends on the first business
day of January 2004. The Junior Class A and B Preferred Stock have no
conversion, preemptive, voting or subscription rights. As of June 28, 1998,
Cookies USA has accrued $740,000 for unpaid dividends due to the holders of the
Junior Class A and B Preferred Stock.
Great American Cookies' debt covenants related to the senior secured notes
limit the ability of Great American Cookies to pay dividends. Under the debt
covenants, as outlined in the Indenture under which the Senior Secured Notes
were issued, Great American Cookies may pay dividends if:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof,
(b) immediately after the dividend and after giving effect to it on a pro
forma basis, the Company could incur at least $1.00 of additional
indebtedness under the provisions of the debt covenants, and
(c) such dividend, together with the total of all other "Restricted
Payments" (as defined in the Indenture) made by Great American Cookies and
its subsidiaries after the date of the Indenture, is less than the sum of
(x) 50% of the Adjusted Consolidated Net Income of Great American Cookies
for the period (taken as one accounting period) from the beginning of the
first quarter commencing immediately after the date of the Indenture to the
end of Great American Cookies' most recently ended first quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Adjusted Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus (y) 100% of the total net cash
proceeds received by Great American Cookies from the issue or sale of
Equity Interest of Great American Cookies (other than Equity Interests sold
to a subsidiary of Great American Cookies and other than Disqualified
Stock) after the date of the Indenture and on or prior to the time of such
Restricted Payment, plus (z) 100% of the net cash proceeds received by
Great American Cookies from the issuance or sale, other than to a
subsidiary of Great American Cookies, of any convertible or exchangeable
debt security of Great American Cookies that has been converted or
exchanged into equity interests of Great American Cookies under the terms
thereof (other than Disqualified Stock) after the date of the Indenture and
on or prior to the time of such dividend. The foregoing limitations on
Restricted Payments do not prohibit, among other items, payments to Cookies
USA under the Tax Sharing Agreement, payments to Cookies USA to permit
payments of current interest then due on the Subordinated Debt or for any
other purpose provided that certain fixed coverage ratio tests have been
achieved, or making other Restricted Payments in the total amount not to
exceed $1.5 million.
12. STOCK OPTION AGREEMENTS, WARRANTS AND OTHER STOCKHOLDERS' AGREEMENT
As part of its acquisition of Great American Cookies, Cookies USA entered
into Non-Qualified Stock Option Agreements (the "Stock Option Agreements") with
the Founders. Under the Stock Option Agreements, each of the Founders is
granted an option to purchase 5,600 shares of common stock of Cookies USA at an
F-98
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exercise price of $2.23 per share, which expires on December 10, 2003. The
options will not be vested initially. The options will become vested at the
rate of 20% per year for each fiscal year in which certain operating cash flow
targets are achieved. Notwithstanding the foregoing, if Cookies USA's operating
cash flow targets are achieved on a cumulative basis in subsequent years, then
the options will be vested. As of June 28, 1998, none of the outstanding stock
options were vested.
If the employment with the Company of either of the Founders is terminated,
each Founder will have the right to require Cookies USA to repurchase all of
his shares of Common Stock, and all other securities of Cookies USA convertible
into, exchangeable for or entitling the holder to acquire its Common Stock, at
the appraised fair market value thereof. The purchase price will be paid with a
subordinated note that will bear interest at 8% per annum until the fifth
anniversary of the Stockholders' Agreement dated December 10, 1993 and at the
prime rate plus 2% thereafter. The note will be secured by the Common Stock
purchased by Cookies USA and will be payable in equal installments on each of
the sixth through the tenth anniversaries of the Stockholders' Agreement. As of
June 28, 1998, the employment of both of the Founders has been terminated and
such Founders have not requested Cookies USA to repurchase their shares. At
June 29, 1997 and June 28, 1998, the fair value of these options was de
minimis.
In connection with the issuance of the 10.875% senior secured notes payable
(see Note 7), the Company issued 7,200 warrants to purchase common stock at a
purchase price of $27.78 per warrant. The warrants expire on January 15, 2001
and have an exercise price of $0.01 per share subject to anti-dilution
protection. Additionally, the warrants have certain rights related to the
purchase of shares of common stock to a third party whereby the warrant holder
may require the purchaser to purchase a determined number of warrants at the
common stock purchase price less the exercise price per warrant. If the holders
of at least 75% of the common stock agree to sell their shares to a third
party, the warrants have certain obligations whereby the warrant holders may be
required to sell their warrants for a price equal to the purchase price of the
common stock less the exercise price per warrant.
13. COMPANY AND FRANCHISED STORES
As of June 30, 1996, June 29, 1997 and June 28, 1998 there were 115, 100 and
81 Company-operated outlets and 253, 263 and 279 franchised outlets in
operation, respectively.
During the fifty-two week period ended June 30, 1996, the Company earned
initial license fees of $275,000 from the sale of 11 new in-line stores to
franchisees. Additionally, the Company earned $21,000 from license transfer,
upgrade and other fees.
During the fifty-two week period ended June 29, 1997, the Company earned
initial license fees of $300,000 from the sale of 12 new in-line stores to
franchisees. Additionally, the Company earned $75,000 from license transfer,
upgrade and other fees.
During the fifty-two week period ended June 28, 1998, the Company earned
initial license fees of $125,000 from the sale of five new in-line stores to
franchisees. Additionally, the Company earned $13,000 from license transfer,
upgrade and other fees.
14. RELATED-PARTY TRANSACTIONS
The majority shareholders of the Common Stock of Cookies, USA, Inc. are
affiliated with the holders of the $10 million of Subordinated Notes issued by
Cookies USA. The holders of the Senior Preferred Stock of Cookies USA are also
holders of some of the Common Stock of Cookies USA. The holders of the Junior
Class A and B Preferred Stock of Cookies USA are also affiliated with the
majority of the holders of the Common Stock of Cookies USA (see Note 11).
F-99
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A franchisee who owns eight franchise outlets is related to one of the
Company's directors. During the fifty-two week periods ended June 30, 1996,
June 29, 1997 and June 28, 1998, the Company had sales of batter and supplies
of approximately $497,000, $476,000 and $419,000, respectively, to this related
party. The Company also received royalty revenues of approximately $202,000,
$199,000 and $186,000 for the fifty-two week periods ended June 30, 1996, June
29, 1997 and June 28, 1998, respectively, from this franchisee. As of June 30,
1996, June 29, 1997 and June 28, 1998, this franchisee owed the Company
approximately $91,000, $34,000 and $47,000, respectively.
During the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, the Company expensed $250,000 for management services provided by TJC
Management Corp. ("TJC"), an affiliate of the majority shareholder of Cookies
USA. Under the agreement with TJC, these fees are not to exceed $300,000 per
year. Amounts due to TJC as of June 30, 1996, June 29, 1997 and June 28, 1998
were $375,000, $188,000 and $63,000, respectively, and are included in accrued
liabilities in the accompanying consolidated balance sheets.
15. SUBSEQUENT EVENTS
On August 24, 1998, Mrs. Fields, acquired 100% of the common stock,
redeemable preferred stock and subordinated indebtedness of Cookies USA, Inc.,
for an total purchase price of approximately $18.4 million, under a Securities
Purchase Agreement (the "Purchase Agreement"), dated as of August 13, 1998
among Mrs. Fields, Cookies USA, and the individuals and entities identified as
sellers therein. In addition, Mrs Fields assumed all principal and accrued
interest on the senior secured notes totaling approximately $42.4 million. Per
the terms of the Purchase Agreement, the Stock Option Agreements and all other
options and warrants, as discussed in Note 12, were cancelled. Mrs Fields also
purchased eight stored from a related party franchise, as disclosed in Note 14,
for a total purchase price of $1.75 million on September 9, 1998. The franchise
was also a holder of Cookies USA securities and a party to the Purchase
Agreement.
The foregoing summary should be read in conjunction with and is qualified by
reference to the Purchase Agreement, the stock purchase agreements between Mrs.
Fields and the holders of the capital stock of Deblan and Chocolate Chip, the
merger agreements between each of Deblan and Chocolate Chip, the Indenture, the
First Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields,
The Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, the Second
Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields, The
Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, and the Credit
Agreement, which are described as exhibits hereto.
The foregoing summary should be read in conjunction with and is qualified by
reference to the Purchase Agreement, to the stock purchase agreements between
Mrs. Fields and the holders of the capital stock of Deblan and Chocolate Chip,
and to the merger agreements between each of Deblan and Chocolate Chip and the
Company, which are described as exhibits to this report.
In connection with the contemplated acquisition of Cookies USA, the Company
commenced a tender offer on August 17, 1998 for all of the outstanding $40.0
million in total principal amount of Great American's 10 7/8% Senior Secured
Notes due 2001 (the "Notes"). On August 24, 1998, the Company purchased
approximately $33.5 million of the Notes that had been tendered through August
20, 1998 and an additional $5.4 million of the Notes that had been tendered
through August 21, 1998. All remaining Notes outstanding were tendered as of
the expiration of the tender offer at Midnight on September 14, 1998, and Mrs.
Fields accepted and paid for the approximately $1.1 million of remaining Notes
on September 16, 1998.
F-100
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Deblan Corporation
Houston, Texas
We have audited the accompanying Balance Sheets of Deblan Corporation as of
December 31, 1996 and 1997 and the related Statements of Earnings,
Shareholders' Equity and Cash Flows for the years ended December 31, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Deblan Corporation as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1995, 1996 and 1997, in conformity with
generally accepted accounting principles.
Weinstein Spira & Company, P.C.
Houston, Texas
August 17, 1998
F-101
<PAGE>
DEBLAN CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1996 1997 1998
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 399 $ 689 $ 702
Temporary investment.............................. 50 50 50
Accounts receivable:
Employees....................................... 12 10 12
Other........................................... 12 18 11
Inventory......................................... 161 145 180
Prepaid expenses.................................. 4 2 17
------ ------ ------
Total Current Assets.......................... 638 914 972
------ ------ ------
Property and Equipment:
Machinery and equipment........................... 1,173 1,269 1,339
Furniture and fixtures............................ 62 75 81
Leasehold improvements............................ 1,531 1,721 1,721
Transportation equipment.......................... 21 80 55
------ ------ ------
2,787 3,145 3,196
Less: Accumulated depreciation and amortization... 1,319 1,417 1,520
------ ------ ------
Net Property and Equipment...................... 1,468 1,728 1,676
------ ------ ------
Deferred Federal Income Tax Asset................... 3 2 14
------ ------ ------
Goodwill, net of accumulated amortization of $7, $8
and $8, respectively............................... 13 12 12
------ ------ ------
Intangibles, net of accumulated amortization of
$317, $325 and $347, respectively.................. 275 285 263
------ ------ ------
Other Assets........................................ 185 181 181
------ ------ ------
$2,582 $3,122 $3,118
====== ====== ======
</TABLE>
See notes to financial statements.
F-102
<PAGE>
DEBLAN CORPORATION
BALANCE SHEETS--(Continued)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1996 1997 1998
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Current portion of long-term debt................. $ 278 $ 291 $ 244
Accounts payable.................................. 212 232 335
Accrued expenses.................................. 191 230 108
Accrued payroll................................... 143 190 137
Federal income tax payable........................ 95 44 44
------ ------ ------
Total Current Liabilities..................... 919 987 868
Long-Term Debt, net of current portion.............. 299 479 362
------ ------ ------
1,218 1,466 1,230
------ ------ ------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common Stock--$.10 par, 110,000 shares authorized,
97,800 shares issued and outstanding............... 10 10 10
Additional Paid-In Capital.......................... 104 104 104
Retained Earnings................................... 1,250 1,542 1,774
------ ------ ------
Total Shareholders' Equity.......................... 1,364 1,656 1,888
------ ------ ------
$2,582 $3,122 $3,118
====== ====== ======
</TABLE>
See notes to financial statements
F-103
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF EARNINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
---------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Store Sales.......................... $8,512 $8,572 $9,503 $4,342 $4,768
------ ------ ------ ------ ------
Operating Costs and Expenses
Selling and store occupancy costs.... 5,465 5,400 5,744 2,570 2,666
Food cost of sales................... 1,518 1,519 1,675 773 831
General and administrative........... 971 1,061 1,169 672 779
Depreciation and amortization........ 266 237 255 138 142
------ ------ ------ ------ ------
Total operating costs and
expenses.......................... 8,220 8,217 8,843 4,153 4,418
------ ------ ------ ------ ------
Earnings From Operations............... 292 355 660 189 350
------ ------ ------ ------ ------
Other Income (Expense)
Interest income...................... 14 19 26 10 17
Gain (loss) on disposition of
property and equipment.............. (124) 32 (147) -- (4)
Interest expense..................... (109) (79) (73) (32) (34)
Other................................ 21 13 21 22 18
------ ------ ------ ------ ------
(198) (15) (173) -- (3)
------ ------ ------ ------ ------
Earnings Before Income Tax............. 94 340 487 189 347
------ ------ ------ ------ ------
Federal and State Income Tax (Recovery)
Current.............................. 52 145 194 82 127
Deferred............................. (9) (9) 1 (10) (12)
------ ------ ------ ------ ------
43 136 195 72 115
------ ------ ------ ------ ------
Net Earnings........................... $ 51 $ 204 $ 292 $ 117 $ 232
====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-104
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1996, 1997 and
For the Six Months Ended June 30, 1998 (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1994............ 97,800 $10 $104 $ 995 $1,109
Net Earnings........................ -- -- -- 51 51
------ --- ---- ------ ------
Balance--December 31, 1995............ 97,800 10 104 1,046 1,160
Net Earnings........................ -- -- -- 204 204
------ --- ---- ------ ------
Balance--December 31, 1996............ 97,800 10 104 1,250 1,364
Net Earnings........................ -- -- -- 292 292
------ --- ---- ------ ------
Balance--December 31, 1997............ 97,800 10 104 1,542 1,656
Net Earnings (unaudited)............ -- -- -- 232 232
------ --- ---- ------ ------
Balance--June 30, 1998 (unaudited).... 97,800 $10 $104 $1,774 $1,888
====== === ==== ====== ======
</TABLE>
See notes to financial statements.
F-105
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Cash received from customers and
employees...................... $ 8,506 $ 8,563 $ 9,500 $ 4,348 $ 4,773
Cash paid to vendors and
employees...................... (7,777) (8,146) (8,442) (4,082) (4,389)
Interest paid................... (109) (79) (73) (32) (34)
Income tax paid................. (100) (9) (245) (165) (127)
Interest received............... 14 19 26 10 17
Other income received........... 21 13 21 22 18
------- ------- ------- ------- -------
Net Cash Provided by Operating
Activities................... 555 361 787 101 258
------- ------- ------- ------- -------
Cash Flows From Investing
Activities:
Purchase of property and
equipment...................... (282) (203) (685) (348) (78)
Purchase of license agreement... -- (59) (75) (50) --
Payment of store start-up
costs.......................... (5) (13) (36) (21) --
Purchase of additional cash
value of life insurance........ (18) (13) (19) (9) (9)
Proceeds from sale of property
and equipment.................. -- 226 125 -- 6
------- ------- ------- ------- -------
Net Cash Used in Investing
Activities................... (305) (62) (690) (428) (81)
------- ------- ------- ------- -------
Cash Flows From Financing
Activities:
Proceeds from long-term
financing...................... 228 -- 482 284 --
Payment of debt................. (323) (306) (289) (147) (164)
------- ------- ------- ------- -------
Net Cash Provided by (Used in)
Financing Activities......... (95) (306) 193 137 (164)
------- ------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents............. 155 (7) 290 (190) 13
Cash and Cash Equivalents--
Beginning of Period.............. 251 406 399 399 689
------- ------- ------- ------- -------
Cash and Cash Equivalents--End of
Period........................... $ 406 $ 399 $ 689 $ 209 $ 702
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-106
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
----------------- -------------
1995 1996 1997 1997 1998
---- ----- ---- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings............................... $ 51 $ 204 $292 $ 117 $ 232
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization............ 266 237 255 138 142
(Gain) Loss on disposition of property
and equipment........................... 124 (32) 147 -- 4
Deferred taxes (recovery)................ (9) (9) 1 (10) (12)
(Increase) Decrease in:
Accounts receivable.................... (5) (9) (4) 6 5
Inventory.............................. 25 (16) 16 (16) (35)
Prepaid expenses....................... (2) 5 2 (11) (15)
Prepaid federal income tax............. (41) 41 -- -- --
Deposits............................... 4 9 23 7 9
Accounts payable....................... 66 (109) 20 37 103
Accrued expenses....................... 84 (55) 86 (82) (175)
Federal income tax payable............. (8) 95 (51) (85) --
---- ----- ---- ----- ------
Net Cash Provided by Operating
Activities.......................... $555 $ 361 $787 $ 101 $ 258
==== ===== ==== ===== ======
</TABLE>
See notes to financial statements.
F-107
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
1. ACCOUNTING POLICIES
Doing business as The Great American Chocolate Chip Cookie Company, the
Company operated twenty-three franchise locations at December 31, 1995, 1996
and 1997 and June 30, 1998, in various Texas, Louisiana, Colorado and Florida
shopping malls. The Company maintains its accounts on the accrual method of
accounting in accordance with generally accepted accounting principles.
Accounting principles followed by the Company and the methods of applying those
principles which materially affect the determination of financial position,
results of operations and cash flows are summarized below:
Revenue Recognition
Revenue is recognized at the time sales are made.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. At all balance sheet dates, the
Company had deposits in excess of federally insured limits.
Inventory
Inventory consists of packaging materials, beverages and baking ingredients
for use in the ordinary course of business. All inventory is valued at the
lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line and accelerated methods over the following estimated useful
lives:
<TABLE>
<S> <C>
Machinery and equipment.......... 5-7 years
Furniture and fixtures........... 5-7 years
Leasehold improvements........... 10-20 years
Transportation equipment......... 5 years
</TABLE>
Temporary Investment
Temporary investment includes certificates of deposit with an original
maturity of greater than three months.
Federal and State Income Tax
Federal and state income tax is provided at current prevailing rates.
The Company records deferred tax liabilities and assets for the anticipated
future tax effects of temporary differences that arise as a result of
differences in the carrying amounts and tax bases of assets and liabilities.
Licenses
Fees paid in connection with obtaining operating licenses are amortized over
the life of the license, ranging from 60 months to 360 months.
F-108
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
Intangibles
Intangibles consist of organization and store start-up costs which are
amortized over a 60-month period, and store license fees which are amortized
over periods ranging from 60 months to 360 months. In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5 which requires store start-up expenses to be expensed as incurred. This
SOP is effective for financial statements for fiscal years beginning after
December 15, 1998.
Goodwill
Goodwill represents the excess of cost over book value of assets acquired.
The Company amortizes goodwill using the straight-line method over twenty
years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1997 and 1998, presented in this prospectus,
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the Company's financial position,
results of operations, shareholders' equity and cash flows for the interim
period. The results of operations and cash flows for the six months ended June
30, 1997 and 1998 are not necessarily indicative of the results which would be
expected for a full year.
Long-Lived Assets
The Company assesses and measures for impairment of all long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether the assets are recoverable. The Company assesses impairment
of long-lived assets at the store level which the Company believes is the
lowest level for which there are identifiable cash flows that are independent
of other groups of assets. As of December 31, 1996, December 31, 1997 and June
30, 1998, the Company does not consider any of its long-lived assets to be
impaired.
Fair Value of Financial Instruments
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
F-109
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
Recent Accounting Pronouncements
The Company has not yet adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income." The Statement will be effective for
the fiscal year 1998. It establishes standards for reporting and displaying of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required.
The Company has not yet adopted Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
The Statement will be effective for the fiscal year 1998. It establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. In the initial year of application,
comparative information for earlier years is to be restated.
The Company believes that adoption of these Statements will not have a
material impact on its financial condition, results of operations or cash
flows.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements to conform with the presentation as of June 30, 1998.
2. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------ June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
License fees (net of accumulated amortization of
$263, $270 and $285, respectively).................. $243 $237 $222
Organization and store start-up costs (net of
accumulated amortization of $54, $55 and $62,
respectively)....................................... 32 48 41
---- ---- ----
$275 $285 $263
==== ==== ====
3. OTHER ASSETS
Other assets consist of the following (in thousands):
<CAPTION>
December 31,
------------ June 30,
1996 1997 1998
------ ----- -----------
(Unaudited)
<S> <C> <C> <C>
Cash value of officer's life insurance............... $ 82 $101 $110
Deposits............................................. 103 80 71
---- ---- ----
$185 $181 $181
==== ==== ====
</TABLE>
F-110
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
4. FEDERAL INCOME TAXES
Differences between the effective tax rate and the statutory federal tax rate
are as follows (in thousands):
<TABLE>
<CAPTION>
For the Six
For the Year Months
Ended Ended
December 31, June 30,
---------------- --------------
1995 1996 1997 1997 1998
---- ---- ---- ----- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax expense at the
statutory rate........................... $32 $116 $166 $ 64 $ 118
Increase (Decrease) in:
State income taxes, net of income tax
benefit.................................. 6 4 5 2 1
Officer's life insurance and other
nondeductible expenses................... 17 20 23 7 4
Surtax exemption.......................... (12)
Other..................................... -- (4) 1 (1) (8)
--- ---- ---- ----- ------
$43 $136 $195 $ 72 $ 115
=== ==== ==== ===== ======
</TABLE>
The net deferred federal income tax asset results from differences in
depreciation between tax reporting and financial statement reporting, as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------ June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Accumulated depreciation.............................. $ 3 $ 2 $ 14
==== ==== ====
</TABLE>
5. NOTES PAYABLE
Notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------ June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable--bank, bearing interest at bank prime
plus 1%, secured by certificate of deposit,
equipment, leasehold improvements, assignment of life
insurance, common stock and guaranty of majority
shareholder, due in total monthly installments of
$6.6, including interest, maturing in 1998........... $ 98 $ 27 $--
Notes payable--bank, bearing interest at bank prime
plus .5%, secured by certificate of deposit,
equipment, leasehold improvements, assignment of life
insurance, common stock and guaranty of majority
shareholder, due in total monthly installments of
$26.5, including interest, maturing in various years
through 2002......................................... 465 686 561
Notes payable--bearing interest at 8.5% to 8.6%,
secured by transportation equipment, due in total
monthly installments of $1.8, including interest,
maturing in various years through 2002............... 14 57 45
---- ---- ----
577 770 606
Less: Current maturities.............................. 278 291 244
---- ---- ----
$299 $479 $362
==== ==== ====
</TABLE>
F-111
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
The following is a schedule of future minimum principal payments on debt (in
thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31, Amount
-------------------------------- ------
<S> <C>
1998.................................................................. $291
1999.................................................................. 210
2000.................................................................. 113
2001.................................................................. 124
2002.................................................................. 32
----
$770
====
</TABLE>
In connection with the notes payable-bank, the Company has entered into a
loan agreement which contains certain restrictive covenants, including
maintenance of certain financial ratios, and limitations on borrowings, capital
expenditures, loans, sale of assets, dividend payments and executive
compensation. At December 31, 1996, December 31, 1997 and June 30, 1998, the
Company was in compliance with the covenants or had obtained waivers for those
covenants for the succeeding 12 months for which it was not in compliance.
6. OPERATING LEASES
The Company leases facilities at various locations from unrelated third
parties. The facility leases expire in years ranging from 1998 through 2005.
Rent expense is composed of the following items (in thousands):
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
-------------------- ------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Facilities.................................. $ 997 $ 908 $ 953 $ 478 $ 478
Equipment................................... 20 18 8 5 2
Contingent rents............................ 78 101 162 54 54
------ ------ ------ ----- -----
$1,095 $1,027 $1,123 $ 537 $ 534
====== ====== ====== ===== =====
</TABLE>
The following is a schedule of future minimum rental payments (in thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31, Facilities Equipment Total
-------------------------------- ---------- --------- ------
<S> <C> <C> <C>
1998............................................ $ 805 $ 2 $ 807
1999............................................ 726 -- 726
2000............................................ 624 -- 624
2001............................................ 529 -- 529
2002............................................ 477 -- 477
Thereafter...................................... 1,305 -- 1,305
------ --- ------
$4,466 $ 2 $4,468
====== === ======
</TABLE>
F-112
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
7. PROFIT SHARING PLAN
The Company has a profit sharing plan under Section 401(k) of the Internal
Revenue Code for all eligible employees. All eligible employees are permitted
to defer compensation up to the maximum percentage of annual compensation
allowed by the Internal Revenue Code. The plan provides for a matching 50%
contribution and a discretionary contribution by the Company. The Company
provided contributions of $40,560, $49,974 and $77,877 for the years ended
December 31, 1995, 1996 and 1997, and $14,470 and $25,211 for the six months
ended June 30, 1997 and 1998, respectively.
8. COMMITMENTS
The Company is required to pay its franchisor seven percent of revenues as a
franchise fee.
9. CORPORATE REGISTRATION
In a corporate reorganization in February, 1997, the par value of the common
stock was changed from $1.00 to $.10, followed by a 150-to-1 stock split which
increased the number of issued shares to 97,800. Additionally, the number of
shares authorized was increased to 110,000. The financial statements presented
have been restated to reflect the stock split. Common stock was increased
$3,000, and retained earnings were reduced $3,000.
10. REDEMPTION AGREEMENT
The shareholders of the Company entered into a stock redemption agreement
with the Company in March, 1997. The following is a brief overview of the
general terms:
Upon the death of the majority shareholder, the Company is obligated to
purchase his stock (87,300 shares at December 31, 1997). The price per share
shall be the greater of the proceeds from the redemption of life insurance or
the value of the stock as stipulated by the shareholders, annually. The initial
value stipulated in March, 1997 was $22.75 per share. The Company owns and is
beneficiary of life insurance in the amount of $1,500,000 on the life of the
majority shareholder, the proceeds of which may be used toward this redemption.
Upon the death of the other shareholders, the Company is obligated to
purchase the stock at the above described stipulated value.
11. SUBSEQUENT EVENT
Subsequent to year end, the shareholders of the Company agreed to sell their
shares to Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields") subject to
certain events, including Mrs. Fields obtaining financing through a private
placement of debt securities.
F-113
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chocolate Chip Cookies of Texas, Inc.:
We have audited the accompanying balance sheets of Chocolate Chip Cookies of
Texas, Inc. (a Texas corporation) as of September 30, 1996 and 1997, and the
related statements of operations, stockholders' equity and cash flows for the
years ended September 30, 1995, 1996 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chocolate Chip Cookies of
Texas, Inc. as of September 30, 1996 and 1997, and the results of its
operations and its cash flows for the years ended September 30, 1995, 1996 and
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
July 22, 1998
F-114
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................. $ 161 $ 66 $ 173
Accounts receivable.................. -- -- 2
Inventories.......................... 21 22 34
Prepaid assets....................... 4 1 20
----- ----- -----
Total current assets............... 186 89 229
----- ----- -----
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements............... 353 494 496
Equipment and fixtures............... 150 168 168
Vehicles............................. 26 26 26
----- ----- -----
529 688 690
Less accumulated depreciation and
amortization........................ (377) (408) (435)
----- ----- -----
Net property and equipment......... 152 280 255
----- ----- -----
OTHER ASSETS:
Deposits............................. -- -- 13
Intangibles, net of accumulated
amortization of $216, $245 and $257,
respectively........................ 47 43 31
----- ----- -----
Total other assets................. 47 43 44
----- ----- -----
DEFERRED TAX ASSET..................... 2 3 1
----- ----- -----
Total assets....................... $ 387 $ 415 $ 529
===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-115
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
BALANCE SHEETS--(Continued)
(In Thousands, Except Share and Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.... $ 31 $ 33 $ --
Accounts payable..................... 73 73 50
Accrued salaries..................... 33 43 94
Accrued liabilities.................. 18 45 50
Deferred rent expense................ 22 31 34
Income taxes payable................. 12 15 57
----- ----- -----
Total current liabilities.......... 189 240 285
LONG-TERM DEBT, net of current
portion............................... 81 47 --
----- ----- -----
Total liabilities.................. 270 287 285
----- ----- -----
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 1,000,000
shares authorized and 250 shares
outstanding......................... -- -- --
Treasury stock, 750 shares at cost... (216) (216) (216)
Retained earnings.................... 333 344 460
----- ----- -----
Total stockholder's equity........... 117 128 244
----- ----- -----
Total liabilities and stockholders'
equity............................ $ 387 $ 415 $ 529
===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-116
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET STORE SALES......... $2,168 $2,321 $2,650 $1,962 $2,266
------ ------ ------ ------ ------
OPERATING COSTS:
Selling and store
occupancy costs...... 1,197 1,234 1,373 1,005 1,101
Food cost of sales.... 504 603 634 472 531
General and
administrative....... 352 363 565 424 429
Depreciation and
amortization......... 48 49 60 41 39
------ ------ ------ ------ ------
Total operating
costs and
expenses........... 2,101 2,249 2,632 1,942 2,100
------ ------ ------ ------ ------
Income from
operations......... 67 72 18 20 166
------ ------ ------ ------ ------
OTHER INCOME/(EXPENSE):
Interest expense...... (21) (11) (8) (6) (4)
Interest income....... 4 3 6 4 4
------ ------ ------ ------ ------
Income before
provision for
income taxes....... 50 64 16 18 166
PROVISION FOR INCOME
TAXES.................. 12 12 5 6 50
------ ------ ------ ------ ------
NET INCOME.............. $ 38 $ 52 $ 11 $ 12 $ 116
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-117
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Treasury
Common Stock Stock
------------- ------------- Retained
Shares Amount Shares Amount Earnings Total
------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994....... 250 $-- 750 $(216) $243 $ 27
Net income...................... -- -- -- -- 38 38
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1995....... 250 -- 750 (216) 281 65
Net income...................... -- -- -- -- 52 52
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1996....... 250 -- 750 (216) 333 117
Net income...................... -- -- -- -- 11 11
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1997....... 250 -- 750 (216) 344 128
Net income (unaudited).......... -- -- -- -- 116 116
--- ---- --- ----- ---- ----
BALANCE, JUNE 30, 1998 (unau-
dited)........................... 250 $-- 750 $(216) $460 $244
=== ==== === ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-118
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 38 $ 52 $ 11 $ 12 $116
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 48 49 60 41 39
Changes in assets and
liabilities:
Accounts receivable.. -- -- -- -- (2)
Inventories.......... (11) 9 (1) (13) (12)
Prepaid assets....... (7) 3 3 4 (19)
Deposits............. -- -- -- -- (13)
Deferred tax asset... (1) 1 (1) (2) 2
Accounts payable..... -- (10) -- 4 (23)
Income taxes
payable............. (20) 7 3 4 42
Accrued liabilities,
salaries and
deferred rent
expense............. 28 4 46 121 59
----- ---- ----- ---- ----
Net cash provided by
operating
Activities......... 75 115 121 171 189
----- ---- ----- ---- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of property
and equipment......... (143) (10) (159) (69) (2)
Amounts paid for non-
compete agreements.... (63) -- -- -- --
Amounts paid for
franchise agreements.. (25) -- (25) (26) --
----- ---- ----- ---- ----
Net cash used in
investing
activities......... (231) (10) (184) (95) (2)
----- ---- ----- ---- ----
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt............... 160 -- -- -- --
Principal payments on
debt.................. (21) (27) (32) (24) (80)
----- ---- ----- ---- ----
Net cash provided by
(used in) financing
activities......... 139 (27) (32) (24) (80)
----- ---- ----- ---- ----
NET (DECREASE) INCREASE
IN CASH................ (17) 78 (95) 52 107
CASH, beginning of
period................. 100 83 161 161 66
----- ---- ----- ---- ----
CASH, end of period..... $ 83 $161 $ 66 $213 $173
===== ==== ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-119
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF CASH FLOWS--(Continued)
(In Thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was approximately $21, $11, $8, $6 (unaudited) and $4
(unaudited) for the years ended September 30, 1995, 1996 and 1997 and for the
nine months ended June 30, 1997 and 1998, respectively.
Cash paid for income taxes was approximately $17, $2, $1, $1 (unaudited) and
$1 (unaudited) for the years ended September 30, 1995, 1996 and 1997 and for
the nine months ended June 30, 1997 and 1998, respectively.
The accompanying notes to financial statements are an integral part of these
statements.
F-120
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Notes to Unaudited Periods)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Chocolate Chip Cookies of Texas, Inc. (the "Company"), a Texas corporation,
was incorporated in 1981. The Company operates retail stores which sell freshly
baked cookies and other food products. The Company's stores are franchised from
Great American Cookie Company, Inc. ("GACC"). As of June 30, 1998, the Company
owned and operated six stores, of which five are located in Texas and one in
Louisiana.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the first fiscal quarter. Because the Company's stores are all located in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls. As a franchisee of GACC, substantially all of
the Company's sales are derived from products purchased from GACC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
payable and debt instruments. The carrying value of those instruments reported
in the balance sheets are considered to estimate their respective fair values
due to the short-term nature of such instruments and the current interest rate
environment.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the FIFO (first-in, first-out) method (see Note 3).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the remaining term of the
applicable lease. The depreciable lives of equipment, fixtures and vehicles
range from five to ten years.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the
useful lives of existing equipment are capitalized and depreciated. On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
Intangibles
Intangibles primarily consist of franchise fees paid to GACC and amounts paid
for non-compete agreements between the Company and various other parties.
Intangibles are being amortized on a straight-line
F-121
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
basis over the lives of the agreements, which are generally ten years for
franchise agreements and three years for non-compete agreements.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Revenue Recognition
Revenues generated from the Company's stores are recognized at the point of
sale.
Sources of Supply
The Company currently buys a significant amount of its food products and
supplies from GACC and an unrelated supplier. In accordance with the franchise
agreement, the Company must buy its food products from GACC (see Note 6).
Management believes that the Company could obtain its supplies from numerous
other suppliers at comparable prices and terms.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether assets are recoverable. The Company assesses impairment of
long-lived assets at the store level, which the Company believes is the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets. As of June 30, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Recent Accounting Pronouncements
During the nine months ended June 30, 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
130, "Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company does not expect
that these statements will have a significant impact on its financial
statements.
Interim Financial Statements
The financial statements as of and for the nine months ended June 30, 1998,
and for the nine months ended June 30, 1997, are unaudited. In the opinion of
management, these financial statements have been presented on the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for these periods. These interim
financial statements are not necessarily indicative of the results that may be
achieved for the full fiscal year.
F-122
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
3. INVENTORIES
The Company's inventories consist of the following as of September 30, 1996
and 1997 and June 30, 1998:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Food................................. $12,000 $13,000 $23,000
Beverages............................ 3,000 3,000 4,000
Supplies............................. 6,000 6,000 7,000
------- ------- -------
$21,000 $22,000 $34,000
======= ======= =======
</TABLE>
4. LONG-TERM DEBT
As of September 30, 1996 and September 30, 1997, long-term debt consisted of
a promissory note payable to Wells Fargo Bank secured by the property and
equipment of the Company. The note was originally issued by the Company on
October 17, 1994 with a variable interest rate equal to the prime rate. As of
September 30, 1997 the interest rate on the note was 8.50%. During April 1998,
the note was paid in full.
5. INCOME TAXES
The components of the provision for income taxes for the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current............... $11,000 $11,000 $ 5,000 $ 8,000 $44,000
Deferred.............. (1,000) -- (1,000) (2,000) 2,000
State:
Current............... 2,000 1,000 1,000 -- 4,000
------- ------- ------- ------- -------
Total................... $12,000 $12,000 $ 5,000 $ 6,000 $50,000
======= ======= ======= ======= =======
</TABLE>
The differences between income taxes at the statutory income tax rate and
income taxes reported in the statements of operations are as follows for the
years ended September 30, 1995, 1996 and 1997 and the nine months ended June
30, 1997 and 1998:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate.. 15% 15% 15% 15% 30%
State franchise taxes... 4 2 6 -- 2
Other................... 5 2 10 18 (2)
--- --- --- --- ---
24% 19% 31% 33% 30%
=== === === === ===
</TABLE>
F-123
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
The significant components of the Company's deferred income tax assets and
liabilities at September 30, 1996 and 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Deferred rent expense............ $ 3,000 $ 5,000 $ 10,000
Amortization of non-compete
agreements and franchise
agreements...................... 6,000 9,000 20,000
------- -------- --------
Total deferred income tax
assets........................ 9,000 14,000 30,000
Deferred income tax liabilities:
Accumulated depreciation......... (7,000) (11,000) (29,000)
------- -------- --------
Net deferred income tax assets..... $ 2,000 $ 3,000 $ 1,000
======= ======== ========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
Related-Party Operating Leases
The Company leases retail store facilities under long-term noncancelable
operating lease agreements with remaining terms of one to nine years from GACC.
The future minimum lease payments due under these operating leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending September 30,
-------------------------
<S> <C>
1998........................................................... $ 185,000
1999........................................................... 185,000
2000........................................................... 192,000
2001........................................................... 193,000
2002........................................................... 166,000
Thereafter..................................................... 326,000
----------
$1,247,000
==========
</TABLE>
Each of these leases provides for contingent rentals based on gross revenues.
Total rental expense, which has been accounted for on a straight-line basis for
escalating leases included above, for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 and 1998 was approximately
$280,000, $299,000, $335,000, $239,000 (unaudited) and $219,000 (unaudited),
respectively.
Franchise Royalties
The Company pays GACC franchise royalties in connection with its franchise
agreements with GACC. Franchise royalties are calculated as 7% of gross
revenues (as defined in the individual agreements). During the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998, the Company incurred approximately $152,000, $163,000, $185,000, $132,000
(unaudited) and $158,000 (unaudited), respectively, for franchise royalties,
which are included as part of selling and store occupancy costs in the
accompanying statements of operations. As of September 30, 1996 and 1997 and
June 30, 1998, approximately $13,000, $15,000 and $17,000 (unaudited),
respectively, in franchise royalties were payable to GACC.
F-124
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
6. RELATED PARTY TRANSACTIONS (Continued)
Inventory
The Company, in connection with its franchise agreements with GACC, purchases
the majority of its inventories from GACC. During the years ended September 30,
1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998, the
Company purchased approximately $311,000, $348,000, $387,000, $298,000
(unaudited) and $327,000 (unaudited), respectively, in inventories from GACC.
As of September 30, 1996 and 1997 and June 30, 1998, approximately $12,000,
$14,000 and $15,000 (unaudited), respectively, were payable to GACC related to
inventory purchases.
7. SUBSEQUENT EVENT
On August 24, 1998, the Company sold 100 percent of its common stock to Mrs.
Fields' Original Cookies, Inc.
F-125
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Combined Karp Entities:
We have audited the accompanying combined balance sheets of the Combined Karp
Entities (the "Company") identified in Note 1 as of December 31, 1996 and 1997,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 1995, 1996 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Combined Karp
Entities as of December 31, 1996 and 1997, and the results of their operations
and their cash flows for the years ended December 31, 1995, 1996 and 1997 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
October 6, 1998
F-126
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1996 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................... $ 179 $ 176 $ 98
Inventories............................ 57 54 62
Prepaid assets......................... 42 34 31
------ ------ ------
Total current assets................. 278 264 191
------ ------ ------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................. 803 803 803
Equipment and fixtures................. 460 460 462
------ ------ ------
1,263 1,263 1,265
Less accumulated depreciation.......... (617) (718) (768)
------ ------ ------
Net property and equipment........... 646 545 497
------ ------ ------
OTHER ASSETS:
Deposits............................... 42 37 35
Intangibles, net of accumulated
amortization of $159, $179 and $191,
respectively.......................... 136 121 111
------ ------ ------
Total other assets................... 178 158 146
------ ------ ------
NON-CURRENT DEFERRED TAX ASSET........... 8 20 23
------ ------ ------
Total assets......................... $1,110 $ 987 $ 857
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-127
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED BALANCE SHEETS--(Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 30, December 30, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................... $ 39 $ 95 $ 63
Accrued salaries....................... 55 52 42
Accrued liabilities.................... 123 121 107
Income taxes payable................... 128 142 147
------ ------ -------
Total current liabilities............ 345 410 359
------ ------ -------
RELATED-PARTY PAYABLES................... 23 23 23
------ ------ -------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock (Note 5).................. 90 90 90
Additional paid-in capital............. 1,324 1,452 1,536
Accumulated deficit.................... (672) (988) (1,151)
------ ------ -------
Total stockholders' equity........... 742 554 475
------ ------ -------
Total liabilities and stockholders'
equity.............................. $1,110 $ 987 $ 857
====== ====== =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-128
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET STORE SALES......... $2,342 $2,445 $2,500 $1,144 $1,181
------ ------ ------ ------ ------
OPERATING COSTS:
Food cost of sales.... 614 668 683 336 339
Selling and store
occupancy costs...... 1,421 1,488 1,635 788 744
General and
administrative....... 192 199 238 101 114
Depreciation and
amortization......... 104 127 121 59 62
------ ------ ------ ------ ------
Total operating
costs.............. 2,331 2,482 2,677 1,284 1,259
------ ------ ------ ------ ------
Income (loss) from
operations......... 11 (37) (177) (140) (78)
INTEREST EXPENSE........ (54) (30) (18) (9) (7)
------ ------ ------ ------ ------
Loss before
provision for
income taxes....... (43) (67) (195) (149) (85)
PROVISION FOR INCOME
TAXES.................. (26) (19) (15) (4) (6)
------ ------ ------ ------ ------
NET LOSS................ $ (69) $ (86) $ (210) $ (153) $ (91)
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-129
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-In Capital Deficit Total
------------ --------------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994..... $90 $ 398 $ (13) $ 475
Distributions................ -- -- (137) (137)
Net loss..................... -- -- (69) (69)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1995..... 90 398 (219) 269
Distributions................ -- -- (367) (367)
Capital contributions........ -- 926 -- 926
Net loss..................... -- -- (86) (86)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1996..... 90 1,324 (672) 742
Distributions................ -- -- (106) (106)
Capital contributions........ -- 128 -- 128
Net loss..................... -- -- (210) (210)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1997..... 90 1,452 (988) 554
Distributions (unaudited).... -- -- (72) (72)
Capital contributions
(unaudited)................. -- 84 -- 84
Net loss (unaudited)......... -- -- (91) (91)
--- ------ ------- -----
BALANCE, JUNE 30, 1998
(unaudited)................... $90 $1,536 $(1,151) $ 475
=== ====== ======= =====
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-130
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (69) $ (86) $(210) $(153) $(91)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 104 127 121 59 62
Changes in assets and
liabilities:
Related-party
receivables......... (79) 143 -- -- --
Inventories.......... -- -- 3 -- (8)
Prepaid assets....... (5) 5 8 11 3
Deposits............. 1 (11) 5 5 2
Deferred taxes....... (2) (9) (12) (7) (3)
Accounts payable..... 38 (52) 56 25 (32)
Accrued salaries..... -- 17 (3) (15) (10)
Accrued liabilities.. 15 13 (2) (21) (14)
Income taxes
payable............. 13 14 14 3 5
Related-party
payables............ 69 (567) -- -- --
----- ----- ----- ----- ----
Net cash provided by
(used in) operating
activities......... 85 (406) (20) (93) (86)
----- ----- ----- ----- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of property
and equipment......... (13) (111) -- -- (2)
Acquisition of
intangibles........... 4 (20) (5) (5) (2)
Distributions.......... (137) (367) (106) (66) (72)
Additional investment.. -- 926 128 62 84
----- ----- ----- ----- ----
Net cash provided by
(used in) investing
activities......... (146) 428 17 (9) 8
----- ----- ----- ----- ----
NET INCREASE (DECREASE)
IN CASH................ (61) 22 (3) (102) (78)
CASH, beginning of
period................. 218 157 179 179 176
----- ----- ----- ----- ----
CASH, end of period..... $ 157 $ 179 $ 176 $ 77 $ 98
===== ===== ===== ===== ====
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-131
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF CASH FLOWS--(Continued)
SUPPLEMENTAL DISCLOSURE OF COMBINED CASH FLOW INFORMATION:
Cash paid for interest was approximately $40,000, $18,000, $18,000, $9,000
(unaudited) and $7,000 (unaudited) for the years ended December 31, 1995, 1996
and 1997 and for the six months ended June 30, 1997 and 1998, respectively.
Cash paid for income taxes was approximately $18,000, $10,000, $10,000,
$2,000 (unaudited) and $1,000 (unaudited) for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998,
respectively.
During the year ended December 31, 1996, related-party payables of Hot White
Plains Cookies, Inc, Hot Roosevelt Cookies, Inc. and Hot Rockaway Cookies of
approximately $364,000, $264,000 and $198,000, respectively, were forgiven and
accounted for as capital contributions to these entities.
During the year ended December 31, 1996 and December 31,1997, related party
receivables of Hot Barton and Northpark Cookies, Inc. and Northpark Cookies,
Inc. of approximately $71,000 and $0 and $120,000 and $4,000, respectively,
were distributed to stockholders.
The accompanying notes to combined financial statements
are an integral part of these statements.
F-132
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Including Notes to Unaudited Periods)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Combined Karp Entities (the "Company") established operations on the
following dates under the laws of the respective states:
<TABLE>
<CAPTION>
Structure of State of State of
Company Inception date Entity Incorporation Operation
------- ------------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
Hot Barton and Northpark
Cookies, Inc........... August 6, 1981 C-corporation Georgia New Jersey
Northpark Cookies,
Inc.................... October 5, 1981 C-corporation Iowa Iowa
Crossroads Cookies,
Inc.................... December 9, 1981 C-corporation Georgia Oklahoma
Quail Springs Cookies,
Inc.................... April 20, 1982 C-corporation Georgia Oklahoma
Westgate Cookies, Inc... August 30, 1982 S-corporation Texas Texas
Hot White Plains
Cookies, Inc........... September 23, 1992 S-corporation Georgia New York
Hot Roosevelt Cookies,
Inc.................... April 7, 1993 S-corporation Georgia New York
Hot Rockaway Cookies.... April 11, 1996 -- Florida New Jersey
</TABLE>
Northpark Cookies, Inc.'s status of incorporation became inactive as of
November 25, 1987. The successor in interest is Hot Barton and Northpark
Cookies, Inc.
The ASK & MSK Family Limited Partnership-II(B), Inc. (the "Partnership") was
incorporated in Florida on April 11, 1996. On this date, the Partnership
acquired Hot Roosevelt Cookies, Inc. and Hot White Plains Cookies, Inc. As
these entities share common control, these acquisitions were accounted for in
a manner similar to a pooling of interests. In addition, on April 11, 1996,
the Partnership invested in the Hot Rockaway Cookies store.
The Company operates retail stores that sell freshly baked cookies and other
food products. The retail stores are franchised from Great American Cookie
Company, Inc. ("GACC").
The entities that make up the Company have various fiscal year ends which
have been recast to December 31 for purposes of these combined financial
statements. These fiscal year ends are as follows:
<TABLE>
<CAPTION>
Company Fiscal Year End
------- ---------------
<S> <C>
Hot Barton and Northpark Cookies, Inc....................... July 31
Northpark Cookies, Inc...................................... July 31
Crossroads Cookies, Inc..................................... November 30
Quail Springs Cookies, Inc.................................. November 30
Westgate Cookies, Inc....................................... December 31
Hot White Plains Cookies, Inc............................... December 31
Hot Roosevelt Cookies, Inc.................................. December 31
Hot Rockaway Cookies........................................ December 31
</TABLE>
F-133
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
The Company's business follows seasonal trends and is affected by climate and
weather conditions. The Company experiences its highest revenues in the fourth
quarter. Because the stores are located in shopping malls, sales performance is
significantly dependent on the performance of those malls. As a franchisee of
GACC, substantially all of the Entities' sales are derived from products
purchased from GACC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The individuals entities included within the combined financial statements
operate under similar ownership and common control. All significant
intercompany balances and transactions have been eliminated in the combination.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
payable and related-party payables. The carrying value of cash and accounts
payable reported in the combined balance sheets are considered to approximate
their respective fair values due to the short-term nature of such instruments
and the current interest rate environment. The fair value of related-party
payables at prevailing market rates is estimated to be $25,000 as of December
31, 1996, 1997 and June 30, 1998.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the FIFO (first-in, first-out) method (see Note 3).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the remaining term of the
applicable lease. The depreciable lives of equipment and fixtures are ten
years.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the
useful lives of existing equipment are capitalized and depreciated. On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in the statement of operations.
Intangibles
Intangibles consist primarily of franchise fees and store operating lease
costs paid to GACC. Intangibles are being amortized on a straight-line basis
over the lives of the franchise or lease agreements, which are generally ten
years.
F-134
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the combined
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial and income tax bases of assets and liabilities using enacted tax
rates expected to apply when differences are expected to be settled or
realized.
Revenue Recognition
Revenues generated from the combined stores are recognized at the point of
sale.
Sources of Supply
The Company currently buys a significant portion of their food products and
supplies from GACC and an unrelated supplier. In accordance with the franchise
agreements, the Company must buy its food products from GACC (see Note 6).
Management believes that the Company could obtain its supplies from numerous
other suppliers at comparable prices and terms.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long- Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether assets are recoverable. The Company assesses impairment of
long-lived assets at the store level, which management believes is the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets. As of June 30, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Recent Accounting Pronouncements
During the six months ended June 30, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company does not expect the
implementation of these pronouncements will have a significant impact on its
financial statements.
Interim Combined Financial Statements
The combined financial statements as of and for the six months ended June 30,
1998 and for the six months ended June 30, 1997 are unaudited. In the opinion
of management, these combined financial statements have been presented on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the combined financial position and results of operations for
these periods. These combined interim financial statements are not necessarily
indicative of the results that may be achieved for the full fiscal year.
F-135
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
3. INVENTORIES
The Company's inventories consist of the following as of December 31, 1996
and 1997 and June 30, 1998:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Food................................... $38,000 $33,000 $40,000
Beverages.............................. 5,000 6,000 7,000
Supplies............................... 14,000 15,000 15,000
------- ------- -------
$57,000 $54,000 $62,000
======= ======= =======
</TABLE>
4. INCOME TAXES
The following four entities are not included in income tax calculations due
to their status as S-corporations or as a business operated within a
partnership: Westgate Cookies, Inc., Hot White Plains Cookies, Inc., Hot
Roosevelt Cookies, Inc. and Hot Rockaway Cookies. Had these entities been
taxable entities, on a pro forma basis, an income tax provision (benefit) of
approximately $22,000, $(27,000), $16,000, $(14,000) and $15,000 would have
been provided for the years ended December 31, 1995, 1996, 1997 and the six
months ended June 30, 1997 and 1998, respectively. Income taxes were provided
for all entities with C-corporation status.
The components of the provision for income taxes for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current.... $10,000 $13,000 $ 9,000 $ 4,000 $ 3,000
Deferred... (2,000) (8,000) (12,000) (7,000) (3,000)
State:
Current.... 18,000 14,000 18,000 7,000 6,000
------- ------- -------- ------- -------
Total........ $26,000 $19,000 $ 15,000 $ 4,000 $ 6,000
======= ======= ======== ======= =======
</TABLE>
The differences between income taxes at the statutory income tax rate and
income taxes reported in the statements of operations are the result of
permanent differences.
The significant components of the Entities' deferred income tax assets and
liabilities at December 31, 1996 and 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Accumulated depreciation........... $5,000 $ 9,000 $11,000
Net operating loss carryforwards... 3,000 8,000 9,000
Capital losses in excess of capital
gains............................. -- 3,000 3,000
------ ------- -------
Net deferred income tax assets... $8,000 $20,000 $23,000
====== ======= =======
</TABLE>
F-136
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
5. STOCKHOLDERS' EQUITY
Share Data
The individual entities had the following assigned par value, authorized and
outstanding shares at December 31, 1996 and 1997, and June 30, 1998:
<TABLE>
<CAPTION>
Shares Shares
Entity Par Value Authorized Outstanding
------ --------- ---------- -----------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies, Inc. ... $0.10 1,000 200
Northpark Cookies, Inc. .................. 0.50 1,000,000 180,000
Crossroads Cookies, Inc. ................. 0.10 2,000 1,000
Quail Springs Cookies, Inc. .............. 0.10 1,000 500
Westgate Cookies, Inc. ................... 0.10 1,000 1,000
Hot White Plains Cookies, Inc. ........... 0.01 10,000 500
Hot Roosevelt Cookies, Inc. .............. 0.01 10,000 500
</TABLE>
Capital Contributions
The individual entities received the following capital contributions:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months
December 31, December 31, Ended
Entity 1996 1997 June 30, 1998
------ ------------ ------------ -------------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies,
Inc. ............................ $ -- $ 7,000 $ --
Northpark Cookies, Inc. .......... -- -- 7,000
Crossroads Cookies, Inc. ......... -- -- --
Quail Springs Cookies, Inc. ...... -- -- --
Westgate Cookies, Inc. ........... -- -- --
Hot White Plains Cookies, Inc. ... 428,000 46,000 15,000
Hot Roosevelt Cookies, Inc. ...... 300,000 27,000 12,000
Hot Rockaway Cookies.............. 198,000 48,000 50,000
-------- -------- -------
$926,000 $128,000 $84,000
======== ======== =======
</TABLE>
Distributions
The individual entities made the following distributions to stockholders:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months
December 31, December 31, Ended
Entity 1996 1997 June 30, 1998
------ ------------ ------------ -------------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies,
Inc. ............................ $ (71,000) $ -- $ --
Northpark Cookies, Inc. .......... (120,000) (4,000) --
Crossroads Cookies, Inc. ......... (24,000) (3,000) --
Quail Springs Cookies, Inc. ...... (45,000) (45,000) (30,000)
Westgate Cookies, Inc. ........... (107,000) (54,000) (42,000)
Hot White Plains Cookies, Inc. ... -- -- --
Hot Roosevelt Cookies, Inc. ...... -- -- --
Hot Rockaway Cookies.............. -- -- --
--------- --------- --------
$(367,000) $(106,000) $(72,000)
========= ========= ========
</TABLE>
F-137
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
6. RELATED-PARTY TRANSACTIONS
Related-party Operating Leases
The Company leases retail store facilities under long-term noncancelable
operating lease agreements with remaining terms of one to nine years from GACC.
The future minimum lease payments due under these operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998............................................................ $ 370,000
1999............................................................ 347,000
2000............................................................ 240,000
2001............................................................ 222,000
2002............................................................ 110,000
Thereafter...................................................... 152,000
----------
$1,441,000
==========
</TABLE>
Each of these leases provides for contingent rentals based upon gross
revenues. Total rental expense, which has been accounted for on a straight-line
basis for escalating leases included above, for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998 was
approximately $457,000, $486,000, $553,000, $276,000 (unaudited) and $225,000
(unaudited), respectively.
Franchise Royalties
The Company pays GACC franchise royalties in connection with its franchise
agreements with GACC. Franchise royalties are calculated as 7% of gross
revenues (as defined in the individual agreements). During the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and
1998, the Company incurred approximately $164,000, $165,000, $175,000, $80,000
(unaudited) and $83,000 (unaudited), respectively, for franchise royalties,
which are included as part of selling and store occupancy costs in the
accompanying combined statements of operations. As of December 31, 1996 and
1997 and June 30, 1998, approximately $21,000, $21,000 and $14,000 (unaudited),
respectively, in franchise royalties were payable to GACC.
Inventory
The Company, in connection with its franchise agreements with GACC, purchases
the majority of its inventory from GACC. During the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998, the
Company purchased approximately $372,000, $406,000, $425,000, $190,000
(unaudited) and $178,000 (unaudited), respectively, in inventory from GACC. As
of December 31, 1996 and 1997 and June 30, 1998, approximately $14,000, $24,000
and $8,000 (unaudited), respectively, were payable to GACC related to inventory
purchases.
Related-party Payables
The related-party payables of $23,000, $23,000 and $23,000 (unaudited) as of
December 31, 1996, December 31, 1997 and June 30, 1998 represent loans from
stockholders to Hot Barton and Northpark Cookies, Inc. These loans are non-
interest bearing and have no specific payment terms or maturity dates.
F-138
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
Management Fees
Each entity was responsible for paying management fees to a company owned by
a related party. For the years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998, the Entities paid approximately
$24,000, $60,000, $80,000, $40,000 (unaudited) and $40,000 (unaudited),
respectively, in management fees. As of December 31, 1996 and 1997 and June 30,
1998 approximately $5,000, $7,000 and $7,000 (unaudited), respectively, were
payable to a related party for management fees.
7. SUBSEQUENT EVENT
On July 29, 1998, the Entities entered into individual Asset Purchase
Agreements with Mrs. Fields' Original Cookies, Inc. In accordance with these
agreements, Mrs. Fields' Original Cookies, Inc. purchased the following assets
of the entities: leasehold rights and interests, tangible personal property,
such as inventories and property and equipment, certain agreements between the
sellers and GACC, customer and vendor lists, recipes and production techniques,
store petty cash, deposits and prepaid expenses. On September 9, 1998, the
agreements were completed.
F-139
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners
The Cookie Conglomerate, Inc., Cookie Conglomerate, L.L.P.,
and The Cookie Conglomerate of Carolina Place, Inc.
We have audited the accompanying combined balance sheets of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES (The Cookie Conglomerate, L.L.P. and The
Cookie Conglomerate of Carolina Place, Inc.) as of December 31, 1997 and 1996
and the related combined statements of operations, changes in equity [deficit]
and cash flows for the years then ended. These financial statements are the
responsibility of the Companies' and Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
November 12, 1998
F-140
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current assets
- --------------
Cash................................................. $ 227,385 $ 184,963
Advances............................................. 0 0
Inventories.......................................... 52,029 61,909
Prepaid expenses..................................... 26,993 33,064
----------- ----------
Total current assets................................. 306,407 279,936
----------- ----------
Property and equipment, at cost
- -------------------------------
Equipment............................................ 720,050 688,156
Fixtures............................................. 174,103 174,103
Leasehold improvements............................... 679,892 679,892
----------- ----------
1,574,045 1,542,151
Accumulated depreciation............................. (1,099,171) ( 938,942)
----------- ----------
474,874 603,209
----------- ----------
Other assets
- ------------
Deposits............................................. 34,450 34,450
Franchise costs, net of accumulated amortization of
$61,456 for 1997 and $49,122 for 1996............... 73,544 85,936
Organizational costs, net of accumulated amortization
of $4,004 for 1997 and $6,832 for 1996.............. 1,854 3,026
Intangible assets, net of accumulated amortization of
$13,394 for 1997 and $9,474 for 1996................ 45,406 49,326
Loan costs, net of accumulated amortization of $6,999
for 1997 and $1,729 for 1996........................ 4,708 9,978
----------- ----------
159,962 182,716
----------- ----------
$ 941,243 $1,065,861
=========== ==========
</TABLE>
See auditors' report and accompanying notes
F-141
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Current liabilities
- -------------------
Accounts payable....................................... $ 156,264 $ 191,219
Accrued expenses....................................... 160,482 139,164
Line-of-credit......................................... 40,000 80,000
Current portion of long-term debt...................... 155,107 176,098
--------- ----------
Total current liabilities............................. 511,853 586,481
--------- ----------
Other liabilities
- -----------------
Long-term debt, net of current portion................. 108,671 268,664
Deferred rent payable.................................. 81,998 84,182
--------- ----------
190,669 352,846
--------- ----------
Equity (deficit)
- ----------------
Common stock, $1 par value, 20,000 shares of Class A
(voting) authorized and 10,000 shares of Class B
(nonvoting) authorized; 2,357 shares of Class A issued
and outstanding....................................... 2,357 2,357
Additional paid-in capital............................. 473,643 473,643
Accumulated deficit.................................... (239,117) (330,174)
Partner capital (deficit).............................. 1,838 (19,292)
--------- ----------
238,721 126,534
--------- ----------
$ 941,243 $1,065,861
========= ==========
</TABLE>
See auditors' report and accompanying notes
F-142
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales.................................................... $4,202,799 $3,651,231
Food cost of sales....................................... 1,097,277 1,042,314
---------- ----------
Gross profit.......................................... 3,105,522 2,608,917
---------- ----------
Selling, general, and administrative expenses............ 2,787,260 2,519,005
---------- ----------
Interest expense......................................... 40,075 56,762
---------- ----------
Net income............................................ $ 278,187 $ 33,150
========== ==========
</TABLE>
See auditors' report and accompanying notes
F-143
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Partners'
Common Paid-In Accumulated Capital
Stock Capital Deficit (Deficit) Total
------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1995.......... $2,357 $473,643 $(255,382) $ (60,217) $ 160,401
Net income (loss)........... (71,792) 104,942 33,150
Dividends paid.............. (3,000) (64,017) (67,017)
------ -------- --------- --------- ---------
Balances,
December 31, 1996.......... 2,357 473,643 (330,174) (19,292) 126,534
Net income.................. 91,057 187,130 278,187
Dividends paid.............. 0 (166,000) (166,000)
------ -------- --------- --------- ---------
Balances,
December 31, 1997.......... $2,357 $473,643 $(239,117) $ 1,838 $ 238,721
====== ======== ========= ========= =========
</TABLE>
See auditors' report and accompanying notes
F-144
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................... $ 278,187 $ 33,150
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation........................................... 160,229 198,535
Amortization........................................... 22,754 25,882
Changes in assets and liabilities
Decrease in advances.................................. 0 1,600
Decrease in inventories............................... 9,880 10,915
Decrease (Increase) in prepaid expenses............... 6,071 (6,793)
Decrease in deposits.................................. 0 8,767
Decrease in accounts payable.......................... (34,955) (56,024)
Increase in accrued expenses.......................... 21,318 34,500
Increase (Decrease) in deferred rent payable.......... (2,184) 16,830
--------- ---------
Total adjustments................................... 183,113 234,212
--------- ---------
Net cash provided by operating activities............... 461,300 267,362
--------- ---------
Cash flows from investing activities
Acquisition of property and equipment.................... (31,894) (87,109)
Franchise costs reimbursed............................... 0 8,000
Loan costs incurred...................................... 0 (9,462)
--------- ---------
Net cash used by investing activities................... (31,894) (88,571)
--------- ---------
Cash flows from financing activities
Net proceeds from (payments on) line-of-credit........... (40,000) 55,000
Payments on long-term debt............................... (180,984) (161,252)
Dividends paid........................................... (166,000) (67,017)
--------- ---------
Net cash used by financing activities................... (386,984) (173,269)
--------- ---------
Net increase in cash.............................. 42,422 5,522
Cash, beginning of year................................... 184,963 179,441
--------- ---------
Cash, end of year................................. $ 227,385 $ 184,963
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for
Interest................................................. $ 36,616 $ 55,347
</TABLE>
See auditors' report and accompanying notes
F-145
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Combination Policy
The accompanying combined financial statements include the accounts of The
Cookie Conglomerate Inc., The Cookie Conglomerate, L.L.P., and The Cookie
Conglomerate of Carolina Place, Inc., all of which are under common control.
Intercompany transactions and balances have been eliminated in the
combination.
Nature of Operations
The Companies and Partnership operate retail cookie stores in North Carolina,
South Carolina, and Ohio. The stores are franchised from Great American Cookie
Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc.
Inventories
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out method.
Property and Equipment
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation is provided using both the straight-line and accelerated methods
over the estimated useful lives of the assets which are as follows:
<TABLE>
<CAPTION>
<S> <C>
Equipment.......................................... 5 years
Fixtures........................................... 7 years
Leasehold improvements............................. Life of related lease
</TABLE>
Franchise Costs
Franchise costs represent amounts paid to open the stores and for operating
under the name of Great American Cookie Company, Inc., now a subsidiary of Mrs.
Fields' Original Cookies, Inc. These costs are being amortized over eight to
fifteen years using the straight-line method of amortization.
Organizational Costs
Organizational costs are carried at cost. Amortization is provided using the
straight-line method over a period of sixty months.
Intangible Assets:
Intangible assets include goodwill and restrictive convenant fees. Goodwill
represents the excess of the cost of the Carolina Place franchise over the fair
value of its net assets at the date of acquisition. Restrictive convenant fees
represent the costs of a non-compete agreement with the previous owners of the
Carolina Place franchise. These assets are being amortized on the straight-line
method over fifteen years.
Loan Costs
Loan costs represent bank loan and closing fees incurred in connection with
the procurement of long-term debt. These costs are being amortized over the
terms of the related loan agreements, which are two to five years.
F-146
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENT--(Continued)
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Cookie Conglomerate, Inc. and The Cookie Conglomerate of Carolina Place,
Inc. elected by unanimous consent of its stockholders to be taxed under the
provisions of subchapter S of the Internal Revenue Code. Under those
provisions, the Companies do not pay corporate income taxes on their taxable
income. Instead, the stockholders are liable for individual income taxes on
their respective shares of the Company's taxable income.
The Cookie Conglomerate, L.L.P. is also not subject to income tax. Income is
taxed directly to its partners. On December 30, 1997, the partners elected to
become a limited liability partnership under the Georgia Uniform Partnership
Act.
Compensated Absences
Employees of the Companies and Partnership are entitled to paid vacation,
paid sick days and personal days off, depending on job classification, length
of service, and other factors. It is impractical to estimate the amount of
compensation for future absences, and accordingly, no liability has been
recorded in the accompanying financial statements. The Companies' and
Partnership's policy is to recognize the costs of compensated absences when
actually paid to employees.
Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
B. LINES-OF-CREDIT
A summary of the lines-of-credit is as follows:
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Riverside Bank -- $100,000 Guarantee of Ronald Eichel,
note payable dated Alan Kuehn, and Cookie
September 30, 1996 with Conglomerate, Inc.
interest payable monthly at
prime plus 1%. Principal
payable at maturity on
September 30, 1997. $ 0 $80,000
Riverside Bank -- $100,000 Inventory, accounts
note payable dated November receivable,
4, 1997 with interest equipment, general
payable monthly at prime intangibles,
plus 1%. Principal payable corporate guarantee of Cookie
at maturity on November 4, Conglomerate Partnership,
1998. personal guarantees of Ronald
Eichel, Nancy Eichel, and
Alan
Kuehn. 40,000 0
------- -------
$40,000 $80,000
======= =======
</TABLE>
F-147
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
C. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Tony Hege - $160,000 note Notes and accounts
payable dated July 18, receivable,
1994. Principal payments inventory, fixtures and
of $1,905 plus interest equipment.
at 9% per annum payable
monthly beginning August
10, 1994 until July 10,
1998 when remaining
principal due. $ 77,778 $104,762
Alan Kuehn (stockholder)-- Notes and accounts
$20,000 note payable at receivable,
9%. Interest only payable inventory, fixtures and
through December of 1995. equipment.
Principal payments of
$417 plus interest due
monthly through July 10,
1998 when remaining
principal due. Interest
expense incurred for each
year totals $3,600. 20,000 20,000
Ron Eichel (stockholder)-- Notes and accounts
$20,000 note payable at receivable,
9%. Interest only payable inventory, fixtures and
through December of 1995. equipment.
Principal payments of
$417 plus interest due
monthly through July 10,
1998 when remaining
principal due. Interest
expense incurred for each
year totals $3,600. 20,000 20,000
Riverside Bank--$106,222 Inventory, equipment,
note payable dated accounts
September 30, 1996 with receivable, general
50 monthly installment intangibles.
payments of principal and Personal guarantees of Ronald
interest of $2,574 Eichel, Nanci Eichel, Alan
beginning on October 30, Kuehn
1996. Interest at 9.25%. and corporate guarantee of
Matures November 30, Cookie
2000. Conglomerate Partnership. 76,000 100,000
Riverside Bank--$196,747 Inventory, equipment,
note payable dated accounts
September 30, 1996 with receivable, general
25 monthly installment intangibles.
payments beginning Personal guarantees of Ronald
October 30, 1996 of Eichel and Alan Kuehn
principal of $7,870 plus and corporate guarantee of
interest at prime plus Cookie
1%. Matures October 30, Conglomerate Partnership.
1998. 70,000 173,000
Riverside Bank--$30,837 Inventory, accounts
note payable dated receiveable,
September 30, 1996 with general intangibles.
25 monthly installment Corporate
payments beginning guarantee of Cookie
October 30, 1996 of Conglomerate
principal of $1,233 plus partnership, personal
interest at 9.25%. guarantees
Matures October 30, 1998. of Ronald Eichel, Nanci
Eichel and
Alan Kuehn. 0 27,000
-------- --------
263,778 444,762
Less: Current maturities 155,107 176,098
-------- --------
$108,671 $268,664
======== ========
</TABLE>
F-148
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
C. LONG-TERM DEBT (Continued)
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1998............................................................... $155,107
1999............................................................... 49,907
2000............................................................... 49,557
2001............................................................... 9,207
2002............................................................... 0
--------
$263,778
========
</TABLE>
D. COMMITMENTS
The Cookie Conglomerate, Inc. and Affiliates are the lessee of store space in
various malls under sublease arrangements with Great American Cookie Company,
Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc. Minimum future
lease payments under non-cancelable operating leases having remaining terms in
excess of one year as of December 31, 1997 for each of the next five years and
in total are:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1998............................................................ $ 481,036
1999............................................................ 454,143
2000............................................................ 297,246
2001............................................................ 237,789
2002............................................................ 195,536
Thereafter...................................................... 353,804
----------
$2,019,554
==========
</TABLE>
Additional rental payments are contingent on sales exceeding certain
breakpoint levels specified in each lease. Rent expense totaled $640,870 for
1997 and $620,355 for 1996.
Franchise agreements provide for the Companies and Partnership to pay annual
service fees equal to 7% of gross sales. The service fees due the franchiser in
connection with these agreements are due on a monthly basis. The franchise
agreements end simultaneously with the termination of the lease of the premises
in which the cookie facilities are located.
E. SUBSEQUENT EVENT
The Cookie Conglomerate of Carolina Place, Inc. effectively merged with The
Cookie Conglomerate, Inc. on January 1, 1998.
The Cookie Conglomerate, Inc. and The Cookie Conglomerate, L.L.P. entered
into an asset purchase agreement on October 5, 1998 with Mrs. Fields' Original
Cookies, Inc. to sell substantially all the assets of the Company and
Partnership.
F-149
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
Current assets
- --------------
Cash............................................................ $135,749
Inventories..................................................... 71,635
Other current assets............................................ 2,011
--------
Total current assets........................................... 209,395
Property and equipment, net...................................... 435,604
Intangibles, net................................................. 111,490
Other assets..................................................... 34,451
--------
$790,940
========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Current liabilities
- -------------------
<S> <C>
Accounts payable................................................ $101,243
Accrued expenses................................................ 91,213
Current portion of long-term debt............................... 121,621
--------
Total current liabilities...................................... 314,077
<CAPTION>
Other liabilities
- -----------------
<S> <C>
Long-term debt, net of current portion.......................... 29,366
--------
Total liabilities.............................................. 343,443
--------
<CAPTION>
Stockholders' equity
- --------------------
<S> <C>
Common stock, $1 par value, 20,000 shares of Class A [voting]
authorized and 10,000 Shares of Class B [nonvoting] authorized;
2,357 shares of Class A issued and outstanding................. 2,357
Additional paid-in capital...................................... 473,643
Partner capital................................................. 23,629
Accumulated Deficit............................................. (52,132)
--------
447,497
--------
$790,940
========
</TABLE>
See footnote
F-150
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales...................................................... $2,906,499 $2,926,659
Cost of sales.............................................. 2,313,079 2,388,393
---------- ----------
Gross profit............................................. 593,420 538,266
Selling, general, and administrative expenses.............. 389,462 380,901
Interest expense........................................... 16,972 27,649
---------- ----------
Net income............................................... $ 186,986 $ 129,716
========== ==========
</TABLE>
See footnote
F-151
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income.............................................. $ 186,985 $ 129,716
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation & amortization............................ 117,584 125,688
Changes in assets and liabilities
Increase (decrease) in inventories.................... (19,606) 7,908
Decrease in prepaid expenses.......................... 24,981 28,124
Decrease in accounts payable & accrued expenses....... (246,288) (212,000)
--------- ---------
Total adjustments.................................... (123,329) (50,280)
--------- ---------
Net cash provided by operating activities........... 63,656 79,436
--------- ---------
Cash flows from investing activities
- ------------------------------------
Acquisition of equipment................................ (64,292) (25,003)
--------- ---------
Net cash used by investing activities.................. (64,292) (25,003)
--------- ---------
Cash flows from financing activities
- ------------------------------------
Dividends paid.......................................... (43,906) (43,365)
Payments on long-term debt and line-of-credit........... (47,095) (76,854)
--------- ---------
Net cash used by financing activities.................. (91,001) (120,219)
--------- ---------
Net decrease in cash.................................. (91,637) (65,786)
Cash, beginning of period............................... 227,385 184,963
--------- ---------
Cash, end of period................................... $ 135,748 $ 119,177
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the years for interest................. $ 16,972 $ 27,649
</TABLE>
See footnote
F-152
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1)BASIS OF PRESENTATION
The accompanying interim unaudited combined financial statements have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission, and accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, these combined financial statements reflect all
adjustments, which consist only of normal recurring adjustments, which are
necessary to present fairly the Company's financial position as of September
30, 1998 and results of operations and cash flows for the nine months ended
September 30, 1998 and September 30, 1997. These interim unaudited combined
financial statements should be read in conjunction with the audited combined
financial statements and notes to it included in this filing.
F-153
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, during 1997
the Company's subsidiary became non-compliant with the covenants under its bank
debt agreements and the lender has not agreed to provide waivers. Accordingly,
such debt has been reclassified as a current liability since, due to the
covenant default, the lender has the right to accelerate the repayment of the
loans.
AJ. ROBBINS, PC
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
December 11, 1998
F-154
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (February 24, 1995) to December 31, 1995 and for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1996, and the results of its
operations and its cash flows for the period from inception (February 24, 1995)
to December 31, 1995 and for the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
February 7, 1997
F-155
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Substantially all pledged)
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1997 1998
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................... $ 95,914 $ 115,805 $ 216,261
Accounts receivable, net of allowance for
doubtful
accounts of $10,000, $10,000 and
$45,000.................................. 485,002 642,821 510,904
Due from affiliates....................... 77,904 46,129 24,809
Refundable income taxes................... -- 56,524 --
Inventories............................... 31,583 74,226 47,400
Prepaid expenses and supplies............. 14,126 237 22,677
---------- ---------- ----------
Total Current Assets.................... 704,529 935,742 822,051
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Store fixtures and equipment.............. 719,509 872,864 646,598
Leasehold improvements.................... 336,301 416,631 267,233
Computer equipment........................ 54,346 71,761 70,811
Furniture and fixtures.................... 54,264 54,134 34,959
---------- ---------- ----------
1,164,420 1,415,390 1,019,601
Less accumulated depreciation and
amortization............................. 150,336 341,523 453,193
---------- ---------- ----------
Net Property and Equipment................ 1,014,084 1,073,867 566,408
---------- ---------- ----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization............................. 1,414,628 1,258,470 1,141,351
Deferred tax asset........................ 62,000 62,000 62,000
Other assets.............................. 122,762 46,880 62,533
Restricted cash........................... -- 64,575 59,112
---------- ---------- ----------
Total Other Assets...................... 1,599,390 1,431,925 1,324,996
---------- ---------- ----------
$3,318,003 $3,441,534 $2,713,455
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-156
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1996 1997 1998
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank debt............................... $ -- $ 732,916 $ 443,742
9% Notes payable in 1998................ -- 215,587 38,500
Accounts payable........................ 367,904 461,124 330,541
Accruals and other payables............. 47,810 138,065 185,213
Income taxes payable.................... 70,000 23,449 --
Deferred initial franchise fees......... 357,760 151,500 214,950
Current maturities of long-term debt.... 151,797 45,647 49,141
Current portion of non-compete
agreements............................. 130,416 151,418 168,082
---------- ---------- ----------
Total Current Liabilities............. 1,125,687 1,919,706 1,430,169
---------- ---------- ----------
LONG-TERM OBLIGATIONS:
Long-term debt, less current
maturities............................. 288,639 237,130 180,555
Unsecured promissory notes.............. 534,000 540,000 540,000
Non-compete agreements payable.......... 327,221 175,803 --
Deferred revenues....................... -- -- 180,906
---------- ---------- ----------
Total Liabilities..................... 2,275,547 2,872,639 2,331,630
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; shares
authorized 1,000,000;
shares issued and outstanding 135,155.. 135 135 135
Additional paid-in capital.............. 1,070,814 1,070,814 1,070,814
Accumulated deficit..................... (28,493) (502,054) (689,124)
---------- ---------- ----------
Total Stockholders' Equity............ 1,042,456 568,895 381,825
---------- ---------- ----------
$3,318,003 $3,441,534 $2,713,455
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-157
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 24 Nine Months Ended
(Inception) to Years Ended December 31, September 30,
December 31, ------------------------- ------------------------
1995 1996 1997 1997 1998
-------------- ----------- ------------ ------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES :
Franchising............ $ 706,410 $1,663,846 $2,026,385 $1,415,632 $1,538,486
Net company-owned store
sales................. 254,124 1,061,889 1,818,919 1,222,149 1,038,775
Initial franchise
fees.................. 435,988 893,099 778,294 593,285 186,202
Product and equipment
revenue 329,523 1,795,262 1,441,815 1,322,613 598,068
---------- ---------- ---------- ---------- ----------
Total Revenues........ 1,726,045 5,414,096 6,065,413 4,553,679 3,361,531
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and
administrative
expenses.............. 1,088,763 2,588,832 2,685,646 2,007,944 1,546,513
Company-owned stores
expenses.............. 275,163 1,104,908 1,815,775 1,370,404 992,336
Product and equipment
costs................. 209,910 1,173,866 921,131 895,829 121,254
Losses on store
closings and asset
dispositions.......... -- -- 340,491 153,611 108,858
Litigation settlement.. -- -- 148,702 148,702 --
Depreciation and
amortization.......... 156,382 291,862 402,693 288,566 627,337
Interest expense....... 89,247 157,242 224,536 171,316 152,303
---------- ---------- ---------- ---------- ----------
Total Costs and
Expenses............. 1,819,465 5,316,710 6,538,974 5,036,372 3,548,601
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
TAXES ON INCOME (93,420) 97,386 (473,561) (482,693) (187,070)
TAXES ON INCOME -- 32,459 -- -- --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (93,420) $ 64,927 $ (473,561) $ (482,693) $ (187,070)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-158
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balances at February 24,
1995 (Inception)........... -- $-- $ -- $ -- $ --
Issuance of Capital Stock.. 135,155 135 1,070,814 -- 1,070,949
Net loss for the period.... -- -- -- (93,420) (93,420)
------- ---- ---------- --------- ----------
Balances at December 31,
1995....................... 135,155 135 1,070,814 (93,420) 977,529
Net income for the year.... -- -- -- 64,927 64,927
------- ---- ---------- --------- ----------
Balances at December 31,
1996....................... 135,155 135 1,070,814 (28,493) 1,042,456
Net loss for the year...... -- -- -- (473,561) (473,561)
------- ---- ---------- --------- ----------
Balances at December 31,
1997....................... 135,155 135 1,070,814 (502,054) 568,895
Net loss for the period
(unaudited)............... -- -- -- (187,070) (187,070)
------- ---- ---------- --------- ----------
Balances at September 30,
1998 (unaudited)........... 135,155 $135 $1,070,814 $(689,124) $ 381,825
======= ==== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-159
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 24, Years Ended Nine Months Ended
(Inception) to December 31, September 30,
December 31, -------------------- ----------------------
1995 1996 1997 1997 1998
-------------- --------- --------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...... $ (93,420) $ 64,927 $(473,561) $(482,693) $(187,070)
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and amor-
tization............. 156,382 291,862 402,693 288,566 627,337
Loss on disposal of
equipment............ -- -- 108,890 6,795 (76,601)
Interest accretion.... 73,637 69,974 51,884 38,904 23,161
Deferred revenues..... -- -- -- -- 180,906
Deferred income tax-
es................... (22,000) (40,000) -- -- --
Accounts receivable
allowance............ 5,000 5,000 -- -- 35,000
Changes in operating
assets and
liabilities:
Accounts receivable.. (172,836) (211,469) (81,319) (52,693) 71,917
Refundable income
taxes............... (23,000) 23,000 (56,524) -- 56,524
Inventories.......... (11,254) (18,779) (42,643) (60,727) 26,826
Due from affiliates.. -- (77,904) 31,775 51,565 21,320
Prepaid expenses and
supplies............ (14,126) -- 13,889 (24,722) (22,440)
Accounts payable..... 147,000 184,788 72,520 255,828 (130,583)
Accruals and other
payables............ 62,995 (86,315) 110,955 52,476 23,699
Income taxes pay-
able................ -- 70,000 (46,551) (70,000) --
Deferred initial
franchise fees...... 90,679 16,561 (206,261) (147,910) 63,450
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Operating
Activities............ 199,057 291,645 (114,253) (144,611) 713,446
--------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment......... (445,612) (665,948) (278,529) (161,209) (75,296)
Proceeds from sale of
property and
equipment............. -- -- 199,564 191,064 166,361
Purchase of business,
net of cash acquired.. (333,784) -- -- -- --
Other assets........... (63,003) (70,451) 80,335 49,972 (7,876)
Restricted cash........ -- -- (64,575) (69,560) 5,463
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Investing
Activities............ (842,399) (736,399) (63,205) 10,267 88,652
--------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of capital stock...... 795,000 -- -- -- --
Proceeds from notes
payable............... 399,000 593,878 518,426 406,728 --
Principal payments on
notes payable......... -- (49,727) (128,928) (84,804) (466,261)
Principal payments on
non-compete
agreements............ (360,000) (182,300) (182,300) (182,300) (182,300)
Principal payments on
capital lease
obligations........... (3,165) (8,676) (9,849) (3,830) (53,081)
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Financing
Activities............ 830,835 353,175 197,349 135,794 (701,642)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH................ 187,493 (91,579) 19,891 1,450 100,456
CASH BALANCE, beginning
of period.............. -- 187,493 95,914 95,914 115,805
--------- --------- --------- --------- ---------
CASH BALANCE, end of pe-
riod................... $ 187,493 $ 95,914 $ 115,805 $ 97,364 $ 216,261
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-160
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Pretzelmaker Holdings, Inc. and Subsidiaries (the Company), was incorporated
on February 24, 1995 and acquired all the issued and outstanding common stock
of Pretzelmaker, Inc. (Pretzelmaker) on March 28, 1995. Pretzelmaker holds
legal title to certain trademarks and recipes for specialty bakery products.
Pretzelmaker licenses use of the trademarks and recipes to qualified third
parties for the establishment and operation of Pretzelmaker stores. In
connection with these licensing activities, Pretzelmaker will require third-
party-licensees to use certain business formats, systems, methods, procedures,
designs, layouts, specifications, tradenames and trademarks. There are licensed
locations located throughout the United States and Canada, as well as Korea.
Pretzelmaker also operates company-owned stores and sports venues for the sale
of its bakery products.
On September 26, 1996, Pretzelmaker Canada, Inc. (Canada) was incorporated.
Pretzelmaker owns all the issued and outstanding stock of Canada. Canada has a
master franchise agreement with Pretzelmaker which covers all locations in
Canada.
Basis of Presentation
The Consolidated financial statements include the accounts of the Company,
Pretzelmaker and Canada, its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The acquisition of
Pretzelmaker has been accounted for as a purchase and accordingly these
consolidated financial statements include the results of Pretzelmaker from the
date of acquisition forward.
Unaudited Information
The accompanying consolidated financial statements as of September 30, 1998
and for the nine months ended September 30, 1997 and 1998 are unaudited and
have been prepared on a substantially equivalent basis with that of the annual
consolidated financial statements. In the opinion of management, the unaudited
information contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations as of September 30, 1998 and for such
periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash and accounts receivable. The Company places
its cash in what it believes to be highly rated financial institutions. The
balance in each cash account maintained in the United States is insured by the
Federal Deposit Insurance Corporation up to $100,000. From time to time,
balances in these accounts may exceed the insured limits.
F-161
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of credit risk with respect to accounts receivable are limited
due to a broad franchisee base and generally short payment terms.
Cash and Equivalents
For the purposes of the statement of cash flows, the Company considers cash
and all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories consisting of food products, ovens, belts and promotional
materials are stated at the lower of cost or market, cost being determined on a
first-in, first-out basis.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Store fixtures and equipment................................. 5-7 years
Leasehold improvements....................................... Term of lease
Computers and equipment...................................... 5 years
Furniture and fixtures....................................... 7 years
</TABLE>
Intangible Assets
Intangible assets consist primarily of goodwill and non-compete agreements,
which arose in connection with the acquisition of Pretzelmaker by the Company
in 1995. The goodwill and non-compete agreements are being amortized over
periods of fifteen and nine years, respectively.
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchise fees are recognized after the Company has completed
performance of its initial license obligations. A portion of the franchise fee
revenue is deferred until commencement of operations of the licensee's
location. Franchise and license royalties, which are based upon a percentage of
gross store sales, are recognized as earned.
Advance payments received from suppliers are recorded as deferred revenues
and recognized as income over the life of the related supply agreement.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax basis of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized. Valuation
allowances will be established when necessary, to reduce deferred tax assets to
the amount expected to be realized.
F-162
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign currency
into U.S. dollars is computed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains and losses
resulting from such translation are immaterial.
Recent Accounting Pronouncement
During the nine months ended September 30, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires an "all-inclusive" income
presentation approach which specifies that all revenues, expenses, gains and
losses recognized during the period be reported in income, regardless of
whether they are considered to be results of operations of the period. The
adoption of SFAS No. 130 had no material impact on the Company's financial
statement presentation.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
Year 2000 Issues
Management of the Company has assessed the year 2000 issue and has determined
that its financial software and related corporate systems and retail sales data
collecting systems are not year 2000 compliant. As a result of the acquisition
of the Company (Note 12) all of the Company's year 2000 non-compliant systems
will be converted to Mrs. Fields' systems by early 1999.
NOTE 2--BANK DEBT
During April 1997, the Company through Pretzelmaker established a $300,000
line-of-credit with a bank and subsequently finalized a term loan facility to
repay then outstanding term debt as well as to provide financing for expansion
equipment and fixtures. Advances under the line-of-credit were made based upon
75% of eligible accounts receivable and 30% of allowable inventories. Advances
under the term loan facility are repayable in 36 monthly installments, plus
interest. Interest on amounts outstanding on the bank debt is computed at the
bank's prime rate plus 1% and the debt is collateralized by the Company's
accounts receivable, inventories, intangibles and property and equipment.
F-163
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 2--BANK DEBT (Continued)
The following amounts were outstanding under the bank debt agreements:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Line-of-credit.................................. $300,000 $279,692
Term loans, payable $14,114 monthly, plus
interest....................................... 432,916 164,050
-------- --------
Total......................................... $732,916 $443,742
======== ========
</TABLE>
Under the terms of the agreements, the Company is subject to certain debt
covenants, which include, among other items, limitations on capital
expenditures, minimum tangible net worth and debt coverage ratio amounts and
maximum leverage ratio (all as defined under the agreements). As of December
31, 1997 and September 30, 1998 the Company was not in compliance with the
covenant requirements and the lender has not agreed to provide waivers of such
violations. Accordingly, the term debt which by its original terms would have
been classified as a long-term obligation, has been reclassified as a current
liability due to the default, as the lender has the right to accelerate the
repayment of the loans. Subsequent to the acquisition as discussed in Note 12,
Mrs. Fields is in discussions with the lender regarding repayment or
refinancing.
All required payments under the terms of the debt are current and on March 5,
1998, by mutual agreement with the lender, the Company made a $200,000
prepayment on the term loan portion of the debt. Subsequent to December 31,
1997, advances under the line-of-credit were frozen and an agreement was
reached to extend the repayment of the line-of-credit balance to January 31,
1999.
As of December 31, 1996 there was approximately $409,000 outstanding in 10.1%
to 10.25% term loans, payable to a bank in monthly installments through October
1999. Such amounts, which at that time totaled approximately $360,000 were
repaid out of proceeds from the Company's new term loan facility discussed
above.
NOTE 3--STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Articles of Incorporation authorize $0.001 par value, non-
voting preferred stock in series A (300,000 shares authorized) and series B
(800 shares authorized). In connection with the 1995 acquisition of
Pretzelmaker by the Company, there were 275,942 share of series A and 800
shares of series B preferred shares issued. The series A and B shares contained
dividends and liquidation preferences, cumulative dividend rights and were
convertible into common stock of the Company under terms as defined in the
agreements. No dividends were paid on the preferred shares. In connection with
the acquisition of the Company discussed in Note 12, the 275,942 shares of
series A and 800 shares of series B preferred stock were converted into 35,155
shares of common stock. The accompanying financial statements retroactively
reflect the conversion (which has no affect on total stockholders' equity
amounts) for all periods presented.
F-164
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 3--STOCKHOLDERS' EQUITY (Continued)
Stock Options
The Company has 35,000 shares of common stock reserved for issuance under
three stock option plans (Incentive Stock Option Plan, Non-Qualified Stock
Option Plan and Stock Bonus Plan) collectively referred to as the "Plan".
Through December 31, 1997, options to acquire 13,250 shares had been granted at
exercise prices ranging from $13.20 to $25.00 per share. There were no options
granted in 1998. The Company applies APB Opinion No. 25, Accounting for Stock
Issues to Employees, in accounting for its plans. FASB Statement No. 123,
Accounting for Stock-Basis Compensation, requires the Company to provide pro
forma information regarding net income as if compensation cost for the
Company's stock option plans has been determined in accordance with the fair
value based method prescribed in FASB Statement No. 123. Under the accounting
provisions of FASB Statements No. 123 the Company's reported net income (loss)
would not have been materially impacted for the periods presented under FASB
Statement No. 123.
As part of the acquisition of the Company discussed in Note 12, all of the
stock options were cancelled in connection with the consulting, bonus and
service agreements.
NOTE 4--NON-COMPETE AGREEMENTS
In connection with the 1995 acquisition of Pretzelmaker, the Company entered
into non-compete agreements with the two principal former owners of
Pretzelmaker. The non-interest bearing obligations have been recorded as a
liability on a discounted present value basis using an imputed interest rate of
15%. The agreements require annual payments of $182,300 and as of December 31,
1997, future minimum payments under the obligations are summarized as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ---------
<S> <C>
1998.............................................................. $ 182,300
1999.............................................................. 182,300
---------
Total Payments.................................................... 364,600
Less: Amounts Representing Interest............................... (37,379)
---------
Present Value of Payments......................................... 327,221
Less: Current Portion............................................. (151,418)
---------
$ 175,803
=========
</TABLE>
NOTE 5--UNSECURED PROMISSORY NOTES
During 1995, the Company issued 15% unsecured promissory notes due September
30, 2000 to various parties, who at the time, were also shareholders of the
Company. In addition to the stated interest, which is payable quarterly, the
notes also contain a net profits interest, as defined, in all Pretzelmaker
company-owned stores and sports venues. Through September 30, 1998, there has
been no net profit interest due under the agreements.
In connection with the acquisition of the Company during November 1998 (as
discussed in Note 12), the acquirer has agreed to repay the outstanding
unsecured promissory notes in January, 1999.
F-165
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 6--CAPITAL LEASE OBLIGATIONS
At December 31, 1997 included with long-term debt are capitalized lease
obligations incurred for store equipment, fixtures and improvements. The
obligations bear implicit interest rates of 16.9% to 21.6% and require total
monthly payments of approximately $6,800, decreasing as the leases are paid off
through October 2001.
Total future payments required under the lease obligations at December 31,
1997 are approximately $78,600 in 1998, $76,300 in 1999, $66,800 in 2000 and
$67,300 in 2001.
As of December 31, 1997, property and equipment includes $197,469 acquired
through capital leases. Accumulated depreciation related to these assets was
$19,183.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases retail store facilities and corporate office space under
long-term non-cancelable operating lease agreements requiring monthly payments
over their remaining terms which expire through 2007. Certain of the retail
store leases also provide for contingent rentals based upon gross revenue of
the store as well as adjustments for operating costs. Additionally, as a result
of master franchise agreements in Canada and former company-owned stores which
have been franchised, the Company is contingently liable under lease guarantees
or assignment agreements.
Total rent expense, including lease termination costs for closed company-
owned stores is summarized as follows:
<TABLE>
<CAPTION>
February 24 Nine Months Ended
(Inception) to Years Ended December 31, September 30,
December 31, ------------------------ -------------------
1995 1996 1997 1997 1998
--------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Rent expense............ $77,100 $256,900 $446,100 $308,700 $256,200
Lease termination
expense................ -- -- 109,200 103,600 186,600
------- ------------ ------------ --------- ---------
$77,100 $256,900 $555,300 $412,300 $442,800
======= ============ ============ ========= =========
</TABLE>
As of December 31, 1997, future minimum lease payments due under operating
leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ----------
<S> <C>
1998............................................................. $ 242,000
1999............................................................. 248,000
2000............................................................. 216,000
2001............................................................. 151,000
2002............................................................. 130,000
Thereafter....................................................... 356,000
----------
$1,343,000
==========
</TABLE>
F-166
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 7--COMMITMENTS AND CONTINGENCIES (Continued)
During September 1998, the Company entered into a sub-lease agreement for its
corporate office space providing for sub-rental income to the Company of
approximately $8,000 monthly to July 2000. Such amounts are not reflected in
the table above.
As of December 31, 1997, future minimum amounts due under operating leases
where the Company is contingently liable under lease guarantees or assignment
agreements are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, Amount
------------------------ ----------
<S> <C>
1998............................................................ $ 390,000
1999............................................................ 398,000
2000............................................................ 405,000
2001............................................................ 401,000
2002............................................................ 352,000
Thereafter...................................................... 1,262,000
----------
$3,208,000
==========
</TABLE>
Approximately 51% of the above amounts relate to franchised locations which
are owned in whole or in part by individuals or entities which were
stockholders of the Company prior to the acquisition discussed in Note 12.
Legal Matters
From time to time the Company is the subject of legal actions or threatened
legal actions, which it considers routine to its business activities.
Management of the Company believes that the potential liability to the Company
under such matters would not have a material affect on the Company's
consolidated financial position, results of operations or cash flows.
NOTE 8--RELATED PARTY TRANSACTIONS
Since 1996, the Company has had business relationships with various entities
owned in whole or in part by its Chairman, President, and Chief Executive
Officer (the "Officer") summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -------------
1996 1997 1998
-------- ------- -------------
<S> <C> <C> <C>
Franchise Fee Income from Related Entities.. $200,000 $ -- $ --
Royalty and Advertising Fees from Related
Entities in Illinois....................... 25,400 55,000 37,765
Account Receivables Outstanding at Period
End from Related Entities.................. 77,904 46,129 24,809
</TABLE>
During 1997, Canada received loans totaling approximately $65,000 (U.S.) from
the two largest franchisees in Canada who are related to the Company through
common ownership. The proceeds are invested in a Canadian certificate of
deposit and the debt evidenced by non-interest bearing promissory notes. The
certificate of deposit is presented as restricted cash and the notes are
included with long-term debt. The advances were made to secure a limited loan
guarantee made by Canada on behalf of the franchisees. Subsequent to September
30, 1998, the loan guarantee obligation was transferred to another corporation
affiliated with the franchisees and the certificate of deposit used to
liquidate the related debt obligations, thereby releasing Canada from any
further obligations under the agreements.
F-167
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 9--INCOME TAXES
Income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996 1997
-------- -------- ----
<S> <C> <C> <C>
CURRENT:
Federal........................................... $ 19,000 $ 68,507 $--
State............................................. 3,000 3,952 --
-------- -------- ----
<CAPTION>
22,000 72,459 --
<S> <C> <C> <C>
-------- -------- ----
DEFFERED (BENEFIT):
Federal........................................... (20,000) (37,000) --
State............................................. (2,000) (3,000) --
-------- -------- ----
(22,000) (40,000) --
-------- -------- ----
Total........................................... $ -- $ 32,459 $--
======== ======== ====
</TABLE>
The components of the net deferred tax assets (liabilities) are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
------- ---------
<S> <C> <C>
Net operating loss carryforward.......................... $ -- $ 55,000
Intangible assets........................................ 65,000 95,000
Accrued expenses......................................... -- 21,000
Accounts receivable allowance............................ 4,000 4,000
Other.................................................... -- 13,000
Accumulated depreciation................................. (7,000) (17,000)
------- ---------
62,000 171,000
Valuation allowance...................................... -- (109,000)
------- ---------
$62,000 $ 62,000
======= =========
</TABLE>
As of December 31, 1997, the Company has a net operating loss carryforward
for income tax purposes of approximately $149,000, expiring in 2012.
A reconciliation of the effective tax rates to the federal statutory rate is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal Statutory Income
Tax Rate (Benefit)..... (34.0)% 34.0 % (34.0)%
Amortization Of Non-
Deductible Goodwill.... 18.2 21.6 12.0
Non-Deductible
Expenses............... -- -- 15.1
Other................... 15.8 (22.3) 6.9
----- ----- -----
Effective Income Tax
Rate................... 0.0 % 33.3 % 0.0 %
===== ===== =====
</TABLE>
F-168
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 10--LITIGATION SETTLEMENT
During 1997, the Company settled a lawsuit, which arose in 1996 in a case in
which the plaintiffs claimed that the Company breached the Franchise Agreement
by failing to grant a specific mall location. The plaintiffs sought damages of
approximately $600,000, plus punitive damages and attorney fees. The cost of
the settlement, including the Company's outside legal fees, was approximately
$149,000.
NOTE 11--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
February 24 Years Ended Nine Months Ended
(Inception) to December September 30,
December 31, ---------------- -----------------
1995 1996 1997 1997 1998
--------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure of
Cash Flow Information:
Cash Paid for:
Interest.................. $ 69,600 $87,900 $157,400 $106,700 $106,800
Income taxes.............. 45,000 4,000 103,800 89,700 8,600
Supplemental Disclosure of
Non-Cash Investing and
Financing Activities:
Preferred Stock Issued in
Pretzelmaker
Acquisition.............. 279,800 -- -- -- --
Equipment Acquired under
Financing Obligations.... 42,100 -- 417,200 297,200 --
Company-owned Stores Sold
with Deferred Terms...... -- -- 76,500 76,500 25,000
</TABLE>
NOTE 12--SUBSEQUENT EVENT--ACQUISITION OF COMPANY
During November 1998 the stockholders of the Company sold their shares to
Mrs. Field's Original Cookies, Inc. ("Mrs. Fields"). As a condition to closing,
by mutual agreement among the parties, all preferred shares previously
outstanding were converted to common shares, outstanding stock option
agreements were terminated, and the repayment terms under the non-compete
agreements and unsecured promissory notes were modified so that such
obligations would be repaid by Mrs. Fields by January 1999.
