<PAGE>
As filed with the Securities and Exchange Commission on May 16, 2000
Registration No. 333-67389
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 6
to
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Mrs. Fields' Great American The Mrs. Pretzelmaker, Pretzel Time,
Original Cookie Company, Fields' Brand, 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 DELAWARE its charter)
its charter) UTAH
UTAH
specified in specified in specified in
its charter) its charter) its charter)
(State or other (State or other (State or
jurisdiction of jurisdiction of other
incorporation incorporation jurisdiction
DELAWARE or or of
(State or other DELAWARE organization) organization) incorporation
jurisdiction of (State or other or
incorporation jurisdiction of organization)
or incorporation 6749 6749 6749
organization) or (Primary (Primary (Primary
organization) Standard Standard Standard
6749 Industrial Industrial Industrial
(Primary 6749 Classification Classification Classification
Standard (Primary Code Number) Code Number) Code Number)
Industrial Standard
Classification Industrial
Code Number) Classification 87-0563472 84-1298591 87-0499982
Code Number) (I.R.S. (I.R.S. (I.R.S.
87-0552899 Employer Employer Employer
(I.R.S. 58-1295221 Identification Identification Identification
Employer (I.R.S. No.) No.) No.)
Identification Employer
No.) Identification 2855 East 2855 East 2855 East
No.) Cottonwood Cottonwood Cottonwood
2855 East Parkway, Parkway, Parkway,
Cottonwood 2855 East Suite 400, Salt Suite 400, Salt Suite 400,
Parkway, Cottonwood Lake City, Lake City, Salt Lake
Suite 400, Salt Parkway, Utah 84121 Utah 84121 City,
Lake City, Suite 400, Salt (801) 736-5600 (801) 736-5600 Utah 84121
Utah 84121 Lake City, (Address, (Address, (801) 736-
(801) 736-5600 Utah 84121 including zip including zip 5600
(Address, (801) 736-5600 code and code and (Address,
including zip (Address, telephone telephone including zip
code and including zip number, number, code and
telephone code and including area including area telephone
number, telephone code, of code, of number,
including area number, Registrant's Registrant's including
code, including principal principal area code, of
of Registrant's area code, of executive executive Registrant's
principal Registrant's offices) offices) principal
executive principal executive
offices) executive Michael Ward, Michael Ward, offices)
offices) Esq. Esq. Michael Ward,
Esq.
Michael Ward, The Mrs. Pretzelmaker, Pretzel Time,
Esq. Michael Ward, Fields' Brand, Inc. Inc.
Vice President, Esq. Inc. 2855 East 2855 East
General Counsel Great American 2855 East Cottonwood Cottonwood
Mrs. Fields' Cookie Company, Cottonwood Parkway, Parkway,
Original Inc. Parkway, Suite 400, Salt Suite 400,
Cookies, Inc. 2855 East Suite 400, Salt Lake City, Salt Lake
2855 East Cottonwood Lake City, Utah 84121 City,
Cottonwood Parkway, Utah 84121 (801) 736-5600 Utah 84121
Parkway, Suite 400, Salt (801) 736-5600 (Name, address, (801) 736-
Suite 400, Salt Lake City, (Name, address, including zip 5600
Lake City, Utah 84121 including zip code, and (Name,
Utah 84121 (801) 736-5600 code, and telephone address,
(801) 736-5600 (Name, address, telephone number, including zip
(Name, address, including zip number, including area code, and
including zip code, and including area code, of telephone
code, and telephone code, of agents for number,
telephone number, agents for service) including
number, including area service) area code, of
including area code, agents for
code, of agents of agents for service)
for service) service)
copies to:
Randall H. Doud, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
--------------
Approximate Date of Commencement of Proposed Sale to the Public:
--------------
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mrs. Fields' Original Cookies, Inc. Series B
Senior Notes due 2004 $53,725,000 100%(/1/) $53,725,000(/1/) $14,935.55(/2/)
- -----------------------------------------------------------------------------------------------------------------
The Mrs. Fields' Brand, Inc. Guarantee with re-
spect to 10 1/8% Series B Senior Notes due 2004
0(/3/)
- -----------------------------------------------------------------------------------------------------------------
Great American Cookie Company, Inc. Guarantee
with respect to 10 1/8% Series B Senior Notes
due 2004 0(/3/)
- -----------------------------------------------------------------------------------------------------------------
Pretzelmaker, Inc. Guarantee with respect to 10
1/8% Series B Senior Notes due 2004 0(/3/)
- -----------------------------------------------------------------------------------------------------------------
Pretzel Time, Inc. Guarantee with respect to 10
1/8% Series B Senior Notes due 2004 0(/3/)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933,
as amended.