In connection with the acquisition of the Company, Pretzelmaker entered into
various consulting, bonus and severance agreements totaling $327,300 to be paid
during December 1998 and January 1999.
F-169
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by Mrs. Fields or the ini-
tial purchasers. This prospectus does not constitute an offer to sell or a so-
licitation of an offer to buy any securities other than the securities to
which it relates, nor does it constitute an offer to sell or the solicitation
of an offer to buy such securities in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlaw-
ful to make such an offer or solicitation. Neither the delivery of this pro-
spectus nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of Mrs. Fields since
the date hereof or that information contained in this prospectus is correct as
of any time subsequent to its date.
---------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$53,725,000
MRS. FIELDS'
ORIGINAL COOKIES, INC.
10 1/8% Series B Senior Notes
Due 2004
---------------
PROSPECTUS
---------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY.
As authorized by Section 145 of the General Corporation Law of the State of
Delaware, each director and officer of Mrs. Fields' may be indemnified by Mrs.
Fields' against expenses (including attorney's fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred in connection with
the defense or settlement of any threatened, pending or completed legal
proceedings in which he is involved by reason of the fact that he is or was a
director or officer of Mrs. Fields' if he acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of
Mrs. Fields' and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of Mrs. Fields, the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to Mrs. Fields' unless a court determines otherwise.
Mrs. Fields' by-laws authorize the Company to indemnify its present and
former directors and officers and to pay or reimburse expenses for individuals
in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of such individuals to repay such amounts if so
required.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
1.1 + Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Original Cookies, Inc., The Mrs. Fields Brand Inc., Great American
Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex. Brown
Incorporated
2.1 Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of
January 2, 1998
2.2 Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of
June 12, 1998.
2.3 + Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998
2.4 + Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998.
2.5 + Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton, Steven
J. Bryan and Jason A. Piltzmaker, holders of all outstanding capital
stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2 to the 8-K
dated September 3, 1998.
1
<PAGE>
EXHIBIT (CONTINUED)
2.6 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as exhibit
2.4 to the 8-K dated September 3, 1998.
2.7 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Crossroads Cookies, Inc. Filed as exhibit 2.5 to the 8-K dated
September 3, 1998.
2.8 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Hot Barton and Northpark Cookies, Inc. Filed as exhibit 2.6 to the
8-K dated September 3, 1998.
2.9 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Northpark Cookies, Inc. Filed as exhibit 2.7 to the 8-K dated
September 3, 1998.
2.10 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Quail Springs Cookies, Inc. Filed as exhibit 2.8 to the 8-K dated
September 3, 1998.
2.11 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Westgate Cookies, Inc. Filed as exhibit 2.9 to the 8-K dated
September 3, 1998.
2.12 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
as buyer, The Cookie Conglomerate, Inc. and The Cookie
Conglomerate, LLP., as sellers, and Ronald A. Eichel and Alan M.
Kuchn, partners of The Cookie Conglomerate LLP. and shareholders of
the Cookie Conglomerate, Inc., dated as of October 5, 1998.
2.13 Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc.,
as buyer, and Martin E. Lisiewski, a shareholder of Pretzel Time,
Inc., dated as of December 9, 1998.
2.14 Stock Purchase Agreement between Mrs. Fields' Holding Company, Inc.,
and Mrs. Fields' Original Cookies, Inc. as buyer, and Pretzel Time,
Inc. and Martin E. Lisiewski, as seller, dated as of December 30,
1998.
2.15 Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc.,
as buyer and Pretzelmaker Holdings, Inc., Mark N. Geman, Donald G.
Cox, Jr. and Louis H. Marks as principal sellers, dated as of November
19, 1998.
3.1 + Restated Certificate of Incorporation of Mrs. Fields' Original
Cookies, Inc., filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-4 (No. 333-45179) and incorporated by reference
herein
3.2 + Restated Certificate of Incorporation of The Mrs. Fields' Brand, Inc.,
filed as Exhibit 3.2 to the Company's Registration Statement on Form
S-4 (No. 333-45179) and incorporated by reference herein
3.3 + Certificate of Designations of the Mrs. Fields' Brand, Inc., dated as
of September 18, 1996, filed as Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (No. 333-45179) and incorporated by
reference herein
3.4 + Amended and Restated Certificate of Incorporation of Great American
Cookie Company, Inc.
3.5 + Articles of Incorporation of Pretzelmaker Holdings, Inc.
3.6 Articles of Incorporation of Pretzel Time, Inc.
3.7 + By-Laws of Mrs. Fields' Original Cookies, Inc., filed as Exhibit 3.4
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
3.8 + By-Laws of The Mrs. Fields' Brand, Inc., filed as Exhibit 3.5 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
3.9 + By-Laws of Great American Cookie Company, Inc.
3.10 + By-Laws of Pretzelmaker Holdings, Inc.
3.11 By-Laws of Pretzel Time, Inc.
4.1 + Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York,
as Trustee, filed as Exhibit 4.1 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein.
4.2 + Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.1)
4.3 + Form of Certificate of Senior Note (included as Exhibit A to Exhibit
4.1)
4.4 + First Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields Brand, Inc., and The
Bank of New York, as Trustee
4.5 + Second Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., and The Bank of New York, as trustee
4.6 + Third Supplemental Indenture, dated as of November 20, 1998, among
Mrs. Fields' Original Cookies, Inc., Great American Cookie Company,
Inc., The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., and
The Bank of New York, as a Trustee
4.7 + Registration Rights Agreement, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields Brand, Inc., Great
American Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
5.1 * Opinion and consent of Skadden, Arps, Meagher & Flom LLP as to
legality of the new senior notes to be issued by Mrs. Fields' Original
Cookies, Inc. and the new guarantees to be issued by The Mrs. Fields'
Brand, Inc., A Great American Coolie Company, Inc., Pretzelmaker
Holdings, Inc. and Pretzel Time, Inc.
10.1 + Asset Purchase Agreement, dated as of August 7, 1996, among Mrs.
Fields Development Corporation, The Mrs. Fields' Brand, Inc. and
Capricorn II, L.P., filed as Exhibit 10.1 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.2 + Asset Purchase Agreement, dated as of August 7, 1996, among Mrs.
Fields, Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn
Investors II, L.P., filed as Exhibit 10.11 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.3 + Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain, filed as Exhibit 10.27 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.4 + Amendment dated December 1, 1997, to Amended and Restated
Marketing Agreement between Mrs. Fields' Original Cookies, Inc. and
Coca-Cola USA Fountain
10.5 + Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on November 13,
1997 and December 1, 1997, between Mrs. Fields' Original Cookies, Inc.
and Coca-Cola USA
10.6 + Employment Agreement, dated as of October 1, 1997, between Michael R.
Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.7 + Employment Agreement, dated as of October 1, 1997, between Pat Knotts
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.29 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.8 + Employment Agreement, dated as of October 1, 1997, between L. Tim
Pierce and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.9 + Employment Agreement, dated as of July 1, 1996, between Lawrence
Hodges and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.31
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
3
<PAGE>
EXHIBIT (CONTINUED)
10.10 + Employment Agreement, dated as of July 10, 1997, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.11 + Lease Agreement, dated as of February 23, 1993, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.32 the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.12 + Lease Agreement, dated as of October 10, 1995, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.33 the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.13 + Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as
Exhibit 10.34 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.14 + Lease Agreement, dated as of January 18, 1998, between 2855 E.
Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.35 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.15 + Amendment to Supply Agreement, dated as of June 19, 1995 between Van
Den Bergh Foods Company and Mrs. Fields, Inc., filed as Exhibit 10.37
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.16 + Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.17 + License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit
10.40 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.18 + License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp., filed
as Exhibit 10.41 to the Company's Registration Statement on S-4 (No.
333-45170) and incorporated by reference herein.
10.19 + Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E.
Lisiewski, filed as Exhibit 10.43 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.20 + Franchise Agreement Addendum 2 and Area Development Agreement Addendum
2, dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs.
Fields' Original Cookies, Inc., filed as Exhibit 10.44 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.21 + Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as
Exhibit 10.45 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.22 + Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as
Exhibit 10.46 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.23 + Shareholder Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Martin E. Lisiewski and Pretzel Time,
Inc., filed as Exhibit 10.47 to the Company's Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.24 + Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.25 + Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.26 + $500,000 Promissory Note, dated as of September 2, 1997, between
Martin E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as
Exhibit 10.50 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
4
<PAGE>
EXHIBIT (CONTINUED)
10.27 + Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.28 + Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as
Exhibit 10.52 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.29 + Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as
Exhibit 10.53 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein.
10.30 + Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members
of H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.31 + Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.54 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.32 Uniform Franchise Offering Circular of Pretzel Time, Inc., as amended
on August 24, 1998
10.33 Uniform Franchise Offering Circular of Great American Cookie Company,
Inc., as amended on November 24, 1998
10.34 + Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.57 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein.
10.35 + Assignment of Assets and Assumption of Liabilities Agreement, dated
July 25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields'
Pretzel Concepts, Inc., filed as Exhibit 10.62 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.36 + First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited,
filed as Exhibit 10.64 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.37 + First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July
25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen,
filed as Exhibit 10.65 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.38 + Lease Agreement, dated March 2, 1995, between Price Development
Company, Limited Partnership and Mrs. Fields Cookies, filed as Exhibit
10.69 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.39 + Consulting Agreement, dated November 26, 1996, between Debra J. Fields
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.40 + Mrs. Fields' Holding Company, Inc. Director Stock Option Plan
10.41 + Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan
10.42 + Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan
10.43 + Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as Exhibit 10.73 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.44 + Intellectual Property Security Agreement, dated as of February 28,
1998, between Mrs. Fields' Original Cookies, Inc. and LaSalle National
Bank
10.45 + Pledge and Security Agreement, dated as of February 28, 1998, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank
10.46 + Stockholders' Agreement, dated as of July 17, 1998, between Mrs.
Fields' Holding Company, Inc. and its Stockholders
5
<PAGE>
EXHIBIT (CONTINUED)
10.47 + Form of Settlement Agreement and Release, by and among Mrs. Fields'
Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware
limited partnership, Great American Cookie Company, Inc., Cookies USA,
Inc., The Jordan Company, and the Franchisees parties thereto
10.48 + Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a/ Pennant Foods.
12.1 + Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
21.1 + Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Weinstein Spira & Company, P.C.
23.4 Consent of PricewaterhouseCoopers LLP
23.5 * Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Habif, Arogeti & Wynne, P.C.
23.7 Consent of BDO Siedman, LLP
23.8 Consent of AJ Robbins, P.C.
23.9 Consent of the Prior Management of Great American Cookie Company
24.1 + Power of Attorney of certain officers and directors of the Company,
included in Part II of this Registration Statement
24.2 + Power of Attorney of certain officers and directors of The Mrs.
Fields' Brand, Inc., included in Part II of this Registration
Statement
24.3 + Power of attorney of certain officers and directors of Great American
Cookie Company, Inc., included in Part II of this Registration
Statement
25.1 + Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
27.1 + Financial Data Schedule (for SEC use only), filed as Exhibit 27 to the
Company's Form 10-K for the year ended January 2, 1999
99.1 Form of Letter of Transmittal
99.2 * Form of Notice of Guaranteed Delivery
99.3 Schedule II - Valuation and Qualifying Accounts
99.4 * Guidelines for certification of taxpayer identification number on
substitute Form W-9
99.5 * Letter to Brokers
99.6 * Letter to Clients
________
* To be filed by amendment.
+ Filed previously
6
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers to sale are being made, a
post-effective amendment to this registration statement; (i) To include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; (iii) to include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liabilities under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired or involved therein, that was not the subject of and included in
the registration statement when it became effective.
7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Mrs. Fields'
Original Cookies, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Salt Lake City, State of Utah, on the 8th day of September,
1999.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By /s/Larry A. Hodges
----------------------
Larry A. Hodges
President/CEO
8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on September 8, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President, Chief Executive Officer
------------------------------------ and Director
(Larry A. Hodges)
/s/ Mark S. Tanner Senior Vice President, Chief
----------------------------------- Financial Officer
(Mark S. Tanner)
* Chairman of the Board of Directors
------------------------------------
(Herbert S. Winokur)
* Director
------------------------------------
(Richard M. Ferry)
* Director
------------------------------------
(Debbi Fields)
* Director
------------------------------------
(Nathaniel A. Gregory)
* Director
------------------------------------
(Walker Lewis)
* Director
------------------------------------
(Peter W. Mullin)
* Director
------------------------------------
(Gilbert C. Osnos)
* By: /s/ Michael R. Ward
------------------------------------
Michael R. Ward
Attorney-in-Fact
</TABLE>
9
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, The Mrs.
Fields' Brand, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Salt Lake City, State of Utah, on the 8th day of September,
1999.
THE MRS. FIELDS' BRAND, INC.
By /s/Larry A. Hodges
---------------------
Larry A. Hodges
President/CEO
10
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on September 8, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President, Chief Executive Officer
----------------------------------- and Director, Secretary & Treasurer
(Larry A. Hodges)
/s/ Mark S. Tanner Chief Financial Officer
-----------------------------------
(Mark S. Tanner)
* Chairman of the Board of Directors
-----------------------------------
(Herbert S. Winokur)
* Director
-----------------------------------
(Walker Lewis)
* By: /s/ Michael R. Ward
-----------------------------------
Michael R. Ward
Attorney-in-Fact
</TABLE>
11
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Great American
Cookie Company, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Salt Lake City, State of Utah, on the 8th day of September,
1999.
GREAT AMERICAN COOKIE COMPANY, INC.
By /s/Larry A. Hodges
---------------------
Larry A. Hodges
President/CEO
12
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on September 8, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board of Directors
------------------------------------- and President
(Larry A. Hodges)
/s/ Mark S. Tanner Chief Financial Officer and
------------------------------------- Vice President
(Mark S. Tanner)
/s/ Michael R. Ward Director
-------------------------------------
(Michael R. Ward )
* By: /s/ Michael R. Ward
-------------------------------------
Michael R. Ward
Attorney-in-Fact
</TABLE>
13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Pretzelmaker
Holdings, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Salt Lake City, State of Utah, on the 8th day of September,
1999.
PRETZELMAKER HOLDINGS, INC.
By /s/Larry A. Hodges
---------------------
Larry A. Hodges
President/CEO
14
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on September 8, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board of Directors
------------------------------------- and President
(Larry A. Hodges)
/s/ Mark S. Tanner Chief Financial Officer and
------------------------------------- Vice President
(Mark S. Tanner)
/s/ Michael R. Ward Director
-------------------------------------
Michael R. Ward
* By: /s/ Michael R. Ward
-------------------------------------
Michael R. Ward
Attorney-in-Fact
</TABLE>
15
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Pretzel Time,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Salt Lake City, State of Utah, on the 8th day of September, 1999.
PRETZEL TIME, INC.
By /s/Larry A. Hodges
---------------------
Larry A. Hodges
President/CEO
16
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Pretzel Time, Inc. and each
of us, do hereby constitute and appoint Michael R. Ward our true and lawful
attorney and agent, with power of substitution, to do any and all acts and
things in our name and behalf in our capacities as directors and officers and
to execute any and all instruments for us and in our names in the capacities
indicated above, which said attorney and agent may deem necessary or advisable
to enable said corporation to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission (the "Commission"), in connection with this Registration
Statement on Form S-4, and any and all amendments to said Registration
Statement and all instruments necessary or incidental in connection therewith,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names, in the capacities indicated below, any and all
amendments hereto, and to file the same with the Commission. Said attorney
shall have full power and authority to do and perform in the name and on behalf
of each of the undersigned, in any and all capacities, every act whatsoever
requisite or necessary to be done in the premises as fully and to all intents
and purposes as each of the undersigned might or could do in person, hereby
ratifying and approving the acts of said attorneys and each of them.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on September 8, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Larry A. Hodges Chairman of the Board of Directors
------------------------------------- and President
(Larry A. Hodges)
/s/ Mark S. Tanner Chief Financial Officer and
------------------------------------- Vice President
(Mark S. Tanner)
/s/ Michael R. Ward Director
-------------------------------------
(Michael R. Ward )
</TABLE>
17
<PAGE>
EXHIBIT INDEX
EXHIBIT
1.1+ Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Original Cookies, Inc., The Mrs. Fields Brand Inc., Jefferies & Company,
Inc. and BT Alex. Brown Incorporated
2.1 Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time,Inc., dated as of
January 2, 1998
2.2 Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of June
12, 1998.
2.3+ Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998
2.4+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998.
2.5+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton, Steven
J. Bryan and Jason A. Piltzmaker, holders of all outstanding capital
stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2 to the 8-K
dated September 3, 1998.
2.6+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as Exhibit 2.4 to
the 8-K dated September 3, 1998.
2.7+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Crossroads Cookies, Inc. Filed as Exhibit 2.5 to the 8-K dated September
3, 1998.
2.8+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Hot Barton and Northpark Cookies, Inc. Filed as Exhibit 2.6 to the 8-K
dated September 3, 1998.
2.9+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Northpark Cookies, Inc. Filed as Exhibit 2.7 to the 8-K dated September
3, 1998.
2.10+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Quail Springs Cookies, Inc. Filed as Exhibit 2.8 to the 8-K dated
September 3, 1998.
2.11+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Westgate Cookies, Inc. Filed as Exhibit 2.9 to the 8-K dated September 3,
1998. See changes on Pg 3 (2.10-2.13)
2.12 Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer, The Cookie Conglomerate, Inc. and The Cookie Conglomerate,
LLP., the sellers, and Ronald A. Eichel and Alan M. Kuehn, partners of
The Cookie Conglomerate LLP. and shareholders of The Cookie Conglomerate,
Inc., dated as of October 5, 1998.
2.13 Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer and Martin E. Lisiewski, a shareholder of Pretzel Time, Inc., dated
as of December 9, 1998.
2.14 Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Mrs. Fields' Original Cookies, Inc. as buyer, and Pretzel Time, Inc. and
Martin E. Lisiewski as seller, dated as of December 30, 1998.
2.15 Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer and Pretzelmaker Holdings, Inc., Mark A. Geman, Donald G. Cox, Jr.
and Louis H. Marks as principal sellers, dated as of November 19, 1998.
3.1+ Restated Certificate of Incorporation of Mrs. Fields' Original Cookies,
Inc., filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (No. 333-45179) and incorporated by reference herein
3.2+ Restated Certificate of Incorporation of The Mrs. Fields' Brand, Inc.,
filed as Exhibit 3.2 to the Company's Registration Statement on Form S-4
(No. 333-45179) and incorporated by reference herein
3.3+ Certificate of Designations of the Mrs. Fields' Brand, Inc., dated as of
September 18, 1996, filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-4 (No. 333-45179) and incorporated by reference
herein
3.4+ Amended and Restated Certificate of Incorporation of Great American
Cookie Company, Inc.
3.5+ Articles of Incorporation of Pretzelmaker Holdings, Inc.
3.6 Articles of Incorporation of Pretzel Time, Inc.
3.7+ By-Laws of Mrs. Fields' Original Cookies, Inc., filed as Exhibit 3.4 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
3.8+ By-Laws of The Mrs. Fields' Brand, Inc., filed as Exhibit 3.5 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
3.9+ By-Laws of Great American Cookie Company, Inc.
3.10+ By-Laws of Pretzelmaker Holdings, Inc.
3.11 By-Laws of Pretzel Time, Inc.
4.1+ Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York, as
Trustee, filed as Exhibit 4.1 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein.
4.2+ Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.1)
4.3+ Form of Certificate of Senior Note (included as Exhibit A to Exhibit 4.1)
4.4+ First Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields Brand, Inc., and The Bank
of New York, as Trustee
4.5+ Second Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., and The Bank of New York, as trustee
4.6+ Third Supplemental Indenture, dated as of November 20, 1998, among Mrs.
Fields' Original Cookies, Inc., Great American Cookie Company, Inc., The
Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., and The Bank of
New York, as a Trustee
4.7+ Registration Rights Agreement, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields Brand, Inc., Great
American Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
5.1* Opinion and consent of Skadden, Arps, Meagher & Flom LLP as to legality
of the new senior notes to be issued by Mrs. Fields' Original Cookies,
Inc. and the new guarantees to be issued by The Mrs. Fields' Brand, Inc.,
A Great American Cookie Company, Inc., Pretzelmaker Holdings, Inc. and
Pretzel Time, Inc.
10.1+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P., filed as Exhibit 10.1 to the Company's Registration Statement on S-
4 (No. 333-45179) and incorporated by reference herein
10.2+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn Investors II,
L.P., filed as Exhibit 10.11 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.3+ Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain,
filed as Exhibit 10.27 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.4+ Amendment, dated December 1, 1997, to Amended and Restated Marketing
Agreement between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain
10.5+ Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on November 13, 1997
and December 1, 1997 between Mrs. Fields' Original Cookies, Inc. and
Coco-Cola USA Fountain.
10.6+ Employment Agreement, dated as of October 1, 1997, between Michael R.
Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.7+ Employment Agreement, dated as of October 1, 1997, between Pat Knotts
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.29 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.8+ Employment Agreement, dated as of October 1, 1997, between L. Tim
Pierce and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.9+ Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.31 the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.10+ Employment Agreement, dated as of July 10, 1997, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.11+ Lease Agreement, dated as of February 23, 1993, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.32 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.12+ Lease Agreement, dated as of October 10, 1995, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.33 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.13+ Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as
Exhibit 10.34 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.14+ Lease Agreement, dated as of January 18, 1998, between 2855 E.
Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc., filed
as Exhibit 10.35 to the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.15+ Amendment to Supply Agreement, dated as of June 19, 1995 between Van
Den Bergh Foods Company and Mrs. Fields, Inc., filed as Exhibit 10.37
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.16+ Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.17+ License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit
10.40 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.18+ License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp., filed
as Exhibit 10.41 to the Company's Registration Statement on S-4 (No.
333-45170) and incorporated by reference herein.
10.19+ Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E.
Lisiewski, filed as Exhibit 10.43 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.20+ Franchise Agreement Addendum 2 and Area Development Agreement Addendum
2, dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs.
Fields' Original Cookies, Inc., filed as Exhibit 10.44 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.21+ Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.45 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.22+ Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.46 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.23+ Shareholder Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Martin E. Lisiewski and Pretzel Time,
Inc., filed as Exhibit 10.47 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
10.24+ Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.25+ Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.26+ $500,000 Promissory Note, dated as of September 2, 1997, between Martin
E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as Exhibit
10.50 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.27+ Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.28+ Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.52 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.29+ Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.53 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein.
10.30+ Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members of
H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.31+ Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.54 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.32 Uniform Franchise Offering Circular of Pretzel Time, Inc., as amended
on August 24, 1998
10.33 Uniform Franchise Offering Circular of Great American Cookie
Company, Inc., as amended on November 24, 1998
10.34+ Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.57 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein.
10.35+ Assignment of Assets and Assumption of Liabilities Agreement, dated
July 25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc., filed as Exhibit 10.62 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.36+ First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited,
filed as Exhibit 10.64 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.37+ First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July
25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen,
filed as Exhibit 10.65 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.38+ Lease Agreement, dated March 2, 1995, between Price Development
Company, Limited Partnership and Mrs. Fields Cookies, filed as Exhibit
10.69 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.39+ Consulting Agreement, dated November 26, 1996, between Debra J. Fields
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.40+ Mrs. Fields' Holding Company, Inc. Director Stock Option Plan
10.41+ Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan
10.42+ Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan
10.43+ Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as Exhibit 10.73 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.44+ Intellectual Property Security Agreement, dated as of February 28,
1998, between Mrs. Fields' Original Cookies, Inc. and LaSalle National
Bank
10.45+ Pledge and Security Agreement, dated as of February 28, 1998, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank
10.46+ Stockholders' Agreement, dated as of July 17, 1998, between Mrs.
Fields' Holding Company, Inc. and its Stockholders
10.47+ Form of Settlement Agreement and Release, by and among Mrs. Fields'
Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware
limited partnership, Great American Cookie Company, Inc., Cookies USA,
Inc., The Jordan Company, and the Franchisees parties thereto
10.48+ Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a Pennant Foods.
12.1+ Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
21.1+ Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Weinstein Spira & Company, P.C.
23.4 Consent of PricewaterhouseCoopers LLP
23.5* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Habif, Arogeti, & Wynne, P.C.
23.7 Consent of BDO Siedman, LLP
23.8 Consent of AJ Robbins, P.C.
23.9 Consent of Prior Management of Great American Cookie Company
24.1+ Power of Attorney of certain officers and directors of the Company,
included in Part II of this Registration Statement
24.2+ Power of Attorney of certain officers and directors of The Mrs. Fields'
Brand, Inc., included in Part II of this Registration Statement
24.3+ Power of attorney of certain officers and directors of Great American
Cookie Company, Inc., included in Part II of this Registration
Statement
25.1+ Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
27.1+ Financial Data Schedule (for SEC use only), filed as Exhibit 27 to the
Company's Form 10-K for the year ended January 2, 1999
99.1 Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3 Schedule II - Valuation and Qualifying Accounts
99.4* Guidelines for certification of taxpayer identification number on
substitute Form W-9*
99.5* Letter to Brokers*
99.6* Letter to clients*
________
* To be filed by amendment.
+ Filed previously
<PAGE>
EXHIBIT A
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of January 2,
1998, by and among Mrs. Fields' Holding Company, Inc., a Delaware corporation
(the "Buyer"), and Martin E. Lisiewski, shareholder of Pretzel Time, Inc., a
Pennsylvania corporation (the "Company"), who becomes the "Seller". The Buyer
and the Seller are referred to collectively herein as the "Parties."
A. The Seller collectively owns ____________ (_____) shares of the issued
and outstanding common stock of the Company;
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, four (4) shares
of the outstanding common stock (par value $10.00 per share) of the Company
owned by the Seller (the "Shares"), as part of a series of transactions in which
the Buyer is acquiring common stock in the Company, and is also entering into
other related transactions (collectively, the "Related Transactions");
WHEREAS, the Buyer will purchase the Shares of the Company in return for
cash as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. PURCHASE AND SALE OF SHARES.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell to the Buyer, each of the Shares for the consideration specified
below in Section 1(b).
(b) Purchase Price. The Buyer agrees to pay to the Seller at the
Closing the sum of Seventy-Five Thousand Dollars ($75,000) per Share (the
"Purchase Proceeds") for a total of Three Hundred Thousand Dollars ($300,000)
(the "Purchase Price"), by delivery of certified funds for the Purchase Price
payable in accordance with this Agreement.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Buyer in Salt
Lake City, Utah, on a mutually agreeable date between January 2 and January 9,
1998 (the "Closing Date"), unless extended by written agreement of the Parties.
<PAGE>
(d) Deliveries at the Closing. At Closing, the Seller will deliver to
the Buyer, the various documents referred to in Section 5(a) below, including
the stock certificate(s) representing each of the Seller's Shares, endorsed in
blank or accompanied by duly executed assignment documents.
2. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section 2(a) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
2(a)) with respect to himself except as set forth on the Disclosure Schedule
affixed hereto.
(i) Organization of Certain Seller. If the Seller is a corporation,
the Seller is duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Seller has full power and
authority (including, if the Seller is a corporation, full corporate power
and authority) to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not 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 by
this Agreement.
(iii) Noncontravention. To the best of Seller's knowledge, neither
the execution and the delivery of this Agreement, nor the consummation of
the transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge or other restriction of any government, governmental agency or court
to which the Seller is subject or, if the Seller is a corporation, any
provision of its charter or bylaws, or (B) 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 under any agreement, contract, lease, license,
instrument or other arrangement to which the Seller is a party or by which
the Seller is bound or to which any of the Seller's assets is subject.
(iv) Brokers' Fees. The Seller has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
2
<PAGE>
become liable or obligated.
(v) Shares. The Seller holds of record and owns beneficially the
number of Shares (but no more or other shares of the common stock of
the Company than) set forth in paragraph A above. The Seller holds and
owns each of the Shares free and clear of any restrictions on
transfer, any federal, state or local taxes of any kind, taxes,
mortgage, pledge, lien, encumbrance, charge or other security
interests, options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. Other than this Agreement and other
written agreements with the Company and/or the Buyer, the Seller is
not a party to (A) any option, warrant, purchase right, shareholders
agreement, co-sale agreement, buy-sell agreement or other contract or
commitment that could require the Seller to sell, transfer or
otherwise dispose of any capital stock of the Company (other than this
Agreement), or (B) any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
(vi) Legal Compliance/Litigation. To the best of his knowledge,
the Seller and his respective predecessors and affiliates have
complied with all applicable laws of federal, state, local and foreign
governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand
or notice has been filed or commenced against any of them alleging any
failure so to comply. To the best of his knowledge, there are no
outstanding injunctions, judgments, orders, decrees, rulings or
charges affecting their Shares. To the best of his knowledge, there
are no actions, suits, proceedings, hearings or investigations, and
the Seller does not have reason to believe that any such action, suit,
proceeding, hearing or investigation may be brought or threatened,
against the Seller.
(vii) Investigation. The Seller has investigated or had full
opportunity to investigate the terms and conditions of the
transactions contemplated by this Agreement, including the Purchase
Price, and deems them to be fair and appropriate.
3. PRE-CLOSING COVENANTS. With respect to the period between the
execution of this Agreement and the Closing, (A) each of the Parties will use
his reasonable best efforts to take all action and to do all things necessary,
proper or advisable in order to consummate and make effective the transactions
contemplated by this Agreement, (B) the Seller will use his best efforts to
obtain any third-party consents that the Buyer may request or to otherwise
consummate the transactions contemplated hereby, and (C) the Seller will give
prompt written notice to the Buyer of any material adverse development causing a
breach of any of the representations and warranties in Section 2 above.
3
<PAGE>
4. POST-CLOSING COVENANTS. The Parties agree that if at any time after
the Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party reasonably may request.
5. CONDITIONS TO CLOSING.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to the satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 2
above shall be true and correct in all material respects at and as of
the Closing Date.
(ii) The Seller shall have performed and complied with all of
their covenants hereunder in all material respects through the
Closing.
(iii) The Seller shall have procured any third party consents
required for the sale of the Shares.
(iv) No action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own
the Shares.
(v) The Buyer shall have obtained on terms and conditions
reasonably satisfactory to it all of the financing required to
consummate the transactions contemplated hereby and by the Related
Transactions.
(vi) The Seller shall be prepared to deliver the certificates
and documents in the form and executed as required by this Agreement.
(vii) All actions to be taken by the Seller in connection with
consummation of the transactions contemplated by this Agreement, and
all certificates, and other documents required to effect the
transactions contemplated hereby, will be satisfactory in form and
substance to the Buyer.
(viii) The Closing of the Related Transactions shall have
occurred.
4
<PAGE>
(ix) Neither the Company nor the Principal Shareholder
shall be in breach under the terms and conditions of any of the
Stock Acquisition Agreement (as defined in Section 6 below) and
the documents executed in connection with the Related
Transactions.
The Buyer may waive any condition specified in this Section 5(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the
following conditions:
(i) No action, suit or proceeding shall be pending
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction for
before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, or (B) cause any of the transactions between the Buyer
and the Seller contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order,
decree, ruling or charge shall be in effect).
(ii) The Buyer shall be prepared to deliver the Purchase
Proceeds as required by Section 1(b).
(iii) The Closing of the Related Transactions shall have
occurred.
The Seller may waive any condition specified in this Section 5(b) if
they execute a writing so stating at or prior to the Closing.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Seller contained in
this Agreement shall survive the Closing hereunder (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its
representations, warranties, and covenants contained herein, and, if the Buyer
makes a written claim for indemnification against any
5
<PAGE>
of the Seller therefor, then, the Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences that the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach.
(ii) If any third party shall notify Fields with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the Seller under this ' 6, then Fields shall promptly
notify the Seller thereof in writing, provided, however, that no delay on the
part of Fields in notifying the Seller shall relieve the Seller from any
obligation hereunder unless (and then solely to the extent) the Seller is
prejudiced. The indemnification procedure respecting a Third Party Claim
hereunder shall be the same as set forth in Section 9(c) of that certain Stock
Acquisition Agreement, dated as of September 2, 1997 (the "Acquisition
Agreement"), by and between Fields, the Company and the Seller (therein referred
to as the Principal Shareholder).
(iii) All claims for indemnification made under this Agreement
shall be subject to the terms and conditions of Sections 9(d) (Determination of
Adverse Consequences), (f) (Rights of Offset) and (g) (Limitation of Rights of
Offset) of the Stock Acquisition Agreement, and the indemnity payment for such
claims shall be determined as if such claims were made under the Stock
Acquisition Agreement.
(iv) The foregoing indemnification provisions are in addition
to, and not in derogation of, any statutory, equitable, or common law remedy
Fields may have for breach of representation, warranty, or covenant.
7. TERMINATION.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) The Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing.
(ii) The Buyer or the Seller may terminate this Agreement if
the Closing does not occur on or before January 30, 1998.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to this Section, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach).
6
<PAGE>
8. MISCELLANEOUS.
(a) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
(c) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
affiliates, and (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Martin E. Lisiewski
4800 Linglestown Road, Suite 202
Harrisburg, PA 17112
With a copy to: Mette, Evans & Woodside
Attention: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
7
<PAGE>
If to the Buyer: Mrs. Fields' Holding Company, Inc.
462 West Bearcat Drive
Salt Lake City, UT 84115
Attention: Larry A. Hodges, President
With a Copy to: Jones, Waldo, Holbrook & McDonough
170 South Main Street, Suite 1500
Salt Lake City, UT 84101
Attention: Glen D. Watkins
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Utah without giving
effect to any choice or conflict of law provision or rule thereof.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and each of the Sellers. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(i) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(j) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. The Seller agrees
that none of the Company and its Subsidiaries has borne or will bear any of
the Seller's costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
8
<PAGE>
(k) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(l) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter, in addition to
any other remedy to which they may be entitled, at law or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER: MRS. FIELDS' HOLDING COMPANY, INC.
By:____________________________________________________
Its:___________________________________________________
SELLER:
____________________________________
Martin E. Lisiewski
9
<PAGE>
DISCLOSURE SCHEDULE TO STOCK ACQUISITION AGREEMENT
Section 2(a):
- ------------
None, unless otherwise stated below.
_________________ __________________
Buyer's Initials Seller's Initials
10
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of June 12, 1998,
by and among Mrs. Fields' Holding Company, Inc., a Delaware corporation (the
"Buyer"), and Martin E. Lisiewski, shareholder of Pretzel Time, Inc., a
Pennsylvania corporation (the "Company"), who becomes the "Seller". The Buyer
and the Seller are referred to collectively herein as the "Parties."
A. The Seller owns forty (40) shares of the issued and outstanding common
stock of the Company;
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, ten (10)
shares of the outstanding common stock (par value $10.00 per share) of the
Company owned by the Seller (the "Shares"), as part of a series of
transactions in which the Buyer is acquiring common stock in the Company, and
is also entering into other related transactions (collectively, the "Related
Transactions");
WHEREAS, the Buyer will purchase the Shares of the Company in return for
cash as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. PURCHASE AND SALE OF SHARES.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Seller, and the
Seller agrees to sell to the Buyer, each of the Shares for the
consideration specified below in Section 1(b).
(b) Purchase Price. The Buyer agrees to pay to the Seller at the
Closing the sum of Eighty Seven Thousand Five Hundred Dollars ($87,500)
per Share (the "Purchase Proceeds") for a total of Eight Hundred Seventy
Five Thousands Dollars ($875,000) (the "Purchase Price"), by delivery of
certified funds for the Purchase Price payable in accordance with this
Agreement.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Buyer in
Salt Lake City, Utah, on June 12, 1998 (the "Closing Date"), unless
extended by written agreement of the Parties.
(d) Deliveries at the Closing. At Closing, the Seller will deliver to
the Buyer, the various documents referred to in Section 5(a) below,
including the stock
<PAGE>
certificate(s) representing each of the Seller's Shares, endorsed in blank
or accompanied by duly executed assignment documents.
2. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 2(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 2(a)) with respect to himself except as
set forth on the Disclosure Schedule affixed hereto.
(i) Organization of Certain Seller. If the Seller is a
corporation, the Seller is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Seller has full power and
authority (including, if the Seller is a corporation, full corporate
power and authority) to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in
accordance with its terms and conditions. The Seller need not 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 by this Agreement.
(iii) Noncontravention. To the best of Seller's knowledge,
neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A) violate
any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Seller is subject or, if the
Seller is a corporation, any provision of its charter or bylaws, or
(B) 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 under
any agreement, contract, lease, license, instrument or other
arrangement to which the Seller is a party or by which the Seller is
bound or to which any of the Seller's assets is subject.
(iv) Brokers' Fees. The Seller has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
2
<PAGE>
(v) Shares. The Seller holds of record and owns beneficially
the number of Shares (but no more or other shares of the common stock
of the Company than) set forth in paragraph A above. The Seller holds
and owns each of the Shares free and clear of any restrictions on
transfer, any federal, state or local taxes of any kind, taxes,
mortgage, pledge, lien, encumbrance, charge or other security
interests, options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. Other than this Agreement and other
written agreements with the Company and/or the Buyer, the Seller is
not a party to (A) any option, warrant, purchase right, shareholders
agreement, co-sale agreement, buy-sell agreement or other contract or
commitment that could require the Seller to sell, transfer or
otherwise dispose of any capital stock of the Company (other than this
Agreement), or (B) any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
(vi) Legal Compliance/Litigation. To the best of his knowledge,
the Seller and his respective predecessors and affiliates have
complied with all applicable laws of federal, state, local and foreign
governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand
or notice has been filed or commenced against any of them alleging any
failure so to comply. To the best of his knowledge, there are no
outstanding injunctions, judgments, orders, decrees, rulings or
charges affecting their Shares. To the best of his knowledge, there
are no actions, suits, proceedings, hearings or investigations, and
the Seller does not have reason to believe that any such action, suit,
proceeding, hearing or investigation may be brought or threatened,
against the Seller.
(vii) Investigation. The Seller has investigated or had full
opportunity to investigate the terms and conditions of the
transactions contemplated by this Agreement, including the Purchase
Price, and deems them to be fair and appropriate.
3. PRE-CLOSING COVENANTS. With respect to the period between the
execution of this Agreement and the Closing, (A) each of the Parties will use
his reasonable best efforts to take all action and to do all things necessary,
proper or advisable in order to consummate and make effective the transactions
contemplated by this Agreement, (B) the Seller will use his best efforts to
obtain any third-party consents that the Buyer may request or to otherwise
consummate the transactions contemplated hereby, and (C) the Seller will give
prompt written notice to the Buyer of any material adverse development causing a
breach of any of the representations and warranties in Section 2 above.
4. POST-CLOSING COVENANTS. The Parties agree that if at any time after
the Closing, any further action is necessary or desirable to carry out the
purposes of this Agreement, each of the
3
<PAGE>
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request.
5. CONDITIONS TO CLOSING.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to the satisfaction of the following
conditions:
(i) The representations and warranties set forth in Section 2
above shall be true and correct in all material respects at and as of
the Closing Date.
(ii) The Seller shall have performed and complied with all of
their covenants hereunder in all material respects through the
Closing.
(iii) The Seller shall have procured any third party consents
required for the sale of the Shares.
(iv) No action, suit or proceeding shall be pending or
threatened before any court of quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own
the Shares.
(v) The Buyer shall have obtained on terms and conditions
reasonably satisfactory to it all of the financing required to
consummate the transactions contemplated hereby and by the Related
Transactions.
(vi) The Seller shall be prepared to deliver the certificates
and documents in the form and executed as required by this Agreement.
(vii) All actions to be taken by the Seller in connection with
consummation of the transactions contemplated by this Agreement, and
all certificates, and other documents required to effect the
transactions contemplated hereby, will be satisfactory in form and
substance to the Buyer.
(viii) The Closing of the Related Transactions shall have
occurred.
(ix) Neither the Company nor the Principal Shareholder shall be
in breach under the terms and conditions of any of the Stock
Acquisition Agreement (as
4
<PAGE>
defined in Section 6 below) and the documents executed in connection
with the Related Transactions.
The Buyer may waive any condition specified in this Section 5(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(i) No action, suit or proceeding shall be pending threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction for before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, or (B) cause any of the
transactions between the Buyer and the Seller contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling or charge shall be in
effect).
(ii) The Buyer shall be prepared to deliver the Purchase
Proceeds as required by Section 1(b).
(iii) The Closing of the Related Transactions shall have
occurred.
The Seller may waive any condition specified in this Section 5(b) if they
execute a writing so stating at or prior to the Closing.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Seller contained in this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect forever thereafter (subject to
any applicable statutes of limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its representations,
warranties, and covenants contained herein, and, if the Buyer makes a written
claim for indemnification against any of the Seller therefor, then, the Seller
agrees to indemnify the Buyer from and against the entirety of any Adverse
Consequences that the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may suffer
after the end of any
5
<PAGE>
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach.
(ii) If any third party shall notify Fields with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the Seller under this (S) 6, then Fields shall promptly
notify the Seller thereof in writing, provided, however, that no delay on the
part of Fields in notifying the Seller shall relieve the Seller from any
obligation hereunder unless (and then solely to the extent) the Seller is
prejudiced. The indemnification procedure respecting a Third Party Claim
hereunder shall be the same as set forth in Section 9(c) of that certain Stock
Acquisition Agreement, dated as of September 2, 1997 (the "Acquisition
Agreement"), by and between Fields, the Company and the Seller (therein referred
to as the Principal Shareholder).
(iii) All claims for indemnification made under this Agreement
shall be subject to the terms and conditions of Sections 9(d) (Determination of
Adverse Consequences), (f) (Rights of Offset) and (g) (Limitation of Rights of
Offset) of the Stock Acquisition Agreement, and the indemnity payment for such
claims shall be determined as if such claims were made under the Stock
Acquisition Agreement.
(iv) The foregoing indemnification provisions are in addition
to, and not in derogation of, any statutory, equitable, or common law remedy
Fields may have for breach of representation, warranty or covenant.
7. TERMINATION.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) The Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing.
(ii) The Buyer or the Seller may terminate this Agreement if the
Closing does not occur on or before June 30, 1998.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to this Section, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other
Party (except for any liability of any Party then in breach).
8. MISCELLANEOUS.
(a) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
6
<PAGE>
(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or
among the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof.
(c) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of his or its rights, interests or obligations hereunder without the
prior written approval of the Buyer and the Seller, provided, however, that
the Buyer may (i) assign any or all of its rights and interests hereunder
to one or more of its affiliates, and (ii) designate one or more of its
affiliates to perform its obligations hereunder (in any or all of which
cases the Buyer nonetheless shall remain responsible for the performance of
all of its obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Seller: Martin E. Lisiewski
4800 Linglestown Road, Suite 202
Harrisburg, PA 17112
With a copy to: Mette, Evans & Woodside
Attention: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
If to the Buyer: Mrs. Fields' Holding Company, Inc.
462 West Bearcat Drive
Salt Lake City, UT 84115
Attention: Larry A. Hodges, President
7
<PAGE>
With a Copy to: Jones, Waldo, Holbrook & McDonough
170 South Main Street, Suite 1500
Salt Lake City, UT 84101
Attention: Glen D. Watkins
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Utah without giving
effect to any choice or conflict of law provision or rule thereof.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and each of the Sellers. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(i) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(j) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. The Seller agrees
that none of the Company and its Subsidiaries has borne or will bear any of
the Seller's costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(k) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
8
<PAGE>
(l) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter, in addition to
any other remedy to which they may be entitled, at law or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER: MRS. FIELDS' HOLDING COMPANY, INC.
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------------------
Its: V.P.
--------------------------------
SELLER:
/s/ Martin E. Lisiowski
-------------------------------------
Martin E. Lisiowski
9
<PAGE>
DISCLOSURE SCHEDULE TO STOCK ACQUISITION AGREEMENT
Section 2(a):
- ------------
None, unless otherwise stated below.
/s/ [SIGNATURE ILLEGIBLE] M.L.
- --------------------------- -----------------
Buyer's Initials Seller's Initials
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
Dated as of October 5, 1998
between
MRS. FIELDS' ORIGINAL COOKIES, INC.
as Buyer,
and
THE COOKIE CONGLOMERATE, LLP,
and
THE COOKIE CONGLOMERATE, INC.
as Sellers,
and
RONALD A. EICHEL AND ALAN M. KUEHN,
as Seller Related Parties
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Purchase, Sale and Assumption.................................................. 1
2. Closing; Transactions to be Effected; Purchase Price Adjustment................ 6
3. Conditions to Closing.......................................................... 7
4. Representations and Warranties of the Sellers and Seller Related Parties....... 9
5. Covenants of the Sellers and Seller Related Parties............................ 16
6. Representations and Warranties of the Buyer.................................... 18
7. Covenants of the Buyer......................................................... 19
8. Mutual Covenants............................................................... 19
9. Employee and Related Matters................................................... 20
10. Further Assurances............................................................. 20
11. Indemnification................................................................ 21
12. Assignment..................................................................... 25
13. No Third-Party Beneficiaries................................................... 26
14. Termination.................................................................... 26
15. Survival of Representations.................................................... 27
16. Expenses....................................................................... 27
17. Amendments; Waiver............................................................. 28
18. Notices........................................................................ 28
19. Interpretation................................................................. 29
20. Counterparts................................................................... 29
21. Entire Agreement............................................................... 29
22. Fees........................................................................... 29
23. Severability................................................................... 29
24. Attorney's Fees................................................................ 29
25. No Third-Party Beneficiaries................................................... 29
26. Governing Law.................................................................. 30
27. Remedies....................................................................... 30
28. Submission to Jurisdiction..................................................... 30
</TABLE>
Exhibits:
A - List of Stores
B - Store Cash
C - Bill of Sale
D - Centennial Escrow Agreement
E - Allocation Schedule
F - Closing Escrow Agreement
G - Franchise Termination Agreement
H - Opinion of Counsel for Sellers and Seller Related Parties
i
<PAGE>
Disclosure Schedules:
(S)1(a) Acquired Assets
(S)1(b)(iv) Excluded Assets
(S)1(c)(ii) Assumed Liabilities
(S)3(a)(vi) Consents
(S)4(a) Organization and Standing
(S)4(b) Officers, Directors, Shareholders, Managers
(S)4(c) Financial Statements
(S)4(d) Taxes
(S)4(e) Liens
(S)4(f) Condition of Assets
(S)4(g) Intellectual Property
(S)4(h) Contracts
(S)4(i) Litigation
(S)4(j) Insurance
(S)4(l) Absence of Material Changes
(S)4(m) Environmental Matters
(S)4(n) Employment Matters
(S)4(o) Licenses and Permits
(S)4(p) Inventory
(S)4(r) Product Liability
ii
<PAGE>
ASSET PURCHASE AGREEMENT
MRS. FIELDS' ORIGINAL COOKIES, INC.
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of October 5, 1998, among
MRS. FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation ("Buyer"); THE
COOKIE CONGLOMERATE, LLP, a Georgia limited liability partnership ("Cookie
LLP"), and THE COOKIE CONGLOMERATE, INC., a Georgia corporation ("Cookie Co.")
(Cookie LLP and Cookie Co. are collectively hereinafter referred to as "Seller"
in the singular and "Sellers" in the plural); and RONALD A. EICHEL and ALAN M.
KUEHN, individuals residing in Georgia, the partners of Cookie LLP and the
shareholders of Cookie Co. (collectively, "Seller Related Parties"); each a
"party" in the singular and "parties" in the plural.
A. The Sellers are franchisees of Great American Cookie Company, a
Delaware corporation ("Franchisor") pursuant to certain license agreements
(collectively, the "Franchise Agreements") and subleases (collectively, the
"Subleases") between Sellers and the Franchisor. The Seller Related Parties are
the respective partners and shareholders of Cookie LLP and Cookie Co. and will
receive financial and other benefits by reason of the consummation of the
transactions contemplated by this Agreement.
B. The parties desire that the Buyer purchase from the Sellers, and that
the Sellers sell to the Buyer, the Acquired Assets (defined below), and that the
Buyer assume the Assumed Liabilities (defined below), upon the terms and subject
to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
1. Purchase, Sale and Assumption.
-----------------------------
(a) Purchase and Sale. On the terms and subject to the conditions of
-----------------
this Agreement, each of the Sellers agrees to sell, transfer, assign and
deliver to the Buyer, and the Buyer agrees to accept and purchase from the
Sellers, at the Closing (defined below), free and clear of Liens (defined
below), all of the retail cookie and related business and operations owned
and operated by the Sellers as the "Cookie Conglomerate" at eleven (11)
stores and related kiosks (each a "Store"; collectively, the "Stores")
listed on Exhibit A, owned and operated by each of the Sellers (such
business and operations being herein called, collectively, the "Acquired
Business"), and all the assets and properties of each the Sellers of every
kind and description used or held for use in connection with the Acquired
Business (such assets and properties being herein called, collectively, the
"Acquired Assets"), other than the
<PAGE>
Excluded Assets (defined below). The Acquired Assets shall include without
limitation (i) all improvements, fixtures, signage, easements, rights-of-
way and other appurtenances thereto; (ii) all tangible personal property,
such as machinery, equipment, supplies, inventories (unless designated by
the Buyer on or before the Closing as an Excluded Asset), furniture and
tools; (iii) all agreements, contracts and instruments (but excluding the
Franchise Agreements, the Subleases, and any license and development
agreements between any of the Sellers and the Franchisor) that are
expressly assumed by the Buyer at the Closing; (iv) all customer and vendor
lists, books, records, ledgers, files, documents, correspondence, plans,
drawings, marketing information, materials and reports and other similar
materials, in written or electronic form; (v) all recipes, techniques,
processes, methods of production and commercialization, training methods
and know-how owned by each of the Sellers; (vi) store change funds in the
aggregate amount set forth by Store on Exhibit B (the "Store Cash"); and
(vii) all other assets listed on Schedule 1(a). The Acquired Assets shall
be transferred and conveyed to the Buyer at the Closing in the form of a
bill of sale (the "Bill of Sale") substantially in the form of Exhibit C.
(b) Excluded Assets. The term "Excluded Assets" means, collectively,
---------------
the following: (i) all cash and cash equivalents in the Sellers' bank
accounts other than Store Cash; (ii) all rights of the Sellers under the
Franchise Agreements and Subleases (to be terminated at the Closing); (iii)
all rights and claims of each of the Sellers with respect to the Excluded
Liabilities (defined below); (iv) all assets listed on Schedule 1(b)(iv);
(v) deposits with the Franchisor; (vi) other deposits made in connection
with lease, utility service and other similar agreements; (vii) rebates and
prepaid expenses relating to the period on or prior to the Closing Date;
(viii) all office furniture, fixtures and computer equipment located at the
Sellers' principal office at Chamblee Dunwoody Road, Georgia; and (iv) any
other assets of the Sellers not used in the Acquired Business and not set
forth in subparagraph (a) above.
(c) Assumed Liabilities. On the terms and subject to the conditions
-------------------
of this Agreement, the Buyer agrees to assume, at and effective from the
Closing, the Assumed Liabilities, other than the Excluded Liabilities. The
term "Assumed Liabilities" means, collectively, the following liabilities
and obligations of each of the Sellers: (i) all obligations under the
agreements, contracts, leases, licenses, and other arrangements referred to
in the description of Acquired Assets either (A) to furnish goods, services
and other non-cash benefits to another party after Closing, or (B) to pay
for goods, services and other non-cash benefits that another party will
furnish to the Acquired Business after Closing; and (ii) all other
liabilities of any of the Sellers listed on Schedule 1(c)(ii).
(d) Excluded Liabilities. The term "Excluded Liabilities" means any
--------------------
liability or obligation of any of the Sellers not expressly assumed in this
2
<PAGE>
Agreement, including without limitation:
(i) any liability in respect of any Excluded Assets (including
without limitation the Franchise Agreements and Subleases), any Vendor
Accounts (defined below) or any Bulk Sales Liabilities (defined
below);
(ii) any obligation or liability to any of the Sellers or
Seller Related Parties, including those in connection with the
transactions contemplated by this Agreement or the liquidation or
dissolution of any of the Sellers;
(iii) any liability for any Taxes (defined below) attributable
to taxable years or periods ending at the time of or prior to the
Closing, or, in the case of any Straddle Period (defined below), the
portion of such Straddle Period (as determined in Section 11(a)(i))
ending at the time of the Closing;
(iv) any obligation to indemnify any person by reason of the
fact that such person was a director, officer, employee, partner,
manager or agent of any of the Sellers or was serving at any of the
Sellers' request as a managing member, partner, trustee, director,
officer, employee or agent of another entity;
(v) any obligation or liability of any of the Sellers with
respect to any contract, agreement, arrangement or understanding with
any of its directors, officers, partners, managers, employees or
agents;
(vi) any liability under any Benefit Plan (defined below) or
other incentive plans or arrangements sponsored by any of the Sellers;
(vii) any obligation or liability with respect to the payment of
expenses pursuant to Section 16; and
(viii) except to the extent expressly assumed by the Buyer
pursuant to Section 1(c), any obligation or liability arising before
the Closing (defined below) under any agreement, contract, lease,
sublease, license or arrangement of any of the Sellers, including
without limitation those arising under any of the Franchise
Agreements.
(e) Purchase Price. The purchase price for the Acquired Assets (the
---------------
"Purchase Price") shall be Two Million Eight Hundred Thousand Dollars
($2,800,000), payable by wire transfer or delivery of other immediately
available funds, of which: (A) Two Million Seven Hundred Fifty Thousand
Dollars ($2,750,000) is payable in cash at the Closing (the "Cash Purchase
Price"), and (B) Fifty Thousand Dollars ($50,000) (the "Deferred Payments")
shall be deposited at the Closing into the Centennial Escrow Account
(defined below) for disbursement
3
<PAGE>
to the Sellers subject to the terms and conditions of (S) 1(f) below and
the Centennial Escrow Agreement (defined below).
(f) The Centennial Escrow. The Deferred Payments shall be deposited
---------------------
into an interest bearing escrow (the "Centennial Escrow Account")
established by the Buyer and the Seller prior to the Closing with
Centennial Bank ("Centennial") at its offices located at 46th and Harrison
Streets, Ogden, Utah, 84403, for disbursement subject to the terms and
conditions of this Agreement and that certain escrow agreement executed by
the Buyer, the Sellers and Centennial on or before the Closing
substantially in the form and substance of Exhibit D hereto (the
"Centennial Escrow Agreement"). Subject to the terms and conditions of
this Agreement and the Centennial Escrow Agreement, the Deferred Payments,
less all amounts that after Closing may be paid or recouped from or set-off
against the Deferred Payments pursuant to (S) 11(e) below, shall be paid
from the Centennial Escrow Account upon the later of (i) sixty (60) days
from the Closing Date, or (ii) the date on which the Sellers, through their
respective financial officers and partners, certify to the Buyer that the
Vendor Accounts, any Bulk Sales Liabilities (defined below) and any
prorations to be paid by the Seller pursuant to (S) 1(h) below, have been
paid or otherwise fully satisfied. The Closing Date shall be set forth in
the Escrow Agreement.
(g) Allocation of Purchase Price. At the Closing, the Purchase Price
----------------------------
(including, for purposes of this Section 1(g), any other consideration paid
to the Sellers, including the Assumed Liabilities) shall be allocated among
the Acquired Assets and the covenant not to compete set forth in Section
5(f) in accordance with Exhibit E (the "Allocation Schedule"). The Sellers
and the Buyer agree that the Allocation Schedule attached to this Agreement
at Closing shall reflect the estimated value of the tangible Acquired
Assets. On or before thirty (30) days after the Closing Date, the Sellers
shall provide the Buyer with a revised Allocation Schedule (the "Final
Allocation Schedule") reflecting (i) the actual book value of the tangible
Acquired Assets; and (ii) a corresponding adjustment to Goodwill. The
Final Allocation shall be subject to the Buyer's written approval. The
parties further agree that all Tax Returns (defined below) shall be filed
in accordance with the Final Allocation Schedule.
(h) Proration. All utility charges, rental charges, Taxes, payments
---------
to the Franchisor, and other like items assessed or payable with respect to
any of the Acquired Assets for the period in which the Closing occurs shall
be prorated as of the date of Closing between the Buyer and the Seller.
The parties shall use their commercially reasonable best efforts to
determine the amount of any such prorated items as of the Closing and
shall, to the extent of information available at the time of Closing,
prorate such items between them as provided in a Closing Memorandum (the
"Closing Memorandum") to be executed by the parties at the Closing. To the
extent information relating to such prorated items is not available
4
<PAGE>
at the time of Closing, the parties shall, as soon as practical after the
Closing, examine all relevant books and records in order to make the
determination of the apportionments of such prorated items as herein
provided. Payment of any such items which are not apportioned and prorated
at the Closing shall be made by the appropriate party by check within
thirty (30) days after such determination. Proration of ad valorem taxes
(whether assessed against real
property interests or personal property) shall be determined based upon
previous year's taxes.
(i) Nonassignable Assets. To the extent that any of the Acquired
--------------------
Assets is not capable of being assigned or transferred without the consent
or waiver of a third party (whether or not a governmental authority), or if
such assignment or transfer would constitute a breach thereof or a
violation of applicable law, this Agreement (and any related documents
delivered at the Closing) shall not constitute an actual or attempted
assignment or transfer thereof unless and until such consent or waiver of
such third party has been duly obtained or such assignment, transfer,
sublease or sublicense has otherwise become lawful (any of the Acquired
Assets not assigned or transferred as a result of this Section 1(i) is
hereinafter referred to as an "Unassigned Asset").
(j) Bulk Sales. The parties intend and agree that the purchase and
----------
sale of the Acquired Assets is excluded from the requirements of so-called
"Uniform Commercial Code - Bulk Transfers" laws (the "Bulk Sales Laws").
However, to the extent that the Bulk Sales Laws apply, the parties hereby
waive any compliance therewith. In consideration of the Buyer's agreement
to waive any such compliance, each of the Sellers:
(i) shall furnish to the Buyer at the Closing a list, certified
by a financial officer or partner having knowledge thereof, setting
forth such Sellers' accounts payable (and pay-off amounts therefor) as
of the Closing (including, without limitation, all accounts with and
liabilities to the Franchisor and to any persons that may have a
remedy under the Bulk Sales Laws, if applicable, with respect to the
transactions contemplated by this Agreement (collectively, the "Vendor
Accounts"));
(ii) hereby agrees to pay the Vendor Accounts payable to the
Franchisor at the Closing pursuant to the terms of the Closing Escrow
Agreement (defined below);
(iii) in the event the amount of the Seller's aggregate Vendor
Accounts less the portion thereof to be paid to the Franchisor at
Closing (the "Net Accounts") exceeds $50,000, hereby agrees to
authorize the Closing Escrow Agent (defined below) to pay from the
Cash Purchase Price all Net Accounts in excess of $50,000 at Closing
pursuant to the terms of the Closing Escrow Agreement;
5
<PAGE>
(iv) hereby agrees to pay each of the Vendor Accounts not
otherwise paid pursuant to Section 1(j)(ii) and 1(j)(iii) above, and
each of the Bulk Sales Liabilities, in the ordinary course of business
following the Closing but in no event later than sixty (60) days after
the Closing;
(v) pursuant to Section 11(b), that each of the Sellers and
the Seller Related Parties jointly and severally agree to indemnify
and hold the Buyer (and its officers, directors, employees, agents and
affiliates) harmless of and from any Loss (defined below) arising from
or in connection with (A) any of the Vendor Accounts, or (B) the
parties' non-compliance with any of the Bulk Sales Laws (collectively,
the "Bulk Sales Liabilities"). Such indemnification of the Buyer (and
related indemnified persons or entities) shall be in addition to, and
not in lieu of, any rights or remedies granted or available to the
Buyer (and any related indemnified persons or entities) under any Bulk
Sales Laws or other laws, under this Agreement or otherwise.
2. Closing; Transactions to be Effected; Purchase Price Adjustment.
---------------------------------------------------------------
(a) Closing. The closing (the "Closing") of the purchase and sale of
-------
the Acquired Assets and the Buyer's assumption of the Assumed Liabilities
shall be held at the offices of the Sellers' Counsel, Lawler & Tanner,
P.C., in Atlanta, Georgia, or as otherwise agreed by the parties, at a time
established by agreement of the parties, on the third business day after
October 1, 1998 on which all of the conditions to Closing set forth in
Section 3 of this Agreement are satisfied. The date on which the Closing
shall occur is hereinafter referred to as the "Closing Date". The
anticipated Closing Date is October 6, 1998. The Closing shall be
conducted in accordance with this Agreement and an Escrow Agreement in
substantially the form attached hereto as Exhibit F (the "Closing Escrow
Agreement") to be entered into by and among the Buyer, the Seller and
Tanner & Lawler, P.C. which, pursuant to the Closing Escrow Agreement,
shall serve as the Escrow Agent (the "Closing Escrow Agent") for the
Closing.
(b) Transactions to be Effected. At the Closing, on the terms and
---------------------------
subject to the conditions of this Agreement and the Closing Escrow
Agreement:
(i) the Closing Escrow Agent shall make the disbursements
required by Section 2.b of the Closing Escrow Agreement to pay the
Franchisor Accounts (as defined in the Closing Escrow Agreement) and
the Net Accounts in excess of $50,000, if any;
(ii) the Closing Escrow Agent shall deliver to the Buyer (A) the
appropriately executed and authenticated Bill of Sale and such other
6
<PAGE>
instruments of sale, assignment, transfer and conveyance to the Buyer
of the Acquired Assets as the Buyer or its counsel may reasonably
request, such instruments to be reasonably satisfactory in form to the
Buyer and its counsel; (B) the documents to be delivered by any of the
Sellers or Seller Related Parties pursuant to Section 3(a); and (C)
any other documents to be delivered by any of the Sellers or the
Seller Related Parties pursuant to the Closing Escrow Agreement;
(iii) the Closing Escrow Agent shall deliver to the Sellers (A)
the Cash Purchase Price, by wire transfer to a bank account which
shall be designated in writing by the Seller at least two business
days prior to the Closing Date; (B) such instruments of assumption
with respect to the Assumed Liabilities, appropriately executed and
authenticated by the Buyer, as the Sellers and Seller Related Parties
or their counsel may reasonably request, such instruments to be
reasonably satisfactory in form to the Sellers, the Seller Related
Parties and their counsel; (C) the documents to be delivered by the
Buyer pursuant to Section 3(b); and (D) any other documents to be
delivered by the Buyer to the Sellers pursuant to the Closing Escrow
Agreement; and
(iv) the Buyer shall deliver to Centennial the Deferred Payments
specified in (S) 1(e) above.
3. Conditions to Closing.
---------------------
(a) Buyer's Obligation. The obligation of the Buyer to purchase the
------------------
Acquired Assets is subject to the satisfaction (or waiver by the Buyer) as
of the Closing of the following conditions:
(i) The representations and warranties of each of the Sellers and
Seller Related Parties made in this Agreement shall be true and
correct as of the date hereof and on and as of the Closing, as though
made on and as of the Closing Date, and each of the Sellers and Seller
Related Parties shall have performed or complied in all material
respects with all obligations and covenants required by this Agreement
to be performed or complied with by each of the Sellers and Seller
Related Parties by the time of the Closing; and each of the Sellers
and Seller Related Parties shall have delivered to the Closing Escrow
Agent a certificate dated the Closing Date and signed by an authorized
officer or representative of each of them, confirming the foregoing;
(ii) No injunction or order of any court or administrative agency
of competent jurisdiction shall be in effect, and no statute, rule or
regulation of any governmental authority of competent jurisdiction
shall have been
7
<PAGE>
promulgated or enacted, as of the Closing which restrains or prohibits
the purchase and sale of the Acquired Assets;
(iii) The Buyer shall have concluded and, in its sole
discretion, shall be satisfied with the results of, its due diligence
investigation of the Sellers, the Seller Related Parties, the Acquired
Business, the Acquired Assets and the Assumed Liabilities;
(iv) There shall have been no material adverse changes in any
of the Acquired Assets or the Acquired Business;
(v) Each of the Sellers and the Buyer shall have obtained
consents, in a form reasonably satisfactory to each of the Sellers and
the Buyer, to the transactions contemplated hereby from the persons
whose consent is required for the transfer or assignment to the Buyer
of any of the Acquired Assets, including without limitation the
consents required with respect to each of the agreements identified on
Schedule 3(a)(vi);
(vi) Each of the Sellers and the Franchisor shall have entered
into agreements substantially in the form of Exhibit G providing for
the termination of the Franchise Agreements and the subleases and the
subleases, effective as of the Closing Date;
(vii) The Buyer shall have received an opinion dated the Closing
Date of Lawler & Tanner, P.C., counsel to the Sellers and the Seller
Related Parties, substantially in the form of Exhibit H;
(viii) Each of the Sellers shall have executed and delivered to
the Closing Escrow Agent, the Centennial Escrow Agreement.
(b) Sellers' Obligation. The obligation of the Sellers to sell,
-------------------
assign, transfer and deliver the Acquired Assets to the Buyer is subject to
the satisfaction (or waiver by all of the Sellers acting together) as of
the Closing of the following conditions:
(i) The representations and warranties of the Buyer made in
this Agreement shall be true and correct as of the date hereof and on
and as of the Closing, as though made on and as of the Closing Date,
and the Buyer shall have performed or complied in all material
respects with all obligations and covenants required by this Agreement
to be performed or complied with by the Buyer by the time of the
Closing; and the Buyer shall have delivered to the Closing Escrow
Agent a certificate dated the Closing Date and signed by an authorized
officer of the Buyer confirming the foregoing.
8
<PAGE>
(ii) The conditions contemplated by Sections 3(a)(ii),
3(a)(iii), 3(a)(vi) and 3(a)(vii) shall have been satisfied; and
(iii) The Buyer shall have executed and delivered to the Closing
Escrow Agent the Centennial Escrow Agreement.
(c) Waiver of Closing Conditions. The parties hereto acknowledge and
----------------------------
agree that if the Buyer or the Sellers shall have received prior to the
Closing written notice from the Sellers or the Buyer, respectively,
providing specific information as to the failure of any condition set forth
in paragraph (a) or (b) above, respectively, and such party or parties
determine to proceed with the Closing, such party or parties will be
deemed to have waived such condition and shall not be entitled to be
indemnified pursuant to Section 11 for any losses arising from any matters
relating to such conditions.
4. Representations and Warranties of the Sellers and Seller Related
----------------------------------------------------------------
Parties. Each of the Sellers and Seller Related Parties hereby represents and
- -------
warrants to the Buyer that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4),
except as set forth in the disclosure schedule delivered by the Sellers to the
Buyer on the date hereof (the "Disclosure Schedule"). Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or the item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4. For purposes of this
Agreement, "ordinary course" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
(a) Organization and Standing of the Sellers. Cookie Co. is a
----------------------------------------
corporation duly organized, validly existing under the laws of the
jurisdiction of its formation or incorporation. Cookie LLP is a limited
liability partnership duly organized, formed, validly existing under the
laws of the jurisdiction of its formation. Except as disclosed in Schedule
4(a), each of the Sellers has power and authority, and possesses all
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to use its name and to own, lease or otherwise hold
its properties and assets and to carry on its business as presently
conducted other than such franchises, licenses, permits, authorizations and
approvals, the lack of which, individually or in the aggregate, would not
have a material adverse effect on the assets, financial condition or
results of operations of the Acquired Business. Cookie Co. has made
available to the Buyer true and
9
<PAGE>
complete copies of the Certificate of Incorporation, as amended to date,
and the By-laws, as in effect on the date hereof, of Cookie Co. Cookie LLP
has made available to the Buyer true and complete copies of the partnership
agreement, as in effect on the date of this Agreement, of Cookie LLP.
(b) Authority; No Conflict. Each of the Sellers and Seller Related
----------------------
Parties has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. All acts and other
proceedings required to be taken by each of the Sellers and Seller Related
Parties to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and properly taken. This Agreement has been duly executed and
delivered by each of the Sellers and Seller Related Parties, and
constitutes a valid and binding obligation of each of them, enforceable
against each of the them in accordance with its terms. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof
and thereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation, or result in the creation of any Lien (de fined below) upon any
of the Acquired Assets under, any provision of (i) any relevant corporation
or partnership law or statute, (ii) the articles of incorporation, bylaws
or partnership agreement (as applicable) of any of the Sellers or Seller
Related Parties, (iii) except as disclosed on the Schedules hereto, any
license, lease, contract, commitment or agreement to which any of the
Sellers and Seller Related Parties is a party or by which any of the
Acquired Assets is bound, or (iv) any judgment, order or decree, or, to the
knowledge of the Seller and Seller Related Parties, material statute, law,
ordinance, rule or regulation applicable to any of the Sellers or Seller
Related Parties or any of the Acquired Assets, the violation of which would
have a material adverse affect on the Acquired assets.
Each officer, director, shareholder, partner and manager, as
applicable, of each of the Sellers is listed (by Seller) on Schedule 4(b).
(c) Financial Statements; Undisclosed Liabilities. Schedule 4(c) sets
---------------------------------------------
forth the unaudited balance sheets of the Sellers as of December 31, 1997,
and for the seven-month period ending July 31, 1998, and the unaudited
statements of income of the Sellers for the fiscal years or periods then
ended (collectively, the "Financial Statements"). The Financial Statements
fairly present the financial condition and the results of operations of the
Sellers as of and for the periods indicated and have been prepared in a
manner consistent with the Sellers' past accounting practices. The
Acquired Assets constitute, with the exception of any Excluded Assets, all
the assets, properties, rights and interests reflected on the balance sheet
included as a part of the Financial Statements of the Sellers as of July
31, 1998 (the "Balance Sheet") (other than those assets, properties, rights
and interests, acquired, sold or
10
<PAGE>
disposed of in the ordinary course of the Acquired Business, consistent
with past practice, since the date of the Balance Sheet). To the knowledge
of each of the Sellers and Seller Related Parties, (i) all of the Assumed
Liabilities arise out of or relate to the Acquired Business; and (ii) no
Seller has material liabilities or obligations of any nature (whether
accrued, absolute, contingent, unasserted or otherwise), except (A) as set
forth in the Balance Sheet and the notes thereto, (B) for items disclosed
in the Schedules hereto or (C) for liabilities and obligations incurred in
the ordinary course of business consistent with past practice since the
date of the Balance Sheet.
(d) Taxes. Except as set forth on Schedule 4(d), each of the Sellers
-----
has, in respect of the Acquired Business, filed all material Tax Returns
which are required to be filed (all such returns being true, correct and
complete in all material respects) and has paid all Taxes shown to be due
on such Tax Returns, and all monies required to be withheld by each of the
Sellers from employees of the Acquired Business for income Taxes and social
security and other payroll Taxes have been collected or withheld, and
either paid to the respective taxing authorities, set aside in accounts for
such purpose, or accrued, reserved against and entered upon the books of
the Acquired Business. Any Taxes in respect of the period since the date of
such Balance Sheet have arisen in the ordinary course of business. Except
as set forth on Schedule 4(d), there are no ongoing audits or examinations
of any of the Tax Returns of any of the Sellers, nor has any of the Sellers
been notified by any governmental authority that any such audit is contem
plated or pending. Except as set forth on Schedule 4(d), no governmental
authority is now asserting or threatening to assert against any of the
Sellers any deficiency or claim for additional Taxes. Except as set forth
on Schedule 4(d), no extension of time with respect to any date on which a
Tax Return was or is to be filed by any of the Sellers is in force, and no
waiver agreement by any of the Sellers is in force for the extension of
time for the assessment or payment of any Taxes. There are no liens for
Taxes upon any of the Acquired Assets other than Liens for Taxes not yet
due or payable. For purposes of this Agreement, "Taxes" shall mean federal,
state, local or foreign income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, transfer or excise tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty, imposed by any
governmental authority. For purposes of this Agreement, "Tax Returns" shall
mean all federal, state, local and foreign tax returns, declarations,
statements, reports, schedules, forms and information returns and any
amended Tax Returns relating to Taxes.
(e) Title to Acquired Assets. Except as set forth in Schedule 4(e),
------------------------
the Sellers have good and marketable title to the Acquired Assets, free and
clear of all mortgages, liens, claims, security interests, easements,
rights of way, pledges, restrictions, charges or encumbrances of any nature
whatsoever (collectively,
11
<PAGE>
"Liens"). At the Closing, the Buyer shall acquire the Acquired Assets free
and clear of all Liens.
(f) Condition of Assets. Except as disclosed on Schedule 4(f), the
-------------------
tangible personal assets included in the Acquired Assets have been
maintained in all material respects in accordance with generally accepted
industry practice and in all material respects are in good operating
condition and repair (ordinary wear and tear excepted).
(g) Trademarks, etc. Schedule 4(g) sets forth a true and complete
---------------
list of all material patents, trademarks (registered or unregistered),
trade names (registered or unregistered), service marks (registered or
unregistered), registered copyrights and material unregistered copyrights
and computer software applications, other than off-the-shelf applications
owned or used by or licensed to any of the Sellers, and all license
agreements related thereto that are not Excluded Assets to which any of the
Sellers is a party (collectively "Intellectual Property"). Except as
disclosed on Schedule 4(g), each of the Sellers owns or has the valid right
to use, without payment to any other party, the Intellectual Property used
in or necessary for the conduct of its businesses, and the consummation of
the transactions contemplated hereby will not alter or impair any such
rights. All material Intellectual Property owned by each of the Sellers is
valid and all registrations related thereto have been duly maintained.
Except as disclosed on Schedule 4(g), all Intellectual Property owned by
each of the Sellers is free and clear of all Liens. Except as disclosed on
Schedule 4(g), to the knowledge of each of the Sellers and Seller Related
Parties, no claims or other proceedings are pending or threatened by any
person or entity with respect to the ownership, validity, enforceability or
use of any Intellectual Property. To the knowledge of each of the Sellers
and Seller Related Parties, (i) the conduct of its business does not
infringe upon the rights of any third party, (ii) no third party is
infringing upon any Intellectual Property owned by any of the Sellers
except as set forth in Schedule 4(g), and (iii) the Intellectual Property
identified on Schedule 4(g) is all of the Intellectual Property necessary
to conduct the Acquired Business as presently conducted.
(h) Contracts. Except as described in Schedule 4(h) and except for
---------
contracts or agreements exclusively relating to the Excluded Assets, none
of the Sellers is a party to or bound by any:
(i) employment or other agreement with any employee, officer,
director, partner, shareholder, manager or agents of any of the
Sellers, with any of the Seller Related Parties or agents thereof, or
with any affiliates of any of the Sellers or Seller Related Parties;
(ii) employee collective bargaining agreement or other contract
with any labor union;
12
<PAGE>
(iii) covenant not to compete (other than pursuant to the
Franchise Agreement);
(iv) lease or similar agreement to which any of the Seller
Related Parties, or any affiliates of any of the Sellers or Seller
Related Parties is a lessor or sublessor of, or makes available for
use by any third party, any portion of Premises of the Stores;
(v) lease or similar agreement to which any of the Seller
Related Parties, or any affiliates of any of the Sellers or Seller
Related Parties is a party with respect to any machinery, equipment or
other tangible personal property;
(vi) continuing contract for the future purchase of materials,
supplies, equipment or services (other than purchase orders for
inventory in the ordinary course of business consistent with past
practice);
(vii) agreement or commitment under which any of the Seller
Related Parties or any affiliates of the Sellers or Seller Related
Parties has borrowed or loaned any money, issued any note or other
evidence of indebtedness, or guaranteed any indebtedness or
obligations;
(viii) agreement or contract under which any other person has
directly or indirectly guaranteed any indebtedness, liabilities or
obligations of any of the Sellers;
(ix) mortgage, pledge, security agreement, deed of trust or
other document granting a Lien upon any of the Acquired Assets;
(x) any agreement providing for the sale or purchase of assets,
not in the ordinary course of business; and
(xi) other agreement, contract, lease, license, commitment or
instrument pursuant to which the Buyer will have any liability after
the Closing.
Except as disclosed on Schedule 4(h), each agreement, contract, lease,
license, commitment or instrument of any of the Sellers described on
Schedule 4(h) or the other Schedules hereto (collectively, the "Contracts")
is valid, binding and in full force and effect. Except as disclosed in
Schedule 4(h), each of the Sellers has performed all material obligations
required to be performed by it to date under the Contracts and it is not
(with or without the lapse of time or the giving of notice, or both) in
breach or default in any material respect thereunder and, to the
13
<PAGE>
knowledge of each of the Sellers and Seller Related Parties, no other party
to any of the Contracts is (with or without the lapse of time or the giving
of notice, or both) in breach or default in any material respect
thereunder.
(i) Litigation; Decrees. Schedule 4(i) sets forth a list of all
-------------------
lawsuits, claims, proceedings or investigations pending, or, to the
knowledge of each of the Sellers and Seller Related Parties, threatened, as
of the date of this Agreement, by or against or affecting any of the
Sellers or any of the Acquired Assets. Except as disclosed on Schedule
4(i), none of the Sellers is in default under any material judgment, order
or decree of any court, agency or other governmental authority applicable
to such Seller, the Acquired Business or any of the Acquired Assets.
(j) Insurance. The insurance policies currently maintained with
---------
respect to each of the Sellers, the Acquired Business and the Acquired
Assets are listed on Schedule 4(j). All such policies are in full force
and effect. Each of the Sellers has heretofore made available to the Buyer
true and complete copies of all such policies.
(k) Benefit Plans. None of the Sellers has maintained or contributed
-------------
to any "employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(l) of ERISA), bonus, stock option,
stock purchase, deferred compensation plans or arrangements, incentive and
other employee fringe benefit plans (all the foregoing being herein called
"Benefit Plans") for the benefit of any employees of any of the Sellers who
are employed primarily in the Acquired Business.
(l) Absence of Changes or Events. Except as disclosed on Schedule
----------------------------
4(l), since the date of the Balance Sheet, there has not been any material
adverse change in the assets, financial condition or results of operations
of the Acquired Business. Since the date of the Balance Sheet, each of
the Sellers has conducted the Acquired Business in the ordinary course and
in substantially the same manner as presently conducted, and neither of the
Sellers has taken any action that, if taken after the date hereof, would
constitute a material breach of any of the covenants set forth in Section
5.
(m) Compliance with Applicable Laws; Environmental Matters.
------------------------------------------------------
(i) Except as set forth in Schedule 4(m), the each of the
Sellers, to the knowledge of each of the Sellers and Seller Related
Parties, is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental
authority or instrumentality, domestic or foreign, except where
noncompliance would not have a material adverse
14
<PAGE>
effect on the assets, financial condition or results of operations of
the Acquired Business. Except as set forth in Schedule 4(m), none of
the Sellers or Seller Related Parties has received any written
communication from a governmental authority that alleges that any of
the Sellers is not in compliance, in respect of the Acquired Business,
in all material respects, with applicable laws, ordinances, rules and
regulations.
(ii) Except as set forth in Schedule 4(m), to the knowledge of
each of the Sellers and Seller Related Parties, none of the operations
or properties of any of the Sellers is the subject of any
investigation, in respect of the Acquired Business, evaluating whether
any remedial action is needed to respond to a release of any Hazardous
Substance (defined below) into the environment, and none of the
Sellers has received any written communication from a governmental
authority that alleges that any of the Sellers is not in compliance in
any material respects, with any applicable foreign laws, ordinances,
rules and regulations relating to the environment ("Environmental
Laws") in respect of the Acquired Business. Each of the Sellers has
filed all material notices required in respect of the Acquired
Business to be filed by them under any Environmental Law. To the
knowledge of the Sellers and Seller Related Parties, none of the
Sellers has any material contingent liabilities in respect of the
Acquired Business in connection with any Hazardous Substance that
individually or in the aggregate would have adverse effect on the
assets, financial condition or results of operations of the Acquired
Business. "Hazardous Substance" includes: (i) any hazardous, toxic or
dangerous waste, substance or material defined as such in (or for the
purposes of) the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, and any so-called superfund or
superlien law, or any other Environmental Law, including Environmental
Laws relating to or imposing liability or standards of conduct
concerning any hazardous or toxic waste, substance or material in
effect on the date of this Agreement, (ii) asbestos or polychlorinated
biphenyls, and (iii) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any federal,
state, foreign or local governmental authority pursuant to any
Environmental Law or any health and safety or similar law, code,
ordinance, rule or regulation, order or decree, and which could
reasonably pose a hazard to the health and safety of workers at or
users of any properties included in the Acquired Assets or cause
damage to the environment.
(n) Employee and Labor Relations. Except as set forth on Schedule
----------------------------
4(n), (i) there is no labor strike, dispute, or work stoppage or lockout
actually pending, or, to the knowledge of any of the Sellers and Seller
Related Parties, threatened, against or affecting the Acquired Business;
(ii) to the knowledge of any of the
15
<PAGE>
Sellers and Seller Related Parties, no union organizational campaign is in
progress with respect to the employees of the Acquired Business; (iii) to
the knowledge of the Sellers and Seller Related Parties, each of the
Sellers is in compliance in all material respects with all laws applicable
to the Acquired Business respecting employment (including wages and hours)
and employment practices, and is not engaged in any unfair labor practice;
(iv) there is no pending or, to the knowledge of the Sellers and Seller
Related Parties, threatened unfair labor practice charge or complaint or
grievance against any of the Sellers in connection with the Acquired
Business; and (vi) no charges with respect to or relating to the Acquired
Business are pending before the Equal Employment Opportunity Commission or
any state or local agency responsible for the prevention of unlawful
employment practices.
(o) Licenses; Permits. Except as disclosed on Schedule 4(o), all
-----------------
material licenses, permits or authorizations issued or granted to each of
the Sellers by governmental authorities or agencies and applicable to the
Acquired Business are validly held by each such Seller, and each such
Seller has complied with all material requirements in connection therewith.
(p) Inventory. Except as set forth in Schedule 4(p), all inventory of
---------
the Acquired Business is of a quality usable and salable in the ordinary
course of business.
(q) [Intentionally Omitted.]
---------------------
(r) Product Liability. Except as set forth on Schedule 4(r), to the
-----------------
knowledge of any of the Sellers and Seller Related Parties, there is no
liability and no basis for asserting any present or future action arising
out of any injury to individuals as a result of the consumption or use of
any products prepared, sold, or delivered by any of the Sellers.
(s) Certain Business Relationships with the Company. None of the
-----------------------------------------------
Sellers or Seller Related Parties has been involved in any business
arrangement or relationship with the Company within the past twelve (12)
months, and none of the Sellers or Seller Related Parties owns any asset,
tangible or intangible, which is used in the operation of the Acquired
Business.
(t) Disclosure. The representations and warranties contained in this
----------
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(u) No Representation Regarding Lease Consents. Notwithstanding any
------------------------------------------
provision herein to the contrary, Sellers and the Seller Related Parties
make no representation, warranty, or covenant regarding the consents,
approvals or notices
16
<PAGE>
required by any of the leases of the Premises in connection with the
purchase of the Acquired Assets or the termination of the Subleases
pursuant to this Agreement and the Franchise Termination Agreement.
5. Covenants of the Sellers and Seller Related Parties. Each of the
---------------------------------------------------
Sellers and Seller Related Parties covenants and agrees as follows:
(a) Access. Prior to the Closing, each of the Sellers will give the
------
Buyer and its representatives, employees, counsel and accountants
reasonable access, during normal business hours and upon reasonable notice,
to the personnel, properties, books and records of each of the Sellers;
provided, however, that such access does not unreasonably disrupt the
-------- -------
normal operations of the Sellers.
(b) Conduct of the Sellers. Except with the prior written consent of
----------------------
the Buyer or as otherwise expressly permitted by this Agreement, none of
the Sellers shall take (and none of the Seller Related Parties shall cause
or permit any of the Sellers to take) any action, at any time on or after
the date hereof and at or prior to the Closing, that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of any of the Sellers or Seller Related Parties set forth in
this Agreement being breached or (ii) any of the conditions to the purchase
and sale of the Acquired Assets set forth in Section 3 not being satisfied.
(c) Preservation of the Acquired Business. Each of the Sellers will
-------------------------------------
carry on (and the Seller Related Parties will cause the Sellers to carry
on) the Acquired Business diligently and in the ordinary course,
substantially in the same manner as heretofore conducted, and keep its
retail operations substantially intact, including its present relationships
with suppliers and customers and others having business relations with it.
Each of the Sellers will maintain (and the Seller Related Parties will
cause the Sellers to maintain) inventory at each of the Stores, prior to
the Closing Date, at a level consistent with the Sellers' past practices.
Except with the written consent of the Buyer, none of the Sellers will
grant or permit any new Lien to be placed upon any of the Acquired Assets,
and none of the Sellers will close, or permit the closure of, any of its
Stores upon which the Acquired Business is presently conducted. Except with
the written consent of the Buyer, the Sellers shall not amend (and the
Seller Related Parties shall not cause or permit the Sellers to amend) in
any material respect or terminate any of the agreements identified in
Schedule 4(h) or enter into any new agreement (other than any supply
agreement or contract, with respect to which the Sellers have consulted
with the Buyer) relating to the Acquired Business which, if existing as of
the date hereof, would be required to be disclosed on any of the Schedules
to the representations and warranties of any of the Sellers and Seller
Related Parties in Section 4 of this Agreement.
(d) Confidentiality. Each of the Sellers and Seller Related Parties
---------------
will
17
<PAGE>
keep confidential, and cause its affiliates and instruct its and its
affiliates' officers, directors, employees and advisors to keep
confidential, all information concerning the transactions contemplated by
this Agreement (including as to the parties hereto) and all nonpublic
information relating to the Acquired Business, except as required by law or
administrative process and except for information which becomes public
other than as a result of a breach of this Section 5(d).
(e) Insurance. The Sellers shall keep, or cause to be kept, all
---------
insurance policies set forth on Schedule 4(j), or replacements therefor
with reputable firms and providing no lesser coverage (in amount or scope),
in full force and effect through the close of business on the Closing Date.
(f) Covenant Not To Compete. Each of the Sellers and Seller Related
-----------------------
Parties agrees that he, she or it (as applicable) will not directly or
indirectly compete with the Buyer for a period of one (1) year from the
Closing Date. The phrase "directly or indirectly compete" shall include:
(i) owning, managing, operating, or controlling, or participating in the
ownership, management, operation, or control of, or being connected with or
having any interest in, as a stockholder, director, officer, employee,
agent, consultant, assistant, advisor, sole proprietor, partner or
otherwise, any business (other than any existing business of the Sellers
not acquired hereunder) involving the production, distribution or sale of
cookies, cookie-like or decorated cookie products within a radius of five
(5) miles of any of the Stores or any store that is owned, operated or
franchised by the Buyer or a subsidiary of the Buyer, at present or in the
future, and (ii) soliciting or attempting to solicit the services of any
employees of Buyer or any affiliate of Buyer. If any of the provisions of
this Section 5(f) is held to be unenforceable, the remaining provisions
shall nevertheless remain enforceable, and the court making such
determination shall modify, among other things, the scope, duration, or
geographic area of this covenant to preserve the enforceability hereof to
the maximum extent then permitted by law. The enforceability of this
covenant is subject to the injunctive and other equitable powers of a
court.
(g) Other Transactions. Prior to the Closing, none of the Sellers,
------------------
Seller Related Parties or any affiliate of any of the Sellers or Seller
Related Parties, shall, directly or indirectly, encourage, solicit,
initiate or participate in discussions or negotiations with any
corporation, partnership, person, or other entity or group (other than the
Buyer and its representatives) concerning any merger, sale of securities,
sale of substantial assets or similar transaction involving any of the
Sellers. In the event that any of the Sellers receives an offer relating
to any such transaction, such Seller will promptly notify the Buyer of such
proposal.
6. Representations and Warranties of the Buyer. The Buyer hereby
-------------------------------------------
represents and warrants to the Sellers as follows:
18
<PAGE>
(a) Authority. The Buyer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware. The
Buyer has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby and
thereby. All corporate acts and other proceedings required to be taken by
the Buyer to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and properly taken. This Agreement has been duly
executed and delivered by the Buyer and constitutes a valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with
its terms. When executed and delivered at the Closing, it will be duly
executed and delivered by the Buyer and will constitute its valid and
binding obligation, enforceable against it in accordance with its terms.
The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated hereby and thereby and compliance with the
terms hereof and thereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation, or result in the creation of any Lien upon any of the
properties or assets of the Buyer under, any provision of (i) the General
Corporation Law of the State of Delaware, (ii) the Certificate of
Incorporation or By-laws of the Buyer, (iii) any material note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment or
agreement to which the Buyer is a party or by which any of its properties
are bound, or (iv) any judgment, order, or decree, or material statute,
law, ordinance, rule or regulation applicable to the Buyer or their
respective properties or assets.
(b) Actions and Proceedings, etc. There are no (i) outstanding
----------------------------
judgments, orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against the Buyer which have a material
adverse effect on the ability of the Buyer to consummate the transactions
contemplated hereby, or (ii) actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or, to
the best knowledge of the Buyer, threatened against the Buyer, which are
likely to have a material adverse effect on the ability of the Buyer to
consummate the transactions contemplated hereby.
7. Covenants of the Buyer. The Buyer covenants and agrees that, except
----------------------
as contemplated by this Agreement, the Buyer will keep confidential, and cause
its affiliates and instruct its and its affiliates' officers, directors,
employees and advisors to keep confidential, all nonpublic information relating
to the Sellers or the Acquired Business, except as required by law or
administrative process and except for information which becomes public other
than as a result of a breach of this Section 7; provided, however, that the
-------- -------
obligations of the Buyer under this Section 7 shall terminate upon the
occurrence of the Closing.
8. Mutual Covenants. Each of the Sellers and the Buyer covenants and
----------------
agrees
19
<PAGE>
as follows:
(a) Best Efforts. Subject to the terms and conditions of this
------------
Agreement, each of the parties will use its best efforts to cause the
Closing to occur. The Buyer acknowledges that certain consents to the
transactions contemplated by this Agreement may be required from third
parties and that such consents have not been obtained. Each of the Sellers
and the Buyer shall use its best efforts to, and shall cooperate with each
other to obtain as soon as practicable, the consent, approval or waiver, in
form reasonably satisfactory to the Sellers and the Buyer, from any person
whose consent, approval or waiver is necessary to assign or transfer any
Acquired Asset to the Buyer or otherwise to satisfy the conditions;
provided however, that nothing contained in this (S) 8(a) shall require the
Buyer or the Sellers or Seller Related Parties to incur any liability or
pay any amounts to third parties except as otherwise required by this
Agreement. The covenants contained in this Section 8(a) shall continue
after the Closing Date.
(b) Cooperation. The Buyer and each of the Sellers shall cooperate
-----------
with each other for a period of ninety (90) days after the Closing to
ensure the orderly transition of the Acquired Business from the Sellers to
the Buyer and to minimize any disruption to the Acquired Business that
might result from the transactions contemplated hereby.
(c) Publicity. Each of the Sellers and the Buyer agree that, from the
---------
date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by any such
party without the prior consent of the other parties, and, to the extent
practical, of each person named therein (which consent shall not be
unreasonably withheld), except as such release or announcement may be
required by any franchising or other law or the rules or regulations of any
United States or foreign securities exchange, in which case the party
required to make the release or announcement shall allow the other parties
reasonable time to comment on such release or announcement in advance of
such issuance.
(d) Notice of Developments; Supplementing of Schedules. Each of the
--------------------------------------------------
parties will give prompt written notice and full disclosure to the other
parties of (A) any information which would have been required to be set
forth or described in any such Schedule which is necessary to make the
Schedule (and the information contained therein) complete, correct and
accurate, or (B) any material development affecting the ability of
the parties to consummate the transactions contemplated by this Agreement.
No disclosure by any party pursuant to this Section 8(d), however, shall be
deemed to amend or supplement the Schedules or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant contained in
this Agreement or the Schedules or in any exhibit thereto or in any
document delivered in connection with the transactions contemplated by
20
<PAGE>
this Agreement.
9. Employee and Related Matters.
----------------------------
(a) Employment Offers. The Buyer and each of the Sellers agree that
-----------------
all Store level employees of the Sellers actively employed by the Sellers
(not including employees on a leave of absence for any reason) on the
Closing Date (collectively, the "Employees") shall be offered employment
with the Buyer (all such employees who accept such employment offers are
hereinafter referred to as "Continued Employees"). The Buyer agrees that
each employment offer to an Employee shall be conditioned upon the waiver
in writing by each such employee of any right of such employee to severance
payments from the Sellers. Notwithstanding the foregoing, it is understood
that nothing in this Agreement shall prohibit or restrict the Buyer, at any
time subsequent to the Closing Date, from terminating Continued Employees,
changing compensation levels or other terms and conditions of employment.
The Buyer does not assume, and each of the Sellers jointly and severally
hereby agrees to indemnify against, and hold Buyer harmless of and from,
claims and damages for wages or benefits accrued on or before the Closing
Date or relating to periods ending prior to or on the Closing Date.
(b) Employee Withholding and Reporting. Each Seller shall transfer to
----------------------------------
the Buyer copies of any records (including, but not limited to, copies of
Forms W-4, Employee Withholding Allowance Certificates) relating to
withholding and payment of income and employment taxes (federal, state and
local) and FICA taxes with respect to wages paid by such Seller during the
1998 calendar year to any Continued Employees. Each Seller shall provide
all of its employees, including Continued Employees, with Forms W-2, Wage
and Tax Statements, for the 1998 calendar year setting forth the wages paid
and taxes withheld by such Seller with respect to such employees for the
1998 calendar year.
(c) No Rights of Employment. Nothing in this Section 9, express or
-----------------------
implied, is intended to confer or shall confer upon any Sellers' employees,
former employees or any Continued Employee any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement, including,
without limitation, any rights of employment.
10. Further Assurances. From time to time, as and when requested by a
------------------
party hereto, the other parties shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken all such further or other actions, as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
11. Indemnification.
---------------
21
<PAGE>
(a) Tax Indemnification.
-------------------
(i) Each of the Sellers and Seller Related Parties jointly and
severally agrees to indemnify the Buyer and its affiliates, and each
of their respective officers, directors, employees and agents, and
hold them harmless from any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses) (collectively, "Loss")
suffered or incurred by any such indemnified party arising from Taxes
applicable to the Acquired Business or the Acquired Assets, in each
case attributable to taxable years or periods ending at the time of or
prior to the Closing and, with respect to any Straddle Period, the
portion of such Straddle Period ending at the time of the Closing.
The Buyer shall be liable for and shall pay and shall indemnify each
of the Sellers and Seller Related Parties for all Taxes applicable to
the Acquired Business or the Acquired Assets that are attributable to
taxable years or periods beginning immediately after the Closing or,
with respect to any Straddle Period, the portion of such Straddle
Period beginning immediately after the Closing. For purposes of this
Section 11(a), any Straddle Period shall be treated on a "closing of
the books" basis as two partial periods, one ending at the time of the
Closing and the other beginning immediately after the Closing;
provided, however, that Taxes (such as property Taxes) imposed on a
-------- -------
periodic basis shall be allocated pro rata on a daily basis in
accordance with the principles under Section 164(d) of the Code.
"Straddle Period" means any taxable year or period beginning before
and ending after the Closing.
(ii) Notwithstanding paragraph (i), any sales Tax, use Tax, real
property transfer or gains Tax, documentary stamp Tax or similar Tax
attributable to the sale or transfer of the Acquired Business or the
Acquired Assets (the "Transfer Tax") shall be paid by the Sellers.
Each of the Sellers and Seller Related Parties jointly and severally
agrees to indemnify the Buyer and its affiliates, and each of their
respective officers, directors, employees and agents, and hold them
harmless from any Loss arising from or related to the Transfer Tax.
(iii) The Sellers (and each of the Seller Related Parties) or
the Buyer, as the case may be, shall provide prompt reimbursement for
any Tax paid by a party or parties all or a portion of which is the
responsibility of one or more of the other parties in accordance with
the terms of this Section 11(a); provided, however, that any claim for
-------- -------
reimbursement asserted against any of the Sellers or Seller Related
Parties may, at the Buyer's election, be offset against the unpaid
portion, if any, of the Deferred Payments as provided in Section
11(e). Within a reasonable time prior to the payment of any such Tax,
the party paying such Tax shall give notice to the other parties of
the Tax payable and the portion which is the liability of
22
<PAGE>
each such party or parties, although failure to do so will not relieve
such party or parties from its liability hereunder except to the
extent the indemnifying party is materially adversely affected
thereby.
(iv) Each party shall promptly notify the other parties in
writing, upon receipt of notice of any pending or threatened Tax
audits, examinations or assessments which may affect the Tax
liabilities for which a party would be required to indemnify another
party pursuant to paragraph (i) of this Section 11(a), although
failure to do so will not relieve a party from its liability
hereunder, except to the extent such is materially adversely affected
thereby. The Sellers shall have the right to control any Tax audit or
administrative or court proceeding relating to taxable periods ending
at the time of or before the Closing, and to employ counsel of their
choice at their expense; provided, however, that the Buyer shall be
-------- -------
entitled to participate at its own expense in (but shall have no right
to control) any Tax audit or administrative or court proceeding
relating to taxable periods ending at the time of or before the
Closing to the extent that its interest could be materially adversely
affected. In the case of the Straddle Period, the Sellers shall be
entitled to participate at their expense in (but, except as provided
below, shall have no right to control) any Tax audit or administrative
or court proceeding relating in whole or in part to Taxes attributable
to the portion of such Straddle Period ending at the time of the
Closing and, with the written consent of the Buyer, and at the sole
expense of the Sellers and the Seller related Parties, may assume the
entire control of such audit or proceeding. Neither the Buyer nor any
of its affiliates may settle any Tax claim for any taxable year or
period ending at or before the time of the Closing or for any Straddle
Period which may be the subject of indemnification by the Sellers or
Seller Related Parties under paragraph (i) of this Section 11(a)
without the prior written consent of the Sellers, which consent may
not be unreasonably withheld.
(v) After the Closing, the Sellers on the one hand, and the
Buyer, on the other hand, shall:
(1) assist the other party in preparing any Tax Returns
which such other party is responsible for preparing and filing;
(2) cooperate fully in preparing for any audits of, or
disputes with taxing authorities regarding, any Tax Returns
relating to the Acquired Business or the Acquired Assets;
(3) make available to the other and to any taxing authority
as reasonably requested all information, records, and documents
relating to Taxes relating to the Acquired Business or the
Acquired
23
<PAGE>
Assets;
(4) provide timely notice to the other in writing of any
pending or threatened Tax audits or assessments relating to the
Acquired Business or the Acquired Assets for taxable periods for
which the other may have a liability under this Section 11(a);
and
(5) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax
audit or information request with respect to any such taxable
period.
(b) Other Indemnification by the Sellers and Seller Related Parties.