(2) Previously paid.
(3) No separate consideration will be received for the guarantees, and no
separate fee is payable, pursuant to 457(n) promulgated under the
Securities Act of 1933, as amended.
--------------
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)
May 16, 2000
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, Inc. and
Pretzel Time, Inc.
Terms of the Exchange Offer
. The notes mature on
. Expires 12:00 midnight, December 1, 2004, and pay
New York City time, June interest on June 1 and
20, 2000, unless December 1 of each year.
extended.
. Not subject to any . We will not receive any
condition other than that proceeds from the
the exchange offer not exchange offer.
violate applicable law or
any interpretation of the . The exchange of notes
staff of the Securities will not be a taxable
and Exchange Commission. exchange for U.S. income
tax purposes.
. We can amend or terminate
the exchange offer. . The terms of the notes to
be issued are identical
. We will exchange all to those of the
outstanding notes that outstanding notes, except
are validly tendered and for transfer restrictions
not validly withdrawn. and registration rights.
. You may withdraw tendered
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.
For a discussion of specific risks that you should consider before tendering
your outstanding notes in the exchange offer, see "Risk Factors" beginning on
page 13.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
May 16, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Summary Description of Notes............................................. 8
Summary Historical Financial and Store Data.............................. 10
Risk Factors............................................................. 13
Forward-Looking Information.............................................. 23
The Transactions......................................................... 24
Use of Proceeds.......................................................... 27
Capitalization........................................................... 28
The Exchange Offer....................................................... 29
Selected Historical Financial Data....................................... 36
Management's Discussion and Analysis of Financial Conditions and Results
of Operations........................................................... 38
Where You Can Find More Information...................................... 49
Business................................................................. 50
Management............................................................... 62
Beneficial Ownership of Capital Stock.................................... 67
Relationships and Related Transactions................................... 68
Description of Notes..................................................... 71
Description of Indebtedness.............................................. 103
Plan of Distribution..................................................... 103
United States Federal Income Tax Considerations.......................... 104
Legal Matters............................................................ 104
Experts.................................................................. 104
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 its telephone
number is (801) 736-5600.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus or incorporated by reference in this prospectus.
We are not making offers to exchange notes in the exchange offer or soliciting
offers to exchange outstanding notes in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make an offer or solicitation.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus contains specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage
you to read this prospectus in its entirety.
The Exchange Offer
Registration Rights Holders of 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 June 20, 2000, unless we decide to
extend the expiration date.
Conditions to the
Exchange Offer......... The exchange offer is subject to customary
conditions, some of which we may waive.
Procedures for
Tendering 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, June 20, 2000.
United States Federal
Income The exchange offer should not result in any income,
Tax Considerations..... 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 1, 2000 ("fiscal 1999"), Mrs. Fields generated
net revenue and EBITDA of $181 million and $34.6 million, respectively,
compared to net revenue and EBITDA of $154 million and $14.4 million,
respectively, for the 52 weeks ended January 2, 1999 ("fiscal 1998"). EBITDA
consists of earnings before depreciation, amortization, interest, income taxes,
minority interest, preferred stock accretion and dividends of subsidiaries and
other income or expense.
Our Strategy
Our objective is to increase sales and profitability by focusing on
continuing company-owned stores.
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:
. Build the Mrs. Fields brand in retail venues other than our traditional
mall-based locations.
. Grow concept and product licensing programs and revenues.
. Enhance the quality of our company-owned store base.
. Improve the productivity of our continuing company-owned stores.
. Capitalize on the strong "Mrs. Fields", "Great American", "Pretzel Time"
and "Pretzelmaker" brand names.
. Develop new company-owned and franchised stores, including
internationally.
. Realize purchasing and overhead cost savings as a result of recent
acquisitions.
. Pursue further strategic acquisitions of related businesses.
. Perpetuate franchise growth in all core concepts, including franchising
company-owned cookie and pretzel stores that management has determined to
franchise.
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.
Dates..................
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, 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 January 1, 2000, we had $140,000,000 in-
aggregate principal amount of notes that rank equal
in right of payment with the notes that we will issue
in the exchange offer, including the notes that can
be exchanged in the exchange offer. This amount of
notes will continue to be outstanding after the
exchange offer, and all of the notes will rank equal
to the notes issued 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
8
<PAGE>
We and our guarantors together currently have $7
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."
Covenants............... The indenture under which the outstanding notes have
been and the new notes will be issued contains
covenants that, among other things and subject to
exceptions, restrict our ability to:
. pay dividends
. redeem capital stock
. make restricted payments or investments
. incur additional indebtedness
. issue preferred equity interests
. merge, consolidate or sell all or substantially
all of our assets
. create liens on assets
. sell assets
. enter into transactions with affiliates or related
persons.
All of these limitations and prohibitions are subject
to a number of important qualifications and
exceptions. For more information, see "Description of
Notes--Covenants."
Form of Notes Issued in
the Exchange Offer ....
The notes issued in the exchange offer with respect
to notes currently represented by global securities
will be represented by one or more permanent global
securities in bearer form deposited with The Bank of
New York, as book-entry depositary, for the benefit
of The Depository Trust Company. Notes that are
issued in the exchange offer that have been exchanged
for notes in the form of registered definitive
certificates will be issued in the form of registered
definitive certificates until holders direct
otherwise. For more information, see "Description of
Notes--Book-Entry, Delivery and Form."
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND STORE DATA
The following table presents:
(1) summary historical combined 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 historical consolidated financial and store data for Mrs.
Fields as of January 3, 1998, January 2, 1999 and January 1, 2000 and for
the 53 weeks ended January 3, 1998, the 52 weeks ended January 2, 1999 and
the 52 weeks ended January 1, 2000.
The summary historical financial and store data should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "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 some of the 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 accounting principles generally
accepted in the United States.
. In order for the data to be comparable for the periods presented, some of
the statements of operations data for the predecessors has been
reclassified to be consistent with the Mrs. Fields historical financial
statement presentation.
10
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
and Predecessors Mrs. Fields
---------------- --------------------------------------
Historical Historical Historical Historical
Combined Consolidated Consolidated Consolidated
---------------- ------------ ------------ ------------
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended
December January January January
28, 1996 3, 1998 2, 1999 1, 2000
---------------- ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales.................. $126,330 $127,845 $140,235 $152,268
Net store and food
contribution(1)........ 19,308 25,044 20,166 20,802
Franchising and
licensing, net......... 5,103 6,563 14,001 28,669
General and
administrative
expenses............... 20,557 16,192 19,017 21,972
Store closure provision
(benefit).............. -- 538 7,303 (1,579)
Income (loss) from
operations............. 1,135 8,415 (5,389) 10,381
Net loss................ (5,988) (974) (19,143) (8,221)
Other Data:
Cash flows from
operating activities... 6,784 919 5,296 17,903
Cash flows from
investing activities... (22,716) (15,505) (40,894) (4,696)
Cash flows from
financing activities... 18,793 24,164 24,062 (13,039)
Interest expense........ 4,842 7,830 13,197 17,880
Total depreciation and
amortization........... 9,192 10,403 19,820 24,206
Capital expenditures.... 3,892 4,678 8,235 9,154
EBITDA(2)............... 10,327 18,818 14,431 34,587
Negative store
contribution for stores
in the process of being
closed or
franchised(1).......... $ (1,933) $ (1,798) $ (2,054) $ (312)
Ratio of earnings to
fixed charges(3)....... -- -- -- --
Store Data:
Percentage change in
comparable store
sales(4)............... (1.2)% 0.6% (1.6)% (1.0)%
Total company-owned
stores open at end of
period................. 482 481 566 462
Total franchised or
licensed stores open at
end of period.......... 418 553 972 981
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields
Historical
Consolidated
January 1, 2000
----------------------
(Dollars in thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $ 4,919
Total assets........................................... 208,410
Mandatorily redeemable cumulative preferred stock of
subsidiary............................................ 1,070
Total line of credit, debt and capital lease
obligations, including current portion................ 146,485
Total stockholder's equity............................. 34,457
</TABLE>
See footnotes on following page.