---------------------------------------------------------------
Each of the Sellers and Seller Related Parties jointly and severally agree
to indemnify the Buyer and its affiliates and each of their respective
officers, directors, employees and agents, and hold them harmless from any
Loss suffered or incurred by any such indemnified party (other than any
relating to Taxes for which the exclusive indemnification provisions are
set forth in Section 11(a)) to the extent arising from:
(i) any breach of any representation or warranty of any of the
Sellers or Seller Related Parties contained in this Agreement or in
any Schedule, exhibit, certificate, instrument or other document
delivered pursuant hereto or thereto (respectively, the "Related
Documents");
(ii) any breach of any covenant of any of the Sellers or Seller
Related Parties contained in this Agreement requiring performance
after the Closing Date;
(iii) any Excluded Liabilities, any Vendor Accounts, any of the
prorations to be paid by the Seller pursuant to Section 1(h) hereof,
any penalty, fee or other liability arising from the Sellers' lack of
authority to do business in any jurisdiction in which it presently
conducts business, or any Bulk Sales Liabilities;
(iv) any lawsuit, claim, proceeding or investigation, known or
unknown, existing as of the date of this Agreement or asserted at any
time thereafter, by or against the Buyer (or affiliate of Buyer) or
any of the Acquired Assets, including without limitation the
proceedings, investigations or matters disclosed, or for which
disclosure is required, pursuant to this Agreement;
provided, however, that none of the Sellers or Seller Related Parties shall
-------- -------
have any liability under Section 11(b)(i) or (ii) to the extent the
liability or obligation arises as a result of any action taken or omitted
to be taken by the Buyer or any of its affiliates contrary to the express
requirements of this Agreement.
24
<PAGE>
Notwithstanding anything contained in this (S) 11(b) to the contrary, the
Sellers shall not be required to indemnify the Buyer or its affiliated
entities from any Loss pursuant to (S) 11(b) until the Buyer, or the Buyer
and its affiliated entities in the aggregate, have suffered Loss in excess
of a $25,000 aggregate threshold (the "Indemnification Threshold");
provided however, once the Buyer, or the Buyer and its affiliated entities
-------- -------
have suffered Loss in an aggregate amount equal to or greater than the
Indemnification Threshold, the Seller shall be obligated to indemnify the
Buyer and its affiliated entities for all such Loss, including the first
$25,000 of Loss; provided that the Indemnification Threshold shall not
apply to, and the Sellers jointly and severally hereby agree to indemnify,
save and hold harmless the Buyer and its affiliates on a dollar for dollar
basis for, any Loss described in (S)(S) 11(a) or 11(b)(iii) above.
(c) Indemnification by the Buyer. The Buyer shall indemnify each of
----------------------------
the Sellers and Seller Related Parties and their respective officers,
directors, employees and agents against and hold them harmless from any
Loss suffered or incurred by any such indemnified party (other than any
relating to Taxes for which the exclusive indemnification provisions are
set forth in paragraph (a) of this Section 11) to the extent arising from:
(i) any breach of any representation or warranty of the Buyer
contained in this Agreement or in any certificate delivered pursuant
hereto;
(ii) any breach of any covenant of the Buyer contained in this
Agreement requiring performance after the Closing Date; or
(iii) any Assumed Liabilities.
(d) Procedures Relating to Indemnification (Other than under Section
----------------------------------------------------------------
11(a)). In order for a party (the "indemnified party") to be entitled to
------
any indemnification provided for under this Agreement (other than under
Section 11(a)) in respect of, arising out of or involving a claim or demand
made by any person, firm, governmental authority or corporation against the
indemnified party (a "Third Party Claim"), such indemnified party must
notify the indemnifying party in writing, and in reasonable detail, of the
Third Party Claim within ten (10) business days after receipt by such
indemnified party of written notice of the Third Party Claim; provided,
--------
however, that failure to give such notification shall not affect the
-------
indemnification provided hereunder except to the extent the indemnifying
party shall have been actually prejudiced as a result of such failure.
Thereafter, the indemnified party shall deliver to the indemnifying party,
within five (5) business days after the indemnified party's receipt
thereof, copies of all notices and documents (including court papers)
received by the indemnified party relating to the Third Party Claim.
25
<PAGE>
If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected
by the indemnifying party and reasonably satisfactory to the indemnified
party. Should the indemnifying party so elect to assume the defense of a
Third Party Claim, the indemnifying party will not be liable to the
indemnified party for legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the
indemnifying party assumes such defense, the indemnified party shall have
the right to participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the indemnifying
party, it being understood that the indemnifying party shall control such
defense. The indemnifying party shall be liable for the fees and expenses
of counsel employed by the indemnified party for any period during which
the indemnifying party has not assumed the defense thereof (other than
during any period in which the indemnified party shall have failed to give
notice of the Third Party Claim as provided above). If the indemnifying
party chooses to defend or prosecute any Third Party Claim, all the parties
hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such Third Party Claim, and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Whether or
not the indemnifying party shall have assumed the defense of a Third Party
Claim, the indemnified party shall not admit any liability with respect to,
or settle, compromise or discharge, such Third Party Claim without the
indemnifying party's prior written consent (which consent shall not be
unreasonably withheld).
(e) Certain Set-off Rights. At the Buyer's election, all payments, if
----------------------
any, to be made by any of the Sellers or Seller Related Parties under
Section 11 of this Agreement may, on prior written notice to Sellers and
Seller Related Parties, be made by reducing on a dollar-for-dollar basis
any unpaid balance of the Deferred Payments. The rights and remedies
granted to the Buyer under this Section 11(e) are in addition to any other
remedies to which the Buyer may be entitled, at law or in equity.
Notwithstanding the foregoing, before any set-off rights may be exercised,
the Buyer shall give written notice to Sellers (and to Centennial so long
as it holds or controls any of the Deferred Payments) of any claim for
indemnification hereunder, specifying in reasonable detail the grounds for
indemnification and the amount of the set-off, and Sellers may object to
any such set-off by delivering a written objection to the Buyer (and to
Centennial so long as it holds or controls any of the Deferred Payments)
within thirty (30) days after Sellers' receipt of the Buyer's notice. If
Sellers fail to object within the thirty (30) day period specified, Sellers
shall waive any right to object to the Buyer's right of indemnification
hereunder or the amount of the set-off. If Sellers dispute either the
Buyer's right to indemnification, or the amount of the set-off, or both,
then
26
<PAGE>
Centennial shall retain the amount of the set-off pending resolution
of the dispute. Each such party agrees to make available to the other
party and the attorneys and accountants of the other such party, within a
reasonable time after a request is made, all books and records which are
reasonably required by such requesting party to evaluate a claim for
indemnification or objection hereunder.
12. Assignment. This Agreement and the rights and obligations hereunder
----------
shall not be assignable or transferable by the Buyer or the Sellers (other than
by operation of law in connection with a merger, a sale of substantially all the
assets, or a liquidation of the Buyer or the Sellers) without the prior written
consent of the other parties hereto (which consent shall not be unreasonably
withheld); provided, however, that the Buyer may assign its right to purchase
-------- -------
the Acquired Assets hereunder to a parent, subsidiary or affiliate of the Buyer
without the prior written consent of any of the Sellers or Seller Related
Parties; provided further, however, that no assignment shall limit or affect the
---------------- -------
assignor's obligations hereunder. In connection with seeking any such consent, a
party proposing to so assign or transfer its rights and obligations shall give
to the party whose consent is sought reasonable details of the proposed
assignment or transfer, including the proposed method of making adequate
provision for such party's obligations hereunder.
13. No Third-Party Beneficiaries. Except as provided for indemnified
----------------------------
parties in Section 11, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person or entity, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
14. Termination.
-----------
(a) Anything contained herein to the contrary notwithstanding, this
Agreement may be terminated and the transactions contemplated hereby
abandoned at any time prior to the Closing Date upon the following terms:
(i) The Buyer and all of the Sellers, but only all of the
Sellers acting together, may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) The Buyer may terminate this Agreement at any time by
giving written notice to the Sellers if the Buyer is not satisfied in
its sole discretion with the results of its continuing business, legal
and accounting due diligence investigation regarding the Sellers,
Acquired Business, the Acquired Assets or the Assumed Liabilities
pursuant to Section 3 above;
(iii) The Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing (A) in the
event any of the Sellers or Seller Related Parties has breached any
material
27
<PAGE>
representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer has notified the Sellers of the
breach, and the breach has continued without cure for a period of
fifteen (15) days after the notice of breach; or (B) if the Closing
shall not have occurred on or before October 30, 1998, by reason of
the failure of any condition precedent under (S) 3(a) hereof (unless
the failure results primarily from the Buyer breaching any
representation, warranty, or covenant contained in this Agreement);
(iv) The Sellers, but only all of the Sellers acting together,
may terminate this Agreement by giving written notice to the Buyer at
any time prior to the Closing (A) in the event the Buyer has breached
any material representation, warranty, or covenant contained in this
Agreement in any material respect, the Sellers have notified the Buyer
of the breach, and the breach has continued without cure for a period
of fifteen (15) days after the notice of breach; or (B) if the Closing
shall not have occurred on or before October 30, 1998 by reason of the
failure of any condition precedent under (S) 3(b) hereof (unless the
failure results primarily from either of the Sellers or Seller Related
Parties breaching any representation, warranty, or covenant contained
in this Agreement).
(b) In the event of termination by the Sellers or the Buyer pursuant
to this Section 14, written notice thereof shall forthwith be given to the
other parties and the transactions contemplated by this Agreement shall be
terminated, without further action by either party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(i) the Buyer shall return all documents and other material
received from the Sellers relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to
the Sellers; and
(ii) all confidential information received by the Buyer with
respect to the Acquired Business shall be kept confidential.
(c) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 14, this Agreement shall
become void and of no further force and effect, except for the provisions
of (i) Section 16 hereof relating to certain expenses, (ii) Section 8(c)
hereof relating to publicity, (iii) Section 22 hereof relating to finder's
fees and broker's fees, and (iv) this Section 14. Nothing in this Section
14 shall be deemed to release either party from any liability for any
breach by such party of the terms and provisions of this Agreement or to
impair the right of either party to compel specific performance by the
other party of its obligations under this Agreement.
15. Survival of Representations. The representations and warranties in
---------------------------
this
28
<PAGE>
Agreement and in any other document delivered in connection herewith shall
survive the Closing and shall terminate at the close of business eighteen (18)
months following the Closing Date, except that all representations and
warranties relating to Taxes shall continue in full force and effect after
Closing subject only to any applicable statutes of limitations.
16. Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, except as otherwise expressly provided in this Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
17. Amendments; Waiver. No amendment of any provision of this Agreement
------------------
shall be valid unless the same shall be in writing and signed by the Buyer and
each of the Sellers and Seller Related Parties. No waiver by any party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
18. Notices. All notices or other communications required or permitted to
-------
be given hereunder shall be in writing and shall be delivered by hand or sent
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled or telecopied, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to a Seller or Seller Related Party:
The Cookie Conglomerate
4536 Chamblee Dunwoody Road, Suite 221
Atlanta, GA 30338
Telecopy: (770) 554-9356
with a copy to:
Lawler & Tanner, P.C.
200 Galleria Parkway
Attn: Frances Faddis Tanner
Suite 1640
Atlanta, GA 30339
Telecopy: (770) 563-8810
29
<PAGE>
(ii) if to the Buyer:
Mrs. Fields' Original Cookies
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Attention: Legal Department
Telecopy: (801) 736-5945
with a copy to:
Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main Street, Suite 1500
Salt Lake City, Utah 84101
Attention: Glen D. Watkins
Telecopy: (801) 328-0537
19. Interpretation. The headings contained in this Agreement, in any
--------------
exhibit or Schedule hereto and in the table of contents to this Agreement, are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
21. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, representations and understandings,
written or oral, relating to such subject matter. The exhibits, annexes and
Schedules identified in this Agreement are hereby incorporated by reference.
22. Fees. Each party hereto hereby agrees, represents and warrants that
----
no person has acted in connection with this Agreement or the transactions
contemplated hereby as a broker or finder and that no person is entitled to any
brokerage fee, finder's fee or commission with respect thereto. The parties
further agree to hold the other party harmless from any damages, claims or
expenses asserted against such party as a result of any person claiming a
commission or finder's fee for the transactions contemplated herein.
23. Severability. If any provision of this Agreement or the application
------------
of any such provision to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof.
30
<PAGE>
24. Attorney's Fees. Should any litigation be commenced with respect to
---------------
any matters governed by this Agreement, the party prevailing shall be entitled,
in addition to such other relief as may be granted, to a reasonable sum for such
party's attorneys' fees and expenses determined by the court in such litigation.
25. No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person or entity other than the parties and their
respective successors and permitted assigns.
26. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of Utah applicable to agreements
made and to be performed entirely within such State, without regard to the
conflicts of law principles of such State.
27. Remedies. Each of the parties acknowledges and agrees that each other
--------
party would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that each other party
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof, having jurisdiction over the parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity.
28. Submission to Jurisdiction. Each of the parties submits to the
--------------------------
jurisdiction of any state or federal court sitting in Salt Lake City, Utah, in
any action or proceeding arising out of or relating to this Agreement or the
Centennial Escrow Agreement and agrees that all claims in respect of the action
or proceeding may be heard and determined in any such court. Each party also
agrees not to bring any action or proceeding arising out of or relating to this
Agreement or the Centennial Escrow Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other party with respect thereto. Each party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
SELLERS: BUYER:
THE COOKIE CONGLOMERATE, LLP MRS. FIELDS' ORIGINAL COOKIES,
INC.
By: By:
-------------------------- -------------------------
Its: Its:
------------------------ ------------------------
THE COOKIE CONGLOMERATE, INC.
By:
--------------------------
Its:
-------------------------
SELLER RELATED PARTIES:
- -----------------------------
Ronald A. Eichel
- -----------------------------
Alan M. Kuehn
32
<PAGE>
EXHIBIT "A"
List of Stores
Citadel Mall Haywood Mall
728 Citadel Mall 700 Haywood Road
Charleston, SC 29407 Greenville, SC 29607
McAlister Square Carolina Place Mall
291 McAlister Square 11025 Carolina Place Parkway
Greenville, SC 29607 Pineville, NC 28134
Independence Mall Columbiana Mall
3500 Oleander Drive 100 Columbiana Circle
Wilmington, NC 28403 Columbia, SC 29212
Dayton Mall
2700 Miamisburg Centerville
Dayton, OH 45459
Columbia Mall
7201 AL-156 Two Notch Road
Columbia, SC 29223
Westgate Mall
205 Blackstock Road
Spartanburg, SC 29301
Asheville Mall
3 South Tunnel Road
Asheville, NC 28828
Northwoods Mall
2150 Northwoods Blvd.
North Charleston, SC 29406
Page 1 of Exhibit A
<PAGE>
EXHIBIT "B"
Store Cash (by Store)
Page 1 of Exhibit B
<PAGE>
EXHIBIT "C"
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that ________________________, a ________
corporation ("Seller"), for and in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, has transferred, granted, bargained, sold, conveyed, and by
these presents does hereby transfer, grant, bargain, sell, convey, and deliver
to Mrs. Fields' Original Cookies, Inc., a Delaware corporation ("Buyer"), and
its successors and assigns, all right, title and interest in and to the assets
described in Exhibit A (the "Assets").
TO HAVE AND TO HOLD the Assets unto the Buyer, and its successors and
assigns, to and for its own use, forever.
Seller warrants to Buyer, and its successors and assigns, that at the time
of delivery of this Bill of Sale to Buyer, Seller has good and valid legal title
to the Assets and good and lawful right to grant, bargain, sell, convey, and
deliver as aforesaid, and that title to the Assets is, as of the date of
delivery of the Assets to Buyer, free of all claims, liens, security interests,
and encumbrances whatsoever. Seller further warrants that upon delivery of the
Bill of Sale to Buyer, Buyer shall have good and valid legal title to the
Assets, free and clear of all claims, liens security interests, and other
encumbrances of any nature, other than those of persons claiming by, through or
under the Buyer.
Page 1 of Exhibit C
<PAGE>
IN WITNESS WHEREOF, the undersigned Seller has executed this Bill of Sale
as of the ____ day of __________, 1998.
SELLER: THE COOKIE CONGLOMERATE, LLP,
a Georgia limited liability partnership
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE COOKIE CONGLOMERATE, INC.
a Georgia corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
STATE OF )
-------------- : ss.
COUNTY OF )
-------------
On the ____ the day of _______________, 1999, personally appeared before me
_____________ and _____________ who, being by me duly sworn, did say that they
are the general partners of The Cookie Conglomerate, L.L.P, a Georgia limited
liability partnership, that such instrument was signed in behalf of such
partnership, and ___________________ and ___________________ acknowledged to me
that the partnership executed the same.
---------------------------------------
NOTARY PUBLIC
Residing at:
---------------------------
My Commission Expires:
Page 2 of Exhibit C
<PAGE>
STATE OF )
-------------- : ss.
COUNTY OF )
-------------
On the ____ the day of _______________, 1999, personally appeared before me
_____________ who, being by me duly sworn, did say that he is the
_____________________ of The Cookie Conglomerate, Inc. a Georgia corporation,
that such instrument was signed in behalf of such company by authority of a
resolution of its Board of Directors and ___________________ acknowledged to me
that the company executed the same.
---------------------------------------
NOTARY PUBLIC
Residing at:
---------------------------
My Commission Expires:
- -----------------------
Page 3 of Exhibit C
<PAGE>
EXHIBIT A TO BILL OF SALE
(Attach List of Acquired Assets)
Page 4 of Exhibit C
<PAGE>
EXHIBIT "D"
CENTENNIAL ESCROW AGREEMENT
Mrs. Fields' Original Cookies, Inc.
THIS ESCROW AGREEMENT (this "Agreement"), dated as of September ____,
1998, is entered into by and among MRS. FIELDS' ORIGINAL COOKIES, INC., a
Delaware corporation (the "Buyer"), the undersigned Sellers and Seller Related
Parties (collectively, "Seller Parties"), and CENTENNIAL BANK, a banking
institution chartered under the laws of the State of Utah (the "Bank").
(a) The Buyer and Seller Parties have entered into that certain Asset
Purchase Agreement, dated as of ______________, 1998 (the "Asset Purchase
Agreement"), setting forth the terms and conditions upon which the Buyer will
purchase from the Sellers all or substantially all of the Sellers' assets. A
copy of the Asset Purchase Agreement is attached hereto as Exhibit A.
(b) Pursuant to the Asset Purchase Agreement, the Buyer and Seller
Parties have agreed that at the Closing (as defined in the Asset Purchase
Agreement) Deferred Payments (as defined in the Asset Purchase Agreement and
representing $50,000 of the Purchase Price payable thereunder), shall be
deposited into an Escrow Account (the "Escrow Account") with the Escrow Agent
and disbursed therefrom subject to the terms and conditions of the Asset
Purchase Agreement and this Agreement. The Closing Date (as defined in the
Asset Purchase Agreement) shall be set forth on Exhibit B attached hereto and by
reference made a part hereof.
(c) Subject to the terms of the Asset Purchase Agreement and this
Agreement, the Buyer and Seller Parties have agreed that the Bank shall serve as
the escrow agent with respect to the Escrow Account, and the Bank (hereinafter
referred to as the "Escrow Agent") has agreed to serve in such capacity.
NOW, THEREFORE, based on the foregoing premises, which are hereby
incorporated by this reference, and for and in consideration of the mutual
covenants and promises herein contained, the parties hereto agree as follows:
1. Delivery Into Escrow. Upon Closing, the sum of Fifty Thousand
--------------------
Dollars ($50,000.00), representing the full amount of the Deferred Payments (the
"Escrow Funds"), shall be delivered by the Buyer to the Escrow Agent for deposit
into the Escrow Account.
Page 1 of Exhibit D
<PAGE>
2. Disbursement From Escrow.
------------------------
a. Disbursements to Seller Parties. Subject to subparagraph 2.b.
-------------------------------
below, the Escrow Agent shall disburse the Escrow Funds to the Seller
Parties on the later of _______________, or the date determined in
accordance with subsection 1(f)(ii) of the Asset Purchase Agreement.
b. Condition to Disbursement to Seller Parties. The Escrow Agent
-------------------------------------------
shall disburse the Escrow Funds to Seller Parties in accordance with
subparagraph 2.a. above, provided that
(1) each of the conditions set forth in subsection 1(f) of the
Asset Purchase Agreement is satisfied, and
(2) prior to any disbursement of the Escrow Funds, neither the
Buyer nor its agents shall have delivered a Set-Off Notice (defined
below) to the Escrow Agent.
c. Disbursement In Event of Escrow Agent's Receipt Of Set-Off
----------------------------------------------------------
Notice. In the event Buyer or its agent or representative delivers a
------
Set-Off Notice to Seller Parties and the Escrow Agent, the Escrow Agent,
after providing written notice to Seller Parties of the Escrow Agent's
receipt of the Set-Off Notice, shall pay the amount demanded in the Set-
Off Notice from the Escrow Funds to the Buyer unless, within thirty (30)
days after Seller Parties' Receipt Date (defined below), the Escrow Agent
receives a written objection from Seller Parties (the "Objection") to the
Escrow Agent's disbursement of the amount demanded by the Buyer in the
Set-Off Notice. In the event it receives no Objection, the Escrow Agent
shall:
(1) no earlier than the applicable date specified in paragraph
2.a. above, disburse (A) to Seller Parties, the portion of the
Escrow Funds scheduled for such disbursement, if any, with respect
to which the Buyer has not exercised its set-off rights pursuant to
the Set-Off Notice, and (B) to the Buyer, the portion of the Escrow
Funds scheduled for such disbursement, if any, with respect to which
the Buyer has exercised its set off rights pursuant to the Set-Off
Notice and the Escrow Agent has not received an Objection; and,
(2) hold in the Escrow Account any remaining portion of the
Escrow Funds, and disburse the same, only in accordance with an
order of a court having jurisdiction as
Page 2 of Exhibit D
<PAGE>
provided in paragraph 2.g. below or pursuant to the Buyer's and
Seller Parties' joint written instructions to the Escrow Agent.
The procedures outlined in this paragraph are not intended to
replace the rights or obligations of the Buyer or Seller Parties under
the Asset Purchase Agreement.
d. Payment of Interest. Interest earned on the Escrow Funds shall
-------------------
be paid monthly by the Escrow Agent to Seller Parties or, at Seller
Parties' election, shall be deposited into the Escrow Account; provided
that, in the event the Escrow Agent receives a Set-Off Notice from Buyer,
accrued and accruing interest shall not be paid to the Seller but shall
be held in the Escrow Account for disbursement only in accordance with
paragraphs 2.b. and c. above as a part of the Escrow Funds subject
thereto.
e. Set-Off Notice. As used in this Agreement, the term "Set-Off
--------------
Notice" shall mean a written notice given to the Escrow Agent of the
Buyer's exercise of its set-off rights pursuant to Section 11(e) of the
Asset Purchase Agreement and setting forth the date on which such notice
was received by Seller Parties from the Buyer ("Seller Parties' Receipt
Date").
f. Method of Delivery. The Escrow Agent shall make the
------------------
disbursements of the Escrow Funds as required by this Agreement, by wire
transfer or other immediately available funds.
g. Disputes. If the Escrow Agent shall be unable to disburse the
--------
Escrow Funds in accordance with this Agreement, the Escrow Agent shall
disburse the Escrow Funds in the manner directed by any court having
jurisdiction over all of the parties to the Agreement, whether pursuant
to an interpleader action commenced by the Escrow Agent or otherwise.
3. Manner of Holding Escrow Funds; Security. The Escrow Funds shall be
----------------------------------------
deposited and held by the Escrow Agent in a FDIC-insured, interest-bearing
account established by the Buyer and Seller Parties with the Escrow Agent on or
before the Closing. In addition to such FDIC insurance, the Escrow Agent shall
pledge as security for the deposit securities issued by the government of the
United States or an agency thereof and owned by the Escrow Agent in a principal
amount not less than the principal amount of the Escrow Funds on deposit in the
Escrow Account and interest accrued thereon. No less frequently than on a
quarterly basis, the Escrow Agent shall increase, or decrease, as the case may
be, the principal amount of such securities that the Escrow Agent is required to
pledge pursuant to paragraph 3 so that the amount of such securities
Page 3 of Exhibit D
<PAGE>
will equal the amount of Escrow Funds then on deposit with Escrow Agent.
4. Term. The term of this Agreement shall commence on the date hereof
----
and, except as otherwise provided herein, shall terminate on the earlier of (A)
the disbursement of all of the Escrow Funds and interest accrued thereon, or (B)
the Escrow Agent's interpleader of the Escrow Funds as permitted hereby. In the
event of an interpleader of or other litigation concerning the disbursement of
the Escrow Funds, the Buyer's and Seller Parties' rights thereto shall be
governed by the terms and conditions of the Asset Purchase Agreement rather than
by this Agreement.
5. Duties of Escrow Agent. The parties agree as follows:
----------------------
a. The Escrow Agent is not and shall not be deemed to be an agent
for any other party for any purpose and is merely acting as a depository
and in a ministerial capacity hereunder with the limited duties herein
prescribed.
b. The Escrow Agent does not have and shall not be deemed to have
any responsibility in respect of any instructions, certificate or notice
delivered to it other than to faithfully carry out the obligations
undertaken in this Agreement and to follow the directions in such
instructions or notice in accordance with the terms hereof.
c. The Escrow Agent is not and shall not be deemed to be liable for
any action taken or omitted by it in good faith and may rely on, and act
in accordance with, the advice of its counsel without liability on its
part for any action taken or omitted in accordance with such advice. In
any event, its liability hereunder shall be limited to liability for
gross negligence, willful misconduct, or bad faith on its part.
d. The Escrow Agent may conclusively rely on and act in accordance
with any certificate, instruction, notice, letter, telegram, cablegram,
or other written instrument believed by it to be genuine and to have been
signed by the proper party or parties.
e. The Escrow Agent may apply for advice of counsel of its choice
and may rely upon such advice or may act or refrain from acting in
accordance with such advice.
f. The Buyer shall pay all of the Escrow Agent's fees and costs in
setting up and servicing the Escrow Account during the term of this
Agreement. In addition, the Buyer and Seller Parties shall reimburse the
Escrow Agent for its reasonable fees and expenses,
Page 4 of Exhibit D
<PAGE>
including attorneys' fees, incurred to save harmless, indemnify, and
defend the Escrow Agent for, from, and against any loss, damages,
liability, judgment, costs, and expenses, whatsoever, including counsel
fees, suffered or incurred by it by reason of, or on account of, any
misrepresentations made to it or its status or activities as Escrow Agent
under this Agreement except for any loss, damage, liability, judgment,
costs, or expenses resulting from gross negligence, willful misconduct,
or bad faith on the part of the Escrow Agent.
g. If any legal proceeding is instituted against it, the Escrow
Agent agrees promptly to give notice of such proceeding to all of the
other parties to this Agreement. The Escrow Agent shall not be required
to institute legal proceedings of any kind.
h. The Escrow Agent shall not, by act, delay, omission, or
otherwise, be deemed to have waived any right or remedy it may have
either under this Agreement or generally, unless such waiver be in
writing, and no waiver shall be valid unless it is in writing, signed by
the Escrow Agent, and then only to the extent expressly therein set
forth. A waiver by the Escrow Agent under the terms of this Agreement
shall not be construed as a bar to, or waiver of, the same or any other
such right or remedy which it would otherwise have on any other occasion.
i. The Escrow Agent may resign as such hereunder by giving written
notice of such resignation to the Buyer and Seller Parties. Upon receipt
of such notice, the Buyer and Seller Parties shall furnish to the Escrow
Agent written instructions for the release of the Escrow Funds (or such
portion thereof as may then be in escrow) to a substitute Escrow Agent
which (whether designated by written instructions from the parties hereto
jointly or, in the absence thereof, by instructions from a court of
competent jurisdiction to the Escrow Agent) shall be a law firm doing
business in the State of Utah, an attorney licensed to practice in the
State of Utah, or a title company, bank, or trust company organized and
doing business under the laws of the United States or any state thereof.
Such substitute Escrow Agent shall thereafter hold the Escrow Funds
received by it pursuant to the terms of this Agreement and otherwise act
hereunder as if it were the Escrow Agent originally named herein. The
Escrow Agent's duties and responsibilities hereunder shall terminate upon
the release of all of the Escrow Funds then held in escrow according to
such written instruction or upon such delivery as herein provided. This
Agreement shall not otherwise be assignable by the Escrow Agent without
the prior written consent of each of the parties hereto.
Page 5 of Exhibit D
<PAGE>
j. The Escrow Agent hereby acknowledges receipt of a copy of the
Asset Purchase Agreement, but, except for reference thereto for certain
terms and conditions not set forth herein, the Escrow Agent is not
charged with any duty or obligation arising under any such documents or
any other agreements between any of the other parties hereto, and the
Escrow Agent's responsibilities, as Escrow Agent, shall be governed
solely by this Agreement.
k. The Buyer and Seller Parties expressly agree that Escrow Agent
has the absolute right at the Escrow Agent's election to file an action
in interpleader and to deposit with the clerk of the court all documents
and funds held pursuant to this Agreement. In the event such action is
filed, the Buyer and Seller Parties jointly and severally agree to pay
the Escrow Agent's cancellation charges and costs, expenses and
reasonable attorneys' fees which the Escrow Agent is required to expend
or incur in the interpleader action, the amount thereof to be fixed and
judgment therefor to be rendered by the court in such action. Upon filing
the action, the Escrow Agent shall thereupon be fully released and
discharged from all obligations to further perform any duties or
obligations otherwise imposed by this Agreement. The rights of the Escrow
Agent under paragraphs 5.g. and k. and 9. shall survive any termination
or expiration of this Agreement.
6. Diligence. Should it be necessary for the Escrow Agent to accept or
---------
act upon any instruments, directions, documents or instruments signed or issued
by, or on behalf of, any corporation, partnership, trade name or individual, it
shall not be necessary for the Escrow Agent to inquire into the authority of the
person or persons who have issued or authenticated such papers unless and to the
extent specifically provided hereinabove.
7. Notices. All notices hereunder shall be deemed to have been duly
-------
given if mailed by United States registered or certified mail, with return
receipt requested, postage prepaid, if sent by overnight express mail or courier
service, or if sent by electronic facsimile, to the parties at the following
addresses and numbers (or at such other addresses and numbers as shall be given
in writing by either party to the other), and shall be deemed complete upon
receipt or refusal to accept delivery as indicated in the return receipt or in
the receipt of such express mail or courier service:
If to Seller Parties: As Set Forth In the Asset Purchase Agreement
Page 6 of Exhibit D
<PAGE>
If to the Buyer: As Set Forth In the Asset Purchase Agreement
If to the Escrow Agent: Centennial Bank
4605 Harrison Boulevard
Ogden, Utah 84403
Facsimile: (801) 475-4280
8. Amendment. This Agreement may be altered or amended only with the
---------
written consent of all of the parties hereto. Should the parties hereto attempt
to change this Agreement in a manner that would either increase the duties or
responsibilities of the Escrow Agent or which the Escrow Agent in its sole and
absolute discretion deems undesirable, the Escrow Agent may resign as Escrow
Agent by notice to the parties hereto, and until a successor of the Escrow
Agent is appointed by the parties other than Escrow Agents and accepts such
appointment, the Escrow Agent's only duty shall be to hold the Escrow Funds in
accordance with the original instructions contained in this Agreement.
9. Attorneys' Fees. In the event of any suit or other proceeding
---------------
between the parties hereto with respect to any of the transactions contemplated
hereby or the subject matter hereof, the prevailing party shall, in addition to
such other relief as the court may award, be entitled to recover attorneys,
fees, expenses, and costs incurred in connection therewith.
10. Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties hereto, and supersedes any and all previous oral and written
and all contemporaneous oral negotiations, commitments, writings and
understandings among the parties with respect to the matters specified herein.
11. Applicable Law. This Agreement shall be construed in accordance
--------------
with and governed by the laws of the State of Utah without giving effect to
choice of law provisions.
12. Counterparts. This Agreement may be executed in two or more
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together, and shall
constitute one and the same document.
Page 7 of Exhibit D
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BUYER: MRS. FIELDS' ORIGINAL COOKIES, INC.
By
---------------------------------
Its
--------------------------------
SELLERS: THE COOKIE CONGLOMERATE, LLP
-----------------------------------
By
---------------------------------
Its
--------------------------------
-----------------------------------
Date
THE COOKIE CONGLOMERATE, INC.
-----------------------------------
By
---------------------------------
Its
--------------------------------
-----------------------------------
Date
SELLER RELATED PARTIES:
-----------------------------------
Ronald A. Eichel
-----------------------------------
Alan M. Kuehn
Page 8 of Exhibit D
<PAGE>
BANK/ESCROW AGENT: CENTENNIAL BANK
By
---------------------------------
Its
--------------------------------
Page 9 of Exhibit D
<PAGE>
Exhibit A to Escrow Agreement
Intentionally Omitted
Page 10 of Exhibit D
<PAGE>
Exhibit B to Escrow Agreement
(Closing Date)
Closing Date of Asset Purchase Agreement: _________________, 1998.
Page 11 of Exhibit D
<PAGE>
EXHIBIT "E"
Allocation Schedule
<TABLE>
<CAPTION>
<S> <C>
Tangible Assets (Estimated) $ 740,000.00
Covenant Not To Compete $ 100,000.00
Goodwill (Estimated) $1,960,000.00
-------------
Total: $2,800,000.00
=============
</TABLE>
Page 1 of Exhibit E
<PAGE>
EXHIBIT "F"
CLOSING ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement"), dated as of October __, 1998,
is entered into by and among MRS. FIELDS' ORIGINAL COOKIES, INC., a Delaware
corporation (the "Buyer"), THE COOKIE CONGLOMERATE, LLP, a Georgia limited
liability partnership ("Cookie LLP"), and THE COOKIE CONGLOMERATE, INC., a
Georgia corporation ("Cookie Co.") (Cookie LLP and Cookie Co. are collectively
hereinafter referred to as the "Seller"); RONALD A. EICHEL and ALAN M. KUEHN,
the partners of Cookie LLP and the shareholders of Cookie Co. (collectively,
"Seller Related Parties"); each a "party" in the singular and "parties" in the
plural, and LAWLER & TANNER, P.C., a Georgia professional corporation (the
"Escrow Agent").
The Buyer, the Seller, and the Seller Related Parties have entered into
that certain Asset Purchase Agreement, dated as of _______________ (the "Asset
Purchase Agreement"), setting forth the terms upon which the Buyer will purchase
the Acquired Assets (as described and defined in the Asset Purchase Agreement)
from the Seller. Unless otherwise defined herein, the capitalized defined terms
used in this Agreement have the meanings set forth in the Asset Purchase
Agreement.
In consideration of its purchase of the Acquired Assets, the Buyer has
agreed at the Closing to deliver the Cash Purchase Price to the Escrow Agent to
be disbursed on and subject to the terms and conditions of the Asset Purchase
Agreement and this Escrow Agreement.
NOW, THEREFORE, based on the foregoing premises, which are hereby
incorporated by this reference, and for and in consideration of the mutual
covenants and promises herein contained, the parties hereto agree as follows:
1. Delivery Into Escrow. Prior to or at the Closing, the following
--------------------
described documents (collectively, the "Escrowed Documents") and the following
described funds (collectively, the "Escrowed Funds") shall be deposited into
escrow with the Escrow Agent.
a. By the Seller. The Seller, in addition to executed counter
-------------
parts of this Escrow Agreement, shall deposit the following with the
Escrow Agent:
(1) the Bill of Sale executed by the Seller in the form
required by the Asset Purchase Agreement;
Page 1 of Exhibit F
<PAGE>
(2) counterparts of agreements terminating the Franchise
Agreements, effective as of the Closing, executed by the Seller in
the form required by the Asset Purchase Agreement (the "Franchise
Termination Agreements");
(3) counterparts of the Escrow Agreement between the Buyer, the
Seller, the Seller Related Parties, and Centennial Bank as escrow
agent thereunder (the "Centennial Escrow Agreement"), providing for
the disbursement of the Deferred Payments;
(4) the opinion letter from counsel to the Seller and the
Seller Related Parties in the form required by the Asset Purchase
Agreement (the "Opinion Letter");
(5) the information (current as of the Cutoff Date (defined
below)) concerning the Vendor Accounts that the Seller is required
to furnish to the Buyer pursuant to Section 1(j)(i) of the Asset
Purchase Agreement (the "Vendor Account List"); and
(6) the Seller's Closing Certificates in a form approved by the
Buyer or its counsel, a Board Resolution from Cookie Co., and a
Partnership Resolution from Cookie LLP (the "Seller's Closing
Certificates").
b. By the Buyer. The Buyer, in addition to executed counterparts
------------
of this Escrow Agreement, shall deposit the following with the Escrow
Agent:
(1) the Cash Purchase Price;
(2) the Buyer's Closing Certificate in a form approved by the
Seller or its counsel;
(3) counterparts of the Franchise Termination Agreement
executed by the Franchisor.
2. Delivery Out of Escrow.
----------------------
a. Conditions to Disbursement from Escrow. The Escrow Agent shall
--------------------------------------
disburse the Escrowed Documents and the Escrowed Funds in accordance with
subparagraphs 2.b. and 2.c. below, only upon the occurrence of the
following conditions:
Page 2 of Exhibit F
<PAGE>
(1) The Escrowed Documents have been executed and deposited
into escrow with the Escrow Agent as required by this Escrow
Agreement and the Asset Purchase Agreement;
(2) The Escrowed Funds have been deposited in escrow with the
Escrow Agent as required by this Escrow Agreement and the Asset
Purchase Agreement;
(3) Each of the conditions to Closing set forth in this Escrow
Agreement and the Asset Purchase Agreement has been satisfied or
waived; and
(4) Each of the parties to the Asset Purchase Agreement or its
respective counsel has notified the Escrow Agent in writing to
proceed with the disbursement of the Escrowed Documents and the
Escrowed Funds in accordance with this Escrow Agreement and the
Asset Purchase Agreement.
b. Disbursement of Escrowed Documents and Escrowed Funds. On
-----------------------------------------------------
October 6, 1998 (the "Closing Date"), subject to the satisfaction of each
of the conditions contained in subparagraph 2.a. above, the Escrow Agent
shall disburse the Escrowed Documents and the Escrowed Funds as follows:
(1) To Franchisor:
-------------
(a) Escrowed Funds in the amount of
______________________________ owed by the Seller to the
Franchisor for rent
accruing for periods through the Closing Date, based on
information available to the parties at the Closing, and for
inventory delivered to the Seller through the Closing Date; and
(b) Escrowed Funds in the amount of
______________________________ owed by the Seller to the
Franchisor for franchise fees through _______________ (the
"Cutoff Date").
The amounts set forth in subparagraphs 2.b(1)(a) and 2.b(1)(b)
above are collectively referred to herein as the "Franchisor
Accounts." Payments to the Franchisor for rent
Page 3 of Exhibit F
<PAGE>
based on information obtained by the parties after the Closing
Date, and for franchise fees for the period from the Cutoff
Date to the Closing Date shall be paid in accordance with
Section 1(h) of the Asset Purchase Agreement.
(2) To Vendors: Escrowed Funds as necessary to pay fully each
----------
of the Vendor Accounts, but only to the extent that the aggregate
amount of the Vendor Accounts, exclusive of the Franchisor Accounts,
exceeds Fifty Thousand Dollars (the "Net Accounts"), in accordance
with the following procedures (the "Closing Disbursement
Procedures"):
(a) The Escrow Agent shall issue checks at the Closing
drawn upon the Escrow Account (defined below) in payment of the
Net Accounts.
(b) Copies of the checks so issued shall be provided to
the Buyer no later than seven days after the Closing Date
(defined below).
(3) To Seller:
---------
(a) the Buyer's Closing Certificate;
(b) executed counterparts of this Agreement and the
Centennial Escrow Agreement;
(c) executed counterpart of the Franchise Termination
Agreement; and
(d) by wire transfer to Seller's bank account as shown on
Schedule 2.b(3)(d) hereto, the balance of the Escrowed Funds
remaining after:
(i) Escrow Agent's disbursement of Escrowed Funds to
pay fully each of the Net Accounts in excess of $50,000
according to the Closing Disbursement Procedures; and
(ii) Escrow Agent's disbursement of Escrowed Funds to
pay fully the Franchisor Accounts.
(4) To Buyer:
--------
Page 4 of Exhibit F
<PAGE>
(a) the Seller's Closing Certificates;
(b) the Opinion Letter;
(c) the Bill of Sale;
(d) executed counterparts of this Agreement and the
Centennial Escrow Agreement; and
(e) the Franchise Termination Agreement.
c. Date of Disbursement. The Disbursement of the Escrowed
--------------------
Documents and the disbursement of the Escrowed Funds and Retained
Escrowed Funds shall occur as provided in subparagraph 2.b above, but in
any event no later than October 30, 1998. Notwithstanding any date that
may be affixed to the Bill of Sale, any closing certificate or the
Franchise Termination Agreement, each of such instruments and documents
shall be deemed executed and delivered on, and effective as of, the
Closing Date. All prorations pursuant to Section 1(h) of the Asset
Purchase Agreement shall be made based on the Closing Date, to-wit: the
Buyer shall be liable for all utility charges, Taxes, costs of operation
and the Assumed Liabilities pursuant to Sections 1(c), 1(h) and 11(a)(i)
of the Asset Purchase Agreement arising from periods commencing on or
after the Closing Date, and shall be entitled to all revenues, profits
and other benefits of operation arising from periods commencing on or
after the Closing Date; the Seller shall be liable for all such utility
charges, Taxes and costs of operation arising from periods ending prior
to the Closing Date, and shall be entitled to keep and retain all
revenues, profits and other benefits of operation arising from all
periods ending prior to the Closing Date.
d. Return of Escrow Deposits; Disputes. If the Closing does not
-----------------------------------
occur by October 30, 1998, or as otherwise provided in subparagraph 2.b.,
the Escrow Agent shall immediately return the Escrowed Documents and the
Escrowed Funds to the parties depositing the same.
3. Manner of Holding Escrowed Funds. The Escrowed Funds, while held in
--------------------------------
the escrow account, shall be placed in the Escrow Agent's trust account (the
"Escrow Account"), provided that there are no restrictions on such account that
would prevent the Escrow Agent from disbursing the Escrowed Funds in accordance
with the schedule established in this Escrow Agreement.
Page 5 of Exhibit F
<PAGE>
4. Termination. Except as set forth in subparagraph 7 below, this
-----------
Escrow Agreement shall terminate (i) pursuant to subparagraph 2.d. if the
Closing has not occurred by October 30, 1998; (ii) upon the disbursement of all
of the Escrowed Documents and the Escrowed Funds in accordance with this
Agreement; or (iii) at any time by the written consent of each of the parties.
5. Duties of Escrow Agent. The parties to this Agreement agree as
----------------------
follows:
a. The Escrow Agent is not and shall not be deemed to be an agent
with respect to any obligation or performance required of the Escrow
Agent under this Agreement and is merely acting as a depository and in a
ministerial capacity hereunder with the limited duties herein prescribed.
The parties acknowledge that the Escrow Agent, in its capacity as Escrow
Agent, is acting solely as a stakeholder at their request and for their
convenience and that the Escrow Agent shall not be liable to either Buyer
or Seller for any act or omission on its part unless taken or suffered in
bad faith or in willful disregard of this Escrow Agreement or involving
gross negligence on the part of the Escrow Agent.
b. The Escrow Agent does not have and shall not be deemed to have
any responsibility in respect of any instructions, certificate, or notice
delivered to it other than to faithfully carry out the obligations
undertaken in this Escrow Agreement and to follow the directions in such
instructions or notice in accordance with the terms hereof.
c. The Escrow Agent may conclusively rely on and act in accordance
with any certificate, instruction, notice, letter, telegram, cablegram,
or other written instrument reasonably believed by it to be genuine and
to have been signed by the proper party or parties.
d. If any legal proceeding is instituted by or against the Escrow
Agent with respect to the Escrowed Documents, the Escrowed Funds or any
matter governed by or that is the subject of this Agreement, the Escrow
Agent agrees promptly to give notice of such proceeding to all of the
parties to this Escrow Agreement.
e. The Escrow Agent may resign as such hereunder by giving written
notice of such resignation to the parties to
Page 6 of Exhibit F
<PAGE>
this Escrow Agreement. Upon receipt of such notice, the parties hereto
shall furnish to the Escrow Agent written instructions for the release of
the Escrowed Documents and the Escrowed Funds (or such portion thereof as
may then be in escrow) to a substitute Escrow Agent which (whether
designated by written instructions from the parties hereto jointly or, in
the absence thereof, by instructions from a court of competent
jurisdiction to the Escrow Agent) shall be a law firm doing business in
the State of Georgia, an attorney licensed to practice in the State of
Georgia, or a title company, bank, or trust company organized and doing
business under the laws of the United States or any state thereof. Such
substitute Escrow Agent shall thereafter hold the Escrowed Documents and
the Escrowed Funds received by it pursuant to the terms of this Escrow
Agreement and otherwise act hereunder as if it were the Escrow Agent
originally named herein. The Escrow Agent's duties and responsibilities
hereunder shall terminate upon the release of all of the Escrowed
Documents and the Escrowed Funds then held in escrow according to such
written instruction or upon such delivery as herein provided. This Escrow
Agreement shall not otherwise be assignable by the Escrow Agent without
the prior written consent of each of the parties hereto.
f. In the event of any dispute between the parties hereto, the
Escrow Agent shall have the right, at any time, to deposit the Escrowed
Funds with the clerk of any state or federal court of appropriate
jurisdiction in Georgia and shall give written notice of such deposit to
the Seller and the Buyer. Upon such deposit, the Escrow Agent shall be
relieved and discharged of all further obligations and responsibilities
hereunder.
g. The Escrow Agent hereby acknowledges receipt of a copy of the
Asset Purchase Agreement, but, except for reference thereto for certain
terms and conditions not set forth herein, the Escrow Agent is not
charged with any duty or obligation arising under any such documents or
any other agreements between or among any of the parties hereto, and the
Escrow Agent's responsibilities, as Escrow Agent, shall be governed
solely by this Escrow Agreement.
h. The Escrow Agent or any member of his firm shall be permitted to
act as counsel for the Seller in any dispute as to disbursement of the
Escrowed Funds or any other dispute
Page 7 of Exhibit F
<PAGE>
between the parties whether or not the Escrow Agent is in possession of
the Escrowed Funds and continues to act as Escrow Agent.
6. Diligence. Should it be necessary for the Escrow Agent to accept or
---------
act upon any directions, documents or instruments signed or issued by, or on
behalf of, any corporation, partnership, trade name or individual, it shall not
be necessary for the Escrow Agent to inquire into the authority of the person or
persons who have issued or authenticated such papers unless and to the extent
specifically provided hereinabove.
7. Indemnification of Escrow Agent. The Buyer, the Seller, and the
-------------------------------
Seller Related Parties, jointly and severally, agree to indemnify and to save
and hold harmless the Escrow Agent, in its capacity as Escrow Agent hereunder,
from any claim, action, cause of action, suit, judgment, amount paid in
settlement, cost or expense (individually a "Loss" and collectively "Losses")
suffered or incurred by Escrow Agent, in its capacity as Escrow Agent hereunder,
based upon or arising out of this Escrow Agreement or Escrow Agent's performance
hereunder unless it shall be determined by a court of competent jurisdiction
from which no appeal is taken or allowed that the act or omission of Escrow
Agent giving rise to such Loss or Losses was taken or suffered in bad faith or
in willful disregard of this Escrow Agreement or constitutes gross negligence on
the part of the Escrow Agent. The provisions of this Paragraph 7 shall survive
the termination of this Agreement.
8. Notices. All notices hereunder shall be deemed to have been duly
-------
given if mailed by United States registered or certified mail, with return
receipt requested, postage prepaid, if sent by overnight express mail or courier
service, or if sent by electronic facsimile, to the parties at the following
addresses and numbers (or at such other addresses and numbers as shall be given
in writing by either party to the other) and shall be deemed complete upon
receipt or refusal to accept delivery as indicated in the return receipt or in
the receipt of such express mail or courier service:
(i) if to a Seller or Seller Related Party:
The Cookie Conglomerate
4536 Chamblee Dunwoody Road, Suite 221
Atlanta, GA 30338
Telecopy: (770) 554-9356
with a copy to:
Lawler & Tanner, P.C.
200 Galleria Parkway
Page 8 of Exhibit F
<PAGE>
Attn: Frances Faddis Tanner
Suite 1640
Atlanta, GA 30339
Telecopy: (770) 563-8810
(ii) if to the Buyer:
Mrs. Fields' Original Cookies
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Attention: Legal Department
Telecopy: (801) 736-5945
with a copy to:
Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main Street, Suite 1500
Salt Lake City, Utah 84101
Attention: Glen D. Watkins
Telecopy: (801) 328-0537
9. Amendment. This Escrow Agreement may be altered or amended only
---------
with the written consent of all of the parties hereto. Should the parties
hereto attempt to change this Escrow Agreement in a manner either that the
Escrow Agent in its sole and absolute discretion deems undesirable or that would
increase the duties or responsibilities of the Escrow Agent, the Escrow Agent
may resign as Escrow Agent by notice to the parties hereto, and until a
successor of the Escrow Agent is appointed by the parties other than the Escrow
Agent and accepts such appointment, the Escrow Agent's only duty shall be to
hold the Escrowed Documents and the Escrowed Funds in accordance with the
original instructions contained in this Escrow Agreement.
10. Attorneys Fees. In the event of any suit or other proceeding
--------------
between the parties hereto with respect to any of the transactions contemplated
hereby or the subject matter hereof, the prevailing party shall, in addition to
such other relief as the court may award, be entitled to recover reasonable
attorneys fees, expenses, and costs incurred in connection therewith.
11. Entire Agreement. This Escrow Agreement contains the entire
----------------
agreement between the parties hereto, and supersedes any and all previous oral
and written and all contemporaneous oral negotiations, commitments, writings and
understandings of the parties with respect to the matters specified herein.
12. Applicable Law. This Agreement shall be construed in accordance
--------------
with and governed by the laws of the State of Georgia without giving effect to
Page 9 of Exhibit F
<PAGE>
choice of law provisions.
13. Submission to Jurisdiction. Each of the parties submits to the
--------------------------
jurisdiction of any state or federal court of appropriate jurisdiction in
Georgia in any action or proceeding arising out of this Escrow Agreement and
agrees that all claims in respect of the action or proceeding shall be heard and
determined in any such court. Each party also agrees not to bring any action or
proceeding arising out of this Escrow Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other party with respect thereto. Each party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together, and shall
constitute one and the same document.
Page 10 of Exhibit F
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BUYER: MRS. FIELDS' ORIGINAL COOKIES, INC.
By
------------------------------------
Its
-----------------------------------
SELLERS: THE COOKIE CONGLOMERATE, LLP
--------------------------------------
By
------------------------------------
Its
-----------------------------------
--------------------------------------
Date
THE COOKIE CONGLOMERATE, INC.
--------------------------------------
By
------------------------------------
Its
-----------------------------------
--------------------------------------
Date
SELLER RELATED PARTIES:
--------------------------------------
Ronald A. Eichel
--------------------------------------
Alan M. Kuehn
ESCROW AGENT: LAWLER & TANNER, P.C.
Page 11 of Exhibit F
<PAGE>
By
------------------------------------
Its
-----------------------------------
Page 12 of Exhibit F
<PAGE>
SCHEDULE 2.b(3)(d)
SELLER'S BANK ACCOUNT
Page 13 of Exhibit F
<PAGE>
EXHIBIT "G"
TERMINATION AGREEMENT AND MUTUAL RELEASE
THIS TERMINATION AGREEMENT AND MUTUAL RELEASE (the "Agreement") is made
and entered into ____________________________, by and between GREAT AMERICAN
COOKIE COMPANY, INC., a Delaware corporation ("Company"), and THE COOKIE
CONGLOMERATE, LLP, a Georgia limited liability partnership, and THE COOKIE
CONGLOMERATE, INC., a Georgia corporation, RONALD A. EICHEL and ALAN M. KUEHN
(collectively, the "Franchise Parties").
R E C I T A L S
A. The Company and the Franchise Parties have entered into certain
License Agreements (the "License Agreements") and Sublease Agreements (the
"Subleases") for the operation of Cookie System Facilities (the "Facilities") at
eleven (11) locations set forth in Exhibit "A" attached hereto.
B. The Franchise Parties no longer desire to operate the Facilities.
C. Company and the Franchise Parties desire, upon the terms contained
in this Agreement, to terminate the License Agreements and Subleases and, except
as provided in this Agreement, to release each other from any liability under
the License Agreements and Subleases or otherwise arising as a result of the
parties' relationship.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Company and the Franchise
Parties agree as follows:
1. Recitals and Exhibits. The recitals and Exhibits hereto are
---------------------
incorporated in this Agreement by this reference.
2. Termination. Upon the terms described in this Agreement, and except
-----------
as provided in Paragraph 7 of this Agreement, the License Agreements and
Subleases and all of the parties' respective rights and obligations under those
documents are terminated effective as of the date of this Agreement. Within
thirty (30) days of the date of this Agreement, the Franchisor shall return to
the Franchise Parties the deposits, listed on Exhibit A attached hereto, paid to
the Franchisor by the Franchise Parties pursuant to the Subleases. The
Page 1 of Exhibit G
<PAGE>
Franchise Parties agree that Company may take over the Facilities and all of
their assets, without paying any further consideration to the Franchise Parties,
on the effective date of this Agreement or as the parties otherwise agree.
3. Release of Company Parties. The Franchise Parties, for themselves
--------------------------
and their successors, heirs, executors, administrators, personal
representatives, agents, assigns, partners, shareholders, directors, officers,
employees and affiliated entities (collectively, the "Releasing Parties"),
hereby forever release and discharge Company and its affiliated corporations,
and all of their respective officers, directors, shareholders, employees,
agents, successors and assigns (collectively, the "Company Parties"), from any
and all claims, damages, demands, causes of action, suits, duties, liabilities
and agreements of any nature and kind which any of the Releasing Parties now
have, ever had or, but for this Agreement, hereafter would or could have against
any of the Company Parties arising out of their obligations under the License
Agreements and Subleases or otherwise from the Releasing Parties' relationship
with any of the Company Parties from the beginning of time to the date of this
Agreement. However, this release does not release Mrs. Fields' Original
Cookies, Inc., an affiliate of the Company ("MFOC") from the obligations,
representations and warranties of MFOC under the Asset Purchase Agreement
executed by the Releasing Parties and MFOC concurrently herewith or any document
executed in connection therewith.
4. Covenant Not to Sue the Company Parties. The Franchise Parties, for
---------------------------------------
themselves and the other Releasing Parties, further covenant not to sue any of
the Company Parties on any of the claims, damages, demands, causes of action,
suits, duties, liabilities and agreements released by Paragraph 3 of this
Agreement.
5. Representations of the Franchise Parties. The Franchise Parties
----------------------------------------
represent and warrant to the Company Parties that they have full power and
authority to execute this Agreement and bind all of the Releasing Parties to its
provisions. The Franchise Parties, for themselves and the other Releasing
Parties, further represent and warrant to the Company Parties that they have not
assigned any of the claims, damages, demands, causes of action, suits, duties,
liabilities and agreements released by Paragraph 3 to any individual or entity
who is not bound by Paragraph 3.
6. Indemnification of Company Parties. The Franchise Parties hereby
----------------------------------
agree to indemnify any and all of the Company Parties for, and to defend and
hold all of the Company Parties harmless from, any loss, cost, liability or
expense (including, without limitation, attorneys' fees, arbitrators' fees,
expert witness fees, cost of investigation and proof of facts and other costs of
litigation or arbitration, whether or not litigation or arbitration is
commenced) arising out
Page 2 of Exhibit G
<PAGE>
of or relating to the breach of any provision of this Agreement by any of the
Releasing Parties.
7. Release of Releasing Parties. Except as provided at the end of this
----------------------------
Paragraph 7, Company, for itself and the other Company Parties, hereby forever
releases and discharges the Releasing Parties from any and all claims, damages,
demands, causes of action, suits, duties, liabilities and agreements from any
nature and kind which any of the Company Parties now has, ever had or, but for
this Agreement, hereafter would or could have against any of the Releasing
Parties arising out of their obligations under the License Agreements and
Subleases or otherwise from the Company Parties' relationship with any of the
Releasing Parties from the beginning of time to the date of this Agreement.
However, this release does not relieve the Releasing Parties from the following:
(a) the obligations, representations and warranties of the Releasing
Parties under the Asset Purchase Agreement executed by the Releasing
Parties and MFOC concurrently herewith.
(b) any of their monetary obligations to Company or any third
parties arising from the Franchise Parties' operation of the Facilities
prior to the date of this Agreement, including without limitation: (i)
any rent, percentage rent or common area maintenance charges owed by the
Franchise Parties pursuant to the Subleases; and (ii) any royalties or
license fees owed by the Franchise Parties pursuant to the License
Agreement; and
(c) any of their post-term deidentification, confidentiality,
noncompete and indemnification obligations under the License Agreements
or the Subleases.
8. Covenant Not to Sue Releasing Parties. Company, for itself and the
-------------------------------------
other Company Parties, further covenants not to sue any of the Releasing Parties
on any of the claims, damages, demands, causes of action, suits, duties,
liabilities and agreements released by Paragraph 7 of this Agreement.
9. Representations of Company. Company represents and warrants to the
--------------------------
Releasing Parties that it has full power and authority to execute this Agreement
and bind all of the Company Parties to its provisions. Company, for itself and
the other Company Parties, further represents and warrants to the Releasing
Parties that it has not assigned any of the claims, damages, demands, causes of
actions, suits, duties, liabilities and agreements released by Paragraph 7 to
any individual or entity who is not bound by Paragraph 7.
Page 3 of Exhibit G
<PAGE>
10. Indemnification of Releasing Parties. Company hereby agrees to
------------------------------------
indemnify all of the Releasing Parties for, and to defend and hold all of the
Releasing Parties harmless from, any loss, cost, liability or expense
(including, without limitation, attorneys' fees, arbitrators' fees, expert
witness fees, cost of investigation and proof of facts and other costs of
litigation or arbitration, whether or not litigation or arbitration is
commenced) arising out of or relating to the breach of any provision of this
Agreement by any of the Company Parties.
11. Binding Effect. This Agreement is binding upon the parties, their
--------------
heirs, successors, assigns, personal representatives and administrators, and
shall not be modified except by written agreement signed by all of the parties
to this Agreement.
12. Miscellaneous.
-------------
(a) This Agreement constitutes the entire understanding between the
parties with respect to the transaction this Agreement contemplates.
(b) This Agreement shall be construed and interpreted in accordance
with the laws of the State of Georgia.
(c) The captions and headings are annexed only for convenience of
reference, are not a part of this Agreement and shall not limit or
construe the provisions to which they apply.
(d) This Agreement may be executed in multiple copies, each of which
shall be deemed an original.
(e) Each of the Company Parties and Releasing Parties shall be
deemed to be a third party beneficiary of this Agreement with an
independent right to enforce it.
Page 4 of Exhibit G
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date and year first written above.
GREAT AMERICAN COOKIE THE COOKIE CONGLOMERATE, LLP
COMPANY, INC.
- --------------------------- -------------------------------
By By
-----------------------------
Its Its
----------------------------
- --------------------------- -------------------------------
Date Date
THE COOKIE CONGLOMERATE, INC.
-------------------------------
By
----------------------------
Its
----------------------------
-------------------------------
Date
-------------------------------
Ronald A. Eichel
-------------------------------
Alan M. Kuehn
Page 5 of Exhibit G
<PAGE>
EXHIBIT "H"
Page 1 of Exhibit H
<PAGE>
DISCLOSURE SCHEDULE
Page 2 of Exhibit H
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
December 9, 1998, by and among Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (the "Buyer"), and Martin E. Lisiewski, a shareholder of Pretzel
Time, Inc., a Pennsylvania corporation (the "Company"), (the "Seller"). The
Buyer and the Seller are referred to collectively herein as the "Parties."
A. The Seller owns thirty (30) shares of the issued and outstanding
common stock of the Company;
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, three (3)
shares of the outstanding common stock (par value $10.00 per share) of the
Company owned by the Seller (the "Shares"), as part of a series of transactions
in which the Buyer is ultimately acquiring all of the common stock in the
Company.
WHEREAS, the Buyer will purchase the Shares of the Company in return
for cash as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Purchase and Sale of Shares.
(a) Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the
Seller, and the Seller agrees to sell to the Buyer, each of the Shares
for the consideration specified below in Section 1(b).
(b) Purchase Price. The Buyer agrees to pay to the Seller at
the Closing the sum of Five Hundred Thousand Dollars ($500,000) (the
"Purchase Price"), by delivery of certified funds for the Purchase
Price payable in accordance with this Agreement.
(c) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") will take place at the offices of
the Buyer in Salt Lake City, Utah, on or before December 9, 1998 (the
"Closing Date"), unless extended by written agreement of the Parties.
(d) Deliveries at the Closing. At Closing, the Seller will
deliver to
<PAGE>
the Buyer, the various documents referred to in Section 5(a) below.
The Seller acknowledges that the Company will (A) cancel the Seller's
existing share certificate(s) at the Closing, (B) issue and deliver
certificate(s) to the Buyer for the three (3) Shares of the Company's
common stock purchased by the Buyer from the Seller pursuant to this
Agreement, and (C) issue and deliver certificate(s) to the Seller for
his remaining twenty seven (27) Shares of the Company's common stock.
2. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in
this Section 2(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 2(a)) with respect
to himself except as set forth on the Disclosure Schedule affixed
hereto.
(i) Organization of Certain Seller. If the Seller is a
corporation or other entity, the Seller is duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its organization.
(ii) Authorization of Transaction. The Seller has full
power and authority (including, if the Seller is an entity, full
power and authority) to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions. The Seller need not
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 by this Agreement.
(iii) Noncontravention. To the best of Seller's knowledge,
neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)
violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge or other restriction of
any government, governmental agency or court to which the Seller
is subject or, if the Seller is a corporation, any provision of
its charter or bylaws, or (B) 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 under any agreement, contract,
lease, license, instrument or other
2
<PAGE>
arrangement to which the Seller is a party or by which the Seller
is bound or to which any of the Seller's assets is subject.
(iv) Brokers' Fees. The Seller has no liability or
obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.
(v) Shares. The Seller holds of record and owns
beneficially the number of Shares (but no more or other shares of
the common stock of the Company than) set forth in paragraph A
above. The Seller holds and owns each of the Shares free and
clear of any restrictions on transfer, any federal, state or
local taxes of any kind, taxes, mortgage, pledge, lien,
encumbrance, charge or other security interests, options,
warrants, purchase rights, contracts, commitments, equities,
claims and demands. Other than this Agreement and other written
agreements with the Company and/or the Buyer, the Seller is not a
party to (A) any option, warrant, purchase right, shareholders
agreement, co-sale agreement, buy-sell agreement or other
contract or commitment that could require the Seller to sell,
transfer or otherwise dispose of any capital stock of the Company
(other than this Agreement), or (B) any voting trust, proxy or
other agreement or understanding with respect to the voting of
any capital stock of the Company.
(vi) Legal Compliance/Litigation. To the best of his
knowledge, the Seller and his respective predecessors and
affiliates have complied with all applicable laws of federal,
state, local and foreign governments (and all agencies thereof),
and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or commenced
against any of them alleging any failure so to comply. To the
best of his knowledge, there are no outstanding injunctions,
judgments, orders, decrees, rulings or charges affecting their
Shares. To the best of his knowledge, there are no actions,
suits, proceedings, hearings or investigations, and the Seller
does not have reason to believe that any such action, suit,
proceeding, hearing or investigation may be brought or
threatened, against the Seller.
(vii) Investigation. The Seller has investigated or had
full opportunity to investigate the terms and conditions of the
transactions contemplated by this Agreement, including the
Purchase Price, and deems them to be fair and appropriate.
3
<PAGE>
3. Pre-Closing Covenants. With respect to the period between the
execution of this Agreement and the Closing, (A) each of the Parties will use
its/his reasonable best efforts to take all action and to do all things
necessary, proper or advisable in order to consummate and make effective the
transactions contemplated by this Agreement, (B) the Seller will use his best
efforts to obtain any third-party consents that the Buyer may request or to
otherwise consummate the transactions contemplated hereby, and (C) the Seller
will give prompt written notice to the Buyer of any material adverse development
causing a breach of any of the representations and warranties in Section 2
above.
4. Post-Closing Covenants. The Parties agree that if at any time
after the Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party reasonably may request.
5. Conditions to Closing.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to the satisfaction (or waiver
by the Buyer) of the following conditions:
(i) The representations and warranties set forth in
Section 2 above shall be true and correct in all material
respects at and as of the Closing Date.
(ii) The Seller shall have performed and complied with
all of his covenants hereunder in all material respects through
the Closing.
(iii) The Seller shall have procured any third party
consents required for the sale of the Shares.
(iv) No action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (C) affect
adversely the right of the Buyer to own the Shares.
(v) The Seller shall be prepared to deliver the
certificates
4
<PAGE>
and documents in the form and executed as required by this
Agreement.
(vi) All actions to be taken by the Seller in connection
with consummation of the transactions contemplated by this
Agreement, and all certificates, and other documents required to
effect the transactions contemplated hereby, will be satisfactory
in form and substance to the Buyer.
(vii) [Intentionally omitted.]
(viii) Neither the Company nor the Seller shall be in
breach under any of the terms and conditions of any of the Stock
Acquisition Agreements (as defined in Section 6 below) and the
documents executed in connection with the Related Transactions
(as defined in the First Acquisition Agreement as defined below).
The Buyer may waive any condition specified in this Section 5(a) if it
executes a writing so stating at or prior to the Closing. The Buyer's
waiver of any condition to Closing set forth in Section 5(a)(viii)
above shall not constitute a waiver of any breach (or a waiver of any
right or remedy arising from any breach) by the Seller of any of the
Stock Purchase Agreements or the documents executed in connection with
the Related Transactions.
(b) Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions to be performed by him in
connection with the Closing is subject to satisfaction of the
following conditions:
(i) No action, suit or proceeding shall be pending
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction for
before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling or charge would (A) prevent
consummation of any of the transactions contemplated by this
Agreement, or (B) cause any of the transactions between the Buyer
and the Seller contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order,
decree, ruling or charge shall be in effect).
(ii) The Buyer shall be prepared to deliver the Purchase
Price as required by Section 1(b).
(iii) [Intentionally Omitted.]
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<PAGE>
The Seller may waive any condition specified in this Section 5(b) if
he executes a writing so stating at or prior to the Closing.
6. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Seller contained in this
Agreement shall survive the Closing hereunder (even if the damaged
Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect
forever thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its
representations, warranties, and covenants contained herein, and,
if the Buyer makes a written claim for indemnification against
any of the Seller therefor, then, the Seller agrees to indemnify
the Buyer from and against the entirety of any Adverse
Consequences (as defined in the First Acquisition Agreement) that
the Buyer may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may
suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by
the breach.
(ii) If any third party shall notify Buyer or Fields
(defined below) with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification
against the Seller under this ' 6, then Buyer or Fields, as
applicable, shall promptly notify the Seller thereof in writing,
provided, however, that no delay on the part of Fields or Buyer,
as applicable, in notifying the Seller shall relieve the Seller
from any obligation hereunder unless (and then solely to the
extent) the Seller is prejudiced. The indemnification procedure
respecting a Third Party Claim hereunder shall be the same as set
forth in Section 9(c) of that certain Stock Acquisition
Agreement, dated as of September 2, 1997 (the "First Acquisition
Agreement"), by and between Mrs. Fields' Holding Company, Inc., a
Delaware corporation ("Fields"), the Company and the Seller
(therein referred to as the Principal Shareholder). (For purposes
of this Agreement, the term Stock Acquisition Agreements shall
mean collectively (A) the First Acquisition Agreement, (B) the
Stock Purchase Agreement, dated as of January 2, 1998, by and
between Fields and the Seller, and (C) the Stock Purchase
Agreement, dated as of June 12, 1998, by
6
<PAGE>
and between Fields and the Seller.)
(iii) All claims for indemnification made under this
Agreement shall be subject to the terms and conditions of
Sections 9(d) (Determination of Adverse Consequences), (f)
(Rights of Offset) and (g) (Limitation of Rights of Offset) of
the First Acquisition Agreement, and the indemnity payment
required of the Seller for such claims shall be determined as if
the claims were made under the First Acquisition Agreement.
(iv) The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable,
or common law remedy Fields or the Seller may have for breach of
representation, warranty, or covenant.
7. Termination.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) The Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the
Closing.
(ii) The Buyer or the Seller may terminate this Agreement
if the Closing does not occur on or before December 15, 1998.
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to this Section, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party
to any other Party (except for any liability of any Party then in
breach).
8. Miscellaneous.
(a) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties
and their respective successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements or representations
by or among the Parties, written or oral, to the extent they relate in
any way to the subject matter hereof.
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<PAGE>
(c) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign
either this Agreement or any of his or its rights, interests or
obligations hereunder without the prior written approval of the Buyer
and the Seller; provided, however, that the Buyer may (i) assign any
or all of its rights and interests hereunder to one or more of its
affiliates, and (ii) designate one or more of its affiliates to
perform its obligations hereunder (in any or all of which cases the
Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request,
demand, claim or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered
or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Seller: Martin E. Lisiewski
7070 N.E. 8th Drive
Boca Raton, FL 33487
With a copy to: Mette, Evans & Woodside
Attention: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
If to the Buyer: Mrs. Fields' Original Cookies, Inc.
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, UT 84121
Attention: Legal Department
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<PAGE>
With a Copy to: Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main Street, Suite 1500
Salt Lake City, UT 84101
Attention: Glen D. Watkins
Any Party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail
or electronic mail), but no such notice, request, demand, claim or
other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other
Parties notice in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Utah
without giving effect to any choice or conflict of law provision or
rule thereof.
(h) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by the Buyer and each of the Sellers. No waiver by any Party of
any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(i) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
(j) Expenses. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated
hereby. The Seller agrees that none of the Company and its
Subsidiaries has borne or will bear any of the Seller's costs and
expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated
hereby.
(k) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by
reference
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<PAGE>
and made a part hereof.
(l) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the
event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached.
Accordingly, each of the Parties agrees that the other Parties shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted
in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other
remedy to which they may be entitled, at law or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER: MRS. FIELDS' ORIGINAL COOKIES, INC.
By:
----------------------------------------------
Its:
------------------------------------------
SELLER:
-------------------------------------------------
Martin E. Lisiewski
10
<PAGE>
DISCLOSURE SCHEDULE TO STOCK ACQUISITION AGREEMENT
Section 2(a):
- ------------
None, unless otherwise stated below.
- ---------------- -----------------
Buyer's Initials Seller's Initials
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of
December 30, 1998, by and among Mrs. Fields' Holding Company, Inc., a Delaware
corporation ("MFH"), Mrs. Fields' Original Cookies, Inc., a Delaware corporation
and a wholly owned subsidiary of MFH (the "Buyer"), Pretzel Time, Inc., a
Pennsylvania corporation (the "Company"), and Martin E. Lisiewski, a shareholder
of the Company (the "Seller"); all of whom are referred to collectively herein
as the "Parties." MFH and Buyer are referred to collectively herein as "Fields."
A. Pursuant to certain Stock Acquisition Agreements (defined below),
the Buyer (directly or by transfer from MFH) has acquired and presently owns,
seventy-three (73) shares of the issued and outstanding common stock (par value
$10 per share) of the Company. For purposes of this Agreement, the term Stock
Acquisition Agreements shall mean collectively each of the agreements listed on
Exhibit A. (Defined terms set forth in this Agreement are hereby incorporated
- ---------
into this Agreement.)
B. In connection with the First Acquisition Agreement, some or all of
the parties entered into a Shareholders Agreement, Management Agreement,
Exchange Agreement, Registration Rights Agreement and Employment Agreement (the
"Old Employment Agreement"), each dated as of September 2, 1997, and more
particularly identified on Exhibit B (collectively, "Lisiewski Contracts").
---------
C. Pursuant to that certain Option Agreement, dated as of December 9,
1998, the Seller granted to the Buyer an option (the "Option") entitling the
Buyer to acquire all of the Seller's remaining issued and outstanding shares of
common stock of the Company, consisting of twenty-seven (27) shares (par value
$10.00 per share) (the "Shares"). A copy of the Option is attached hereto as
Exhibit C.
- ---------
D. This Agreement (referred to in the Option Agreement as the
"Purchase Agreement") contemplates contemporaneous transactions at the Closing
(defined below), in which (1) the Buyer will exercise the Option, (2) the Buyer
will purchase from the Seller, and the Seller will sell to the Buyer, all of the
Shares, whereupon the Seller will own all of the issued and outstanding common
stock of the Company, (3) the Parties will terminate the Lisiewski Contracts,
and (4) the mutual general release provided for herein will become effective
between the Seller Released Parties and the Buyer Released Parties (defined
respectively below).
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
<PAGE>
1. Purchase and Sale of Shares.
(a) Exercise of Option; Execution of Definitive Agreement. The Seller
hereby acknowledges the Buyer's valid and timely exercise of the Option (for the
purchase of all but not less than all of the Shares) pursuant to the Buyer's
written notice thereof, the receipt of which is hereby acknowledged by the
Seller. A copy of such notice is attached hereto as Exhibit D. The Parties
---------
further acknowledge and agree that this Agreement, upon its execution by all
Parties, shall exclusively set forth the terms and conditions of such purchase
and sale of the Shares (and all transactions related thereto), and shall
supersede and replace the Option in its entirety. Notwithstanding the previous
sentence, the Buyer acknowledges that as of the date hereof the Seller continues
to be operationally in compliance with his area developer and franchise
relationships with the Buyer as described in the Option.
(b) Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, each of the Shares for the consideration specified below
in Section 1(c), free and clear of all Liens and Restrictions (respectively
defined below).
(c) Purchase Price. The purchase price for the Shares shall be
$4,739,989.39 (the "Purchase Price"), which, subject to paragraph 2 below, shall
be paid by the Buyer to the Seller by wire transfer or in certified funds in
installments, as follows:
(i) on or before January 5, 1999, the sum of $2,539,989.39 (the
"January 1999 Installment Payment"); and
(ii) on or before December 30, 1999, the sum of $2,000,000.00 (the
"December 1999 Installment Payment"); and
(iii) during the 1999 calendar year, semi-monthly payments of
$6,666.66. The total payment to the Seller pursuant to this subsection
1(c)(iii) will be $160,000.00; and
(iv) during each of the calendar years 1999, 2000, 2001 and 2002,
semi-monthly payments of $416.66, payable pursuant to an employment
agreement to be executed at the Closing by the Seller, as employee, and the
Buyer, as employer, in the form of Exhibit E (the "New Employment
---------
Agreement"). The total payment to the Seller pursuant to this subsection
1(c)(iv) and the New Employment Agreement will be $10,000 in each such
calendar year.
(d) The Closing. The exercise of the Option, the Parties' execution of this
Agreement and the closing of the transactions contemplated by this Agreement
(the "Closing") will take place at the offices of the Buyer in Salt Lake City,
Utah, on
2
<PAGE>
a date selected by the Buyer on or before December 30, 1998 (the "Closing
Date"), unless extended by written agreement of the Parties. The Closing Date
selected by the Buyer is December 30, 1998.
(e) Security. The payments to be made by the Buyer to the Seller pursuant
to Sections 1.(c)(i), (ii) and (iii) above, shall be secured by the Buyer's
pledge of the Shares pursuant to a pledge agreement executed by the Buyer and
the Seller, and delivered to the Seller, at the Closing in the form of
Exhibit F.
- ---------
(f) Transfer of Shares; Deliveries at the Closing.
(i) The transfer of the Shares by the Seller to the Buyer, pursuant to
this Agreement shall be accomplished as follows: (A) the Company shall
cancel the Seller's existing certificate(s) for the Shares at the Closing,
and (B) the Company shall issue and deliver new certificate(s) to the Buyer
for the Shares, which certificates (together with a copy of this Agreement
and the Pledge Agreement) shall be delivered to the Escrow Agent (defined
below) for deposit into an escrow established pursuant to an escrow
agreement (the "Escrow Agreement") to be executed by the Buyer, the Seller
and the Escrow Agent in the form of Exhibit G. The parties agree that, in
---------
the event Escrow Agent deems it appropriate, a stock power may temporarily
be substituted for a new share certificate for delivery to the Escrow
Agent, to give effect to this subparagraph (i).
(ii) At Closing, the Seller will deliver to the Buyer, the fully
executed Pledge Agreement. The appropriate Parties and the Escrow Agent
shall execute and deliver to each other at the Closing fully executed
counterparts of the Addendum and the New Employment Agreement and the
Escrow Agreements.
2. Payment of Seller's Indebtedness to the Buyer and Company. The Parties
acknowledge and agree that the Seller is indebted to the Buyer or the Company
(other than for trade payables or on-going fees under the Franchise Agreement),
as the case may be, in the aggregate amount of $1,149,239.39 as more
particularly itemized in Exhibit H (collectively, the Seller's Indebtedness"),
---------
which shall be paid to the Buyer and the Company (as appropriate) as follows:
(i) $1,039,989.39 shall be deducted and paid from the January 1999
Installment Payment; and
(ii) $109,250.00 shall be deducted and paid from the December 1999
Installment Payment.
Buyer acknowledges that, except as set forth on Exhibit H, Seller has paid all
initial franchise fees for those locations set forth on Exhibit I.
3
<PAGE>
3. Representations and Warranties of the Seller.
The Seller represents and warrants to the Buyer that the statements
contained in this Section 3 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3).
(i) Noncontravention. To the best of Seller's knowledge, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge or other restriction of any government, governmental agency or court
to which the Seller is subject or, if the Seller is a corporation, any
provision of its charter or bylaws, or (B) 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 under any agreement, contract, lease, license,
instrument or other arrangement to which the Seller is a party or by which
the Seller is bound or to which any of the Seller's assets is subject.
(ii) Brokers' Fees. The Seller has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iii) Shares Being Acquired Pursuant To This Agreement. The Seller
holds of record and owns beneficially the number of Shares (but no more or
other shares of the common stock of the Company than) set forth in
paragraph C above. The Seller holds and owns each of the Shares free and
clear of any of the following (collectively, "Liens"): restrictions on
transfer, Taxes (as defined below), mortgage, pledge, lien, encumbrance,
charge or other security interests, options, warrants, purchase rights,
contracts, commitments, equities, claims and demands. Other than this
Agreement and other written agreements with the Company and/or the Buyer
(and MFH), the Seller is not a party to any of the following (collectively,
the "Restrictions"): (A) any option, warrant, purchase right, shareholders
agreement, co-sale agreement, buy-sell agreement or other contract or
commitment that could require the Seller to sell, transfer or otherwise
dispose of any capital stock of the Company (other than this Agreement), or
(B) any voting trust, proxy or other agreement or understanding with
respect to the voting of any capital stock of the Company.
(iv) Legal Compliance/Litigation. To the best of his knowledge, the
4
<PAGE>
Seller and his respective predecessors and affiliates have complied with
all applicable laws of federal, state, local and foreign governments (and
all agencies thereof) affecting title to the Shares. To the best of
Seller's knowledge, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice affecting title to the Shares
has been filed or commenced against him alleging any failure so to comply.
To the best of his knowledge, there are no outstanding injunctions,
judgments, orders, decrees, rulings or charges affecting the Shares. To the
best of his knowledge, there are no actions, suits, proceedings, hearings
or investigations, and the Seller does not have reason to believe that any
such action, suit, proceeding, hearing or investigation affecting title to
the Shares may be brought or threatened, against the Seller.
(v) Shares Previously Acquired. Pursuant to a series of Stock
Acquisition Agreements entered into by the Buyer (or MFH) as of and after
January 2, 1998 (other than this Agreement), the Buyer (or MFH) purchased
from the Seller, and the Seller sold to the Buyer (or MFH), seventeen (17)
issued and outstanding shares of the common stock (par value $10.00) of the
Company (collectively, the "Previously Acquired Shares"). In consideration
of the execution of this Agreement and the Closing of the Transactions
contemplated thereby, the Seller (as of the respective dates of purchase
and sale and transfer thereof to the Buyer (or MFH), and as of the dates
set forth in the first sentence of Subsection 3 above) hereby represents
and warrants to the Buyer (and MFH) with respect to each of the Previously
Acquired Shares, as follows:
(A) Prior to the sale and transfer thereof to the Buyer (or MFH),
the Seller held of record and owned beneficially each of the Previously
Acquired Shares, and held and owned each of the Previously Acquired
Shares free and clear of any Liens and Restrictions;
(B) Each of the Previously Acquired Shares was sold and
transferred by the Seller to the Buyer (or MFH, as the case may be),
free and clear of Liens and Restrictions; and
(C) Each of the representations and warranties set forth in
Subsection 2(iv) above is true and correct with respect to each of the
Previously Acquired Shares.
(vi) Investigation. The Seller has investigated or had full
opportunity to investigate the terms and conditions of the transactions
contemplated by this Agreement, including the Purchase Price, and deems
them to be fair and appropriate.
5
<PAGE>
4. Pre-Closing Covenants. With respect to the period between the execution
of this Agreement and the Closing, (A) each of the Parties will use its/his
reasonable best efforts to take all actions and to do all things necessary,
proper or advisable in order to consummate and make effective the transactions
contemplated by this Agreement, (B) the Seller will use his best efforts to
obtain any third-party consents that the Buyer may request or to otherwise
consummate the transactions contemplated hereby, and (C) the Seller will give
prompt written notice to the Buyer of any material adverse development causing a
breach of any of the representations and warranties in Section 3 above. The
Buyer and the Seller further agree that they will execute following the Closing
(or shall cause their appropriate affiliates to execute) agreements setting
forth all of the franchise, license and area developer relationships and
agreements, oral or written, between the Seller and the Buyer (or any of their
respective affiliates), collectively, the "Franchise Agreements," all of which
shall be listed on Exhibit I.
---------
5. Post-Closing Covenants. The Parties agree that if at any time after the
Closing any further action is necessary or desirable to carry out the purposes
of this Agreement, each of the Parties will take such further action (including
the execution and delivery of such further instruments and documents) as any
other Party reasonably may request, subject to reimbursement of reasonable costs
by the Party requesting such action.
6. Conditions to Closing.
(a) Conditions to Obligation of the Buyer and the Company. The
obligations of the Buyer and the Company to consummate the transactions to
be performed respectively by them in connection with the Closing are
subject to the satisfaction (or waiver by the Buyer) of the following
conditions:
(i) The representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date.
(ii) The Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing.
(iii) The Seller shall have procured any third party consents
required for the sale of the Shares.
(iv) No action, suit or proceeding shall be pending or threatened
before any court or quasi- judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation,
or (C) affect adversely the right of the Buyer to own the Shares.
6
<PAGE>
(v) The Seller shall be prepared to deliver the documents in the
form and executed as required by this Agreement.
(vi) All actions to be taken by the Seller in connection with
consummation of the transactions contemplated by this Agreement, and
all certificates, and other documents required to effect the
transactions contemplated hereby, will be satisfactory in form and
substance to the Buyer.
(vii) Other than the First Acquisition Claims (which are being
paid and satisfied pursuant to this Agreement), the Seller shall not be
in breach under any of the terms and conditions of any of the Stock
Acquisition Agreements or the documents executed in connection with the
Related Transactions (as defined in the First Acquisition Agreement as
defined below).
(viii) The Seller shall have executed the New Employment
Agreement.
(ix) The Seller and the Buyer or, as appropriate, their
respective affiliates shall have executed the Franchise Agreements.
(x) The Seller shall have signed and delivered to the Buyer an
Addendum to the Stock Purchase Agreement, dated as of June 12, 1998,
by and between MFH and the Seller (the "Addendum"), in a form
acceptable to the Seller, showing the buyer therein as the Buyer rather
than MFH. The Addendum shall be in the form of Exhibit J attached
hereto.
(xi) Effective upon the Closing, Richard Huber and the Seller
shall have resigned as directors of the Company.
The Buyer (for itself and on behalf of MFH and the Company) may waive any
condition specified in this Section 6(a) if Buyer executes a writing so stating
at or prior to the Closing. The Closing itself shall be deemed a waiver or
satisfaction of the conditions to Closing.
(b) Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
(i) No action, suit or proceeding shall be pending or threatened
before any court or quasi- judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling or
charge would (A)
7
<PAGE>
prevent consummation of any of the transactions contemplated by this
Agreement, or (B) cause any of the transactions between the Buyer and the
Seller contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling or
charge shall be in effect).
(ii) The Buyer shall be prepared to deliver the Pledge Agreement,
the Shares (pursuant to the Pledge Agreement), the Escrow Agreement, and
the New Employment Agreement.
The Seller may waive any condition specified in this Section 6(b) if he executes
a writing so stating at or prior to the Closing. The Closing itself shall be
deemed a waiver or satisfaction of the conditions to Closing.
7. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the representations
and warranties of the Seller contained in this Agreement shall survive the
Closing hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of one (1) year after the Closing.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its representations,
warranties, and covenants contained herein, and, if Fields (or any of them)
makes a written claim for indemnification against the Seller therefor,
then, the Seller agrees to indemnify Fields (and any of them as
appropriate) from and against the entirety of any Adverse Consequences that
the Buyer or MFH may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences Fields or any of them
may suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach. For
purposes of this Agreement, "Adverse Consequences" means all actions,
suits, proceedings, hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses, and fees, including court
costs and reasonable attorneys' fees and expenses. "Taxes" means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including
8
<PAGE>
any interest, penalty, or addition thereto, whether disputed or not.
(ii) If any third party shall notify Fields (or any them) with respect to
any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the Seller under this ' 7, then Fields (or any of them)
shall promptly notify the Seller thereof in writing, provided, however, that no
delay on the part of Fields (or any of them), as applicable, in notifying the
Seller shall relieve the Seller from any obligation hereunder unless (and then
solely to the extent) the Seller is prejudiced.
(iii) The indemnification procedure respecting a Third Party Claim
hereunder shall be as follows:
(c) Matters Involving Third Parties.
(i) If any third party shall notify Fields (or any of them) with respect
to any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the Seller under this Section 7, then Fields (or any
them) shall promptly notify the Seller thereof in writing; provided, however,
that no delay on the part of Fields (or any of them) in notifying the Seller
shall relieve the Seller from any obligation hereunder unless (and then solely
to the extent) the Seller thereby is prejudiced.
(ii) The Seller will have the right to defend Fields (and each of them)
against the Third Party Claim with counsel of its choice satisfactory to Fields
so long as:
(A) the Seller notifies Fields in writing within 15 days after Fields
has given notice of the Third Party Claim that the Seller will indemnify
Fields (and each of them) from and against the entirety of any Adverse
Consequences Fields (and any of them) may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim;
(B) the Seller provides Fields with evidence acceptable to Fields
that the Seller will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder;
(C) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief;
9
<PAGE>
(D) the settlement of, or an adverse judgment with respect to, the
Third Party Claim is not, in the good faith judgment of Fields, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of Fields (or any of them); and
(E) the Seller conducts the defense of the Third Party Claim actively
and diligently.
(iii) The party not conducting the defense of the Third Party Claim above
may retain separate co- counsel at its sole cost and expense and participate in
the defense of the Third Party Claim;
(iv) The party conducting the defense
(A) will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the other party (not to be withheld unreasonably); and
(B) will not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the other party (not to be withheld unreasonably).
(v) In the event any of the conditions in Section 7(c)(ii) above is or
becomes unsatisfied, however,
(A) Fields (or either of them) may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate, and
Fields (or either of them) need not consult with, or obtain any consent
from, Seller in connection therewith);
(B) the Seller will reimburse Fields (and each of them) promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses); and
(C) the Seller will remain responsible for any Adverse Consequences
Fields (or any of them) may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 7.
10
<PAGE>
(d) Other Rights and Remedies. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy Fields (or any of them) may have for breach
of a representation, warranty, or covenant.
8. Termination of Certain Agreements Among the Parties.
(a) Except as set forth in Section 8(b) below, the Parties expressly
intend and agree that, subject to and effective upon the occurrence of the
Closing, all of the Lisiewski Contracts and the Stock Acquisition
Agreements shall automatically and irrevocably terminate and be of no
further force or effect (hereinafter collectively, the "Terminated
Agreements"). Each Party hereby agrees that he/it has received, or has
waived in consideration of the Closing of the transactions contemplated by
this Agreement, all respective payments and performances which he/it is
presently entitled to receive, or, prior to the termination thereof, may be
entitled to receive, under any of the Terminated Agreements. Each Party
further acknowledges and agrees that no further payments or performances of
any kind will or is required to be made to him/it under any of the
Terminated Agreements.
(b) Notwithstanding Section 8(a) above, none of the following written
agreements executed by some or all of the Parties, shall terminate by
reason of the execution of this Agreement or the Closing of the
transactions contemplated thereby or shall otherwise constitute Terminated
Agreements, it being the Parties' express intention that each such
agreement shall terminate or expire, if at all, according to the express
terms and conditions of each such agreement:
(i) This Agreement, the New Employment Agreement and any
document or instrument executed or delivered in connection with the
Closing of the transactions that are the subject of this Agreement;
(ii) The Franchise Agreements;
(iii) The Affidavit of Stock Certificate and Indemnity Agreement,
dated as of September 4, 1997, executed by Seller and delivered in
connection with the First Acquisition Agreement; and
(iv) The Notes; provided however that upon payment to the Buyer
of the Seller's Indebtedness, the Notes shall be marked "paid in full"
and delivered to the Seller.
9. The Seller's Release of Claims. Subject to and effective only upon the
occurrence of the Closing, the Seller, for himself and his heirs, successors,
agents, assigns and legal representatives, hereby forever releases and
discharges Fields (and each of them) and the Company and their respective
officers, directors, shareholders, managers,
11
<PAGE>
parent, sister and affiliated entities, accountants, attorneys (whether in-house
or otherwise), predecessors, successors, agents, assigns and legal
representatives (collectively, the "Buyer Released Parties"), from any and all
payments, charges, costs, wages, salaries, benefits, payments, performances,
claims, actions, liabilities, profits, bonuses, distributions, dividends and
damages of whatever kind or nature, known or unknown, now accrued or existing or
accruing or arising in the future, whether asserted or unasserted, whether based
on tort, contract, statutory or other theory of liability (whether asserted at
law or in equity) (collectively, "Claims"); provided however, nothing contained
in this Section 9 shall release or discharge any Buyer Released Party from the
performance of any obligation required of a Buyer Released Party under any of
this Agreement, the Pledge Agreement, the New Employment Agreement and the
Franchise Agreements. The Seller represents and warrants that he has not
assigned or conveyed to third parties any claims or actions against any of the
Buyer Released Parties.
10. The Company's and Fields' Release of Claims. Subject to and effective
only upon the occurrence of the Closing, Fields and the Company, each for itself
and its respective parent, sister and affiliated entities, successors, agents,
assigns and legal representatives, hereby forever releases and discharges the
Seller and his respective heirs, successors, agents, assigns and legal
representatives, accountants, attorneys, and affiliated entities (collectively,
the "Seller Released Parties"), from any and all Claims, provided however,
nothing contained in this Section 10 shall release or discharge any Seller
Released Party from the performance of any obligation under any of the this
Agreement, the Pledge Agreement, the New Employment Agreement and the Franchise
Agreements. The Buyer represents and warrants that it has not assigned or
conveyed to third parties any claims or actions against any of the Seller
Released Parties.
11. Miscellaneous.
(a) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or
among the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof.
(c) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of his or its rights, interests or obligations hereunder without the
prior written approval of the Buyer and the Seller; provided, however, that
the Buyer may (i) assign any or all of its rights and interests hereunder
to one or more of its affiliates, and (ii) designate one or more of its
affiliates to perform its obligations hereunder (in any or all of which
cases the Buyer nonetheless shall remain responsible for the
12
<PAGE>
performance of all of its obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Seller: Martin E. Lisiewski
7070 N.E. 8th Drive
Boca Raton, FL 33487
With a copy to: Mette, Evans & Woodside
Attention: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
If to the Buyer or MFH: Mrs. Fields' Original Cookies, Inc.
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, UT 84121
Attention: Legal Department
With a Copy to: Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main Street, Suite 1500
Salt Lake City, UT 84101
Attention: Glen D. Watkins
Any Party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail or electronic
mail), but no such notice, request, demand, claim or other communication
shall be deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the address to
which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other Parties notice in the manner herein
set forth.
13
<PAGE>
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving
effect to any choice or conflict of law provision or rules thereof.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and each of the Sellers. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
occurrence.
(i) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(j) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby. The Seller agrees
that none of the Company and its Subsidiaries has borne or will bear any of
the Seller's costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(k) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made
a part hereof.
(l) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter, in addition to
any other remedy to which they may be entitled, at law or in equity.
(m) Joinder of Spouse. The spouse of the Seller is executing this
Agreement to acknowledge its fairness (and the fairness of the Stock
Acquisition Agreements) and that it is in such spouse's best interest to
bind such spouse's community property interest, if any, to the terms of
this Agreement (and the Stock Acquisition Agreements).
14
<PAGE>
[Remainder of Page Intentionally Left Blank]
15
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER: MRS. FIELDS' ORIGINAL COOKIES, INC.
By:
----------------------------------------------
Its:
------------------------------------------
MFH MRS. FIELDS' HOLDING COMPANY, INC.
By:
----------------------------------------------
Its:
------------------------------------------
COMPANY PRETZEL TIME, INC.
By:
----------------------------------------------
Its:
------------------------------------------
SELLER:
-------------------------------------------------
Martin E. Lisiewski
-------------------------------------------------
Jan Lisiewski
S-1
<PAGE>
LIST OF EXHIBITS
A Stock Acquisition Agreements
B Lisiewski Contracts
C Option Agreement
D Notice of Exercise of Option
E New Employment Agreement
F Pledge Agreement
G Escrow Agreement
H Summary of Seller's Indebtedness
I List of Franchise Agreements
J Addendum
<PAGE>
EXHIBIT A
(Listing of Stock Acquisition Agreements)
(A) Stock Acquisition Agreement, dated as of September 2, 1997, by and among
MFH, the Company and the Seller (therein referred to as the Principal
Shareholder), assigned (together with all of the Company's stock acquired
thereunder) by MFH to the Buyer pursuant to that certain Capital
Contribution and Assumption Agreement, dated as of November 26, 1997 (the
"Assumption Agreement"), by and between MFH and the Buyer) (the "First
Acquisition Agreement");
(B) Stock Purchase Agreement, dated as of August 19, 1997, among the Company,
MFH and persons (other than MFH and the Company) owning common stock of the
Company, assigned by MFH to the Buyer pursuant to the Assumption Agreement;
(C) Stock Purchase Agreement, dated as of January 2, 1998 (the "Second
Acquisition Agreement"), by and between MFH and the Seller, assigned
(together with all of the Company's stock acquired thereunder) by MFH to
the Buyer pursuant to the Assumption Agreement;
(D) Stock Purchase Agreement, dated as of June 12, 1998, by and between MFH and
the Seller, as amended by the Addendum;
(E) Stock Purchase Agreement, dated as of December 9, 1998, by and between the
Buyer and the Seller; and
(F) Side Letter between MFH and the Seller dated September 2, 1997, concerning
future franchise rights of Seller.
Page 1
<PAGE>
EXHIBIT B
(Listing of Lisiewski Contracts)
The Lisiewski Contracts, each of which was assigned by MFH to MFOC pursuant to
the Assumption Agreement, consist of the following:
A. Shareholders Agreement of Pretzel Time, Inc., dated as of September 2,
1997, by and between the Seller, MFH and the Company;
B. Management Agreement, dated as of September 2, 1997, by and between MFH
and the Company;
C. Exchange Agreement, dated as of September 2, 1997, by and between MFH
and the Seller;
D. Registration Rights Agreement, dated as of September 2, 1997, by and
between MFH and the Seller; and
E. Employment Agreement, dated as of September 2, 1997, by and between the
Seller and the Company, as clarified by that certain Side Letter of even
date executed by the Seller and the Company.
Page 1
<PAGE>
EXHIBIT C
Attach Copy of Option
<PAGE>
EXHIBIT D
Option Exercise
<PAGE>
EXHIBIT E
MRS. FIELDS' ORIGINAL COOKIES, INC.
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
December 30, 1998
Mr. Martin E. Lisiewski
7070 N.E. 8th Drive
Boca Raton, FL 33487
Mette, Evans & Woodside
Attn: Ms. Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
Re: Option ("Option") granted pursuant to Option Agreement, dated December
9, 1998 ("Option Agreement"), by and between Martin E. Lisiewski (Mr.
"Lisiewski"), Mrs. Fields' Original Cookies, Inc. ("MFOC") and others
---------------------------------------------------------------------
Dear Mr. Lisiewski and Ms. Rogers:
Notice is hereby given that MFOC, effective as of the date hereof, has
exercised the Option with respect to all of the Shares (as defined and described
in the Option Agreement) of Pretzel Time, Inc., a Pennsylvania corporation. The
Closing shall occur on December 30, 1998.
Sincerely,
Michael R. Ward
Vice President of Administration
<PAGE>
EXHIBIT E
Attach New Employment Agreement
<PAGE>
EXHIBIT F
Attach Pledge Agreement
<PAGE>
PLEDGE AGREEMENT
This Pledge Agreement ("Agreement") dated as of December 30, 1998, is made
and entered into by and between Mrs. Fields Original Cookies, Inc., a Delaware
corporation ("Grantor"), and Martin E. Lisiewski (the "Secured Party").
WHEREAS, Grantor, Secured Party and Pretzel Time, Inc., a Pennsylvanian
corporation (the "Company"), have, as of the date hereof, entered into that
certain Stock Purchase Agreement (the "Purchase Agreement") pursuant to which
Grantor is purchasing twenty seven (27) shares of the Common Stock of the
Company (the "Collateral");
WHEREAS, Grantor has agreed to grant Secured Party a security interest in
the Collateral as security for payment of amounts due under Section 1(c)(i),
(ii) and (iii) of the Purchase Agreement (the "Obligations");
NOW, THEREFORE, in consideration of financial accommodations given or to be
given or continued by Secured Party to Grantor, Grantor hereby agree with
Secured Party as follows:
1. GRANT OF SECURITY INTEREST; DEFINED TERMS
1.1 Collateral. As collateral security for the prompt and complete
----------
payment and performance when due of the Obligations, Grantor hereby conveys,
mortgages, hypothecates, and pledges to Secured Party, and grants to Secured
Party, a continuing lien upon and security interest in, all of Grantor's right,
title and interest, now owned or hereafter acquired, and without any further act
on the part of the Grantor or Secured Party (other than as provided herein), in
the Collateral.