11
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
and Predecessors Mrs. Fields
---------------- --------------------------------------
Historical Historical Historical Historical
Combined Consolidated Consolidated Consolidated
---------------- ------------ ------------ ------------
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended
December January January January 1,
28, 1996 3, 1998 2, 1999 2000
EBITDA Data: ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Income (loss) from
operations............. $ 1,135 $ 8,415 $(5,389) $10,381
ADD:
Depreciation and
amortization.......... 9,192 10,403 19,820 24,206
------- ------- ------- -------
EBITDA................. $10,327 $18,818 $14,431 $34,587
======= ======= ======= =======
</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 accounting
principles generally accepted in the United States. Store contribution may
not be comparable to other similarly titled measures.
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operations as defined by accounting principles
generally accepted in the United States and should not be considered as an
alternative to net income (loss) as an indicator of operating performance
or to cash flows as a measure of liquidity. EBITDA has been included in
this prospectus because it is one of the indicators by which Mrs. Fields
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 and January 1, 2000, respectively,
Mrs. Fields' earnings were insufficient to cover fixed charges by $319,000,
$18,827,000 and $8,003,000, respectively.
(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-
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dealers must acknowledge that they acquired their outstanding notes in market-
making activities or other trading activities and must deliver a prospectus
when they resell the notes they acquire in the exchange offer in order not to
be deemed an underwriter.
You should review the more detailed discussion in "The Exchange Offer--
Procedures for Tendering Notes and Consequences of Exchanging Outstanding
Notes."
We have substantial debt, which could prevent us from fulfilling our debt
obligations, including those under the notes, and could hinder our growth by
preventing us from obtaining other financing and limiting the amount of funds
we have available for purposes other than servicing debt
We incurred a substantial amount of debt 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
result in an acceleration of the notes and
. the amount of debt that we have could prevent us from repurchasing all
the notes tendered to us upon the occurrence of a change of control of
our stock or assets.
See "Description of Notes--Repurchase at the Option of Holders--Change of
Control."
The following chart shows important credit statistics:
<TABLE>
<CAPTION>
At January 1,
2000
--------------
<S> <C>
Total indebtedness of Mrs. Fields and subsidiaries........... $146.5 million
</TABLE>
Of this indebtedness, approximately $7 million was senior to the notes.
The number includes liabilities for leases of $3.9 million and preferred
stock required to be repurchased at a future date of $1.1 million outstanding,
together representing 2.4% of our total liabilities and equity. Substantially
all of our subsidiaries' debt is effectively senior to the notes.
<TABLE>
<S> <C>
Stockholder's equity.......................................... $ 34.5 million
Debt to equity ratio.......................................... 4.3 to 1
</TABLE>
Moreover, our earnings have not been sufficient to cover our fixed charges.
<TABLE>
<CAPTION>
52 weeks ended
January 1,
2000
--------------
<S> <C>
Approximate deficiency in earnings to fixed charges
presented on a consolidated basis......................... $ 8.0 million
</TABLE>
14
<PAGE>
Additional borrowings available--despite current indebtedness levels, we and
our subsidiaries may still be able to incur substantially more debt; this could
further exacerbate the risks described above
Although the 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
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 "Description of
Notes--Covenants." We currently plan to incur additional debt for working
capital purposes, which will be effectively senior to the notes.
We may not be able to pay principal and interest on our existing debt, if our
business does not generate enough revenue; if we fail to service our debt, we
could have a default on the notes and on our credit agreement and may be unable
to obtain refinancing
Our ability to make scheduled payments of principal, or to pay interest on,
or to refinance our 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. As a result of our holding company structure, we depend on our
subsidiaries, especially Great American, Pretzel Time and Pretzelmaker, to
contribute substantially to our revenues. Our ability to service our debt
depends in part on the revenues of these subsidiaries. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
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 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
Indebtedness."
A default under our credit agreement could cause a default under the notes; if
there is a default on the credit agreement and the notes, we may not be able to
make payments on both, or either of, the credit agreement and 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
15
<PAGE>
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
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, which could
reduce profits or increase losses
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 could prevent us from
purchasing supplies and manufacturing our products at crucial times during our
annual sales cycles, which could reduce profits or increase losses.
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. If there is a change of control of ownership
or 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 unpaid interest, if any, and liquidated damages, if any, to the date of
repurchase. 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 if there is a change of control. See "Description of
Notes--Repurchase at the Option of Holders--Change of Control.
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
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<PAGE>
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."
We may not be able to obtain leases in the future; if we do not obtain leases
in high quality shopping malls at reasonable rents, we may not be able to
conduct our business at a profit
Our success depends in part on our ability to secure leases in high quality
shopping malls at rents we believe to be reasonable. Approximately half of the
leases for such stores expire during the next 5 years and generally do not
provide for renewal options in our favor. In addition, we currently plan to
open approximately 375 new-company owned and 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 decrease the revenues from our business, which
depends to a large extent on purchases by pedestrians in malls
We believe that the amount and proximity of pedestrian traffic near our
stores strongly influence sales of our products, which we believe are
frequently impulse purchases. In recent years, visits to major shopping malls,
where a large percentage of our stores are located, have declined from 3.7
visits per month in 1989 to 3.0 visits per month in 1996. This trend has had a
negative impact on our revenues. We cannot be sure that this trend will not
continue or that this trend can be offset by increased sales per customer. A
continued decline in mall traffic could adversely affect our financial
condition and results of operations.
Volatility in cost of ingredients we use may increase our costs, which we may
not be able to compensate for by raising prices
The cost of butter, eggs, sugar, flour, chocolate and other ingredients can
fluctuate due to changes in economic conditions, weather, demand and other
factors, many of which are beyond our control. Although we believe that there
are alternative suppliers of these ingredients, we have no control over
fluctuations in the price of commodities and cannot be sure that we will be
able to pass on any price increases in our product ingredients to our
customers.
The minimum wage increase may increase our costs, with the result of decreasing
our profits or increasing our losses
As of January 1, 2000, 602 of our 3,893 employees that work at stores owned
by us earned the federal hourly minimum wage. As a result of an increase in the
minimum wage from $4.75 to $5.15 on September 1, 1997, we have experienced an
increase of wages of approximately $354,000 annually. These increased labor
17
<PAGE>
costs could increase our costs, with the result of decreasing our profits or
increasing our losses. We cannot be sure that we can fully absorb the increased
labor costs through our efforts to increase efficiencies in other areas of our
operations. Legislation that has been approved by the U.S. House of
Representatives would raise the minimum wage another dollar per hour over a two
year period. If the legislation becomes law, Mrs. Fields would have an
additional increase in its labor costs.
We depend upon key franchisees and licensees for revenue; there is no assurance
that franchise and license agreements will not be terminated, decreasing our
revenues as a result
We depended upon 11 franchisees, representing 130 franchised stores, for 9.5%
of our franchise revenues for the 52 weeks ended January 1, 2000. For the same
period, franchise revenues made up 13.7% of our total net revenues. We cannot
be sure that these franchise agreements will not be terminated or that our
relations with franchisees will not change, or that our franchisees will
continue to perform as they have in the past. The termination of these key
franchise agreements or poor performance by our franchisees may have an adverse
affect on our financial condition and results of operations. In addition, two
licensees accounted for 63.1% of our licensing revenue for the 52 weeks ended
January 1, 2000. For the same period, licensing revenue was 2.1% of our total
net revenues. We cannot be sure that our licenses will not be terminated or
that our relations with licensees will not change, or that our licensees will
continue to perform as they have in the past. The termination of key license
agreements or poor performance by our licensees may decrease our revenues.
If our trademarks are challenged, our revenues and results of operations could
be reduced because of the cost of defending against claims or because we are
prevented from using our trademarks, which we need to market our products
We believe that our trademarks have significant value and are important to
the marketing of our retail outlets and products. Although our trademarks are
registered in all 50 states and registered or pending in many foreign
countries, we cannot be sure that our trademarks cannot be circumvented, or
that our trademarks do not or will not violate the proprietary rights of
others, or would be upheld if challenged or that we would not be prevented from
using our trademarks. Any challenge against us for our use of our trademarks
could reduce our revenues, through either a negative ruling with regards to our
use, validity or enforceability of our trademarks, or through the time consumed
and the legal costs of defending against a claim. In addition, we cannot be
sure that we will have the financial resources necessary to enforce or defend
our trademarks.