1.2 Other Terms. All capitalized terms used but not defined herein shall
-----------
have the same meanings ascribed to such terms in the Note and the Uniform
Commercial Code as in effect on the date hereof in the State of Utah (the
"Code").
2. COVENANTS
Grantor covenants and agree that from and after the date of this Agreement
and for so long as the Obligations remain outstanding:
2.1 Recording and Legal Costs. Each party shall be responsible for its
-------------------------
own expenses, including attorney fees, incident to the Obligations and other
expenses incident to perfecting Secured Party's security interest in the
Collateral.
2.2 Further Documentation and Actions. At any time, and from time to
---------------------------------
time, upon
<PAGE>
request and at the sole expense of Grantor, Grantor will endorse, execute and
deliver to Secured Party all reasonable instruments or documents, including, but
not limited to, financing or continuation statements under the Code in effect in
any jurisdiction with respect to the liens created under this Agreement, and do
all things reasonably necessary to carry into effect the provisions of this
Agreement or to create, preserve or perfect any interest granted hereby or to
enable or assist Secured Party to exercise and enforce their rights and the
rights of Secured Party hereunder or in connection herewith or with the
Obligations, and to facilitate collection of Collateral. Grantor authorizes
Secured Party to file any financing statement or continuation statement in such
form, with or without Grantor's name signed thereon, and in such places as may
be appropriate.
2.3 Further Covenants. Without the prior written consent of Secured
-----------------
Party, Grantor will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so.
2.4 Maintenance of Collateral. Grantor shall pay promptly when due all
-------------------------
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Collateral, except to the extent the validity thereof is being
contested in good faith.
2.5 Delivery of Certificates to Escrow Agent. On the date hereof, the
----------------------------------------
share certificates evidencing the Collateral shall be delivered to Jones, Waldo,
Holbrook & McDonough, P.C., to be held in accordance with the terms of an Escrow
Agreement of even date herewith.
3. EVENTS OF DEFAULT
The following shall constitute "Events of Default" hereunder:
3.1 Nonperformance. Failure to pay the Obligations when due, subject to a
--------------
five (5) day period to cure from the due date, or the failure to cure any other
default under this Agreement within thirty (30) days of the receipt of written
notice from Secured Party of such a default;
3.2 Termination of Interest. Lapse or termination of Grantor's interest
-----------------------
in any of the Collateral; and
3.3 Extraordinary Events. If (i) Grantor shall file a voluntary petition
--------------------
in bankruptcy or a petition or answer seeking a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or other relief of the same
or different kind under any provision of the bankruptcy laws or Grantor shall
make an assignment for the benefit of creditors; or (ii) an involuntary petition
in bankruptcy against Grantor or a petition or answer made by a person other
than Grantor seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or other relief against Grantor of the same or
different kind under any provision of the bankruptcy laws is filed or if a
receiver is appointed having jurisdiction of the business property or assets of
Grantor, and, in any of such events, if such petition shall not be dismissed or
the receivership vacated within
Page 2
<PAGE>
ninety (90) days from the date filed or commenced.
4. CERTAIN RIGHTS; EFFECT OF EVENT OF DEFAULT
4.1 Obligations Due; Commitments Terminated. If an Event of Default shall
---------------------------------------
occur, then, notwithstanding any other agreement now or hereafter existing,
Secured Party may declare all Obligations immediately due and payable and
exercise any remedies provided herein.
4.2 Action Regarding Collateral. Secured Party, at any time after the
---------------------------
occurrence of an Event of Default (and subject to any applicable cure periods),
may collect, receive, appropriate and realize upon any Collateral or any part
thereof. Upon any Event of Default, Secured Party may sell, re-sell, assign,
transfer, lease and deliver or otherwise deal or dispose of or decline to deal
with all or any part of the Collateral, in each case in accordance with the
Code, at public or private sale or sales, at such price or prices as it may deem
best, and upon such terms and conditions as it may deem advisable, either for
cash or credit or future delivery without assumption of any credit risk as
Secured Party may elect. Secured Party shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses incurred therein or incidental to
the care or safekeeping of any of such Collateral or relating to such Collateral
or the rights of Secured Party hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, and only after such application and after the payment by
Secured Party of any other amount required by any provision of law, including,
without limitation, Section 9-504(l)(c) of the Code, need Secured Party account
for the surplus, if any, to Grantor.
4.3 Additional Remedies upon Event of Default. If an Event of Default
-----------------------------------------
shall occur and be continuing, Secured Party may exercise, in addition to all
other rights and remedies granted under this Agreement, and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code.
4.4 Continuing Security Interest. This Agreement shall create a
----------------------------
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the payment in full of the Obligations, (ii) be binding
upon Grantor, its successors and assigns, and (iii) inure to the benefit of the
parties hereto together with their successors and assigns. Upon the payment of
the Obligations the security interest granted hereby shall terminate, and all
rights in the Collateral shall revert to Grantor. Upon any such termination
Secured Party will promptly execute and deliver to Grantor such documents as
Grantor shall reasonably request to evidence such termination.
Page 3
<PAGE>
5. GENERAL PROVISIONS
5.1 Remedies Cumulative. All rights, remedies and powers of Secured Party
-------------------
hereunder and in connection herewith are cumulative, and not alternative or
exclusive, may be exercised singly or concurrently and shall be in addition to
all other rights, remedies and powers of Secured Party whether under law, equity
or agreement. All representations, warranties, covenants and other agreements
of Grantor herein shall be cumulative and if, and to the extent, there is any
inconsistency or conflict between terms contained herein and in the Purchase
Agreement, the terms of the Purchase Agreement shall govern and control.
5.2 Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Utah, without giving
effect to the conflicts of laws provisions thereof. Each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
5.3 Construction. The captions in this Agreement are for convenience only
------------
and shall not affect the construction or interpretation hereof.
5.4 Assignment. This Agreement shall inure to and be binding upon the
----------
heirs, personal representatives, successors, and assigns of the parties.
Neither party shall have any right to assign this Agreement without the prior
written consent of the other party.
5.5 Notice. All notices, requests, demands, and other communications
------
which are required to be or may be given under this Agreement shall be deemed to
have been duly given if (and then two business days after) it is sent by
registered or certified mail, postage prepaid, return receipt requested, and
addressed to the intended recipient as set forth below:
To Secured Party: Martin E. Lisiewski
7070 N.E. 8th Drive
Boca Raton, FL 33487
with a copy to: Mette, Evans & Woodside
Attention: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
To Grantor: Mrs. Fields' Original Cookies, Inc.
Attention: Legal Department
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Facsimile: (801) 736-5945
Page 4
<PAGE>
with a copy to: Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main St., Suite 1500
Salt Lake City, UT 84101
Any party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other party notice in
the manner herein set forth.
5.6 Waivers and Amendments. None of the terms or provisions of this
----------------------
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by Grantor and Secured Party, provided that any
--------
provision of this Agreement may be waived by Secured Party in a written letter
or agreement executed by Secured Party. Any such waiver, amendment, supplement
or other modification shall be binding upon Grantor and Secured Party.
5.7 Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one and the same original.
5.8 Dispute Resolution. All disputes arising out of this Agreement shall
------------------
be settled in accordance with the provisions set forth in the Purchase
Agreement.
5.9 Joinder of Spouse. The spouse of the Sellers is executing this
-----------------
Agreement to acknowledge its fairness and that it is in such spouse's best
interest to bind such spouse's community property interest, if any, to the terms
of this Agreement.
Page 5
<PAGE>
IN WHEREOF, Grantor has duly executed this Agreement as of the day and year
first above written.
GRANTOR: SECURED PARTY:
Mrs. Fields' Original Cookies, Inc.
By:
----------------------------------- --------------------------------------
Name Martin E. Lisiewski
----------------------------------- --------------------------------------
Title Jan Lisiewski
Page S-1
<PAGE>
EXHIBIT G
Attach Escrow Agreement
<PAGE>
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT ("Agreement"), dated as of December 30, 1998, by and among
Mrs. Fields' Original Cookies, Inc., a Delaware corporation (the "Debtor"),
Martin E. Lisiewski (the "Secured Party"), and Jones, Waldo, Holbrook &
McDonough, P.C., a Utah professional corporation with offices at 1500 Wells
Fargo Tower, 170 South Main Street, Salt Lake City, Utah 84101 (the "Escrow
Agent").
W I T N E S S E T H:
WHEREAS, pursuant to a Stock Purchase Agreement made and entered into as of
December 30, 1998 (the "Purchase Agreement"), by and among the Debtor, as buyer,
and the Secured Party, as seller, the Secured Party has agreed to sell to the
Debtor twenty-seven (27) shares of the Common Stock (par value $10.00) of
Pretzel Time, Inc., a Pennsylvania corporation (the "Shares"); and
WHEREAS, pursuant to the Purchase Agreement, the Secured Party has executed
and delivered a Pledge Agreement of even date herewith (the "Pledge Agreement"),
granting a security interest in the Shares to secure the Debtor's performance of
the Obligations (as defined in the Pledge Agreement).
WHEREAS, the Debtor and the Secured Party have agreed that at the Closing
(as defined in the Purchase Agreement) the Shares shall be delivered to the
Escrow Agent to be held by it in escrow pursuant to the terms and conditions of
this Escrow Agreement for delivery to the Debtor upon the payment of the
Obligations.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. Escrow Agent. The Escrow Agent hereby agrees to act as Escrow Agent
------------
in accordance with the terms and conditions of this Escrow Agreement.
2. Deposits Into Escrow.
--------------------
At the Closing, the Secured Party and the Debtor shall deliver to the
Escrow Agent fully executed counterparts of this Escrow Agreement. The Debtor
shall deliver or cause to be delivered into escrow with Escrow Agent a stock
certificate representing the Share(s) (the "Certificate") together with a Stock
Power, endorsed in blank, for such Certificate(s) (collectively, the "Escrowed
Documents").
3. Disbursement of the Escrowed Documents.
--------------------------------------
a. Conditions to Disbursement. The Escrow Agent shall disburse all of
--------------------------
the Escrowed Documents in accordance with this Escrow Agreement only upon
Page 1
<PAGE>
the Escrow Agent's receipt of any of the following directing or permitting
the disbursement of the Shares as set forth therein:
(i) joint written instructions from the Secured Party and the
Debtor; or
(ii) written notice signed by the Debtor, (A) stating that the
Obligations have been paid in full, (B) instructing the Escrow Agent
to deliver the Escrowed Documents to the Debtor pursuant to the Pledge
Agreement, (C) certifying that a copy of the notice delivered pursuant
to the Escrow Agent pursuant to this subparagraph (ii) was
concurrently delivered to the Secured Party; provided however, the
Escrow Agent shall not act in accordance with such notice if, pursuant
to subparagraph c. below, the Secured Party objects thereto; or
(iii) written notice signed by the Secured Party, (A) stating
that a Default (as defined in the Purchase Agreement) by Debtor has
occurred, (B) instructing the Escrow Agent to deliver the Shares to
the Secured Party pursuant to the Pledge Agreement, (C) certifying
that a copy of the notice delivered pursuant to this subparagraph
(iii) was concurrently delivered to the Debtor; provided however, the
Escrow Agent shall not act in accordance with any such notice if,
pursuant to subparagraph c. below, the Debtor objects thereto; or
(iv) an order of a court having jurisdiction as herein
specified.
b. Disbursement. Subject to the terms and conditions of subparagraph 1
above, the Escrow Agent shall disburse the Escrowed Documents from escrow as
follows:
(i) to the Debtor, upon payment of the Obligations; or
(ii) to the Secured Party, upon the occurrence of a Default.
c. Disputes. The Debtor or the Secured Party as the case may be shall
give the Escrow Agent written notice within fifteen (15) calendar days of a
notice as specified in Paragraph 3.a. of any objection to, or any dispute
between the Secured Party and the Debtor concerning, proposed or requested
disbursement of the Escrowed Documents. Absent such an objection, then sixteen
(16) calendar days following receipt of the notice provided for in Paragraph
3.a., Escrow Agent may disburse the Escrowed Documents as provided in Paragraph
3.b. The Debtor and the Secured Party hereby agree that notwithstanding any such
objection by or dispute between the Debtor and the Secured Party, the Escrow
Agent may at any time disburse all of the Escrowed Documents in the manner
directed by any court specified in paragraph 17 below.
Page 2
<PAGE>
4. Duties of Escrow Agent. The parties to this Agreement agree as
----------------------
follows:
a. The Escrow Agent is not and shall not be deemed to be an agent with
respect to any obligation or performance required of the Escrow Agent under this
Agreement and is merely acting as a depository and in a ministerial capacity
hereunder with the limited duties herein prescribed. The parties acknowledge
that the Escrow Agent, in its capacity as Escrow Agent, is acting solely as a
stakeholder at their request and for their convenience and that the Escrow Agent
shall not be liable to either Buyer or Seller for any act or omission on its
part unless taken or suffered in bad faith or in willful disregard of this
Escrow Agreement or involving gross negligence on the part of the Escrow Agent.
b. The Escrow Agent does not have and shall not be deemed to have any
responsibility in respect of any instructions, certificate, or notice delivered
to it other than to faithfully carry out the obligations undertaken in this
Escrow Agreement and to follow the directions in such instructions or notice in
accordance with the terms hereof.
c. The Escrow Agent may conclusively rely on and act in accordance
with any certificate, instruction, notice, letter, telegram, cablegram, or other
written instrument reasonably believed by it to be genuine and to have been
signed by the proper party or parties.
d. If any legal proceeding is instituted by or against the Escrow
Agent with respect to the Escrowed Documents or any matter governed by or that
is the subject of this Agreement, the Escrow Agent agrees promptly to give
notice of such proceeding to all of the parties to this Escrow Agreement.
e. The Escrow Agent may resign as such hereunder by giving written
notice of such resignation to the parties to this Escrow Agreement. Upon
receipt of such notice, the parties hereto shall furnish to the Escrow Agent
written instructions for the release of the Escrowed Documents (or such portion
thereof as may then be in escrow) to a substitute Escrow Agent which (whether
designated by written instructions from the parties hereto jointly or, in the
absence thereof, by instructions from a court of competent jurisdiction to the
Escrow Agent) shall be a title company, bank, or trust company organized and
doing business under the laws of the United States or any state thereof. Such
substitute Escrow Agent shall thereafter hold the Escrowed Documents received by
it pursuant to the terms of this Escrow Agreement and otherwise act hereunder as
if it were the Escrow Agent originally named herein. The Escrow Agent's duties
and responsibilities hereunder shall terminate upon the release of all of the
Escrowed Documents then held in escrow according to such written instruction or
upon such delivery as herein provided. This Escrow Agreement shall not
otherwise be assignable by the Escrow Agent without the prior written
Page 3
<PAGE>
consent of each of the parties hereto.
f. In the event of any dispute between the parties hereto, the Escrow
Agent shall have the right, at any time, to deposit the Escrowed Documents
with the clerk of any state or federal court of appropriate jurisdiction in
Utah and shall give written notice of such deposit to the Seller and the
Buyer. Upon such deposit, the Escrow Agent shall be relieved and discharged
of all further obligations and responsibilities hereunder.
g. The Escrow Agent hereby acknowledges receipt of a copy of the
Purchase Agreement and the Pledge Agreement, but, except for reference
thereto for certain terms and conditions not set forth herein, the Escrow
Agent is not charged with any duty or obligation arising under any such
documents or any other agreements between or among any of the parties
hereto, and the Escrow Agent's responsibilities, as Escrow Agent, shall be
governed solely by this Escrow Agreement.
h. The Escrow Agent or any attorney thereof, shall be permitted to act
as counsel for the Seller in any dispute as to disbursement of the Escrowed
Documents or any other dispute between the parties whether or not the
Escrow Agent is in possession of the Escrowed Documents and continues to
act as Escrow Agent.
5. Indemnification of Escrow Agent. The Buyer and the Seller, jointly
-------------------------------
and severally, agree to indemnify and to save and hold harmless the Escrow
Agent, in its capacity as Escrow Agent hereunder, from any claim, action, cause
of action, suit, judgment, amount paid in settlement, cost or expense
(individually a "Loss" and collectively "Losses") suffered or incurred by Escrow
Agent, in its capacity as Escrow Agent hereunder, based upon or arising out of
this Escrow Agreement or Escrow Agent's performance hereunder unless it shall be
determined by a court of competent jurisdiction from which no appeal is taken or
allowed that the act or omission of Escrow Agent giving rise to such Loss or
Losses was taken or suffered in bad faith or in willful disregard of this Escrow
Agreement or constitutes gross negligence on the part of the Escrow Agent. The
provisions of this Paragraph 5 shall survive the termination of this Agreement.
6. No Assertion of Rights by Escrow Agent. The Escrow Agent shall not
--------------------------------------
assert any right to use, garnish, attach, levy upon, claim a set-off against or
otherwise encumber the Escrowed Documents.
7. Diligence. Should it be necessary for the Escrow Agent to accept or
---------
act upon any instruments, directions, documents or instruments signed or issued
by, or on behalf of, any corporation, partnership, trade name or individual, it
shall not be necessary for the Escrow Agent to inquire into the authority of the
person or persons who have issued or authenticated such papers unless and to the
extent specifically provided hereinabove.
Page 4
<PAGE>
8. Notice of Agreements. Except for this Escrow Agreement and the
--------------------
provisions of the Purchase Agreement referenced herein, the Escrow Agent shall
not be bound in any way by any agreement or contract to which the Debtor and the
Secured Party are parties, whether or not the Escrow Agent has knowledge of the
existence of such an agreement or contract or its terms and conditions, and the
only duties or responsibilities of the Escrow Agent shall be to hold the
Escrowed Documents to disburse the same in accordance with the terms and
conditions of this Escrow Agreement.
9. Amendment. This Escrow Agreement may be altered or amended only with
---------
the written consent of the Debtor, the Secured Party and the Escrow Agent.
Should the Debtor and the Secured Party attempt to change this Escrow Agreement
in a manner that would either increase the duties or responsibilities of the
Escrow Agent or which the Escrow Agent in his sole and absolute discretion deems
undesirable, the Escrow Agent may resign as Escrow Agent by notice to the Debtor
and the Secured Party, and until a successor of the Escrow Agent is appointed by
the Debtor and the Secured Party and accepts such appointment, the Escrow
Agent's only duty shall be to hold the Escrowed Documents in accordance with the
original instructions contained in this Escrow Agreement.
10. Notices. All notices pursuant to this Escrow Agreement shall be given
-------
in writing, hand-delivered or mailed by registered or certified mail, return
receipt requested, or by overnight courier (such as Federal Express) to the
parties hereto at the following addresses:
If to Escrow Agent: Jones Waldo, Holbrook & McDonough, P.C.
1500 Wells Fargo Plaza
170 South Main Street
Salt Lake City, Utah 84101
ATTN: Glen D. Watkins
If to Debtor: To Mrs. Fields' Original Cookies, Inc. (with
copies to counsel) in accordance with the
Purchase Agreement
If to Secured Party: To Martin E. Lisiewski (with copies to
counsel) in accordance with the Purchase
Agreement
11. Entire Agreement. This Escrow Agreement contains the entire agreement
----------------
between the parties hereto, and supersedes any and all previous oral and written
and all contemporaneous oral negotiations, commitments, writings and
understandings of the parties with respect to the matters specified herein.
12. Governing Law. This Escrow Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Utah (without giving
effect to choice of law provisions).
13. Submission to Jurisdiction. Each of the parties submits to the
--------------------------
jurisdiction of
Page 5
<PAGE>
any state or federal court of appropriate jurisdiction in Utah in any action or
proceeding arising out of this Escrow Agreement and agrees that all claims in
respect of the action or proceeding shall be heard and determined in any such
court. Each party also agrees not to bring any action or proceeding arising out
of this Escrow Agreement in any other court. Each of the parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other party with respect thereto. Each party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.
14. Waiver. No failure or delay on the part of any party hereto to
------
exercise any right hereunder shall operate as a waiver of, or impair, any such
right. No single or partial exercise of any such right shall preclude any other
or further exercise thereof or the exercise of any other right. No waiver of
any such right shall be effective unless given in writing. No waiver of any
such right shall be deemed a waiver of any other right hereunder.
15. Counterparts. This Escrow Agreement may be executed in counterparts,
------------
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
16. Descriptive Headings. Descriptive headings are for convenience only
--------------------
and shall not control or affect the meaning or construction of any provision of
this Escrow Agreement.
17. Joinder of Spouse. The spouse of the Sellers is executing this
-----------------
Agreement to acknowledge its fairness and that it is in such spouse's best
interest to bind such spouse's community property interest, if any, to the terms
of this Agreement.
Page 6
<PAGE>
DEBTOR MRS. FIELDS' ORIGINAL COOKIES, INC.
By
--------------------------------------------
Its
-----------------------------------------
SECURED PARTY ----------------------------------------------
Martin E. Lisiewski
----------------------------------------------
Jan Lisiewski
ESCROW AGENT JONES, WALDO, HOLBROOK & MCDONOUGH
By
--------------------------------------------
Its
-----------------------------------------
Page S-1
<PAGE>
EXHIBIT H
(Summary of the Seller's Indebtedness to the Buyer)
The Seller's Indebtedness to the Buyer and the Company, in the aggregate amount
$1,149,239.39, consists of or arises from the following:
(A) a loan to the Seller in the unpaid principal amount of $500,000, plus
accrued interest from September 2, 1997 through January 4, 1999, of
$66,988.11, pursuant to that certain Promissory Note, dated as of September
2, 1997, issued by the Seller, as Maker, to MFH, as Holder (a copy of which
is attached hereto as Attachment D-1), assigned by MFH to the Buyer
--------------
pursuant to the Assumption Agreement;
(B) $7,500 for certain franchise fees of Dom Portonova;
(C) a loan to the Seller in the unpaid principal amount of $15,000 pursuant
to that certain Promissory Note, dated as of September 2, 1997 issued by
the Seller, as Maker, to the Company, as Holder (a copy of which is
attached hereto as Attachment D-2, together with Attachment D-1, the
--------------
"Notes");
(D) $450,501.28 in liabilities arising under the First Acquisition
Agreement, as more particularly set forth in Attachment D-3, for which
--------------
Fields has asserted claims for indemnification against the Seller under the
First Acquisition Agreement (the "First Acquisition Claims"); and
(E) $109,250 for unpaid franchise fees for the Bangor and Steeplegate
franchises, a Brass Mills Mrs. Fields location ($2,500), and unpaid area
developer fees for Maine, Massachusetts, New Hampshire, Vermont, and the
greater Dallas-Fort Worth, Texas Metroplex.
<PAGE>
EXHIBIT I
List of Franchise Agreements
Bangor, Maine
Steeplegate (2 locations - PT/TCBY & MFC)
*Northshore Mall
*Haywood Mall
*Brass Mills (3 locations)
Area Developer Agreement for Maine, Massachusetts, New Hampshire, Vermont, and
the greater Dallas-Fort Worth, Texas Metroplex.
- ---------------------------
* not executed
<PAGE>
EXHIBIT J
Attach Addendum to Stock Purchase Agreement
Page 1 of Exhibit J
<PAGE>
ADDENDUM TO STOCK PURCHASE AGREEMENT
THIS ADDENDUM TO STOCK PURCHASE AGREEMENT ("Addendum") is made and entered
into as of June 12, 1998, by and among Mrs. Fields' Original Cookies, Inc., a
Delaware corporation ("MFOC"), Mrs. Fields Holding Company, Inc., a Delaware
corporation ("MFH")and Martin E. Lisiewski (the "Seller"); all of whom are
hereinafter collectively referred to as the "Parties."
A. The Seller and MFOC entered into that certain Stock Purchase
Agreement, dated as of June 12, 1998 (the "Agreement"), pursuant to which the
Seller agreed to sell to the Buyer, incorrectly identified in the Agreement as
MFH, three (3) shares of the outstanding common stock (par value $10.00 per
share) of the Company owned by the Seller (the "Shares").
B. At the Closing (as defined in the Agreement), a certificate for the
Shares was issued and delivered to MFOC.
C. Contemporaneously with the Closing, MFH, MFOC and the Seller orally
agreed that the Agreement should be corrected to reflect that MFOC purchased the
Shares from the Seller, and the Parties are executing this Addendum for such
purpose.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Substitution of MFOC as Buyer. The Agreement, effective as the date
thereof, is hereby amended to provide that MFOC, not MFH, is the Buyer for all
purposes under the Agreement, including without limitation the performance of
all duties and responsibilities required of or owed to MFH (or the Buyer) under
the Agreement, as if MFOC had originally executed the Agreement as the Buyer.
MFOC hereby agrees that it shall have and perform all of the duties and
obligations of the Buyer under the Agreement. The Parties hereby agree that MFH
has no duties or liabilities of any kind or nature under the Agreement.
2. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, to the extent they relate in any way to the subject matter
hereof.
3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
4. Joinder of Spouse. The spouse of the Sellers is executing this
Agreement to acknowledge its fairness and that it is in such spouse's best
interest to bind such spouse's community property interest, if any, to the terms
of this Agreement.
Page 1
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
MFOC: MRS. FIELDS' ORIGINAL COOKIES, INC.
By:
-------------------------------------------
Its:
---------------------------------------
MFOC: MRS. FIELDS' HOLDING COMPANY, INC.
By:
-------------------------------------------
Its:
---------------------------------------
SELLER:
----------------------------------------------
Martin E. Lisiewski
----------------------------------------------
Jan Lisiewski
Page 2
<PAGE>
STOCK PURCHASE AGREEMENT
among
MRS. FIELDS' ORIGINAL COOKIES, INC.,
as Buyer,
and
THOSE PERSONS LISTED ON THE SIGNATURE PAGE HEREOF,
holders of all outstanding capital stock
of
PRETZELMAKER HOLDINGS, INC.,
as Sellers
November 19, 1998
<PAGE>
TABLE OF CONTENTS
1. Definitions.......................................................... 1
2. Purchase and Sale of Company Shares.................................. 8
(a) Basic Transaction................................................ 8
(b) Purchase Price................................................... 9
(c) Purchase Price Payments.......................................... 11
(d) Working Capital Requirement; Purchase Price Adjustment for
Working Capital.................................................. 11
(e) The Closing...................................................... 12
(f) Escrow; Power of Attorney; Agent Sellers; Pledgees' Agent........ 12
(g) Deliveries at Closing............................................ 13
(h) Preparation of Closing Balance Sheet; Payment of Purchase Price
Adjustment for Working Capital................................... 13
3. Representations and Warranties Concerning the Transaction........ 15
(a) Representations and Warranties of the Sellers.................... 15
(i) Authorization of Transaction............................ 15
(ii) Noncontravention........................................ 15
(iii) Brokers' Fees........................................... 16
(iv) Company Shares.......................................... 16
(b) Representations and Warranties of the Buyer...................... 17
(i) Organization of the Buyer............................... 17
(ii) Authorization of Transaction............................ 17
(iii) Non-Contravention....................................... 17
(iv) Brokers' Fees........................................... 17
(v) Investment.............................................. 17
4. Representations and Warranties Concerning the Company................ 18
(a) Organization, Qualification, and Corporate Power................. 18
(b) Capitalization................................................... 19
(c) Non-Contravention................................................ 19
(d) Brokers' Fees.................................................... 20
(e) Title to Assets.................................................. 20
(f) Subsidiaries..................................................... 20
(g) Financial Statements............................................. 21
(h) Events Subsequent to Most Recent Fiscal Year End................. 22
(i) Undisclosed Liabilities.......................................... 24
(j) Legal Compliance................................................. 25
(k) Tax Matters...................................................... 25
i
<PAGE>
(l) Real Property................................................... 27
(m) Intellectual Property........................................... 28
(n) Tangible Assets................................................. 30
(o) Inventory....................................................... 30
(p) Contracts....................................................... 31
(q) Notes and Accounts Receivable................................... 32
(r) Powers of Attorney.............................................. 33
(s) Insurance....................................................... 33
(t) Litigation...................................................... 34
(u) Product Warranty................................................ 34
(v) Product Liability............................................... 34
(w) Employees....................................................... 34
(x) Employee Benefit................................................ 35
(y) Guaranties...................................................... 37
(z) Environment, Health, and Safety................................. 37
(aa) Certain Business Relationships with the Company................. 38
(ab) Company Debt; Shareholder Loans; Non-Compete Payments........... 38
(ac) Disclosure...................................................... 38
5. Pre-Closing Covenants................................................. 38
(a) General......................................................... 38
(b) Notices and Consents............................................ 39
(c) Operation of Business........................................... 39
(d) Preservation of Business........................................ 41
(e) Full Access..................................................... 41
(f) Notice of Developments.......................................... 41
(g) Waiver of Refusal Rights........................................ 41
(h) Exclusivity; Encumbrance or Transfer of Shares.................. 41
(i) Conversion of Preferred Shares; Cancellation of Options......... 42
6. Post-Closing Covenants................................................ 42
(a) General......................................................... 42
(b) Litigation Support.............................................. 42
(c) Transition...................................................... 43
(d) Confidentiality................................................. 43
(e) Covenant Not to Compete......................................... 43
(f) Post-Closing Audit and Preparation of Consolidated
Financial Statements............................................ 44
(g) Office Lease; Location of Company Records....................... 45
7. Conditions to Obligation to Close..................................... 45
(a) Conditions to Obligation of the Buyer........................... 45
(b) Conditions to Obligation of the Sellers......................... 47
ii
<PAGE>
8. Remedies for Breaches of This Agreement................................ 48
(a) Survival of Representations and Warranties........................ 48
(b) Indemnification................................................... 48
(i) Principal Sellers' Indemnification of Buyer....................... 48
(ii) Buyer's Indemnification of Sellers......................... 49
(iii) Buyers Indemnification of Sellers and Company.............. 49
(iv) Reimbursement of Costs............................................ 50
(c) Matters Involving Third Parties................................... 51
(d) Determination of Adverse Consequences............................. 52
(e) Certain Set-Off Rights............................................ 52
(f) Other Indemnification Provisions.................................. 53
(g) Sellers' Release of Claims........................................ 53
(h) Termination....................................................... 54
(i) Termination of Agreement................................... 54
(ii) Action By Fewer Than All Sellers........................... 54
(iii) Effect of Termination...................................... 54
9. Miscellaneous.......................................................... 55
(a) Press Releases and Public Announcements........................... 55
(b) No Third-Party Beneficiaries...................................... 55
(c) Entire Agreement.................................................. 55
(d) Succession and Assignment......................................... 55
(e) Counterparts...................................................... 55
(f) Headings.......................................................... 55
(g) Notices........................................................... 55
(h) Governing Law..................................................... 56
(i) Amendments and Waivers............................................ 57
(j) Severability...................................................... 57
(k) Expenses.......................................................... 57
(l) Construction...................................................... 57
(m) Incorporation of Exhibits, Annexes, and Schedules................. 57
(n) Dispute Resolution................................................ 58
(o) Submission to Jurisdiction........................................ 60
(p) Attorneys' Fees................................................... 60
iii
<PAGE>
EXHIBITS
--------
A LTM EBITDA Adjustments
B Sellers and Company Shares
C Purchase Price Allocation
D Escrow Agreement
E Financial Statements of the Company
F Form of Opinion of the Seller's Counsel
ANNEXES
-------
II Exceptions to Buyer's Representations
DISCLOSURE SCHEDULE
-------------------
1.1 Shareholder Obligations
1.2 Working Capital
3(a)(vii) Sellers' Indebtedness
4(a) Organization
4(c) Non-Contravention
4(e) Security Interests
4(g) Financial Statements on Exhibit E
4(h) Subsequent Events
4(i) Undisclosed Liabilities Balance Sheet
4(k) Tax Returns
4(l)(i) Real Property Owned
4(l)(ii) Real Property Leased or Subleased
4(m)(iii) Intellectual Property
4(m)(iv) Licenses From Third Parties
4(o) Inventory
4(p) Contracts
4(r) Powers of Attorney
4(s) Insurance
4(t) Litigation
4(t)(ii) Threatened Litigation
4(w) Employees
4(x) Employee Benefit Plans
4(y) Guaranties
4(aa) Business Relationships
2(b)(iv) Promissory Notes
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT entered into effective as of November 19,
1998, by and among Mrs. Fields Original Cookies, Inc., a Delaware corporation
(the "Buyer"), Pretzelmaker Holdings, Inc., a Colorado corporation (the
"Company"), and those persons listed on the signature page hereof (referred to
herein individually as a "Seller" and collectively as the "Sellers"). The Buyer
and the Sellers are referred to collectively herein as "Party" in the singular
and "Parties" in the plural.
The Sellers presently own, or at the Closing will own, one hundred
percent (100%) of the issued and outstanding capital stock of the Company.
This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
issued and outstanding capital stock of the Company in return for cash and other
consideration set forth herein.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Adjusted EBITDA" means the Company's earnings for the twelve month
period ending on August 31, 1998, before interest, taxes, depreciation
and amortization, adjusted for non-recurring expenses as set forth on
Exhibit A.
"Adjustment for Reduction of Company Debt" has the meaning set forth
in (S) 2(b)(i)(B) below.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court
costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Sec. 1504, or any similar group defined under a similar provision of
state, local or foreign law.
"Agent Sellers" has the meaning set forth in (S) 2(f)(iii).
<PAGE>
"Audit" has the meaning set forth in (S) 6(f) below.
"Auditors" has the meaning set forth in (S) 6(f) below.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis
for any specified consequence.
"Bonus Payments" shall mean amounts to be paid to the Bonus
Recipients pursuant to Exhibit C in consideration for service to the
Company.
"Bonus Recipients" shall mean those persons listed on Exhibit C who
are receiving Bonus Payments pursuant to this Agreement.
"Buyer" has the meaning set forth in the preface above.
"Buyer's Deposit" has the meaning set forth in (S) 2(f)(i).
"Closing" has the meaning set forth in (S) 2(e) below.
"Closing Balance Sheet" has the meaning set forth in (S) 2(h)(ii)
below.
"Closing Date" has the meaning set forth in (S) 2(e) below.
"Closing Installment" has the meaning set forth in (S) 2(b)(i)
below.
"Closing Working Capital" has the meaning set forth in (S) 2(d)(i)
below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Share" means any share of the common stock, $.001 par value
per share, of the Company.
"Company" has the meaning set forth in the preface above.
"Company Debt" means the unpaid balance at the Closing of the
Company's (i) bank debt, but in no event in an amount in excess of
$486,000, (ii) notes payable to franchisees of the Company, but in no
event in an amount in excess of $49,500, and (iii) capital lease
obligations, but in no event in an amount in excess of $180,200; provided
the aggregate amount of all Company Debt shall
2
<PAGE>
not exceed $715,700 at Closing.
"Company Share" means any Common Share, Preferred Share or Conversion
Share of the Company.
"Confidential Information" means any information concerning the
businesses and affairs of the Company that is not generally available to
the public.
"Consolidated Financial Statements" has the meaning set forth in (S)
6(f) below.
"Consulting Payments" shall mean amounts to be paid to the
Consultants pursuant to Exhibit C in consideration for service to the
Company.
"Consultants" shall mean those persons listed on Exhibit C who are
receiving Consulting payments pursuant to this Agreement.
"Conversion Share" means any Common Shares or other securities of
the Company issued in connection with the conversion of the Preferred
Shares by the Preferred Shareholders.
"Deferred Payments" has the meaning set forth in (S) 2(c)(i) below.
"Disclosure Schedule" has the meaning set forth in (S) 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee
Pension Benefit Plan, (b) qualified defined contribution retirement plan
or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee
Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Sec. 3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Resource Conservation and Recovery Act of 1976, and the Occupational
Safety and Health Act of 1970, each as amended, together with all other
laws (including
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rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee
health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes into
ambient air, surface water, ground water, or lands or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Account" has the meaning set forth in (S) 2(f) below.
"Escrow Agent" has the meaning set forth in (S) 2(f) below.
"Escrow Agreement" has the meaning set forth in (S) 2(f) below.
"Estimated Closing Working Capital" has the meaning set forth in (S)
2(h)(i) below.
"Extremely Hazardous Substance" has the meaning set forth in Sec.
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in (S) 4(g) below.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"Indemnified Party" has the meaning set forth in (S) 8(c) below.
"Indemnifying Party" has the meaning set forth in (S) 8(c) below.
"Intellectual Property" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions,
4
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and reexaminations thereof, (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all
translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations,
and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e)
all trade secrets and confidential business information (including ideas,
research and development, know-how, recipes, formulas, production
processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all
other proprietary rights, and (h) all copies and tangible embodiments
thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes.
"Management Letter" has the meaning set forth in (S) 6(f) below.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)
4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in (S) 4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in (S) 4(g)
below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Non-Compete Payments" means the unpaid balance at the Closing of
the Company's covenant not to compete payments owed by the Company to the
Non-Compete Recipients.
"Non-Compete Recipients" means the recipients of the Non-Compete
Payments set forth on Exhibit C.
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"Notes" shall have the meaning set forth in (S) 2(b)(i). The
principal balance of the Notes in the aggregate after application of the
appropriate portion of the Closing Installment as set out on Exhibit C
shall not exceed Four Million Two Hundred Seventy-Six Thousand Five
Hundred Eighteen Dollars and 78/100 ($4,276,518.78), plus the Adjustment
for Reduction of Company Debt, if any. The Notes shall be held by the
Pledgees' Agents until they are paid in full.
"Objections" has the meaning set forth in (S) 2(h)(iv).
"Option Holders" means the following named Sellers: Marc N. Geman,
Donald G. Cox, Jr., Brian Woods, Anthony Joseph, Dale Fowler, Lynn Gore
and Mark Maximovich.
"Options" means any rights granted by the Company to purchase the
Company Shares.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, limited
liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity
(or any department, agency, or political subdivision thereof).
"Pledge Agreement" means Security Agreement-Pledge securing the
obligations of the Buyer to the Sellers under the Notes and the Buyer's
payment of the Bonus Payments, Severance Payments, Consulting Payments,
Shareholder Loans and, subject to the terms of (S) 2(h)(vii) below, the
payment, if any, required by the Buyer to the Sellers pursuant to such
(S) 2(h)(vii). The Pledge Agreement shall not secure any other
obligations of the Buyer, whether under this Agreement or otherwise. The
Pledge Agreement shall be executed by the Pledgees' Agent on behalf of
the Sellers and shall be held by the Pledgees' Agent on behalf of the
Sellers.
"Pledgees' Agent" shall have the meaning set forth in (S) 2(f)(iv).
"Preferred Shares" means any preferred shares, including Series A
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Preferred Stock and Series B Preferred Stock, of the Company.
"Preferred Shareholders" means all legal or beneficial owners and
holders of Preferred Shares, all of whom are listed on Exhibit B.
"Principal Sellers" means jointly and severally Marc N. Geman,
Donald G. Cox, Jr. and Louis H. Marks.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"Purchase Price" has the meaning set forth in (S) 2(b) below.
"Purchase Price Adjustment for Working Capital" has the meaning set
forth in (S) 2(d)(ii) below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and
payable or for Taxes that the taxpayer is contesting in good faith
through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other
liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" and "Sellers" have the meaning set forth in the preface
above.
"Series A Preferred Shares" means any share of the Series A
Preferred Stock, $.001 par value, of the Company.
"Series B Preferred Shares" means any share of the Series B
Preferred Stock, $.001 par value, of the Company.
"Severance Payments" shall mean amounts to be paid to the Severance
Recipients pursuant to Exhibit C in consideration for service to the
Company.
"Severance Recipients" shall mean those persons listed on Exhibit C
who
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are receiving Severance Payments pursuant to this Agreement.
"Shareholder Loans" means the unpaid balance at the Closing of loans
to the Company from the present and former shareholders listed on
Schedule 1.1 in the amounts set forth thereon, but in no event in an
aggregate amount greater than $540,000.
"Store" or "Stores" has the meaning set forth in (S)4(a) below.
"Store Leases" has the meaning set forth in (S)4(l)(ii) below.
"Subsidiary" means any (A) corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common
stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors, (B) limited liability
company of which a specified Person (or a Subsidiary thereof) is a member
or managing member, (C) any other entity in which the Company has any
ownership interest, (D) Pretzelmaker, Inc., a Colorado corporation, one
hundred percent (100%) of the capital stock of which is owned by the
Company, and (E) Pretzelmaker Canada, Inc., one hundred percent (100%) of
the capital stock of which is owned by Pretzelmaker, Inc.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, wind fall profits, environmental (including taxes
under Code Sec. 59A), customs duties, capital stock, franchise, profits,
capital gains, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S) 8(c) below.
"Working Capital" shall mean the excess of Company's current assets
(consisting of the Company's cash, accounts receivable, notes receivable,
inventories and pre-paid expenses and supplies), less the Company's
current liabilities (consisting of the Company's accounts payables, other
payables, income taxes payable, deferred initial franchise fees and
deferred revenues). For purposes of computing Working Capital, those
current assets and liabilities of the Company listed on Schedule 1.2
shall be treated in the manner set forth
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thereon.
"Working Capital Requirement" has the meaning set forth in (S) 2(d).
2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions
of this Agreement, for the consideration specified below in this (S) 2,
the Buyer agrees to purchase from each of the Sellers, and each of the
Sellers agrees to sell to the Buyer, all of the Company Shares owned by
each such Seller, as described on Exhibit B, in the aggregate
constituting all of the issued and outstanding Company Shares.
(b) Purchase Price. Subject to (S)(S) 2(c), 2(f) and 8(e) below,
the Buyer, in consideration for the Sellers' delivery of the Company
Shares at the Closing, shall deliver to or on behalf of the Sellers at
the Closing aggregate consideration to be allocated among the Sellers,
Consultants, Bonus Recipients, Severance Recipients, and Non-Compete
Recipients in the manner set forth on Exhibit C) (the "Purchase Price"),
as follows.
(i) at the Closing, the Buyer shall deliver promissory notes
(collectively, the "Notes") in the aggregate amount of:
(A) Five Million Six Hundred Thousand Dollars
($5,600,000), plus
(B) the amount (the "Adjustment for Reduction of Company
Debt"), if any, by which the Company Debt as of the Closing is
less than Seven Hundred Fifteen Thousand Seven Hundred Dollars
($715,700), which amount, if any, shall be allocated pro rata
among all of the Notes; less
(C) Bonus Payments, Severance Payments and Consulting
Payments in the aggregate principal amount of Three Hundred
Nineteen Thousand Five Hundred Ninety-Eight Dollars ($319,598).
The Notes shall be payable in four (4) installments, with the first
installment due at the Closing in the amount of One Million Three
Thousand Eight Hundred Eighty-Two and 96/100 Dollars ($1,003,882.96)
(the "Closing Installment"). The Closing Installment shall bear no
interest and shall be applied at the Closing as a principal
reduction of the Notes as set forth in Exhibit C. The three (3)
remaining installments under the
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Notes, payable on December 15, 1998, December 23, 1998 and January
4, 1999, respectively (the "Payment Dates"), will bear interest at
the rate of ten percent (10%) per annum; and
(ii) on and after the Closing, the Buyer shall pay or cause
the Company to pay the Non-Compete Payments, Consulting Payments,
Severance Payments, Bonus Payments and Shareholder Loans, as
follows:
(A) the Buyer shall pay or cause the Company to pay the
Non-Compete Payments to the Non-Compete Recipients (the
aggregate amount of which shall not exceed $182,300 and shall
bear no interest under this Agreement). The Non-Compete
Payments shall be made in four (4) installments, with the first
installment of Thirty-Five Thousand Four Hundred Ninety-Two and
04/100 Dollars ($35,492.04) to be paid by the Buyer at the
Closing, and with the three (3) remaining installments to be
paid on the Payment Dates in the amounts set forth in Exhibit
C;
(B) the Buyer shall pay or cause the Company to pay the
Consulting Payments to the Consultants the aggregate principal
amount of which shall not exceed $26,800. The Consulting
Payments shall be made in four (4) installments, with the first
installment of Four Thousand Nine Hundred Sixty-five Dollars
($4,965) to be paid by the Buyer at the Closing, and with the
three (3) remaining installments (together with interest
thereon), as specified in Exhibit C, to be paid on the Payment
Dates;
(C) the Buyer shall pay or cause the Company to pay the
Severance Payments to the Severance Recipients the aggregate
principal amount of which shall not exceed $151,200. The
Severance Payments shall be made in four (4) installments, with
the first installment of Twenty-eight Thousand Five Dollars
($28,005) to be paid by the Buyer at the Closing, and with the
three (3) remaining installments (together with interest
thereon), as specified in Exhibit C, to be paid on the Payment
Dates;
(D) the Buyer shall pay or cause the Company to pay the
Bonus Payments to the Bonus Recipients the aggregate principal
amount of which shall not exceed $149,300. The Bonus Payments
shall be made in four (4) installments, with the first
installment of Twenty-Seven Thousand Six Hundred Fifty-five
Dollars ($27,655) to be paid by the Buyer at the Closing, and
with the three (3)
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remaining installments (together with interest thereon), as
specified in Exhibit C, to be paid on the Payment Dates;
(E) the Buyer shall pay or cause the Company to pay the
Shareholder Loans to the holders thereof, as set forth in
Exhibit C, in a single installment on January 4, 1999 (the
aggregate principal amount of which shall not exceed $540,000).
The Shareholder Loans will bear interest at the rate set forth
in the promissory notes identified in the Company's Note
Register affixed to (S) 1.1 of the Disclosure Schedule)
evidencing the Shareholder Loans; provided however, the
----------------
Shareholder Loans shall bear no interest under this Agreement);
and
(iii) at the Closing, the Company shall retain Company Debt
up to a maximum of Seven Hundred Fifteen Thousand Seven Hundred
Dollars ($715,700) less the amount of the Adjustment For Reduction
of Company Debt;
provided that in no event shall the aggregate amount of the Purchase
Price, excluding any Purchase Price Adjustment for Working Capital or
interest payable under this Agreement, exceed the aggregate amount of
Seven Million Thirty-Eight Thousand Dollars ($7,038,000).
(c) Purchase Price Payments.
(i) The payments of the Purchase Price shall be paid by wire
transfer to the Sellers or delivery of other immediately available
funds to the Agent Sellers on behalf of the Sellers.
(ii) From the final installment payment to be made under the
Notes, the sum of One Hundred Thousand Dollars ($100,000.00) shall
be deducted on a pro rata basis from all of the Notes and deposited
by the Buyer into the Escrow Account, for disbursement to the
Sellers subject to the terms and conditions of (S) 2(f) below and
the Escrow Agreement (collectively, the "Deferred Payments").
Notwithstanding the foregoing, the Sellers may, at or prior to the
Closing, elect to substitute a Letter of Credit for the full amount
of the Deferred Payments, the terms, conditions and issuer of which
shall be acceptable to the Buyer in its sole discretion.
(d) Working Capital Requirement; Purchase Price Adjustment for
Working Capital. Upon and immediately after the Closing:
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<PAGE>
(i) the Company shall have Working Capital ("Closing Working
Capital") in an amount not less than Thirty-One Thousand Nine
Hundred Thirty-Eight Dollars ($31,938) (the "Working Capital
Requirement"), which the Sellers represent and warrant, based on the
Company's historical experience, is an adequate amount of working
capital for the operation of the Company's business after the
Closing in the same manner as presently conducted; and
(ii) to the extent that the amount, if any, by which the
Company's Closing Working Capital is less than the Working Capital
Requirement, the Purchase Price shall be decreased by such amount;
to the extent that the amount, if any, by which the Company's
Closing Working Capital is greater than the Working Capital
Requirement, the Purchase Price shall be increased by such amount.
The adjustment to the Purchase Price based on the Working Capital as
described herein shall be referred to as the "Purchase Price
Adjustment for Working Capital". The Purchase Price Adjustment for
Working Capital shall be determined in accordance with (S) 2(h),
below.
(e) The Closing. Unless otherwise agreed by the Parties, the
closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of the Company in Denver,
Colorado, commencing at a mutually agreeable time, following the
satisfaction or waiver of all other conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at
the Closing itself) on November 19, 1998, or such other date as the Buyer
and the Agent Sellers may mutually determine (the "Closing Date").
(f) Escrow; Power of Attorney; Agent Sellers; Pledgees' Agent.
(i) The Deferred Payments shall be deposited into an interest
bearing escrow (the "Escrow Account") established by the Parties
prior to the Closing with Centennial Bank (the "Escrow Agent") at
its offices located at 46th and Harrison Streets, Ogden, Utah
84403, for disbursement subject to the terms and conditions set
forth in that certain escrow agreement executed by the Parties and
the Escrow Agent on or before the Closing substantially in the form
and substance of Exhibit D hereto (the "Escrow Agreement").
Concurrently with the deposit of the Deferred Payments into the
Escrow Account, the Buyer shall deposit from its own funds the sum
of One Hundred Thousand Dollars ($100,000) (the "Buyer's Deposit")
against which claims may be recouped or set-off by the Buyer
pursuant to (S) 8(e) below for amounts in excess of the Deferred
Payments up to the amount of the Buyer's Deposit. The first
$100,000 of claims shall be recouped or set-off against the Deferred
Payments, and after the release
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of the balance of the Deferred Payments, directly from the Sellers,
and only after $100,000 has been recovered from the Sellers shall
claims be recouped or set-off against the Buyer's Deposit. Interest
earned on the Escrow Account shall be shared between the Sellers and
the Buyer pro rata according to the relative amounts and duration of
the Deferred Payments and the Buyer's Deposit.
(ii) Subject to the terms and conditions of the Escrow
Agreement, (A) the Deferred Payments, less all amounts that after
Closing may be recouped from or set-off against the Deferred
Payments pursuant to (S) 8(e) below, shall be payable from the
Escrow Account to the Agent Sellers on behalf of the Sellers on the
first anniversary of the Closing Date, and (B) the Buyer's Deposit,
less all amounts that after Closing may be recouped from or set-off
against the Buyer's Deposit pursuant to (S) 8(e) below, shall be
payable from the Escrow Account to the Buyer on the second
anniversary of the Closing Date.
(iii) Each Seller hereby irrevocably appoints the Principal
Sellers to serve as its attorney-in-fact (the "Agent Sellers") for
purposes of the Escrow Agreement, this Agreement, and the
transactions contemplated hereby. This appointment is coupled with
an interest and is irrevocable. The Agent Sellers shall have the
authority, duties and responsibilities granted by the Sellers to the
Agent Sellers under the Escrow Agreement, and this Agreement,
including without limitation the power and authority to resolve
disputes, claims and set-off obligations on behalf of each Seller.
Each Seller hereby authorizes the Agent Sellers to approve and
execute closing and settlement statements on behalf of each Seller.
The Agent Sellers shall only act unanimously when acting on behalf
of the Sellers. Buyer shall be entitled to rely on the
representations and agreements of the Agent Sellers for all purposes
hereunder.
(iv) Each Seller hereby irrevocably appoints each of the
Sellers Marc N. Geman and Donald G. Cox, Jr. to act jointly as the
Pledgees' Agent (as defined in the Pledge Agreement) for the
Pledgees (as defined in the Pledge Agreement).
(g) Deliveries at Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in (S) 7(a) below, (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in (S)
7(b) below, (iii) the Sellers will deliver to the Buyer the stock
certificates representing all of the issued and outstanding Company
Shares, endorsed in blank or accompanied by duly executed assignment
documents or other appropriate instruments in a form satisfactory to the
Buyer; and (iv) the Buyer will deliver to the Sellers and, as
appropriate, the Consultants, Bonus Recipients, Severance Recipients and
Non-Compete Recipients, the Closing Installment and the Buyer will
deliver to the Seller the Notes, the Pledge Agreement, and the Collateral
(as defined in the Pledge
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Agreement). All of the documents described herein will be dated as of the
Closing Date.
(h) Preparation of Closing Balance Sheet; Payment of Purchase Price
Adjustment for Working Capital.
(i) Immediately prior to the Closing Date, the Seller shall
prepare and deliver to the Buyer for its review and approval, a
written estimate of the Company's Working Capital on the Closing
Date (the "Estimated Closing Working Capital"), together with
supporting documentation and schedules therefor;
(ii) Within thirty (30) days after the Closing Date, the
Buyer or auditors engaged by the Buyer will prepare and deliver to
the Sellers a balance sheet for the Company and its Subsidiaries as
of the Closing Date (determined on a pro forma basis as though the
Parties had not consummated the transactions contemplated by this
Agreement) (the "Closing Balance Sheet"). The Buyer will prepare the
Closing Balance Sheet in accordance with GAAP except with respect to
those matters specified in Schedule 1.2 applied on a basis
consistent with the preparation of the Financial Statements.
(iii) The Closing Balance Sheet shall set forth (A) the
Closing Working Capital of the Company; and (B) the amount, if any,
of the Purchase Price Adjustment for Working Capital, reflecting the
amount that the Closing Working Capital exceeds (or is less than)
the Working Capital Requirement.
(iv) If the Agent Sellers have any objections to the Closing
Balance Sheet, the Agent Sellers will deliver a detailed written
statement describing their objections ("Objections") to the Buyer
within fifteen (15) days after receiving the Closing Balance Sheet.
The Buyer and the Agent Sellers will use reasonable efforts to
resolve any Objections themselves. If the Parties do not obtain a
final resolution within thirty (30) days after the Buyer has
received the statement of Objections, the Buyer and the Agent
Sellers will select an accounting firm mutually acceptable to them
to resolve any remaining Objections. If they are unable to agree on
the choice of an accounting firm, they will select a nationally-
recognized accounting firm by lot (after excluding their respective,
regular outside accounting firms). The determinations of such
accounting firm regarding the Objections will be set forth in
writing and will be conclusive and binding upon the Parties. The
Buyer will revise the Closing Balance Sheet as appropriate to
reflect the resolution of any objections thereto pursuant to this
(S) 2(h)(iv).
(v) In the event the Buyer and Agent Sellers submit any
unresolved Objections to the accounting firm for determination as
provided for in (S) 2(h)(iv) above, the Buyer and the Sellers will
share equally the fees and expenses of the
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accounting firm.
(vi) The Buyer will make the work papers and back-up
materials used in preparing the Closing Balance Sheet available to
the Agent Sellers and their accountants and other representatives at
reasonable times and upon reasonable notice at any time during (A)
the preparation by the Buyer of the Closing Balance Sheet, (B) the
review by the Agent Sellers of the Closing Balance Sheet and (C) the
resolution by the Parties of any objections thereto.
(vii) Within three (3) business days after completion of the
Closing Balance Sheet and the resolution of any Objections thereto
pursuant to (S)(S) 2(h)(iv) above, either (A) the Buyer will pay to
the Sellers the amount, if any, by which the Closing Working Capital
exceeds the Working Capital Requirement, or (B) the Escrow Agent
will pay to the Buyer the amount, if any, by which the Closing
Working Capital is less than the Working Capital Requirement up to
the amount of $50,000. To the extent that the Working Capital
Requirement exceeds the Closing Working Capital by more than
$50,000, any such excess amount shall be paid directly to the Buyer
by the Sellers. The Sellers' obligations in this (S) 2(h)(vii) shall
constitute joint and several obligations of all of the Sellers. Any
obligation of Buyer pursuant to this (S) 2(h)(vii) shall be secured
by the Pledge Agreement; provided that Buyer, at its election, may
pay any amount disputed pursuant to (S) 2(h)(iv) into an escrow
account pending resolution of such dispute, whereupon the security
interest under the Pledge Agreement provided for in this (S)
2(h)(vii) shall automatically terminate.
(i) Pledge of Company Shares. At the Closing, the Buyer shall
execute and deliver the Pledge Agreement, from the Buyer to the Sellers,
of the Company Shares.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the
Sellers represents and warrants to the Buyer, jointly and severally with
the other Sellers, that the statements contained in this (S) 3(a) are
correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement
throughout this (S) 3(a)).
(i) Authorization of Transaction. Each of the Sellers has full
power and authority to execute and deliver this Agreement and to
perform his or her obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of each of the
Sellers, enforceable in accordance with its terms and conditions.
The Sellers need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
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<PAGE>
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency
or court to which any Seller is subject, or (B) 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 under any
agreement, contract, lease, license, instrument or other arrangement
to which any Seller is a party or by which he or it is bound or to
which any of his or its assets is subject.
(iii) Brokers' Fees. The Sellers have no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.
(iv) Company Shares. The Sellers hold of record and own
beneficially the total number of Company Shares set forth next to
his or her or its name in Exhibit B, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security
Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. Except as set forth in
(S) 3(a)(v) below:
(A) None of the Sellers is a party to any option,
warrant, purchase right, or other contract or commitment that
could require any Seller to sell, transfer or otherwise dispose
of any capital stock of the Company (other than this
Agreement); and
(B) None of the Sellers is a party to any voting trust,
proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
Upon delivery of the certificates representing the Company Shares,
the Buyer will acquire valid, marketable title thereto, free and
clear of any liens, encumbrances and claims of any other Seller or
any third parties.
(v) Conversion of Preferred Shares. The Sellers and the
Company have irrevocably agreed that, prior to the Closing, each of
the legal or beneficial owners or holders of any Preferred Shares
will convert them into Common Shares of the Company as set forth in
Exhibit B, whereupon there shall be no
16
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Preferred Shares of the Company issued or outstanding. Prior to
Closing, the Sellers shall furnish the Buyer with documentation
demonstrating to the Buyer's satisfaction that such conversion of
the Preferred Shares and the issuance of the Common Shares have
occurred.
(vi) Cancellation of Options Before Closing. The Option
Holders and the Company have irrevocably agreed that, prior to the
Closing, the Options shall be cancelled, and the Company shall have
no further obligation or liability under the Options, and no Options
shall be outstanding.
(vii) Absence of Indebtedness and Claims. Except as set forth
on (S) 3(a)(vii) of the Disclosure Schedule attached hereto, none of
the Sellers is indebted to the Company or any of its Affiliates,
other than in the ordinary course of business, and no Seller has any
claims against the Company.
(b) Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Sellers that the statements contained in
this (S) 3(b) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made
then and as though the Closing Date were substituted for the date of this
Agreement throughout this (S) 3(b)), except as set forth in Annex II
attached hereto.
(i) Organization of the Buyer. The Buyer is a corporation
duly organized, validly existing, and in good standing under the
laws of the state of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms
and conditions. The Buyer need not 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 by this Agreement.
(iii) Non-Contravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge or other
restriction of any government, governmental agency or court to which
the Buyer is subject or any provision of its charter or bylaws.
(iv) Brokers' Fees. The Buyer has no Liability or obligation
to pay
17
<PAGE>
any fees or commissions to any broker, finder or agent with respect
to the transactions contemplated by this Agreement for which Sellers
could become liable or obligated.
(v) Investment. The Buyer is not acquiring the Company Shares
with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act. The Buyer
represents that the Buyer has had access to information regarding
the Company and the Subsidiaries. The Buyer has had an opportunity
to ask questions of and receive answers from the Company's
representatives concerning this investment.
4. Representations and Warranties Concerning the Company. Each of the
Principal Sellers jointly and severally represents and warrants to the Buyer
that the statements contained in this (S) 4 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this (S) 4), except as set forth in the
disclosure schedule delivered by the Seller to the Buyer on the date hereof (the
"Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this (S) 4.
(a) Organization, Qualification, and Corporate Power. The Company
is a corporation duly organized, validly existing, and in good standing
under the laws of Colorado. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate
power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which
it presently proposes to engage and to own and use the properties owned,
used, leased or operated by it, including, without limitation, all of its
existing and proposed retail stores (collectively, "Store" in the
singular or "Stores" in the plural), each of which is listed on (S) 4(a)
of the Disclosure Schedule and appropriately designated thereon as a
Company-owned, franchised, master-licensed or licensed Store, or a Store
for which the lease is being negotiated, or a Store that is in the
process of being built out.
(S) 4(a) of the Disclosure Schedule lists the directors and officers
of the Company. The Sellers have delivered or made available to the
Buyer copies of the Company's charter and bylaws (as amended to date).
The Sellers have delivered to the Buyer correct and complete copies of
the Company's minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), and, except as disclosed on (S) 4(a) of the Disclosure
Schedule, they are correct and complete in all material respects. The
Sellers have delivered to the Buyer copies of the
18
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Company's stock record books, and, except as disclosed on (S) 4(a) of the
Disclosure Schedule, they are correct and complete in all respects and
accurately reflect the record ownership and, to the Knowledge of the
Principal Sellers, the beneficial ownership of all the outstanding
Company Shares. Except as set forth on (S) 4(a) of the Disclosure
Schedule, there are no shareholder, buy/sell, co-sale, option, first-
right-of-refusal or other similar agreements between or among any of the
Sellers and the Company with respect to the capital stock of the Company
or any of the Subsidiaries. The Company is not in default under or in
violation of any provision of its charter or bylaws.
(b) Capitalization. On or before the date of execution of this
Agreement, the entire authorized capital stock of the Company consists
of: (i) 1,000,000 Common Shares, of which 100,000 Common Shares are
issued and outstanding; (ii) 300,000 Series A Preferred Shares, of which
275,942 are issued and outstanding; and (iii) 800 Series B Preferred
Shares, all of which are issued and outstanding. All of the issued and
outstanding Company Shares have been duly authorized, are validly issued,
fully paid, and non-assessable, and are held of record as set forth on
Exhibit B. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights (other than those
associated with the Preferred Shares to be converted immediately before
Closing), exchange rights, or other contracts or commitments that could
require the Company to issue, sell or otherwise cause to become
outstanding any of its capital stock.
Immediately before Closing, but following the conversion of the
Preferred Shares to Common Shares, (i) the entire authorized capital
stock of the Company will consist of (A) 1,000,000 Common Shares, of
which 135,155 shares will be issued and outstanding to the Sellers, (B)
300,000 Series A Preferred Shares, none of which shall be issued or
outstanding, and (C) 800 Series B Preferred Shares, none of which shall
be issued or outstanding; and (ii) there shall be no outstanding or
authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell or otherwise cause to
become outstanding any of its capital stock. Notwithstanding any
adjustment at Closing in the number of shares of capital stock, the Buyer
shall acquire at Closing all of the issued and outstanding shares of
Capital Stock of the Company at the Closing.
There are no outstanding or authorized stock appreciation, phantom
stock, profit participation or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the
Company which shall not have been terminated prior to the Closing.
(c) Non-Contravention. Except as set forth on (S) 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution,
19
<PAGE>
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Company or any Subsidiary is subject or any provision
of the charter, bylaws, or other constituent document of the Company or
any subsidiary, (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
under any agreement (including without limitation, any franchise
agreement), contract, lease or sublease (including without limitation,
any store lease or sublease), license, instrument or other arrangement to
which the Company or any subsidiary is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Except as set forth on
Schedule 4(c), neither the Company nor any subsidiary needs to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. Neither the Company nor any Subsidiary has any
Liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement.
(e) Title to Assets. The Company and each Subsidiary has good and
marketable title to, or a valid leasehold interest in, the properties and
assets used by it, located on its premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(f) Subsidiaries.
(i) Each Subsidiary is an entity duly organized, validly
existing, and in good standing under the laws of jurisdiction of
incorporation or organization. Each Subsidiary is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. Each Subsidiary
has full corporate power and authority and all licenses, permits,
and authorizations necessary to carry on the businesses in which it
is engaged and in which it presently proposes to engage and to own
and use the properties owned, used, leased or operated by it.
(S) 4(a) of the Disclosure Schedule lists the respective
directors and officers of each of the Subsidiaries. The Sellers
have delivered to the Buyer correct and complete copies of the
charter and bylaws (as amended to date) of each of the Subsidiaries.
With respect to each of the Subsidiaries, the Sellers have delivered
to the Buyer correct and complete copies of the minute books
(containing the records of meetings of the stockholders, the board
of directors,
20
<PAGE>
and any committees of the board of directors), and,
except as set forth in (S) 4(a) of the Disclosure Schedule, they are
correct and complete in all material respects. The Sellers have
delivered to the Buyer copies of each Subsidiary's stock record
books and, except as set forth in (S) 4(b) of the Disclosure
Schedule, they are correct and complete in all respects and
accurately reflect the record ownership and, to the knowledge of the
Sellers, the beneficial ownership of all the outstanding capital
stock of each of the Subsidiaries. No Subsidiary is in default under
or in violation of any provision of its charter or bylaws.
(ii) (S) 4(f) of the Disclosure Schedule sets forth for each
Subsidiary of the Company (i) its name, its date and jurisdiction of
incorporation or formation, and each jurisdiction in which the
Subsidiary conducts business, or has conducted business within the
five (5) year period prior to the date of this Agreement, (ii) the
number of shares of authorized capital stock of each class of its
capital stock or other ownership interests, (iii) the number of
issued and outstanding shares of each class of its capital stock (or
other ownership interest), the names of the holders thereof, and the
number of shares (or other interests) held by each such holder, and
(iv) the number of shares of its capital stock (or other interests)
held in treasury. All of the issued and outstanding shares of
capital stock (or other interests) of each Subsidiary have been duly
authorized and are validly issued, fully paid, and non-assessable.
Either the Company or a Subsidiary holds of record and owns
beneficially all of the outstanding shares (or other interests) of
each Subsidiary of the Company, free and clear of any restrictions
on transfer (other than restrictions under the Securities Act and
state securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims,
and demands, as described on (S) 4(f) of the Disclosure Schedule.
There are no outstanding or authorized options, warrants, purchase
rights, conversion rights, exchange rights, or other contracts or
commitments that could require any of the Company or its
Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock (or other interests) of any of its Subsidiaries or that could
require any Subsidiary of the Company to issue, sell, or otherwise
cause to become outstanding any of its own capital stock (or other
interests). There are no outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to any
Subsidiary of the Company. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of any
capital stock (or other interests) of any Subsidiary of the Company.
None of the Company or its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in any
corporation, partnership, limited liability company, trust, or other
business association which is not a Subsidiary of the Company.
(g) Financial Statements. Attached hereto as Exhibit E are the
following financial statements (collectively the "Financial Statements"):
(i) audited consolidated
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balance sheets and statements of operations, stockholders' equity, and
cash flows as of and for the fiscal years ended December 31, 1996 and
1995 for the Company; (ii) unaudited, consolidating balance sheets and
statements of operations as of and for the fiscal year ended December 31,
1997 and the ten (10) month period ended October 31, 1998 for the
Company; (iii) audited balance sheets, statements of operations,
stockholders equity, and cash flows as of, and for the years ended
December 31, 1997 and 1996 for Pretzelmaker, Inc.; (iv) unaudited balance
sheets and statements of operations as of and for the eight (8) month
period ended August 31, 1998 for Pretzelmaker, Inc. (the balance sheets
set forth in (ii) and (iv) for the ten (10) month periods ended October
31, 1998 collectively referred to as the "Most Recent Balance Sheets",
and the items set forth for the year end December 31, 1997 in items (ii),
(iii) and (iv) collectively referred to as the "Most Recent Financial
Statements"). For purposes of this Agreement, the "Most Recent Fiscal
Year End" shall mean December 31, 1997, and the "Most Recent Fiscal Month
End" shall mean October 31, 1998.
The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP (except with respect to those matters
specified in Schedule 1.2) applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the
Company and the Subsidiaries as of such dates and the results of
operations of them for such periods, are correct and complete, and are
consistent with their books and records (which books and records are
correct).
The Company's Adjusted EBITDA for the last twelve month period
ending on August 31, 1998, is not less than $1,387,600.
(h) Events Subsequent to Most Recent Fiscal Year End. Since the
Most Recent Fiscal Year End, there has not been any material adverse
change in the business, financial condition, operations, results of
operations or future prospects of the Company. Without limiting the
generality of the foregoing, except as set forth in (S) 4(h) of the
Disclosure Schedule, since that date:
(i) neither the Company nor any Subsidiary has sold, leased,
transferred or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of
Business;
(ii) neither the Company nor any Subsidiary has entered into
any agreement, contract, lease or license (or series of related
agreements, contracts, leases and licenses) outside the Ordinary
Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $5,000 in any single instance or in
the aggregate to which the Company or any Subsidiary
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<PAGE>
is a party or by which any of them is bound;
(iv) neither the Company nor any Subsidiary has granted any
Security Interest in any of its assets, tangible or intangible;
(v) neither the Company nor any Subsidiary has made any
capital expenditure (or series of related capital expenditures)
either involving more than $25,000 or outside the Ordinary Course of
Business;
(vi) neither the Company nor any Subsidiary has made any
capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related
capital investments, loans and acquisitions) either involving more
than $5,000 or outside the Ordinary Course of Business;
(vii) neither the Company nor any subsidiary has issued any
note, bond or other debt security or created, incurred, assumed or
guaranteed any indebtedness for borrowed money or capitalized lease
obligation either involving more than $5,000 singly or $10,000 in
the aggregate;
(viii) neither the Company nor any Subsidiary has delayed or
postponed the payment of accounts payable and other Liabilities
outside the Ordinary Course of Business;
(ix) neither the Company, nor any Subsidiary, has canceled,
compromised, waived or released any right or claim (or series of
related rights and claims) either involving more than $5,000 or
outside the Ordinary Course of Business;
(x) neither the Company nor any Subsidiary has granted any
license or sublicense of any rights under or with respect to any
Intellectual Property except as set forth in (S)4(m) of the
Disclosure Schedule setting forth each of the Company's master
franchise, franchise, sub-franchise, license, area developer and
other similar documents;
(xi) there has been no change made or authorized in the
charter, bylaws, or other constituent documents of the Company or
any Subsidiary;
(xii) neither the Company nor any Subsidiary has issued, sold,
or otherwise disposed of any of its capital stock, or other
interests, or granted any options, warrants or other rights to
purchase or obtain (including upon conversion, exchange or exercise)
any of its capital stock or other interests;
(xiii) neither the Company nor any Subsidiary has declared,
set aside,
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or paid any dividend or made any distribution with respect to its
capital stock or other interests (whether in cash or in kind) or
redeemed, purchased or otherwise acquired any of its capital stock
or other interests;
(xiv) neither the Company nor any Subsidiary has experienced
any damage, destruction, or loss (whether or not covered by
insurance) to its property;
(xv) neither the Company nor any Subsidiary has made any
loan to, or entered into any other transaction with, any of its
directors, officers and employees outside the Ordinary Course of
Business;
(xvi) neither the Company nor any Subsidiary has entered into
any employment contract or collective bargaining agreement, written
or oral, or modified the terms of any such existing contract or
agreement;
(xvii) neither the Company nor any Subsidiary has granted any
increase in the base compensation of any of its directors, officers,
or employees outside the Ordinary Course of Business;
(xviii) neither the Company nor any Subsidiary has adopted,
amended, modified or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract or commitment for the
benefit of any of its directors, officers, and employees (or taken
any such action with respect to any other Employee Benefit Plan);
(xix) neither the Company nor any Subsidiary has made any
other change in employment terms for any of its directors, officers
or employees outside the Ordinary Course of Business;
(xx) neither the Company nor any Subsidiary has made or
pledged to make any charitable or other capital contribution outside
the Ordinary Course of Business; and
(xxi) to the Knowledge of the Principal Sellers, there has
not been any other material occurrence, event, incident, action,
failure to act or transaction outside the Ordinary Course of
Business.
(i) Undisclosed Liabilities. Neither the Company nor any Subsidiary
has any Liability (and, to the Knowledge of the Principal Sellers, there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against any of them
giving rise to any Liability), except for (i) Liabilities set forth on
the face of the Most Recent Balance Sheet, and (ii) Liabilities which
have arisen
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after the Most Recent Fiscal Month End in the Company's or any
Subsidiary's Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement or violation
of law).
(j) Legal Compliance. The Company and each Subsidiary has
complied, in all material respects, with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any
failure so to comply. The Company has made available or will make
available to Buyer copies of all Uniform Franchise Offering Circulars
used by the Company and each Subsidiary, together with copies of all
state and/or Federal Franchise registrations and other filings made by
the Company and each Subsidiary for franchise law compliance purposes.
(k) Tax Matters. Except as disclosed on Schedule 4(k):
(i) The Company and each Subsidiary has filed all Tax Returns
that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company and each
Subsidiary (whether or not shown on any Tax Return) have been paid,
or adequate reserves have been made by the Company and the
Subsidiaries for payment as set forth in the Financial Statements.
The Company and each Subsidiary is not currently the beneficiary of
any extension of time within which to file any Tax Return. No claim
has ever been made by an authority in a jurisdiction where the
Company or a Subsidiary does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company or any Subsidiary that
arose in connection with any failure (or alleged failure) to pay any
Tax.
(ii) The Company and each Subsidiary has withheld and paid all
Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
(iii) No Principal Seller or director or officer (or employee
responsible for Tax matters) of the Company or any Subsidiary
expects any authority to assess any additional Taxes for any period
for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of the Company or any Subsidiary either
(A) claimed or raised by any authority in writing or (B) as to which
any of the Sellers, the directors and officers (and employees
responsible for Tax matters) of the Company or such Subsidiary has
Knowledge
25
<PAGE>
based upon personal contact with any agent of such authority. (S)
4(k) of the Disclosure Schedule lists all federal, state, local, and
foreign income Tax Returns filed with respect to the Company and
each Subsidiary, indicates those Tax Returns that have been audited,
and indicates those Tax Returns that currently are the subject of
audit. The Sellers have has delivered to the Buyer correct and
complete copies of all examination reports, and statements of
deficiencies assessed against or agreed to by the Company or any
Subsidiary, and federal income Tax Returns related thereto.
(iv) Neither the Company nor any Subsidiary has waived any
statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) Neither the Company nor any Subsidiary has filed a
consent under Code Sec. 341(f) concerning collapsible corporations.
Neither the Company nor any Subsidiary has made any payments, nor is
it obligated to make any payments, nor is either of them a party to
any agreement that under certain circumstances could obligate either
of them to make any payments that will not be deductible under Code
Sec. 280G. Neither the Company nor any Subsidiary has been a United
States real property holding corporation within the meaning of Code
Sec. 897(c)(2) during the applicable period specified in Code See.
897(c)(1)(A)(ii). Neither the Company nor any Subsidiary is a party
to any Tax allocation or sharing agreement. Neither the Company nor
any Subsidiary (A) has been a member of an Affiliated Group filing a
consolidated federal income Tax Return or (B) has any Liability for
the Taxes of any Person (other than the Company or such Subsidiary)
under Treas. Reg. (S) 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract,
or otherwise.
(vi) (S) 4(k) of the Disclosure Schedule sets forth the
following information with respect to the Company and each
Subsidiary as of the most recent practicable date:
(A) the basis of each of them in its assets;
(B) the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign tax, or
excess charitable contribution allocable to each of them.
(vii) The unpaid Taxes of the Company and each Subsidiary:
(A) did not, as of the Most Recent Fiscal Month End,
exceed the reserve for Tax Liability (rather than any reserve
for deferred Taxes
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<PAGE>
established to reflect timing differences between book and Tax
income) set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto); and
(B) do not exceed that reserve as adjusted for the passage
of time through the Closing Date in accordance with the past
custom and practice of the Company and each Subsidiary in
filing their Tax Returns.
(l) Real Property.
(i) Neither the Company nor any Subsidiary owns any real
property or interests in real property.
(ii) (S) 4(l)(ii) of the Disclosure Schedule lists and
describes briefly all real property (a) leased or subleased to the
Company and each Subsidiary including without limitation, each of
the leases or subleases covering the Company's office at 1050 - 17th
Street, Suite 1400, Denver, Colorado 80265, and covering the
premises of each of the Stores (collectively, the "Store Leases"),
and (b) leased or subleased by the Company and any Subsidiary to
third parties, including the Company's and each Subsidiary's
franchisees and area developers. The Sellers have delivered to the
Buyer correct and complete copies of the leases and the subleases
listed in (S) 4(l)(ii) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in (S)
4(l)(ii) of the Disclosure Schedule:
(A) to the Knowledge of the Principal Sellers, the lease
or sublease is legal, valid, binding, enforceable, and in full
force and effect;
(B) subject to the receipt of consents set forth in (S)
4(l)(ii) of the Disclosure Schedule, to the Knowledge of the
Principal Sellers, the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby, which transactions will not
violate the terms thereof;
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
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(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are
true and correct with respect to the underlying lease;
(G) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance
with applicable laws, rules and regulations; and
(I) All facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities.
(m) Intellectual Property.
(i) The Company and each Subsidiary owns or has the right to
use pursuant to license, sublicense, agreement or permission all
Intellectual Property necessary or desirable for the operation of
the businesses of the Company as presently conducted and as
presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Company and each Subsidiary
immediately prior to the Closing hereunder will be owned or
available for use by the Company on identical terms and conditions
immediately subsequent to the Closing hereunder. (S) 4(m)(i) of the
Disclosure Schedule lists each item of Intellectual Property owned,
licensed by or used by the Company and each Subsidiary and sets
forth whether it is owned by or licensed to them.
(ii) To the Knowledge of the Principal Sellers, neither the
Company nor any Subsidiary has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties. Neither the Company
nor any Subsidiary has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that either of
them must license or refrain from using any Intellectual Property
rights of any third party). No third party has interfered with,
infringed upon, misappropriated, or otherwise
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come into conflict with any Intellectual Property rights of either
of them.
(iii) (S) 4(m)(iii) of the Disclosure Schedule identifies each
patent, trademark, service mark, copyright, and other intellectual
property right (together with the registration number) which has
been issued to the Company or any Subsidiary, and any license,
agreement or other permission which either of them has granted to
any third party with respect to any of its Intellectual Property
(together with any exceptions). The Principal Sellers have
delivered or made available to the Buyer correct and complete copies
of all such registrations, applications, licenses, agreements, and
permissions (as amended to date) and has made available to the Buyer
correct and complete copies of all other written documentation
evidencing ownership of each such item. (S) 4(m)(iii) of the
Disclosure Schedule also identifies each trade name or unregistered
trademark used by the Company and each Subsidiary in connection with
any of their businesses. With respect to each item of Intellectual
Property required to be identified in (S) 4(m)(iii) of the
Disclosure Schedule:
(A) the Company or a Subsidiary possesses all right,
title, and interest in and to the item, free and clear of any
Security Interest, license or other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or is threatened
which challenges the legality, validity, enforceability, use or
ownership of the item;
(D) neither the Company nor any Subsidiary has ever agreed
to indemnify any Person for or against any interference,
infringement, misappropriation or other conflict with respect
to the item.
(iv) (S) 4(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Company or any Subsidiary uses pursuant to any license, sublicense,
agreement, or permission. The Sellers have delivered or made
available to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required
to be identified in (S) 4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable and in
full force and effect;
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(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable and in full
force and effect on identical terms following the Closing;
(C) no party to the license, sublicense, agreement or
permission is in breach or default, no event has occurred which
with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(D) no party to the license, sublicense, agreement or
permission has repudiated any provision thereof;
(E) to the Knowledge of the Principal Sellers, the
underlying item of Intellectual Property is not subject to any
outstanding injunction, judgment, order, decree, ruling or
charge;
(F) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or is threatened
which challenges the legality, validity or enforceability of
the underlying item of Intellectual Property; and
(G) neither the Company nor any Subsidiary has granted any
sublicense or similar right with respect to the license,
sublicense, agreement or permission.
(v) To the Knowledge of the Principal Sellers, the Intellectual
Property of the Company and each Subsidiary does not interfere with,
infringe upon, misappropriate or otherwise come into conflict with,
any Intellectual Property rights of third parties as a result of the
continued operation of its business as presently conducted.
(n) Tangible Assets. The Company and each Subsidiary owns or leases
all premises, machinery, equipment, and other tangible assets necessary
for the conduct of its business as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free from defects,
has been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and tear),
and is suitable for the purposes for which it presently is used and
presently is proposed to be used.
(o) Inventory. The inventories and supplies of the Company and each
Subsidiary are merchantable and fit for the purpose for which they were
procured, and none of which is slow-moving, obsolete, damaged or
defective, subject only to the reserve for inventory writedown set forth
on the face of the Most Recent Balance Sheet
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(rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice
of the Company and each Subsidiary.
(p) Contracts. (S) 4(p) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company and each
Subsidiary is a party:
(i) each contract or agreement of any kind or nature entered
into by any of the Company and Affiliates thereof, with any
franchisee, sub-franchisee or area developer, or any officer,
principal, owner, shareholder or representative of any such
franchisee or area developer;
(ii) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $1,000 per annum;
(iii) any agreement (or group of related agreements) for the
manufacturing, brokering, distributing, delivering, marketing,
supply, purchase or sale of materials, commodities, inventory,
supplies, products or other personal property, or for the furnishing
or receipt of services, the performance of which will extend over a
period of more than one year, result in a material loss to the
Company, or involve consideration in excess of $1,000;
(iv) each contract or agreement of any kind or nature entered
into by any of the Company and Affiliates thereof for the
development, study or testing of products, inventory or supplies;
(v) any agreement concerning a partnership or joint venture;
(vi) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $1,000 or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(vii) any agreement concerning confidentiality or
noncompetition;
(viii) any agreement with any of the Sellers or their
Affiliates (other than the Company);
(ix) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(x) any collective bargaining agreement;
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(xi) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $15,000 or providing severance benefits;
(xii) any agreement under which it has advanced or loaned any
amount to any of its directors, officers and employees;
(xiii) any agreement with any governmental, regulatory or
administrative office, agency, body, court, tribunal or organization
of any foreign country or foreign or U.S. territory;
(xiv) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company and each Subsidiary; or
(xv) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000 in a
single instance or $10,000 in the aggregate.
The Sellers have delivered to the Buyer a correct and complete copy of
each written agreement listed in (S) 4(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in (S) 4(p) of the
Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) the agreement will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in
breach or default, and, to the Knowledge of the Principal Sellers, no
event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification or acceleration,
under the agreement; and (D) none of the Company, any Subsidiary, or any
other party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts
receivable of the Company and each Subsidiary are reflected properly on
its books and records, are valid receivables, subject to no contractual
setoffs or counterclaims (and there is no Basis for asserting any
contractual setoffs or counterclaims with respect thereto) are current
and collectible, and, to the Knowledge of the Principal Sellers, are
collectible in accordance with their terms at their recorded amounts,
subject only to (i) the reserve for bad debts set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and each
Subsidiary, and (ii) subject to the
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limitations of bankruptcy, insolvency, fraudulent conveyance,
reorganization, arrangement, moratorium, or other laws relating to or
generally affecting the rights of creditors and by general principles of
equity.
(r) Powers of Attorney. Except as set forth in (S) 4(r) of the
Disclosure Schedule, there are no outstanding powers of attorney executed
on behalf of the Company.
(s) Insurance. (S) 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the
Company and any Subsidiary has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past three
(3) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms through the date of the Closing; (C) none
of the Company, any Subsidiary, nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or
the giving of notices), and, no event has occurred which, with notice or
the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D)
none of the Company, any Subsidiary, or any other party to the policy
repudiated any provision thereof. The Company and each Subsidiary has
been covered during the past three (3) years by insurance in scope and
amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. (S) 4(s) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(t) Litigation. (S) 4(t) of the Disclosure Schedule sets forth each
instance in
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which any of the Sellers, the Company and any Subsidiary (i) is subject
to any outstanding injunction, judgment, order, decree, ruling, or charge
or (ii) is a party or is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local
or foreign jurisdiction or before any arbitrator. None of the actions,
suits, proceedings, hearings, and investigations set forth in (S) 4(t) of
the Disclosure Schedule could result in any material adverse change in
the business, financial condition, operations, results of operations or
future prospects of the Company. None of the Principal Sellers has any
reason to believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened against the Company or any
Subsidiary.
(u) Product Warranty. Each product made, sold or delivered by the
Company and each Subsidiary has been in conformity with all applicable
laws, statutes, regulations, retail and other applicable food industry
standards, and, to the Knowledge of the Principal Sellers, neither the
Company nor any Subsidiary has any Liability (and there is no Basis for
any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to
any Liability) for damages in connection therewith.
(v) Product Liability. To the Knowledge of the Principal Sellers,
neither the Company nor any Subsidiary has any Liability and, to the
Knowledge of the Principal Sellers, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand giving rise to any Liability arising out of
any injury to individuals or property as a result of the possession,
consumption or use of any product made, sold or delivered by any of them.
(w) Employees.
(i) To the Knowledge of the Principal Sellers, no executive,
key employee (including any store manager), or group of employees
has any plans to terminate employment with the Company or any
Subsidiary. To the Knowledge of the Principal Sellers, the Company
has not committed any unfair labor practice. Neither the Company
nor any Subsidiary is bound by any collective bargaining agreement,
nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes.
Neither the Company nor any Subsidiary has committed any unfair
labor practice.
None of the Principal Sellers has any Knowledge of any
organizational effort presently being made or threatened by or on
behalf of any labor union with respect to the employees of the
Company or any Subsidiary.
(ii) (S)4(w)(ii) of the Disclosure Schedule sets forth the
accrued vacation and sick and personal leave (if any) of the
employees of the Company
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and each Subsidiary.
(x) Employee Benefit.
(i) (S) 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company and each Subsidiary maintains or to
which either contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions)
which are due have been paid to each such Employee Benefit Plan
which is an Employee Pension Benefit Plan and all contributions
for any period ending on or before the Closing Date which have
been paid to each such Employee Pension Benefit Plan or accrued
in accordance with past custom and practice. All premiums or
other payments for all periods ending on or before the Closing
Date have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified
plan" under Code Sec. 401(a) and has received, within the last
four years, a favorable determination letter from the Internal
Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan equals
or exceeds the present value of all vested and nonvested
Liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
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(F) The Principal Sellers have delivered or made
available to the Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other
funding agreements which implement each such Employee Benefit
Plan.
(ii) With respect to each Employee Benefit Plan that the
Company or any Subsidiary maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has
been required to contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan has been completely or partially
terminated or been the subject of a Reportable Event as to
which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension
Benefit Plan has been instituted or threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has
any Liability for breach of fiduciary duty or any other failure
to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No
action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or threatened. None of the Sellers
nor any of the directors and officers (and employees with
responsibility for employee benefit matters) of the Company or
any Subsidiary has any Knowledge of any Basis for any such
action, suit, proceeding, hearing, or investigation.
(C) Neither the Company nor any Subsidiary has
incurred, and none of the Sellers, directors, or officers (and
employees with responsibility for employee benefits matters) of
the Company or any Subsidiary has any reason to expect that the
Company or any Subsidiary will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV
of ERISA (including any withdrawal Liability) or under the Code
with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
(iii) Neither the Company nor any Subsidiary contributes to,
has contributed to, nor has been required to contribute to, any
Multiemployer Plan or has any Liability (including withdrawal
Liability) under any Multiemployer Plan.
(iv) Neither the Company nor any Subsidiary maintains, has
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maintained or contributed to, nor has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life
insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B).
(y) Guaranties. Neither the Company nor any Subsidiary is a
guarantor or otherwise liable for any Liability or obligation (including
indebtedness) of any other Person.
(z) Environment, Health, and Safety.
(i) To the Knowledge of the Principal Sellers, the Company
and each Subsidiary has complied in all material respects with all
Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against the Company or
any Subsidiary alleging any failure so to comply. Without limiting
the generality of the preceding sentence, the Company and each
Subsidiary, and their respective predecessors and Affiliates, has
obtained and been in compliance with all of the terms and conditions
of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(ii) Neither the Company nor any Subsidiary has any Liability
(and none of the Company, any Subsidiary, or to the Knowledge of the
Principal Sellers, their predecessors and Affiliates has handled or
disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance
or condition, or owned or operated any property or facility in any
manner that could form the Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand against the Company or any Subsidiary giving rise to any
Liability) for damage to any site, location, or body of water
(surface or subsurface), for any illness of or personal injury to
any employee or other individual, or for any reason under any
Environmental, Health, and Safety Law.
(iii) To the Knowledge of the Principal Sellers, all
properties and equipment used in the business of the Company and
each Subsidiary have been free of asbestos, PCB'S, methylene
chloride, trichloroethylene, 1,2-trans dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(aa) Certain Business Relationships with the Company. Except as
disclosed
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in (S) 4(aa) of the Disclosure Schedule, none of the Sellers has been
involved in any business arrangement or relationship with the Company or
any Subsidiary within the past twelve (12) months, and none of the
Sellers owns any asset, tangible or intangible, which is used in the
business of the Company or any Subsidiary.
(bb) Company Debt; Shareholder Loans; Non-Compete Payments.
(i) The aggregate Company Debt is less than or equal to
$715,700 on the date hereof and shall be less than or equal to
$715,700 at the Closing.
(ii) The aggregate Shareholder Loans are less than or equal
to $540,000 on the date hereof, and shall be less than or equal to
$540,000 at the Closing.
(iii) The aggregate Non-Compete Payments are less than or
equal to $182,300 on the date hereof, and shall be less than or
equal to $182,300 at the Closing.
(cc) Disclosure. To the Knowledge of the Principal Sellers, the
representations and warranties contained in this (S) 4 do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements and information contained in
this (S) 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its best efforts
to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set
forth in (S) 7 below).
(b) Notices and Consents. The Sellers will cause the Company and
each Subsidiary to give any notices to third parties, and will cause each
of them to use its best efforts to obtain any third-party consents, that
the Buyer may request in connection with the matters referred to in (S)
4(c) above. Each of the Parties will (and the Sellers will cause the
Company to) give any notices to, make any filings with, and use its best
efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters
referred to in (S) 3(a)(ii), (S) 3(b)(iii), and (S) 4(c) above.
(c) Operation of Business. Except as disclosed on (S) 5(c) of the
Disclosure Schedule, the Sellers will not cause or permit the Company or
any Subsidiary to engage in any practice, take any action or enter into
any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, except with the written
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consent of the Buyer, or as disclosed on (S)5(c) of the Disclosure
Schedule, the Sellers will not cause or permit the Company or any
Subsidiary to:
(i) sell, lease, transfer or assign any of its assets,
tangible or intangible, other than the sale of its inventory in the
Ordinary Course of Business;
(ii) enter into, or terminate, modify, accelerate or cancel,
any agreement, contract, lease or license to which any of them is a
party or by which they are bound;
(iii) grant or permit any new Security Interest to be imposed
upon any of their assets, tangible or intangible;
(iv) close, or permit the closure of, any of its Stores or
other premises upon which any of its business operations are
presently conducted; commit to or acquire any new store or new store
sites;
(v) fail to maintain inventories and supplies necessary for
the proper and continuing conduct of operations before and after the
Closing in the manner presently conducted;
(vi) make any capital expenditure (or series of related
capital expenditures) other than in the Ordinary Course of Business;
(vii) make any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions);
(viii) issue any note, bond or other debt security or create,
incur, assume, or guarantee any indebtedness for borrowed money or
capitalized lease obligation;
(ix) delay or postpone the payment of accounts payable and
other Liabilities outside the Ordinary Course of Business;
(x) cancel, compromise, waive or release any right or claim
(or series of related rights and claims);
(xi) grant any license or sublicense of any rights under or
with respect to any Intellectual Property;
(xii) make or authorize any change in the charter, bylaws, or
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constituent documents of the Company or any Subsidiary;
(xiii) except as otherwise provided herein with respect to the
conversion of the Preferred Shares, issue, sell or otherwise dispose
of the Company's or any Subsidiary's capital stock or other
interests, or grant any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange or exercise)
the foregoing;
(xiv) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or other interests
(whether in cash or in kind) or redeem, purchase or otherwise
acquire any of its capital stock or other interests;
(xv) make any loan to, or enter into any other transaction
or agreement with, any directors, officers or employees outside the
Ordinary Course of Business;
(xvi) grant any increase in the compensation of any
directors, officers and employees; or adopt, amend, modify or
terminate any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any directors,
officers, or employees (or take any such action with respect to any
other Employee Benefit Plan); or make any other change in employment
terms for any directors, officers, or employees;
(xvii) otherwise take any action or engage in any transaction
outside the Ordinary Course of Business; provided that, subject to
all other terms, limitations and requirements of this Section 5
(including without limitation the Sellers' obligations herein to
preserve the Company's business pursuant to (S) 5(c)), and subject
to the Working Capital Requirement, the Company may pay down Company
Debt prior to the Closing in amounts larger and at times more
frequent than in the Company's Ordinary Course of Business; or
(xviii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in (S) 4(h) above.
(d) Preservation of Business. Except as disclosed on (S) 5(d) of
the Disclosure Schedule, the Sellers will cause the Company and each
Subsidiary to keep its business and properties substantially intact,
including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. The Sellers will permit, and the Sellers will
cause the Company and each Subsidiary to permit, representatives of the
Buyer to have full access to all premises, properties, personnel, books,
records (including Tax records), contracts
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and documents of or pertaining to the Company and each Subsidiary at all
reasonable times.
(f) Notice of Developments/Updating the Disclosure Schedule. (i)
Prior to the Closing Date, the Sellers will give prompt written notice to
the Buyer of any adverse development causing a breach of any of the
representations and warranties in (S) 4 above. Prior to the Closing
Date, each Party will give prompt written notice to the other Parties of
any adverse development causing a breach of any of his or its own
representations and warranties in (S) 3 above; and (ii) from and after
the execution of this Agreement, and prior to the Closing Date, the
Sellers shall update and revise the Disclosure Schedule to refine the
qualifications and disclosures set forth thereon, and as may be requested
by the Buyer.
(g) Waiver of Refusal Rights. Each Seller hereby waives any right of
first refusal, co-sale right or other right that it may have to acquire
the Company Shares of any other Seller.
(h) Exclusivity; Encumbrance or Transfer of Shares. Prior to the
earlier of the termination of this Agreement in accordance with (S) 9
below or the Closing Date, the Sellers will not (and the Sellers will not
cause or permit the Company or any Subsidiary to) (i) solicit, initiate,
or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of, the Company or
any Subsidiary (including any acquisition structured as a merger,
consolidation, share exchange) or otherwise; or (ii) participate in any
discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner
any effort or attempt by any Person to do or seek any of the foregoing;
or (iii) vote their Company Shares in favor of any such acquisition,
whether structured as a merger, consolidation, share exchange or
otherwise; or (iv) offer for sale, sell, hypothecate, pledge, encumber or
transfer, or enter into any agreement or understanding involving the
offering for sale, selling, hypothecating, pledging, encumbering or
transferring, of any of the Company Shares or the stock of any of the
Subsidiaries. The Sellers will promptly notify (and will cause the
Company and each Subsidiary to promptly notify) the Buyer immediately if
any Person makes any proposal, offer, inquiry, or contact with respect to
any of the foregoing.
(i) Conversion of Preferred Shares; Cancellation of Options. The
Sellers, shall cause:
(i) the Preferred Shares to be converted and the Conversion
Shares to be issued in accordance with the requirements of (S)(S)
3(a)(v) and 4(b) above; and
(ii) together with the Company, the Options to be cancelled
prior to
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the Closing.
6. Post-Closing Covenants. The Parties agree as follows with respect
to the period following the Closing.
(a) General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including
the execution and delivery of such further instruments and documents) as
any other Party may reasonably request, all at the sole cost and expense
of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under (S) 8 below). The Sellers acknowledge and
agree that from and after the Closing the Buyer will be entitled to
possession of all documents, books, records (including Tax records),
agreements and financial data of any sort relating to the Company and
each Subsidiary.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction
on or prior to the Closing Date involving the Company or any Subsidiary,
each of the other Parties will cooperate with him or it and his or its
counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost
and expense of the contesting or defending Party (unless the contesting
or defending Party is entitled to indemnification therefor under (S) 8
below).
(c) Transition. The Sellers will not (and will not permit the
Company or any subsidiary to) take any action that is designed or
intended to have the effect of discouraging any lessor, sublessor, sub-
lessee, licensor, licensee, franchisee, customer, supplier, or other
business associate of the Company or any Subsidiary from maintaining the
same business relationships with the Company and each Subsidiary after
the Closing as it maintained prior to the Closing. The Sellers will refer
all customer and vendor inquiries relating to the businesses of the
Company and each Subsidiary to the Buyer from and after the Closing.
After the Closing, the Sellers shall have reasonable access to the
Company's and Subsidiaries' books and records pertaining to the periods
of their operations prior to the Closing. Such access shall be provided
upon reasonable notice to the Buyer and upon terms established by the
Buyer, including without limitation, the execution of confidentiality and
non-disclosure agreements satisfactory to the Buyer.
(d) Confidentiality. Each of the Sellers will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and
deliver promptly to the Buyer or destroy, at the
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request and option of the Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in his or her
possession. In the event that the Seller is requested or required (by
oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, such Seller
will notify the Buyer promptly of the request or requirement so that the
Buyer may seek an appropriate protective order or waive compliance with
the provisions of this (S) 6(d). If, in the absence of a protective order
or the receipt of a waiver hereunder, such Seller is, on the advice of
counsel, compelled to disclose any Confidential Information to any
tribunal, such Seller may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing Seller shall use his or
her best efforts to obtain, at the request of the Buyer, an order or
other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the
Buyer shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
(e) Covenant Not to Compete. Each of the Principal Sellers hereby
agrees that he it will not "directly or indirectly compete" with the
Buyer for a period of two (2) years from and after the Closing Date. For
purposes of this Agreement, the phrase "directly or indirectly compete"
shall include: (i) owning, managing, operating, or controlling, or
participating in the ownership, management, operation, or control of, or
being connected with or having any interest in, as a stockholder,
director, officer, employee, agent, consultant, assistant, advisor, sole
proprietor, partner or otherwise, any (A) business, (B) operation, or (C)
single or multiple retail stores, any of the foregoing which singularly
or in the aggregate derive fifteen percent (15%) or more of its sales or
revenues from any retail baked-goods or mall-based, snack foods business
(collectively, a "Competing Business"); and (ii) soliciting or attempting
to solicit the services of any employee of Buyer or any affiliate of
Buyer. Provided however, this paragraph 6(e) shall not apply to any
-------- -------
Principal Seller operating a Competing Business as a franchisee or
licensee of the Buyer.