If we lose key management personnel, we may have difficulty in implementing the
business strategy that current management has developed, and may fail to
achieve expected profits as a result
Our success depends on the continued services of our senior management,
particularly Larry A. Hodges, our President and Chief Executive Officer. In
addition, our continued growth depends, in part, on attracting and retaining
skilled managers and employees as well as management's ability to effectively
utilize our key personnel in light of recent and future acquisitions. If Mr.
Hodges or other senior management left us, we may have difficulty in
implementing the business strategy that they have developed, and may fail to
achieve expected profits as a result. We cannot be sure that management's
efforts to integrate, utilize, attract and retain personnel will be successful.
See "Management." We have entered into employment agreements with all of our
senior managers.
18
<PAGE>
Competition with other specialty food retailers and changes in demographic
trends and consumer preferences could decrease our profits by reducing our
market share or forcing price reductions; increased costs of production and
delays in introducing new products could decrease our profits
We compete with other cookie and pretzel retailers, as well as other
confectionery, sweet snack and specialty food retailers, many of which have
greater resources than us. The specialty retail food and snack industry is
highly competitive with respect to price, service, location and food quality.
Consequently, we cannot be sure that we will compete successfully with these
other specialty food retailers. In addition to the risks from current
competitors, we cannot be sure that we can successfully compete with any new
entrants into the specialty foods or snack foods industry who may have new and
successful products or marketing. Inability to compete adequately would result
in price reductions, reduced margins and losses of market share for us.
Changes in consumer preferences, tastes and eating habits, local, regional
and national economic conditions, demographic trends and mall traffic patterns
also affect the specialty or snack foods industry. Factors including increased
food, labor and benefits costs, the availability of experienced management and
hourly employees and difficulties or delays in developing and introducing new
products to suit consumer preferences may adversely affect the specialty retail
industry in general and our outlets in particular. Consequently, our success
will depend on our ability to recognize and react to these trends adequately.
Any changes in these factors could decrease our profitability. In addition, the
failure of customers to respond favorably to our marketing or new products,
could decrease our results of operations. See "Business--Competition."
Adverse publicity, particularly about health concerns, could reduce our sales
and decrease results of operations.
Our ability to compete depends in part on maintaining our reputation with the
consumer. Publicity resulting from food quality, illness, injury, or other
health concerns, including food-borne illness claims, or operating issues
stemming from one store, a limited number of stores, or even a competitor's
store can adversely affect multi-unit specialty retail food and snack chains
such as us. In addition, Mrs. Fields' uses ingredients, such as nuts, to which
some people may have allergies, and butter, which is high in fat, and there may
be adverse publicity about the health risks relating to these ingredients. We
cannot be sure that adverse publicity about these factors will not reduce sales
of our products and decrease results of operations.
Government regulation of our business could increase our costs
Numerous governmental authorities have issued regulations that apply to us
and our stores, including, without limitation, federal, state and local laws
and regulations governing health, sanitation, environmental protection, safety
and hiring and employment practices, including laws, such as the Fair Labor
Standards Act, governing such matters as minimum wages, overtime and other
working conditions. The Food and Drug Administration administers regulations
that apply to our products. If we fail to obtain or retain the required food
licenses or to comply with applicable governmental regulations, or if there is
any increase in the minimum wage rate, employee benefit costs or other costs
associated with employees our costs could increase as we attempt to comply with
regulations, or our revenues could decrease if we are unable to manufacture or
sell products in locations in which we do not have required licenses. Even if
we obtain regulatory approval, a marketed product, its manufacturer and its
manufacturing facilities are subject to periodic inspection, and discovery of
problems may reduce our results of operations because of costs of compliance or
inability to manufacture or sell products for failure to comply with
regulations.
In addition, the sale of franchises is regulated by various state laws as
well as by the Federal Trade Commission. The Federal Trade Commission requires
that franchisors make extensive disclosure in a Uniform Franchise Offering
Circular to prospective franchisees but does not require registration. However,
a number of states require registration of the Uniform Franchise Offering
Circular with state authorities or other disclosure in connection with
franchise offers and sales. In addition, several states have franchise
relationship laws or business opportunity laws that limit the ability of the
franchisors to terminate agreements or to withhold consent to renewal or
transfer of these agreements. While we believe that we are in compliance with
existing
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<PAGE>
regulations, we cannot predict the effect of any future legislation or
regulation on our business operations or financial condition. Additionally,
bills have occasionally been introduced in Congress which would provide for
federal regulation of aspects of franchisor-franchisee relationships.
All full-time store managers and assistant managers are able to enroll in a
group health insurance plan. However, there have been a number of proposals
before Congress which would require employers to provide health insurance for
all of their full-time and part-time employees. The approval of similar
proposals could have a material adverse impact on our results of operations and
financial condition in particular and the specialty retail industry as a whole.
Litigation, including product liability litigation, could reduce our results of
operations or increase our losses because of the cost of paying on successful
claims
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 reduce our results of operations.
Our controlling stockholder may take actions that may be contrary to your
interests
Capricorn Investors II, L.P. is the controlling stockholder of Mrs. Fields'
Holding, which owns 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 anticipated sales we may suffer reduced results of operations
Our operating results are subject to seasonal fluctuations. Historically, we
have realized our highest level of sales in the fourth quarter due to increased
mall traffic during the Christmas holiday season. However, we cannot be sure
that this seasonal trend will continue or that we can continue to rely on
increased sales during the fourth quarter. If this seasonal trend changes, we
may suffer reduced results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
Fraudulent conveyance risks; federal and state statutes allow courts, under
specific circumstances, to void payments under the notes and 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 assets and
capital stock of other companies it has recently acquired and because Mrs.
Fields and the existing guarantors cannot be sure that their
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<PAGE>
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.
Mrs. Fields has incurred, however, a substantial amount of debt in connection
with the purchase of Great American and the assets and capital stock of other
companies it acquired. Mrs. Fields' and its subsidiaries' total indebtedness,
represents 67.3% of its total liabilities and equity. The debt of our guarantor
subsidiaries represents .2% 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 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
21
<PAGE>
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 some 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
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<PAGE>
(3) either Mrs. Fields or Mrs. Fields' Holding sells a controlling interest to
an unaffiliated party, 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 gross profit margin percentage over our cost on batter sold
to Great American franchisees, for a three year period from August 13,
1998, the date of acquisition,
(2) to extend franchise agreements, and
(3) to permit the Great American franchisees to convert their stores to Mrs.
Fields brand stores at their sole expense in areas where there is no
overlap with existing Mrs. Fields brand franchise stores.
Maintaining the gross profit margin percentage on batter sold to Great
American franchisees only affects the gross profit per case of batter sold.
Total profits earned on batter sales will fluctuate with the number of cases of
batter actually sold to franchisees. For example, if our cost of producing the
batter sold to Great American franchisees increases, we are permitted to raise
our sales price to the franchisees only to the same percentage as our
production costs increased. If the cost of producing the batter decreases, we
are required to decrease our sales price to the franchisees by the same
percentage as our costs decreased. The gross profit percentage agreed to in the
settlement was the same gross profit percentage that was being realized from
the Great American franchisees prior to the acquisition. Therefore, the
agreement would not have had an impact on the earnings of Great American if it
had been entered into prior to the acquisition by Mrs. Fields. Total revenue
earned from the sales of batter to Great American franchisees is less than 10%
of total revenues earned by Mrs. Fields. We believe that the negotiated gross
profit margin percentage is sufficient to allow Mrs. Fields to maintain a
reasonable gross profit margin percentage on its sales throughout the duration
of the settlement agreement.
The Mrs. Fields' 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 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,
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(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.
On December 9, 1998, Mrs. Fields purchased three shares of Pretzel Time, Inc.
common stock for $500,000 in cash. On December 30, 1998, Mrs. Fields completed
the acquisition of the remaining outstanding common stock of Pretzel Time, Inc.
under a stock purchase agreement dated December 30, 1998, for a purchase price
of approximately $4.7 million, $2.5 million of which was paid in cash on
January 5, 1999, $2 million of which was assumed by Mrs. Fields' Holding, Mrs.
Fields' sole shareholder, as discussed below, and the remaining $200,000 of
which was payable in installments through December 30, 1999.