If the final judgment of a court of competent jurisdiction declares
that any term or provision of this (S) 6(e) is invalid or unenforceable,
the Parties agree that the court making the determination of invalidity
or unenforceability shall have the power to reduce the scope, duration,
or area of the term or provision, to delete specific words or phrases, or
to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(f) Post-Closing Audit and Preparation of Consolidated Financial
Statements. The Parties acknowledge that after the Closing, the Buyer
and the Company
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intend to select, engage and pay an independent accounting firm (the
"Auditors") to conduct an audit (the "Audit") of the books, records and
operations and to prepare (i) audited consolidated balance sheets and
statements of operations, stockholders' equity and cash flows of the
Company as of and for the fiscal year ending December 31, 1997, and (ii)
unaudited consolidated balance sheets and statements of the Company's
operations for the interim period commencing on January 1, 1998, and
ending on a date specified by the Buyer (collectively, the "Consolidated
Financial Statements"). The Principal Seller Marc N. Geman agrees to
fully cooperate with and assist the Auditors, the Buyer and the Company
in connection with the Audit and the preparation of Consolidated
Financial Statements, including (i) promptly reviewing, analyzing, and
commenting upon information prepared for, compiled by or furnished to the
Auditors by or on behalf of the Company, (ii) furnishing information
requested by the Auditors, (iii) reviewing and approving Consolidated
Financial Statements (and notes thereto) prepared by the Auditors, and
(iv) executing and delivering to the Auditors a so-called
"Representation" or "Management Letter" (the "Management Letter")
containing statements and representations concerning the Consolidated
Financial Statements and the books, records, assets, liabilities and
operations of the Company prior to the Closing Date. The Management
Letter shall be substantially in the same form as those management
letters, dated February 11, 1997 and February 25, 1998, executed
respectively by the Company and Pretzelmaker, Inc., and Pretzelmaker,
Inc., and delivered to BDO Seidman, LLP in connection with the Financial
Statements referred to in (S)(S) 4(g)(i) and (iii) above (copies of which
are included as a part of Exhibit E), supplemented in accordance with the
American Institute of Certified Public Accountants' then current
standards and requirements applicable to such Management Letters.
(g) Office Lease; Location of Company Records. Until the later of
January 4, 1999 or the payment in full of the Notes, the Buyer shall (i)
cause the offices of the Company to remain in its current location
(subject to landlord approval), and (ii) to maintain the books and
records of the Company at the current offices of the Company.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S) 3(a)
and (S) 4 above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) each of the Sellers shall have performed and complied
with all of his or her covenants hereunder in all material respects
through the Closing;
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(iii) the Company shall have procured all of the third party
consents specified in (S) 5(b) above including, without limitation,
any required consent of the Company's landlords and sublandlords
with respect to each of the Store Leases;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would:
(A) prevent consummation of any of the transactions contem
plated by this Agreement;
(B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation;
(C) affect adversely the right of the Buyer to own the
Company Shares and to control the Company and each Subsidiary;
or
(D) affect adversely the right of the Company and each
Subsidiary to own its assets and to operate its businesses (and
no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(v) each of the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified
above in (S) 7(a)(i)-(iv) is satisfied in all respects;
(vi) the Parties and the Company shall have received all
other authorizations, consents, and approvals of governments and
governmental agencies referred to in (S) 3(a)(ii), (S) 3(b)(ii), and
(S) 4(c) above;
(vii) the Buyer shall have received from counsel to the
Sellers an opinion substantially in the form set forth in Exhibit F
attached hereto, addressed to the Buyer, and dated as of the Closing
Date;
(viii) at least five (5) business days prior to the Closing,
the Buyer shall have received the resignations, effective as of the
Closing, of each of the Company's and the Subsidiaries' respective
directors and the officers set forth on (S)(S) 4(a) and (b) of the
Disclosure Schedule;
(ix) the Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to
consummate the transactions contemplated hereby;
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(x) the Buyer's due diligence investigation of the Sellers,
the Company and each Subsidiary shall have been completed to the
Buyer's satisfaction, and the results of such due diligence
investigation shall be acceptable to the Buyer in its sole
discretion;
(xi) the Parties and the Company's creditors shall have
agreed with regard to the payment or assumption of the Company Debt
or any of its components, and the release of encumbrances covering
the assets and/or capital stock of the Company and/or the
Subsidiaries;
(xii) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer;
(xiii) [intentionally blank];
(xiv) the Buyer shall have determined in its sole discretion
that there is no unacceptable material conflict between the
respective development areas of the Company, the Subsidiaries and
the Buyer;
(xv) all voting trusts, proxies and other agreements or
understandings with respect to the voting of the capital stock of
the Company shall have been terminated before the Closing;
(xvi) the conversion of the Preferred Shares to Common Shares,
as described in (S)(S) 3(a)(v) and 4(b) above, shall have occurred,
and before the Closing there shall be no issued or outstanding
Preferred Shares;
(xvii) the Options shall have been cancelled, and all
obligations of the Company thereunder shall have been forever
terminated.
The Buyer may waive any condition specified in this (S) 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in (S) 3(b)
above shall be true and correct in all material respects at and as
of the Closing Date;
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(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or (B) cause
any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Sellers a
certificate to the effect that each of the conditions specified
above in (S) 7(b)(i)-(iii) is satisfied in all respects;
(v) the Parties and the Company shall have received all other
authorizations, consents, and approvals of governments and
governmental agencies referred to in (S) 3(a)(ii), 3(b)(iii), and
(S) 4(c) above; and
(vi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers.
The Sellers, through the Agent Sellers, may waive any condition specified
in this (S) 7(b) if they execute a writing so stating at or prior to the
Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect for a period of
two (2) years thereafter, except for representations regarding the
Company's Tax Liabilities, which representations will expire and be
terminated on the date of expiration of the statute of limitations for
collection of such Tax Liabilities.
(b) Indemnification.
(i) Principal Sellers' Indemnification of Buyer. The Principal
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Sellers, jointly and severally, shall indemnify, save and hold
harmless each of the Buyer, its Affiliates and each of its officers,
directors, employees, agents, legal representatives, advisors,
consultants, successors and assigns, up to a maximum of $7,800,000
in the aggregate, from any Adverse Consequences suffered or incurred
by any of them to the extent arising from:
(A) any breach of any of the Sellers' or the Company's
(and any Subsidiary's) representations, warranties and
covenants contained in this Agreement, in the Disclosure
Schedule, or in any certificate, instrument or other document
delivered pursuant hereto or thereto;
(B) any breach of any covenant of the Sellers contained in
this Agreement requiring performance after the Closing Date; or
(C) any Liability of the Company or any Subsidiary for the
unpaid Taxes of any Person (other than the Company) under
Treas. Reg. (S) 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by
contract, or otherwise;
provided, that the aggregate indemnification obligation, if any, of
the Principal Seller Louis H. Marks under this Section 8(b)(i),
which shall be the only financial obligation of Louis H. Marks under
this Agreement, shall not exceed $1,500,000. The Principal Sellers
expressly acknowledge and agree that the indemnification obligations
of the other Principal Sellers, Marc N. Geman and Donald G. Cox,
Jr., under this Agreement or otherwise, shall not be affected or
limited in any manner by the limitation set forth in the preceding
sentence concerning the indemnification obligations of the Principal
Seller, Louis H. Marks.
(ii) Buyer's Indemnification of Sellers. The Buyer shall
indemnify, save and hold harmless each of the Sellers, their
Affiliates and each of their respective officers, directors,
employees, partners, members, agents, legal representatives,
advisors, consultants, successors and assigns, from any Adverse
Consequences suffered or incurred by any of them to the extent
arising from:
(A) any breach of any of the Buyer's representations,
warranties and covenants contained in this Agreement, or in any
certificate, instrument or other document delivered by the
Buyer pursuant hereto or thereto;
(B) any breach of any covenant of the Buyer contained in
this Agreement requiring performance after the Closing Date.
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(iii) Buyers Indemnification of Sellers and Company. The
Buyer shall indemnify, save and hold harmless each of the Sellers
and the Company, and the Affiliates of each of the Sellers and the
Company, and each of their respective officers, directors, partners,
members, employees, agents, legal representatives, advisors,
consultants, successors and assigns, from any Adverse Consequences
suffered or incurred by any of them to the extent arising from any
Third Party Claim brought against the Sellers, the Company (or any
of the Sellers' or the Company's Affiliates or their respective
officers, directors, partners, members, employees, agents, legal
representatives, advisors, consultants, successors or assigns) to
restrict, restrain, prohibit or enjoin the execution of this
Agreement, the execution or delivery of documents or instruments
executed or delivered in connection herewith or the consummation of
the transactions that are the subject of this Agreement or such
related documents or instruments, or to recover damages arising from
Third Party Claims that the execution of this Agreement, the
execution or delivery of documents or instruments executed or
delivered in connection herewith or the consummation of the
transactions that are the subject of this Agreement or such related
documents or instruments, (A) will or has violated any constitution,
statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental
agency or court to which Buyer or any Affiliate of Buyer is subject
or any provision of the charter or bylaws of Buyer or any Affiliate
of Buyer, or (B) will or has conflicted with, resulted in a breach
of, constituted a default under, resulted in the acceleration of,
created in any party the right to accelerate, terminate, modify, or
cancel, or required any notice be given by Buyer or by any Affiliate
of Buyer (or by their respective officers, directors, partners,
members, employees, agents, legal representatives, advisors,
consultants, successors or assigns) for which notice was not given,
under, any agreement, contract, lease, license, instrument or other
arrangement to which Buyer or any Affiliate of Buyer is a party or
by which Buyer or any Affiliate of Buyer is bound (other than this
Agreement) or to which any of the assets of Buyer or of any
Affiliate of Buyer is subject, or (C) will or does require the
approval or consent of any third party, including but not limited
to, any Affiliate of Buyer, or any officer, director, shareholder,
partner, member, employee, agent, legal representative, advisor or
consultant of Buyer or of any Affiliate of Buyer, and such approval
or consent was not obtained.
(iv) Reimbursement of Costs. In the event Buyer shall fail to
consummate the transactions that are the subject of this Agreement
on the Closing Date due to the parties being restricted, restrained,
prohibited or enjoined from executing this Agreement, executing or
delivering documents or instruments executed or delivered in
connection herewith or consummating the transactions that are the
subject of this Agreement or such related documents or instruments
due to a Third Party Claim for which Buyer is required to indemnify,
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save and hold harmless the Sellers and the Company in accordance
with Section 8(b)(i) above, in addition to any Adverse Consequences
that may be incurred by the Sellers, the Company, or both as a
result thereof for which the Buyer shall be liable, Buyer shall
reimburse and pay to the Company and the Sellers all costs and
expenses incurred by the Company, the Sellers or both (or any of
their Affiliates or respective officers, directors, shareholders,
partners, members, employees, agents, legal representatives,
advisors, consultants, successors or assigns) as a result of or
associated with this Agreement, the negotiations hereunder or the
preparation for the consummation of the transactions hereunder,
including but not limited to, all travel, lodging and meal costs,
copying costs, telephone costs, postage and other delivery charges,
fees and expenses of non-employee and non-Seller attorneys,
accountants, financial advisers, brokers, engineers and other
professionals, advisors and consultants of the Company or the
Sellers, and all other out of pocket expenses of any kind or nature.
The Buyer shall pay such costs and expenses to the Company or the
Sellers, as the case may be, within fifteen (15) days following
presentation of an invoice and supporting documentation therefor.
(c) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against any other Party
(the "Indemnifying Party") under this (S) 8, then the Indemnified
Party shall promptly notify the Indemnifying Party thereof in
writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is
prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as:
(A) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given
notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim;
(B) the Indemnifying Party provides the Indemnified Party
with evidence acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend
against the Third Party
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Claim;
(C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief;
(D) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or
practice materially adverse to the continuing business
interests of the Indemnified Party; and
(E) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with (S) 8(c)(ii)
above,
(A) the Indemnified Party may retain separate co-counsel
at its sole cost and expense and participate in the defense of
the Third Party Claim;
(B) the Indemnified Party will not consent to the entry of
any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably); and
(C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in (S) 8(c)(ii) above
is or becomes unsatisfied, however,
(A) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably
may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying
Party in connection therewith);
(B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable
attorneys' fees and expenses); and
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(C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent
provided in this (S) 8.
(d) Determination of Adverse Consequences. The Parties shall take
into account the time cost of money in determining Adverse Consequences
for purposes of this (S) 8.
(e) Certain Set-Off Rights. At the Buyer's election, payments, if
any, to be made by any of the Sellers under this (S) 8 shall be made by
reducing, on a dollar-for-dollar basis, any unpaid balance of any of the
Deferred Payments, by the amount of all or any portion of any Adverse
Consequences the Buyer may suffer or incur. All such indemnification
payments under this (S) 8 shall be deemed adjustments to the Purchase
Price. Notwithstanding the foregoing, before any set-off rights may be
exercised, the Buyer shall give written notice to the Agent Sellers of
any claim for indemnification hereunder, specifying in reasonable detail
the grounds for indemnification and the amount of the set-off, and the
Agent Sellers may object to any such set-off by responding in writing
within fifteen (15) days after receipt of the Buyer's notice. If the
Agent Sellers fail to object within the fifteen (15)-day period
specified, the Agent Sellers shall waive any right to object to the
Buyer's right of indemnification hereunder or the amount of the set-off.
If the Agent Sellers dispute either the Buyer's right to indemnification,
or the amount of the set-off, or both, then Escrow Agent shall retain the
amount of the set-off pending resolution of the dispute, and the Parties
shall negotiate in good faith to resolve all issues in dispute. If, after
a period of fifteen (15) days following the date on which the Agent
Sellers give Buyer notice of its objection to Sellers indemnification
hereunder, any such matter remains in dispute, then the Parties shall
employ the dispute resolution procedures set forth in (S) 9 of this
Agreement. Each Party agrees to make available to the other Party and the
attorneys and accountants of the other Party, within a reasonable time
after a request is made, all books and records which are reasonably
required by the requesting Party to evaluate a claim for indemnification
or objection hereunder.
(f) Other Indemnification Provisions. The foregoing indemnification,
set off and recoupment provisions are in addition to, and not in
derogation of, any statutory, equitable, or common law remedy any Buyer
may have for breach of representation, warranty or covenant against any
of the Sellers.
(g) Sellers' Release of Claims. Effective as of the Closing Date,
each of the Sellers (for themselves and their respective officers,
directors, members, shareholders, partners, beneficiaries, employees,
agents, representatives, heirs, successors and assigns) hereby (i)
releases, acquits and forever discharges the Company and each of the
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Subsidiaries from any and all liabilities, obligations, indebtedness,
claims, demands, actions or causes of action arising from or relating to
any event, occurrence, act, omission or condition occurring or existing
on or prior to the Closing Date, including, without limitation, any claim
for indemnity or contribution from the Company or any of the Subsidiaries
in connection with the obligations or liabilities of the Sellers
hereunder, except for (A) any contractual obligations of the Buyer to the
Sellers set forth in this Agreement, and (B) interests in benefit plans
to which any of the Sellers are entitled; (ii) waives all breaches,
defaults or violations of each agreement, if any, among or between
shareholders applicable to the Company Shares and agrees that any and all
such agreements are terminated as of the Closing Date, and (iii) waives
any and all preemptive or other rights to acquire any shares of stock the
Company or any of the Subsidiaries and releases any and all claims
arising in connection with any prior default, violation or failure to
comply with or satisfy any such preemptive or other rights. In addition,
the Sellers shall obtain and deliver at Closing, in a form acceptable to
the Buyer, releases from all Non-Compete Recipients, Consultants and
holders of Shareholder Loans, who are not Sellers.
(h) Termination.
(i) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(A) The Buyer and all of the Sellers acting together may
terminate this Agreement by mutual written consent at any time
prior to the Closing;
(B) The Buyer may terminate this Agreement for any or no
reason, including without limitation, based on the results of
its due diligence investigation, by giving written notice to
the Sellers at any time prior to the Closing;
(C) [Intentionally Omitted]; and
(D) Time being of the essence, in the event of either
party's failure to tender full performance of their or its
closing duties set forth hereunder, for any reason whatsoever,
before 5:00 p.m. MST on November 19, 1998 (unless mutually
agreed to the contrary by the Buyers and the Agent Sellers),
this Agreement shall terminate. Whether this Agreement closes
or terminates pursuant to this section, such closing or
termination, as the case may be, shall not prejudice either
party's right to pursue any claim for damages, if any,
resulting from any breach of condition or covenant (whether
pre- or post-closing).
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(ii) Action By Fewer Than All Sellers. Any action permitted to
be taken under this (S) 8(h) by the Sellers holding a majority of
the Company Shares shall, if so taken, be binding upon and
constitute the act of all of the Sellers.
(iii) Effect of Termination. If any Party terminates this
Agreement pursuant to (S) 8(h)(i) above, all rights and obligations
of the Parties under this Agreement, and any other agreement or
instrument executed in connection herewith shall terminate without
any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
9. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Seller; provided, however, that any Party
may make any public disclosure it believes in good faith is required by
applicable law (in which case the disclosing Party will use its best
efforts to advise the other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they related in
any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this
Agreement or any of his, her, or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the Seller;
provided, however, that the Buyer may (i) assign any or all of its rights
and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations
hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted
54
<PAGE>
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed
to the intended recipient as set forth below:
If to any Seller,
c/o Agent Sellers: Marc N. Geman
c/o 3855 South Dahlia Street
Englewood, CO 80110
Don Cox
c/o Juices Wild
1015 South Cimarron Road
Las Vegas, NV 89128
Louis H. Marks
c/o M&R Enterprises
8707 Skokie Blvd., #301
Skokie, IL 60077-2292
Copy to: Smith McCullough, P.C.
4643 South Ulster Street Suite 900
Denver, CO 80237
If to the Buyer: Mrs. Fields' Original Cookies, Inc.
ATTN: Legal Department
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, UT 84121
Copy to: Jones, Waldo, Holbrook & McDonough
ATTN: Glen D. Watkins
1500 Wells Fargo Plaza
170 So. Main Street
Salt Lake City, UT 84101
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall
55
<PAGE>
be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Parties notice in the manner herein set
forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Utah without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Utah or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Utah.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby, provided that the
Company shall pay the costs and expenses of the Sellers in connection with
this Agreement up to the Closing. Nothing in this section shall be
construed to affect the Working Capital Requirement.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty,
and covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
56
<PAGE>
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
(n) Dispute Resolution. Any dispute arising out of or relating to this
Agreement, including, but not limited to, claims for indemnification
pursuant to Section 8 shall be resolved in accordance with the procedures
specified in this Section 9(n), which shall be the sole and exclusive
procedures for the resolution of any such disputes; provided, however, that
-------- -------
this Section 9(n) shall not apply to or govern the Parties' resolution of
any Objections to the Closing Balance Sheets (for which the provisions of
(S) 2(h) constitute the sole and exclusive dispute resolution procedures
therefor).
(i) The Parties shall attempt in good faith to resolve any dispute
arising out of or relating to this Agreement promptly by negotiation
between the Sellers and their appointed representatives and executives of
Buyer who, if possible, are at a higher level of management than the
persons with direct responsibility for administration of this Agreement.
(A) Any Party may give the other Party written notice of any
dispute not resolved in the normal course of business. Within
fifteen (15) days after delivery of the notice, the receiving Party
shall submit to the other a written response. The notice and
response shall include (1) a statement of each Party's position and
a summary of arguments supporting that position, and (2) the name
and title of the executives or representatives who will represent
that Party and of any other person who will accompany the executives
or representatives. Within thirty (30) days after delivery of the
disputing Party's notice, the executives or representatives of the
Parties shall meet at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, to attempt to
resolve the dispute. All reasonable requests for information made by
one Party to the other will be honored.
(B) If the matter has not been resolved by these persons within
sixty (60) days of the disputing Party's notice, or if the parties
fail to meet within thirty (30) days of the disputing Party's
notice, either Party may initiate mediation as provided hereinafter.
(C) All negotiations pursuant to this clause are confidential
and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and State rules of
evidence.
(ii) If the dispute has not been resolved by negotiation as provided
herein, the Parties shall endeavor to settle the dispute by nonbinding
mediation and to bear equally the costs of the mediation. The Parties
will jointly appoint a mutually acceptable
57
<PAGE>
mediator promptly after a request for mediation is made by any Party. The
Parties agree to participate in the mediation and all related
negotiations in good faith.
(iii) If the dispute has not been resolved by non-binding means as
provided herein within ninety (90) days of the initiation of such
procedure, either Party may initiate litigation (upon thirty (30) days'
written notice to the other Party); provided, however, that if one Party
has requested the other to participate in a non-binding procedure and the
other has failed to participate, the requesting Party may initiate
litigation before expiration of the above period.
(iv) The procedures specified in this Section 9(n) shall be the
sole and exclusive procedures for the resolution of disputes between the
Parties arising out of or relating to this Agreement; provided, however,
that a Party, without prejudice to the above procedures, may file a
complaint (for statute of limitations or venue reasons) or to seek
temporary or preliminary injunctive or other provisional judicial relief,
if in its sole judgment such action is necessary to avoid irreparable
damage or to preserve the status quo. Despite such action the Parties
will continue to participate in good faith in the procedures specified in
this Section.
(v) All applicable statues of limitation and defenses based upon
the passage of time shall be tolled while the procedures specified in
this Section are pending. The Parties will take such action, if any,
required to effectuate such tolling.
(vi) Each Party is required to continue to perform its obligations
under this Agreement pending final resolution of any dispute arising out
of or relating to this Agreement.
58
<PAGE>
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake City, Utah,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other Party
with respect thereto. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on
the judgment or in any other manner provided by law or at equity.
(p) Attorneys' Fees. Should any litigation be commenced with respect to
any matters governed by this Agreement, the Party prevailing shall be
entitled, in addition to such other relief as may be granted, to a
reasonable sum for such Party's attorneys' fees and expenses determined by
the court in such litigation.
[Remainder of page intentionally left blank]
59
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER: MRS. FIELDS' ORIGINAL COOKIES, INC.
By:
---------------------------------
Its:
--------------------------------
COMPANY: PRETZELMAKER HOLDINGS, INC.
By:
---------------------------------
Its:
--------------------------------
SELLERS:
- ------------------------------
Marc Geman
- ------------------------------ --------------------------------
Marc N. Geman, IRA Marty Geman, IRA
S-1
<PAGE>
- -------------------------------- ------------------------------------
Donald G. Cox, Jr. Jerrold H. Marks
- -------------------------------- ------------------------------------
Louis H. Marks Dr. Jeffrey L. Katzell
- -------------------------------- ------------------------------------
John Capone Bonnie Capone
- -------------------------------- ------------------------------------
Jack Ruggles Mildred Ruggles
- -------------------------------- ------------------------------------
Jeffrey Tripp April Tripp
- -------------------------------- ------------------------------------
Dale Fowler Brian Woods
- -------------------------------- ------------------------------------
Anthony Joseph Lynn Gore
- --------------------------------
Mark Maximovich
S-2
<PAGE>
JJJJM, LLC NORTHWESTERN TRUST,
FBO C. LEROY SCHENK, IRA
By: By:
------------------------ ---------------------------
Its: Its:
----------------------- --------------------------
COLORADO PRETZEL PARTNERSHIP WILLIAM WIENER, IN TRUST FOR
MICHAEL WIENER
By: By:
------------------------ ---------------------------
Its: Its:
----------------------- --------------------------
WILLIAM WIENER, IN TRUST FOR
KEVIN WIENER
By:
------------------------
Its:
-----------------------
S-3
<PAGE>
EXHIBIT A
Attach LTM EBITDA Adjustment
<PAGE>
EXHIBIT B
Attach List of Sellers and Estimated Company Shares Owned
<PAGE>
EXHIBIT C
OLD--NEEDS TO BE REVISED!!!
===========================
PURCHASE PRICE ESTIMATED ALLOCATIONS AND DEDUCTIONS
ALLOCATIONS
============================================
SHAREHOLDER NET
PROCEEDS %
--------------------------------------------
Marc Geman (Promissory 22.7632%
Note)
--------------------------------------------
Marc Geman (Cash)/*/ 11.5695%
--------------------------------------------
Geman IRA's 1.6629%
--------------------------------------------
Louis Marks 9.6440%
--------------------------------------------
Jerrold Marks 9.6440%
--------------------------------------------
JJJJM, LLC 7.7156%
--------------------------------------------
John & Bonnie Capone 1.9291%
--------------------------------------------
Colorado Pretzel Partnership 1.9291%
--------------------------------------------
LeRoy Schenk IRA 1.9291%
--------------------------------------------
Jeffery & April Tripp/**/ 4.8000%
--------------------------------------------
Bill Weiner, Trustee 1.9291%
--------------------------------------------
Dr. Jeffrey L. Katzell 0.9642%
--------------------------------------------
Don Cox 17.6369%
--------------------------------------------
Jack & Mildred Ruggles 2.8933%
--------------------------------------------
Brian Woods 0.4800%
--------------------------------------------
Anthony Joseph/*/ 1.3694%
--------------------------------------------
Dale Fowler 0.4562%
--------------------------------------------
- ------------------------
/*/ Tax on option exercise to be withheld from option employees gross proceeds
and remitted to Pretzelmaker, Inc.
/**/Sixteen Thousand Dollars ($16,000.00) to be withheld from Sellers Tripp and
remitted to Pretzelmaker, Inc. in settlement of past royalties and advertising
fees.
<PAGE>
===========================================
SHAREHOLDER NET
PROCEEDS%
-------------------------------------------
Lynn Gore/*/ 0.2285%
-------------------------------------------
Mark Maximovich/*/ 0.4562%
-------------------------------------------
100.000%
===========================================
<PAGE>
EXHIBIT D
Attach Escrow Agreement
<PAGE>
EXHIBIT E
Attach Financial Statements of the Company
<PAGE>
EXHIBIT F
Attach Form of Sellers' Opinion
<PAGE>
ANNEX II
Exceptions to Buyer's Representations
None.
<PAGE>
<TABLE>
<S> <C> <C> <C>
PLEASE INDICATE ONE TYPE OF CORPORATION
ARTICLES OF INCORPORATION X DOMESTIC BUSINESS CORPORATION
FEE
__ DOMESTIC BUSINESS CORPORATION $100.00
COMMONWEALTH OF PENNSYLVANIA A CLOSE CORPORATION-COMPLETE BACK
DEPARTMENT OF STATE - CORPORATE BUREAU
308 NORTH OFFICE BUILDING.
HARRISBURG PA 17120 __ DOMESTIC PROFESSIONAL CORPORATION
ENTER BOARD LICENSE NO.
- -------------------------------------------------------------------------------------------------------
010 NAME OF CORPORATION (MUST CONTAIN A CORPORATE INDICATOR UNLESS EXEMPT UNDER 18 P.S. 2908 8)
Mr Pretzel, Inc.
- -------------------------------------------------------------------------------------------------------
011 ADDRESS OF REGISTERED OFFICE IN PENNSYLVANIA (P.O. BOX NUMBER NOT ACCEPTABLE)
2041 Herr Street
- -------------------------------------------------------------------------------------------------------
012 CITY 023 COUNTY 013 STATE 064 ZIP CODE
Harrisburg Dauphin Pa. 17102
- -------------------------------------------------------------------------------------------------------
050 EXPLAIN THE PURPOSE OR PURPOSES OF THE CORPORATION
</TABLE>
To do any lawful act concerning any or all lawful business for which corporation
may be incorporated law, which is the law under the provisions of which the
corporation is hereby incorporated.
<TABLE>
<S>
(ATTACH 8.5 X 11 SHEET IF NECESSARY) <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
The Aggregate Number of Shares, Classes of Shares and Par Value of Shares Which the Corporation shall have Authority to Issue
040 Number and Class of Shares 1,000 common | 041 Stated Par Value Per | 042 Total Authorized Capital | 031 Term of existence
| Share if Any $10.00 | 10,000 | perpetual
- ------------------------------------------------------------------------------------------------------------------------------------
The Name and Address of Each Incorporator, and the Number and Class of Shares Subscribed to by each Incorporator
061,062
060 Name 063,064 Address (Street, City, State, Zip Code) Number & Class of Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Jan Murski 6466 Heatherfield Way. Hbg.,Pa 17112 1 common
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(ATTACH 8.5 X 11 SHEET IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------------------
IN TESTIMONY WHEREOF, THE INCORPORATOR(S) HAS (HAVE) SIGNED AND SEALED THE ARTICLES OF INCORPORATION
THE First DAY OF May 19 91 .
------------------------ ----------------------- ------
- -------------------------------------------------------- ----------------------------------------------------------------------
X /s/ Jan Murski
- -------------------------------------------------------- ----------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
-FOR OFFICE USE ONLY-
- ------------------------------------------------------------------------------------------------------------------------------------
001 ______ 002 CODE 000 REV BOX SEQUENTIAL NO. 100 MICROFILM NUMBER
MAY 14 1991
-----------
REVIEWED BY 91281653
-----------------------------------------------------------------------------
SIGNATURE _______________ 004 SICC AMOUNT 001 CORPORATION NUMBER
- ------------------------- DATE APPROVED
$ 2024644
--------------- -----------------------------------------------------------------------------
DATE REJECTED CERTIFY TO INPUT BY LOG IN LOG IN (REFILE)
--- -----
--------------- -----------------------------------------------------------------------------
Secretary of the Commonwealth MAILED BY DATE --- -----
Department of the State __ OTHER VERIFIED BY LOG OUT LOG OUT (REFILE)
Commonwealth of Pennsylvania --------------
-----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Microfilm Number Filed with the Department of State on Aug 28 1991
----------- ----------------
Entity Number 2024644 /s/ signature
-------------- ------------------------------------------------------
Deputy Secretary of the Commonwealth
</TABLE>
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSC8:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa. C.S. * 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: Mr. Pretzel, Inc.
-----------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
<TABLE>
<S> <C> <C> <C>
(a) 2041 Herr Street, Harrisburg, Pennsylvania 17102 (Dauphin County)
--------------------------------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o
----------------------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the
county in which the corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is : PA Business Corporation Law
----------------------------------------
4. The date of its incorporation is: May 14, 1991
----------------------------------------------------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of Amendment in the Department of State.
-----
The amendment shall be effective on: at
----- -------------- --------------
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. * 1914 (a) and (b).
-----
The amendment was adopted by the board of directors pursuant to 15 Pa.C.S * 1914 (c).
-----
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is as follows:
-----
The name of the corporation shall be Pretzel Time Inc.
------------------------------------------------------------------------
The aggregate number of shares, classes of shares and Par Value of shares which the corporation shall have
----------------------------------------------------------------------------------------------------------
authority to issue is: 1,000 common at $10.00 par value per share and 100 preferred at $10,000.00 par value per share.
----------------------------------------------------------------------------------------------------------------------
The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part thereof.
- ---
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
DSC8:15-1915 (Rev 90)-2
8. (Check if the amendment restates the Articles):
The restated Articles of incorporation supersede the original Articles and all amendments thereto.
----
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a
duly authorized officer thereof the 1st day of August , 1991 .
--------- --------------- --
Mr. Pretzel, Inc.
------------------------------------------------
(Name of Corporation)
BY: /s/ Jan Murski
---------------------------------------------
(Signature)
TITLE: President
------------------------------------------
</TABLE>
<PAGE>
CORPORATE RECORDS
OF
PRETZEL TIME, INC.
****************
INCORPORATED UNDER THE LAWS
OF THE
COMMONWEALTH OF PENNSYLVANIA
****************
<PAGE>
BYLAWS INDEX
I. OFFICES
II. SEAL
III. SHAREHOLDERS' MEETINGS
IV. DIRECTORS
V. NOTICE
VI. OFFICERS
VII. VACANCIES AND REMOVALS
VIII. CORPORATE RECORDS
IX CERTIFICATES OF STOCK, TRANSFER, ETC.
X. DIVIDENDS.
XI. INDEMNIFICATION
XII. ANNUAL STATEMENTS
XIII. MISCELLANEOUS PROVISIONS
<PAGE>
BYLAWS OF
PRETZEL TIME, INC
ARTICLE I - OFFICES
1. Registered Office. The registered office of the corporation shall
-----------------
be at 462 West Bearcat Drive, Salt Lake City, UT 84115.
2. Other Office. The corporation may also have offices at such other
------------
places as the Board of Directors may from time to time appoint or the business
of the corporation may require.
ARTICLE II - SEAL
1. The corporation seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Pennsylvania".
ARTICLE III. SHAREHOLDERS' MEETING
1. Place. Meetings of the shareholders shall be held at the registered
-----
office of the corporation or at such other place or places, either within or
without the Commonwealth of Pennsylvania, as may from tine to time be selected.
2. Time. The annual meeting of the shareholders shall be held on the
----
1st day of September in each year if not a legal holiday, and if a legal
holiday, then on the next secular day following at 9:00 o'clock P.M., when they
shall elect a Board of Directors, and transact such other business as may
properly be brought before the meeting. If the annual meeting shall not be
called and held within six (6) months after the designated time, any shareholder
may call such meeting at any time thereafter.
3. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the President, or the Board of Directors, or shareholders
entitled to cast at least twenty (20%)
<PAGE>
percent of the votes which all shareholders are entitled to cast at the
particular meeting, At any time, upon written request of any person or persons
who have duly called a special meeting, it shall be the duty of the Secretary to
fix the date of the meeting, to be held not more than sixty (60) days after the
receipt of the request, and to give due notice thereof. If the Secretary shall
neglect or refuse to fix the date of the meeting and give notice thereof, the
person or persons calling the meeting may do so.
4. Quorum and Action. Except as otherwise provided in these bylaws,
-----------------
the presence, in person or by proxy, of shareholders entitled to cast a least a
majority of the votes which all shareholders are entitled to cast on the
particular matter shall constitute a quorum for the purpose of considering such
matter. Unless otherwise provided by statute or in these bylaws, the acts of the
shareholders present (in person or by proxy) at a duly organized meeting and
entitled to cast at least a majority of the votes which all shareholders present
are entitled to cast shall be the acts of the shareholders. The shareholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, Adjournment or adjournments of any annual or special meeting may
be taken, but any meeting at which directors are to be elected shall be
adjourned only from day to day, or for such longer periods not exceeding
fifteen (15) days each, as may be directed by shareholders who are present in
person or by proxy and who are entitled to cast at least a majority of the votes
which all such shareholders would be entitled to cast at an election of
directors until such directors have been elected. If a meeting cannot be
organized because a quorum has not attended, those present may, except as
otherwise provided by statute, adjourn the meeting to such time and place as
they may determine, but in the case of any meeting called for the election of
directors, those who attend the second of such adjourned meetings, although less
than a quorum, shall nevertheless constitute a quorum for the purpose of
electing directors.
5. Proxies. Every shareholder entitled to vote at a meeting of
-------
shareholders, or to express consent or dissent to corporate action in writing
without a meeting, may authorize another person or persons to act for him by
proxy. Every proxy shall be executed in writing by the shareholder, or by his
duly authorized attorney in fact, and filed with the Secretary of the
corporation. A
-2-
<PAGE>
proxy, unless coupled with an interest, shall be revocable at will,
notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until notice
thereof has been given to the Secretary of the corporation. No unrevoked proxy
shall be valid after eleven (11) months from the date of its execution, unless a
longer time is expressly provided therein, but in no event shall a proxy, unless
coupled with an interest, be valid after three years from the date of its
execution. A proxy shall not be revoked by the death or incapacity of the maker
unless before the vote is counted or the authority is exercised, written notice
of such death or incapacity is given to the Secretary of the corporation. A
shareholder shall not sell his vote or execute a proxy to any person for any sum
of money or anything of value. A proxy coupled with an interest shall include an
unrevoked proxy in favor of a creditor of a shareholder and such proxy shall be
valid so long as the debt owed by him to the creditor remains unpaid.
6. Ballots Cumulative Voting. Elections for directors need not be by
-------------------------
ballot, except upon demand made by a shareholder at the election and before the
voting begins. Except as otherwise provided in the Articles, and subject to the
provisions of these bylaws, in each election of directors cumulative voting
shall be allowed.
7. Judges of Election. In advance of any meeting of shareholders, the
------------------
Board of Directors may appoint judges of election, who need not be shareholders,
to act at such meeting or any adjournment thereof. If judges of election are not
appointed, the chairman of any such meeting may, and on the request of any
shareholder or his proxy shall, make such appointment at any meeting. The number
of judges shall be one or three. If appointed at a meeting on the request of one
or more shareholders or proxies, the holders of a majority of shares present and
entitled to vote shall determine whether one or three judges are to be
appointed. On request of the chairman of the meeting, or any shareholder or his
proxy, the judges shall make a report in writing of any challenge or question or
matter determined by them, and execute a certificate of any fact found by them.
No person who is a candidate for office shall act as judge.
-3-
<PAGE>
8. Business at Special Meetings. Business transacted at all special
----------------------------
meetings shall be confined to the objects stated in the call and matters germane
thereto, unless all shareholders entitled to vote are present and consent.
9. Protocol. At every meeting of the shareholders, the chairman of
--------
the board, if there be one, or, in the case of vacancy in office or absence of
the chairman of the board, one of the following officers present in the order
stated: the vice chairman of the board, if there be one, the president, the vice
president in their order of rank and seniority, or a person chosen by vote of
the shareholders present, shall act as chairman of the meeting. The secretary
or, in the absence of the secretary, an assistant secretary, or in the absence
of both the secretary and assistant secretaries, a person appointed by the
chairman of the meeting, shall act as secretary.
10. Voting Lists. The officer or agent having charge of the transfer
------------
books shall make a complete list of shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of and the number of
shares held by each. The list shall be produced and kept open at the time and
place of the meeting, and shall be subject to the inspection of any shareholder
during the whole time of the meeting. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote thereat to
examine the list. The original share register or transfer book, or a duplicate
thereof kept in this Commonwealth, shall be prima facie evidence as to who are
the shareholders entitled to examine the list or share register or transfer book
or to vote at any meeting of shareholders. The original share ledger or transfer
book, or duplicate thereof kept in this Commonwealth, shall be prima facie
evidence as to who are the shareholders entitled to examine such list or share
ledger or transfer book, or to vote in person or by proxy at any meeting of
shareholders.
11. Record Date. The board of directors may fix a time prior to the
-----------
date of any meeting of shareholders as a record date for the determination of
the shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall be not more than sixty (60)
days prior to the date of the meeting of shareholders. Only shareholders of
record
-4-
<PAGE>
on the date fixed shall be entitled to notice, notwithstanding any transfer of
shares on the books of the corporation after any record date fixed as provided
in this subsection. When a determination of shareholders of record has been made
as provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the board fixes a new record date for
the adjourned meeting. If a record date is not fixed:
(i) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the date next preceding the day on which notice
is given or, if notice is waived, at the close of business on the day
immediately preceding the day on which the meeting is held.
(ii) The record date for determining shareholders entitled
to express consent or dissent to corporate action in writing without a
meeting, when prior action by the board of directors is not necessary,
shall be the close of business on the day on which the first written
consent or dissent is filed with the secretary of the corporation.
12. Unanimous Shareholders' Consents. Except as otherwise provided in
--------------------------------
the Articles, any action which may be taken at a meeting of the shareholders or
of a class of shareholders may be taken without a meeting, if a consent or
consents in writing, setting forth the action so taken. shall be signed by all
of the shareholders who would be entitled to vote at a meeting for such purpose
and shall be filed with the Secretary of the corporation.
13. Identification of Shareholders. As of the adoption of these
------------------------------
bylaws, the Corporation has two shareholders, Martin E. Lisiewski and Mrs.
Fields' Holding Company, Inc. References in these bylaws to "Lisiewski" shall
mean Martin E. Lisiewski or his permitted successors in interest, and references
to "Fields" shall mean Mrs. Fields' Holding Company, Inc. or their permitted
successors in interest.
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<PAGE>
ARTICLE IV - DIRECTORS
1. Powers. Unless otherwise provided by statute, all powers vested by
------
law in the corporation shall be exercised by or under the authority of, and the
business and affairs of the corporation shall be managed under the direction of,
the board of directors.
2. Qualification of Directors. Each director of the corporation
--------------------------
shall be a natural person of full age who need not be a resident of Pennsylvania
or a shareholder of the corporation.
3. Election and Number of Directors. The directors shall be elected
--------------------------------
by the shareholders at the annual meeting of shareholders of the corporation,
and each director shall be elected for the term of one year, and until his
successor shall be elected and shall qualify. The number of directors shall be
five. Two directors shall be nominated and elected by Lisiewski (the "Lisiewski"
directors. Two directors shall be nominated and elected by Fields (the "Fields"
directors), and one director shall be nominated and elected by both Fields and
Lisiewski (the "Impartial" director).
4. Place of Meeting. The meetings of the Board of Directors may be
----------------
held at such place within this Commonwealth, or elsewhere, as a majority of the
directors may from time to time appoint, or as may be designated in the notice
calling the meeting.
5. Regular Meetings. Regular meetings of the Board shall be held at
----------------
such time and place as the Board, by resolution, shall determine.
6. Special Meetings. Special meetings of the Board may be called by
----------------
the President; special meetings shall be called by the President or Secretary on
the written request of a majority of the directors in office.
7. Newly Elected Board. Each newly elected Board may meet at such
-------------------
place and time as shall be fixed by the shareholders at the meeting at which
such directors are elected and no
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<PAGE>
notice shall be necessary to the newly elected directors in order legally to
constitute the meeting, or they may meet at such place and time as may be fixed
by the consent in writing of all the directors.
8. Quorum and Action. A majority of the directors in office,
------------------
including at least one Fields director and one Lisiewski director, shall be
necessary to constitute a quorum for the transaction of business. Except as
otherwise provided in these bylaws, acts of a majority of the directors present
at a meeting at which a quorum is present shall be the acts of the Board of
Directors.
9. Supermajority Provisions. Notwithstanding any other provision of
------------------------
applicable law or these bylaws, none of the following acts shall be an act of
the Board of Directors or Corporation unless approved by at least one Fields
director and one Lisiewski director:
(1) The obtaining or permitting to exist any loan, advance,
or other borrowing, whether secured or unsecured, by the Corporation or any
subsidiary of the Corporation, except in the ordinary course of business of the
Corporation;
(2) The creation of any security interest or lien against the
Corporation or any subsidiary, or any assets of either;
(3) The issuance or sale of any security of the Corporation
or any subsidiary of the Corporation, including, without limitation, any share,
option, warrant, bond, note, debenture, or other instrument convertible into any
of the foregoing;
(4) The amendment to any of the articles of incorporation,
bylaws, or other organizational documents of the Corporation or any subsidiary
of the Corporation, including, without limitation, authorizing additional shares
of any class of stock;
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<PAGE>
(5) The sale of all or substantially all of the business or
assets of the Corporation or any subsidiary of the Corporation, or the merger,
consolidation, other corporate reorganization of the Corporation or any
subsidiary of the Corporation, or in any single or series of related
transactions;
(6) The guarantee of becoming liable in any way as a surety,
endorser, or accommodation endorser or otherwise for debts or obligations of any
other person or entity, other than in the ordinary course of business;
(7) The declaration or payment of any dividend either in
cash, stock of the Corporation or any subsidiary of the Corporation, or the
redemption or retirement or purchase of any shares of stock of the Corporation
or any subsidiary of the Corporation;
(8) The commencement or institution of any voluntary
proceedings relating to the bankruptcy, insolvency or appointment of a receiver
by or on behalf of the Corporation;
(9) The approval of the annual operating and capital budgets
for the Corporation or the amendment to the approved annual operating and
capital budgets of the Corporation;
(10) The dissolution, liquidation, cessation of business, or
winding up of the Corporation; and
(11) The acquisition of the assets, stock or other equity of
an entity engaged in the selling or franchising of pretzels (whether retail or
wholesale).
10. Relationship to Corporation Reliance. A director of the
------------------------------------
corporation shall stand in a fiduciary relation to the corporation and shall
perform his duties as a director, including his duties as a member of any
committee of the board upon which he may serve, in good faith, in a manner he
reasonably believes to be in the best interests of the corporation, and with
such care, including reasonable inquiry, skill and diligence, as a person of
ordinary prudence would use
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<PAGE>
under similar circumstances. In performing his duties, a director shall be
entitled to rely in good faith on information, opinions, reports or statements,
including financial statements and other financial data, in each case prepared
by any of the following:
(1) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in the matters
presented.
(2) Counsel, public accountants or other persons as to
matters which the director reasonably believes to be within the professional or
expert competence of such person.
(3) A committee of the board upon which be does not serve,
duly designated in accordance with law, as to matters within its designated
authority, which the director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith
if he has knowledge concerning the matter in question that would cause his
reliance to be unwarranted.
In discharging the duties of their respective positions, the
board of directors, committees of the board and individual directors may, in
considering the best interests of the corporation, consider the effects of any
action upon employees, upon suppliers and customers of the corporation and upon
communities in which offices or other establishments of the corporation are
located, and all other pertinent factors. The consideration of those factors
shall not constitute a violation of this section.
Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the corporation.
11. Personal Liability. A director of the corporation shall not be
------------------
personally liable for monetary damages as such for any action taken, or any
failure to make any action, unless:
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<PAGE>
(1) The director has breached or failed to perform the
duties of his office under section 9 of this Article IV, and
(2) The breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
The provisions of this section shall not apply to:
(1) The responsibility or liability of a director pursuant
to any criminal statute; or (2) the liability of a director for the payment of
taxes pursuant to local, State or Federal law.
12. Notation of Dissent. A director who is present at a meeting of
-------------------
the board of directors, or of a committee of the board, at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent is entered in the minutes of the meeting or unless the
director files a written dissent to the action with the secretary of the meeting
before the adjournment thereof or transmits the dissent in writing to the
secretary of the corporation immediately after the adjournment of the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action. Nothing in this section shall bar a director from asserting that minutes
of the meeting incorrectly omitted his or her dissent if, promptly upon receipt
of a copy of such minutes, the director notifies the secretary in writing, of
the asserted omission or inaccuracy.
13. Action by Written Consent. Any action required or permitted to be
-------------------------
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the directors
in office is filed with the secretary of the corporation.
14. Franchising Committee. The board of directors shall appoint two
---------------------
directors, one a Lisiewski director and the other a Fields director, as the
Franchising Committee. The Franchising Committee shall establish the terms and
conditions by which an affiliate of either
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<PAGE>
Fields or Lisiewski may be awarded area developer rights and/or franchise or
subfranchise rights with respect to the Corporation, and shall approve all such
terms and conditions. If for any reason the Franchising Committee is unable to
act or agree upon such terms and conditions, it shall refer the matter to the
entire board for its determination. The board may from time to time establish
other committees.
15. Resignation. Any director may resign at any time upon written
-----------
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as shall be specified in
the notice of resignation.
16. Compensation. Directors who are not employees of the
------------
Corporation or employees of an affiliate of the Corporation shall be compensated
in accordance with policies from time to time adopted by the Corporation.
Directors who are employees of the Corporation or of an affiliate of the
Corporation shall not, as such, receive any stated salary for their services. By
resolution of the Board, any director not compensated as such may receive actual
expenses of attendance, if any. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
ARTICLE V - NOTICE
1. Written Notice - General Rule. Whenever written notice is required to be
-----------------------------
given to any person under applicable provisions of law or by the articles or
these bylaws, it may be given to the person either personally or by sending a
copy thereof by first class or express mail, postage prepaid, or by telegram
(with messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by telecopier, to the address (or to the
telex, TWX, telecopier or telephone number) of the person appearing on the
books of the corporation or in the case of directors. supplied by the directors
to the corporation for the purpose of notice. If the notice is sent by mail,
telegraph or courier service, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person or, in the case
of telex or TWX, when dispatched or, in
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<PAGE>
the case of telecopier, when received. A notice of meeting shall specify the
place, day and hour of the meeting and any other information required by any
other provision of the Business Corporation Law, the articles or these bylaws.
2. Adjourned Shareholder Meetings. When a meeting of shareholders is
------------------------------
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the board
fixes a new record date for the adjourned meeting.
3. Notice of Meetings of Board of Directors. Notice of a regular
----------------------------------------
meeting of the board of directors need not be given. Notice of every special
meeting of the board of directors shall be given to each director by telephone
or in writing at least 48 hours (in the case of notice by telephone, telex, TWX
or telecopier) or 72 hours (in the case of notice by telegraph, courier service
or express mail) or seven (7) days (in the case of notice by first class mail)
before the time at which the meeting is to be held. Every such notice shall
state the time and place of the meeting. Neither the business to be transacted,
nor the purpose of, any regular or special meeting of the board need be
specified in a notice of a meeting.
4. Notice of Meetings of Shareholders. Written notice of every meeting
----------------------------------
of the shareholders shall be given by, or at the direction of, the Secretary to
each shareholder of record entitled to vote at the meeting at least;
(I) twenty (20) days prior to the day named for a meeting
called to consider a fundamental transaction under 15 Pa. C.S.A.
Chapter 19 regarding amendments of articles of incorporation, mergers,
consolidations, share exchanges, sale of assets, divisions,
conversions, liquidations and dissolution; or
(ii) ten (10) days prior to the day named for the meeting in
any other case.
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<PAGE>
If the Secretary neglects or refuses to give notice of a meeting the person or
persons calling the meeting may do so. In the case of a special meeting of
shareholders, the notice shall specify the general nature of the business to be
transacted.
5. Notice of Action by Shareholders on Bylaws or Articles. In the
------------------------------------------------------
case of a meeting of shareholders that has as one of its purposes action on the
bylaws or articles, written notice shall be given to each shareholder that the
purpose, or one of the purposes, of the meeting is to consider the adoption,
amendment or repeal of bylaws or articles. There shall be included in, or
enclosed with, the notice a copy of the proposed amendment or a summary of the
changes to be effected thereby.
6. Written Waiver of Notice. Whenever any written notice is required
------------------------
to be given under the provisions of the Business Corporation Law, the articles
or these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of the notice. Except as otherwise required
by this subsection, neither the business to be transacted at, nor the purpose
of, a meeting need be specified in the waiver of notice of the meeting. In the
case of a special meeting of shareholders, the waiver of notice shall specify
the general nature of the business to be transacted.
7. Waiver by Attendance. Attendance of a person at any meeting shall
--------------------
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
8. Modification of Proposal Contained in Notice. Whenever the language
--------------------------------------------
of a proposed resolution is included in a written notice of a meeting required
to be given under the provisions of the Business Corporation Law or the articles
or these bylaws, the meeting considering the resolution may without further
notice adopt it with such clarifying or other amendments as do not enlarge its
original purpose.
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<PAGE>
9. Exception to Notice Requirement - Unlawfulness. Whenever any notice or
----------------------------------------------
communication is required to be given to any person under the provisions of the
Business Corporation Law or by the articles or these bylaws or by the terms of
any agreement or other instrument or as a condition precedent to taking any
corporate action and communication with that person is then unlawful, the giving
of the notice or communication to that person shall not be required.
10. Shareholders Without Forwarding Addresses. Notice or other
-----------------------------------------
communications shall not be sent to any shareholder with whom the corporation
has been unable to communicate for more than twenty-four (24) consecutive months
because communications to the shareholder are returned unclaimed or the
shareholder has otherwise failed to provide the corporation with a current
address. Whenever the shareholder provides the corporation with a current
address, the corporation shall commence sending notices and other communications
to the shareholder in the same manner as to other shareholders.
ARTICLE VI - OFFICERS
1. Executive and Other Officers. The executive officers of the corporation
----------------------------
shall be chosen by the directors and shall be a Chief Executive Officer,
President, Secretary and Treasurer. The Board of Directors may also choose one
or more Vice Presidents, and such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall have such
authority and shall perform such duties as from time to time shall be prescribed
by the Board. Any number of offices may be held by the same person. It shall not
be necessary for the officers to be directors.
2. Salaries. The salaries of all officers and agents of the corporation
--------
shall be fixed by the Board of Directors.
3. Term. The officers of the corporation shall hold office for one year and
----
until their successors are chosen and have qualified. Any officer or agent
elected or appointed by the
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<PAGE>
Board may be removed by the Board of Directors whenever in its judgment the
bests interests of the corporation will be served thereby.
4. Authority. All officers of the corporation, as between themselves and
---------
the corporation, shall have such authority and perform such duties in the
management of the corporation as may be provided by or pursuant to resolution or
orders of the board of directors or in the absence of controlling provisions in
the resolutions or orders of the board of directors, as may be determined by or
pursuant to these bylaws.
5. Chief Executive Officer Duties. The Chief Executive Officer shall be the
------------------------------
chief executive officer of the corporation; he shall preside at all meetings of
the shareholders and directors: he shall have general and active management of
the business of the corporation, shall see that all orders and resolutions of
the Board are carried into effect, subject, however, to the right of the
directors to delegate any specific powers, except such as may be by statute
exclusively conferred on the Chief Executive Officer, to any other officer or
officers of the corporation. He shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation. He shall be
EX-OFFICIO a member of all committees, and shall have the general powers and
duties of supervision and management usually vested in the office of the Chief
Executive Officer of a corporation.
6. President: Duties. The President shall have such responsibilities as may
-----------------
be determined by the Board from time to time.
7. Secretary Duties. The Secretary shall attend all sessions of the Board
----------------
and all meetings of the shareholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose; and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under
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<PAGE>
whose supervision he shall be. He shall keep in safe custody the corporate seal
of the corporation, and when authorized by the Board, affix the same to any
instrument requiring it.
8. Treasurer Duties. The Treasurer shall have custody of the corporate
----------------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
9. Resignations. Any officer may resign at any time upon written notice to
------------
the corporation. The resignation shall be effective upon receipt thereof by the
corporation or at such subsequent time as may be specified in the notice of
resignation.
ARTICLE VII - VACANCIES AND REMOVALS
1. Officers. If the office of any officer or agent, one or more, becomes
--------
vacant for any reason, the Board of Directors may choose a successor or
successors, who shall hold office for the unexpired term in respect of which
such vacancy occurred.
2. Directors. A vacancy in the Board of Directors, shall be filled by the
---------
shareholder(s) who nominated and elected the director to the vacant position,
and each person so elected shall be a director to serve for the balance of the
unexpired term and until a successor is selected and qualified.
3. Removal by the Shareholders. Any individual director may be removed from
---------------------------
office without assigning any cause by the vote of the shareholder(s) who elected
such director. The board of directors may be removed at any time with or without
cause by the unanimous vote or consent of shareholders entitled to vote thereon.
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<PAGE>
4. Removal of Directors Elected by Cumulative Voting. If elected by
-------------------------------------------------
cumulative voting an individual director shall not be removed (unless the
entire board or class of the board is removed) if sufficient votes are cast
against the resolution for his removal which, if cumulatively voted at an annual
or other regular election of directors, would be sufficient to elect one or more
directors to the Board or to the class.
5. Declaration of Vacancy. The board of directors may declare vacant the
----------------------
office of a director who has been judicially declared of unsound mind or who has
been convicted of an offense punishable by imprisonment for a term of more than
one year or if, within sixty (60) days after notice of his or her selection, the
director does not accept the office either in writing or by attending a meeting
of the board of directors.
ARTICLE VIII - CORPORATE RECORDS
1. Required Records. The corporation shall keep complete and accurate books
----------------
and records of account minutes of the proceedings of the incorporators,
shareholders and directors and a share register giving the names and addresses
of all shareholders and the number and class of shares held by each. The share
register shall be kept at either the registered office of the corporation in
Pennsylvania or at its principal place of business wherever situated or at the
office of its registrar or transfer agent. Any books, minutes or other records
may be in written form or any other form capable of being converted into written
form within a reasonable time.
2. Inspection. Every shareholder shall, upon written verified demand
----------
stating the purpose thereof, have a right to examine, in person or by agent or
attorney, during the usual hours for business for any proper purpose, the share
register, books or records of account, and records of the proceedings of the
shareholders and directors, and make copies or extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such person's interest as a
shareholder. In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing which authorized the
attorney or other agent to act on behalf of the
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<PAGE>
shareholder. The demand under oath shall be directed to the corporation at its
registered office in this Commonwealth or at its principal place of business.
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<PAGE>
ARTICLE IX - CERTIFICATES OF STOCK TRANSFER ETC.
1. Share Certificates. Certificates for shares of the corporation shall be
------------------
in such form as approved by the board of directors, and shall state that the
corporation is incorporated under the laws of Pennsylvania, the name of the
person to whom issued, and the number and class of shares and the designation of
the series (if any) that the certificate represents. The share register or
transfer books and blank share certificates shall be kept by the secretary or by
any transfer agent or registrar designated by the board of directors for that
purpose.
2. Issuance. The share certificates of the corporation shall be numbered
--------
and registered in the share register or transfer books of the corporation as
they are issued. They shall be signed by the president or a vice president and
by the secretary or an assistant secretary or the treasurer or an assistant
treasurer, and shall bear the corporate seal, which may be a facsimile, engraved
or printed; but where such certificate is signed by a transfer agent or a
registrar the signature of any corporate officer upon such a certificate may be
a facsimile, engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise, before the
certificate is issued, it may be issued with the same effect as if the officer
had not ceased to be such at the date of its issue. The provisions of this
Section 9.02 shall be subject to any inconsistent or contrary agreement at the
time between the corporation and any transfer agent or registrar.
3. Transfer. Transfers of shares shall be made on the share register or
--------
transfer books of the corporation upon surrender of the certificate therefor,
endorsed by the person named in the certificate or by an attorney lawfully
constituted in writing. No transfer shall be made inconsistent with the
provisions of the Uniform Commercial Code, 13 Pa. C.S. 8101 et seq., and its
amendments and supplements.
4. Record Holder of Shares. The corporation shall be entitled to treat the
-----------------------
person in whose name any share or shares of the corporation stand on the books
of the corporation as the
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<PAGE>
absolute owner thereof, and shall not be bound to recognize any equitable or
other claim to, or interest in, such share or shares on the part of any other
person.
5. Lost, Destroyed or Mutilated Certificates. The holder of any shares of
-----------------------------------------
the corporation shall immediately notify the corporation of any loss,
destruction or mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction and, if the
board of directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.
ARTICLE X - DIVIDENDS
1. Record Date. The Board of Directors may fix a time, not more than sixty
-----------
(60) days, prior to the date fixed for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or go into effect, as a
record date for the determination of the shareholders entitled to receive
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect to any such change, conversion,
or exchange of shares. In such case, only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after any record date fixed as aforesaid.
2. Declaration and Payout. The Board of Directors may declare and pay
----------------------
dividends upon the outstanding shares of the corporation, from time to time and
to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by the Business Corporation Law and the Articles.
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<PAGE>
ARTICLE XI - INDEMNIFICATION
1. Third Party Actions. The corporation shall indemnify any director,
-------------------
officer and/or employee, or any former director, officer and/or employee, who
was or is a party to, or is threatened to be made a party to, or who is called
as a witness in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was such representative of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his conduct was unlawful.
2. Derivative Actions. The corporation shall indemnify any director,
------------------
officer and/or employee, who was or is a party to, or is threatened to be made a
party to, or who is called as a witness in connection with, any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director, officer and/or employee of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against amounts paid in settlement and expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of, or serving as a witness in, such action or suit if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation.
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<PAGE>
Indemnification shall not be made under this section in respect of any claim,
issue or matter as to which the person has been adjudged to be liable to the
corporation, unless and only to the extent that the court of common pleas of the
judicial district embracing the county in which the registered office of the
corporation is located or the court in which the action was brought determines
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity for the expenses that the court of common pleas or other court deems
proper.
3. Presumption. Except as may be otherwise ordered by a court, there shall
-----------
be a presumption that any director, officer and/or employee is entitled to
indemnification as provided in this Bylaw unless either a majority of the
directors who are not involved in such proceedings ("disinterested directors"),
or, if there are less than three disinterested directors, then the holders of
one-third of the outstanding shares of the corporation determine that the person
is not entitled to such presumption by certifying such determination in writing
to the Secretary of the corporation. In such event the disinterested director(s)
or, in the event of certification by shareholders, the Secretary of the
corporation shall request of independent counsel, who may be the outside general
counsel of the corporation, a written opinion as to whether or not the parties
involved are entitled to indemnification under this Bylaw.
4. Mandatory Indemnification. To the extent that an authorized
-------------------------
representative of the corporation has been successful on the merits or otherwise
in defense of any action or proceeding or in defense of any claim, issue or
matter for which indemnification is available under those bylaws or the Business
Corporation Law, such person shall be indemnified against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
person in connection therewith.
5. Advances. Expenses incurred in defending a civil or criminal action,
--------
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer and/or
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<PAGE>
employee to repay such amount unless it shall ultimately be determined that such
individual is entitled to be indemnified by the corporation as authorized in
this Bylaw.
6. Non-Exclusivity. The indemnification provided by this Article shall not
---------------
be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any agreement, vote of shareholders, or
disinterested directors, or otherwise1 both as to Action in such individual's
official capacity while serving as a director, officer, and/or employee, or as
to any action in another capacity while holding such office. The Board of
Directors may, by resolution, provide for additional indemnification or
advancement of expenses to or for any director, officer, and/or employee of the
corporation provided said indemnification is not inconsistent with the
provisions of these Bylaws, the Articles, the Business Corporation Law, or other
applicable provisions of law. The indemnification provided by this Article shall
continue as to a person who has ceased to be a director, officer and/or employee
and shall inure to the benefit of the heirs and personal representatives of such
person.
7. Contract Rights: Amendment or Repeal. All rights under this Article
------------------------------------
shall be deemed a contract between the corporation and the indemnified
representative pursuant to which the corporation and each indemnified
representative intend to be legally bound. Any repeal, amendment or modification
hereof shall be prospective only and shall not affect any rights or obligations
then existing.
8. Securing Obligation to Indemnify. The corporation may, by act of the
--------------------------------
Board of Directors, create a fund to secure or insure its indemnification
obligations under these Bylaws, the Articles, any resolution of Directors
or agreement or vote of shareholders as authorized in Section 6 of this Bylaw,
and applicable provisions of the Business Corporation Law.
9. Payment of Indemnification. An indemnified representative shall be
--------------------------
entitled to payment by indemnification within thirty (30) days after a written
request for indemnification has been delivered to the secretary of the
corporation.
10. Arbitration. Any dispute related to the right to indemnification,
-----------
contribution or advancement of expenses as provided under this Article, except
with respect to indemnification
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<PAGE>
for liabilities arising under the Securities Act of 1933 that the corporation
has undertaken to submit to a court for adjudication, shall be decided only by
arbitration in the county in which the principal offices of the corporation are
located at the time, in accordance with the commercial arbitration rules then in
effect of the American Arbitration Association, before a panel of three (3)
arbitrators, one of whom shall be selected by the corporation, the second of
whom shall be selected by the indemnified representative and third of whom shall
be selected by the other two arbitrators. In the absence of the American
Arbitration Association, or if for any reason arbitration under the arbitration
rules of the American Arbitration Association cannot he initiated, or if one of
the parties fails or refuses to select an arbitrator or if the arbitrators
selected by the corporation and the indemnified representative cannot agree on
the selection of the third arbitrator within thirty (30) days after such time as
the corporation and the indemnified representative have each been notified of
the selection of the other's arbitrator, the necessary arbitrator or arbitrators
shall be selected by the presiding judge of the court of common pleas in such
county.
ARTICLE XII - ANNUAL STATEMENT
I. The President and Board of Directors shall present at each annual
meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Unless otherwise agreed between the
corporation and its shareholders, such statements shall be prepared and
furnished to all shareholders in the manner required by Section 1554 of the
Business Corporation Law, as amended.
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<PAGE>
ARTICLE XIII - MISCELLANEOUS PROVISIONS
1. Checks, Etc. All checks, bills of exchange or demands for money and
-----------
notes of the corporation shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
2. Fiscal Year. The fiscal year of the corporation shall begin on the first
-----------
day of January.
3. Use of Conference Telephone and Similar Equipment. One or more directors
-------------------------------------------------
or shareholders may participate in a meeting of the Board, or a committee of the
Board or of the shareholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
4. Deposits. All funds of the corporation shall be deposited from time to
--------
time to the credit of the corporation in such banks, trust companies or other
depositaries as the board of directors may approve or designate, and all such
funds shall be withdrawn only upon checks signed by such one or more officers or
employees as the board of directors shall from time to time determine.
5. Contractual Obligation. These bylaws have been adopted by the
----------------------
shareholders in conjunction with the execution of a Shareholders Agreement
between the shareholders and the Corporation. These bylaws shall be contractual
in nature, and shall be interpreted and applied so as to be consistent with the
Shareholders Agreement.
*******************************************
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<PAGE>
INFORMATION FOR PROSPECTIVE FRANCHISEES
---------------------------------------
REQUIRED BY THE FEDERAL TRADE COMMISSION
----------------------------------------
PRETZEL TIME, INC.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
(801) 736-5600
Effective Date: May 15, 1998
As Amended: November 24, 1998
To protect you, we've required your franchisor to give you this
information. We haven't checked it and don't know if it's correct. It should
----------------------------------------------------
help you make up your mind. Study it carefully. While it includes some
information about your contract, don't rely on it alone to understand your
contract. Read all of your contract carefully. Buying a franchise is a
complicated investment. Take your time to decide. If possible, show your
contract and this information to an advisor, like a lawyer or an accountant. If
you find anything you think may be wrong or anything important that's been left
out, you should let us know about it. It may be against the law.
There may also be laws on franchising in your state. Ask your state
agencies about them.
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
<PAGE>
FRANCHISE OFFERING CIRCULAR
FOR PROSPECTIVE FRANCHISEES
PRETZEL TIME, INC.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
(801) 763-5600
The name of the franchisor is Pretzel Time, Inc. If you become a Pretzel
Time Store franchisee, you will have the right to operate a Pretzel Time Store
from which you will offer a variety of freshly baked, hand-rolled soft pretzels
prepared according to our unique recipe, other pretzel-related products, pretzel
toppings, beverages and other food products and, in certain instances, TCBY
frozen yogurt products.
The initial franchise fee for a Pretzel Time Store is $25,000, unless the
Pretzel Time Store is operated in a cart or kiosk format, in which case the
initial franchise fee is $15,000. The estimated initial investment required for
a franchise, including the initial franchise fee, is from $117,000 to $236,000.
If you are granted the right to sell TCBY frozen yogurt products from the
premises of your Pretzel Time Store, you will pay an additional $1,000 fee and
an additional estimated initial investment of $39,500 to $93,000. These sums do
not include real estate lease costs and assume you are not operating in a cart
or kiosk format. These sums are not your total investment in your franchise.
For a detailed explanation of your total investment, you should consult Items 5
through 7 of this Offering Circular.
Risk Factors:
- ------------
THE FRANCHISE AGREEMENTS REQUIRE THAT ALL DISAGREEMENTS BE SETTLED BY
ARBITRATION IN SALT LAKE CITY, UTAH. OUT OF STATE ARBITRATION MAY FORCE
YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT. IT MAY ALSO COST YOU MORE TO
ARBITRATE WITH US IN UTAH THAN IN YOUR HOME STATE.
THE FRANCHISE AGREEMENTS STATE THAT UTAH LAW GOVERNS THE AGREEMENTS, AND
THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW.
YOU MAY WANT TO COMPARE THESE LAWS.
ALTHOUGH THE FRANCHISE AGREEMENTS SET FORTH THE ARBITRATION AND GOVERNING
LAW PROVISIONS DESCRIBED ABOVE, LOCAL LAW MAY GOVERN THESE REQUIREMENTS IN
YOUR STATE, PLEASE REFER TO ANY STATE-SPECIFIC ADDENDUM THAT MAY BE
ATTACHED TO THE OFFERING CIRCULAR FOR DETAILS.
THERE MAY BE OTHER RISKS CONCERNING THESE FRANCHISES.
Information comparing franchisors is available. Call the state
administrators listed on Schedule 4 to this Offering Circular or your public
library for sources of information.
Registration of these franchises by a state does not mean that the state
recommends them or has verified the information in this Offering Circular. If
you learn that anything in this Offering Circular is untrue, contact the Federal
Trade Commission or the state administrator in your state.
Effective Date: May 15, 1998, as amended November 24, 1998.
- --------------
<PAGE>
TABLE OF CONTENTS
Item Page
- ---- ----
ITEM 1. THE FRANCHISOR, ITS PREDECESSORS, AND AFFILIATES 1
ITEM 2. BUSINESS EXPERIENCE 6
ITEM 3. LITIGATION 9
ITEM 4. BANKRUPTCY 10
ITEM 5. INITIAL FRANCHISE FEE 11
ITEM 6. OTHER FEES 12
ITEM 7. INITIAL INVESTMENT 18
ITEM 8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES 25
ITEM 9. FRANCHISEE'S OBLIGATIONS 27
ITEM 10. FINANCING 30
ITEM 11. FRANCHISOR'S OBLIGATIONS 32
ITEM 12. TERRITORY 41
ITEM 13. TRADEMARKS 43
ITEM 14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION 47
ITEM 15. OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE
FRANCHISE BUSINESS 49
ITEM 16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL 49
ITEM 17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION 50
ITEM 18. PUBLIC FIGURES 63
ITEM 19. EARNINGS CLAIMS 63
ITEM 20. LIST OF OUTLETS 64
ITEM 21. FINANCIAL STATEMENTS 69
ITEM 22. CONTRACTS 69
ITEM 23. RECEIPT 70
SCHEDULES
- ---------
SCHEDULE 1 DEFINITIONS
SCHEDULE 2 LIST OF AGENTS FOR SERVICE OF PROCESS
SCHEDULE 3 FINANCIAL STATEMENTS
SCHEDULE 4 STATE ADMINISTRATORS
SCHEDULE 5 OPERATIONS MANUALS TABLE OF CONTENTS
SCHEDULE 6 FRANCHISEE INFORMATION
PART 1 - LIST OF PRETZEL TIME FRANCHISEES
PART 2 - LIST OF PRETZEL TIME FRANCHISEES TERMINATED,
CANCELLED, NOT RENEWED, OR THAT HAVE CEASED DOING
BUSINESS
SCHEDULE 7 LIST OF PRETZEL TIME AREA DEVELOPERS
-i-
<PAGE>
EXHIBITS
- --------
EXHIBIT A FRANCHISE AGREEMENT (WITH ACKNOWLEDGMENT ADDENDUM,
OWNERSHIP ADDENDUM, AUTHORIZATION AGREEMENT FOR
PREARRANGED PAYMENTS (APPENDIX A), TCBY YOGURT PRODUCT
ADDENDUM, AND SATELLITE UNIT ADDENDUM)
EXHIBIT B GUARANTY OF AGREEMENT
EXHIBIT C RESERVATION LETTER
EXHIBIT D SUBLEASE AGREEMENT
NOTICE
------
UNLESS OTHERWISE INDICATED, THE INFORMATION APPEARING IN THIS OFFERING CIRCULAR
APPLIES TO PRETZEL TIME STORE FRANCHISES. UNLESS OTHERWISE INDICATED, THE TERMS
OF ALL FRANCHISE OFFERS ARE THE SAME.
-ii-
<PAGE>
ITEM 1. THE FRANCHISOR, ITS PREDECESSORS, AND AFFILIATES
Description of the Franchisor and its Predecessors and Affiliates.
- -----------------------------------------------------------------
To simplify the language in this Offering Circular, "we", and similar
words, refer to Pretzel Time, Inc., the franchisor; "MFHCI" means Mrs. Fields
Holding Company, Inc., a Delaware corporation; "MFOCI" means Mrs. Fields'
Original Cookies, Inc., a Delaware corporation; "MFBI" means The Mrs. Fields'
Brand, Inc., a Delaware corporation; "GACC" means Great American Cookie Company,
Inc., a Delaware corporation; "Pretzelmaker" means Pretzelmaker, Inc., a Utah
corporation; and "Pretzelmaker-Canada" means Pretzelmaker-Canada, Inc., an
Ontario corporation. "You" and similar words, means the person or persons,
including a corporate or other legal entity, individually and collectively,
buying a franchise from us; and "your Store" means the Pretzel Time Store that
you will operate if we enter into a Pretzel Time franchise agreement with you.
We have also attached as Schedule 1 a list of additional defined terms used in
this Offering Circular. If a capitalized term is not defined in the body of
this Offering Circular, please refer to Schedule 1 for the definition.
We are a Pennsylvania corporation incorporated in May 1991. We originally
incorporated under the name Mr. Pretzel, Inc., but shortly thereafter changed
our name to Pretzel Time, Inc. We do business under the name Pretzel Time
Stores (or variations of that name). In September 1997, MFHCI acquired 56% of
our outstanding shares. At the same time, we entered into a Management
Agreement with MFHCI under which MFHCI agreed to provide, either by itself or
through one of its affiliates, management services to us. MFHCI is a Delaware
corporation incorporated in August 1996. In November, 1997, MFHCI assigned all
of its interest in our outstanding shares to MFOCI. MFOCI is a Delaware
corporation incorporated in September 1996. MFOCI is a wholly-owned subsidiary
of MFHCI and an Affiliate of us. In January 1998, MFOCI acquired an additional
4% of our outstanding shares. Similarly, in June 1998, MFOCI acquired an
additional 10% of our outstanding shares. Consequently, as of the date of this
Offering Circular, MFOCI owns 70% of our outstanding shares.
Our principal business address is 2855 East Cottonwood Parkway, Suite 400,
Salt Lake City, Utah 84121, and our telephone number is 801-736-5600. The
principal business address and telephone number of MFHCI, MFOCI, MFBI, GACC,
Pretzelmaker and Pretzelmaker-Canada are the same as ours. Our agents for
service of process in the various states where we do business are listed on
Schedule 2 to this Offering Circular. We have no predecessors from which we
acquired a substantial portion of our assets.
Pretzelmaker is a Utah corporation incorporated on August 31, 1992 under
the name Four Pretzels, Inc. Pretzelmaker changed its name to Pretzelvania,
Inc. on September 23, 1992 and to its current name on December 17, 1992.
Pretzelmaker-Canada is an Ontario corporation incorporated on September 26,
1996, and a wholly-owned subsidiary of Pretzelmaker. On November 19, 1998,
MFOCI acquired all of the stock of Pretzelmaker Holdings, Inc. ("PHI"), a
Colorado corporation incorporated on February 24, 1995 and the parent
corporation of Pretzelmaker. As a result of the merger, Pretzelmaker-Canada
remains a wholly-owned subsidiary of Pretzelmaker, Pretzelmaker remains a
wholly-owned subsidiary of PHI, and PHI is now a wholly-owned subsidiary of
MFOCI.
MFBI is a Delaware corporation incorporated in August 1996. MFBI is also a
wholly-owned subsidiary of MFHCI and an Affiliate of us. MFBI has granted MFOCI
a perpetual, fully paid license to use the Mrs. Fields trademarks in connection
with all Mrs. Fields Cookie Stores.
GACC is a Delaware corporation incorporated on June 10, 1977. GACC
incorporated under the name "The Original Great American Chocolate Chip Cookie
Company, Inc." and changed to its existing
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<PAGE>
name as of December 10, 1993. Cookies USA, Inc. ("Cookies USA"), a Delaware
corporation, acquired GACC on December 10, 1993 and GACC became a wholly-owned
subsidiary of Cookies USA. On August 24, 1998, MFOCI acquired all of the stock
of Cookies USA. Immediately thereafter, MFOCI merged Cookies USA with and into
itself. As a result of the merger, GACC is now an indirect, wholly-owned
subsidiary of MFOCI and an Affiliate of ours.
Concurrent with MFOCI's acquisition of Cookies USA, MFOCI acquired 29 Great
American Cookie Company Stores through the acquisition of all of the stock of 2
corporate Great American Cookie Company franchisees. Immediately thereafter,
MFOCI merged the 2 Great American Cookie Company franchisees with and into GACC.
GACC now operates these 29 Great American Cookie Company Stores for its own
account. Concurrent with MFOCI's acquisition of Cookies USA, MFOCI also
acquired 8 additional Great American Cookie Company Stores through the
acquisition of all of the assets of 6 corporate Great American Cookie Company
franchisees all owned by the same entity. Since the acquisition, MFOCI has
operated these 8 Great American Cookie Company Stores as a franchisee of GACC.
MFOCI intends to continue to operate both the Pretzel Time System and the
Pretzelmaker System as separate franchise systems. In addition, MFOCI intends
to continue to operate both the Mrs. Fields System and the Great American Cookie
Company System as separate franchise systems.
MFHCI, MFOCI, MFBI and GACC are separate corporations and, except as
described in Item 21, are not liable to you for any actions taken or obligations
incurred by us.
The Business of the Franchisor, its Predecessors, and Affiliates.
- ----------------------------------------------------------------
Since January 1992, we have been in the business of granting licenses and
franchises for the operation of Pretzel Time Stores. From October 1991 to
December, 1997, we were also in the business of owning and operating Pretzel
Time Stores. As of the date of this Offering Circular, we do not own or operate
any Pretzel Time Stores. Pursuant to a national sales agreement we entered into
with TCBY Systems, Inc. (as further described below in this Item 1), we have
offered Pretzel Time franchisees the right to add the TCBY Concept to the
Premises of new or existing Pretzel Time Stores since February 1995.
We or one of our Affiliates may establish a new business or franchise
system or acquire an existing business or franchise system (which may be one of
your competitors) operating under trademarks, service marks and tradenames other
than the Pretzel Time Trademarks or TCBY Trademarks. The new or existing
business or franchise system may compete with you.
Since January 1992, we have been in the business of granting area developer
rights to certain qualified persons ("Area Developers") pursuant to a Pretzel
Time Area Development Agreement (the "Development Agreement"). Under the
Development Agreement, Area Developers are granted the right to develop, own and
operate a specified number of Pretzel Time Stores at approved shopping mall
locations within a defined geographic area (the "Territory"). Area Developers
are also granted the right to market and service the Pretzel Time System at
shopping mall locations within their Territories, for which they receive a fee.
Finally, under the Development Agreement, Area Developers are granted the right
to receive compensation from us for finding Pretzel Time franchisees for
shopping mall locations within their Territories. Area Developers, however, do
not have the authority to grant the rights to license or operate a Pretzel Time
franchise or enter into a Pretzel Time franchise agreement with a potential
franchisee. While an Area Developer may initiate contact with potential
franchisees, only we may enter into a Pretzel Time franchise agreement with such
potential franchisees. Currently, we are no
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<PAGE>
longer entering into Development Agreements for additional Territories, although
we may enter into new Development Agreements with new or existing Area
Developers for existing Territories. In addition, we may offer some other form
of area development grants for Pretzel Time Stores which permit the development
and operation of multiple Pretzel Time franchises in designated geographic
areas. We offer Area Developer rights and other area development rights through
separate offering circulars, if at all. As of June 12, 1998, there were 10 Area
Developers with whom we have entered into Development Agreements. See Item 2 and
Schedule 7 for a list of our Area Developers and their respective Territories.
These Area Developers are independent contractors. As further described in Item
11 of this Offering Circular, an Area Developer may be obligated to provide
certain services to you if your Store is located in a shopping mall within such
Area Developer's Territory.
In July 1997, Mrs. Fields' Pretzel Concepts, Inc. ("MFPCI"), a wholly-owned
subsidiary of MFHCI, purchased 79 Pretzel Time Stores from one of our Area
Developers, H&M Concepts Ltd. Co. At the time of the purchase, MFPCI entered
into an Area Development Agreement and a franchise agreement with us. MFPCI
operated the 79 Pretzel Time Stores as our franchisee until MFPCI merged into
MFOCI on November 26, 1997. Since the merger, MFOCI has operated the 79 Pretzel
Time Stores as our franchisee. See Item 20 and Part 2 of Schedule 6 for more
information on these Stores.
In June 1998, MFOCI purchased a total of 5 Pretzel Time Stores from one of
our Area Developers, Virginia Concepts, Inc. At the time of the purchase,
Virginia Concepts, Inc. transferred to MFOCI the respective Area Development
Agreement and 5 franchise agreements it had entered into with us. Since the
purchase, MFOCI has operated the 5 Pretzel Time Stores as our franchisee. See
Item 20 and Part 1 of Schedule 6 for more information on these Stores.
Since September 1992, Pretzelmaker has been in the business of granting
franchises for the operation of Pretzelmaker Stores in the United States. Since
August 1995, Pretzelmaker has also been in the business of owning and operating
Pretzelmaker Stores. In addition, since September 1996, Pretzelmaker-Canada has
been in the business of granting franchises for the operation of Pretzelmaker
Stores in Canada. A Pretzelmaker Store offers soft pretzels, pretzel products
and other complementary food and beverages. In some circumstances, a
Pretzelmaker Store may also offer branded frozen desserts and coffee products.
Following our acquisition of PHI, there were approximately 215 Pretzelmaker
Store franchises and licenses, 9 Pretzelmaker Store locations owned and operated
by Pretzelmaker and no Pretzelmaker Stores owned and operated by Pretzelmaker-
Canada.
Since September 1996, MFOCI has been in the business of granting licenses
and franchises for the operation of Mrs. Fields Cookie Stores and operating and
owning Mrs. Fields Cookie Stores for its own account. A Mrs. Fields Cookie
Store offers a variety of specially prepared food items, such as cookies,
brownies, muffins and beverages. As of December 31, 1997, there were 165 Mrs.
Fields Cookie Store franchises and 144 Mrs. Fields Cookie Stores owned and
operated by MFOCI.
Between September 1996 and November 1997, MFOCI was in the business of
granting licenses and franchises for the operation of Hot Sam Pretzel and Bakery
Stores. Currently, MFOCI is no longer granting Hot Sam Pretzel and Bakery Store
licenses and franchises. Since September 1996, MFOCI has also been in the
business of owning and operating Hot Sam Pretzel and Bakery Stores. A Hot Sam
Pretzel and Bakery Store offers a variety of freshly prepared soft pretzels and
pretzel products (including Bavarian and sweet dough pretzel sticks), various
toppings and sauces, freshly squeezed lemonade and other food items and
beverages which are similar to those offered at a Pretzel Time Store. As of
December 31, 1997, there were no Hot Sam Pretzel and Bakery Store licenses or
franchises, and 102 Hot Sam Pretzel and Bakery Stores owned and operated by
MFOCI.
-3-
<PAGE>
In certain situations, you may be able to purchase an existing Hot Sam
Pretzel and Bakery Store location and its physical assets from MFOCI and convert
the location to a Pretzel Time Store of the type offered in this Offering
Circular. The acquisition of the existing Hot Sam Pretzel and Bakery location
and assets from MFOCI will be negotiated between you and MFOCI on an individual
basis, independently, separately and in addition to your entering into a Pretzel
Time Franchise Agreement with us to operate a Pretzel Time Store. This Offering
Circular makes no disclosures or representations regarding the terms and
conditions of any such transaction you may negotiate with MFOCI.
Since September 1996, MFOCI has been in the business of operating and
owning Original Cookie Company Stores for its own account. An Original Cookie
Company Store offers a variety of specially prepared food items, such as
cookies, brownies, muffins and beverages. As of December 31, 1997, there were
155 Original Cookie Company Stores owned and operated by MFOCI and no Original
Cookie Company Store franchises.
Since September 1977, GACC has been in the business of granting licenses
and franchises for the operation of Great American Cookie Company Stores. Since
June 1977, GACC has also been in the business of owning and operating Great
American Cookie Company Stores. A Great American Cookie Company Store offers
different types of cookies, other baked products and beverages and is typically
located in an enclosed shopping mall. Following MFOCI's acquisition of Cookies
USA and the 10 Great American Cookie Company franchisees, as described above,
there were approximately 218 Great American Cookie Company Store licenses or
franchises, and 106 Great American Cookie Company Stores owned and operated by
GACC.
These are the only franchised businesses that have been offered by us and
our Affiliates.
Description of the Franchises Offered.
- -------------------------------------
Pretzel Time Stores:
- -------------------
We offer franchises (the "Franchises") for Pretzel Time Stores offering
various Pretzel Time Products in accordance with the terms of our Pretzel Time
franchise agreement (the "Pretzel Time Franchise Agreement"). A copy of the
Pretzel Time Franchise Agreement is attached to this Offering Circular as
Exhibit A. If you enter into a Pretzel Time Franchise Agreement, you will be
authorized to use the Pretzel Time System under which Pretzel Time Stores
operate. If you do business as an Entity, we may require each of your Entity
Owners at any time during the term of the Franchise Agreement to execute a
Guaranty of Agreement in the form of Exhibit B to this Offering Circular,
guaranteeing your obligations under the Franchise Agreement.
On a case by case basis, we may offer existing Pretzel Time franchisees the
right to operate a cart (the "Satellite Unit") in proximity to their Pretzel
Time Store in accordance with the terms of our Satellite Unit Addendum to
Pretzel Time Franchise Agreement (the "Satellite Unit Addendum"). A copy of the
Satellite Unit Addendum is attached to the Franchise Agreement in Exhibit A of
this Offering Circular.
TCBY Concept:
- ------------
Under certain circumstances (as further described below in this Item 1), we
offer Pretzel Time franchisees the right to add the TCBY Concept to the Premises
of a new or existing Pretzel Time Store. Pretzel Time franchisees that are
granted a TCBY Concept, offer TCBY Yogurt Products in accordance with the terms
of a TCBY Yogurt Product Addendum to Pretzel Time Franchise Agreement (the
"Yogurt
-4-
<PAGE>
Addendum"). A copy of the Yogurt Addendum is attached to the Franchise Agreement
in Exhibit A of this Offering Circular.
On June 15, 1994, we entered into a TCBY National Sales Agreement (the
"TCBY Sales Agreement") with TCBY Systems, Inc., an Arkansas corporation with
its principal office at 1200 TCBY Tower, 425 West Capitol Avenue, Little Rock,
Arkansas 72201 ("TCBY"). Pursuant to the TCBY Sales Agreement, TCBY has granted
to us the right to use the TCBY Trademarks, including "TCBY," and the TCBY
System in conjunction with the operation and sale of Pretzel Time Retail
Outlets. Pretzel Time Retail Outlets may only sell TCBY Yogurt Products if the
location has been approved by both TCBY and us. TCBY has retained the right to
operate or to grant other persons the right to operate TCBY Stores of any type
at locations it decides and the right to sell products and services through
similar or dissimilar channels of distribution.
Your right to add the TCBY Concept to the Premises of a new or existing
Pretzel Time Store depends on landlord restraints and the current territorial
restrictions given by TCBY to existing and future TCBY franchisees. If you
enter into a Yogurt Addendum, you will be authorized to sell TCBY Yogurt
Products from the Premises of your Pretzel Time Store and use the TCBY System
under which TCBY Stores operate. As further described in the Yogurt Addendum,
your right to sell TCBY Yogurt Products from the Premises of your Pretzel Time
Store and use the TCBY System will continue until the earliest of: (i) the
termination or the expiration of the TCBY Sales Agreement (the expiration date
of the TCBY Sales Agreement is June 14, 2009); or (ii) the termination of the
Franchise Agreement.
We do not operate, offer or sell TCBY franchises. We only offer the sale
of TCBY Yogurt Products as a dual concept with the hand-rolled soft pretzel
concept. Both concepts are incorporated into one leasehold space that makes up
the Premises. Our right to grant TCBY Concepts is limited by territorial
restrictions given by TCBY to TCBY franchisees and may not be available in all
locations. Our right to grant TCBY Concepts may also be limited by the landlord
of a given location. For example, a landlord might not allow the sale of TCBY
Yogurt Products because of the existence of other tenants who sell yogurt in
those malls. Thus, we cannot grant TCBY Concepts for all mall locations with a
Pretzel Time Store.
TCBY Stores offer a number of TCBY Yogurt Products. TCBY Stores sell
yogurt in a variety of specialty flavors. Vanilla and chocolate are available
in each TCBY Store daily along with 2, 4 or 6 other flavors depending on the
number of frozen yogurt dispensing machines used. The yogurt is served in a
variety of ways including in regular cones, waffle cones, sundaes, waffle
sundaes, frozen on a stick, shakes and with a variety of toppings, including
various candies, cookies and fruits and other food products approved or required
by TCBY for sale at TCBY Stores.
Neither TCBY nor any of its affiliates are directly or indirectly responsible
for any obligation, undertaking, covenant, or other duty to perform or to
refrain from any action under or by virtue of any agreement between us and you.
Neither TCBY nor any of its affiliates are a party to any agreement between us
and you, but TCBY does stand in a position of third party beneficiary under the
agreement. The TCBY Trademarks are the property of TCBY or its affiliate, and
nothing contained in this Offering
-5-
<PAGE>
Circular will in any manner create any property rights in or to, or relating to
the TCBY Trademarks as against TCBY. TCBY's representatives have the right to
inspect the Premises of your Store and your books to the extent they relate to
the operations of a TCBY Concept.
The Markets.
- -----------
Pretzel Time:
- ------------
Your Pretzel Time Store will offer a variety of Pretzel Time Products to
the general public, and you will have to compete with bakeries, some fast-food
restaurants, snack food stores, convenience stores (including Pretzelmaker
Stores), and facilities owned by us or our Affiliates, all of which offer
specialty retail snack foods and beverages. You will also have to compete with
other Pretzel Time Retail Outlets selling various Pretzel Time Products and
other products and services (such as frozen pretzel dough sold through various
retail outlets) under the Pretzel Time Trademarks or other trademarks or service
marks. In addition, you will have to compete with other individuals and
entities in the search for suitable store locations, managers, and employees.
Pretzel Time Products appeal to persons of all ages, but particularly appeal to
families with children and to adults between the ages of 21 and 60.
We are engaged in the business of the sale of frozen pretzels and other
food products in the food service industry. We are interested in market
penetration by distribution of frozen dough products, including frozen pretzels,
to alternative locations such as airports, amusement parks, schools, hospitals,
office work sites, military facilities, grocery stores, convenience stores,
supermarkets, entertainment or sporting facilities and/or other similar
facilities and eventual food service distribution in non-franchised outlets at
or from which we, in our absolute discretion, authorize. We intend to distribute
frozen pretzels for sale in other non-franchised and non-company-owned outlets.
Our actions hopefully will promote consumer acceptance of Pretzel Time Products
as well as our Pretzel Time Trademarks, with the
-5A-
<PAGE>
intention of ultimately benefiting the Pretzel Time System. We are interested in
developing, marketing, and/or distributing other food products in the food
service industry.
TCBY:
- ----
TCBY Stores offer soft-serve premium frozen yogurt and ice cream as a
treat, dessert, snack or light meal items. TCBY Stores compete with numerous
other soft serve frozen yogurt stores, ice cream parlors, other snack food or
dessert item restaurants and other fast food restaurants that complement their
menus with soft-serve frozen yogurt. TCBY may also offer its frozen yogurt and
other related products in supermarkets, grocery stores, and where convenience
food operations are conducted and other retail outlets that may compete with
TCBY franchises or TCBY Concepts.
Some states may require franchisees to obtain restaurant, business,
occupational, food products, and miscellaneous licenses. Some states also have
laws regarding who may secure certain of these licenses. You may also have to
obtain health licenses and to comply with health laws and regulations that apply
to restaurant and food product sales establishments. We urge you to make
inquiries about these laws and regulations.
ITEM 2. BUSINESS EXPERIENCE
Our officers and directors and all other persons who will have management
responsibilities for our franchise program are as follows:
Director, President and Chief Executive Officer - Larry Hodges
- --------------------------------------------------------------
Mr. Hodges has been a member of our Board of Directors and our President and
Chief Executive Officer since September 1997. Mr. Hodges also has been
President and Chief Executive Officer and one of the directors of MFOCI since
September 1996. Between April 1993 and September 1996, he had been President
and Chief Executive Officer and a director of both Mrs. Fields, Inc. ("MFI") and
Mrs. Fields Development Corporation ("MFDC"). From October 1991 to February
1994, Mr. Hodges was President and Chief Executive Officer of Food Bond Stores,
Inc. in Kansas City, Missouri.
Director - Martin E. Lisiewski
- ------------------------------
Mr. Lisiewski has been a member of our Board of Directors since 1993. Mr.
Lisiewski served as our Secretary/Treasurer and Chief Executive Officer from our
inception in 1991 until September 1997. Mr. Lisiewski has served as President
of Mar-Tai Management Corporation, Mar-Tai Development Corporation and A.D.M.
Developers, Inc. which were real estate development corporations. He also
served as Secretary/Treasurer of Gulf West Star Construction, Inc. an excavating
firm.
Director and Treasurer - L. Tim Pierce
- --------------------------------------
Mr. Pierce has been a member of our Board of Directors and our Treasurer since
September 1997. Mr. Pierce also has been Senior Vice President, Chief Financial
Officer, and Corporate Secretary of MFOCI since September 1996. Prior to that,
he held the same position at MFDC. He became Vice President, Finance at the
time MFDC was incorporated, Senior Vice President in December 1991, Chief
Financial Officer in August 1993 and Corporate Secretary in April 1995. Since
December 1991, Mr. Pierce has also served as Senior Vice President of MFI.
-6-
<PAGE>
Director - Richard J. Huber
- ---------------------------
Mr. Huber has been a member of our Board of Directors since September 1997.
Mr. Huber has also owned and operated Richard J. Huber CPA, an accounting firm
located in Harrisburg, Pennsylvania, since January 1984.
Vice President - Pat Knotts
- ---------------------------
Mr. Knotts has been our Vice President since September 1997. Mr. Knotts also
has been Senior Vice President of MFI since October 1996. Between January 1992
and October 1996, Mr. Knotts served as Executive Vice President of Operations
for MFI's affiliates Original Cookie Company and Hot Sam Franchise Development
Corporation.
Secretary - Michael R. Ward
- ---------------------------
Mr. Ward has been our Secretary since September 1997. Mr. Ward has been Vice
President of Administration for MFOCI since September 1996. Between 1991 and
1996, Mr. Ward oversaw the Legal Department and Human Resources Department for
MFI. He is admitted to practice law in the State of Utah.
Vice President of Franchising - Scott Moffitt
- ---------------------------------------------
Mr. Moffitt has been our Vice President of Franchising since April 1998. Mr.
Moffitt also has been Vice President of Franchising of MFOCI since April 1998.
Between July 1997 to March 1998, Mr. Moffitt was Vice President of Franchise
Development of Lee's Franchise Services, Inc. in Nashville, Tennessee. From
January 1994 to July 1997, he was the Vice President of Franchising for the
Grandy's Division in Lewisville, Texas. Mr. Moffitt served as the Director of
Franchise Sales for Pizza Inc., located in Dallas, Texas, from February 1990 to
January 1994. From June 1988 to February 1990, he was a Franchise Operations
Consultant for USACAFES, L.P. (Bonanza Restaurants) in Dallas, Texas. Mr.
Moffitt also served as the Southwest Regional Training Manager for Sbarro's,
Inc., located in Dallas, Texas, from March 1988 to June 1998; and the General
Manager for Training and Support of El Chico Corporation, located in Dallas,
Texas, from 1984 to March 1988.
Franchise/License Training Director: Monnie L. Hughes
- ------------------------------------------------------
Ms. Hughes has been our National Director of Franchise and License Training
since July 1997. She has also held the same position with MFOCI since September
1996 and MFDC since November 1995. Between 1983 and November 1995, Ms. Hughes
served as Training Center Manager for Jack-in-the-Box Restaurants in the Bay
Area, California.
-7-
<PAGE>
Our Area Developers are as follows:
Area Developer - South Carolina: Pretzel Time of South Carolina, Inc.
- ------------------------------------------------------------------------
President: Edward DiNatale
---------------------------
Mr. DiNatale is the President of Pretzel Time of South Carolina, Inc. which
is a franchisee and Area Developer for South Carolina. Since 1987, Mr. DiNatale
acted as President of True Value V & S Variety Store, a Trenton, New Jersey
based retail store. He also serves as President of All Fathers Candys Company,
a Trenton, New Jersey based Easter candy manufacturer since 1989.
Area Developer - Southern New York, New Jersey, Rhode Island and Connecticut:
- ------------------------------------------------------------------------------
Pretzel Time of New York, Inc.
- ------------------------------
President: Alan Fleisher
-------------------------
Mr. Fleisher is the area developer for the southern part of the state of
New York, New Jersey, Rhode Island and Connecticut and also is a franchisee.
From 1989 to 1992, Mr. Fleisher was President of Professional Laundry Systems,
Inc. a New York based distributor of coin-operated laundry equipment. Mr.
Fleisher was on the Board of Directors of Pretzel Time from 1993 until May of
1996.
Area Developer - Ohio, Northern New York, and Western Pennsylvania: Kal
- ------------------------------------------------------------------------
Enterprises
- ------------
Co-Chairman: Alan Gick
-----------------------
Mr. Gick has been self-employed as co-chairman of Kal Enterprises, Inc. of
Fairview, Pennsylvania since September of 1988. Kal Enterprises owns and
operates several retail food shops including Orange Julius, Dairy Queen and
Karmelkorn. Since March of 1993 the company is also area developer for the above
Pretzel Time territory.
Area Developer - Alaska, Arizona, California, Hawaii, Idaho, Illinois, Indiana,
- -------------------------------------------------------------------------------
Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon,
- ---------------------------------------------------------------------------
South Dakota, Utah, Virginia, Washington, West Virginia, Wisconsin, the
- ------------------------------------------------------------------------
Provinces of Alberta, British Columbia, Manitoba, Saskatchewan, Canada and
- --------------------------------------------------------------------------
Mexico: MFOCI
- --------------
Vice President of Administration: Michael R. Ward
--------------------------------------------------
Mr. Ward is the Vice President of Administration of MFOCI. See Items 1 and 2
above for more information on Mr. Ward and MFOCI.
Area Developer - Kansas and Missouri: Mid Continent Enterprises, Inc.
- ------------------------------------------------------------------------
President: Bernard W. Mazzoni
------------------------------
Mr. Mazzoni has been president of Mid Continent Enterprises, Inc. since June
1992, which is a franchisee of Pretzel Time. From February 14, 1990, through
July 31, 1992, he was the division controller of Clarostat Manufacturing, Inc.
in Dover, New Hampshire. From 1982 through 1990, Mr. Mazzoni was controller of
Ericsson Wire and Cable, Inc., in Richardson, Texas.
-8-
<PAGE>
Area Developer - North Carolina: Pretzel Time of North Carolina, Inc.
- ----------------------------------------------------------------------
President: Stuart Miller
-------------------------
Mr. Miller is the President of Pretzel Time of North Carolina, Inc. which has
been a franchisee and Pretzel Time Area Developer for North Carolina since July
1993. From July 1987 until September 1993, Mr. Miller held the position of
General Manager of Auto Lighting for General Electric in Cleveland, Ohio. This
$100 million North American business focused on the retail and aftermarket
channels of the automotive lighting industry. Mr. Miller managed all marketing,
strategic planning, market research, advertising, promotion, and sales and
production oversight.
Area Developer - Maryland: Pretzel Time of Maryland, Inc.
- ----------------------------------------------------------
President: Sheri Ritz
----------------------
Mrs. Ritz is the President of Pretzel Time of Maryland, Inc. which has been a
franchisee and area developer for the state of Maryland since November 1992.
Previous to Pretzel Time of Maryland, Inc., Mrs. Ritz was the Marketing Director
for a solar manufacturing company in Princeton, New Jersey.
Area Developer - Georgia with the exception of the Savannah area: Peachtree
- ---------------------------------------------------------------------------
Pretzel Time, Inc.
- ------------------
Secretary: Francis X.I. Purcell
--------------------------------
Since January 1994, Mr. Purcell has been Secretary of Peachtree Pretzel Time,
Inc. which holds the area developer rights for the above territory. From July
1991 to December 1993, Mr. Purcell was president of Pretzel Time, Inc. Prior to
that Mr. Purcell worked for Pizza Hut, Inc. as district manager from December
1989 to March 1991.
Area Developer - Alabama, Florida and the Savannah, Georgia area: Sunshine
- ---------------------------------------------------------------------------
Pretzel Time, Inc.
- ------------------
President: Francis X.I. Purcell
--------------------------------
Since January 1994, Mr. Purcell has been President of Sunshine Pretzel Time,
Inc. which holds the area developer rights for the above territory. Mr.
Purcell's full biography can be found above.
Area Developer - Massachusetts, Maine, Vermont, New Hampshire and the
- ---------------------------------------------------------------------
Dallas/Forth Worth, Texas area: New England Concepts, Inc.
- -----------------------------------------------------------
President: Bill Smith
----------------------
Since September 1997, Mr. Smith has been President of New England Concepts, Inc.
which holds the area developer rights for the above territory.
ITEM 3. LITIGATION
State of Maryland v. Pretzel Time, Inc. (Before the Office of the Attorney
- -----------------------------------------
General of Maryland File Number FR930900) On December 11, 1992, the Maryland
Division of Securities notified us that we had offered or sold franchises in
Maryland in violation of Maryland franchise law without being registered under
Maryland franchise law. On February 6, 1995, we entered into a consent
agreement and, although we were not required to pay a fine, we offered 2
franchisees rescission rights under Maryland franchise law.
-9-
<PAGE>
State of New York v. Pretzel Time, Inc. (Supreme Court of the State of New
- -----------------------------------------
York, June 17, 1993, Index Number 404832/93). Between April 13, 1992 and March
19, 1993, we sold 4 franchises in violation of New York franchise law for
selling franchises without being registered under New York franchise law. We
entered into a consent judgment and paid a fine of $8,000.
Schroeter, et al v. Pretzel Time of Independence, Inc. et al. (Superior Court
- --------------------------------------------------------------
Civil Action No. 95-1394D in the Commonwealth of Massachusetts). On March 13,
1995, Robert A. Schroeter, Gina Schroeter, Tulio Cabrera and Josephine Cabrera,
filed suit against Pretzel Time of Independence, Inc., Patricia Krukoff, Steven
Krukoff, Andrew Economopoulas, A.S.A.P. Construction, Bay Bank Boston, N.A.,
P.S. Pretzel Time of Watertown, Inc., Pretzel Time of New England, and us. To
the best of our knowledge, the plaintiffs were shareholders in a corporation
that they alleged was a Pretzel Time franchisee at Independence Mall in
Kingston, Massachusetts. The plaintiffs claimed to have lost $50,000 based upon
the alleged fraudulent misrepresentations, unjust enrichment, wrongful
termination, unfair and deceptive trade practices of various parties, including
us. We were sued on an agency theory (plaintiffs contended that we were liable
for the acts of our former Massachusetts "area developer" because that person
was allegedly our "agent" in name, but we denied any liability and had
Massachusetts counsel file pleadings to answer plaintiffs' allegations). The
matter was settled for $20,000. After the settlement, plaintiffs have admitted
that we were not liable for any damages.
Other than these 3 actions, no litigation must be disclosed in this
Offering Circular.
ITEM 4. BANKRUPTCY
Larry Hodges, our President and Chief Executive Officer, was president and
chief executive officer of Food Barn Stores, Inc., a grocery store chain, from
January, 1992 to March, 1994. On January 5, 1993, Food Barn Stores, Inc.,
located at 624 Westport Road, Kansas City, Missouri 64111, filed a chapter 11
bankruptcy case. The case is still pending, although confirmation of a plan of
reorganization has been accepted. Mr. Hodges was hired by Food Barn Stores,
Inc., as part of a major "turnaround" effort, at a time when Food Barn Stores,
Inc. was insolvent. As part of the turnaround effort, the chapter 11 bankruptcy
case was filed with the concurrence of Mr. Hodges, shortly after he was named
president. Food Barn Stores, Inc. is not affiliated in any way with us. (U.S.
Bankruptcy Court for the Western District of Missouri, Kansas City, In re Food
----------
Barn Stores, Inc., Case No. 93-40012-2-11).
- -----------------
Coy-Kramer Excavating, Inc. and its related entities, Fran-Con Equipment,
Inc., and Mar-Tie Construction Corp., Pennsylvania-based corporations with
principal places of business at 2843 Walnut Street, Harrisburg, Pennsylvania,
filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code
(Fran-Con Equipment, Inc., United States Bankruptcy Court for the Middle
------------------------
District of Pennsylvania No. 1-89-01163; In re Mar-Tie Construction Corp.,
--------------------------------
United States Bankruptcy Court for the Middle District of Pennsylvania No. 1-89-
01162; In re Coy-Kramer Excavating, Inc., United States Bankruptcy Court for
---------------------------------
the Middle District of Pennsylvania, Case No. 1-89-01161) on December 31, 1989.
Martin E. Lisiewski, a Director of Pretzel Time, was the Chief Operating Officer
of Coy-Kramer Excavating, Inc. and President of Fran-Con Equipment, Inc. and
Mar-Tie Construction Corp. at the time of the bankruptcy petition. The cases
were consolidated. During the pendency of the Chapter 11 reorganization, on
December 29, 1989 the three companies were merged into one entity, Weststar
Construction, Inc., of which Martin E. Lisiewski was named as
secretary/treasurer. The case was converted to Chapter 7 of the U.S. Bankruptcy
Code on January 18, 1991 for failure to pay state taxes. On February 8, 1994,
the case was closed. Mr. Lisiewski has had no involvement with Weststar
Construction since the case's conversion to Chapter 7. Pretzel Time has no
affiliation with Coy-Kramer Excavating, Inc., Fran-Con Equipment, Inc., Mar-Tie
Construction Corp. and Weststar Construction, Inc.
-10-
<PAGE>
Other than these 2 actions, no person previously identified in Item 1 or
Item 2 of this Offering Circular has been involved as a debtor in proceedings
required to be disclosed in this Item.
ITEM 5. INITIAL FRANCHISE FEE
Initial Franchise Fee.
- ---------------------
Pretzel Time Store:
- ------------------
You must pay an initial franchise fee of $25,000 when you sign a Franchise
Agreement for a Pretzel Time Store. However, if you operate your Store in
either a cart or kiosk format, you must pay an initial franchise fee of $15,000.
The initial franchise fee represents payment to us for the right to use the
Pretzel Time Trademarks and the Pretzel Time System in the development and
operation of your Store. The initial franchise fee also covers the cost of
goods and services that we and our Affiliates may provide to you before your
Store opens, such as site evaluation and approval, prototypical plans, grand
opening marketing materials and training. You must pay the initial franchise
fee in a lump sum upon execution of the Franchise Agreement. As explained in
Item 6 of this Offering Circular, we may require you to pay an initial franchise
fee upon grant of a successor franchise; however, that fee will not exceed 50%
of the initial franchise fee then being charged to new franchisees.
If an Area Developer has the rights to the Territory in which your Store is
located, we are contractually obligated, pursuant to the applicable Development
Agreement, to pay the Area Developer 25% of the initial franchise fee you pay to
us. This payment is to reimburse the Area Developer for its expense in
providing certain services to you, as further described in Item 11 of this
Offering Circular. See Items 1 and 2, and Schedule 7 of this Offering Circular
for a further description of our Area Developers.
TCBY Concept:
- ------------
We do not directly charge you an initial franchise fee if you are granted
the right to add the TCBY Concept to the Premises of your Store, however, you
must pay a $1,000 fee to us, which we in turn pay to TCBY. A current franchisee
may add the TCBY Concept to the Premises of its existing Pretzel Time Store;
provided the existing franchisee receives the approval of TCBY and us, pays the
$1,000 fee as described above, and signs our current form of Pretzel Time
Franchise Agreement, with a Yogurt Addendum, and a general release in a form
acceptable to us.
Other Fees:
- ----------
If you or your initial store manager do not satisfactorily complete the
initial training program, we will refund the initial franchise fee less all
reasonable expenses incurred by us in preparing the Franchise Agreement and all
related agreements, the grant of the Franchise, site selection and approval, and
any other services performed by us in establishing and developing your Store.
However, the total refund will not exceed 50% of the initial franchise fee. We
will make the refund to you upon execution by you of all releases, waivers and
other agreements necessary to terminate the relationship between you and us. We
do not offer refunds of the initial franchise fee under any other circumstances.
If you are interested in acquiring a Franchise, you must complete an
application and sign a reservation letter in the form of Exhibit C to this
Offering Circular. At the time you sign the reservation letter and submit the
application to us, you must pay us a reservation fee of $1000. If you acquire
the Franchise, we will apply the $1000 to payments due from you upon execution
of the Franchise Agreement. However, if after we complete a credit check and a
background check you do not qualify for
-11-
<PAGE>
a Franchise, or if you fail to complete our training program to our
satisfaction, we will refund the $1000. Otherwise, we will not refund this fee.
Under certain circumstances, we or one of our Affiliates may sublease the
premises for your Store to you (a "Sublease"). If this occurs, you may be
required to pay a security deposit to us or our Affiliate at the time you
execute the Sublease. This security deposit and the conditions under which it
may be refundable are explained in Note 8 under Item 6 of this Offering
Circular.
If you are developing a new Pretzel Time Store, you must conduct a grand
opening advertising and promotion program for at least 7 days, beginning within
30 days after opening of your Store. You also agree to spend at least $2,500 for
the grand opening of your Store.
ITEM 6. OTHER FEES
Pretzel Time Store:
- ------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name of Fee Amount Due Date
- ----------- ------ --------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
a. Continuing fees 7% of monthly Gross Revenues Payable weekly on or before the close
(Note 1) of business on Wednesday of each week
for the immediately preceding week.
(Note 2)
- ---------------------------------------------------------------------------------------------------------
b. Marketing fees 1% to 3% of Gross Revenues Same as continuing fees
(Note 3) (Note 2)
- ---------------------------------------------------------------------------------------------------------
c. Lease - required Will vary under circumstances When due
advertising fees (Note 4)
(Note 4)
- ---------------------------------------------------------------------------------------------------------
d. Surcharge on product Will vary under circumstances Upon date of invoice
(Note 5) (Note 5)
- ---------------------------------------------------------------------------------------------------------
e. Training fee See Note 6 See Note 6
(Note 6)
- ---------------------------------------------------------------------------------------------------------
f. Refresher training See Note 7 See Note 7
(Note 7)
- ---------------------------------------------------------------------------------------------------------
g. Sublease See Note 8 Monthly
(Note 8) (Note 8)
- ---------------------------------------------------------------------------------------------------------
h. Special assistance See Note 9 See Note 9
(Note 9)
- ---------------------------------------------------------------------------------------------------------
i. Late payments $100 for each delinquent When the delinquent payment is
payment. made
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name of Fee Amount Due Date
- ----------- ------ --------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
j. Interest expenses Will vary under circumstances When due
(Note 10)
- ---------------------------------------------------------------------------------------------------------
k. Audit Cost of financial audit plus 15 days after receipt of audit or
interest at 1.5% per month or the inspection report
highest legal rate on any
underpayment
(Note 11)
- ---------------------------------------------------------------------------------------------------------
l. Operations Manuals See Note 12 Upon receipt of duplicate copy
duplicate
(Note 12)
- ---------------------------------------------------------------------------------------------------------
m. Transfer fee $6,250 or the current transfer Payable upon a Transfer
(Note 13) fee, whichever is greater.
- ---------------------------------------------------------------------------------------------------------
n. Advertising, Will vary under When the materials are ordered
marketing and the circumstances and/or delivered
promotional (Note 14) (Note 14)
materials
- ---------------------------------------------------------------------------------------------------------
o. Interim management 10% of Gross Revenues At end of management period
fees
(Note 15)
- ---------------------------------------------------------------------------------------------------------
p. UCC filing fees As set by state law; varies from Upon execution of the Franchise
(Note 16) state to state Agreement and at the times UCC
continuation statements are filed
- ---------------------------------------------------------------------------------------------------------
q. Costs and attorneys' Will vary under circumstances Upon occurrence
fees, and (Note 17)
indemnification
- ---------------------------------------------------------------------------------------------------------
r. Successor franchise Will vary under circumstances At times provided in successor
agreement (Note 18) franchise agreement
- ---------------------------------------------------------------------------------------------------------
s. Insurance Will vary under circumstances Upon demand by us
reimbursement (Note 19)
(Note 19)
- ---------------------------------------------------------------------------------------------------------
t. Public or private $7,500 or current fee, whichever Prior to work being commenced
offering is greater
(Note 20) (Note 20)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
General Comments:
You must pay these fees to us except as explained in Notes 4, 5, 8 and 17
below. These fees are non-refundable. If we do not actually receive your
payments on the due date, they will be deemed delinquent.
You must pay all continuing fees, marketing fees, rental payments and other
amounts owed to us or our Affiliates by pre-authorized electronic bank transfer
from your general account. You must execute and complete the Authorization
Agreement form attached to the Franchise Agreement as Appendix A or any other
documentation we require from time to time to permit the electronic transfer.
The pre-authorized electronic bank transfer requirements are further described
in Section 6.4 of the Franchise Agreement and Appendix A to the Franchise
Agreement.
During the course of developing and operating your Store, you will also be
required to purchase various items from designated and approved suppliers or in
accordance with our standards and specifications. See Item 8 of this Offering
Circular for an explanation of these requirements.
Specific Notes:
1. See Schedule 1 to this Offering Circular for a definition of Gross
Revenues.
2. The continuing fee and marketing fee are payable weekly on or before
the close of business on Wednesday of each week for the immediately preceding
week. As described in the General Comments above, these fees must be paid to us
by electronic bank transfer from your general account.
3. The marketing fee for 1998 is 1% of Gross Revenues. Thereafter, we will
notify you annually of the exact percentage you must pay as a marketing fee,
except for any year in which the percentage is to remain unchanged from the
preceding year. See Item 11 of this Offering Circular for more information on
marketing.
4. In addition to the marketing fee described in Note 3 above, you must
pay all advertising fees required by your lease and/or sublease and comply with
all advertising requirements of your lease or sublease. If you are a sublessee
of us or one of our Affiliates, you must pay to us any amounts in addition to
the marketing fee necessary to meet all lease requirements. See Item 11 of this
Offering Circular for more information on marketing.
5. The surcharge will vary. The surcharge is payable to the designated
distributor from whom Pretzel Time franchisees purchase flour or frozen dough
products when payment for these item is due. We may supply some of our own
flour and frozen dough to certain franchisees of Pretzel Time Stores and other
food service distribution points.
6. We provide training for you (or one of your principal owners) and the
initial store manager (if different from you or your principal owner) free of
charge. You must pay a $300 fee to us for each additional person that attends
our training. This fee is due to us 10 days before the beginning of training.
In addition to any training fees, you are responsible for all travel and living
expenses for your trainees. Travel and living expenses are described in Item 7
of this Offering Circular.
7. We may require you and/or previously trained and experienced managers
and employees to attend periodic refresher courses at the times and locations we
designate. You will be required to pay the fees that we are then charging for
these refresher courses.
-14-
<PAGE>
8. If you sublease the premises to be used as your Store from us, you must
execute our standard Sublease Agreement in the form attached to this Offering
Circular as Exhibit D. If you are an Entity, we may require each of your Entity
Owners to execute a Guaranty of Agreement in the form attached to this Offering
Circular as Exhibit B. The rent and other amounts due under the Sublease will be
the same as the rent and other amounts due from the tenant under our lease (the
"Master Lease") of the premises from the landlord. The rent due will vary with
the location of the premises. Typically, monthly rental payments will be based
on factors such as the current market value of similar properties and the
perceived market value of your Store based upon its location and traffic
patterns, sales volumes, and so forth. You must pay the monthly rent under the
Sublease to us, and we will then pay the rent to the landlord under the Master
Lease. However, you must make the payments to us at least 30 days in advance of
the date the payments are due under the Master Lease (10 days in advance, for
percentage rental payments). As described in the General Comments above, rental
payments must be paid to us by electronic bank transfer from your general
account. Rental payments are typically non-refundable. Depending on our
evaluation of your credit-worthiness, we may require you to pay a security
deposit (typically, the equivalent of one month's rent) under the Sublease. Upon
termination of the Sublease, we will refund the security deposit to you if you
have fulfilled all of your obligations under the Sublease.
9. We make no charge for the operating assistance and guidance we
customarily provide to all of our franchisees. However, if we offer special
assistance programs, you must pay the daily fees and charges that we establish
for those programs.
10. You must pay all business debts, liens and taxes promptly when due. If
you fail to do so, we may, but need not, pay the same and then be entitled to
immediate reimbursement from you. Unpaid debts owed to us bear interest from the
due date until paid at the lesser of 1.5% per month or the maximum contract rate
permitted by the law of the state in which your Store is located.
11. You must pay the costs of the audit or inspection only if you fail to
furnish us with reports, financial statements, tax returns or schedules, or if
the audit results show an understatement of Gross Revenues of more than 2% or if
the need for an audit was a result of your default under the Franchise Agreement
in failing to provide records and reports in a timely manner.
12. We loan you one copy of the Operations Manuals free of charge. If you
lose your copy of the Operations Manuals, you must obtain a replacement copy
from us at our then current charge for replacement copies.
13. We will not charge a transfer fee if the Transfer is between Entity
Owners or to an Entity Owner's wholly-owned corporation.
14. As further described in Item 11 of this Offering Circular, from time
to time, we may provide you with copies of advertising, marketing and
promotional formats and materials for use in your Store, which we or our
advertising agencies have prepared. You are only required to pay the shipping
and handling costs for these items. We may also offer you the option of
purchasing other advertising, marketing and promotional formats and materials
prepared by us or our advertising agencies that are suitable for use at local
Pretzel Time Stores. If you elect to purchase such items from us, we will
provide them to you at our cost plus a reasonable mark-up and any shipping,
handling and storage charges. Finally, we may develop and market special
mandatory promotional items for Pretzel Time Stores. You may be required to
maintain a representative inventory of these promotional items to meet public
demand. We will make these items available to you at our cost plus a reasonable
mark-up and any shipping, handling and storage charges.
-15-
<PAGE>
15. If we elect to manage your Store pending our purchase of that store,
as permitted by Section 14.5(e) of the Franchise Agreement, we have the right to
charge a management fee of 10% of the Gross Revenues of that store during the
period of management.
16. Article 16 of the Franchise Agreement grants us a security interest in
the collateral described in that Section. Upon execution of the Franchise
Agreement, you must execute the necessary Uniform Commercial Code financing
statements and reimburse us for the costs of filing those statements with the
appropriate government agencies. You must also execute continuation statements
when required by law and reimburse us for the costs of filing those continuation
statements.
17. If we or our Affiliates prevail in any arbitration proceeding or
litigation against you, you must pay the costs and attorneys' fees incurred. You
and each of your Entity Owners also have certain indemnification obligations to
us and our Affiliates, as referenced in Item 9 of this Offering Circular.
18. If you accept an offer for a successor franchise agreement as provided
in Section 13.5 of the Franchise Agreement, you must pay the fees specified in
the form of Franchise Agreement in use at the time the successor agreement is
granted. Those fees may differ from the fees provided in the current version of
Franchise Agreement and may include the requirement that you pay a new initial
franchise fee. However, we will not charge a new franchise fee exceeding 50% of
the initial franchise fee then being charged to new franchisees.
19. If you fail to maintain in effect any insurance required by us or to
furnish to us satisfactory evidence of such coverage, we may, but need not,
obtain insurance coverage for you on your behalf. You must then immediately
reimburse us for our costs and the cost of the insurance, and sign any related
documentation required by us.
20. If you attempt to raise or secure funds by the sale of securities, you
are obligated to pay to us our current fee to cover the expenses we incur in
connection with reviewing any information regarding us or the Pretzel Time
System that is included in the offering or the proposed offering.
TCBY Concept:
- ------------
If you are granted the right to add the TCBY Concept to the Premises of a
new or existing Pretzel Time Store, you will incur the following fees and
payments in addition to those contained in the preceding chart. The continuing
fee described above is applicable to the Gross Revenues for the sale of TCBY
Yogurt Products from the Premises of your Store, although you are only required
to pay a continuing fee of 4% for such sales. The marketing fee described above
is also applicable to the Gross Revenues for the sale of TCBY Yogurt Products
from the Premises of your Store. All marketing fees we collect, however, will be
used for advertising and marketing programs for the Pretzel Time System, and not
the TCBY System. In addition to the marketing fee, you may be required to
contribute up to 3% of your Gross Revenues each year to a regional or local
advertising cooperative created by TCBY and/or its franchisees for TCBY Stores.
As of the date of this Offering Circular, you are not required to contribute to
any advertising cooperative. See Item 11 of this Offering Circular for more
information on marketing.
You must pay a surcharge on your purchases of frozen yogurt mix to TCBY or
its affiliates. Surcharges for frozen yogurt mix currently are determined by
location of your Store within a specific product distribution area. TCBY
reserves the right to establish a range for frozen yogurt mix surcharges.
Currently the range for the surcharge is $4.94 to $5.29 per 576 net weight ounce
case of frozen yogurt mix. This surcharge is subject to change. The surcharge is
currently payable to the designated distributor from whom you buy your frozen
yogurt mix.
-16-
<PAGE>
We or TCBY will furnish the initial TCBY training program to you (or one of
your principal owners) and to the initial store manager (if different from you
or your principal owner) free of charge. We or TCBY may charge a fee for the
training for subsequent managers, which you will be required to pay at least 10
days prior to beginning of training. In addition to any training fees, you are
responsible for all travel and living expenses for your trainees. Travel and
living expenses are described in Item 7 of this Offering Circular. We may also
require you and/or previously trained and experienced managers and employees to
attend periodic refresher courses at the times and locations we designate. You
will be required to pay the fees that we or TCBY are then charging for these
refresher courses. We or TCBY will loan you one copy of the TCBY Operations
Manual free of charge. If you lose your copy of the TCBY Operations Manual, you
must obtain a replacement copy from us or TCBY at TCBY's then current charge for
replacement copies.
-17-
<PAGE>
ITEM 7. INITIAL INVESTMENT
Pretzel Time Store:
- ------------------
<TABLE>
<CAPTION> To Whom Payment
Description Amount Method of Payment When Due Is to Be Made
----------- ------ ----------------- -------- -----------------
<S> <C> <C> <C> <C>
a. Reservation fee $1,000 Lump sum Upon signing reservation Us
(Note 1) (Note 1) letter
b. Initial franchise fee $25,000; or $15,000 for a Lump sum Upon signing Franchise Us
(Note 2) Store operated in the cart Agreement
or kiosk format
(Note 2)
c. Travel and living $1,500 - $3,000 Lump sum, as incurred As incurred during training Airlines, hotels,
expenses while and restaurants
training
(Note 3)
d. Real estate lease Note 4 Note 4 Note 4 Note 4
e. Improvements and $75,000 - $175,000 As agreed with the As incurred Various independent
equipment contractors and suppliers contractors and
(Note 5) providing labor, materials suppliers
or equipment
f. Opening product and $1,000 - $5,000 As agreed with suppliers As incurred Suppliers
soft goods inventory
(Note 6)
g. Grand opening $2,500 Lump sum As incurred Us, and various
promotion (Note 7) vendors and
suppliers
(Note 9)
h. Security deposits, $1,000 - $5,000 Lump sum Before opening Landlord, utility
utility deposits, companies,
business licenses, and government agencies
other deposits and
prepaid expenses
(Note 8)
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
To Whom Payment
Description Amount Method of Payment When Due Is to Be Made
- ----------- ------ ----------------- -------- -------------
<S> <C> <C> <C> <C>
i. Professional fees $500 - $1,500 Lump sum As incurred Attorneys,
(Note 9) accountants,
and other
consultants
j. Insurance (3 months) $2,500 - $3,500 Lump sum or installments, Before or upon execution of Insurance
(Note 10) as determined by insurance Franchise Agreement carriers
carriers
k. Computer hardware and $0 - $3,500 Lump sum As incurred, if we require Various
software you to purchase computer vendors and
(Note 11) hardware and software suppliers
l. Additional funds $8,000 - $12,000 Lump sum, as incurred As incurred Employees,
(3 months) suppliers,
(Note 12) utilities
and other
vendors
</TABLE>
Total: $117,000 - $236,000
NOTE: The above total assumes you are not operating in a cart or kiosk format
and does not include real estate lease costs.
-19-
<PAGE>
General Comments:
We have based the estimates provided in the chart above upon our past
experience in establishing and operating Pretzel Time Stores; however, we do not
guarantee that your costs will not be higher than set forth above. You should
review these figures carefully with a business advisor before making any
decision to purchase the Franchise.
All payments you make to us or our Affiliates are non-refundable unless
otherwise stated. Payments you make to parties other than us or our Affiliates
may be refundable at the option of the other party. Because we do not know who
these third parties are, we cannot state when or if payments made to these third
parties will be refundable. Financing is not available for the initial
franchise fee and we do not offer any other financing, directly or indirectly.
The estimates in the above chart do not include continuing fees or
marketing fees payable to us during the operation of your Store since these fees
are payable out of the Gross Revenues of your Store. See the information in
Item 6 for an explanation of the continuing fees and marketing fees.
Specific Notes:
1. If you acquire a Franchise, we will apply the $1,000 reservation fee to
payments due from you upon execution of the Franchise Agreement.
2. See Item 5 of this Offering Circular for the conditions when a portion of
the initial franchise fee may be refundable. As further described in Item 5 of
this Offering Circular, we may be contractually obligated to pay 25% of the
initial franchise fee you pay to us to an Area Developer.
3. You are responsible for paying any incidental expenses that you and your
manager and any other trainees incur while attending our initial training
program, including car rental, gas, airline tickets, meals, hotel room,
entertainment, and salaries.
4. If you do not currently own adequate space, you must lease the space for
your Store. Typical locations are in shopping malls and strip shopping centers.
The average Pretzel Time Store requires between 400 to 800 square feet of space.
We cannot estimate the amount of your monthly rental payments, since rental
amounts vary greatly from site to site and are affected by a number of factors,
including location, size, visibility, accessibility, and competitive market
conditions. In addition to rental payments, your lease may obligate you to make
other payments to the landlord, such as payments for shopping center or building
operating expenses, common area maintenance expenses, food court expenses,
merchants' association assessments, assessment for shopping center promotion and
advertising, and the like. Your lease may also require you to spend a certain
amount on advertising and promotion for your particular store. Again, because
these payments vary widely from lease to lease, we cannot estimate the amount
you may be required to pay for these or other similar items. You will make
rental payments to the landlord, unless you sublease the premises from us. In
that case, you will make rental payments to us, as explained in Note 8, under
Item 6 of this Offering Circular.
5. These estimates include construction costs (labor and material) for
typical tenant improvements and remodeling necessary to prepare a site for
operation of a Pretzel Time Store, as well as the estimated costs for necessary
trade fixtures, such as display cases, menu board and signage, counters and work
tables, and equipment, such as ovens, refrigerators, beverage dispensers, small
wares and cash registers. The estimates also include construction management
costs, general conditions, builders risk/liability insurance and financing
costs. If you develop a new store, you must also employ and pay an
-20-
<PAGE>
architect or engineer to prepare a site plan and other construction documents.
Although we will provide you with prototypical plans and specifications at no
additional cost to you, you must pay an architect or engineer to adapt these
plans and specifications to city, state and local building codes and to the
specific site chosen for your Store. These estimates do not include lease costs.
Your actual construction costs will depend on numerous factors, such as the
condition of the premises, duration of the building process (delays), union
labor requirements, contractors' fees, signage, availability of materials and
equipment, interest rates, and the insurance coverage you choose.
6. This estimate includes supplies, opening inventory, accounting forms
and systems, soft goods, such as napkins, cups, and other paper goods, utensils,
packaging materials, and other items required to operate under the Pretzel Time
System. The costs will vary depending upon your inventory levels and storage
space.
7. If you are opening a newly developed Pretzel Time Store, you are
required to spend at least $2,500 on a grand opening promotional program, as
explained in more detail in Item 5 of this Offering Circular.
8. You may be required to pay a security deposit under your real estate
lease and other deposits for utilities and insurance premiums. Lease security
deposits are typically due upon signing the lease and are typically refundable
if you do not default on your lease. Your lease may also require you to pay the
last month's rent in advance. Deposits for utility services are typically
required at the time the service is applied for, and may or may not be
refundable. You must confirm all of the specific deposits required. The amount
for licenses and permits can vary significantly in different areas, and you
should verify specific amounts with local authorities.
9. You may find it necessary to retain an attorney to review the real
estate lease or sublease, the franchise documents, or to assist in forming a
corporation, partnership, or limited liability company. You may also retain an
accountant for advice in establishing and operating your franchise business and
filing necessary tax forms and returns.
10. We require you to obtain and keep in force the following insurance
coverages, with us named as an additional insured on each policy:
(a) Casualty Insurance. Casualty insurance for all of your goods,
------------------
fixtures, furniture, equipment, and other personal property located on your
Store premises providing insurance to the extent of 100% of the full
replacement cost against loss or damage from fire and other risks normally
insured against in extended risk coverage.
(b) Liability Insurance. Liability insurance, insuring against all
-------------------
liability resulting from damage, injury, or death occurring to persons or
property in or about your Store premises (including products liability
insurance), the liability under this insurance to be at least $1,000,000
for one person injured, $1,000,000 for any one accident, and $1,000,000 for
property damage.
(c) Other Insurance Policies. Any additional insurance policies that
------------------------
a prudent franchisee in your position would maintain or as we may
reasonably require
You must also maintain and keep in force all workers' compensation insurance on
your employees that is required under the applicable workers' compensation laws
of the state in which your Store is located. Your real estate lease may also
impose requirements for insurance coverage in addition to the
-21-
<PAGE>
requirements that we impose. The chart contains the estimated cost of required
insurance coverage for a three month start-up period; however, the cost of
insurance varies, depending upon the insurance company you select, lease
requirements, variances in the cost of insurance from city to city and state to
state, and other factors. Whether or not amounts paid for insurance premiums are
refundable will be determined by individual insurance carriers and the terms of
the insurance policies.
11. As of the date of this Offering Circular, we do not require you to use
any computer hardware or software in the operation of your Store and, therefore,
your initial investment for this item may be $0. If we do, however, require you
in the future to purchase, install and use computer hardware and software which
meet our specifications and standards, we estimate that you will incur costs of
$1,250 to $3,500 or more. See Item 11 of this Offering Circular for more
information on our right to require you to purchase, install and use computer
hardware and software in the future.
12. This amount represents the range of your initial start-up expenses over
the first 3 months of operation. These figures include estimated payroll costs.
However, they do not include the salary for the store manager, on the assumption
that you will manage the store. The figures also do not include inventory.
These figures are estimates and we cannot guarantee that you will not have
additional expenses starting your business. Your costs will depend upon factors
such as how well you follow our methods and procedures; your management skill,
experience, and business acumen; local economic conditions; the demand for
specialty food and snack goods and services in your area; the prevailing wage
rates; competition; the time of the year your Store is opened; and the sales
level reached during the initial period.
TCBY Concept:
- ------------
If you are granted the right to add the TCBY Concept to the Premises of a new
or existing Pretzel Time Store, you will incur expenditures separate from and in
addition to those described in the chart above. An estimate of these
expenditures is summarized in the chart below.
-22-
<PAGE>
TCBY Concept:
- ------------
<TABLE>
<CAPTION>
To Whom Payment
Description Amount Method of Payment When Due Is to Be Made
- ----------- ------ ----------------- -------- ---------------
<S> <C> <C> <C> <C>
a. TCBY fee $1,000 Lump sum Upon signing Yogurt Rider Us
(Note 1) (Note 1) (Note 1)
b. Travel and living $1,500 - $3,000 Lump sum, as incurred As incurred during training Airlines, hotels,
expenses while training (Note 2) and restaurants
c. Improvements and $30,000 - $75,000 As agreed with the As incurred Various independent
equipment, if adding the contractors and suppliers contractors and
TCBY Concept to a new or providing labor, materials, suppliers
existing Store or equipment
(Note 3)
d. Opening product and $2,000 - $4,000 As agreed with suppliers As incurred Suppliers
soft goods inventory, if
adding the TCBY Concept
to a new or existing Store
(Note 4)
e. Additional funds $5,000 - $10,000 Lump sum, as incurred As incurred Employees, suppliers,
(3 months) utilities and other
(Note 5) vendors
Total: If adding the TCBY Concept to a new or existing Pretzel Time Store: $39,500 - $93,000
</TABLE>
NOTE: The above totals assume you are not operating in a cart or kiosk format
and do not include real estate lease costs.
-23-
<PAGE>
General Comments:
The projected figures in the chart above are an estimate of the initial
investment necessary to add the TCBY Concept to the Premises of a new or
existing Pretzel Time Store. The estimate is for a Pretzel Time Store of 750
square feet in size. The estimate is based upon our past experience in
establishing and operating Pretzel Time Stores; however, we do not guarantee
that your costs will not be higher than set forth above. You should review
these figures carefully with a business advisor before making any decision to
acquire the right to add the TCBY Concept to the Premises of your Store.
All payments you make to us or our Affiliates are non-refundable unless
otherwise stated. Payments you make to parties other than us or our Affiliates
may be refundable at the option of the other party. Because we do not know who
these third parties are, we cannot state when or if payments made to these third
parties will be refundable. Financing is not available for the TCBY fee and we
do not offer any other financing, directly or indirectly.
The estimates in the above chart do not include continuing fees or
marketing fees payable to us during the operation of your Store since these fees
are payable out of the Gross Revenues of your Store. See the information in
Item 6 for an explanation of the continuing fees and marketing fees.
Specific Notes:
1. As further described in Item 5 of this Offering Circular, you must pay
a $1,000 fee to us, which we in turn pay to TCBY.
2. You are responsible for paying any incidental expenses that you and
your manager and any other trainees incur while attending the TCBY training
program, including car rental, gas, airline tickets, meals, hotel room,
entertainment, and salaries.
3. These estimates include construction costs (labor and material) for
typical tenant improvements and remodeling necessary to add the TCBY Concept to
the Premises of your Store, as well as the estimated costs for necessary
equipment, such as yogurt machines and refrigerators, furniture, menu board and
signage, small wares and other items. The estimates also include construction
management costs, general conditions, builders risk/liability insurance and
financing costs. These estimates do not include lease costs. Your actual
construction costs will depend on numerous factors, such as the condition of the
premises, duration of the building process (delays), union labor requirements,
contractors' fees, signage, availability of materials and equipment, interest
rates, and the insurance coverage you choose. The cost of these items may also
varying as a result of price differences between suppliers.
4. This estimate includes supplies, opening inventory, soft goods, such as
napkins, cups, and other paper goods, utensils, packaging materials and other
items required to operate under the TCBY System. The costs will vary depending
on shipping distances from suppliers, price differences between suppliers, your
inventory levels and storage space.
5. This amount represents the range of your initial start-up expenses over
the first 3 months of operation if you add the TCBY Concept to a new or existing
Pretzel Time Store. The figures do not include inventory. These figures are
estimates and we cannot guarantee that you will not have additional expenses
adding the TCBY Concept to your business. Your costs will depend upon factors
such as how well you follow our methods and procedures; your management skill,
experience, and business acumen;
-24-
<PAGE>
local economic conditions; the demand for TCBY Yogurt Products in your area; the
prevailing wage rates; competition; and the sales level reached during the
initial period.
ITEM 8. RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES
Purchases of Pretzel Products and Other Items.
- ---------------------------------------------
Pretzel Time Products:
- ---------------------
You must use only the Products, materials, equipment, smallwares, paper
products, and supplies that Pretzel Time requires and has approved for Pretzel
Time Units as meeting its specifications and standards for quality, design,
appearance, function and performance. You must purchase Products, materials,
equipment, smallwares, paper products and supplies from suppliers and
distributors designated or approved by Pretzel Time detailed in the Operations
Manuals.
The recipes, formulations, and specifications for all Pretzel Time Products
are trade secrets belonging exclusively to us. We may license manufacturers
from time to time to manufacture Pretzel Time Premix Flour and other Pretzel
Time Products following our secret recipes, formulations, and specifications.
You must purchase all of your Pretzel Time Premix Flour from Pretzel Time or a
Pretzel Time designated supplier.
You must buy from Pretzel Time's designated distributor the following:
lemonade, fruit punch, condiments, toppings, dips, pretzel ingredients, and
vegetable spray. You must buy your carbonated beverages from Coca-Cola USA
Fountain. Pretzel Time also specifies certain other brand name Products that
you must buy. As to some items, Pretzel Time does not specify the distributor
or the supplier. These include: ovens, mixers, ice machines and ice
bins/yogurt machines, juice machines, menu boards, cooking paper, humidified
cabinets, carts, and refrigeration.
If you wish to buy from a supplier or distributor not approved by Pretzel
Time or purchase materials or supplies not approved by Pretzel Time as meeting
its specifications, then you must first submit a written request to Pretzel
Time. Pretzel Time may require submission of sufficient information and samples
to determine if the materials, supplies, suppliers or distributors meet its
specifications.
Pretzel Time may enter into national purchasing contracts with suppliers of
products to be used in the Pretzel Time System on favorable terms. Some
suppliers offer promotional allowance programs to promote products sold in
Pretzel Time Units. Pretzel Time or its designee coordinates and administers
these programs for the Pretzel Time System. You are required to buy from these
approved suppliers and Pretzel Time and/or its designees may receive
compensation for coordinating the administering the program. Pretzel Time is
entitled to all promotional allowances, marketing contributions, rebates, or
other consideration paid by these suppliers on account of supplies bought by you
and other franchisees by these programs. Amounts received by Pretzel Time or
its designees on account of suppliers purchased by you and other Franchisees
will not lower marketing fees due from you or other franchisees.
During 1997, we and our Affiliates recognized approximately $300,000
received from vendors based upon arrangements described above for purchases by
us, our Affiliates and franchisees, and/or referrals from us of franchisees to
those vendors. This amount represents approximately 8% of our total revenues
for 1997.
-25-
<PAGE>
Location of your Store; Real Estate Lease
- -----------------------------------------
You must locate a site for your Store that is approved by us, and you may
not execute a lease for the site until we have given our approval in writing. We
approve locations on a case-by-case basis, considering items such as size,
appearance, and other physical characteristics of the site, demographic
characteristics, traffic patterns, competition from other businesses in the area
(including other Pretzel Time Retail Outlets) and other commercial
characteristics, such as purchase price, rental obligations and other lease
terms. In certain circumstances, you may be able to lease a site from us or one
of our Affiliates, but you are not required to sublease premises from us or any
of our Affiliates. Rent received under a sublease is passed through to the
landlord.
Development of your Store
- -------------------------
You must construct and develop your Store. We will furnish you with
prototypical plans and specifications for your Store, including requirements for
exterior and interior materials and finishes, dimensions, design, image,
interior layout, decor, fixtures, furnishings, equipment, color schemes and
signs. You must develop your Store in accordance with these plans and
specifications. You must prepare all required construction plans and
specifications to suit the shape and dimensions of your site and to insure that
the plans and specifications comply with applicable ordinances, building codes
and permit requirements and with lease requirements and restrictions. You must
submit construction plans and specifications to us for our approval before you
begin construction of your Store, and you must submit all revised and "as built"
plans and specifications to us during the course of construction.
Fixtures, Furnishings, Equipment and Signs
- ------------------------------------------
In developing and operating your Store, you must use only the fixtures,
furnishings, equipment (which may in the future include computer hardware and
software) and signs that we require and have approved as meeting our
specifications and standards for quality, design, appearance, function and
performance. You may only display at your Store the signs, emblems, lettering,
logos and display materials that we approve in writing. We have the right, at
our sole discretion, to install all required signs at the Premises at your
expense, although our current practice is to allow you to install the signs. You
may purchase these items from any supplier who can satisfy our standards and
specifications.
Purchases of TCBY Yogurt Products and Other Items.
- -------------------------------------------------
If you are granted the right to add the TCBY Concept to the Premises of
your Pretzel Time Store, your purchases of TCBY Yogurt Products must be made
from TCBY, its designees or affiliates. The TCBY brand frozen yogurt line is
distinctive as a result of being specially produced from secret formulae and
processes. You will prepare and offer for sale from your TCBY Concept TCBY brand
soft-serve frozen yogurt, ice cream and frozen desserts, all of which are
produced only by an affiliate of TCBY. On purchases of frozen yogurt mix, a
surcharge is imposed, as described in Item 6 of this Offering Circular. You must
obtain TCBY's approval of your Store plans for the Premises. TCBY's approval
will be in its sole discretion. An affiliate of TCBY offers equipment for sale,
and you may purchase from that affiliate. You may purchase or lease all other
goods, services, fixtures, equipment, inventory, real estate, and other
materials required for the operation of your TCBY Concept from any source.
Specifications for all inventory items are published in the confidential TCBY
Operations Manual. These specifications are formulated and modified from time to
time based on TCBY's experience in operating its own TCBY Stores, continuing
research and development activities, and franchisee suggestions and comments. In
evaluating manufacturers, TCBY looks to the reputation of the manufacturer, the
product under consideration, the price of the product and its availability.
Neither we nor TCBY negotiate prices for the
-26-
<PAGE>
TCBY System. Instead, TCBY generally relies on its distributors to obtain
optimum pricing. TCBY-owned TCBY Stores buy inventory items at the same prices
and on the same terms as do franchisee-owned TCBY Stores. Any volume rebates
paid by a manufacturer of any approved inventory item are placed in the TCBY
National Advertising Fund, and are not taken into account as income by TCBY and
do not otherwise financially benefit TCBY. There are no purchasing or
distribution cooperatives in the TCBY System, but TCBY believes that the current
distributors adequately serve the needs of franchisees with reference to
purchase prices specifically.
Proportion of Designated Purchases
- ----------------------------------
The estimated proportion of the required purchases from designated vendors
to all purchases by you of goods and services in establishing and operating the
franchised business (except for construction and build-out costs) exceeds 90%.
ITEM 9. FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AGREEMENT AND
OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR
OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
<TABLE>
<CAPTION>
<S> <C> <C>
Obligation Section in Agreement Item in Offering Circular
- ---------- -------------------- -------------------------
a. Site selection and Sections 4.1 and 4.2 of the Items 6, 7, 8, 11 and 12
acquisition/lease Franchise Agreement; Paragraphs
5(a) and 6 of the Yogurt
Addendum; Paragraphs 1, 2 and 5
of the Satellite Unit Addendum;
also see the Sublease
b. Pre-opening Sections 4.2, 4.3, 4.4, 4.6, and 7.1 Items 5, 6, 7, and 8
purchases/leases of the Franchise Agreement;
Paragraphs 7, 11 and 16 of the
Yogurt Addendum; Paragraphs 3,
4 and 5 of the Satellite Unit
Addendum
c. Site development and Sections 4.3, 4.4, 4.5, 7.1 and 7.8 Items 6, 7 and 11
other pre-opening of the Franchise Agreement;
requirements Paragraphs 11 and 16 of the
Yogurt Addendum; Paragraphs 3,
4 and 5 of the Satellite Unit
Addendum
d. Initial and on-going Article 5 of the Franchise Items 6, 7 and 11
training Agreement; Paragraph 12 of the
Yogurt Addendum
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Obligation Section in Agreement Item in Offering Circular
- ---------- -------------------- -------------------------
<S> <C> <C>
e. Opening Sections 4.5 and 4.6 of the Items 5, 6, 7 and 11
Franchise Agreement
f. Fees Sections 3.2, 4.6, 5.1, 5.2, 5.3, Items 5, 6, 7, 11, and 17
6.1, 6.2, 6.3, 6.4, 6.5, 8.3, 9.1,
9.3, 12.3(f), 12.9, 13.5, 14.2 and
16.2 of the Franchise Agreement;
Paragraphs 12, 13, 14, 15, 19, 20,
27(b) and 35 of the Yogurt
Addendum; Exhibit C to the
Offering Circular (Reservation
Letter); Sections 1.4, 2.5, 4.4,
Article 4, Article 5, and Sections
12.3, 12.4, and 12.5 of the
Sublease; Paragraphs 3, 6, 7 and 8
of the Satellite Unit Addendum
g. Compliance with Article 4, Sections 5.1, 5.2, 7.1, Items 6, 7, 8, 11, 13, 14, 15, and 16
standards and 7.2, 7.3, 7.4, 7.5, 8.1, 8.2, 9.2
policies/operating manual and Article 10 of the Franchise
Agreement; Paragraphs 1, 4, 5, 7,
12, 16, 17, 18, 20, 21, 22 and 35
of the Yogurt Addendum; Paragraphs
3, 4, 5, 6, 7 and 8 of the
Satellite Unit Addendum
h. Trademarks and Article 10 and Sections 12.3(l), Items 8, 13, 14, and 17
proprietary information 13.1(d), 14.3 and 14.4 of the
Franchise Agreement; Paragraphs 1,
4(b), 4(e), 5(e), 21, 22, 25(b),
27(c) and 27(d) of the Yogurt
Addendum
i. Restrictions on Sections 2.1, 7.1, 7.3, 9.2, and Items 1, 8, 14, and 16
products/services offered 10.7 of the Franchise Agreement;
Paragraphs 1, 4(c), 6, 7, 16 and
17 of the Yogurt Addendum;
Paragraph 1 of the Satellite Unit
Addendum
j. Warranty and customer Sections 4,1, 4.2(d), 5.3, 7.1, Item 11
service requirements 7.5, 15.2 and 15.6 of the
Franchise Agreement;
Acknowledgment Addendum to
Franchise Agreement; Paragraphs 1,
6, 16, 32 and 34 of the Yogurt
Addendum
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Obligation Section in Agreement Item in Offering Circular
- ---------- -------------------- -------------------------
<S> <C> <C>
k. Territorial None
Development and Sales
Quotas
l. Ongoing Sections 4.4 and 7.1 of the Items 8 and 11
product/service purchases Franchise Agreement; Paragraphs
5(c), 5(d), 7, 11 and 16 of the
Yogurt Addendum; Paragraphs 4, 7
and 8 of the Satellite Unit
Addendum
m. Maintenance, Sections 3.2, 4.4, 7.1, 9.2 and Items 11, 13, and 17
appearance and 13.5 of the Franchise Agreement;
remodeling requirements Paragraphs 16 and 35 of the Yogurt
Addendum; Paragraphs 4, 5 and 6 of
the Satellite Unit Addendum
n. Insurance Sections 7.1 and 7.8 of the Items 6, 7 and 11
Franchise Agreement; Article 8 of
the Sublease
o. Advertising Sections 4.6, 7.1, Article 9 and Items 5, 6, 7, 11, and 13
Article 10 of the Franchise
Agreement; Paragraphs 19 and 20 of
the Yogurt Addendum
p. Indemnification Sections 7.8, 10.5, 12.9 and 15.6 Item 6
of the Franchise Agreement;
Paragraph 32 of the Yogurt
Addendum; Sections 2.5(a), 3.4,
6,.7, 6.9 and 8.1 of the Sublease
q. Owner's Sections 5.1, 7.1, 7.2, 7.6 and Items 11 and 15
participation/ 7.7 of the Franchise Agreement;
management/staffing Paragraph 12 of the Yogurt Addendum
r. Records and reports Sections 7.1, 7.4, 7.6, 7.7, 8.1, None
8.2 10.4, and 12.9 of the
Franchise Agreement; Paragraph 2
of the Satellite Unit Addendum
</TABLE>
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<TABLE>
<CAPTION>
Obligation Section in Agreement Item in Offering Circular
- ---------- -------------------- -------------------------
<S> <C> <C>
s. Inspections and audits Sections 7.4 and 8.3 of the Item 6
Franchise Agreement; Paragraphs 1
and 18 of the Yogurt Addendum;
Section 2.6 of the Sublease
t. Transfer Article 12 and Section 13.1(b) of Item 17
the Franchise Agreement; Paragraph
25 of the Yogurt Addendum; Article
11 of the Sublease
u. Renewal Sections 3.2 and 13.5 of the
Franchise Agreement; Paragraph 10
of the Yogurt Addendum; Paragraph
1 of the Satellite Unit Addendum
v. Post-termination Sections 6.5, 7.8, 8.2, 8.3, 10.5, Item 17
obligations 10.8, 11.2, 12.3(l), Article 14,
Section 15.6, Article 16 and
Article 18 of the Franchise
Agreement; Paragraphs 27 and 30 of
the Yogurt Addendum; Sections
2.5(a), 4.2, 4.3, 4.4, 7.7, 7.9,
8.1, and 13.12 of the Sublease;
Paragraph 9 of the Satellite Unit
Addendum
w. Non-competition Article 11 and Sections 12.3(j) Item 17
covenants and 12.5(c) of the Franchise
Agreement; Paragraphs 24 and 25 of
the Yogurt Addendum
x. Dispute resolution Article 16 and Sections 17.1, Item 17
17.2, 17.3, 17.4, 17.5, 17.6 and
17.7 of the Franchise Agreement;
Paragraph 9 of the Satellite Unit
Addendum
</TABLE>
ITEM 10. FINANCING
Except as described below, we do not offer direct or indirect financing to
franchisees. We do not guarantee any note, lease or other obligation which you
may enter or incur.
As explained in Item 6 of this Offering Circular, we may sublease the
premises for your Store to you. In such case, must execute our standard
Sublease form. A copy of the Sublease form is attached to
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this Offering Circular as Exhibit D. If you are an Entity, each Entity Owner
will be required to guaranty payment and performance of your obligations under
the sublease by executing a Guaranty of Agreement in the form attached to this
Offering Circular as Exhibit B.
You must pay rent and other amounts due under the Sublease in the same
amounts as the rent and other amounts due from the tenant under the Master Lease
of the premises from the landlord (Article 1 and Article 4 of the Sublease). You
must always pay us the full amount of all rental payments due. You may not
deduct any amount for any claim you may have against us. The rent due will vary
with the location of the premises, and we cannot estimate that amount.
Typically, monthly rental payments will be based on factors such as the current
market value of similar properties, the perceived market value of your Store
based upon its location and traffic patterns, sales volumes, and so forth.
We may require you to pay a security deposit under the Sublease (Section
1.4(c) and Section 5.1 of the Sublease). Typically, a security deposit will be
the equivalent of one month's rent.
The Sublease does not contain any prepayment penalties.
If you do not make your rental payments within 10 days of the due date or
if you commit another breach of the Sublease or the Master Lease and do not
remedy the breach within the time periods specified in the Sublease, we have the
right to re-enter the premises and relet the premises either with or without
terminating the Sublease, and we may sue you to collect any unpaid rent or other
amounts due (Section 12.2 of the Sublease). We can collect our costs of
enforcement and collection, including court costs and attorneys' fees (Section
13.2 of the Sublease). We are permitted to charge a $100 late fee for each
delinquent payment (Section 12.4 of the Sublease). Also, late payments will
bear interest from the due date until paid at a rate equal to the lesser of the
highest applicable legal rate for open account business credit, or 1.5% per
month (Section 12.3 of the Sublease).
Your breach of the Sublease and loss of possession of the Sublease premises
is also a default under the Franchise Agreement and would permit us to terminate
the Franchise Agreement (Section 13.1(f) of the Franchise Agreement).
In Section 8.7 of the Sublease, we and you mutually waive our respective
rights of recovery against each other and the "Related Parties" (as defined in
Section 2.5(a) of the Sublease) for losses or damage insured against under the
insurance required to be maintained under Article 8 of the Sublease, even if the
loss or damage is caused by negligence.
In Sections 12.5 and 12.6 of the Sublease, you waive any right to claim
that certain actions by us, such as making payments on your behalf to cure a
default, our waiver of a previous breach, or our course of conduct in accepting
rental payments or partial rental payments during periods of default constitute
a waiver of any of our legal rights. Even though you make a payment to us
accompanied by a statement that acceptance of the payment will constitute an
accord and satisfaction of the full amount due, we may accept the payment
without the payment being deemed to be an accord and satisfaction and without
waiving any of its rights to recover the balance of any amount due or to pursue
other remedies for your breach of the Sublease.
We have no past or present practice or intention to sell, assign or
discount all or part of any financing arrangement to any third party. We do not
receive any payments for the placement of financing.
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ITEM 11. FRANCHISOR'S OBLIGATIONS
Except as set forth below, we need not provide any assistance to you.
Our obligations relating to Pretzel Time Stores.
- -----------------------------------------------
Before Opening:
- --------------
Before you open your Store:
1. We will approve or disapprove a site proposed by you for your Store
within a reasonable period of time determined solely by us. We are not obligated
to approve or disapprove a site within any specified time period. If we cannot
agree upon a site, you will forfeit your reservation fee of $1,000. You must
have selected the site for your Store and obtained our approval for the site
before execution of the Franchise Agreement. In evaluating a proposed site, we
may inspect the site and may consider a variety of factors, including
demographic characteristics, traffic patterns, parking, character of the
neighborhood, competition from other dessert, snack food and bakery outlets in
the area, the proximity to other businesses (including other Pretzel Time Retail
Outlets, the nature of other businesses in proximity to the site and other
commercial characteristics (including the purchase price, rental obligations and
other lease terms for the proposed site), and the size, appearance and other
physical characteristics of the proposed site. (Franchise Agreement, Section
4.1) Our approval of a site and any information given to you regarding proposed
sites do not constitute an express or implied representation or warranty of any
kind as to the suitability of the proposed sites for your Store or for any other
purpose. Our approval indicates only that we believe that the particular site
falls within our criteria as of the time period encompassing the evaluation.
Application of site criteria that have been effective for other sites may not be
predictive of the potential for any specific site and after our approval of a
site, demographic and economic factors, including competition from other
dessert, snack food and bakery businesses, included in or excluded from our site
criteria could change, altering the potential of a site. The uncertainty and
instability of the factors included in these criteria are beyond our control,
and we will not be responsible for the failure of a site approved by us to meet
expectations as to potential revenue or operational criteria. (Franchise
Agreement, Section 4.1).
2. We may, on a case by case basis and in our sole discretion, sublease
your Store site to you or assign an existing lease for the site to you. The
terms of the sublease are explained in Item 6 of this Offering Circular, under
Note 8, and in Item 10 of this Offering Circular. If we elect to assign an
existing lease to you, you must obtain the release of us from obligations under
the lease, and the lease must comply with the requirements in the Franchise
Agreement for third party leases generally. (Franchise Agreement, Section
4.2(b)). If we are not currently leasing the site, you must negotiate an
acceptable lease for the site from an independent third party and obtain our
approval of the lease. (Franchise Agreement, Section 4.2(a)). Neither we nor any
of our Affiliates own the sites of any existing Pretzel Time Stores.
3. If you are developing a new Pretzel Time Store, we will provide you
with prototypical plans and specifications, including requirements for exterior
and interior materials and finishes, dimensions, design, image, interior layout,
decor, fixtures, furnishings, equipment, color schemes and signs. We will
provide these materials to you following execution of the Franchise Agreement.
(Franchise Agreement, Section 4.3(a) and Item 8 of this Offering Circular.)
4. We will provide you, through the Operations Manuals and other
written materials to be furnished after you execute the Franchise Agreement, the
standards and specifications for the fixtures, furnishings, equipment (which may
in the future include computer hardware and software) and signs that
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we require and have approved as meeting our specifications and standards for
quality, design, appearance, function and performance and which you must use.
(Franchise Agreement, Sections 4.4 and 5.2 and also Item 8 of this Offering
Circular).
5. If you are developing a new store, we will provide our standard
grand opening marketing and public relations programs and media and advertising
materials to you at least 10 days before store opening, upon your payment to us
for those materials, as explained in Item 5 of this Offering Circular.
(Franchise Agreement, Section 4.6).
6. We will provide an initial training program for you (or if you are
an Entity, for one of your principal owners) and for your initial store manager
(if different from you). You (or one of your principle owners) and any manager
of your Store must successfully complete all phases of the training program. All
training occurs at our corporate headquarters at 2855 East Cottonwood Parkway,
Suite 400, Salt Lake City, Utah 84121, or any other location designated by us.
The initial training program lasts 6 days and consists of 4 days of classroom
instruction and 2 days of on-site job training. Training classes are offered
once each month. In addition to the in-class and on-the-job training described
below, a typical trainee will spend between 6 and 10 hours during the course on
recommended homework. We distribute training materials, which include our
Operations Manuals and laminated job aids, at various times during the training
course. All of the training sessions are taught by full-time instructors with at
least 7 years of experience with us or our Affiliates.
The Pretzel Time training program will cover the following areas:
<TABLE>
<CAPTION>
==================================================================================================
Subject Time Hours of Hours of Instruction Instructor
Hours Classroom On-the job Materials
Training Training
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Marketing 1 1 -- Selling Solutions, Marketing
Communications Department &
Packet Trainer
- --------------------------------------------------------------------------------------------------
Real Estate/Leasing 1/2 1/2 -- Reference Manual Real Estate
Department &
Trainers
- --------------------------------------------------------------------------------------------------
Accounting, 6 4 2 Profitlink Director of
Waste Management Accounting System Training &
Payroll Management Outside
speaker
- --------------------------------------------------------------------------------------------------
Staffing/Human 4 4 -- Situational Director of
Resources Leadership Training &
Reference Manual Trainers
- --------------------------------------------------------------------------------------------------
Store Operations, 20 14 6 Operations Manuals, Trainers
Customer Service, Product Procedures,
Equipment Repair, Videos, Register
Safety laboratory
- --------------------------------------------------------------------------------------------------
Product Preparation 16 8 8 Operations Manuals, Trainers
Product Procedures
- --------------------------------------------------------------------------------------------------
Cleaning Procedures 2 1 1
==================================================================================================
</TABLE>
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===============================================================================
Subject Time Hours of Hours of Instruction Instructor
Hours Classroom On-the job Materials
Training Training
- -------------------------------------------------------------------------------
Purchasing 1/2 1/2 -- Handouts Purchasing
Department
- -------------------------------------------------------------------------------
Total 50 33 17
================================================
We provide training for you (or one of your principal owners, if you are an
Entity) and the initial store manager (if different from you) free of charge;
however, you are responsible for all travel and living expenses incurred during
the training program. Store manager training is mandatory and must be completed
before store opening. All training must be completed to our satisfaction and
must be completed no more than 60 days before the opening of your Store.
Replacement store managers must also complete the initial training; however, you
will be required to pay the current fees for that training, as explained in Item
6 of this Offering Circular. (Franchise Agreement, Section 5.1). Replacement
store managers are also responsible for living and travel expenses during
training. Under no circumstances should you permit your Store to be managed by
a person who has not completed all phases of your training program to our
satisfaction (Franchise Agreement, Section 5.1).
During Operation:
- ----------------
During the operation of your franchised business, we will:
1. Loan you one copy of our store operating standards manual and one copy
of our product procedures manual (the "Operations Manuals"), as described in
Section 5.2 of the Franchise Agreement, or make the Operations Manuals available
to you electronically. The Operations Manuals will contain mandatory and
suggested specifications, standards and operating procedures that we require for
your Store and information about your other obligations. We may modify the
Operations Manuals to reflect changes in the image, specifications, standards,
procedures, Pretzel Time Products and "System Standards" (as defined in Section
1.2(n) of the Franchise Agreement and discussed in Section 7.1 of the Franchise
Agreement). However, we will not make any addition or modification that will
alter your fundamental status and rights as a franchisee. The Operations Manuals
are confidential and will remain our property. You may not copy any part of the
Operations Manuals, either physically or electronically. If your copy of the
Operations Manuals is lost, destroyed or significantly damaged, we will provide
you with a replacement copy, at our then applicable charge. (Franchise
Agreement, Section 5.2). The Tables of Contents of the Operations Manuals and
the number of pages devoted to each subject as of December 31, 1997, as well as
the total number of pages in the Operations Manuals, are set forth at Schedule 5
to this Offering Circular.
2. Provide training for any replacement store managers, as explained above
(Franchise Agreement, Section 5.1).
3. Furnish you guidance and operating assistance, at your request, about
(a) methods, standards, specifications and operating procedures to be utilized
in your Store; (b) purchasing required fixtures, furnishings, equipment, signs,
materials, supplies, Pretzel Time Products; and (c) advertising and promotional
programs. Although we do not have an obligation to do so, we may advise you of
operating problems of your Store that come to our attention. We may furnish this
guidance and assistance in the form of references to the Operations Manuals,
bulletins and other written materials, telephonic conversations or consultations
at our offices or at your Store. We will not be liable to you or
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any other person, and you waive all claims for liability or damages of any type
(whether direct, indirect, incidental, consequential, or exemplary), on account
of any guidance or operating assistance offered by us, except to the extent
caused by our gross negligence or intentional misconduct. We will make no
separate charge to you for the operating assistance and guidance we customarily
provide to our franchisees generally. We may make special assistance programs
available to you; however, you will be required to pay the daily fees and
charges that we establish for the special assistance programs. (Franchise
Agreement, Section 5.3).
4. Provide you with the System Standards referred to above. We may modify
the System Standards periodically and the modifications may obligate you to
invest additional capital in your Store and to incur higher operating costs. We
will not obligate you to invest additional capital at a time when the investment
cannot in our reasonable judgment be amortized during the remaining term of the
Franchise Agreement. (Franchise Agreement, Section 7.1). We may furnish System
Standards in the form of references to the Operations Manuals, bulletins and
other written materials.
5. Provide advertising and marketing services to you as explained below.
We and our Affiliates currently utilize point of purchase printed
advertising for the sale of Pretzel Time Products, goods and services at Pretzel
Time Retail Outlets. We do not currently utilize electronic media such as radio
or television. Our advertising is done at the local store level, although the
materials used are produced for national distribution at all Pretzel Time Retail
Outlets including those owned and operated by our Affiliates. We may also
conduct coupon promotions. We typically conduct these promotions on a regional
basis. We currently use our in-house marketing staff and national advertising
firms for to create, distribute and produce advertising materials.
We are not required to spend any particular amount on advertising in the
area in which your Store is located.
You may use advertising materials prepared by you if the materials (a)
comply with the requirements of Articles 8 and 10 of the Franchise Agreement,
(b) are completely clear and factual and not misleading, and (c) conform to the
highest standards of ethical marketing and promotion policies which we may
require. Before use, you must submit to us for approval all press releases and
policy statements and samples of all local advertising, marketing and related
materials not prepared or previously approved by us. We will not unreasonably
withhold our approval. You may only use pamphlets, brochures, cards or other
promotional materials offering free Pretzel Time Products, if prepared by us,
unless otherwise approved in advance by us. However, we will give favorable
consideration to your use of free product cards developed by you, if the cards
clearly state that they may only be redeemed at stores owned by you. If we do
not give you written approval of any advertising or other promotional materials
within 15 days from the date of receipt by us of the materials, we will be
deemed to have disapproved the submission. You may not use any advertising,
marketing or related materials that we have disapproved. You must list your
Store in the principal telephone directories distributed in your metropolitan
area. (Franchise Agreement, Section 9.2).
You must pay to us a weekly marketing fee of 1% to 3% of your Store's Gross
Revenues. The marketing fee for 1998 is 1% of Gross Revenues. Thereafter, we
will notify you annually of the exact percentage you must pay as a marketing
fee, except for any year in which the percentage is to remain unchanged from the
preceding year. With the possible exception of 1 franchisee with 2 Pretzel Time
Stores in New York who does not contribute marketing fees, you will not be
required to pay more than other franchisees in your market area. You must pay
marketing fees weekly by pre-authorized electronic bank transfer, at the same
time that you pay continuing fees (Franchise Agreement, Sections 6.3, 6.4 and
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9.1(a)). Pretzel Time Stores owned by us or our Affiliates in the same market
area as you will contribute marketing fees on the same basis as you (Franchise
Agreement, Section 9.1(a)). As of the date of this Offering Circular, we do not
organize, maintain or otherwise make use of advertising cooperatives, nor do we
require you to join one, although we reserve the right to do so in the future.
There is no advertising council composed of franchisees that advise us. We may,
however, consult with some members of the franchise advisory group on marketing
issues.
We will administer the marketing fees we collect and direct all marketing
programs financed by the marketing fees, with sole discretion over the creative
concepts, materials and endorsements used and the geographic, market and media
placement and allocation. We may use the marketing fees we collect to meet any
and all costs of maintaining, administering directing and preparing advertising
materials and marketing programs, including: purchasing direct mail and other
media marketing; employing advertising, promotion and marketing agencies;
supporting public relations; conducting market research; implementing and
testing Trade Dress and design prototypes; and other advertising, promotion and
marketing activities. At our sole discretion, we may use marketing fees to
prepare, furnish and/or offer for sale to you advertising, marketing and
promotional formats and materials, as further described below.
We will account for the marketing fees we collect separately from our other
funds, although we may not establish a separate marketing fund or bank account
for such fees. We may use the marketing fees we collect to defray the salaries,
employee benefits, administrative costs and overhead we may incur in activities
related to our marketing programs, including conducting market research,
preparing advertising, promotion and marketing materials and collecting and
accounting for the marketing fees we collect. We will prepare an annual
statement of moneys collected and costs incurred for our marketing programs and
make this statement available to you upon your request. You will not, however,
receive a periodic accounting of how marketing fees are spent. We may in the
future create a marketing fund to be operated by us or through another form of
entity separate from us. (Franchise Agreement, Section 9.1(c)).
We intend to use the marketing fees we collect to maximize recognition of
the Pretzel Time Trademarks as well as to increase patronage of Pretzel Time
Stores. Although we will endeavor to utilize the marketing fees to develop
advertising and marketing materials and programs and to place advertising that
will benefit all Pretzel Time Stores, we cannot ensure you that our expenditure
of marketing fees in or affecting any geographic area will be proportionate or
equivalent to the marketing fees paid to us by Pretzel Time Stores operating in
that geographic area or that any Pretzel Time Store will benefit directly or in
proportion to the marketing fees it pays to us from the development of
advertising and marketing materials or the placement of advertising. (Franchise
Agreement, Section 9.1(d)).
From time to time, we may provide you with copies of advertising, marketing
and promotional formats and materials for use in your Store, which we or our
advertising agencies have prepared. You are only required to pay the shipping
and handling costs for these items. We may also offer you the option of
purchasing other advertising, marketing and promotional formats and materials
prepared by us or our advertising agencies that are suitable for use at local
Pretzel Time Stores. If you elect to purchase such items from us, we will
provide them to you at our cost plus a reasonable mark-up and any shipping,
handling and storage charges. Finally, we may develop and market special
mandatory promotional items for Pretzel Time Stores. You may be required to
maintain a representative inventory of these promotional items to meet public
demand. We will make these items available to you at our cost plus a reasonable
mark-up and any shipping, handling and storage charges. You will have the right
to purchase alternative promotional items if the alternative items conform to
the specifications and quality standards we establish and you obtain our prior
written approval. All payments to us for the items described in this paragraph
are nonrefundable and cannot be applied against the weekly marketing fees that
you are
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<PAGE>
required to pay to us, as further described in Item 6 of this Offering Circular
and above (Franchise Agreement, Section 9.3).
In the past year, marketing fee contributions have been used as follows:
(i) production: 28%; (ii) media placement: 0%; (iii) administrative expenses:
12%; (iv) franchise solicitation: 15%; and (v) other: 45%. The other category
includes such materials as point of purchase materials, corporate
communications, public relations, product shots, promotions, training materials,
giveaways, research and sales tools.
In addition to the marketing fees you pay to us, you must also spend on
advertising any amount required under your lease or sublease. Those amounts
typically vary from lease to lease, and therefore, franchisees are not obligated
to spend the same amount on local advertising and marketing. (Franchise
Agreement, Section 9.2). If you are developing a new Pretzel Time Store, you
must also conduct a grand opening advertising and promotion program as explained
above in this Item 11 and in Item 5 of this Offering Circular.
In addition to the information provided in this Item 11 about advertising
and marketing, you should review the material in Items 6, 8 and 9 of this
Offering Circular.
6. In operating your Store, you must purchase and use the number of
electronic cash registers necessary for the size of your store. Currently, we do
not require that you purchase a particular brand or model of electronic cash
register, although any electronic cash register you use must be capable
collecting and generating sales data and category totals and transaction count
totals. In the future, you will be responsible for any and all upgrades to your
electronic cash registers, as we determine to be necessary. In addition, we
reserve the right in the future to have independent access to the information
and data you collect and gather.
7. As of the date of this Offering Circular, we do not require you to use
any computer hardware or software in the operation of your Store. We reserve the
right in the future, however, to require you to purchase, install and use
computer hardware and software which meet our specifications and standards, as
modified by us from time to time. If we require you to install and use any
computer hardware and software in your Store, you will be allowed to purchase
these items from any supplier who can satisfy our standards and specifications.
You may, however, be required at your sole expense to upgrade these items from
time to time to meet our then current standards and specifications. We reserve
the right to have independent access to the information and data you collect and
gather using any computer hardware and software we require.
8. If you are developing a new Pretzel Time Store, we estimate that there
will be an interval of between 60 to 120 days between the execution of the
Franchise Agreement and the opening of your Store. The interval may vary
depending upon factors such as the weather, your ability to acquire a suitable
site, the location and condition of the site, your ability to obtain any
necessary financing and building, zoning or other permits and approvals,
construction delays, and so forth. If you are acquiring the assets of an
existing Store, the interval between execution of the Franchise Agreement and
opening your Store is typically 30 to 120 days. Also, you may not open your
Store for business until: (a) we approve the store; (b) pre-opening training of
you and the store personnel has been completed to our satisfaction; (c) the
initial franchise fee and all other amounts then due to us have been paid in
full; (d) the lease documentation has been executed and all other documentation
for development of your Store has been completed; and (e) we have been furnished
with copies of all required insurance policies or other evidence of insurance
coverage and payment of premiums as we may require. You must then
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open your Store for business within 5 days after we notify you that the
conditions for opening outlined above have been satisfied. (Franchise Agreement,
Section 4.5).
Area Developer obligations relating to Pretzel Time Stores.
- ----------------------------------------------------------
If your Store is located in a shopping mall within an Area Developer's
Territory, the Area Developer is contractually obligated, pursuant to the
applicable Development Agreement with us, to provide certain services to you.
Depending on the form of Area Development Agreement, these services may include
assisting with site selection, providing store opening assistance, periodically
visiting and evaluating the operations of each Store, providing additional
training, marketing the Pretzel Time System in the Area Developer's Territory,
providing System Standards and furnishing guidance and operating assistance. For
providing these services to franchisees in shopping malls within their
Territories, Area Developers receive a percentage of the initial franchise fee
and the continuing fees paid to us by such franchisees. If an Area Developer
fails to perform any of our obligations listed in this Item 11, however, we will
perform such obligations. See Items 1 and 2 of this Offering Circular for a
further description of our Area Developers and their respective Territories.
Our obligations relating to the TCBY Concept.
- --------------------------------------------
If you are granted the right to add the TCBY Concept to the Premises of
your Store:
1. We will furnish you prototypical plans and specifications for the
addition of the TCBY Concept, including requirements for exterior and interior
materials and finishes, dimensions, design, image, interior layout, decor,
fixtures, equipment, signs, furnishings and color scheme. We will provide these
materials to you following execution of the Yogurt Addendum. (Yogurt Addendum,
Paragraph 11).
2. Either we or TCBY will provide an initial TCBY training program for you
(or if you are an Entity, for one of your principal owners) and for your initial
store manager (if different from you). You (or one of your principal owners) and
any manager of your Store must successfully complete all phases of the TCBY
training program.
Although not obligated to do so, TCBY may agree to provide the initial TCBY
training program to you. In such event, you are required to attend the TCBY
training program conducted by TCBY. TCBY's training program consists of classes
conducted at its offices in Little Rock, Arkansas or at other designated
locations and on-the-job training at a TCBY Store. Classes are held periodically
(more or less frequently as needed) and will last approximately 7 days. However,
TCBY may require you to continue training for a longer period of time as TCBY
may deem reasonably necessary, but not to exceed 20 days. TCBY's training
program is conducted by experienced instructors who are employees of TCBY.
TCBY's initial TCBY training program will cover the following areas:
================================================================================
Subject Time Hours of Hours of Instruction Instructor
Hours Classroom On-the job Materials
Training Training
- --------------------------------------------------------------------------------
Introduction to 1.5 1.5 -- Handout TCBY
Franchise Training Instructors
================================================================================
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<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Subject Time Hours of Hours of Instruction Instructor
Hours Classroom On-the job Materials
Training Training
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Introduction to .5 .5 -- Manuals TCBY Instructors
Operating Manual
- ------------------------------------------------------------------------------------------------------------
Customer Service 3 3 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Taylor Machine 6 6 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Product Handling 1.25 1.25 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Opening Procedures 1.5 1.5 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Menu Item Preparation 4.25 4.25 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Closing Procedures 1.5 1.5 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Store Operations 15 -- 15 -- TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Forms/Paperwork 1 1 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Pie & Cake Preparation 4 4 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
ProSource, Americana 1 1 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Inventory/Flavor 1 1 -- Manuals TCBY Instructors
Scheduling
- ------------------------------------------------------------------------------------------------------------
Practical Operational 2.25 2.25 -- Manuals TCBY Instructors
Strategies
- ------------------------------------------------------------------------------------------------------------
Employee Selecting, 1 1 -- Handout TCBY Instructors
Hiring, Interviewing
- ------------------------------------------------------------------------------------------------------------
Marketing 1.5 1.5 -- Manuals TCBY Instructors
- ------------------------------------------------------------------------------------------------------------
Total 46.25 31.25 15
=========================================================================
</TABLE>
If TCBY provides the initial TCBY training program to you (or one of your
principal owners, if you are an Entity) and your initial store manager (if
different from you), it will do so free of charge. You are responsible, however,
for all travel and living expenses incurred during the training program.
If TCBY does not agree the provide the initial TCBY training program to you
(or one of your principal owners, if you are an Entity) and your initial store
manager (if different from you), we will provide a similar training program at
our corporate headquarters in Salt Lake City, Utah or any other location
designated by us. We will provide the training program free of charge; however,
you are responsible for all travel and living expenses incurred during the
training program.
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<PAGE>
Regardless of whether the initial TCBY training program is provided by TCBY
or us, the training program is mandatory and must be completed before you sell
TCBY Yogurt Products from the Premises of your Store. All training must be
completed to TCBY's and/or our satisfaction. Replacement store managers must
also complete the initial TCBY training program; however, you will be required
to pay the current fees for that training. (Yogurt Addendum, Paragraph 12).
Replacement store managers are also responsible for living and travel expenses
during training. Under no circumstances should you permit your Store to be
managed by a person who has not completed all phases of the initial TCBY
training program to TCBY's and/or our satisfaction. (Yogurt Addendum, Paragraph
12).
3. We or TCBY will loan you one copy of the TCBY Operations Manual, as
described in Paragraph 13 of the Yogurt Addendum, or make the TCBY Operations
Manual available to you electronically. The TCBY Operations Manual will contain
mandatory and suggested specifications, standards and operating procedures that
TCBY prescribes for TCBY Stores and contains information about your other
obligations. TCBY may modify the TCBY Operations Manual to reflect changes in
the image, specifications, standards, procedures, TCBY Yogurt Products and
"System Standards" (as defined in Paragraph 4(d) of the Yogurt Addendum and
discussed in Paragraph 16 of the Yogurt Addendum). However, with the exception
of certain remodeling requirements described in Paragraph 35 of the Yogurt
Addendum, we or TCBY will not make any addition or modification that will alter
your fundamental status and rights as a franchisee. The TCBY Operations Manual
is confidential and will remain TCBY's property. You may not copy any part of
the TCBY Operations Manual, either physically or electronically. If your copy of
the TCBY Operations Manual is lost, destroyed or significantly damaged, we or
TCBY will provide you with a replacement copy, at TCBY's then applicable charge.
(Yogurt Addendum, Paragraph 13). The Table of Contents of the TCBY Operations
Manual and the number of pages devoted to each subject as of December 31, 1997,
as well as the total number of pages in the TCBY Operations Manual, are set
forth at Schedule 5 to this Offering Circular.
4. We will furnish you guidance and operating assistance, at your request,
about (a) methods, standards, specifications and operating procedures to be
utilized in your TCBY Concept; and (b) purchasing required fixtures,
furnishings, equipment, signs, materials, supplies, TCBY Yogurt Products.
5. We or TCBY will provide you with the System Standards referred to
above. We and/or TCBY may modify the System Standards periodically and the
modifications may obligate you to invest additional capital in your TCBY Concept
and to incur higher operating costs. Except for certain remodeling requirements
described in Paragraph 35 of the Yogurt Addendum, neither we nor TCBY will
obligate you to invest additional capital at a time when the investment cannot
in our reasonable judgment be amortized during the remaining term of the Yogurt
Addendum. (Yogurt Addendum, Paragraph 16). We or TCBY may furnish System
Standards in the form of references to the TCBY Operations Manual, bulletins and
other written materials.
6. If you are adding the TCBY Concept to the Premises of a Pretzel Time
Store, we estimate that there will be an interval of between 30 to 120 days
between the execution of the Yogurt Addendum and the opening of your TCBY
Concept. The interval may vary depending upon factors such as the weather you
are adding the TCBY Concept to the Premises of a new or existing Pretzel Time
Store, the location and condition of the site, your ability to obtain any
necessary financing and building, zoning or other permits and approvals,
construction delays, and so forth.
7. As described in Item 6 of this Offering Circular, you are required to
pay to us a marketing fee on the Gross Revenues for the sale of TCBY Yogurt
Products from the Premises of your
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<PAGE>
Store. All marketing fees we collect, however, will be used for advertising and
marketing programs for the Pretzel Time System, and not the TCBY System. TCBY
has a created a national advertising fund to be used by TCBY to develop national
advertising programs and materials for the TCBY System. Currently, you are not
required to directly contribute to the national advertising fund. You may,
however, be required in the future to contribute up to 3% of your Gross Revenues
each year (in addition the marketing fee) to a regional or local advertising
cooperative created by TCBY and/or its franchisees for TCBY Stores. As of the
date of this Offering Circular, you are not required to contribute to any
advertising cooperative.
ITEM 12. TERRITORY
Pretzel Time Franchisees:
- ------------------------
Franchises are granted for a specific location and are NOT exclusive. You
may not operate your Store at any other site without our prior written consent.
Except for catering events or offering samples of products at or directly in
front of your Store, you may not offer for sale or sell the products or services
of your Store or any materials, supplies, or inventory bearing the Pretzel Time
Trademarks at any site other than your Store premises without our prior written
consent.
You may not relocate your Store unless we require relocation in connection
with the grant of a successor franchise agreement. If you lose the right to
possess the premises where you are operating your Store, we have the right to
terminate your Franchise Agreement. Also, as a franchisee, you do not have any
right to acquire additional Pretzel Time Stores or franchises.
We and our Affiliates retain the right to do the following: (1) sell and
franchise and license others to sell Pretzel Time Products and other items and
services offered by Pretzel Time Retail Outlets under the Trademarks and other
trademarks and service marks through Pretzel Time Retail Outlets on any terms
and conditions and at any location that we deem appropriate; (2) sell and
license and franchise others to sell any other products or services under the
Trademarks (including items such as refrigerated ready-to-bake cookie dough sold
through various retail outlets); (3) own, operate and grant others the right to
own or operate Pretzel Time Stores, other Pretzel Time Retail Outlets, or other
dessert and snack food businesses at the locations and on the terms and
conditions as we, in our sole discretion, deem appropriate. In addition, as
discussed in Item 1, we or one of our Affiliates may acquire or actively seek to
acquire businesses or franchise systems that are your competitors and such
competitors may have locations near your Store, including locations within the
same shopping mall. These activities may compete with you. These activities
may compete with you.
We enter into licensing and franchising arrangements with other individuals
and entities, granting those individuals and entities exclusive territorial
rights which may restrict your rights to locate your Store in certain locations.
Any restrictions in effect will be explained to you as part of the site
selection process for your Store.
Pretzel Time Area Developers:
- ----------------------------
As further described in Items 1 and 2 of this Offering Circular, we have
granted certain Area Developers the right to develop, own and operate a
specified number of Pretzel Time Stores at approved shopping mall locations
within a defined Territory. If an Area Developer has the rights to the Territory
in which your Store is located or if an Area Developer's Territory is close to
the location of your Store, the Stores developed in such Territory, either by
the Area Developer, us or some other third-party, may compete with you.
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<PAGE>
Rights of Pretzelmaker and Pretzelmaker-Canada:
- ----------------------------------------------
Pretzelmaker and Pretzelmaker-Canada grant geographic areas around each
Pretzelmaker Store (usually limited to the shopping mall in which the Store is
located) within which they will not, except in certain circumstances relating to
alternative distribution licensees, establish and operate or franchise others to
establish and operate Pretzelmaker Stores. Subject to the preceding sentence,
our Affiliates, Pretzelmaker and Pretzelmaker-Canada, specifically retain the
right to do the following: (1) sell and franchise and license others to sell
Pretzelmaker products and other items and services offered by Pretzelmaker
Stores under the Pretzelmaker trademarks and other trademarks and service marks
through Pretzelmaker Stores on any terms and conditions and at any location that
Pretzelmaker or Pretzelmaker-Canada deems appropriate; (2) sell and license and
franchise others to sell any other products or services under the Pretzelmaker
trademarks (including items such as refrigerated ready-to-bake dough sold
through various retail outlets); and (3) own, operate and grant others the right
to own or operate Pretzelmaker Stores or other dessert and snack food businesses
at the locations and on the terms and conditions as Pretzelmaker or
Pretzelmaker-Canada in its sole discretion, deems appropriate. These activities
may compete with you.
Rights of MFOCI:
- ---------------
One of our Affiliates, MFOCI, specifically reserves the rights described in
this paragraph. As described in Item 1 above, MFOCI currently owns and operates
Hot Sam Pretzel and Bakery Stores, and grants licenses and franchises for the
operation of and/or owns and operates Mrs. Fields Cookie Stores and Original
Cookie Company Stores. In addition, MFOCI retains the right to do the following:
(1) sell and franchise and license others to sell Hot Sam products and other
items and services offered by Hot Sam Pretzel Bakery Stores under the Hot Sam
trademarks and other trademarks and service marks through Hot Sam Pretzel Bakery
Stores on any terms and conditions and at any location that MFOCI deems
appropriate; (2) sell and license and franchise others to sell any other
products or services under the Hot Sam trademarks; (3) own, operate and grant
others the right to own or operate Hot Sam Pretzel Bakery Stores or other baked
goods and snack food businesses at the locations and on the terms and conditions
as MFOCI, in its sole discretion, deems appropriate; (4) sell and franchise and
license others to sell Mrs. Fields products and other items and services offered
by Mrs. Fields Retail Outlets under the Mrs. Fields trademarks and other
trademarks and service marks through Mrs. Fields Retail Outlets on any terms and
conditions and at any location that MFOCI deems appropriate; (5) sell and
license and franchise others to sell any other products or services under the
Mrs. Fields trademarks (including items such as refrigerated ready-to-bake
cookie dough sold through various retail outlets); and (6) own, operate and
grant others the right to own or operate Mrs. Fields Cookie Stores, or other
dessert and snack food businesses at the locations and on the terms and
conditions as MFOCI, in its sole discretion, deems appropriate. These activities
may compete with you.
Rights of GACC:
- --------------
One of our Affiliates, GACC, specifically reserves the rights described in
this paragraph. As described in Item 1 above, GACC currently owns and operates
and has granted licenses and franchises for the operation of Great American
Cookie Company Stores. In addition, GACC retains the right to do the following:
(1) sell and franchise and license others to sell Great American Cookie Company
products and other items and services offered by Great American Cookie Company
Stores under the Great American Cookie Company trademarks and other trademarks
and service marks through Great American Cookie Company Stores on any terms and
conditions and at any location that GACC deems appropriate; (2) sell and license
and franchise others to sell any other products or services under the Great
American Cookie Company trademarks (including items such as proprietary batter,
dough and other ingredients for
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<PAGE>
making cookies); and (3) own, operate and grant others the right to own or
operate Great American Cookie Company Stores or other dessert and snack food
businesses at the locations and on the terms and conditions as GACC, in its sole
discretion, deems appropriate. These activities may compete with you.
TCBY Concept:
- ------------
If you are granted the right to add the TCBY Concept to the Premises of
your Store, you will NOT receive an exclusive territory or any territorial
rights. We and our Affiliates reserve the right to: (1) add the TCBY Concept to
any new or existing Pretzel Time Retail Outlet, whether franchised, licensed or
owned by us or our Affiliates, at any location we deem appropriate; and (2)
establish franchises, licenses or businesses owned by us our Affiliates at any
locations we deem appropriate or distribute products or services through
alternative channels of distribution selling products or services similar to the
TCBY Yogurt Products under trade names, trademarks, service marks, trade dress
or other commercial symbols other than the TCBY Trademarks. TCBY and its
affiliates also reserve the right to: (1) operate or grant other persons the
right to operate TCBY Stores at such locations and on such terms and conditions
as TCBY deems appropriate; (2) sell the TCBY Yogurt Products and other products
and services authorized for TCBY Stores under the TCBY Trademarks or other
trademarks, service marks and commercial symbols through similar or dissimilar
channels of distribution and pursuant to such terms and conditions as TCBY deems
appropriate, such products and/or services may include, but shall not be limited
to, soft serve frozen yogurt, hard pack pints, refrigerated yogurt, novelty
frozen yogurt items, and other refrigerated and frozen yogurt items as TCBY or
its affiliates may develop from time to time; and (3) establish franchises,
licenses or businesses owned by TCBY or its affiliates at any locations TCBY
deems appropriate or distribute products or services through alternative
channels of distribution selling products or services similar to the TCBY Yogurt
Products under trade names, trademarks, service marks, trade dress or other
commercial symbols other than the TCBY Trademarks. An affiliate of TCBY produces
frozen yogurt, frozen yogurt mix, premium ice cream and ice cream specialty
products for sale to a variety of customers including hotels, restaurants,
clubs, independent ice cream stores, department stores, supermarkets and grocery
stores. The frozen yogurt and frozen yogurt mix sold by that affiliate are of a
different quality than TCBY frozen yogurt mix. An affiliate of TCBY sells
flavoring and other ingredients for dairy products, which eventually may be used
to produce dairy products which could indirectly compete with frozen yogurt
products generally. TCBY sells products bearing the TCBY Trademarks to large
retail companies, which sales may compete with sales of identical products by
you, but these sales are not deemed by TCBY to compete with sales of soft-serve
products. Currently, neither
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<PAGE>
TCBY nor any affiliate operates or franchises the operation of any business
selling under different trademarks goods or services similar to, or competitive
with, those to be offered for sale by you.
ITEM 13. TRADEMARKS
Pretzel Time Trademarks:
- -----------------------
Under the Franchise Agreement, we license you to use the Pretzel Time
Trademarks in the operation of your Store. The following is a summary of the
principal Pretzel Time Trademarks, all of which are registered on the Principal
Register of the U.S. Patent and Trademark Office. No affidavits of use have
been filed as of the date of this Offering Circular as none are required at this
time.
-43A-
<PAGE>
MARK REGISTRATION NO. REGISTRATION DATE APPLICATION
---- ---------------- ----------------- BASED ON
--------
Pretzel Time and 1,778,178 June 22, 1993 Intent to Use
Design (Stylized)
Pretzel Time 1,857,037 October 4, 1994 Actual Use
Clock Design
Pretzel Time 1,875,649 January 24, 1995 Actual Use
Store Design
FITNESS WITH 1,937,330 November 21, 1995 Actual Use
A TWIST
There are no currently effective material determinations of the U.S. Patent
and Trademark Office, trademark trial and appeal board, the trademark
administrator of any state, or any court, nor are there any pending
interference, opposition or cancellation proceedings or any pending material
litigation, involving any of the registered Pretzel Time Trademarks described
above. There are no agreements currently in effect which significantly limit
our rights to use or franchise the use of any of the Pretzel Time Trademarks.
Your right to use the Pretzel Time Trademarks is derived solely from the
Franchise Agreement and is limited to your conduct of business pursuant to and
in compliance with the Franchise Agreement and all applicable standards,
specifications, operating procedures and rules that we require. Your
unauthorized use of the Pretzel Time Trademarks will constitute a breach of the
Franchise Agreement and an infringement of our rights in the Pretzel Time
Trademarks. Your use of the Pretzel Time Trademarks and any goodwill
established by your use will benefit us exclusively. The Franchise Agreement
does not confer any goodwill or other interests in the Pretzel Time Trademarks
on you other than the right to operate your Store in compliance with the
Franchise Agreement. All rights in and goodwill from the use of our trademarks
accrue solely to us. All provisions of the Franchise Agreement applicable to
the Pretzel Time Trademarks will apply to any additional proprietary trade and
service marks and commercial symbols that we authorize for use by you in the
future.
You must use the applicable Pretzel Time Trademarks as the sole
identification of your Store, and you must identify yourself as the independent
owner in the manner we require. You may not use any Pretzel Time Trademark as
part of any corporate or trade name or with any prefix, suffix or other
modifying words, terms, designs or symbols (other than logos franchised to you
under the Franchise Agreement), or in any modified form, nor may you use any
Pretzel Time Trademark in performing or selling any unauthorized services or
products or in any other manner not expressly authorized in writing by us. You
must display the applicable Pretzel Time Trademarks prominently at your Store,
on supplies or materials designated by us, and on packaging materials, forms,
labels and advertising and marketing materials. You must display all applicable
Pretzel Time Trademarks in the manner we require, and you must use the
registration symbol "(R)" in using the registered Pretzel Time Trademarks. You
must refrain from any business or marketing practice which may be injurious to
our business and the good will associated with the Pretzel Time Trademarks or
Pretzel Time Stores.
If we decide that it is advisable at any time, in our sole discretion, for
us or you to modify or discontinue use of any Pretzel Time Trademark or use one
or more additional or substitute trade or
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<PAGE>
service marks, you must comply with our directions to modify or discontinue the
use of the Pretzel Time Trademark or use one or more additional or substitute
trade or service marks within a reasonable time after notice from us. We will
reimburse you for your reasonable direct expenses in modifying or discontinuing
the use of a Pretzel Time Trademark and substituting a different trademark or
service mark. However, we are not obligated to reimburse you for any loss of
goodwill associated with any modified or discontinued Pretzel Time Trademark or
for any expenditures made by you to promote a modified or substitute trademark
or service mark.
You must immediately notify us of any apparent infringement of or challenge
to your use of any Pretzel Time Trademark or claim by any person of any rights
in any Pretzel Time Trademark, and you must not communicate with any person
other than us or our counsel about the infringement, challenge or claim. We
have sole discretion to take the action we deem appropriate and the right to
control exclusively any litigation, U.S. Patent and Trademark Office proceeding
or any other administrative or court proceeding concerning any Pretzel Time
Trademark. You must execute any instruments and documents, render assistance and
do those things as, in the opinion of our legal counsel, may be necessary or
advisable to protect and maintain our interests in any litigation or U.S. Patent
and Trademark Office or other proceeding or otherwise to protect and maintain
our interests in the Pretzel Time Trademarks.
We will indemnify you against and reimburse you for all damages for which
you are held liable in any proceeding arising out of your authorized use of any
Pretzel Time Trademark and for all costs you reasonably incur in defending any
claim brought against you or any proceeding in which you are named as a party,
if you have timely notified us of the claim or proceeding and have otherwise
complied with the requirements of the Franchise Agreement. At our option, we
are entitled to defend and control the defense of any proceeding arising out of
your authorized use of any Pretzel Time Trademark.
To our actual knowledge, there are no superior prior rights or infringing
uses which could materially affect your use of any Pretzel Time Trademark in any
state.
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<PAGE>
TCBY Trademarks:
- ---------------
If you are granted the right to add the TCBY Concept to the Premises of
your Store, you are authorized to operate your TCBY Concept under the name
"TCBY" and may use the TCBY Trademarks in conjunction with the operation of your
Store. The following TCBY Trademarks are registered by TCBY on the principal
register of the United States Patent and Trademark Office:
"TCBY" THE COUNTRY'S Registration No. 1,367,174
BEST YOGURT (logo form) Issued October 22, 1985
(Service Mark)
"TCBY" THE COUNTRY'S Registration No. 1,415,194
BEST YOGURT Issued October 28, 1986
(Trademark)
TCBY YOGURT Registration No. 1,338,536
(Service Mark) Issued May 28, 1985
TCBY Registration No. 1,415,353
(Service Mark) Issued October 28, 1986
TCBY Registration No. 1,463,784
(Trademark) Issued June 11, 1985
ALL THE PLEASURE Registration No. 1,341,713
NONE OF THE GUILT. Issued June 11, 1985
(Service Mark)
TCBY and Cone with Design Registration No. 1,550,397
(Trademark) Issued August 1, 1989
TCBY and Cone with Design Registration No. 1,643,075
(Service Mark) Issued April 30, 1991
There are no presently effective determination of the United States Patent
and Trademark Office, the trademark administrator of any state or any court, or
pending interference, opposition or cancellation proceeding or pending material
litigation involving the TCBY Trademarks. There are no agreements currently in
effect that significantly limit the right of TCBY or us to use or license the
use of the TCBY Trademarks in any material manner. You must follow certain
rules when you use these TCBY Trademarks. You cannot use the TCBY Trademarks as
part of a corporate name or with modified words, designs, or symbols unless the
Yogurt Addendum specifically permits. You may not use any TCBY Trademarks in
connection with the sale of an unauthorized product or service or in any manner
not authorized in writing. You must notify us immediately when you learn about
an infringement of or challenge to your use of a TCBY Trademark and must give
TCBY and/or us or its or our designees complete control of the defense. TCBY
and/or we will take the action TCBY thinks appropriate. The Yogurt Addendum
does not require TCBY or us to participate in your defense and/or indemnify you
for expenses or damages if you are a party to an administrative or judicial
proceeding involving a TCBY Trademark licensed by us to you or if the proceeding
is resolved unfavorably to you.
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<PAGE>
You must modify or discontinue the use of a TCBY Trademark if TCBY modifies
or discontinues it. If this happens, TCBY is required, pursuant to the TCBY Sale
Agreement, to reimburse you for out-of-pocket costs of compliance. You are not
permitted, directly or indirectly, to contest TCBY's right to its TCBY
Trademarks, trade secrets, or business techniques that are part of its business.
TCBY does not know of any infringing uses that could materially affect your
use of the TCBY Trademarks.
ITEM 14. PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
Pretzel Time Store:
- ------------------
Except as noted below, we and our Affiliates do not own any patents or
copyrights which are material to the Franchise.
We claim copyrights in the Operations Manuals, construction plans,
specifications and materials, printed advertising, promotional, sales, training
and management materials and in related items you will use in operating your
Franchise. We have not registered these copyrights with the U.S. Registrar of
Copyrights. You may use the Operations Manuals and other materials during the
term of the Franchise Agreement.
There are currently no effective determinations of the U.S. Copyright
Office or any court regarding any of the copyrights. There are no agreements
currently in effect which significantly limit our rights to use or franchise the
copyrighted materials. Also, there are no superior prior rights or infringing
uses actually known to us which could materially affect your use of the
copyrighted materials in any state.
Your right to use the copyrights is derived solely from the Franchise
Agreement and is limited to your conduct of business in compliance with the
Franchise Agreement and all applicable standards, specifications, operating
procedures and rules that we require. Your unauthorized use of the copyrights
will constitute a breach of the Franchise Agreement and an infringement of our
rights in the copyrights. Your use of the copyrights and any goodwill
established by your use will benefit us exclusively. The Franchise Agreement
does not confer any goodwill or other interests in the copyrights upon you other
than the right to operate your Store in compliance with the Franchise Agreement.
All rights in and goodwill from the use of the copyrights will accrue solely to
us. All provisions of the Franchise Agreement applicable to the copyrights will
apply to any additional copyrighted materials that we authorize for use by you
in the future.
If we decide that it is advisable at any time in, our sole discretion, for
us or you to modify or discontinue use of any of the materials in which we claim
copyrights, you must comply with our directions to modify or discontinue the use
of those materials within a reasonable time after notice from us. We will
reimburse you for your reasonable direct expenses in modifying or discontinuing
the use of those materials and in substituting different materials specified by
us. However, we are not obligated to reimburse you for any loss of goodwill
associated with the modification or discontinuation of any materials in which we
claim copyrights or for any expenditures made by you in connection with your use
of those materials.
You must immediately notify us if you learn that any person may be using
our copyrighted materials without our consent or authorization. You must also
immediately notify us of any challenge to your use of any copyright or claim by
any person of any rights in any copyright. You must not
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<PAGE>
communicate with any person other than us or our counsel about any challenge or
claim to any copyright. We have sole discretion to take the action we deem
appropriate and the right to control exclusively any litigation, U.S. Copyright
Office proceeding or any other administrative proceeding concerning any
copyright. You must execute any instruments and documents, render assistance and
do those things as, in the opinion of our legal counsel, may be necessary or
advisable to protect and maintain our interests in any litigation or Copyright
Office or other proceeding or otherwise to protect and maintain our interests in
the copyrights.
We will compensate and reimburse you for all damages for which you are held
liable in any proceeding arising out of your authorized use of any copyright and
for all costs you reasonably incur in defending any claim brought against you or
any proceeding in which you are named as a party, if you have timely notified us
of the claim or proceeding and have complied with your obligations under the
Franchise Agreement. At our option, we are entitled to defend and control the
defense of any proceeding arising out of your use of any copyright.
We also own the Confidential Information and claim copyrights in the
Confidential Information. The Confidential Information includes trade secrets
and is our proprietary information. Portions of the Confidential Information
required in the operation of your business will be communicated to you. However,
you will not acquire any interest in any Confidential Information, other than
the right to utilize Confidential Information disclosed to you in operating your
Store during the term of the Franchise Agreement. The use or duplication of any
Confidential Information in any other business will constitute an unfair method
of competition and a violation of your Franchise Agreement. We only disclose the
Confidential Information to you on the condition that you agree:
(i) Not to use Confidential Information in any other business or
capacity;
(ii) To maintain the absolute confidentiality of Confidential
Information during and after the term of the Franchise Agreement;
(iii) Not to make unauthorized copies of any portion of Confidential
Information disclosed in written or other tangible form; and
(iv) To adopt and implement all reasonable procedures that we require
to prevent unauthorized use or disclosure of Confidential Information,
including restrictions on disclosure of Confidential Information to your
employees and to comply with requirements that we may impose that certain
key employees execute confidentiality agreements as a condition of
employment.
We and our Affiliates will own and have the perpetual right to use and
authorize other Pretzel Time Stores to use, and you must fully and promptly
disclose to us, all ideas, concepts, formulas, recipes, methods and techniques
about the development or operation of a pretzel bakery, dessert or retail snack
food business conceived or developed by you or your employees during the term of
the Franchise Agreement. You must not, however, test, offer or sell any new
products without our prior written consent.
TCBY Concept:
- ------------
You do not receive the right to use an item covered by a patent or
copyright if you are granted the right to add the TCBY Concept to the Premises
of your Store. You may use the proprietary information in the TCBY Operations
Manual, as described in Item 11 of the Offering Circular, if you meet the
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limitations outlined in the Pretzel Time Franchise Agreement and Yogurt
Addendum. Although TCBY has not filed an application for a copyright
registration for the TCBY Operations Manual, it claims a copyright, and the
information is proprietary. You must promptly inform us when you learn about an
unauthorized use of this proprietary information. Neither we nor TCBY are
obligated to take any action but will respond to this information as we or TCBY
thinks appropriate.
ITEM 15. OBLIGATION TO PARTICIPATE IN THE ACTUAL
OPERATION OF THE FRANCHISE BUSINESS
Pretzel Time Store:
- ------------------
We recommend that you participate personally in the direct operation of
your Store, although you are not specifically obligated to do so by the
Franchise Agreement. However, you must manage your Store using a full time "on
premises" manager. The manager need not have an ownership interest in a
franchisee that is an Entity. The manager of your Store must complete all phases
of our training program to our satisfaction and must participate in all other
activities required to open your Store. We also require all replacement managers
to satisfactorily complete all phases of our training program.
If you are an Entity, each Entity Owner will be required to sign a Guaranty
of Agreement in the form of Exhibit B guaranteeing your obligations under the
Franchise Agreement.
We may require each manager of a Pretzel Time Store to execute a
confidentiality agreement in our favor as a condition of employment as a store
manager. In addition, we may require each manager of a Pretzel Time Store to
agree to the non-competition covenants described in Item 17.A. of this Offering
Circular.
You and each other Restricted Person will be bound by the non-competition
covenants described in Item 17.A.q. and Item 17.A.r. of this Offering Circular.
TCBY Concept:
- ------------
If you are granted the right to add the TCBY Concept to the Premises of
your Store, the manager of your Store and any replacement managers must complete
all phases of the initial TCBY training program to our and/or TCBY's
satisfaction. In addition, we may require each manager to agree to the non-
competition covenants described in Item 17.B. of this Offering Circular.
Finally, you and each other Restricted Person will be bound by the non-
competition covenants described in Item 17.B.q. and Item 17.B.r. of this
Offering Circular.
ITEM 16. RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
Pretzel Time Store:
- ------------------
In operating your Store, you may offer for sale only those Pretzel Time
Products that we approve from time to time for you to sell at the Premises. The
Operations Manuals explain the Pretzel Time Products that you initially are
authorized to offer at your Store. In the future, we may change or add to the
Pretzel Time Products that you are authorized to offer at the Premises. We
typically base our determination of whether to allow you to offer an expanded
line of Pretzel Time Products on our evaluation of your compliance, over time,
with the System Standards described in Section 7.1 of the Franchise Agreement,
with particular emphasis on those related to quality. We do not base our
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determinations on sales or marketing quotas, volumes or results. You should also
refer to Item 8 of this Offering Circular for information with respect to
required purchases of certain items.
Your lease may also impose other obligations or restrictions with respect
to the types of products that you may offer from your premises, and you must
comply with those restrictions and obligations even if they would prevent you
from offering certain Pretzel Time Products that we have approved for you to
offer.
You do not have to sell all the Pretzel Time Products we authorize. We
designate some various pretzels and toppings as optional. The required Pretzel
Time Products are: (1) the regular salted and buttered pretzel; (2) sweet
mustard, cheddar cheese, cream cheese, honey glaze, cinnamon sugar, sour cream
and onion and garlic toppings; (3) Coke; (4) Diet Coke; (5) a decaffeinated
carbonated drink; (6) 2 other carbonated drinks (fruit and flavored); (7) fruit
punch; and (8) lemonade.
You are generally not restricted in the retail customers to whom you may
sell products and services. However, without our prior written consent, you may
not offer Pretzel Time Products approved for sale or services of your Store or
any materials, supplies, or inventory bearing the Trademarks at any site other
than your Store premises (other than catering events and the offering of Pretzel
Time Product samples at or directly in front of your Store). In addition, you
may not offer for sale any materials, supplies or inventory used in the
preparation of any of the Pretzel Time Products. You may only sell finished
Pretzel Time Products that have been approved for sale at your Store and only to
retail customers, and you may not sell any Pretzel Time Products to any person
or entity purchasing the Pretzel Time Products for resale. In addition, you may
not use the site of your Store for any purpose other than the operation of a
Pretzel Time Store.
You may use only pamphlets, brochures, cards or other promotional materials
offering free Pretzel Time Products that we have prepared, unless otherwise
approved by us in advance. However, we will give favorable consideration to
your use of free product cards developed by you, if the cards clearly state that
they may only be redeemed at Pretzel Time Stores owned by you.
We and our Affiliates will have the perpetual right to own and use and
authorize other Pretzel Time Stores to use, and you will fully and promptly
disclose to us, all ideas, concepts, formulas, recipes, methods and techniques
about the development or operation of a bakery, dessert or snack food business
conceived or developed by you or your employees during the term of your
Franchise Agreement. You may not test, offer, or sell any new products without
our prior written consent.
TCBY Concept:
- ------------
If you are granted the right to add the TCBY Concept to the Premises of
your Store, you may offer for sale only those TCBY Yogurt Products that TCBY
approves from time to time for you to sell at the Premises.
ITEM 17. RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
The following tables list important provisions of the franchise and related
agreements pertaining to renewal, termination, transfer and dispute resolution.
You should read these provisions in the agreements attached to this Offering
Circular.
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A. Franchise Agreement
-------------------
<TABLE>
<CAPTION>
Section in
Provision Franchise Agreement Summary
<S> <C> <C>
a. Term of the Franchise Section 3.1 Initial term is 7 years. Unless
Agreement renewed, the Franchise Agreement
will terminate on expiration of
initial term.
b. Renewal or extension of the Sections 3.2 and 13.5 You may renew for 1 additional
term 7-year term if you are not in
default. You may also have the
opportunity to obtain a successor
Franchise Agreement as provided in
Section 13.5.
c. Requirements for you to Section 3.2 You give us at least 180 days
extend or renew prior notice; you sign new
agreement (which may include
different or additional fees and
performance criteria); at our
request, you refurbish and remodel
the premises; at our request, you
execute a general release; you
have complied with all agreements
with us during the initial term;
you have satisfied all monetary
obligations; and you retain the
premises for the renewal term.
d. Termination by you Section 13.4 You may terminate if we are in
default.
e. Termination by us without Section 13.3 We may terminate if you fail to
cause satisfactorily complete the
required training or if you fail
to begin your Store operations
within 180 days after execution of
the Franchise Agreement; see also
"17.A.a." above.
f. Termination by us with cause Sections 13.1 and 13.2 We can terminate if you are in
default of the Franchise Agreement
or any other agreement with us or
our Affiliates; see also "17.A.o."
below.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
g. "Cause" defined--defaults Sections 13.1 and 13.2 (1) Cleanliness and sanitation
which can be cured violations may be cured within 48
hours of notice of violation; (2)
payment defaults of the Franchise
Agreement or any other agreement
with us or our Affiliates may be
cured within 10 days of notice of
nonpayment; (3) involuntary
bankruptcy or other involuntary
insolvency events are defaults if
not discharged within 60 days; and
(4) any other default of the
Franchise Agreement or any other
agreement with us or our
Affiliates not listed above or in
"17.A.h." below may be cured
within 30 days after written
notice of default.
h. "Cause" defined--defaults Sections 13.1 and 13.2 Non-curable defaults:
which cannot be cured (1) voluntary bankruptcy or other
voluntary insolvency events; (2)
unauthorized transfers; (3)
material misstatements or
omissions; (4) you are convicted
or plead no contest to a felony;
(5) you engage in detrimental
conduct; (6) unauthorized use of
the Trademarks or Confidential
Information; (7) abandonment of or
failure to actively operate your
Store; (8) you are in breach of
your obligations under your lease
or sublease of the Premises or you
lose the right of possession of
your Store premises; (9) you store
or use "out-of-code" products in
violation of the System Standards;
(10) understatement of Gross
Revenues by more than 2%; (11)
failure to pay uncontested taxes;
(12) failure to make payments
after 10 days' written notice;
(13) repeated defaults, even if
cured; or (14) you default on any
financing obligations.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
i. Your obligations on Sections 6.5, 7.8, 8.2, 8.3, 10.5, Payments of amounts due, late
termination/nonrenewal 10.8, 12.3(l), 14.2, 14.3, 14.4, charges, and interest;
14.6, 15.6 and Article 18 of the continuation of releases and
Franchise Agreement waivers; retain records and permit
audits; not disclose Confidential
Information; discontinue use of
Trademarks; deliver to us all
signs, equipment, supplies and
materials displaying the
Trademarks; cancel any fictitious
or assumed name certificates; make
required changes to premises;
assign telephone listings; dispose
of non-returnable supplies and
materials; indemnification; and
continuation of general
provisions; see also "17.A.o." and
"17.A.r." below.
j. Assignment of contract by us Section 12.1 No restriction on our right to
assign.
k. "Transfer" by you-- definition Section 1.2(p) Includes transfer of agreement or
ownership change.
l. Our approval of transfer by Sections 12.2, 12.3 and 12.4 We must approve all transfers but
you will not unreasonably withhold
approval if specified requirements
are met; transfers to a
wholly-owned corporation do not
require our consent.
m. Conditions for our approval Section 12.3 Transferee qualifies; your
of transfer obligations are paid and you are
not in default; transferee agrees
to complete training and assumes
obligations under existing
agreement; transfer fee paid;
release signed by you; we approve
terms of transfer; you subordinate
any obligations of the transferee
to you to the transferee's
obligations to us; any required
landlord consents are obtained;
you agree not to use the
Trademarks; see also "17.A.r."
below.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
n. Our right of first refusal to Section 12.5 We can match any offer for your
acquire your business business or for a Controlling
Interest in you; see also
"17.A.r." below.
o. Our option to purchase your Section 14.5 and Article 16 We have an option to purchase your
business Store upon termination of the
agreement unless we are in default
or you have entered into a
successor Franchise Agreement.
Under the security agreement
contained in Article 16 of the
Franchise Agreement, we can
foreclose and acquire the assets
of your Store if you default.
p. Your death or disability Section 12.6 You must transfer your interest in
the Franchise Agreement or your
Controlling Interest in an Entity
developer within 6 months, to a
transferee approved by us.
q. Non-competition covenants Sections 11.1, 11.3, 11.4 and 18.1 No interest in or services for a
during the term of the Franchise Competitive Business within 1 mile
Agreement of your Store or within 1 mile of
any Pretzel Time Retail Outlet, as
applicable; no solicitation of
employees.
r. Non-competition covenants Sections 11.2, 11.3, 11.4, No interest in or services for a
after the Franchise Agreement is 12.3(j), 12.5(c) and 18.1 Competitive Business within 1 mile
terminated or expires of your Store or 1 mile of any
Pretzel Time Retail Outlet for 1
year, if we don't purchase your
Store (see "17.A.o." above) or for
3 years, if we do purchase your
Store (including after a transfer
or exercise of your right of first
refusal, for a 3 year period).
s. Modification of the Franchise Sections 11.4, 18.1, 18.2 and 18.7 Subject to automatic modification
Agreement to conform to mandatory provisions
of applicable law. Other
modifications require mutual
consent.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
t. Integration/merger clause Section 18.14 Only the terms of the Franchise
Agreement are binding (subject to
state law). Any other promises
may be unenforceable.
u. Dispute resolution by Section 17.4 Except for certain claims not
arbitration or mediation subject to arbitration, all
disputes must be arbitrated in
Salt Lake City, Utah.
v. Choice of forum Section 17.6 Litigation must be in the State of
Utah.
w. Choice of law Section 17.5 Utah law applies unless governed
by applicable federal law.
</TABLE>
B. Yogurt Addendum
---------------
<TABLE>
<CAPTION>
Section in Yogurt Addendum (and
Provision Franchise Agreement where Summary
applicable)
<S> <C> <C>
a. Term of the Yogurt Addendum Paragraph 9 Initial term coincides with the
initial term of the Franchise
Agreement unless the TCBY Sales
Agreement is terminated or the
Franchise Agreement is terminated.
b. Renewal or extension of the Paragraph 10 You may renew at the time you
term renew the Franchise Agreement, if
you are not in default and the
Yogurt Addendum is still in effect
at the time of renewal. The
renewal term shall continue during
the renewal term of the Franchise
Agreement until the earliest of:
the termination or expiration of
the TCBY Sales Agreement, or the
termination of the Franchise
Agreement.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
c. Requirements for you to Paragraph 10 In addition to satisfying all of
extend or renew the renewal requirements in the
Franchise Agreement and renewing
the Franchise Agreement, you are
not in default under the Yogurt
Addendum and sign our then current
form of TCBY Yogurt Product
Addendum (which may include
different or additional fees and
performance criteria).
d. Termination by you Section 13.4 of the Franchise You may terminate if we are in
Agreement default.
e. Termination by us without Paragraph 26 We may terminate if you fail to
cause satisfactorily complete the
required TCBY training or if you
fail to begin operation of your
TCBY Concept within 180 days after
execution of the Yogurt Addendum;
see also "17.B.a" and "17.B.b"
above.
f. Termination by us with cause Paragraph 26; Sections 13.1 and We can terminate if you are in
13.2 of the Franchise Agreement default of the Yogurt Addendum,
the Franchise Agreement or any
other agreement with us or our
Affiliates; see also "17.B.o."
below.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
g. "Cause" defined--defaults Paragraph 25; Sections 13.1 and (1) Cleanliness and sanitation
which can be cured 13.2 of the Franchise Agreement violations may be cured within 48
hours of notice of violation; (2)
payment defaults of the Yogurt
Addendum, Franchise Agreement or
any other agreement with us or our
Affiliates may be cured within 10
days of notice of nonpayment; (3)
involuntary bankruptcy or other
involuntary insolvency events are
defaults if not discharged within
60 days; and (4) any other default
of the Yogurt Addendum, Franchise
Agreement or any other agreement
with us or our Affiliates not
listed above or in "17.B.h." below
may be cured within 30 days after
written notice of default.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
h. "Cause" defined--defaults Paragraph 26; Sections 13.1 and Non-curable defaults:
which cannot be cured 13.2 of the Franchise Agreement (1) voluntary bankruptcy or other
voluntary insolvency events; (2)
unauthorized transfers; (3)
material misstatements or
omissions; (4) you are convicted
or plead no contest to a felony;
(5) you engage in detrimental
conduct; (6) unauthorized use of
the TCBY Trademarks or
Confidential Information; (7)
abandonment of or failure to
actively operate your TCBY
Concept; (8) you are in breach of
your obligations under your lease
or sublease of the Premises or you
lose the right of possession of
the Premises; (9) you store or use
"out-of-code" products in
violation of the System Standards;
(10) understatement of Gross
Revenues by more than 2%; (11)
failure to pay uncontested taxes;
(12) failure to make payments
after 10 days' written notice;
(13) repeated defaults, even if
cured; or (14) you default on any
financing obligations.
i. Your obligations on Paragraphs 25, 27, 30 and 32; Payments of amounts due, late
termination/nonrenewal Sections 6.5, 7.8, 8.2, 8.3, 10.5, charges, and interest;
10.8, 15.6 and Article 18 of the continuation of releases and
Franchise Agreement waivers; retain records and permit
audits; not disclose Confidential
Information; discontinue use of
TCBY Trademarks; deliver to us all
signs, equipment, supplies and
materials displaying the TCBY
Trademarks; cancel any fictitious
or assumed name certificates; make
required changes to the Premises;
dispose of non-returnable supplies
and materials; indemnification;
and continuation of general
provisions; see also "17.A.o."
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
j. Assignment of contract by us Paragraph 25 No restriction on our right to
assign.
k. "Transfer" by you-- definition Paragraph 4(f); Section 1.2(p) of Includes transfer of Yogurt
the Franchise Agreement Addendum or ownership change.
l. Our approval of transfer by Paragraph 25; and Sections 12.3 We must approve all transfers but
you and 12.4 of the Franchise Agreement will not unreasonably withhold
approval if specified requirements
are met; transfers to a
wholly-owned corporation do not
require our consent.
m. Conditions for our approval Paragraph 25; and Section 12.3 of Transfer is in conjunction with
of transfer the Franchise Agreement the transfer of the Franchise
Agreement, transferee qualifies;
your obligations are paid and you
are not in default; transferee
agrees to complete TCBY training
and assumes obligations under
existing agreement; transfer fee
paid; release signed by you; we
approve terms of transfer; you
subordinate any obligations of the
transferee to you to the
transferee's obligations to us;
any required landlord consents are
obtained; you agree not to use the
TCBY Trademarks.
n. Our right of first refusal to Section 12.5 of the Franchise We can match any offer for your
acquire your business Agreement business or for a Controlling
Interest in you; see also
"17.B.r." below.
o. Our option to purchase your Paragraph 29; Section 14.5 of the In addition to our option to
business Franchise Agreement purchase your Store upon
termination of the Franchise
Agreement, we also have an option
to purchase your TCBY Concept upon
the termination of this Addendum.
p. Your death or disability Paragraph 25; Section 12.6 of the You must transfer your interest in
Franchise Agreement the Yogurt Addendum or your
Controlling Interest in an Entity
developer within 6 months, to a
transferee approved by us.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
q. Non-competition covenants Paragraphs 4(a) and 23; Sections No interest in or services for a
during the term of the Yogurt 11.1, 11.3, 11.4 and 18.1 of the Competitive Business and no
Addendum Franchise Agreement solicitation of employees.
r. Non-competition covenants Paragraphs 24; Sections 11.3, No interest in or services for a
after the Yogurt Addendum is 11.4, 12.3(j), 12.5(c) and 18.1 of Competitive Business within 1 mile
terminated the Franchise Agreement of the Premises your Store or 1
mile of the Premises of any
Pretzel Time Retail Outlet which
contains a TCBY Concept for 1
year, if we don't purchase your
TCBY Concept (see "17.B.o." above)
or for 3 years, if we do purchase
your TCBY Concept (including after
a transfer or exercise of your
right of first refusal, for a 3
year period).
s. Modification of the Yogurt Paragraph 36; Sections 11.4, 18.1, Subject to automatic modification
Addendum 18.2 and 18.7 of the Franchise to conform to mandatory provisions
Agreement of applicable law. Other
modifications require mutual
consent.
t. Integration/merger clause Paragraph 36; Section 18.14 of the Only the terms of the Yogurt
Franchise Agreement Addendum and the Franchise
Agreement are binding (subject to
state law). Any other promises
may be unenforceable.
u. Dispute resolution by Section 17.4 of the Franchise Except for certain claims not
arbitration or mediation Agreement subject to arbitration, all
disputes must be arbitrated in
Salt Lake City, Utah.
v. Choice of forum Section 17.6 of the Franchise Litigation must be in the State of
Agreement Utah.
w. Choice of law Section 17.5 of the Franchise Utah law applies unless governed
Agreement by applicable federal law.
</TABLE>
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C. Sublease
--------
<TABLE>
<CAPTION>
Provision Section in Sublease Summary
<S> <C> <C>
a. Term of the agreement Sections 3.1, 3.2, and 3.4 On termination of Franchise
Agreement or one day before
termination of Master Lease.
b. Renewal or extension of the Section 3.1(b) If you are not in default and the
term Master Lease would expire before
the Franchise Term ends and the
Master Lease contains renewal
options, we will exercise the
renewal options at your request.
c. Requirements for you to None Not Applicable
extend or renew
d. Termination by you None Not Applicable
e. Termination by us without None Not Applicable
cause
f. Termination by us with cause Section 12.2 We can terminate if you are in
default.
g. "Cause" defined--defaults Section 12.1 (1) Monetary defaults may be cured
which can be cured within 10 days of due date;
(2) involuntary bankruptcy or other
involuntary insolvency events are
defaults if not discharged within
60 days; and
(3) any other default not listed above
or in "h." below may be cured within
15 days after written notice.
h. "Cause" defined--defaults Section 12.1 Non-curable defaults: (1)
which cannot be cured voluntary bankruptcy or other
voluntary insolvency events; (2)
unauthorized assignments or
subleases; (3) abandonment of or
failure to actively operate your
Store; (4) breach of the Master
Lease or the Franchise Agreement;
or (5) repeated defaults, even if
cured.
</TABLE>
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<TABLE>
<CAPTION>
Provision Section in Sublease Summary
<S> <C> <C>
i. Your obligations on Sections 3.2 and 3.3 Surrender premises, repair damage
termination/ nonrenewal caused by removal of personal
property.
j. Assignment of contract by us Section 11.3 No restriction on our right to
assign.
k. "Transfer" by you-- definition Sections 11.1 and 11.2 No assignments or subleases
without our consent.
l. Our approval of transfer by Sections 11.1 and 11.2 Our approval of proposed
you assignments or subleases is at our
sole discretion.
m. Conditions for our approval None Not Applicable
of transfer
n. Our right of first refusal to None Not Applicable
acquire your business
o. Our option to purchase your None Not Applicable
business
p. Your death or disability None Not Applicable
q. Non-competition covenants None Not Applicable
during the term of the agreement
r. Non-competition covenants None Not Applicable
after the agreement is
terminated or expires
s. Modification of the agreement Section 13.13 Modifications must be in writing
and signed by all parties.
t. Integration/merger clause Section 13.13 Only the terms of the Sublease
Agreement are binding (subject to
state law). Any other promises
may be unenforceable.
u. Dispute resolution by None Not Applicable
arbitration or mediation
v. Choice of forum None Not Applicable
w. Choice of law Section 13.9 The law of the state in which the
premises are located governs.
</TABLE>
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<PAGE>
NOTE: SEE THE STATE SPECIFIC ADDENDUM TO THIS OFFERING CIRCULAR FOR MORE
INFORMATION REGARDING ITEM 17.
ITEM 18. PUBLIC FIGURES
We do not use any public figure to promote our franchise.
ITEM 19. EARNINGS CLAIMS
We do not furnish or authorize our sales persons to furnish any oral or
written information concerning the actual or potential sales, costs, income or
profits of a Pretzel Time Store or a TCBY Concept. Actual results vary from
store to store, and we cannot estimate the results of any particular franchise.
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<PAGE>
ITEM 20. LIST OF OUTLETS
PRETZEL TIME STORES - FRANCHISED STORES
STATUS SUMMARY FOR YEARS 1995/1996/1997/1/
<TABLE>
<CAPTION>
Total Franchises
Cancelled or Reacquired Left The From Left Operating at Year
State Transfers Terminated Not Renewed By Us System Other Columns (2) End
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 0/1/0 0/1/0 1/3/3
- ----------------------------------------------------------------------------------------------------------------------------------
Arizona/3/ 0/0/5 0/0/5 5/6/6
- ----------------------------------------------------------------------------------------------------------------------------------
California/3/ 0/0/24 0/1/1 0/1/25 29/30/29
- ----------------------------------------------------------------------------------------------------------------------------------
Colorado 0/0/2 0/2/0 0/1/0 0/3/2 3/0/2
- ----------------------------------------------------------------------------------------------------------------------------------
Connecticut 3/0/1 3/0/1 8/9/11
- ----------------------------------------------------------------------------------------------------------------------------------
Delaware 1/1/1
- ----------------------------------------------------------------------------------------------------------------------------------
District of 0/1/0 0/1/0 0/0/0
Columbia
- ----------------------------------------------------------------------------------------------------------------------------------
Florida 0/1/0 0/1/0 0/2/0 9/13/14
- ----------------------------------------------------------------------------------------------------------------------------------
Georgia 1/0/0 0/1/0 1/1/0 7/11/11
- ----------------------------------------------------------------------------------------------------------------------------------
Idaho/3/ 0/0/3 0/0/3 3/3/3
- ----------------------------------------------------------------------------------------------------------------------------------
Illinois/3/ 0/0/3 0/0/3 3/3/3
- ----------------------------------------------------------------------------------------------------------------------------------
Indiana/3/ 0/0/4 0/0/4 4/4/4
- ----------------------------------------------------------------------------------------------------------------------------------
Iowa/3/ 0/0/2 0/0/2 2/2/2
- ----------------------------------------------------------------------------------------------------------------------------------
Kansas 2/2/2
- ----------------------------------------------------------------------------------------------------------------------------------
Louisiana 1/1/0 1/1/0 0/0/0
- ----------------------------------------------------------------------------------------------------------------------------------
Maine 1/1/1
- ----------------------------------------------------------------------------------------------------------------------------------
Maryland 8/8/8
- ----------------------------------------------------------------------------------------------------------------------------------
Massachusetts 0/1/0 0/1/0 2/0/0 2/0/0 4/2/0 5/5/5
- ----------------------------------------------------------------------------------------------------------------------------------
Michigan/3/ 0/0/2 0/1/0 0/1/2 3/2/2
- ----------------------------------------------------------------------------------------------------------------------------------
Minnesota/3/ 0/1/4 0/1/4 4/4/4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
==================================================================================================================================
Total Franchises
Cancelled or Reacquired Left The From Left Operating at Year
State Transfers Terminated Not Renewed By Us System Other Columns (2) End
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Missouri 0/1/1 0/1/1 11/14/16
- ----------------------------------------------------------------------------------------------------------------------------------
Montana 0/0/2 0/0/2 2/2/0
- ----------------------------------------------------------------------------------------------------------------------------------
Nebraska (3) 0/0/3 0/0/3 3/3/3
- ----------------------------------------------------------------------------------------------------------------------------------
Nevada (3) 0/0/2 0/0/2 2/3/3
- ----------------------------------------------------------------------------------------------------------------------------------
New Hampshire 2/2/3
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey 3/3/4
- ----------------------------------------------------------------------------------------------------------------------------------
New Mexico 2/2/2
- ----------------------------------------------------------------------------------------------------------------------------------
New York 2/3/0 2/0/0 2/1/0 6/4/0 12/16/16
- ----------------------------------------------------------------------------------------------------------------------------------
North Carolina 4/4/5
- ----------------------------------------------------------------------------------------------------------------------------------
Ohio 1/0/0 1/0/0 2/2/4
- ----------------------------------------------------------------------------------------------------------------------------------
Oklahoma 1/1/1
- ----------------------------------------------------------------------------------------------------------------------------------
Oregon (3) 0/0/1 0/0/1 1/1/1
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania 0/1/0 0/1/0 2/2/4
- ----------------------------------------------------------------------------------------------------------------------------------
South Carolina 1/1/2
- ----------------------------------------------------------------------------------------------------------------------------------
South Dakota (3) 0/0/1 0/0/1 1/1/1
- ----------------------------------------------------------------------------------------------------------------------------------
Tennessee 2/1/0 2/1/0 3/3/3
- ----------------------------------------------------------------------------------------------------------------------------------
Texas (3) 0/0/15 0/0/15 17/21/21
- ----------------------------------------------------------------------------------------------------------------------------------
Utah (3) 0/0/4 0/0/4 6/6/6
- ----------------------------------------------------------------------------------------------------------------------------------
Virginia (4) 0/4/5
- ----------------------------------------------------------------------------------------------------------------------------------
Washington (3) 0/0/7 0/0/7 8/7/7
- ----------------------------------------------------------------------------------------------------------------------------------
West Virginia (4) 0/1/1
- ----------------------------------------------------------------------------------------------------------------------------------
Wisconsin (3) 0/0/2 0/0/2 2/2/2
- ----------------------------------------------------------------------------------------------------------------------------------
Wyoming 0/0/1 0/1/0 0/1/1 1/0/1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-65-
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
Total Franchises
Cancelled or Reacquired Left The From Left Operating at Year
State Transfers Terminated Not Renewed By Us System Other Columns (2) End
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alberta (3) 0/0/2 0/0/2 2/2/2
- ----------------------------------------------------------------------------------------------------------------------------------
Ontario 8/0/0 0/9/0 8/9/0 8/0/0
- ----------------------------------------------------------------------------------------------------------------------------------
Totals 16/10/89 0/1/2 0/0/0 4/3/0 6/17/1 26/31/92 195/211/224
==================================================================================================================================
</TABLE>
(1) All numbers are as of December 31 for each year. The numbers are for our
directly-licensed Pretzel Time Stores.
(2) The numbers in the "Total" column may exceed the number of stores
affected because several events may have affected the same store. For
example, a store may have been reacquired by us and the franchisee may
have left the system.
(3) In July 1997, MFPCI, a wholly-owned subsidiary of MFHCI, purchased a
total of 79 Pretzel Time Stores located in the States of Arizona,
California, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota,
Nebraska, Nevada, Oregon, South Dakota, Texas, Utah, Washington and
Wisconsin and the Province of Alberta from one of our Area Developers,
H&M Concepts Ltd. Co. See Part 2 of Schedule 6 to this Offering Circular
for a list of the Pretzel Time Stores that MFPCI purchased from H&M
Concepts Ltd. Co. At the time of the purchase, MFPCI entered into an Area
Development Agreement with us for all of the states listed above except
Texas, and a franchise agreement with us for all of the Pretzel Time
Stores. MFPCI operated the 79 Pretzel Time Stores as our franchisee until
MFPCI merged into MFOCI on November 26, 1997. Since the merger, MFOCI has
operated the 79 Pretzel Time Stores as our franchisee.
(4) On June 12, 1998, MFOCI purchased a total of 5 Pretzel Time Stores
located in the States of Virginia and West Virginia from one of our
former Area Developers, Virginia Concepts, Inc. See Part 1 of Schedule 6
to this Offering Circular for a list of the Pretzel Time Stores that
MFOCI purchased from Virginia Concepts, Inc. At the time of the purchase,
Virginia Concepts, Inc. transferred to MFOCI the respective Area
Development Agreement and 5 franchise agreements it had entered into with
us. Since the purchase, MFOCI has operated the 5 Pretzel Time Stores as
our franchisee.
-66-
<PAGE>
PRETZEL TIME STORES - COMPANY OWNED
STATUS SUMMARY FOR YEARS 1995/1996/1997
<TABLE>
<CAPTION>
Company Stores
Stores Reacquired Total Company
Company Company Sold to from Stores
Stores Closed Stores Opened Franchisees Franchisees Operating at
State During Year During Year During Year During Year Year End
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alabama 1/0/0 0/0/0
- -------------------------------------------------------------------------------------------------------
Colorado 0/2/0 0/0/2 0/2/0 0/2/0
- -------------------------------------------------------------------------------------------------------
Connecticut 3/0/0 0/0/0
- -------------------------------------------------------------------------------------------------------
Louisiana 1/1/0 2/1/0 1/0/0
- -------------------------------------------------------------------------------------------------------
Massachusetts 2/0/0 2/0/0 2/0/0 0/0/0
- -------------------------------------------------------------------------------------------------------
New Mexico 2/0/0 0/0/0
- -------------------------------------------------------------------------------------------------------
New York 2/0/0 3/0/0 2/0/0 0/0/0
- -------------------------------------------------------------------------------------------------------
Ohio 1/0/0 2/1/0 0/0/1 1/1/0
- -------------------------------------------------------------------------------------------------------
Pennsylvania 1/1/0 1/0/0
- -------------------------------------------------------------------------------------------------------
South Carolina 1/1/0 0/0/1 1/1/0
- -------------------------------------------------------------------------------------------------------
Tennessee 3/0/0 0/0/0
- -------------------------------------------------------------------------------------------------------
Texas 2/1/0 0/1/0 1/0/0
- -------------------------------------------------------------------------------------------------------
Virginia 4/4/0 0/4/0 4/0/0
- -------------------------------------------------------------------------------------------------------
West Virginia 1/1/0 0/1/0 1/0/0
- -------------------------------------------------------------------------------------------------------
Wyoming 0/1/0 0/0/1 0/1/0 0/1/0
- -------------------------------------------------------------------------------------------------------
TOTALS 6/1/0 27/13/0 0/6/5 4/3/0 10/5/0
- -------------------------------------------------------------------------------------------------------
</TABLE>
As further described above, one of our Affiliates, MFOCI, operates a total
of 85 Pretzel Time Stores as a franchisee of us.
As of December 31, 1997, Franchise Agreements for 224 Pretzel Time Stores
were in effect and all of those stores were operational. A list of these
Pretzel Time Stores the franchisees, store addresses, and telephone numbers is
disclosed in Part 1 of Schedule 6 to this Offering Circular. Attached as Part 2
of Schedule 6 to this Offering Circular is a list of every Pretzel Time
franchisee who, during calendar year 1997, had an unit terminated, cancelled,
not renewed, or otherwise voluntarily or involuntarily ceased to do business
under the franchisee's franchise agreement or who has not communicated with us
within 10 weeks of the date of this Offering Circular.
-67-
<PAGE>
PRETZEL TIME STORES
PROJECTED OPENINGS
For Year Ending December 31, 1998
(projections as of December 31, 1997)
<TABLE>
<CAPTION>
Franchise Projected Projected
Agreements Franchised New Company Owned
Signed But Store Stores at Fiscal Openings at Fiscal
State Not Opened(1) Year End(1) Year End(1)
- -------------------------- ------------------------------ ------------------------------ ------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alaska 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Arizona 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Arkansas 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
California 0 1 3
- --------------------------------------------------------------------------------------------------------------------------
Connecticut 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Florida 0 3 1
- --------------------------------------------------------------------------------------------------------------------------
Georgia 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Illinois 0 1 1
- --------------------------------------------------------------------------------------------------------------------------
Indiana 0 2 0
- --------------------------------------------------------------------------------------------------------------------------
Kentucky 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Louisiana 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Maine 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Maryland 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Michigan 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Minnesota 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Mississippi 0 2 0
- --------------------------------------------------------------------------------------------------------------------------
Missouri 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Nebraska 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
New Jersey 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
New York 0 1 1
- --------------------------------------------------------------------------------------------------------------------------
Ohio 0 1 1
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-68-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pennsylvania 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
South Carolina 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Tennessee 0 2 0
- --------------------------------------------------------------------------------------------------------------------------
Virginia 0 1 0
- --------------------------------------------------------------------------------------------------------------------------
Washington 0 2 1
- --------------------------------------------------------------------------------------------------------------------------
Wisconsin 0 2 0
- --------------------------------------------------------------------------------------------------------------------------
TOTALS 0 34 8
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The projected numbers are estimates only. The actual number of
openings at the fiscal year ending December 31, 1998 may be more, less, or the
same number as projected in this chart. We offer franchises in a wide
geographical area. We cannot predict precisely how many franchises will be
granted in any particular state.
ITEM 21. FINANCIAL STATEMENTS
Attached as part of Schedule 3 are the consolidated balance sheets of MFOCI
and its subsidiaries as of January 3, 1998 and December 28, 1996, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the year ended January 3, 1998 and the period from inception
(September 18, 1996) to December 28, 1996, together with Report of Independent
Public Accountants. Also attached as part of Schedule 3 is the condensed
consolidated balance sheet (unaudited) of MFOCI and its subsidiaries as of April
4, 1998, and the related condensed consolidated statements of operations and
cash flows for the fiscal quarters ended April 4, 1998 and March 29, 1997
(unaudited).
The financial statements described above are the consolidated financial
statements of MFOCI, an Affiliate of us. Our financial statements are not
included in this Offering Circular. Should we fail to fulfill our obligations
to our franchisees, however, MFOCI unconditionally guarantees to fulfill such
obligations. In states where we have registered this franchise offering, a copy
of the written guarantee may be on file in the office of the administrator of
the state franchise law.
ITEM 22. CONTRACTS
The following agreements proposed for use regarding the offering of a
Pretzel Time Franchise are attached to this Offering Circular:
Exhibit A Franchise Agreement (with Acknowledgment Addendum,
Ownership Addendum, Authorization Agreement For
Prearranged Payments (Appendix A), TCBY Yogurt
Product Addendum and Satellite Unit Addendum)
Exhibit B Guaranty of Agreement
Exhibit C Reservation Letter
Exhibit D Sublease Agreement
-69-
<PAGE>
ITEM 23. RECEIPT
The last page of this Offering Circular is a detachable document
acknowledging your receipt of this Offering Circular. The Federal Trade
Commission requires that you promptly sign and return one copy of the Receipt to
us. This does not obligate you to purchase a franchise and it does not obligate
us to sell you a franchise.
-70-
<PAGE>
SCHEDULE 1
DEFINITIONS
1. "Affiliate," as used in relation to us, means any person or entity that
directly or indirectly owns or controls us, is directly or indirectly owned or
controlled by us or is under common control with us, now or in the future.
2. "Competitive Business" means any business operating, or granting
franchises or licenses to others to operate, a bakery, snack food or dessert
restaurant or retail outlet or any similar food service business, except for an
existing bakery, snack food or dessert restaurant or retail outlet or similar
food service business owned and operated by you, which has been disclosed to us
in writing prior to execution of this Agreement. If you enter into the Yogurt
Addendum, Competitive Business will also mean: (i) any business operating, or
granting franchises or licenses to others to operate a frozen yogurt or ice
cream restaurant or retail outlet or any other restaurant or retail outlet
serving principally frozen dairy products; and (ii) any business engaged in the
sale, manufacture, processing, or distribution of frozen yogurt, ice cream, or
other frozen dairy products, except for the ownership of securities listed on a
stock exchange or traded on the over-the-counter market that represent one
percent (1%) or less of that class of securities.
3. "Confidential Information" means any information relating to the
Pretzel Time Products or the development or operation of Pretzel Time Stores,
including site selection criteria; recipes and methods for the preparation of
Pretzel Time Products; methods, techniques, formats, specifications, systems,
procedures, sales and marketing techniques and knowledge of and experience in
the development and operation of Pretzel Time Stores; marketing programs for
Pretzel Time Stores; knowledge of specifications for and suppliers of certain
Pretzel Time Products, materials, supplies, equipment, furnishings and fixtures.
If you enter into the Yogurt Addendum, Confidential Information will also mean
any information relating to the TCBY Yogurt Products or the development and
operation of TCBY Stores.
4. "Controlling Interest" means an interest, the ownership of which
empowers the holder to exercise a controlling influence over the management,
policies or personnel of an Entity. Ownership of 10% or more of the equity or
voting securities of a corporation, limited liability company or limited
liability partnership or ownership of any general partnership interest in a
partnership shall be deemed conclusively to constitute a Controlling Interest in
the corporation, limited liability company, or partnership, as the case may be.
5. "Entity" means a corporation, general partnership, joint venture,
limited partnership, limited liability partnership, limited liability company,
trust, estate or other business entity.
6. "Entity Owner" means, with respect to an Entity, any shareholder owning
directly or beneficially 10% or more of any class of securities of the Entity;
any general partner or co-venturer in the Entity; any partner in a limited
liability partnership or member in a limited liability company owning directly
or beneficially 10% or more of the ownership interests in the limited liability
partnership or limited liability company; the trustees or administrators of any
trust or estate; and any beneficiary of a trust or estate owning, directly or
beneficially, 10% or more of the interests in the trust or estate. If any
Entity Owner within the scope of this definition is itself an Entity (including
an Entity Owner that is an Entity Owner because of this sentence), the term
"Entity Owner" also includes Entity Owners (as defined in the preceding
sentence) in the Entity. It is the intent of this definition to "trace back"
and include
<PAGE>
within the definition of Entity Owner all natural persons owning the requisite
interests to qualify as Entity Owners.
7. "Gross Revenues" means the aggregate amount of all sales of Pretzel
Time Products, TCBY Yogurt Products (if you enter into the Yogurt Addendum),
other items, and services made and rendered in connection with or in conjunction
with the operation of the Licensed Store, including sales made at or away from
the Premises of your Store, whether for cash or credit, but excluding all
federal, state or municipal sales, use, or service taxes collected from
customers and paid to the appropriate taxing authority.
8. "Pretzel Time Store" means a retail snack, dessert, and beverage outlet
selling any Pretzel Time Products and other products for off-premises
consumption and services specified by us. The term "Pretzel Time Store"
includes carts and kiosks selling the Pretzel Time Products. We reserve the
right to approve all carts and kiosks.
9. "Pretzel Time Retail Outlet" means any store or outlet, such as a
Pretzel Time Store, a mail order outlet, or an in-store bakery outlet located in
a retail grocery, fast food, convenience or other retail store, which sells any
of the Pretzel Time Products under the Marks or other trademarks or service
marks. A Pretzel Time Retail Outlet may be owned or operated by us or our
Affiliates or by franchisees or licensees of us or our Affiliates.
10. "Pretzel Time Products" means products approved or required by us or
our Affiliates from time to time in our sole discretion for sale at or from
Pretzel Time Stores, including hand-rolled soft pretzels of various flavors,
frozen pretzels and other pretzel-related products and toppings, beverages and
other products approved by us or our Affiliates; provided that the foregoing
products are subject to modification or discontinuance in our sole discretion
from time to time and may include additional or substitute products.
11. "Pretzel Time System" means our business formats, signs, equipment,
methods, procedures, designs, layouts, and specifications, including the use of
the Marks and the Trade Dress, as we may modify them in the future.
12. "Pretzel Time Trademarks" means the trademarks, trade names, service
marks, logos and other commercial symbols which we authorize franchisees to use
to identify the products and/or services offered by Pretzel Time Stores,
including the trademark and service mark PRETZEL TIME(R) and the Trade Dress
(defined below) and the goodwill associated therewith; provided that such
trademarks, trade names, service marks, logos and other commercial symbols and
the Trade Dress are subject to modification and discontinuance at our sole
discretion and additional or substitute trademarks, trade names, service marks,
logos, commercial symbols or Trade Dress may be established by us in the future.
13. "Trade Dress" means the designs, color schemes, decor and images which
we authorize and require our franchisees to use in connection with the operation
of Pretzel Time Stores, as it may be revised and further developed by us or our
Affiliates from time to time. If you enter into the Yogurt Addendum, Trade
Dress will also mean the designs, color schemes, decor and images which we
authorize and require our franchisees to use in connection with the operation of
the TCBY Concept, as it may be revised and further developed by TCBY from time
to time.
14. "Restricted Person" means you; each of your Entity Owners, if you are
an Entity; and the spouses, natural and adopted children, and siblings of any of
them.
<PAGE>
15. "TCBY Concept" means the TCBY business a Pretzel Time franchisee is
granted the right to operate from the Premises of its Pretzel Time Store using
the TCBY Trademarks and TCBY System.
16. "TCBY Store" means any store or outlet, such as a Pretzel Time Store
with a TCBY Concept, a mail order outlet, or an in-store outlet located in a
retail grocery, fast food, convenience or other retail store, which sells any of
the TCBY Yogurt Products under the TCBY Trademarks or other trademarks or
service marks. A TCBY Store may be owned or operated by (i) TCBY or its
affiliates or designees, (ii) us or our Affiliates, (iii) franchisees or
licensees of TCBY or its affiliates, or (iv) us or our Affiliates.
17. "TCBY Yogurt Products" means those TCBY products approved or required
by TCBY from time to time in its sole discretion for sale at or from authorized
Pretzel Time Stores, including TCBY soft-serve frozen yogurt, and hand dipped
frozen yogurt and ice cream products approved by TCBY; provided that the
foregoing TCBY products are subject to modification or discontinuance in TCBY's
sole discretion from time to time and may include additional or substitute
products.
18. "TCBY System" means TCBY's business formats, signs, equipment,
methods, procedures, designs, layouts, and specifications, including the use of
the TCBY Trademarks and the Trade Dress, as TCBY may modify them in the future.
19. "TCBY Trademarks" means the trademarks, trade names, service marks,
logos and other commercial symbols which TCBY authorizes franchisees to use to
identify the products and/or services offered by TCBY Stores, including the
trademarks and service marks TCBY(R) and THE COUNTRY'S BEST YOGURT(R) and the
Trade Dress (defined above) and the goodwill associated therewith; provided that
such trademarks, trade names, service marks, logos and other commercial symbols
and the Trade Dress are subject to modification and discontinuance at the sole
discretion of TCBY and additional or substitute trademarks, trade names, service
marks, logos, commercial symbols or Trade Dress may be established by TCBY in
the future.
20. "Premises" means the leasehold space of a Pretzel Time Store at a
location approved by us. Premises may also mean the leasehold space shared
between a Pretzel Time Store and a TCBY Concept at a location approved by us and
TCBY, if the franchisee enters into a TCBY Yogurt Product Addendum with us.
<PAGE>
SCHEDULE 2
AGENTS FOR SERVICE OF PROCESS
UNITED STATES:
<TABLE>
<CAPTION>
State Registered Agent Registered Office
------ ---------------- -----------------
<S> <C> <C>
1. California CT Corporation System 818 West 7th Street
Los Angeles, CA 90017
2. Florida CT Corporation System 1200 South Pine Island Rd.
Plantation, FL 33324
3. Illinois Attorney General State of 500 South Second Street
Illinois Springfield, Illinois 62706
4. Indiana Indiana Sec. of State Indiana Securities Division
201 State House 302 W. Washington St.
200 West Washington St. Room E-111
Indianapolis, IN 46204 Indianapolis, IN 46204
5. Iowa CT Corporation System 2222 Grand Avenue
Des Moines, IA 50312
6. Kansas The Corporation Company, Inc. 515 South Kansas Ave.
Topeka, KS 66603
7. Maryland Maryland Securities Division of Securities
Commissioner 200 St. Paul Place, 20th Floor
Baltimore, MD 21202-2020
8. Michigan The Corporation Company 30600 Telegraph Road
Bingham Farms, MI 48025
9. Montana CT Corporation System 406 Fuller Avenue
Helena, MT 59601
10. New Jersey The Corporation Trust Co. 820 Bear Tavern Road
West Trenton, NJ 08628
11. New Mexico CT Corporation System 217 West Manhattan Avenue
Santa Fe, NM 87501
12. New York New York Secretary of State 120 Broadway, 23rd Floor
New York State Dept. of Law New York, NY 10271
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
State Registered Agent Registered Office
----- ---------------- -----------------
<S> <C> <C>
13. North Dakota Office of the Securities State Capitol - 5th Floor
Commissioner 600 East Boulevard Avenue
Bismarck, ND 58505
14. Oregon CT Corporation System 800 Pacific Building
Portland, OR 97204
15. South Carolina CT Corporation System 75 Beattie Place
Two Insignia Financial Plaza
Greenville, SC 29601
16. South Dakota CT Corporation System 319 South Coteau Street
Pierre, SD 57501
</TABLE>
CANADA:
<TABLE>
<CAPTION>
Province Registered Agent Registered Office
-------- ---------------- -----------------
<S> <C> <C>
1. Alberta J. Patrick Bond and 2600 Manulife Place
alternatively J. Alan Bryan QC 10180 101st Street
c/o Bryan and Company Edmonton, AB
Canada
2. Ontario Head Office (Canada), LTD. 20 Queen Street West
City of Toronto
Ontario M5H 2V3
Ontario M5H 2V3 00000
</TABLE>
<PAGE>
SCHEDULE 3
FINANCIAL STATEMENTS
Schedule 3A Mrs. Fields' Original Cookies, Inc. and Subsidiaries consolidated
balance sheets as of January 3, 1998 and December 28, 1996 and the
related consolidated statements of operations, stockholder's equity
and cash flows for the year ended January 3, 1998 and the period
from inception (September 18, 1996) to December 28, 1996, together
with Report of Independent Public Accountants.
Schedule 3B Mrs. Fields' Original Cookies, Inc. and Subsidiaries condensed
consolidated balance sheet (unaudited) as of April 4, 1998, and the
related condensed consolidated statements of operations and cash
flows for the fiscal quarters ended April 4, 1998 and March 29,
1997 (unaudited).
<PAGE>
SCHEDULE 3A
MRS. FIELDS' ORIGINAL COOKIES, INC. and SUBSIDIARIES
Consolidated balance sheets
as of January 3, 1998
and December 28, 1996
and the related consolidated statements of operations,
stockholder's equity and cash flows
for the year ended January 3, 1998 and
the period from inception (September 18,1996)
to December 28, 1996,
together with Report of Independent Public Accountants
<PAGE>
SCHEDULE 3B
MRS. FIELDS' ORIGINAL COOKIES, INC. and SUBSIDIARIES
Condensed consolidated balance sheet (unaudited)
as of April 4, 1998,
and the related condensed consolidated statements of operations
and cash flows for the fiscal quarters ended April 4, 1998 and March 28, 1997
(unaudited)
NOTE: THESE FINANCIAL STATEMENTS ARE PREPARED WITHOUT AN AUDIT. PROSPECTIVE
FRANCHISEES OR SELLERS OR FRANCHISES SHOULD BE ADVISED THAT NO CERTIFIED
PUBLIC ACCOUNTANT HAS AUDITED THESE FIGURES OR EXPRESSED AN OPINION WITH
REGARD TO THEIR CONTENTS OR FORM.
<PAGE>
SCHEDULE 4
LIST OF STATE ADMINISTRATORS
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
California North Dakota
- ---------- ------------
Department of Corporations Franchise Examiner
1390 Market Street 600 East Blvd., Fifth Floor
San Francisco, CA 94102-5389 Bismarck, ND 58505
Telephone: (415) 557-3787 Telephone: (701) 328-2910
Hawaii Rhode Island
- ------ ------------
Commissioner of Securities Associate Director and Superintendent
1010 Richards Street of Securities
Honolulu, HI 96813 Division of Securities
Telephone: (808) 548-6521 233 Richmond Street, Suite 232
Providence, RI 02903-4232
Telephone: (401) 277-3048
Illinois South Dakota
- -------- ------------
Illinois Attorney General Franchise Administrator
Franchise Division Division of Securities
500 South Second Street 118 West Capitol
Springfield, IL 62706 Pierre, SD 57501-5070
Telephone: (217) 782-4465 Telephone: (605) 773-4823
Indiana Virginia
- ------- --------
Chief Deputy Commissioner Chief Examiner/Investigator
Indiana Securities Division State Corporation Commission
302 West Washington St., Room E-111 1300 East Main Street, 9th Floor
Indianapolis, IN 46204 Richmond, VA 23219
Telephone: (317) 232-6685 Telephone: (804) 371-9051
Maryland Washington
- -------- ----------
Office of the Attorney General Department of Financial Institutions
Division of Securities Securities Division
200 St. Paul Place, 20th Floor 405 Black Lake Blvd. S.W., 2nd Floor
Baltimore, MD 21202-2020 Olympia, WA 98502
Telephone: (410) 576-6360 Telephone: (206) 753-6928
Minnesota Wisconsin
- --------- ---------
Deputy Commissioner Wisconsin Commissioner of Securities
Minnesota Department of Commerce 101 East Wilson Street, 4th Floor
133 East Seventh Street Madison, WI 53702
St. Paul, MN 55101 Telephone: (608) 266-3431
Telephone: (612) 296-6325
New York
- --------
New York State Department of Law
120 Broadway, 23rd Floor
New York, NY 10271
Telephone: (212) 416-8211
</TABLE>
<PAGE>
SCHEDULE 5
OPERATIONS MANUALS
TABLES OF CONTENTS
<PAGE>
SCHEDULE 6 - PART 1
PRETZEL TIME FRANCHISEES
as of December 31, 1997
<PAGE>
SCHEDULE 6 - PART 2
PRETZEL TIME FRANCHISEES WHOSE FRANCHISE HAS BEEN TERMINATED,
CANCELLED, NOT RENEWED, OR WHO HAS CEASED TO DO BUSINESS
PURSUANT TO THE FRANCHISE AGREEMENT
DURING CALENDAR 1997
A. TERMINATED VOLUNTARILY BY MUTUAL CONSENT OF THE FRANCHISEE AND US:
Franchisee: Franchise Agreements Terminated Voluntarily:
- ---------- -------------------------------------------
H&M CONCEPTS, LTD. CO. San Jacinto Mall
Randy Hemmer 1566 San Jacinto Mall
10754 Executive Drive Baytown, TX 77521
Boise, ID 83704
800/342-7893
BIG SKY PRETZEL TIME, INC. Holiday Village Mall
Judy Bizzle 1200 10th Avenue South
327 Hickory Drive Great Falls, MT 59405
Tahlequah, OK 74464
406/453-5710
ROCKY MOUNTAIN PRETZEL TIME, INC. Rimrock Mall
Dr. Bernie Zeliger 300 South 24th Street West
1500 Smokehouse Lane Billings, MT 59102
Harrisburg, PA 17110
717/671-2663
B. TERMINATED VOLUNTARILY BY MUTUAL CONSENT OF THE FRANCHISEE AS PART
OF A SALE OF PRETZEL TIME STORES TO ONE OF OUR AFFILIATES:
<TABLE>
<CAPTION>
Franchisee: Franchise Agreements Terminated Voluntarily:
- ----------- --------------------------------------------
<S> <C> <C> <C>
H&M CONCEPTS, LTD. CO. Arrowhead Towne Center Fiesta Mall MetroCenter
Randy Hemmer 7700 W. Arrowhead Town Center 2104 Fiesta Mall 6920-A North Metro Parkway East
10754 Executive Drive Glendale, AZ 85308 Mesa, AZ 85202 Phoenix, AZ 96062
Boise, ID 83704
800/342-7893
Paradise Valley Scottsdale Fashion Arden Fair
4550-42 E. Cactus Rd. 7014 E. Camelback Rd. 1689 Arden Way
Phoenix, AZ 85032 Scottsdale, AZ 85251 Sacramento, CA 95815
Bayshore Mall Buena Ventura Del Monte Shopping Center
3300 Broadway 363 South Mills Road 520 Del Monte Center
Eureka, CA 95501 Ventura, CA 93003 Monterey, CA 93940
Downtown Plaza Eagle Rock Fox Hills
595 Downtown Plaza 2700 Colorado Blvd. 266 Fox Hills Mall
Sacramento, CA 95814 Los Angeles, CA 90041 Culver City, CA 90230
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Mission Valley Montclair Plaza New Park Mall
1640 Camino Del Rio North 5023 Montclair Plaza Lane 2086 New Park Drive
San Diego, CA 92108 Montclair, CA 91763 Newark, CA 94560
Northridge Fashion Center Palm Desert Towne Center Parkway Plaza
9301 Tampa Avenue 72-840 Hwy 111 823 Parkway Plaza
Northridge, CA 91324 Palm Desert, CA 92260 El Cajon, CA 92020
Plaza Bonita Santa Maria Town Center Stoneridge
3030 Plaza Bonita Road 239 Town Center East 2469 Stoneridge Mall
National City, CA 91950-8033 Santa Maria, CA 93454 Pleasanton, CA 94566
Stonewood Center Sunvalley Topanga Plaza
251 Stonewood Street 292 Sunvalley Mall 6600 Topanga Canyon Road
Downey, CA 90241 Concord, CA 94566 Canago Park, CA 91303
University Towne Center (UTC) Valenia Town Center Vallco Fashion Park
4545 LaJolla Village Dr. 24201 W. Valencia 10123 N. Wolfe Road
San Diego, CA 92122 Valencia, CA 91355 Cupertino, CA 95014
West Covina Plaza Westside Pavillion Boise Town Square
1200 W. Covina Pkway 10800 West Pico Blvd. 350 North Milwaukee
West Covina, CA 91790 Los Angeles, CA 90064 Space 2112
Boise, ID 83788
Karcher Mall Pineridge Mall Golf Mill Shopping Center
1509 Cladwell Blvd. 4155 North Yellowstone Highway 580 Golf Mill Shopping Center
Nampa, ID 83651 Chubbock, ID 83202 Nile, IL 60714
Northwoods Mall Spring Hill Mall Castleton Square
4501 War Memorial Drive 1484 Spring Hill Mall 6020 East 82nd Street
Peoria, IL 61613 West Dundee, IL 60118 Indianapolis, IN 46250
Honey Creek Shopping Center Washington Square Merle Hay Mall
3401 South US Highway 41 10202 East Washington Street 3800 Merle Hay Road
Terre Haute, IN 47802 Indianapolis, IN 46229 Suite 948
Des Moines, IA 50310
Lakeside Twelve Oaks Mall Apache Plaza
14600 Lakeside Circle 27678 Novi Road 333 Apache Mall
Sterling Heights, MI 48313 Novi, MI 48377 Rochester, MN 55902
Miller Hill Mall Oak View Mall Westroads Shopping Center
1600 Miller Trunk Highway 3001 South 144th Street 10000 California Street
Duluth, MN 55811 Omaha, NE 68144 Omaha, NE 68114
The Boulevard Mall Meadows Mall Washington Square Mall
3680 S. Maryland Parkway 4300 Meadows Lane 9487 SE Washington Square Road
Las Vegas, NV 89109 Las Vegas, NV 89107 Tigard, OR 97223
The Empire Barton Creek Square Mall Broadway Square Mall
720 Empire Mall 2901 Capital of Texas Parkway 4601 South Broadway
Sioux Falls, SD 75106 Austin, TX 78746 Tyler, TX 75703
Dallas Galleria Mall Deerbrook Mall Ingram Park Mall
13350 Dallas Parkway 20131 Highway 59 North 6301 N.W. Loop 410
Dallas, TX 75240 Humble, TX 77338 San Antonio, TX 78238
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Killeen Mall Longview Mall Mall Del Norte
2100 S.W.S. Young Drive 3500 McCann Road 5300 North San Dario
Killeen, TX 76543 Longview, TX 75601 Laredo, TX 78041
Parkdale Mall Post Oak Mall Rolling Oaks Mall
6155 E. Tex Freeway 1500 Harvey Road 6909 N. Loop 1604 East
Beaumont, TX 77706 College Station, TX 77840 San Antonio, TX 78233
San Marcos Factory Shops Sharpstown Center Town East Mall
FC & 3939 I-35 South 7500 Bellaire Boulevard 2063 Town East Mall
San Marcos, TX 78666 Houston, TX 77036 Mesquite, TX 75150
Valle Vista Mall University Mall University Mall #2
2000 East Expressway 83 J-179 University Mall F-106 University Mall
Harlingen, TX 75/8552 Orem, UT 84058 Orem, UT 84058
Valley Fair Mall ZCMI Center Cascade
3601 South 2700 West 36 South State Street 765 Cascade Drive
West Valley City, UT 84119 Salt Lake City, UT 84111 Burlington, WA 98233
Columbia Center Kitsap Mall Northtown Mall
438 Columbia Center Blvd. 10315 Silverdale Way North 4750 Division Street
Kennewick, WA 99336 Silverdale, WA 98383 Spokane, WA 99207
Southcenter Tacoma Mall Vancouver Mall
981 South Center 4502 South Steele 5001 NE Thurston way
Seattle, WA 98188 Tacoma, WA 98409 Vancouver, WA 98662
Oakwood Mall Valley View Mall Kingsway Garden Mall
4800 Golf Road 3800 Highway 16 109th Street
Eau Claire, WI 54701 LaCrosse, WI 54601 Princess Elizabeth Avenue
Edmonton, AB T5G 3B6 Canada
West Edmonton Mall
1554-8770 170th Street
Edmonton, AB T5T 3J7
</TABLE>
C. TRANSFERRED FRANCHISE AGREEMENT AND CEASED TO DO BUSINESS:
<TABLE>
Franchisee: Franchise Agreements Transferred:
- ----------- ---------------------------------
<S> <C> <C> <C>
ROCKY MOUNTAIN PRETZEL TIME, INC. Aurora Mall Southwest Plaza Frontier Mall
Dr. Bernie Zeliger 14200 E. Almeda Avenue 8501 W. Boles Avenue 1400 Dell Range Blvd.
1500 Smokehouse Lane Aurora, CO 80012 Littleton, CO 80123 Cheyenne, WY 82009
Harrisburg, PA 17110
717/671-2663
</TABLE>
D. HAS NOT COMMUNICATED WITH US WITHIN THE LAST 10 WEEKS:
None
<PAGE>
SCHEDULE 7
PRETZEL TIME AREA DEVELOPERS
As of June 12, 1998
<PAGE>
PRETZEL TIME
AREA DEVELOPERS
<TABLE>
<CAPTION>
=========================================================================================================
CONTACT, ADDRESS AND
TELEPHONE NUMBER AREA DEVELOPER TERRITORY
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
DiNatale, Ed Pretzel Time of South Carolina, SC
5175 Highway 472 Inc.
Conway, SC 29526-6352
(803) 365-6042
- ---------------------------------------------------------------------------------------------------------
Fleisher, Alan Pretzel Time of New York, Inc. Southern NY, NJ, RI, CT
Valley Pretzel, Inc.
P.O. Box 13
Smithtown, NY 11787
(516) 366-0208
- ---------------------------------------------------------------------------------------------------------
Gick, Alan Kal Enterprises Northern NY, OH, Western PA
5220 Maplewood Court
Erie, PA 16506
(814) 833-2256
- ---------------------------------------------------------------------------------------------------------
Ward, Michael R. Mrs. Fields' Original Cookies, AK, AZ, CA, HI, ID, IL, IN, IA,
2855 East Cottonwood Parkway Inc. MI, MN, MT, NE, NV, ND, OR, SD,
Suite 400 UT, VA, WA, WV, WI;
Salt Lake City, UT 84121 CANADA-ALBERTA, BRITISH COLUMBIA,
(801) 736-5600 MANITOBA, SASKATCHEWAN, MEXICO
- ---------------------------------------------------------------------------------------------------------
Mazzoni, Bernard Mid Continent Enterprises, Inc. KS, MO
11613 West 118 Street
Overland Park, KS 66210
(913) 338-3457
- ---------------------------------------------------------------------------------------------------------
Miller, Stuart Pretzel Time of North Carolina, NC
100 Ronsard Inc.
Cary, NC 27511
(919) 319-7630
- ---------------------------------------------------------------------------------------------------------
Ritz, Sheri A. Pretzel Time of Maryland, Inc. MD
3919 Church Road
Millers, MD 21107
(410) 374-5174
- ---------------------------------------------------------------------------------------------------------
Purcell, Corky Peachtree Pretzel Time, Inc. GA (with the exception of the
Governor's Plaza South, Bldg. 2 SAVANNAH area)
2001 North Front Street, #226
Harrisburg, PA 17102
(717) 232-6560
- ---------------------------------------------------------------------------------------------------------
Purcell, Corky Sunshine Pretzel Time, Inc. AL, FL, GA (the SAVANNAH area
Governor's Plaza South, Bldg. 2 only)
2001 North Front Street, #226
Harrisburg, PA 17102
(717) 232-6560
=========================================================================================================
</TABLE>
<PAGE>
<TABLE>
=========================================================================================================
<S> <C> <C>
Smith, Bill New England Concepts, Inc. MA, ME, VT, NH, TX (the
141 South Main Street DALLAS/FORTH WORTH area only)
Box 16
Beacon Falls, CT 06403
(208) 729-1826
=========================================================================================================
</TABLE>
<PAGE>
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE
AGREEMENT AND OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR
AND ALL AGREEMENTS CAREFULLY.
IF WE OFFER YOU A FRANCHISE, WE MUST PROVIDE THIS OFFERING CIRCULAR TO
YOU BY THE EARLIEST OF:
(1) THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
(2) 10 BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
(3) 10 BUSINESS DAYS BEFORE A PAYMENT TO US.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL
TERMS AT LEAST 5 BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF WE DO NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS
A FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL
AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580.
I have received a Uniform Franchise Offering Circular dated May 15,
1998, as amended November 24, 1998. This Offering Circular included the
following exhibits and schedules:
Schedule 1 Definitions
Schedule 2 List of Agents for Service of Process
Schedule 3 Financial Statements
Schedule 4 State Administrators
Schedule 5 Operations Manuals Table of Contents
Schedule 6 Franchisee Information
Part 1 - List of Pretzel Time Franchisees
Part 2 - List of Pretzel Time Franchisees Terminated, Cancelled, Not
Renewed, or That Have Ceased Doing Business
Schedule 7 List of Pretzel Time Area Developers
Exhibit A Franchise Agreement (with Acknowledgment Addendum, Ownership
Addendum, Authorization Agreement For Prearranged Payments (Appendix
A), TCBY Yogurt Product Addendum, and Satellite Unit Addendum)
Exhibit B Guaranty of Agreement
Exhibit C Reservation Letter
Exhibit D Sublease Agreement
Date: _________________, 199__.
<PAGE>
FRANCHISEE (For an Individual) FRANCHISEE (For an Entity)
______________________________ ______________________________ , a
Signature __________________________________
______________________________ By _______________________________
Print Name Its ______________________________
<PAGE>
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE
AGREEMENT AND OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR
AND ALL AGREEMENTS CAREFULLY.
IF WE OFFER YOU A FRANCHISE, WE MUST PROVIDE THIS OFFERING CIRCULAR TO
YOU BY THE EARLIEST OF:
(1) THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
(2) 10 BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
(3) 10 BUSINESS DAYS BEFORE A PAYMENT TO US.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL
TERMS AT LEAST 5 BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF WE DO NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS
A FALSE OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL
AND STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580.
I have received a Uniform Franchise Offering Circular dated May 15,
1998, as amended November 24, 1998. This Offering Circular included the
following exhibits and schedules:
Schedule 1 Definitions
Schedule 2 List of Agents for Service of Process
Schedule 3 Financial Statements
Schedule 4 State Administrators
Schedule 5 Operations Manuals Table of Contents
Schedule 6 Franchisee Information
Part 1 - List of Pretzel Time Franchisees
Part 2 - List of Pretzel Time Franchisees Terminated, Cancelled, Not
Renewed, or That Have Ceased Doing Business
Schedule 7 List of Pretzel Time Area Developers
Exhibit A Franchise Agreement (with Acknowledgment Addendum, Ownership
Addendum, Authorization Agreement For Prearranged Payments
(Appendix A), TCBY Yogurt Product Addendum, and Satellite Unit
Addendum)
Exhibit B Guaranty of Agreement
Exhibit C Reservation Letter
Exhibit D Sublease Agreement
Date: _________________, 199__.
<PAGE>
FRANCHISEE (For an Individual) FRANCHISEE (For an Entity)
______________________________ _______________________ , a
Signature ___________________________
______________________________ By ________________________
Print Name Its _______________________
<PAGE>
RECEIPT OF FRANCHISE-RELATED DOCUMENTS
--------------------------------------
The undersigned, personally and/or as an officer or partner of the proposed
Franchisee, does hereby acknowledge receipt of the following documents, in form
for execution, relating to a Pretzel Time Franchise of PRETZEL TIME, INC.:
[ ] 1. Franchise Agreement (with Addendum, Authorization (Appendix
A), TCBY Addendum); Acknowledgment Addendum, Ownership
Agreement For Prearranged Yogurt Product Payments
Addendum, and Satellite Unit
[ ] 2. Guaranty of Agreement;
[ ] 3. Reservation Letter;
[ ] 4. Sublease Agreement; and
[ ] 5. Other (specify):
____________________.
(Proposed franchisee must initial the box adjacent to the applicable
document.)
I further acknowledge my understanding that it is my responsibility,
individually and/or as an officer or partner of the proposed franchisee, to
review all such documents, so that I am fully familiar with the transaction
contemplated thereby prior to the execution thereof.
A FEDERAL TRADE COMMISSION RULE REQUIRES THAT WE PROVIDE YOU WITH THE
FRANCHISE-RELATED DOCUMENTS NOTED ABOVE AT LEAST FIVE (5) BUSINESS DAYS
PRIOR TO THE DATE THEY ARE TO BE EXECUTED. PLEASE DO NOT SIGN OR RETURN
THESE DOCUMENTS UNTIL FIVE (5) BUSINESS DAYS HAVE ELAPSED FROM THE DATE OF
THIS RECEIPT.
DATED: ____________________
_________________________________________
_________________________________________
<PAGE>
RECEIPT OF FRANCHISE-RELATED DOCUMENTS
--------------------------------------
The undersigned, personally and/or as an officer or partner of the proposed
Franchisee, does hereby acknowledge receipt of the following documents, in form
for execution, relating to a Pretzel Time Franchise of PRETZEL TIME, INC.:
[ ] 1. Franchise Agreement (with Addendum, Authorization (Appendix
A), TCBY Addendum); Acknowledgment Addendum, Ownership
Agreement For Prearranged Yogurt Product Payments
Addendum, and Satellite Unit
[ ] 2. Guaranty of Agreement;
[ ] 3. Reservation Letter;
[ ] 4. Sublease Agreement; and
[ ] 5. Other (specify):
____________________.
(Proposed franchisee must initial the box adjacent to the applicable
document.)
I further acknowledge my understanding that it is my responsibility,
individually and/or as an officer or partner of the proposed franchisee, to
review all such documents, so that I am fully familiar with the transaction
contemplated thereby prior to the execution thereof.
A FEDERAL TRADE COMMISSION RULE REQUIRES THAT WE PROVIDE YOU WITH THE
FRANCHISE-RELATED DOCUMENTS NOTED ABOVE AT LEAST FIVE (5) BUSINESS DAYS
PRIOR TO THE DATE THEY ARE TO BE EXECUTED. PLEASE DO NOT SIGN OR RETURN
THESE DOCUMENTS UNTIL FIVE (5) BUSINESS DAYS HAVE ELAPSED FROM THE DATE OF
THIS RECEIPT.
DATED: ____________________
____________________________________________
____________________________________________
<PAGE>
GREAT AMERICAN COOKIE COMPANY, INC.
OCTOBER 12, 1998,
AS AMENDED NOVEMBER 24, 1998
INFORMATION FOR PROSPECTIVE FRANCHISEES
REQUIRED BY FEDERAL TRADE COMMISSION
* * * * * * * *
TO PROTECT YOU, WE'VE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS INFORMATION.
WE HAVEN'T CHECKED IT, AND DON'T KNOW IF IT'S CORRECT. IT SHOULD HELP YOU MAKE
- -----------------------------------------------------
UP YOUR MIND. STUDY IT CAREFULLY. WHILE IT INCLUDES SOME INFORMATION ABOUT
YOUR CONTRACT, DON'T RELY ON IT ALONE TO UNDERSTAND YOUR CONTRACT. READ ALL OF
YOUR CONTRACT CAREFULLY. BUYING A FRANCHISE IS A COMPLICATED INVESTMENT. TAKE
YOUR TIME TO DECIDE. IF POSSIBLE, SHOW YOUR CONTRACT AND THIS INFORMATION TO AN
ADVISOR, LIKE A LAWYER OR AN ACCOUNTANT. IF YOU FIND ANYTHING YOU THINK MAY BE
WRONG OR ANYTHING IMPORTANT THAT'S BEEN LEFT OUT, YOU SHOULD LET US KNOW ABOUT
IT. IT MAY BE AGAINST THE LAW.
THERE MAY ALSO BE LAWS ON FRANCHISING IN YOUR STATE. ASK YOUR STATE AGENCIES
ABOUT THEM.
FEDERAL TRADE COMMISSION
------------------------
WASHINGTON, D.C. 20580
----------------
<PAGE>
FRANCHISE OFFERING CIRCULAR
Great American Cookie Company, Inc.
A Delaware corporation
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
(801) 736-5600
The license offered is to operate a Cookie System Facility, which sells cookies,
brownies and beverages.
The initial fee for a Cookie System Facility ranges from $50,500 to $444,500,
including the $25,000 initial license fee for a Type I Cookie System Facility
and $15,000 initial license fee for a Type II Cookie System Facility. The
estimated initial investment required for a Type I or Type II Cookie System
Facility ranges from $120,750 to $625,500.
Risk Factors:
1. THE LICENSE AGREEMENT PERMITS THE LICENSEE TO SUE THE LICENSOR ONLY IN
GEORGIA (UNLESS FRANCHISE STATUTES OR LANDLORD-TENANT EVICTION LAWS
MANDATE ANOTHER COURT). OUT OF STATE LITIGATION MAY FORCE YOU TO
ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU
MORE TO SUE THE LICENSOR IN GEORGIA THAN IN YOUR HOME STATE.
2. THE LICENSE AGREEMENT STATES THAT GEORGIA LAW GOVERNS THE AGREEMENT,
AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL
LAW. YOU MAY WANT TO COMPARE THESE LAWS. SOME STATE FRANCHISE LAWS
PROVIDE THAT CHOICE OF LAW PROVISIONS ARE VOID OR SUPERSEDED. YOU MAY
WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE
LAW. YOU SHOULD REVIEW ANY ADDENDA OR RIDERS ATTACHED TO THIS
OFFERING CIRCULAR FOR DISCLOSURES REGARDING STATE FRANCHISE LAWS.
3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators
listed in Exhibit L or your public library for sources of information.
Registration of this franchise by a state does not mean that the state
recommends it or has verified the information in this offering circular. If you
learn that anything in the offering circular is untrue, contact the Federal
Trade Commission and the appropriate state authority listed in Exhibit L.
Effective Date: October 12, 1998, as amended November 24, 1998.
<PAGE>
TABLE OF CONTENTS
-----------------
ITEM PAGE
- ---- ----
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES.................... 1
2 BUSINESS EXPERIENCE................................................ 1
3 LITIGATION......................................................... 6
4 BANKRUPTCY......................................................... 7
5. INITIAL FRANCHISE FEE.............................................. 8
6 OTHER FEES......................................................... 9
7 INITIAL INVESTMENT................................................. 12
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES................... 15
9 FRANCHISEE'S OBLIGATIONS........................................... 18
10 FINANCING......................................................... 20
11 FRANCHISOR'S OBLIGATIONS.......................................... 21
12 TERRITORY......................................................... 25
13 TRADEMARKS........................................................ 29
14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION................... 30
15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE
FRANCHISE BUSINESS................................................ 31
16 RESTRICTIONS ON WHAT THE FRANCHISE OWNER MAY SELL................. 32
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION............. 32
18 PUBLIC FIGURES.................................................... 37
19 EARNINGS CLAIMS................................................... 37
20 LIST OF OUTLETS................................................... 38
21 FINANCIAL STATEMENTS.............................................. 44
<PAGE>
TABLE OF CONTENTS
-----------------
ITEM PAGE
- ---- ----
22 CONTRACTS................................................................45
23 RECEIPTS.....................................................Last Two Pages
EXHIBITS
--------
Exhibit A Financial Statements
Exhibit B License Agreement
Exhibit C Addendum to License Agreement For Non-Baking Facilities
Exhibit D Sublease
Exhibit E Construction Activity Assistance Agreement
Exhibit F Equipment Order
Exhibit G Agreement for Purchase and Sale of Assets
Exhibit H Principal's Agreement
Exhibit I List of Licensees and Their Cookie System Facilities
Exhibit J List of Licensees Who Left System During Our Last Fiscal Year
Or Have Not Communicated With Us
Exhibit K Operations Manual Table of Contents
Exhibit L List of State Agencies/Agents for Service of Process
Exhibit M Collateral Assignment of Lease
Exhibit N Addendum to License Agreement For Delivery Services
APPLICABLE STATE LAW MAY REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE
INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. THESE ADDITIONAL DISCLOSURES,
IF ANY, APPEAR IN AN ADDENDUM.
ii
<PAGE>
Item 1
------
THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
Description of the Licensor and its Affiliates.
- ----------------------------------------------
"We," "us" or "our" means Great American Cookie Company, Inc., the licensor;
"MFHCI" means Mrs. Fields Holding Company, Inc., a Delaware corporation; "MFOCI"
means Mrs. Fields' Original Cookies, Inc., a Delaware corporation; "MFBI" means
The Mrs. Fields' Brand, Inc., a Delaware corporation; "PTI" means Pretzel Time,
Inc., a Pennsylvania corporation; "Pretzelmaker" means Pretzelmaker, Inc., a
Utah corporation; and "Pretzelmaker-Canada" means Pretzelmaker-Canada, Inc., an
Ontario corporation. "You" means the person who buys a license from us. If you
are a corporation, partnership or other entity, your owners must sign our
"Guaranty and Assumption of Obligations," which means that all of the provisions
of our License Agreement (Exhibit B) also will apply to your owners. (See Item
15)
Our principal business address is 2855 East Cottonwood Parkway, Suite 400,
Salt Lake City, Utah 84121, and our telephone number is 801-736-5600. The
principal business address and telephone number of MFHCI, MFOCI, MFBI, PTI,
Pretzelmaker and Pretzelmaker-Canada are the same as ours. If we have an agent
in your state for service of process, we disclose that agent in Exhibit L. We
operate under our corporate name and the trademarks, service marks and
commercial symbols described in Item 13 (the "Marks"). We have no predecessors.
We were incorporated in Delaware on June 10, 1977. We incorporated under the
name "The Original Great American Chocolate Chip Cookie Company, Inc." and
changed to our existing name as of December 10, 1993. Cookies USA, Inc.
("Cookies USA"), a Delaware corporation, acquired us on December 10, 1993 and we
became a wholly-owned subsidiary of Cookies USA. On August 24, 1998, MFOCI
acquired all of the stock of Cookies USA. Immediately thereafter, MFOCI merged
Cookies USA with and into itself. As a result of the merger, we are now an
indirect, wholly-owned subsidiary of MFOCI.
Concurrent with MFOCI's acquisition of Cookies USA, MFOCI acquired 29 Cookie
System Facilities (as defined below) through the acquisition of all of the stock
of 2 corporate Cookie System Facility licensees (Deblan Corporation and
Chocolate Chip Cookies of Texas, Inc.). Immediately thereafter, MFOCI merged
the 2 Cookie System Facility licensees with and into us. As further described
in Item 20 and Exhibit I of this offering circular, we now operate these 29
Cookie System Facilities for our own account. Concurrent with MFOCI's
acquisition of Cookies USA, MFOCI also acquired 8 additional Cookie System
Facilities through the acquisition of all of the assets of 6 corporate Cookie
System Facility licensees all owned by the same entity. As further described in
Item 20 and Exhibit I of this offering circular, since the acquisition, MFOCI
has operated these 8 Cookie System Facilities as our licensee. Unless noted
otherwise, for the purpose of the Great American Cookie Company System, the
terms "license" and "franchise" both refer to the Cookie System Facilities we
offer to franchisees under this offering circular.
1
<PAGE>
MFOCI intends to continue to operate both the Mrs. Fields System and the Great
American Cookie Company System as separate franchise systems.
MFBI is a Delaware corporation incorporated in August 1996. MFBI is also a
wholly-owned subsidiary of MFHCI and an affiliate of ours. MFBI has granted
MFOCI a perpetual, fully paid license to use the Mrs. Fields trademarks in
connection with all Mrs. Fields Cookie Stores.
PTI is a Pennsylvania corporation incorporated in May 1991. PTI originally
incorporated under the name Mr. Pretzel, Inc., but shortly thereafter changed
its name to Pretzel Time, Inc. In September 1997, MFHCI, acquired 56% of the
outstanding shares of PTI. At the same time, MFHCI and PTI entered into a
Management Agreement under which MFHCI agreed to provide, either by itself or
through one of its affiliates, management services to PTI. In November 1997,
MFHCI assigned all of its interest in the outstanding shares of PTI to MFOCI.
In January 1998, MFOCI acquired an additional 4% of the outstanding shares of
PTI. Similarly, in June 1998, MFOCI acquired an additional 10% of the
outstanding shares of PTI. Consequently, as of the date of this offering
circular, MFOCI owns 70% of the outstanding shares of PTI. PTI is an affiliate
of ours.
Pretzelmaker is a Utah corporation incorporated on August 31, 1992 under the
name Four Pretzels, Inc. Pretzelmaker changed its name to Pretzelvania, Inc. on
September 23, 1992 and to its current name on December 17, 1992. Pretzelmaker-
Canada is an Ontario corporation incorporated on September 26, 1996, and a
wholly-owned subsidiary of Pretzelmaker. On November 19, 1998, MFOCI acquired
all of the stock of Pretzelmaker Holdings, Inc. ("PHI"), a Colorado corporation
incorporated on February 24, 1995 and the parent corporation of Pretzelmaker.
As a result of the merger, Pretzelmaker-Canada remains a wholly-owned subsidiary
of Pretzelmaker, Pretzelmaker remains a wholly-owned subsidiary of PHI, and PHI
is now a wholly-owned subsidiary of MFOCI. PHI, Pretzelmaker and Pretzelmaker-
Canada are affiliates of ours.
MFOCI intends to continue to operate both the Pretzel Time System and the
Pretzelmaker System as separate franchise systems.
MFHCI, MFOCI, MFBI, PTI, Pretzelmaker and Pretzelmaker-Canada are separate
corporations and are not liable to you for any actions taken or obligations
incurred by us.
The Business of the Licensor and its Affiliates.
- -----------------------------------------------
We have offered licenses for Cookie System Facilities since September 1977 and
have operated at least one since June 1977. Following MFOCI's acquisition of
Cookies USA and the 10 Great American Cookie Company franchisees, as described
above, there were approximately 218 Great American Cookie Company Store
licenses, and 106 Great American Cookie Company Stores owned and operated by us.
(See Item 20) We produce proprietary batter, dough and other ingredients for
making cookies ("Cookie Ingredients") that you must buy from us in operating
your Facility. (See Item 8)
2
<PAGE>
We or one of our affiliates may establish a new business or franchise system
or acquire an existing business or franchise system (which may be one of your
competitors) operating under trademarks, service marks and tradenames other than
the Marks. The new or existing business or franchise system may compete with
you.
Since September 1996, MFOCI has been in the business of granting licenses and
franchises for the operation of Mrs. Fields Cookie Stores and operating and
owning Mrs. Fields Cookie Stores for its own account. A Mrs. Fields Cookie
Store offers a variety of specially prepared food items, such as cookies,
brownies, muffins and beverages. As of December 31, 1997, there were 165 Mrs.
Fields Cookie Store franchises and 144 Mrs. Fields Cookie Stores owned and
operated by MFOCI.
Between September 1996 and November 1997, MFOCI was in the business of
granting licenses and franchises for the operation of Hot Sam Pretzel and Bakery
Stores. Currently, MFOCI is no longer granting Hot Sam Pretzel and Bakery Store
licenses and franchises. Since September 1996, MFOCI has also been in the
business of owning and operating Hot Sam Pretzel and Bakery Stores. A Hot Sam
Pretzel and Bakery Store offers a variety of freshly prepared soft pretzels and
pretzel products (including Bavarian and sweet dough pretzel sticks), various
toppings and sauces, freshly squeezed lemonade and other food items and
beverages which are similar to those offered at a Pretzel Time Store. As of
December 31, 1997, there were no Hot Sam Pretzel and Bakery Store licenses or
franchises, and 102 Hot Sam Pretzel and Bakery Stores owned and operated by
MFOCI.
Since September 1996, MFOCI has been in the business of operating and owning
Original Cookie Company Stores for its own account. An Original Cookie Company
Store offers a variety of specially prepared food items, such as cookies,
brownies, muffins and beverages. As of December 31, 1997, there were 155
Original Cookie Company Stores owned and operated by MFOCI and no Original
Cookie Company Store franchises.
Since January 1992, PTI has been in the business of granting licenses and
franchises for the operation of Pretzel Time Stores. Since October 1991, PTI
has also been in the business of owning and operating Pretzel Time Stores.
Pursuant to a national sales agreement between PTI and TCBY Systems, Inc., since
February 1995, PTI has offered Pretzel Time Stores that may include the sale of
TCBY frozen yogurt products. A Pretzel Time Store offers a variety of freshly
baked soft pretzels, complimentary toppings, soft drinks and other food products
and, if a franchisee or licensee qualifies, TCBY frozen yogurt products. In
certain situations, a prospective Pretzel Time franchisee may be able to
purchase an existing Hot Sam Pretzel and Bakery Store location and its physical
assets from MFOCI and convert the location to a Pretzel Time Store. As of
December 31, 1997, there were 221 Pretzel Time Store licenses or franchises, and
75 Pretzel Time Stores owned and operated by PTI.
Between January 1992 and March 1998, PTI was in the business of granting area
developer rights to certain qualified persons ("Area Developers") pursuant to a
Pretzel Time Area Development Agreement (the "Development Agreement"). Under
the Development
3
<PAGE>
Agreement, Area Developers were granted the right to develop, own and operate a
specified number of Pretzel Time Stores at approved shopping mall locations
within a defined geographic area. Area Developers were also granted the right to
market and service the Pretzel Time System at shopping mall locations within
their geographic area, for which they receive a fee. Finally, under the
Development Agreement, Area Developers were granted the right to receive
compensation from PTI for finding Pretzel Time franchisees for shopping mall
locations within their geographic area. Area Developers, however, were not given
the authority to grant the rights to license or operate a Pretzel Time franchise
or enter into a Pretzel Time franchise agreement with a potential franchisee.
Currently, PTI is no longer entering into Development Agreements with new Area
Developers. As of June 12, 1998, there were 10 Area Developers with whom PTI has
entered into Development Agreements.
In July 1997, Mrs. Fields' Pretzel Concepts, Inc. ("MFPCI"), a wholly-owned
subsidiary of MFHCI, purchased 84 Pretzel Time Stores from one of PTI's Area
Developers, H&M Concepts Ltd. Co. At the time of the purchase, MFPCI entered
into an Area Development Agreement and a franchise agreement with PTI. MFPCI
operated the 84 Pretzel Time Stores as a franchisee of PTI until MFPCI merged
into MFOCI on November 26, 1997. Since the merger, MFOCI has operated the 84
Pretzel Time Stores as a franchisee of PTI.
In June 1998, MFOCI purchased a total of 5 Pretzel Time Stores from one of
PTI's Area Developers, Virginia Concepts, Inc. At the time of the purchase,
Virginia Concepts, Inc. transferred to MFOCI the respective Area Development
Agreement and 5 franchise agreements it had entered into with PTI. Since the
purchase, MFOCI has operated the 5 Pretzel Time Stores a franchisee of PTI.
Since September 1992, Pretzelmaker has been in the business of granting
franchises for the operation of Pretzelmaker Stores in the United States. Since
August 1995, Pretzelmaker has also been in the business of owning and operating
Pretzelmaker Stores. In addition, since September 1996, Pretzelmaker-Canada has
been in the business of granting franchises for the operation of Pretzelmaker
Stores in Canada. A Pretzelmaker Store offers soft pretzels, pretzel products
and other complementary food and beverages. In some circumstances, a
Pretzelmaker Store may also offer branded frozen desserts and coffee products.
Following our acquisition of PHI, there were approximately 215 Pretzelmaker
Store franchises and licenses, 9 Pretzelmaker Store locations owned and operated
by Pretzelmaker and no Pretzelmaker Stores owned and operated by Pretzelmaker-
Canada.
These are the only franchised businesses that have been offered by us and our
affiliates.
Description of the Licenses Offered.
- -----------------------------------
We operate and allow others to operate retail stores under the "Great American
Cookie Company" name and other Marks. (We call these stores "Cookie System
Facilities"; we call your Cookie System Facility the "Facility.") Cookie System
Facilities sell different types of cookies, other baked products and beverages.
Most Cookie System Facilities also feature "Cookie Cakes," which are large plate
or pan-sized cookies with the customized personal messages of customers.
4
<PAGE>
Cookie Cakes are ideal for parties or special occasions. Cookie System
Facilities operate from leased premises normally located in enclosed shopping
malls. You may sell authorized products and services only over-the-counter at
the Facility's premises and may not conduct any mail order, delivery or other
activities away from the premises. (See Item 12) If you own a Cookie System
Facility license and want to buy another one, you must sign our then current
license documents.
We offer 2 types of Cookie System Facility licenses. A "Type I" Cookie System
Facility has baking facilities and is in a major shopping mall generally having
at least 300,000 square feet of space with at least 2 major department stores.
A "Type II" Cookie System Facility has the same characteristics as a Type I
Cookie System Facility but generally is not in a major shopping mall having at
least 300,000 square feet of space with at least 2 major department stores. We
also might let you operate a "Non-Baking Facility" in your shopping mall or
center. A Non-Baking Facility is a stationary or mobile cart, wagon or similar
unit that you would operate within your shopping mall or center but away from
the Facility's actual premises. It would sell products that you actually
produce at the Facility. We also might let you offer delivery services from
your Facility. If you offer delivery services, you would sell and deliver
products produced at your Facility away from the Facility's physical premises
and within a limited geographic area. (See Item 12) We currently offer for
sale as franchises Cookie System Facilities that we own and operate throughout
the country. If you buy one of these Facilities, you will buy its assets,
including goodwill. This offering circular discloses the payments you will make
for these items. Whether you buy an operating Cookie System Facility from us or
a newly-constructed Facility depends on where you want to operate and site
availability. Unless noted otherwise, the disclosures in this offering circular
apply to both.
The Market.
- ----------
You will compete with other stores selling cookies and competitive food
products like baked goods, ice cream, frozen yogurt and other dessert items.
Some of these other stores are part of national or regional franchised and non-
franchised chains. In addition, some of these other stores (including Mrs.
Fields Cookie Stores and Original Cookie Company Stores) are or may be owned or
licensed by us or our affiliates. You will offer your products and services to
the general public. The market for your products and services generally is
developed in most parts of the country, although we believe that our product
quality distinguishes us from the competition.
There are no regulations specific to the industry in which Cookie System
Facilities operate, although you must comply with all local, state and federal
health and sanitation laws that
5
<PAGE>
apply to food operations and laws that apply generally to all businesses. You
should investigate these laws.
Item 2
------
BUSINESS EXPERIENCE
Director, President and Chief Executive Officer: Larry Hodges
- --------------------------------------------------------------
Mr. Hodges has been a member of our Board of Directors and our
President and Chief Executive Officer since August 1998. Mr. Hodges also has
been President and Chief Executive Officer and one of the directors of MFOCI
since September 1996. Between April 1993 and September 1996, he had been
President and Chief Executive Officer and a director of both Mrs. Fields, Inc.
("MFI") and Mrs. Fields Development Corporation ("MFDC"). From October 1991 to
February 1994, Mr. Hodges was President and Chief Executive Officer of Food Bond
Stores, Inc. in Kansas City, Missouri.
Director, Chief Financial Officer and Secretary: L. Tim Pierce
- --------------------------------------------------------------
Mr. Pierce has been a member of our Board of Directors and our Chief
Financial Officer and Secretary since August 1998. Mr. Pierce also has been
Senior Vice President, Chief Financial Officer, and Corporate Secretary of MFOCI
since September 1996. Prior to that, he held the same position at MFDC. He
became Vice President, Finance at the time MFDC was incorporated, Senior Vice
President in December 1991, Chief Financial Officer in August 1993 and Corporate
Secretary in April 1995. Since December 1991, Mr. Pierce has also served as
Senior Vice President of MFI.
5A
<PAGE>
Director and Vice President/Assistant Secretary: Michael R. Ward
- -----------------------------------------------------------------
Mr. Ward has been a member of our Board of Directors and our Vice
President/Assistant Secretary since August 1998. Mr. Ward has been Vice
President of Administration for MFOCI since September 1996. Between 1991 and
1996, Mr. Ward oversaw the Legal Department and Human Resources Department for
MFI. He is admitted to practice law in the State of Utah.
Senior Vice President: Pat Knotts
- ----------------------------------
Mr. Knotts has been our Senior Vice President since August 1998. Mr.
Knotts also has been Senior Vice President of MFI since October 1996. Between
January 1992 and October 1996, Mr. Knotts served as Executive Vice President of
Operations for MFI's affiliates Original Cookie Company and Hot Sam Franchise
Development Corporation.
Senior Vice President of Real Estate: Garry Remington
- ------------------------------------------------------
Mr. Remington has been our Senior Vice President of Real Estate since
August 1998. Between October 1996 and July 1997, Mr. Remington served as Vice
President of Real Estate for Sbarro, Inc. in Commack, New York. From 1994 to
1996, Mr. Remington held the position of Senior Vice President of Leasing for
the Woolworth Corporation in Manhattan, New York, with responsibilities for
Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other
divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director
of Leasing for the Woolworth Corporation, which he joined in 1972.
Item 3
LITIGATION
1. Robert and Sheila Goldberg et al. v. Great American Cookie Company, Inc.,
-------------------------------------------------------------------------
The Jordan Company, Mrs. Fields' Original Cookies, Inc. and Capricorn Investors,
- --------------------------------------------------------------------------------
IV, LP (Superior Court of New Jersey, Law Division, Mercer County, Case No.
- ------
L3502-97). On September 12, 1997, 9 of our current franchisees filed this
lawsuit against us and the other defendants because of the possibility at that
time that MFOCI would elect to acquire the stock of our parent company, Cookies
USA, and, as a result, take over as the licensor of our system and operator of
our company-owned Cookie System Facilities. The plaintiffs' primary allegations
at that time were that MFOCI and the other defendants would fail to honor the
existing contracts between us and our franchisees. Plaintiffs also alleged
fraud, unlawful sale of Cookie System Facility licenses, tortious interference
with contracts, violation of state unfair trade practices acts, and similar
claims against various of the defendants, including MFOCI. The plaintiffs'
pleadings in 1997 generally sought an injunction to stop the acquisition and the
anticipated future violations, plus anticipated damages and costs. The action
was later stayed by agreement when the acquisition of Cookies USA by MFOCI did
not occur in 1997. As further described in Item 1 of this offering circular,
MFOCI acquired Cookies USA on August 24, 1998. Contemporaneous with the
acquisition, all plaintiffs agreed to release all claims and dismiss their
Complaint in this action with prejudice and without costs, in return for certain
contingent, future rights related to the ownership of their franchises.
6
<PAGE>
2. Eugene W. Rice, Charles M. Rice, The Rice Family of Cookies of Pinellas
-----------------------------------------------------------------------
Park, Inc. and The Rice Family of Cookies of Fort Pierce, Inc. v. The Original
- ------------------------------------------------------------------------------
Great American Chocolate Chip Cookie Company, Inc. (United States District Court
- --------------------------------------------------
for the Northern District of Georgia, Case No. C85-2130A). On March 22, 1985,
the plaintiffs, former licensees, sued us alleging that we failed to supply
batter which would produce a uniform cookie, violated the Georgia Business
Opportunity Sales Act by not giving them certain disclosures that Georgia law
required or filing the proper materials with the Georgia authorities, violated
the Georgia Fair Business Practices Act by setting supposedly unobtainable
performance standards and deceived the plaintiffs by not supplying historical
sales information for one of the 3 Cookie System Facilities they had purchased.
The complaint sought damages of $100,000 on the batter claim and $350,000 or
rescission on the business opportunity law claim. We denied the allegations,
asserted various defenses and filed a counterclaim for breach of contract in
which we sought $1.2 million in damages.
On March 11, 1988, the court granted us summary judgment and dismissed all of
the plaintiffs' claims except for the breach of contract and business
opportunity law claims. We and the plaintiffs settled the case on February 17,
1989. We paid no money on the breach of contract claim and $200,000 on the
business opportunity law claim. The plaintiffs gave up their Cookie System
Facilities.
3. The Original Great American Chocolate Chip Cookie Company, Inc. v. John V.
--------------------------------------------------------------------------
Callia (United States District Court for the Northern District of Georgia, Case
- ------
No. 1:88CV749RHH). On April 6, 1988, we sued a former licensee for materially
breaching the post-termination provisions of his 2 license agreements and
failing to pay amounts due. We sought $50,000 in damages, attorneys' fees,
costs, injunctive relief and punitive damages. After filing a petition under
Chapter 11 of the U.S. Bankruptcy Code, the defendant filed an adversary
proceeding against us (United States District Court for the Eastern District of
Louisiana, Case No. 89-0076K), alleging that our termination of the license was
a fraudulent conveyance under the Bankruptcy Code and that we breached the
license agreement by unreasonably disapproving proposed sales of his Cookie
System Facilities. Defendant requested that we return the license or pay
$166,000.
We filed a proof of claim for over $317,000 for our damages for the
defendant's breach of contract, other past due charges and unauthorized use of
our commercial symbols. After the defendant received a discharge of debts on
February 26, 1992, the Bankruptcy Court granted us summary judgment on the
defendant's original claims. The District Court affirmed the Bankruptcy Court's
decision on April 13, 1994.
Other than these 3 actions, no litigation is required to be disclosed in this
offering circular.
Item 4
BANKRUPTCY
No person previously identified in Item 1, and no officer previously
identified in Item 2, of this offering circular has been involved as a debtor in
proceedings under the U.S. Bankruptcy Code required to be disclosed in this
Item.
7
<PAGE>
Item 5
------
INITIAL FRANCHISE FEE
We currently charge a uniform initial license fee of $25,000 for a Type I
Cookie System Facility and $15,000 for a Type II Cookie System Facility. You
must pay us $5,000 as a deposit when you formally request a license for a
specific location. We will apply the deposit toward the initial license fee,
which is due in full when you sign the License Agreement. We will not refund
the deposit if you decide not to buy a license. The initial license fee is not
refundable.
Before your Facility begins operating, you must buy an initial inventory of
Cookie Ingredients from us. This inventory costs from $4,500 to $7,500. You
must buy Cookie Ingredients from us during the term of your license. (See Item
8)
We are an approved (but not the only) source of various items you need to open
and operate the Facility, like equipment, supplies and non-Cookie Ingredient
inventory. (See Item 8) If you buy these items from or through us, although
you need not do so, the cost will range from $28,000 to $40,000. You will sign
our Equipment Order (Exhibit F) and pay us these amounts before the Facility
opens.
If you want us to help you construct the Facility after you buy the license,
we and you will sign our Construction Activity Assistance Agreement (Exhibit E).
You must pay us a 10% fee, calculated on the total costs and expenses of the
construction activity (excluding monies paid for architects' fees, performance
and payment bonds and insurance coverage). Each licensee's fee depends on the
cost to construct its Facility. 50% of this fee is due when you accept the
general contractor's bid to do the work, and the rest is due 15 days before your
Facility's scheduled opening date. You must pay us this fee in full before
opening the Facility. We did not receive a construction activity assistance fee
during our last fiscal year.
If you want to buy a Cookie System Facility that we operate, you must pay us
for its improvements, equipment, product and supply inventories and goodwill.
The amount you pay will depend on the condition of the Facility and its assets,
the revenue the Facility has generated, inventory levels and similar factors,
which vary widely for each Facility. The amounts we received from selling
existing Cookie System Facilities during our last fiscal year ranged from
$85,000 to $360,000. These amounts generally are due in full when you buy the
license. We will reflect the Facility's sale in our Agreement for Purchase and
Sale of Assets (Exhibit G).
On most occasions, we will lease the Facility's premises directly from the
landlord and then sublease them to you. (See Items 8 and 10) You must pay us
for security deposits and initial rent when you sign our Sublease (Exhibit D).
These amounts depend on the original charges under the main lease, which vary
for each Facility. The amounts we received for these initial sublease payments
during our last fiscal year ranged from $3,000 to $12,000.
There is no initial license fee for a Non-Baking Facility.
Except as provided above, no initial fees are refundable.
8
<PAGE>
Item 6
------
OTHER FEES
<TABLE>
<CAPTION>
=================================================================================================
Name of Fee/1/ Amount Due Date Remarks
=================================================================================================
<S> <C> <C> <C>
Royalty 7% of Facility's 10th day of each "Gross Sales" mean all revenue you
monthly Gross calendar month on receive from operating the Facility,
Sales previous month's including the value of any property
Gross Sales/2/ or services you receive; they do not
include taxes collected from
customers and customer refunds and
credits/3/
- -------------------------------------------------------------------------------------------------
Sublease As stated in First day of each You must pay us any amounts due under
lease month for fixed the prime lease if you sublease the
and/or scheduled Facility's premises from us, and we
rent and 20 days will pay that amount to the landlord
after notice for (see Items 8 and 10 for details about
other payments the Sublease)
- -------------------------------------------------------------------------------------------------
Additional $200 per day When billed We train 2 people free (see Item 11)
Training or (plus expenses) (typically before - we may charge you for others who
Assistance services provided) attend initial training, for training
newly-hired personnel, for periodic
refresher training courses or for
additional or special guidance,
assistance or training you need or
request
- -------------------------------------------------------------------------------------------------
Transfer $2,500 for When you request Due when the License Agreement or a
transfer and transfer controlling interest in you
additional transferred. No charge if License
$2,500 if we Agreement transferred to an entity
must train which you control (and request made
transferee within 90 days of original license
and/or its date)
manager
- -------------------------------------------------------------------------------------------------
Renewal Our then current When you sign
initial license successor license
fee less license agreement
fee you
originally paid
when you bought
license
=================================================================================================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Name of Fee/1/ Amount Due Date Remarks
================================================================================================
<S> <C> <C> <C>
Audit Cost of 15 days after Due if you understate the Facility's
inspection or billing gross sales by more than 2% or do not
audit give us reports, supporting records
or other required information
- ------------------------------------------------------------------------------------------------
Facility Cost of 15 days after You must reimburse our costs if we
Development development billing develop the Facility after you fail
to do so
- ------------------------------------------------------------------------------------------------
Liquidated Damages See footnote 4 When billed
- ------------------------------------------------------------------------------------------------
Construction 10% of due when you Due if we construct or remodel the
Activity construction accept Facility for you (see Items 5, 8 and
Assistance activity contractor's bid 11)
- ------------------------------------------------------------------------------------------------
Interest Lesser of 2% per 15 days after Due on all overdue amounts that are
month or highest billing more than 7 days late (also due on
contract rate of late rent payments). Interest begins
interest law to accrue from the original due date.
allows
- ------------------------------------------------------------------------------------------------
Service Charge $100 15 days after Due for each late Royalty or rent
billing payment
- ------------------------------------------------------------------------------------------------
Continuing $2,500 - $7,500 15 days after You will incur these costs
Inventory billing periodically for the products you
must or choose to buy from us
- ------------------------------------------------------------------------------------------------
Other Product and See Item 8 See Item 8 You must buy certain products and
Service Purchases services from us or according to our
standards and specifications
- ------------------------------------------------------------------------------------------------
Operations Manual $250 15 days after Cost of replacement copy
billing
- ------------------------------------------------------------------------------------------------
Management $250 per day As incurred Due for period during which we manage
(plus direct Facility upon your death or
costs and disability, default, termination or
expenses) abandonment
- ------------------------------------------------------------------------------------------------
Costs and Will vary under As incurred Due when you do not comply with the
Attorneys' Fees/5/ circumstances License Agreement or we defend an
action you bring against us (unless
you win your claims)
- ------------------------------------------------------------------------------------------------
Indemnification/5/ Will vary under As incurred You must reimburse us if we are held
circumstances liable for claims from your
Facility's operation
================================================================================================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================
<S> <C> <C> <C>
Name of Fee/1/ Amount Due Date Remarks
- -------------------------------------------------------------------------------------------------
operation
- -------------------------------------------------------------------------------------------------
Testing Cost of Testing 15 days after This covers the costs of testing new
billing products or inspecting new suppliers
you propose
=================================================================================================
</TABLE>
- --------------------
/1/ Except as noted in Item 8 for certain product and service purchases, all
-
fees are imposed and collected by and payable to us. All fees are non-
refundable.
/2/ We can make you pay the Royalty, amounts due for purchases from us,
-
interest and service charges by electronic funds transfer. If we do, you
must sign the documents and follow the procedures we specify to allow us to
withdraw these amounts directly from your bank account by debit entries.
You must make sure that these amounts are in the account.
/3/ You will add your Gross Sales from Non-Baking Facilities (see Item 12) to
-
your Facility's Gross Sales to compute the Royalty you must pay us.
/4/ If we terminate the License Agreement with cause, or you terminate the
-
License Agreement without cause, you must pay us liquidated damages equal
to the present value (using the then current 30 year Treasury Bond rate) of
the Royalties you would have paid us on the product of your Facility's
average monthly Gross Sales during its most recent 12 months of operation
before the termination multiplied by the number of months remaining in the
License Agreement had we or you not terminated it. If you pay us the
required liquidated damages by the due date, we will refund (without
interest) a portion of those liquidated damages if we grant a new license
for a Cookie System Facility at the Facility's location during what would
have been the remaining term of your License Agreement had we or you not
terminated it. The portion of the paid liquidated damages that we will
refund will be the amount that relates to the months in what would have
been the remaining term of your License Agreement during which the new
licensee actually operates a Cookie System Facility at your Facility's
location.
/5/ These fees also are due under the Sublease.
-
/6/ There are no advertising cooperatives in our system.
-
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
11
<PAGE>
ITEM 7
------
INITIAL INVESTMENT
The following chart is for a Type I and Type II Cookie System Facility*:
<TABLE>
<CAPTION>
==============================================================================================================================
Estimated Amount Method
or Estimated of Whether
Expenditures Low-High Range When Due Payment Refundable To Whom Paid
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial License Fee (1) $ 15,000 - $25,000 $5,000 due at time of Lump Sum No Us
offer; rest due when
License Agreement
signed
- ------------------------------------------------------------------------------------------------------------------------------
Three Months' Rent (2) $ 3,000 - $27,000 Monthly Lump Sum No Landlord or Us (as
sublessor)
- ------------------------------------------------------------------------------------------------------------------------------
Security Deposit (2) $ 1,750 - $9,000 On signing lease or Lump Sum Yes Landlord or Us (as
sublease sublessor)
- ------------------------------------------------------------------------------------------------------------------------------
Equipment (3) $ 28,000 - $40,000 As Incurred As Agreed No Outside Suppliers
or Us
- ------------------------------------------------------------------------------------------------------------------------------
Construction/Remodeling (4) $ 50,000 - $130,000 As Incurred As Agreed No Outside Suppliers
- ------------------------------------------------------------------------------------------------------------------------------
Architects' Fees (4) $ 5,000 - $7,500 As Incurred As Agreed No Outside Suppliers
or Us
- ------------------------------------------------------------------------------------------------------------------------------
Goodwill (5) $ 0 - $350,000 When you buy license Lump Sum No Us
- ------------------------------------------------------------------------------------------------------------------------------
Cookie Ingredients (6) $ 4,500 - $7,500 Before Opening Lump Sum No Us
- ------------------------------------------------------------------------------------------------------------------------------
Other Opening Inventory (7) $ 2,500 - $7,500 Before Opening Lump Sum No Outside Suppliers
or Us
- ------------------------------------------------------------------------------------------------------------------------------
Training Expenses (for all attendees) $ 2,000 - $4,000 As Incurred As Incurred No Third Parties
(8)
==============================================================================================================================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
Estimated Amount Method
or Estimated of Whether
Expenditures Low-High Range When Due Payment Refundable To Whom Paid
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance(9) $4,000 - $8,000 As Incurred As Incurred No Insurance Carriers
and Agents
- ------------------------------------------------------------------------------------------------------------------------------
Other Prepaid Expenses(10) Note 10 As Incurred As Incurred No Third Parties
- ------------------------------------------------------------------------------------------------------------------------------
Additional Funds - 3 months(11) $5,000 - $10,000 As Incurred As Incurred No Third Parties
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED INITIAL
INVESTMENT(12) $120,750 - $625,500
==============================================================================================================================
</TABLE>
* In addition to the Type I and Type II Cookie System Facilities, we also might
let you operate a Non-Baking Facility in your shopping mall or center. If you
choose, and we allow you, to operate a Non-Baking Facility, you must acquire the
necessary equipment to do so. We estimate the cost for this additional
equipment to range from $2,500 (for example, for a cookie display table) to
$45,000 (for example, for a cookie cart). Your costs will depend on the type of
Non-Baking Facility you operate and the equipment source. You would pay for
this equipment according to the terms you work out with the supplier. Your
purchase costs are not refundable. You also might have to pay a form of rent
for the Non-Baking Facility, although not all landlords charge rent for the Non-
Baking Facilities we and our licensees operate. The landlord makes this
decision. Our experience shows that rent might range from $500 to $2,700 per
month.
13
<PAGE>
Explanatory Notes
- -----------------
1. We describe the initial license fee in Item 5.
2. You will lease or sublease the Facility's premises. A typical Type I or
Type II Cookie System Facility has between 200 and 1,000 square feet in an
enclosed shopping mall. A typical Non-Baking Facility will use between 50 and
150 square feet. (See Items 8 and 10 for more details on the lease or
sublease.)
3. The average cost to equip a newly constructed Type I or Type II Cookie
System Facility is $28,000 to $40,000. If you buy the equipment at an existing
Cookie System Facility, the type, amount and age of the equipment will determine
its purchase price. If you buy equipment for a Cookie System Facility that you
are remodeling, the equipment you replace will determine its purchase price.
These amounts do not include sales tax or freight and delivery charges.
4. The approximate cost of constructing an average Type I or Type II Cookie
System Facility is $90,000. Although you need not use us to help construct or
remodel the Facility, you always must buy (before beginning construction or
remodeling) payment and performance bonds acceptable to us. These bonds cost
approximately 1-1/2% of the total construction or remodeling cost. If you buy
an existing Cookie System Facility from us, you must pay us for the finished
construction or remodeling activity. We will factor this into the asset
purchase price.
If we help you in the construction activity, we and you will sign our
Construction Activity Assistance Agreement (see Item 5), and you will pay us a
10% fee based on the total costs and expenses of the construction activity.
(See Item 6) We cannot estimate this fee because it depends on expenses that
will vary among construction projects.
5. If we sell an existing Cookie System Facility to you, we may include an
amount for the Facility's goodwill. We determine goodwill based on the
Facility's age, sales volume and cost structure. Because of these various
factors, we cannot estimate goodwill precisely.
6. If you purchase an existing Cookie System Facility, it normally includes
an inventory of Cookie Ingredients (not included in the Facility's purchase
price). We and you count the inventory and calculate the purchase price for
these items when you take possession of the Facility. Because there might not be
enough inventory to operate the Facility when you take it over, you might have
to buy more shortly afterwards. If you are opening a newly constructed or
remodeled Facility, you will pay approximately $6,000 for the initial inventory
of Cookie Ingredients.
7. You must have a supply of flavorings, garnishments, food and beverage
products, small kitchenwares, cleaning supplies, paper and packaging supplies,
beverage cups and lids, report forms and marketing and point-of-sale materials
during your operation of the Facility. You may buy these items from us or
independent suppliers. We often sell new licensees an initial "care package"
with several of these items for approximately $2,500 to $7,500.
If you buy an existing Cookie System Facility, the Facility's current inventory
already will include many of these items. However, you might have to buy more
soon after taking over the Facility.
14
<PAGE>
8. Factors affecting the exact cost are fuel or car rental expenses, hotel
and food rates, compensation for you and your employee and airfare and other
travel expenses. We estimate these expenses to be $1,000 to $2,000 for each
person. (See Item 11)
9. We cannot estimate precisely the insurance premiums you will pay at your
Facility. Numerous factors affect premiums, including the insurance company, a
state's workers' compensation rates, the fire rating on the Facility's
structure, the Facility's size and excess or extra coverages you choose.
10. These include utility, sales tax and state workers' compensation
deposits, deposits with suppliers and vendors, business licenses and legal,
accounting and organizational costs.
11. This item estimates your initial start up expenses (other than the items
identified separately in the table). These expenses include payroll costs but
not any draw or salary for you. These figures are estimates, and we cannot
guarantee that you will not have additional expenses starting the business.
Your costs will depend on how much you follow our methods and procedures; your
management skill, experience and business acumen; local economic conditions; the
local market for your products and services; the prevailing wage rate;
competition; and the sales level reached during the initial period.
12. We relied on our 20 years of experience in operating and licensing
Cookie System Facilities to compile these estimates. You should review these
figures carefully with a business advisor before deciding to purchase the
license. Except for the Sublease (and other occasional financing) described in
Item 10, we do not offer financing directly or indirectly for any part of the
initial investment. The availability and terms of financing depend on the
availability of financing generally, your creditworthiness and collateral and
lending policies of financial institutions from which you request a loan.
Item 8
------
RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES
You must operate the Facility under our System Standards. System Standards
may regulate, among other things, the types, models and brands of fixtures,
furniture, furnishings, equipment, signs, materials and supplies you must use in
operating the Facility, required or authorized products and services and product
and service categories, product preparation, storage, handling and packaging
procedures, product inventory requirements, and designated or approved suppliers
of necessary items and services (which may be limited to or include us).
Currently, you must purchase all Cookie Ingredients only from us. We are the
exclusive source to protect the quality and uniformity of the products baked at
Cookie System Facilities, which are critical to our system, and to preserve the
trade secret status of our recipes. We make a profit on these direct sales. You
also must buy a special type of oven that an unaffiliated company manufactures
and purchase Coca-Cola products from Coca-Cola USA. Except for these items,
there are no goods, services, supplies, fixtures, equipment, inventory, computer
hardware and software, or real estate for the Facility that you must purchase or
lease from us or a designated supplier.
15
<PAGE>
However, to maintain the quality of the goods and services that Cookie
System Facilities sell and the reputation of our system, you must buy or lease
fixtures, furniture, equipment, supplies, furnishings, food products, and
similar items that meet our minimum standards and specifications and, for some
items, from suppliers that we approve. Our standards and specifications may
impose minimum requirements for delivery, performance, reputation, design and
appearance. We will notify you in our Operations Manual or other communications
of our standards and specifications and/or names of approved suppliers. There
might be situations where you may obtain items from any supplier who can satisfy
our requirements and, therefore, would be an approved supplier. We are an
approved but not the only supplier of equipment, flavorings, garnishments, food
and beverage products, small kitchenwares, cleaning supplies, paper and
packaging supplies, beverage cups and lids, report forms, and marketing and
point-of-sale materials. We make a profit on any direct sales to you.
If you want to use any item or service that we have not yet evaluated or to
buy or lease from a supplier that we have not yet approved, you first must
submit sufficient information, specifications and samples for us to determine
whether the item or service complies with System Standards or the supplier meets
approved supplier criteria. We may charge you a reasonable fee to cover our
costs in making this decision (see Item 6) and will, within a reasonable time
(typically 60 days), give you our decision. We periodically will establish
procedures for submitting requests for approval of items, services and suppliers
and may impose limits on the number of approved items, services and suppliers.
Supplier approval might depend on product quality, frequency of delivery and
standards of service and might be temporary, until we evaluate the supplier in
more detail. We may inspect a proposed supplier's facilities during the
approval process and after to make sure that the supplier continues to meet our
standards. If it does not, we may revoke our approval by notifying the supplier
and you in writing.
Besides these purchases or leases, you must obtain and maintain, at your
own expense, the insurance coverage that we and the Facility's lease
periodically require and meet the other insurance-related obligations in the
License Agreement. You currently must have the following coverages and policy
limits:
1. Employer's liability and workers' compensation or similar insurance as
the law requires.
2. Commercial general liability coverage to include premises/operations,
products/completed operations, contractual and personal injury for at
least $1 million each occurrence and $2 million aggregate or
comprehensive general liability insurance for at least $1 million
combined single limit for bodily injury and property damage with broad
form comprehensive general liability endorsement.
3. Commercial umbrella policy with a limit of at least $3 million.
4. Standard "all-risk" policy covering the Facility and its contents at
full replacement value, with co-insurance waived and one year's loss
of income.
16
<PAGE>
Cost of coverage depends on the insurance carrier's charges, terms of payment
and your history. (See Item 7) All insurance policies must name us as an
additional insured party. If you sublease the premises from us, we may be a co-
payee of the check that the insurance company issues for any loss proceeds due
to a loss at the Facility.
Before you use them, you must send us for approval samples of all
advertising, promotional and marketing materials which we have not prepared or
previously approved. If you do not receive written disapproval within 15 days
after we receive the materials, they are approved. You may not use any
advertising, promotional or marketing materials that we have disapproved.
Unless we help you construct the Facility or you buy an existing Facility,
you must develop the Facility. We will give you mandatory and suggested
specifications and layouts for a Cookie System Facility, including requirements
for dimensions, design, image, interior layout, decor, fixtures, equipment,
signs, furnishings and color scheme. You must prepare all required construction
plans and specifications to suit the shape and dimensions of the premises and
ensure that these plans and specifications comply with applicable ordinances,
building codes, permit requirements, and lease requirements and restrictions.
We must review and approve all plans and specifications before you begin
constructing the Facility to make sure they meet our design requirements. You
must submit all revised or "as built" plans and specifications during
construction. You must use licensed architects and general contractors whom we
approve to prepare plans, drawings and construction specifications and to
develop the Facility. We may inspect the Facility during its development.
The Facility must be at a site that we have accepted. We also must accept
the lease or sublease for the premises. If you do not sublease the premises
from us, you must, at our request, collaterally assign the lease or sublease to
us as security for your timely performance of your obligations under the License
Agreement and get the lessor's consent to the collateral assignment. This means
that, if you do not fulfill your obligations, we may take over the premises.
Our standard form of Collateral Assignment of Lease is Exhibit M. In most
cases, though, you will sublease the premises from us, and we will be the prime
tenant with the shopping center or other landlord. You will pay us all lease-
related charges, and we will pass these amounts over to the landlord (without
mark-up). We describe our Sublease in Item 10.
We and our affiliates participate in a nationwide marketing program
sponsored by Coca-Cola USA. You must participate in the program and purchase
Coca-Cola products for use at your Facility. You may purchase Coca-Cola
products from any authorized Coca-Cola distributor. Coca-Cola USA currently
pays us and/or our parent corporation, MFOCI, amounts based upon purchases by
each franchisee. These funds may be used to develop and implement marketing and
promotional activities designed to benefit the entire Great American Cookie
Company System, and to increase the sale of Coca-Cola products at all Cookie
System Facilities. During the fiscal year ending June 28, 1998, however,
neither we nor MFOCI received any direct payments from Coca-Cola USA for
purchases of Coca-Cola products by Cookie System Facilities. Any amounts
received by us or MFOCI from Coca-Cola USA will not reduce the payments you are
required to make to us under the License Agreement.
17
<PAGE>
In the fiscal year ending June 28, 1998, our revenue from all of the items
described above that franchisees are required to purchase from us was
$12,214,095, which is 32.7% of our total annual revenue of $37,346,860. We
derived these amounts from our internally prepared financial statements.
All of the required purchases and leases described above, whether from us
or our affiliates or other third parties, represent 90% or more of your total
purchases and leases in establishing and then operating the Facility.
Except as described above, we currently do not derive revenue or other
material consideration from required purchases or leases. There currently are
no purchasing or distribution cooperatives. We currently negotiate purchase
arrangements with suppliers (including price terms) for packaging materials,
certain beverages, uniforms, advertising materials, and various equipment for
the benefit of licensees. We do not provide material benefits to a licensee for
using designated or approved sources.
Item 9
------
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE LICENSE AND OTHER
AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR
OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
<TABLE>
<CAPTION>
================================================================================================
Item in
Section Offering
Obligation in Agreement Circular
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Site selection and Sections 1D and 2A and B of License Items 7, 8, 10, 11
acquisition/lease Agreement, Sublease and Collateral and 12
Assignment of Lease
- ------------------------------------------------------------------------------------------------
(b) Pre-opening purchases/leases Sections 2B, C, D and E and 8 of Items 5, 6, 7, 8
License Agreement, Equipment Order and 11
and Agreement for Purchase and Sale
of Assets
- ------------------------------------------------------------------------------------------------
(c) Site development and other Sections 2C, D, E and F of License Items 7, 8 and 11
pre-opening requirements Agreement and Construction Activity
Assistance Agreement
- ------------------------------------------------------------------------------------------------
(d) Initial and ongoing training Sections 4A and B of License Item 11
Agreement
- ------------------------------------------------------------------------------------------------
(e) Opening Section 2F of License Agreement Item 11
================================================================================================
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Item in
Section Offering
Obligation in Agreement Circular
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(f) Fees Sections 1E(1), 2C and E, 3A, B and Items 5, 6 and 7
D, 4A, B and C, 10B, 11C(5) and
(6), 11E(2), 12A, 13C, 14F and 16C
of License Agreement; Section 4 of
Construction Activity Assistance
Agreement; Section 2 of Equipment
Order; Section 1.1 of Agreement for
Purchase and Sale of Assets and
Section 3 of Sublease
- ------------------------------------------------------------------------------------------------
(g) Compliance with standards and Sections 4B and C and 8 of License Items 8 and 11
policies/Operating Manual Agreement
- ------------------------------------------------------------------------------------------------
(h) Trademarks and proprietary Sections 5 and 6 of License Items 13 and 14
information Agreement
- ------------------------------------------------------------------------------------------------
(i) Restrictions on Sections 1D and 8A of License Items 8, 11, 12
products/services offered Agreement and Delivery Addendum and 16
- ------------------------------------------------------------------------------------------------
(j) Warranty and customer service None
requirements
- ------------------------------------------------------------------------------------------------
(k) Territorial development and Section 1E(1) of License Agreement Item 12
sales quotas
- ------------------------------------------------------------------------------------------------
(l) On-going product/service Section 8 of License Agreement Items 6 and 8
purchases
- ------------------------------------------------------------------------------------------------
(m) Maintenance, appearance and Sections 8A and B and 12A of Items 11, 16 and
remodeling requirements License Agreement 17
- ------------------------------------------------------------------------------------------------
(n) Insurance Section 8A(13) of License Agreement Items 7 and 8
and Delivery Addendum
- ------------------------------------------------------------------------------------------------
(o) Advertising None
- ------------------------------------------------------------------------------------------------
(p) Indemnification Section 15D of License Agreement Item 6
and Section 9 of Sublease
- ------------------------------------------------------------------------------------------------
(q) Owner's participa- Sections 4A and 8A of License Items 11 and 15
tion/management/staffing Agreement
- ------------------------------------------------------------------------------------------------
(r) Records/reports Section 9 of License Agreement
- ------------------------------------------------------------------------------------------------
(s) Inspections/audits Section 10 of License Agreement Item 6
- ------------------------------------------------------------------------------------------------
(t) Transfer Section 11 of License Agreement Item 17
================================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Item in
Section Offering
Obligation in Agreement Circular
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
and Section 4 of Sublease
- ------------------------------------------------------------------------------------------------
(u) Renewal Section 12 of License Agreement Item 17
- ------------------------------------------------------------------------------------------------
(v) Post-termination obligations Section 14 of License Agreement Item 17
- ------------------------------------------------------------------------------------------------
(w) Non-competition covenants Sections 7 and 14D of License Item 17
Agreement
- ------------------------------------------------------------------------------------------------
(x) Dispute resolution Sections 17F and G of License Item 17
Agreement
- ------------------------------------------------------------------------------------------------
(y) Assumption of Management Section 13C of License Agreement Item 17
================================================================================================
</TABLE>
Item 10
-------
FINANCING
Except as described below, we do not offer direct or indirect financing.
We do not guarantee your note, lease or obligation.
In many cases, landlords make us become the primary lessee of the
Facility's premises and then let us sublease to licensees. This generally
occurs when landlords question a licensee's creditworthiness or prefer to lease
only to franchisors and not to franchisees. If we are the primary lessee, you
must sign our standard Sublease (Exhibit D). Under our Sublease, there is a
straight pass-through of all payments due under the primary lease. If you
sublease from us, you must pay us the rent due under the primary lease by the
first day of each month. You must make other payments, including adjustments or
percentage rent, within 20 days after we or the landlord notifies you that it is
due. (Section 3) When you sign the Sublease, you must deposit the estimated
first month's rental and amenities due under the lease and pay a security
deposit. You also might have to pay other one-time charges due under the lease
for illustration and shopping center grand opening charges. When the License
Agreement expires, we will return any Sublease deposit or credit remaining on
your account if you are not in default. However, the lease might restrict the
return of the security deposit or rent.
The Sublease term begins when you sign it or when the lease begins,
whichever is later. The Sublease term ends on the earlier of: (1) the date the
License Agreement expires or terminates; (2) one day before the primary lease
term expires; (3) the date the primary lease actually terminates; or (4) the
date the Sublease terminates. (Section 1) If you do not comply with the
primary lease or the License Agreement, you will be in default under the
Sublease. (Section 11)
If you do not make the monthly rent payments when due, they will bear
interest at the highest contract interest rate the law allows or 2% per month,
whichever is less. You also must pay us a service charge of $100 for each late
monthly rent payment for our increased expense of
20
<PAGE>
handling the late payment. (Section 3) You must make all rent payments when due
and may not reduce them by any set-off, deduction, claim or other withholding
against us. (Section 3) Your failure to cure a default under the Sublease is a
default under the License Agreement. (Section 11) We also may recover our
attorneys' fees and costs. (Section 9.6) You may not assign your Sublease.
(Section 4) Even though you sublease the Facility's premises from us, we need
not perform any landlord obligation. You may look only to the primary landlord
for performance. (Section 7) Your owners must guarantee your performance under
the Sublease.
Our Sublease does not contain a waiver of defenses or similar provisions.
The Sublease contains no provisions concerning our assignment rights.
If you buy an existing Cookie System Facility from us, we might be willing
to take a promissory note for 20% to 30% of the purchase price and the rest in
cash. We also might provide a bridge loan for 90 days after you acquire the
license to allow you to finalize your permanent financing. We do this very
infrequently, and you should not expect us to do this for you. If we do,
however, we and you will negotiate the note's terms.
Item 11
-------
FRANCHISOR'S OBLIGATIONS
Except as listed below, we need not provide any assistance to you.
Before you open the Facility, we will:
1. Accept the site you propose for the Facility if it meets our criteria
for demographic characteristics, traffic patterns, character of
neighborhood, competition from, proximity to and the nature of other
businesses, other commercial characteristics, and the site's size,
appearance and other physical characteristics. (License Agreement -
Section 2.A.) In most cases, however, you will sublease the premises
from us under our Sublease. (See Items 1, 7, 8 and 10) If we and you
do not agree on a site, you may not buy a license.
2. If you develop the Facility, give you mandatory and suggested
specifications and layouts for a Cookie System Facility, including
requirements for dimensions, design, image, interior layout, decor,
fixtures, equipment, signs, furnishings and color scheme. (License
Agreement - Section 2.C.)
3. At your request, help you develop the Facility. (License Agreement -
Section 2.C.) We will help you in various types of construction
activity, including finding an architect and a general contractor,
taking general contractor bids, obtaining payment and performance
bonds, licenses and permits, obtaining final lien waivers and advising
your contractor on the Facility's construction. (Construction Activity
Assistance Agreement - Schedule One)
4. As discussed in Item 8, identify the fixtures, furniture, furnishings,
equipment (including computer hardware and software), signs, food
products, materials and
21
<PAGE>
supplies and services you need to develop and operate the Facility,
the minimum standards and specifications you must satisfy and the
designated or approved suppliers from whom you must or may buy or
lease these items and services (including us and/or our affiliates).
(License Agreement -Sections 2.D., 2.E. and 8.A.)
5. At your request, obtain the Facility's equipment for you. (Equipment
Order)
6. Loan you one copy of the Operations Manual, the tables of contents of
which are Exhibit K. (License Agreement - Section 4.C.)
7. Train you (or your managing owner) and one employee. (License
Agreement -Section 4.A.) We describe this training later in this Item.
During your operation of the Facility, we will:
1. Advise you regarding the Facility's operation based on reports you
submit or inspections we make. We also will guide you on standards,
specifications and operating procedures and methods that Cookie System
Facilities use; purchasing required fixtures, furniture, furnishings,
equipment, signs, products, materials and supplies; advertising and
marketing programs; employee training; and administrative, bookkeeping
and accounting procedures. We will guide you, at our discretion, in
our Operations Manual, bulletins or other written materials, during
telephone consultations and/or during consultations at our office or
the Facility. (License Agreement - Section 4.B.)
2. Give you, at your request, additional or special guidance, assistance
and training. (License Agreement - Section 4.B.) (See Item 6)
3. Loan you one copy of the Operations Manual, containing the materials
(including audiotapes, videotapes, magnetic media, computer software
and written materials) that we generally give licensees to operate
Cookie System Facilities. The Operations Manual contains mandatory
and suggested specifications, standards, operating procedures and
rules ("System Standards") that we periodically require. We may
modify the Operations Manual periodically to reflect changes in System
Standards. (License Agreement - Section 4.C.)
4. Issue and modify System Standards for Cookie System Facilities. We
periodically may modify System Standards, which may accommodate
regional or local variations, and these modifications may require you
to invest additional capital in the Facility and/or incur higher
operating costs. (See Item 16) (License Agreement - Sections 8.A.
and 8.B.)
5. Inspect the Facility's operation to help you comply with the License
Agreement and all System Standards. (Franchise Agreement - Section
10.A.)
6. Let you use our confidential information. (License Agreement -
Section 6)
22
<PAGE>
7. Let you use our Marks. (License Agreement - Section 5)
8. Periodically offer refresher training courses. (License Agreement -
Section 4.A.)
Although we do not have a marketing or advertising fund to which you must
contribute, we do advertise Cookie System Facilities with our own funds
regionally and locally through direct mail and in print media and point-of-sale
materials. An in-house advertising department develops the advertising. You
may obtain samples of the items we have prepared. There currently is a
marketing committee of our independent licensee association with which we
consult on advertising policies. The association selects the committee's
members. The committee serves in an advisory capacity only. We have no power
to form, change or dissolve the committee. We have no advertising cooperatives.
You currently need not buy or use electronic cash register or computer
systems (although we may make you do so during the term of your license).
(License Agreement - Section 2.E.)
We estimate that it will be 2 to 9 months between the time you sign the
License Agreement and open your Facility, but the interval depends on the site's
location and condition, the Facility's construction schedule, the extent to
which you must upgrade or remodel an existing location, the delivery schedule
for equipment and supplies, delays in securing financing arrangements and
completing training, and your compliance with local laws and regulations. If
you buy an existing Facility, we estimate the interval to be one to 3 months.
You may not open the Facility for business until: (1) we accept the Facility in
writing; (2) pre-opening training is complete to our satisfaction; (3) you have
paid the initial license fee and all other amounts then due to us; and (4) you
give us copies of all required insurance policies or other evidence of insurance
coverage and payment of premiums. Subject to these conditions, you must open
the Facility for business within 365 days after signing the License Agreement or
by the date the lease specifies, whichever is earlier. (License Agreement -
Section 2.F.)
Before the Facility opens, we will provide initial training on operating a
Cookie System Facility to you (or your managing owner) and one managerial
employee. Approximately 7 working days of training will occur at an operating
Cookie System Facility and/or at our designated training facility in Georgia or
some other location we designate. The two attendees must complete initial
training to our satisfaction and participate in all other activities required to
operate the Facility. Although we do not charge separately for this training
(except when there is a transfer), you must pay all travel and living expenses
which you and your employees incur.
You must replace the manager if we determine that he or she is not
qualified to hold this position. If you (or your managing owner) cannot
complete initial training to our satisfaction, we may terminate the License
Agreement. (License Agreement - Section 4.A.)
We expect that training will occur after you sign the License Agreement and
while you are developing the Facility. We plan to be flexible in scheduling
training to accommodate our personnel, you and your personnel. We have monthly
training schedules. You generally must complete training 14 days before the
Facility opens. As of the date of this offering circular, we provided the
following training:
23
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Hours of
Hours of On the
Time Instructional Classroom Job
Subject Begun Manual Training Training Instructor
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS COURSE: Day 1 Ops. and 4.5 2.0 Note 1
ordering, approved Training Manuals
product lines, and Videos
storage, display,
packaging,
maintenance and
equipment
- -----------------------------------------------------------------------------------------------------------
TECHNICAL SKILLS: Day 2 Ops. and 1.5 26 Note 1
store operations, Training Manuals
baking, production, and Videos
projections,
decorating and
scheduling
- -----------------------------------------------------------------------------------------------------------
MANAGEMENT SKILLS: Day 3 Ops. and 9 3 Note 1
hiring, discipline, Training Manuals
documentation, and Videos
administration,
customer service and
selling skills
- -----------------------------------------------------------------------------------------------------------
COMPANY CULTURE: Day 1 Ops. and 4.0 Note 1
welcome, safety and Training Manuals
marketing and Videos
- -----------------------------------------------------------------------------------------------------------
Proficiency Test Day 5 Ops. and 2 Note 1
Training Manuals
and Videos
===========================================================================================================
</TABLE>
/1/ Terri Earls, our Training Manager, will supervise training. Terri has 9
years of experience in human resource management and training. Cookie
System Facility employees also will provide training in the areas in which
they have experience.
__________
You (or your managing owner) and/or previously trained and experienced
managers must attend any periodic refresher training courses that we
provide and pay the applicable fees (see Item
24
<PAGE>
6) and travel and living expenses. You also must pay us for training new
managers hired after the Facility opens.
Item 12
-------
TERRITORY
You will operate the Facility at a specific location that we first must
approve. This is the only right we give you. You do not have any exclusive or
protected area around the Facility, any other territorial rights, any options or
rights of first refusal to acquire more licenses for Cookie System Facilities
(except as noted below) or any similar rights or protection. You may not
operate the Facility from another location without our written approval. Under
the License Agreement, you generally may sell authorized and approved products
and services only over-the-counter at your location and may not have any mail
order, delivery or other activities where you sell or deliver products or
services away from your location. However, if we and you sign the Addendum to
License Agreement for Delivery Services, you may sell and deliver Products
produced at your Facility away from the Facility's physical premises and within
a limited geographic area.
Because you have no territorial or similar rights, we (and our affiliates,
if any) may do whatever we want whenever and wherever we want. For example, we
may establish and allow other licensees to establish Cookie System Facilities at
any location and on any terms and conditions we feel appropriate, including in
other spaces and at other locations within your Facility's shopping mall or
center. However, if we decide during the term of your License Agreement to
establish or allow another licensee to establish a Cookie System Facility within
your Facility's shopping mall or center, we first will notify you of our desire
to do so. If you (and your owners) are fully complying with the License
Agreement, you will have a right of first refusal to acquire a license for that
Cookie System Facility on the terms of our then current license agreement. To
exercise this right, you have 30 calendar days after we notify you of our plans
to tell us that you want to acquire a license for that Cookie System Facility
and to pay us a nonrefundable $10,000 deposit (which we will apply toward the
initial license fee due for that Facility). If you do not exercise your right
of first refusal, or you (or your owners) are not fully complying with the
License Agreement, or you choose not to acquire a license for the Cookie System
Facility after paying us the $10,000 nonrefundable deposit, we may establish or
allow another licensee to establish a Cookie System Facility within your
shopping mall or center on any terms and conditions we feel appropriate.
We also may sell identical, similar or dissimilar products and services,
whether identified by the Marks or other trademarks or service marks, through
any distribution channels we feel appropriate, wherever located or operating.
In addition, as discussed in Item 1, we or one of our affiliates may acquire or
actively seek to acquire businesses or franchise systems that are your
competitors and such competitors may have locations near your Facility,
including locations within the same shopping mall. These activities may compete
with you.
One of our affiliates, MFOCI, specifically reserves the rights described in
this paragraph. As set forth in Item 1 above, MFOCI currently owns and operates
Hot Sam Pretzel and Bakery Stores, and grants licenses and franchises for the
operation of and/or owns and operates Mrs.
25
<PAGE>
Fields Cookie Stores and Original Cookie Company Stores. In addition, MFOCI
retains the right to do the following: (1) sell and franchise and license others
to sell Hot Sam products and other items and services offered by Hot Sam Pretzel
Bakery Stores under the Hot Sam trademarks and other trademarks and service
marks through Hot Sam Pretzel Bakery Stores on any terms and conditions and at
any location that MFOCI deems appropriate; (2) sell and license and franchise
others to sell any other products or services under the Hot Sam trademarks; (3)
own, operate and grant others the right to own or operate Hot Sam Pretzel Bakery
Stores or other baked goods and snack food businesses at the locations and on
the terms and conditions as MFOCI, in its sole discretion, deems appropriate;
(4) sell and franchise and license others to sell Mrs. Fields products and other
items and services offered by Mrs. Fields Retail Outlets under the Mrs. Fields
trademarks and other trademarks and service marks through Mrs. Fields Retail
Outlets on any terms and conditions and at any location that MFOCI deems
appropriate; (5) sell and license and franchise others to sell any other
products or services under the Mrs. Fields trademarks (including items such as
refrigerated ready-to-bake cookie dough sold through various retail outlets);
and (6) own, operate and grant others the right to own or operate Mrs. Fields
Cookie Stores, or other dessert and snack food businesses at the locations and
on the terms and conditions as MFOCI, in its sole discretion, deems appropriate.
These activities may compete with you.
Similarly, another one of our affiliates, PTI, specifically reserves the
rights described in this paragraph. As set forth in Item 1 above, PTI currently
grants licenses and franchises for the operation of Pretzel Time Stores. In
addition, PTI, specifically retains the right to do the following: (1) sell and
franchise and license others to sell Pretzel Time products and other items and
services offered by Pretzel Time Stores under the Pretzel Time trademarks and
other trademarks and service marks through Pretzel Time Stores on any terms and
conditions and at any location that PTI deems appropriate; (2) sell and license
and franchise others to sell any other products or services under the PTI
trademarks (including items such as refrigerated ready-to-bake cookie dough sold
through various retail outlets); and (3) own, operate and grant others the right
to own or operate Pretzel Time Stores or other dessert and snack food businesses
at the locations and on the terms and conditions as PTI in its sole discretion,
deems appropriate. These activities may compete with you.
In addition, Pretzelmaker and Pretzelmaker-Canada grant geographic areas
around each Pretzelmaker Store (usually limited to the shopping mall in which
the Store is located) within which they will not, except in certain
circumstances relating to alternative distribution licensees, establish and
operate or franchise others to establish and operate Pretzelmaker Stores.
Subject to the preceding sentence, our affiliates, Pretzelmaker and
Pretzelmaker-Canada, specifically retain the right to do the following: (1)
sell and franchise and license others to sell Pretzelmaker products and other
items and services offered by Pretzelmaker Stores under the Pretzelmaker
trademarks and other trademarks and service marks through Pretzelmaker Stores on
any terms and conditions and at any location that Pretzelmaker or Pretzelmaker-
Canada deems appropriate; (2) sell and license and franchise others to sell any
other products or services under the Pretzelmaker trademarks (including items
such as refrigerated ready-to-bake dough sold through various retail outlets);
and (3) own, operate and grant others the right to own or operate Pretzelmaker
Stores or other dessert and snack food
26
<PAGE>
businesses at the locations and on the terms and conditions as Pretzelmaker or
Pretzelmaker-Canada in its sole discretion, deems appropriate. These activities
may compete with you.
We periodically might allow you to sell some or all of the products that
you produce at the Facility from one or more Non-Baking Facilities. You may do
so only with our written approval and only in the manner we specify. You must
sign our "Addendum to License Agreement for Non-Baking Facilities" (Exhibit C)
(the "Addendum"). You may not operate any Non-Baking Facility unless it is
specifically identified in the Addendum and operated exclusively in the shopping
mall or center. Your right to operate Non-Baking Facilities, however, always
will be subject to the primary landlord's consent and any conditions it imposes.
If the landlord withdraws its consent, you must stop operating the Non-Baking
Facility immediately.
Except as provided in the Addendum, the License Agreement controls your
operation of Non-Baking Facilities. You may not begin operating a Non-Baking
Facility until we notify you in writing that it meets our standards and
specifications. We may terminate the Addendum if we decide to establish or
allow you or others to establish other Cookie System Facilities within your
shopping mall or center. (See Item 17)
28A
<PAGE>
Item 13
-------
TRADEMARKS
You may use our Marks in operating the Facility. Our principal Marks are:
<TABLE>
<CAPTION>
======================================================================================================
Affidavits of Use and
Registration (where applicable)
Mark Number Date Issued Incontestability Filed?
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
"Great American Cookie 1,657,698 09/17/91 N/A
Co. & Design(R)"
- ------------------------------------------------------------------------------------------------------
"GREAT AMERICAN 74/574483 09/16/94 N/A
COOKIES" (Serial No.) (Date filed)
- ------------------------------------------------------------------------------------------------------
"Great American Cookie N/A N/A N/A
Company" and Design
======================================================================================================
</TABLE>
All of these Marks cover retail cookie store services. The first Mark is
registered on the Principal Register of the United States Patent and Trademark
Office (PTO). The Mark is not yet due for renewal. We have filed an
application to register the second Mark on the Principal Register based on
actual use. We have not yet filed any papers for the third Mark. By not having
a Principal Register federal registration for the second and third Marks, we do
not have certain presumptive legal rights granted by a registration.
You must follow our rules when you use the Marks. You may not use any Mark as
part of your corporate or legal business name or with modifying words, terms,
designs or symbols (except for those we license to you). You may not use any
Mark in selling unauthorized products or services or in any other way we have
not expressly authorized in writing.
There are no currently effective material determinations of the PTO, the
Trademark Trial and Appeal Board, the trademark administrator of any state or
any court, and no pending infringement, opposition or cancellation proceedings
or material litigation, involving the principal Marks. No agreements limit our
right to use or license the Marks in a manner material to the license.
You must notify us immediately of any apparent infringement or challenge to
your use of any Mark, or of any claim by any person of any rights in any Mark,
and you may not communicate with any person other than us and our attorneys, and
your attorneys, in any infringement, challenge or claim. We may take the action
we feel is best (or no action if we feel none is necessary) and control
exclusively any litigation, PTO proceeding or any other administrative
proceeding from the
29
<PAGE>
infringement, challenge or claim or otherwise concerning any Mark. You must sign
any documents and take any action that, in the opinion of our attorneys, are
necessary or advisable to protect and maintain our interests in any litigation
or PTO or other proceeding or otherwise to protect and maintain our interests in
the Marks.
We will reimburse you for all damages and costs you incur in any proceeding
disputing your right to use the Marks if you have timely notified us of the
claim or proceeding and complied with the License Agreement. We may defend and
control the defense of any proceeding concerning your use of any Mark.
If it becomes advisable at any time in our sole discretion for us and/or you
to modify or discontinue using any Mark and/or use one or more additional or
substitute trade or service marks, you must comply with our directions within a
reasonable time after receiving notice. We will reimburse you for your
reasonable direct expenses of changing your Facility's signs. However, we need
not reimburse you for any loss of revenue due to any modified or discontinued
Mark or for your expenses in promoting a modified or substitute trademark or
service mark.
We do not actually know of either superior prior rights or infringing uses
that could materially affect your use of our principal Marks in any state.
Item 14
-------
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
There are no patents material to the license.
We claim copyrights in our License Agreement forms, Operations Manuals,
bulletins, memoranda, charts, advisories, cookie designs, promotional and
advertising materials, plans and specifications for Cookie System Facilities,
and similar items used in operating the Facility. We have not registered these
copyrights with the United States Registrar of Copyrights. You may use these
items only in the way we specify and only while operating your Facility.
There currently are no effective determinations of the Copyright Office
(Library of Congress) or any court regarding any of the copyrighted materials.
There are no agreements currently in effect which significantly limit our right
to use or allow others to use the copyrighted materials. We do not actually
know of any infringing uses which could materially affect your use of the
copyrighted materials in any state. We need not protect or defend copyrights,
although we intend to do so when this action is in the best interests of our
system.
Our Operations Manuals and other materials contain our confidential
information. This information includes site selection criteria; recipes;
methods, formats, specifications, standards, systems, procedures, sales and
marketing techniques, knowledge and experience in developing and operating
Cookie System Facilities; marketing and advertising programs for Cookie System
Facilities; knowledge of specifications for and suppliers of certain fixtures,
furniture, furnishings, equipment, products, materials and supplies; and
knowledge of the operating results and financial performance of Cookie System
Facilities other than your Facility.
30
<PAGE>
You must promptly disclose to us all ideas, concepts, techniques or
materials concerning a Cookie System Facility, whether or not protectable
intellectual property and whether created by or for you or your owners. These
will be our exclusive property and part of the system and works made-for-hire
for us. You and your owners must sign any documents we request to show our
ownership of, or to help us obtain intellectual property rights in, these ideas,
concepts, techniques or materials.
You may not use our confidential information in an unauthorized manner and
must take reasonable steps to prevent its disclosure to others.
Item 15
-------
OBLIGATION TO PARTICIPATE IN THE ACTUAL
OPERATION OF THE FRANCHISE BUSINESS
You must at all times faithfully, honestly and diligently perform your
obligations under the License Agreement, continuously exert your best efforts to
promote and enhance the Facility and not engage in any other business or
activity that conflicts with your obligations to operate the Facility properly.
System Standards may regulate staffing levels and management, communicating the
identities of Facility personnel and employee qualifications, training, dress
and appearance (although you alone are responsible for selecting and promoting
your employees, the hours they work, their rates of pay and other benefits, the
work assigned to them and their working conditions). Although we recommend it,
you (or your managing owner) need not participate personally in the Facility's
direct operation. In that case, however, you must hire someone who will manage
the Facility's day-to-day operations on site. You (or your managing owner) and
your managerial employee must complete initial training satisfactorily. You
must replace your managerial employee if he or she is not qualified to hold this
position. The managerial employee need not have an equity interest in the
Facility but must agree in writing to preserve any confidential information to
which he or she has access and not to compete with Cookie System Facilities.
Your managing owner must have at least a 25% ownership interest in your profits,
losses and assets.
If you are a corporation, limited liability company or partnership, your
owners must personally guarantee your obligations under the License Agreement
and also agree to be personally bound by, and personally liable for the breach
of, every provision of the License Agreement, both monetary and non-monetary
obligations, including the confidentiality and non-compete obligations. This
"Guaranty and Assumption of Obligations" is part of the License Agreement. If
we, in a given case, do not require one of your owners to sign the Guaranty,
that owner still must agree to comply with all of the non-monetary obligations
in the License Agreement as if he or she were the licensee, including the
confidentiality and non-compete obligations. Your officers and directors also
must comply with this requirement. Our standard "Principal's Agreement" is
Exhibit H.
31
<PAGE>
Item 16
-------
RESTRICTIONS ON WHAT THE FRANCHISE OWNER MAY SELL
You must offer all products and services that we periodically require
for Cookie System Facilities. You may not offer any products or services that
we have not authorized. (See Item 8) Our System Standards may regulate
required or authorized products and services, product and service categories and
product inventory requirements. We periodically may change required and/or
authorized products and services and product and service categories. There are
no limits on our right to do so.
You need not invest additional capital in the Facility during the first 2
years of the term of your License Agreement unless your lease or applicable laws
require you to do so. You need not spend $10,000 or more on capital
modifications during the last 2 years of the Agreement's term unless we then
agree to grant you a successor license when the Agreement expires. Lastly, you
need not spend $25,000 or more on capital modifications during any 3 year period
(except for the last 2 years, during which there are no limits). Subject to
these limitations, we will give you 60 days to comply with capital modifications
that will cost up to $5,000, 120 days to comply with capital modifications that
will cost between $5,000 and $10,000, and 180 days to comply with capital
modifications that will cost over $10,000. (See Item 12 for certain
territorial, customer and operating restrictions).
Item 17
-------
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
This table lists certain important provisions of the license and related
agreements. You should read these provisions in the agreements attached to this
offering circular.
<TABLE>
<CAPTION>
================================================================================================
Provision Section in License Summary
Agreement
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Term of the franchise Section 1.D. (and Equal to current term of lease or
Section 1 of Sublease) sublease for premises
- ------------------------------------------------------------------------------------------------
(b) Renewal or extension of Section 12 If you are in good standing, you
the term may acquire a successor license on
our then current terms
- ------------------------------------------------------------------------------------------------
(c) Requirements for you to Section 12 Maintain possession of premises or
renew or extend find acceptable substitute
premises, remodel Facility under
our then current standards, sign
new agreement and other documents
and pay fee
================================================================================================
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Provision Section in License Summary
Agreement
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(d) Termination by you Section 13.A. If we breach Agreement and do not
cure default after notice from you
- ------------------------------------------------------------------------------------------------
(e) Termination by us without None We may not terminate you without
cause cause
- ------------------------------------------------------------------------------------------------
(f) Termination by us with Section 13.B. (also We may terminate only if you or
cause Delivery Addendum and your owners commit one of several
Section 7.1 of Sublease) violations
- ------------------------------------------------------------------------------------------------
(g) "Cause" defined - defaults Section 13.B. (and You have 3 days to cure health,
which can be cured Section 7.1 of Sublease) safety or sanitation law
violations, 7 days to cure
monetary defaults and 30 days to
cure operational defaults and
other defaults not listed in (h)
below; you generally have 5 days
to cure defaults under Sublease
================================================================================================
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================
Provision Section in License Summary
Agreement
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
(h) "Cause" defined - defaults Section 13.B. Non-curable defaults include
which cannot be cured failure to complete training,
interference with our completion
of Facility's development, failure
to open Facility by earlier of
date in lease or 365 calendar days
after Agreement signed, failure to
operate Facility every day,
unapproved transfers, material
misrepresentations or omissions,
conviction of a felony, failure to
maintain insurance, interference
with our inspection rights, any
judgments, executions or liens
against the Facility remain
unsatisfied and unbonded of record
for more than 15 days, failure to
transfer on death or disability,
we send notice of termination
under another license agreement
with you for failure to pay monies
owed, dishonest or unethical
conduct, uncured or uncurable
default under lease, unauthorized
use or disclosure of the
Operations Manual or confidential
information, failure to pay taxes,
failure to comply with System
Standard modifications within
required time period, understating
Facility's Gross Sales by more
than 4%, repeated defaults (even
if cured), an assignment for the
benefit of creditors and an
appointment of a trustee or
receiver
- -----------------------------------------------------------------------------------------------
(i) Your obligations on Section 14 Obligations include payment of
termination/nonrenewal outstanding amounts, complete
deidentification and return of
confidential information (also see
(o) and (r) below)
===============================================================================================
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================
<S> <C> <C>
Provision Section in License Summary
Agreement
- -------------------------------------------------------------------------------------------------
(j) Assignment of contract by Section 11.A. No restriction on our right to
us assign
- -------------------------------------------------------------------------------------------------
(k) "Transfer" by you Section 12.B. (and Includes transfer of License
-definition Section 4 of Sublease) Agreement and Facility's assets
and ownership change
- -------------------------------------------------------------------------------------------------
(l) Our approval of transfer Section 11.C. (and We must approve all transfers; no
by you Section 4 of Sublease) transfer without our written
consent
- -------------------------------------------------------------------------------------------------
(m) Conditions for our Section 11.C. New licensee qualifies, you pay us
approval of transfer all amounts due and submit all
reports, you have not defaulted
during previous 90 days, new
licensee (and its owners and
affiliates) do not engage in a
competitive business, lease
transferred, transferee assumes
your Agreement, training and
transfer fees paid, we approve
purchase price, you subordinate
amounts due to you, you
deidentify, you remain liable
under Agreement during remaining
term and you sign other documents
we require (also see (r) below)
- -------------------------------------------------------------------------------------------------
(n) Our right of first refusal Section 11.G. We may match any offer for your
to acquire your business Facility or an ownership interest
in you
- -------------------------------------------------------------------------------------------------
(o) Our option to purchase Section 14.E. We may buy the Facility at fair
your business market value after the Agreement
terminates or expires (without
renewal)
- -------------------------------------------------------------------------------------------------
(p) Your death or disability Section 11.E. Assignment of license or ownership
interest in you to approved party
within 12 months; we may manage
Facility if qualified manager not
present
=================================================================================================
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
<S> <C> <C>
Provision Section in License Summary
Agreement
- ------------------------------------------------------------------------------------------------
(q) Non-competition covenants Section 7 No diverting business and no
during the term of the controlling ownership interest in,
franchise or performing services for,
competitive business anywhere; no
interference with our or a
licensee's employees
- ------------------------------------------------------------------------------------------------
(r) Non-competition covenants Section 14.D. No direct or indirect ownership
after the franchise is interest in, or performing
terminated or expires services for, competing business
for 1 year at Facility's premises
or within 5 miles of premises
(same restrictions apply after
transfer but for 2 years)
- ------------------------------------------------------------------------------------------------
(s) Modification of the Section 16.I. No modifications generally but we
agreement may change Operations Manual and
System Standards
- ------------------------------------------------------------------------------------------------
(t) Integration/merger clause Section 16.K. Only the terms of the License
Agreement (including the
Operations Manual) and other
documents you sign with us are
binding (subject to state law).
Any other promises might not be
enforceable
- ------------------------------------------------------------------------------------------------
(u) Dispute resolution by None Our Agreement does not include
arbitration or mediation this type of provision
- ------------------------------------------------------------------------------------------------
(v) Choice of forum Section 16.G. Litigation generally must be in
Georgia (subject to state law)
- ------------------------------------------------------------------------------------------------
(w) Choice of law Section 16.F. Except for federal law and state
non-competition law, Georgia law
applies
================================================================================================
</TABLE>
These states have statutes that may supersede the license agreement in your
relationship with the licensor, including the areas of termination and renewal
of your license: ARKANSAS [Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code
Sections 20000-20043], CONNECTICUT [Gen. Stat. Section 42-133e et seq.],
-- ----
DELAWARE [Code Sections 2551-2556], HAWAII [Rev. Stat. Section 482E-1], ILLINOIS
[815 ILCS 705/19, 20], INDIANA [Stat. Sections 23-2-2.5-1 and 23-2-2.7], IOWA
[Code Sections 523H.1-523H.17], MICHIGAN [Stat. Section 19.854(27)], MINNESOTA
[Stat. Section 80C.14], MISSISSIPPI [Code Section 75-24-
36
<PAGE>
51], MISSOURI [Stat. Section 407.400], NEBRASKA [Rev. Stat. Section 87-401], NEW
JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section 37-5A-51],
VIRGINIA [Code 13.1-557-574-13.1-564], WASHINGTON [Code Section 19.100.180],
WISCONSIN [Stat. Section 135.03]. These and other states may have court
decisions that may supersede the license agreement in your relationship with the
licensor, including the areas of termination and renewal of your license.
Item 18
-------
PUBLIC FIGURES
We do not use any public figure to promote our license.
Item 19
-------
EARNINGS CLAIMS
Except for the actual operating results of an existing Cookie System
Facility that we sell you, we do not furnish or authorize our salespersons to
furnish any oral or written information concerning the actual or potential
sales, costs, income or profits of a Cookie System Facility. Actual results
vary from unit to unit, and we cannot estimate the results of any particular
license.
37
<PAGE>
Item 20
-------
LIST OF OUTLETS
@@
SYSTEMWIDE FRANCHISED
FACILITY STATUS SUMMARY
FOR YEARS ENDING 1998/1997/1996/1/
<TABLE>
<CAPTION>
====================================================================================================================================
State Transfers Canceled Or Not Reacquired Left The Total From Left Franchises
Terminated Renewed By Franchisor System Other Columns/2/ Operating At
Year End
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/0 12/14/13
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona 0/0/0 1/0/0 0/0/0 0/0/0 0/0/0 1/0/0 2/4/4
- ------------------------------------------------------------------------------------------------------------------------------------
Arkansas 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/3/3
- ------------------------------------------------------------------------------------------------------------------------------------
California 0/0/0 0/1/0 0/0/0 0/0/0 0/0/0 0/1/0 1/1/2
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado 3/0/0 1/0/0 0/0/1 0/0/0 0/0/0 4/0/1 3/4/4
- ------------------------------------------------------------------------------------------------------------------------------------
Connecticut 0/0/0 0/1/0 0/0/0 0/0/0 0/0/0 0/1/0 0/0/1
- ------------------------------------------------------------------------------------------------------------------------------------
Florida 1/1/1 0/7/0 0/0/2 0/4/0 0/0/0 1/12/3 22/25/28
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 10/10/8
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois 1/0/0 1/1/0 0/0/0 0/0/0 0/0/0 2/1/0 8/9/8
- ------------------------------------------------------------------------------------------------------------------------------------
Indiana 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 5/5/2
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 9/2/2
- ------------------------------------------------------------------------------------------------------------------------------------
Kansas 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Note: The numbers are as of our fiscal years ending June 28, 1998, June 29,
1997 and June 30, 1996.
/2/ The numbers in the "Total" column may exceed the number of outlets affected
because several events may have affected the same outlet. For example, the
same outlet might have had multiple owners, or we might have reacquired a
terminated outlet.
38
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
State Transfers Canceled Or Not Reacquired Left The Franchises
Terminated Renewed By Franchisor System Other Total From Left Operating At
Columns/2/ Year End
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Kentucky 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 6/6/6
- ------------------------------------------------------------------------------------------------------------------------------------
Louisiana 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 13/13/13
- ------------------------------------------------------------------------------------------------------------------------------------
Maryland 0/1/1 0/1/1 0/0/0 0/0/1 0/0/0 0/2/3 3/3/3
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/1/1
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/2/2
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri 0/1/0 0/0/0 0/0/0 0/0/0 0/0/0 0/1/0 7/7/6
- ------------------------------------------------------------------------------------------------------------------------------------
Nevada 0/0/0 0/0/0 0/0/1 0/0/0 0/0/0 0/0/1 3/3/2
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey 0/2/0 2/0/0 0/0/0 0/0/0 0/0/0 2/2/0 6/8/7
- ------------------------------------------------------------------------------------------------------------------------------------
New Mexico 0/0/0 0/1/0 0/0/0 0/1/0 0/0/0 0/2/0 1/1/1
- ------------------------------------------------------------------------------------------------------------------------------------
New York 1/0/0 1/0/2 0/0/0 0/0/1 0/0/0 2/0/3 7/7/7
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina 0/2/0 0/1/0 0/0/0 0/0/0 0/0/0 0/5/0 18/19/18
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio 0/0/0 0/0/1 0/0/0 0/0/1 0/0/0 0/0/2 4/4/4
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 5/7/7
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania 1/1/0 0/1/1 0/0/0 0/1/0 0/0/0 1/3/1 5/5/6
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina 0/0/1 0/2/0 0/0/0 0/2/0 0/0/0 0/4/1 8/8/10
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 1/0/0
====================================================================================================================================
</TABLE>
/1/ Note: The numbers are as of our fiscal years ending June 28, 1998, June
29, 1997 and June 30, 1996.
/2/ The numbers in the "Total" column may exceed the number of outlets
affected because several events may have affected the same outlet. For
example, the same outlet might have had multiple owners, or we might have
reacquired a terminated outlet.
39
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
State Transfers Canceled Or Not Reacquired Left The Franchises
Terminated Renewed By Franchisor System Other Total From Left Operating At
Columns/2/ Year End
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tennessee 1/0/0 1/0/0 0/0/2 0/0/0 0/0/0 2/0/2 13/16/15
- ------------------------------------------------------------------------------------------------------------------------------------
Texas 0/1/2 0/0/0 0/0/0 0/0/0 0/0/0 0/1/2 47/54/51
- ------------------------------------------------------------------------------------------------------------------------------------
Virginia 0/0/0 0/0/2 0/0/0 0/0/0 0/0/0 0/0/2 7/7/7
- ------------------------------------------------------------------------------------------------------------------------------------
West Virginia 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 5/3/3
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 3/3/2
- ------------------------------------------------------------------------------------------------------------------------------------
Guam 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 0/0/0 2/2/2
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 8/30/5 7/15/7 0/0/6 0/8/3 0/0/0 15/56/21 247/258/250
====================================================================================================================================
@@
</TABLE>
As noted further below in this Item 20 and in Item 1 and Exhibit I of this
offering circular, concurrent with MFOCI's acquisition of Cookies USA on August
24, 1998, we reacquired 29 licensed Cookie System Facilities which we now
operate for our own account, and MFOCI acquired 8 licensed Cookie System
Facilities which it now operates as our licensee.
@@
/1/ Note: The numbers are as of our fiscal years ending June 28, 1998, June
29, 1997 and June 30, 1996.
/2/ The numbers in the "Total" column may exceed the number of outlets
affected because several events may have affected the same outlet. For
example, the same outlet might have had multiple owners, or we might have
reacquired a terminated outlet.
40
<PAGE>
STATUS OF COMPANY OWNED FACILITIES
FOR YEARS ENDING 1998/1997/1996/(1)/
<TABLE>
<CAPTION>
============================================================================================================
State Facilities Closed Facilities Opened Total Facilities Operating
During Year/2/ During Year At Year End
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arkansas 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------
California 0/3/4 0/0/0 1/1/4
- ------------------------------------------------------------------------------------------------------------
Florida 1/2/0 1/4/0 2/2/0
- ------------------------------------------------------------------------------------------------------------
Georgia 1/2/3 0/1/0 15/19/20
- ------------------------------------------------------------------------------------------------------------
Illinois 0/1/1 0/0/0 1/1/2
- ------------------------------------------------------------------------------------------------------------
Indiana 1/3/0 0/0/1 1/2/5
- ------------------------------------------------------------------------------------------------------------
Iowa 7/0/0 0/0/1 0/7/7
- ------------------------------------------------------------------------------------------------------------
Kansas 0/0/0 0/0/0 4/4/4
- ------------------------------------------------------------------------------------------------------------
Kentucky 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------
Louisiana 0/0/1 0/0/0 2/3/3
- ------------------------------------------------------------------------------------------------------------
Maryland 0/1/0 0/0/1 1/1/2
- ------------------------------------------------------------------------------------------------------------
Massachusetts 0/3/1 0/0/0 1/1/4
- ------------------------------------------------------------------------------------------------------------
Michigan 0/0/0 0/0/1 6/6/6
- ------------------------------------------------------------------------------------------------------------
Minnesota 2/0/1 0/0/0 1/3/3
- ------------------------------------------------------------------------------------------------------------
Mississippi 0/1/0 0/0/0 0/0/1
- ------------------------------------------------------------------------------------------------------------
Missouri 0/2/0 0/0/0 4/4/6
- ------------------------------------------------------------------------------------------------------------
New Hampshire 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------
New Jersey 0/1/2 0/1/0 1/1/2
- ------------------------------------------------------------------------------------------------------------
New Mexico 0/0/0 0/1/0 1/1/0
- ------------------------------------------------------------------------------------------------------------
New York 1/1/1 0/0/2 4/6/7
- ------------------------------------------------------------------------------------------------------------
North Carolina 0/1/0 0/0/0 0/0/1
- ------------------------------------------------------------------------------------------------------------
North Dakota 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------
Ohio 0/1/1 0/0/2 7/7/8
- ------------------------------------------------------------------------------------------------------------
Oklahoma 0/0/0 0/0/0 2/2/2
- ------------------------------------------------------------------------------------------------------------
Oregon 0/0/0 0/0/0 1/1/1
- ------------------------------------------------------------------------------------------------------------
Pennsylvania 0/0/1 0/1/0 4/4/3
- ------------------------------------------------------------------------------------------------------------
South Carolina 0/0/0 0/2/0 3/3/1
- ------------------------------------------------------------------------------------------------------------
South Dakota 1/0/0 0/0/0 0/1/1
============================================================================================================
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
State Facilities Closed Facilities Opened Total Facilities Operating
During Year/2/ During Year At Year End
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tennessee 0/0/0 0/0/0 1/1/1
- --------------------------------------------------------------------------------------------------------------
Texas 0/1/0 0/0/1 1/1/2
- --------------------------------------------------------------------------------------------------------------
Virginia 1/0/1 0/0/1 7/8/8
- --------------------------------------------------------------------------------------------------------------
Washington 0/0/1 0/0/1 1/1/1
- --------------------------------------------------------------------------------------------------------------
West Virginia 2/0/0 0/0/0 0/2/2
- --------------------------------------------------------------------------------------------------------------
Wisconsin 0/0/2 0/0/0 0/0/0
- --------------------------------------------------------------------------------------------------------------
Totals 17/23/20 1/9/11 76/97/111
==============================================================================================================
@@
</TABLE>
/1/ The numbers are as of our fiscal years ending June 28, 1998, June 29, 1997
and June 30, 1996.
/2/ This chart includes the Cookie System Facilities that we and some of the
individuals identified in Item 2 currently own and operate and/or have
owned and operated. The "Facilities Closed" column includes Cookie System
Facilities that we no longer operate because we sold them to licensees.
Concurrent with MFOCI's acquisition of Cookies USA on August 24, 1998,
MFOCI acquired 29 Cookie System Facilities through the acquisition of all of the
stock of 2 corporate Cookie System Facility licensees. Immediately thereafter,
MFOCI merged the 2 Cookie System Facility licensees with and into us. We now
operate these 29 Cookie System Facilities for our own account. (See Exhibit I
for more information on these Cookie System Facilities) Concurrent with MFOCI's
acquisition of Cookies USA, MFOCI also acquired 8 additional Cookie System
Facilities through the acquisition of all of the assets of 6 corporate Cookie
System Facility licensees all owned by the same entity. Since the acquisition,
MFOCI has operated these 8 Cookie System Facilities as our licensee. (See
Exhibit I for more information on these Cookie System Facilities)
@@
42
<PAGE>
PROJECTED SYSTEMWIDE OPENINGS
AS OF JUNE 28, 1998
<TABLE>
<CAPTION>
============================================================================================
State License Projected New Projected
Agreements Franchised Company Owned
Signed But Facilities In The Facility Openings
Facilities Not Open Next Fiscal Year In The Next Fiscal
Year
============================================================================================
<S> <C> <C> <C>
Alabama 0 1 0
- --------------------------------------------------------------------------------------------
Alaska 0 0 0
- --------------------------------------------------------------------------------------------
Arizona 0 0 0
- --------------------------------------------------------------------------------------------
Arkansas 0 0 0
- --------------------------------------------------------------------------------------------
California 0 0 0
- --------------------------------------------------------------------------------------------
Colorado 0 1 0
- --------------------------------------------------------------------------------------------
Connecticut 0 0 0
- --------------------------------------------------------------------------------------------
Delaware 0 0 0
- --------------------------------------------------------------------------------------------
Florida 1 2 0
- --------------------------------------------------------------------------------------------
Georgia 0 2 2
- --------------------------------------------------------------------------------------------
Hawaii 0 0 0
- --------------------------------------------------------------------------------------------
Idaho 0 0 0
- --------------------------------------------------------------------------------------------
Illinois 0 0 0
- --------------------------------------------------------------------------------------------
Indiana 0 0 0
- --------------------------------------------------------------------------------------------
Iowa 0 1 0
- --------------------------------------------------------------------------------------------
Kansas 0 0 0
- --------------------------------------------------------------------------------------------
Kentucky 0 0 0
- --------------------------------------------------------------------------------------------
Louisiana 0 0 1
- --------------------------------------------------------------------------------------------
Maine 0 0 0
- --------------------------------------------------------------------------------------------
Maryland 0 0 0
- --------------------------------------------------------------------------------------------
Massachusetts 0 0 0
- --------------------------------------------------------------------------------------------
Michigan 0 0 0
- --------------------------------------------------------------------------------------------
Minnesota 0 0 0
- --------------------------------------------------------------------------------------------
Mississippi 0 0 0
- --------------------------------------------------------------------------------------------
Missouri 0 1 0
- --------------------------------------------------------------------------------------------
Montana 0 0 0
- --------------------------------------------------------------------------------------------
Nebraska 0 0 0
- --------------------------------------------------------------------------------------------
Nevada 0 0 0
- --------------------------------------------------------------------------------------------
New Hampshire 0 0 0
- --------------------------------------------------------------------------------------------
New Jersey 0 0 0
- --------------------------------------------------------------------------------------------
New Mexico 0 0 0
- --------------------------------------------------------------------------------------------
New York 0 0 0
- --------------------------------------------------------------------------------------------
North Carolina 0 1 0
- --------------------------------------------------------------------------------------------
North Dakota 0 0 0
- --------------------------------------------------------------------------------------------
Ohio 0 1 0
- --------------------------------------------------------------------------------------------
Oklahoma 0 0 0
- --------------------------------------------------------------------------------------------
Oregon 0 0 0
- --------------------------------------------------------------------------------------------
Pennsylvania 0 1 0
============================================================================================
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
<S> <C> <C> <C>
Rhode Island 0 0 0
- ------------------------------------------------------------------------------------------
South Carolina 0 0 0
- ------------------------------------------------------------------------------------------
South Dakota 0 0 0
- ------------------------------------------------------------------------------------------
Tennessee 0 0 0
- ------------------------------------------------------------------------------------------
Texas 0 3 0
- ------------------------------------------------------------------------------------------
Utah 0 0 0
- ------------------------------------------------------------------------------------------
Vermont 0 0 0
- ------------------------------------------------------------------------------------------
Virginia 0 1 0
- ------------------------------------------------------------------------------------------
Washington 0 0 0
- ------------------------------------------------------------------------------------------
West Virginia 0 0 0
- ------------------------------------------------------------------------------------------
Wisconsin 0 1 0
- ------------------------------------------------------------------------------------------
Wyoming 0 0 0
- ------------------------------------------------------------------------------------------
Guam 0 1 0
- ------------------------------------------------------------------------------------------
TOTAL 1 17 3
==========================================================================================
@@
</TABLE>
Exhibit I is a list of the names of all Cookie System Facility licensees
and the addresses and telephone numbers of their Cookie System Facilities.
Exhibit J is the names and last known home addresses and home telephone numbers
of the licensees who had outlets terminated, cancelled or not renewed or
otherwise voluntarily or involuntarily ceased to do business under our License
Agreement during the period beginning July 1, 1997 and ending June 28, 1998 or
who have not communicated with us within 10 weeks of the application date.
Item 21
-------
FINANCIAL STATEMENTS
Attached as Exhibit A are the consolidated balance sheets of MFOCI and its
subsidiaries as of January 3, 1998 and December 28, 1996, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the year ended January 3, 1998 and the period from inception (September 18,
1996) to December 28, 1996, together with Report of Independent Public
Accountants. Also attached as part of Exhibit A is the consolidated balance
sheet (unaudited) of MFOCI and its subsidiaries as of October 3, 1998, and the
related consolidated statement of operations for the period ended October 3,
1998 (unaudited).
The financial statements described above are the consolidated financial
statements of MFOCI, our parent company. Our financial statements are not
included in this Offering Circular. Should we fail to fulfill our obligations to
our franchisees, however, MFOCI unconditionally guarantees to fulfill such
obligations. In states where we have registered this franchise offering, a copy
of the written guarantee may be on file in the office of the administrator of
the state franchise law.
44
<PAGE>
Item 22
-------
CONTRACTS
The following agreements are exhibits:
(a) License Agreement -- Exhibit B
(b) Addendum to License Agreement for Non-Baking Facilities -- Exhibit C
(c) Sublease -- Exhibit D
(d) Construction Activity Assistance Agreement -- Exhibit E
(e) Equipment Order -- Exhibit F
(f) Agreement for Purchase and Sale of Assets -- Exhibit G
(g) Principal's Agreement -- Exhibit H
(h) Collateral Assignment of Lease -- Exhibit M
(i) Addendum to License Agreement for Delivery Services -- Exhibit N
45
<PAGE>
EXHIBIT A
---------
FINANCIAL STATEMENTS
--------------------
<PAGE>
ITEM 23
-------
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND
OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL
AGREEMENTS CAREFULLY.
IF WE OFFER YOU A FRANCHISE, WE MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY
THE EARLIEST OF:
1. THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
2. TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
3. TEN BUSINESS DAYS BEFORE ANY PAYMENT TO US.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT
LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF WE DO NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS A FALSE OR
MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL AND STATE
LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE COMMISSION,
WASHINGTON, D.C. 20580 AND THE APPROPRIATE STATE AGENCY IDENTIFIED ON EXHIBIT L.
We authorize the respective state agencies identified on Exhibit L to receive
service of process for us in the particular state. I have received a Uniform
Franchise Offering Circular dated October 12, 1998, as amended November 24,
1998. This offering circular included the following Exhibits:
A. Financial Statements
B. License Agreement
C. Addendum to License Agreement for Non-Baking Facilities
D. Sublease
E. Construction Activity Assistance Agreement
F. Equipment Order
G. Agreement for Purchase and Sale of Assets
H. Principal's Agreement
I. List of Licensees and Their Cookie System Facilities
J. List of Licensees Who Left System During Our Last Fiscal Year or Have
Not Communicated With us
K. Operations Manual Table of Contents
L. List of State Agencies/Agents for Service of Process
M. Collateral Assignment of Lease
N. Addendum to License Agreement For Delivery Services
________________________________ __________________________________
Date Licensee
<PAGE>
ITEM 23
-------
RECEIPT
THIS OFFERING CIRCULAR SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT AND
OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS OFFERING CIRCULAR AND ALL
AGREEMENTS CAREFULLY.
IF WE OFFER YOU A FRANCHISE, WE MUST PROVIDE THIS OFFERING CIRCULAR TO YOU BY
THE EARLIEST OF:
1. THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
2. TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
3. TEN BUSINESS DAYS BEFORE ANY PAYMENT TO US.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS AT
LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF WE DO NOT DELIVER THIS OFFERING CIRCULAR ON TIME OR IF IT CONTAINS A FALSE OR
MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL AND STATE
LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE COMMISSION,
WASHINGTON, D.C. 20580 AND THE APPROPRIATE STATE AGENCY IDENTIFIED ON EXHIBIT L.
We authorize the respective state agencies identified on Exhibit L to receive
service of process for us in the particular state. I have received a Uniform
Franchise Offering Circular dated October 12, 1998, as amended November 24,
1998. This offering circular included the following Exhibits:
A. Financial Statements
B. License Agreement
C. Addendum to License Agreement for Non-Baking Facilities
D. Sublease
E. Construction Activity Assistance Agreement
F. Equipment Order
G. Agreement for Purchase and Sale of Assets
H. Principal's Agreement
I. List of Licensees and Their Cookie System Facilities
J. List of Licensees Who Left System During Our Last Fiscal Year or Have
Not Communicated With us
K. Operations Manual Table of Contents
L. List of State Agencies/Agents for Service of Process
M. Collateral Assignment of Lease
N. Addendum to License Agreement For Delivery Services
_______________________________ _______________________________
Date Licensee
<PAGE>
RECEIPT OF FRANCHISE-RELATED DOCUMENTS
--------------------------------------
The undersigned, personally and/or as an officer, managing member or
partner of the proposed Licensee, does hereby acknowledge receipt of the
following documents, in form for execution, relating to the license of Great
American Cookie Company, Inc.:
[ ] (1) License Agreement
[ ] (2) Addendum to License Agreement for Non-Baking Facilities
[ ] (3) Sublease
[ ] (4) Construction Activity Assistance Agreement
[ ] (5) Equipment Order
[ ] (6) Agreement for Purchase and Sale of Assets
[ ] (7) Principal's Agreement
[ ] (8) Collateral Assignment of Lease
[ ] (9) Addendum to License Agreement for Delivery Services
[ ] (10) Other (specify):_______________________________________
(Proposed Licensee must initial the box adjacent to the applicable
document.)
I further acknowledge my understanding that it is my responsibility,
individually and/or as an officer, managing member or partner of the proposed
Licensee, to review all of these documents so that I am fully familiar with the
transaction they contemplate before I sign them.
DATED: __________________
A FEDERAL TRADE COMMISSION RULE REQUIRES THAT WE PROVIDE YOU WITH THE FRANCHISE-
RELATED DOCUMENTS NOTED ABOVE AT LEAST FIVE (5) BUSINESS DAYS PRIOR TO THE DATE
THEY ARE TO BE EXECUTED. PLEASE DO NOT SIGN OR RETURN THESE DOCUMENTS UNTIL
FIVE (5) BUSINESS DAYS HAVE ELAPSED FROM THE DATE OF THIS RECEIPT.
____________________________________________________________________
_________________________________________________ individually
and/or as an officer, managing member or partner of
____________________________________________________________________
a (____________________________________________ corporation)
(______________________________________________ partnership)
(____________________________________ limited liability company)
NAME:_______________________________________________________________
ADDRESS:____________________________________________________________
____________________________________________________________________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement on Form S-4.
/s/ ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 2, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-67389 of Mrs. Fields' Original Cookies, Inc. of our report dated February 9,
1996, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
September 2, 1999
<PAGE>
[LETTERHEAD OF WEINSTEIN SPIRA & COMPANY] Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated August 17, 1998 on the
financial statements of Deblan Corporation included in Mrs. Fields' Original
Cookies, Inc. and Mrs Fields' Holding Company, Inc. Registration
Statements on Forms S-4.
WEINSTEIN SPIRA & COMPANY P.C.
/s/ Weinstein Spira $ Company P.C.
Houston, Texas
Sept 2, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 2 to Form S-4 (No. 333-67389) of Mrs.
Fields' Original Cookies, Inc. of our report dated August 24, 1998 relating to
the financial statements of Cookies USA, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
September 3, 1999
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Mrs. Fields' Original Cookies, Inc., and
in the Prospectus constituting part of this registration Statement on Form S-4
of Mrs. Fields' Holding Company, Inc. of our report dated November 12, 1998 as
amended on February 4, 1999 relating to the financial statements of Cookie
Conglomerate, Inc. and its Affiliates, which appears in such documents.
/s/ Habif, Arogeti & Wynne, LLP
- ----------------------------------
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia 30309-3837
September 3, 1999
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
Mrs. Fields' Original Cookie's, Inc.
Salt Lake City, Utah
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement our report dated February 7, 1997, relating to the
consolidated financial statement of Pretzelmaker Holdings, Inc., for the period
from inception (February 24, 1995) to December 31, 1995 and for the year ended
December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Denver, Colorado
September 3, 1999
<PAGE>
EXHIBIT 23.8
AJ. ROBBINS PC
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
3033 EAST FIRST AVENUE, SUITE 201
DENVER, COLORADO 80206
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment #2 of Form S-4 of Mrs. Fields' Original
Cookies, Inc. of our report dated December 11, 1998 relating to the consolidated
financial statements of Pretzelmaker Holdings, Inc. and to the reference made to
our firm under the caption "Experts" which appear in such documents.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
September 2, 1999
<PAGE>
Exhibit 23.9
CONSENT
The undersigned hereby consents to the reference to him in "Management's
Discussion and Analysis--Consolidated Results of Operations of Cookies USA and
its Wholly Owned Operating Subsidiaries" in the Prospectus constituting part of
the Registration Statement on Form S-4 (File No. 333-67389) of Mrs. Fields'
Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great American Cookie
Company, Inc., Pretzelmaker Holdings, Inc. and Pretzel Time, Inc. As noted
therein, references to the beliefs of "management" in the discussion under the
above-referenced heading are to the beliefs of the undersigned prior to the
acquisition of Great American Cookie Company, Inc. and Cookies USA, Inc. by Mrs.
Fields' Original Cookies, Inc. and my review and input pertains only to the
discussed in the above-referenced section of the Prospectus.
/s/ David Barr
Date: May 3, 1999
<PAGE>
LETTER OF TRANSMITTAL
MRS. FIELDS' ORIGINAL COOKIES, INC.
Offer for all Outstanding
10 1/8% Series A Senior Notes due 2004
and
10 1/8% Series C Senior Notes due 2004
in Exchange for
10 1/8% Series B Senior Notes due 2004
which Have Been Registered Under
the Securities Act of 1933, As Amended,
Pursuant to the Prospectus, dated __________, 1999
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT NEW YORK CITY TIME, ON __________,
1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- -------------------------------------------------------------------------------
Delivery To: The Bank of New York, Exchange Agent
By Mail, By Hand or Overnight Courier:
The Bank of New York
101 Barclay Street 7 East
New York, New York 10286
Attention: Odell Romeo
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY OF THIS LETTER OF TRANSMITTAL.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated ____, 1999 (the "Prospectus"), of Mrs. Fields' Original
Cookies, Inc., a Delaware corporation (the "Issuer") and this Letter of
Transmittal (the "Letter of Transmittal" or the "Letter"), which together
constitute the Issuer's offer (the "Exchange Offer") to exchange an aggregate
principal amount at maturity of up to $53,725,000 of the Issuer's 10 1/8% Series
B Senior Notes due 2004 which have been registered under the Securities Act of
1933, as amended (the "New Notes"), for a like principal amount, in the
aggregate, of the Issuer's issued and outstanding 10 1/8% Series A Senior Notes
due 2004 (the "Series A Senior Notes") and 10 1/8% Series C Senior Notes due
2004 (the "Series C Senior Notes" and, together with the Series A Senior Notes,
the "Old Notes") from the registered holders thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date the record date for which occurs
on or after consummation of the Exchange Offer.
This Letter is to be completed by a Holder of Old Notes either if
certificates for such Old Notes are to be forwarded herewith or if a tender is
to be made by book-entry transfer to the account maintained by The Bank of New
York, as Exchange Agent for the Exchange Offer (the "Exchange Agent"), at The
<PAGE>
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in "The Exchange Offer--Book-Entry Transfers" section of
the Prospectus and an Agent's Message is not delivered. Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu of this
Letter. The term "Agent's Message" means a message, transmitted by the Book-
Entry Transfer Facility to and received by the Exchange Agent and forming a part
of a Book-Entry Confirmation (as defined below), which states that the Book-
Entry Transfer Facility has received an express acknowledg ment from the
tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by this Letter and that the Issuers may enforce
this Letter against such participant. Holders of Old Notes whose certificates
are not immediately available, or who are unable to deliver their certificates
or confirmation of the book-entry tender of their Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate
Principal Principal
Name(s) and Address(es) of Registered Holder(s) Certificate Amount of Amount
(Please fill in, if blank) Number(s)* Old Note(s) Tendered**
- ----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a Holder will be deemed to have tendered ALL of the Old Notes represented by the
Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of principal amount of
$1,000 and any integral multiple thereof. See Instruction 1 .
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________
Account Number ______________ Transaction Code Number _____________
By crediting the Old Notes to the Exchange Agent's account at the Book-Entry
Transfer Facility's Automated Tender Offer Program ("ATOP") and by complying
with applicable ATOP procedures with respect to the Exchange Offer, including
transmitting to the Exchange Agent a computer-generated Agent's Message in which
the Holder of the Old Notes acknowledges and agrees to be bound by the terms of,
and makes the representations and warranties contained in, the Letter, the
participant in the Book-Entry Transfer Facility confirms on behalf of itself and
the beneficial owners of such Old Notes all provisions of this Letter (including
all representations and warranties) applicable to it and such beneficial owner
as fully as if it had completed the information required herein and executed and
transmitted this Letter to the Exchange Agent.
2
<PAGE>
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ________________________________________
Window Ticket Number (if any) __________________________________________
Date of Execution of Notice of Guaranteed Delivery _____________________
Name of Institution Which Guaranteed Delivery __________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number _________________________________________________________
Transaction Code Number ________________________________________________
Name of Tendering Institution __________________________________________
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ________________________________________________________________________
Address: _____________________________________________________________________
_____________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale of such New Notes; however, by
so acknowledging and by delivering such a prospectus the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933, as amended. If the undersigned is a broker-dealer that will
receive New Notes, it represents that the Old Notes to be exchanged for the New
Notes were acquired as a result of market-making activities or other trading
activities.
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Issuer all right, title and interest
in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
as the undersigned's true and lawful agent and attorney-in-fact with respect to
such tendered Old Notes, with full power of substitution, among other things, to
cause the Old Notes to be assigned, transferred and exchanged. The undersigned
hereby represents and warrants that the undersigned has full power and authority
to tender, sell, assign and transfer the Old Notes, and to acquire New Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Issuer. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the Holder of such Old Notes nor such other person
has any arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Issuer.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders or other persons receiving the New Notes thereof (other than any such
Holder or other person that is an "affiliate" of the Issuer within the meaning
of Rule 405 under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of business of the person receiving
such New Notes, whether or not such person is the Holder, and neither the Holder
nor such other person has any arrangement or understanding with any person to
participate in the distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the
undersigned is not a broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of New Notes and
has no arrangement or understanding to participate in a distribution of New
Notes. If any Holder is an affiliate of the Issuer, is engaged in or intends to
engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes; however, by so acknowledging and by delivering a
prospectus meeting the requirements of the
4
<PAGE>
Securities Act, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of someone other than the person or persons
whose signature(s) appear(s) on this Letter above, or if Old Notes delivered by
book-entry transfer which are not accepted for exchange are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility other than
the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s)................................................
(Please Type or Print)
.......................................................
(Please Type or Print)
Address................................................
.......................................................
(Zip Code)
(Complete Substitute Form W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the Book-
Entry Transfer Facility account set forth below.
- -------------------------------------------------------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
- --------------------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s)..............................................................
(Please Type or Print)
.....................................................................
(Please Type or Print)
Address..............................................................
.....................................................................
(Zip Code)
- --------------------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU
THEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY AND ALL
OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
5
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
Dated:.........................................................., 1999
x ............................................................, 1999
x ............................................................, 1999
Signature(s) of Owner Date
Area Code and Telephone Number......................................
This Letter must be signed by the registered Holder(s) as the name(s)
appear(s) on the certificate(s) for the Old Notes hereby tendered or on a
security position, on listing or by any person(s) authorized to become
registered Holder(s) by endorse ments and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representa tive capacity, please set forth full
title. See Instruction 3.
Name(s):.........................................................
.................................................................
(Please Type or Print)
Capacity:........................................................
Address:.........................................................
.................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:.........................................
(Authorized Signature)
.................................................................
(Title)
.................................................................
(Name and Firm)
Dated: ...................................................., 1999
- --------------------------------------------------------------------------------
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for the
10 1/8% Series A Senior Notes due 2004 and 10 1/8% Series C Senior Notes due
2004 of Mrs. Fields' Original Cookies, Inc. in Exchange for the
10 1/8% Series B Senior Notes due 2004, which Have Been Registered Under the
Securities Act of 1933, As Amended
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This letter is to be completed by Holders of Old Notes either if certificates
are to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange Offer-
- -Book-Entry Transfers" section of the Prospectus and an Agent's Message is not
delivered. Tenders by book-entry transfer may also be made by delivering an
Agent's Message in lieu of this Letter. The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility to and received by the
Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the tendering participant, which acknowledgment states that such
participant has received and agrees to be bound by the Letter of Transmittal and
that the Issuer may enforce the Letter of Transmittal against such participant.
Certificates for all physically tendered Old Notes, or Book-Entry Confirmation,
as the case may be, as well as a properly completed and duly executed Letter (or
manually signed facsimile hereof or Agent's Message in lieu thereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering Holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount
of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or who
cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer-
- -Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such
procedures, (i) such tender must be made through an Eligible Institution, (ii)
prior to midnight, New York City time, on the Expiration Date, the Exchange
Agent must receive from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
the Issuer (by telegram, telex, facsimile transmission, mail or hand delivery),
setting forth the name and address of the Holder of Old Notes and the amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, together with a properly
completed and duly executed Letter (or facsimile thereof or Agent's Message in
lieu thereof) with any required signature guarantees and any other documents
required by this Letter will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter (or
facsimile thereof or Agent's Message in lieu thereof) with any required
signature guarantees and all other documents required by this Letter, are
received by the Exchange Agent within five NYSE trading days after the
Expiration Date. An "Eligible Institution" is a firm which is a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program.
7
<PAGE>
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to midnight, New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to Holders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are to
be tendered, the tendering Holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering Holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the Holder of the Old Notes tendered hereby, the
signature must correspond exactly with the name as written on the face of the
certificates or on the Book-Entry Transfer Facility's security position listing
as the Holder of such Old Notes without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners, all
of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
written instrument or instruments of transfer or exchange are required. If,
however, the Old Notes are registered in the name of a person other than a
signer of the Letter, the Old Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Issuer in its sole
discretion, duly executed by the registered national securities exchange with
the signature thereon guaranteed by an Eligible Institution.
If this Letter is signed by a person or persons other than the registered
Holder or Holders of Old Notes, such Old Notes must be endorsed or accompanied
by powers of attorney, in either case signed exactly as the name or names of the
registered Holder or Holders that appear on the Old Notes.
If this Letter or any Old Notes or powers of attorneys are signed by trustees,
executors, administra tors, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Issuer,
proper evidence satisfactory to the Issuer of their authority to so act must be
submitted with the Letter.
8
<PAGE>
Endorsements on certificates for Old Notes or signatures on powers of
attorneys required by this Instruction 3 must be guaranteed by an Eligible
Institution.
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered Holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the Holder of such Old Notes) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on this
Letter, or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions
Tendering Holders of Old Notes should indicate in the applicable box the name
and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Holders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such Holder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. Taxpayer Identification Number.
Federal income tax law generally requires that a tendering Holder whose Old
Notes are accepted for exchange must provide the Issuer (as payor) with such
Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering Holder who is an individual, is his or
her social security number. If the Issuer is not provided with the current TIN
or an adequate basis for an exemption, such tendering Holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, delivery to
such tendering Holder of New Notes may be subject to backup withholding in an
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt Holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering Holder of Old Notes must provide
its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding, or (ii) the
Holder has not been notified by the Internal Revenue Service that such Holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the Holder that
such Holder is no longer subject to backup withholding. If the tendering Holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such Holder must give the Exchange Agent a completed Form W-8,
Certificate of Foreign Status. These forms may be obtained from the Exchange
Agent. If the Old Notes are in more than one name or are not in the name of the
actual owner, such Holder should consult the W-9 Guidelines for information on
which TIN to report. If such Holder does not have a TIN, such Holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the box
in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN.
Note: Checking this
9
<PAGE>
box and writing "applied for" on the form means that such Holder has already
applied for a TIN or that such Holder intends to apply for one in the near
future. If such Holder does not provide its TIN to the Exchange Agent within 60
days, backup withholding will begin and continue until such Holder furnishes its
TIN to the Exchange Agent.
The information requested above should be directed to the Exchange Agent at
the following address:
Delivery To: The Bank of New York, Exchange Agent
By mail, By Hand and Overnight Courier:
The Bank of New York
101 Barclay Street 7 East
New York, New York 10286
Attention: Odell Romeo
By Facsimile
(for Eligible Institutions Only):
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
6. Transfer Taxes.
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter, the amount of such transfer taxes will be billed
directly to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for transfer
tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Issuer reserves the absolute right to waive any defects or irregularities
or conditions of the Exchange Offer as to any particular Old Note either before
or after the Expiration Date (including the right to waive the ineligibility of
any Holder who seeks to tender Old Notes in the Exchange Offer)
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be accepted.
All tendering Holders of Old Notes, by execution of this Letter or an Agent's
Message in lieu thereof, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
10
<PAGE>
Neither the Issuer, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to midnight, New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth above prior to midnight,
New York City time, on the Expiration Date. Any such notice of withdrawal must:
(i) specify the name of the person having tendered the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (iii) (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are registered,
if different from that of the Depositor. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
release of such certificates the Depositor must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfers"
section of the Prospectus, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes
that have been tendered for exchange but which are not exchanged for any reason
will be returned to the Holder thereof without cost to such Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures set forth in "The Exchange Offer--Book-Entry Transfers" section of
the Prospectus, such Old Notes will be credited to an account maintained with
the Book-Entry Transfer Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to midnight, New York City time, on the Expiration
Date.
11
<PAGE>
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
12
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: THE BANK OF NEW YORK
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT TIN:
AND CERTIFY BY SIGNING ------------------------------
SUBSTITUTE AND DATING BELOW. Social Security Number or
Employer Identification Number
----------------------------------------------------------------------------------------
Form W-9 Part 2--TIN Applied For [ ]
----------------------------------------------------------------------------------------
<S> <C>
Department of the Payor's Request For Taxpayer Identification Number ("TIN") and
Treasury Internal Revenue Certification
Service CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Payor's Request for (1) the number shown on this form is my correct Taxpayer Identification
Taxpayer Number (or I am waiting for a number to be issued to me).
Identification Num- (2) I am not subject to backup withholding either because: (a) I am exempt
ber from backup withholding, or (b) I have not been notified by the Internal
("TIN") and Revenue Service (the "IRS") that I am subject to backup withholding as
Certification a result of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE...........................
DATE................................
----------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you
are subject to backup withholding because of underreporting of interest or dividends on your tax return
and you have not been notified by the IRS that you are no longer subject to backup withholding.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
13
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- ------------------------------------------ --------------------------------
Signature Date
- --------------------------------------------------------------------------------
14
<PAGE>
EXHIBIT 99.3
------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Mrs. Fields' Original Cookies, Inc. and
subsidiaries as of January 3, 1998 and January 2, 1999, and for the period from
inception (September 18, 1996) to December 28, 1996, for the year ended January
3, 1998 and for the year ended January 2, 1999 beginning on page 26 and have
issued our report thereon dated April 1, 1999. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. Schedule II, "Valuation and Qualifying Accounts", is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
- ----------------------
Arthur Andersen LLP
Salt Lake City, Utah
May 28, 1999
<PAGE>
EXHIBIT 99.3 CONTINUED
----------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MRS. FIELDS INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Balance at
beginning Balance at
Description of period Additions Deductions end of Period
- ----------------------------------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Period from December 31, 1995
through September 17, 1996............. $ 251,000 $ 60,000 $ 42,000 $ 269,000
============= ============ ============= ============
Store Closure Reserve:
Period from December 31, 1995
through September 17, 1996............. $ 2,510,000 $ 1,000,000 $ 1,946,000 $ 1,564,000
============= ============ ============= ============
</TABLE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
<TABLE>
<CAPTION>
Balance at
beginning Balance at
Description of period Additions Deductions end of Period
- ----------------------------------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Store Closure Reserve:
Period from December 31, 1995
through September 17, 1996............. $ 1,384,000 $ 382,000 $ 1,002,000
============= ============ ============= ============
</TABLE>
<PAGE>
EXHIBIT 99.3 CONTINUED
----------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Balance at
beginning Balance at
of period Additions Deductions end of period
- ------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:
Period from Inception (September
<S> <C> <C> <C> <C>
18, 1996) through December 28, 1996 $ 269,000 $ 106,000 $ - $ 375,000
=========== =========== ========== ===========
Year Ended January 3, 1998 $ 375,000 $ 494,000 $ 255,000 $ 614,000
=========== =========== ========== ===========
Year Ended January 2, 1999 $ 614,000 $ 816,000 $ 278,000 $ 1,152,000
=========== =========== ========== ===========
Six Months Ended July 3, 1999 (unaudited) $ 1,152,000 $ 21,000 $ 207,000 $ 966,000
=========== =========== ========== ===========
Store Closure and Other Reserve:
Store Closure Reserve $ 5,060,000 $ - $ 305,000 $ 4,755,000
Transaction Fee Accrual 2,400,000 - 2,173,000 227,000
Legal Accrual 1,250,000 - 53,000 1,197,000
Lease Obligation Accrual 1,200,000 - 174,000 1,026,000
Finders' Fee Accrual 735,000 - - 735,000
Severance and Related Costs Accrual 655,000 - 539,000 116,000
----------- ----------- ---------- -----------
Period from Inception (September
18, 1996) through December 28, 1996 $11,300,000 $ - $3,244,000 $ 8,056,000
=========== =========== ========== ===========
Store Closure Reserve $ 4,755,000 $ 3,395,000 $2,684,000 $ 5,466,000
Transaction Fee Accrual 227,000 - 227,000 -
Legal Accrual 1,197,000 - 548,000 649,000
Lease Obligation Accrual 1,026,000 - 867,000 159,000
Finders' Fee Accrual 735,000 - 735,000 -
Severance and Related Costs Accrual 116,000 - 116,000 -
----------- ----------- ---------- -----------
Year Ended January 3, 1998 $ 8,056,000 $ 3,395,000 $5,177,000 $ 6,274,000
=========== =========== ========== ===========
Store Closure Reserve $ 5,466,000 $11,103,000 $1,858,000 $14,711,000
Transaction Fee Accrual - - - -
Legal Accrual 649,000 - 267,000 382,000
Lease Obligation Accrual 159,000 - 159,000 -
Finders' Fee Accrual - - - -
Severance and Related Costs Accrual - - - -
----------- ----------- ---------- -----------
Year Ended January 2, 1999 $ 6,274,000 $11,103,000 $2,284,000 $15,093,000
=========== =========== ========== ===========
Store Closure Reserve $14,711,000 - $1,715,000 $12,996,000
Legal Accrual 382,000 - 122,000 260,000
----------- ----------- ---------- -----------
Six Months ended July 3, 1999 (unaudited) $15,093,000 $ - $1,837,000 $13,256,000
=========== =========== ========== ===========
Impairment Reserve (1):
Stores to be Closed $ 7,587,000 $ - $ 854,000 $ 6,733,000
Stores to be Franchised 3,334,000 - 215,000 3,119,000
----------- ----------- ---------- -----------
Period from Inception (September
18, 1996) through December 28, 1996 $10,921,000 $ - $1,069,000 $ 9,852,000
=========== =========== ========== ===========
Stores to be Closed $ 6,733,000 $ 1,423,000 $3,507,000 $ 4,649,000
Stores to be Franchised 3,119,000 1,077,000 492,000 3,704,000
----------- ----------- ---------- -----------
Year Ended January 3, 1998 $ 9,852,000 $ 2,500,000 $3,999,000 $ 8,353,000
=========== =========== ========== ===========
Stores to be Closed $ 4,649,000 $ 3,242,000 $2,121,000 $ 5,770,000
Stores to be Franchised 3,704,000 208,000 1,254,000 2,658,000
----------- ----------- ---------- -----------
Year Ended January 2, 1999 $ 8,353,000 $ 3,450,000 $3,375,000 $ 8,428,000
=========== =========== ========== ===========
Store to be Closed $ 5,770,000 $ - $ - $ -
Stores to be Franchised 2,658,000 - - -
----------- ----------- ---------- -----------
Six Months ended July 3, 1999 (unaudited) $ 8,428,000 $ - $ - $ -
=========== =========== ========== ===========
(1) THE IMPAIRMENT RESERVE REDUCES THE CARRYING AMOUNTS OF PROPERTY AND EQUIPMENT AT STORES
TO BE CLOSED TO ZERO AND THE CARRYING AMOUNTS OF PROPERTY AND EQUIPMENT AT STORES TO BE
FRANCHISED TO NET REALIZABLE VALUE.
</TABLE>