Other 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 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.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement dated as of
October 5, 1998, among The Cookie Conglomerate, Inc., The Cookie Conglomerate,
LLP and two individuals who were the partners of Cookie Conglomerate, LLP and
the shareholders of Cookie Conglomerate, Inc. The sellers were franchisees of
Great American. The sellers' rights under franchise agreements and subleases
with Great American were terminated upon closing of the transaction. The
acquisition was funded with financing provided by T&W Financial Services
Company, L.L.C.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker Holdings was
the holding company for Pretzelmaker. Pretzelmaker Holdings has since been
merged into Pretzelmaker. The purchase price was approximately $5.7 million and
Mrs. Fields assumed indebtedness, including severance payments, totaling
approximately $1.6 million.
Recent Developments
On February 9, 2000, an affiliate of our parent company, Capricorn, entered
into an agreement to acquire TCBY Enterprises, Inc., a retail snack food
company. It is expected that, if this acquisition is completed, Mrs. Fields
will enter into a management agreement to provide management services to TCBY.
If completed, this acquisition would occur no earlier than the second quarter
of 2000. We cannot be sure that this acquisition will be completed, and terms
of the management agreement have not been finalized. Management of Mrs. Fields
believes that, if completed, this acquisition would offer Mrs. Fields the
opportunity to sell its various products in TCBY stores.
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<PAGE>
USE OF PROCEEDS
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 January 1, 2000. 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".
<TABLE>
<CAPTION>
Mrs. Fields'
Original Cookies, Inc.
and Subsidiaries
at January 1, 2000
----------------------
(Dollars in thousands)
<S> <C>
Cash and Cash Equivalents............................... $ 4,919
========
Debt and Capital Lease Obligations, including current
portions:
Credit Facility(1).................................... $ --
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....................................... (489)
Pretzel Time Debt..................................... 106
Mrs. Fields' Original Cookies, Inc. Other Debt and
Capital Lease Obligations............................ 6,448
Pretzelmaker Debt and Capital Lease Obligations....... 148
Great American Debt and Capital Lease Obligation...... 272
--------
Total Debt and Capital Lease Obligations, including
current portion........................................ 146,485
--------
Mandatorily Redeemable Preferred Stock of Pretzel
Time(3)................................................ 1,070
--------
Stockholder's Equity:
Common Stock (pledged as collateral for parent company
debt)(4)............................................. --
Additional Paid-in Capital............................ 61,899
Accumulated Deficit................................... (27,442)
--------
Total Stockholder's Equity............................ 34,457
--------
Total Capitalization.................................... $182,012
========
</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 January 1,
2000, Mrs. Fields had approximately $8.1 million of allowable borrowings
under its credit facility. See "Description of 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 January 1, 2000 was approximately $1.1
million. Fully redeemed on January 15, 2000.
(4) Less than $1,000.
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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 June
20, 2000, unless we extend it. If we extend the exchange offer, we will issue a
notice by press release or other public announcement before 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
We reserve the right, in our sole discretion:
(1) to extend the exchange offer,
(2) to delay accepting your notes,
(3) to terminate the exchange offer and not accept any notes for
exchange if any of the conditions have not been satisfied, or
(4) to amend the exchange offer in any manner.
We will promptly give oral or written notice of any extension, delay, non-
acceptance, termination or amendment. We will also file a post-effective
amendment with the Commission if we amend the terms of the exchange offer.
If we extend the exchange offer, notes that you have previously tendered will
still be subject to the exchange offer and we may accept them. We will promptly
return your notes if we do not accept them for exchange for any reason without
expense to you after the exchange offer expires or terminates.
Procedures for Tendering Notes
Only you may tender your notes in the exchange offer.
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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
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<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.
32
<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.
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.
33
<PAGE>
Exchange Agent
You should direct all signed letters of transmittal to the exchange agent,
The Bank of New York. You should direct questions, requests for assistance, and
requests for additional copies of this prospectus, the letter of transmittal
and the notice of guaranteed delivery to the exchange agent addressed as
follows:
Main Delivery to: The Bank of New York,
As Exchange Agent
By Mail, By Hand and Overnight By Facsimile:
Courier: (For Eligible Institutions Only)
(212) 815-6339
The Bank of New York Confirm by telephone:
101 Barclay Street 7 East (212) 815-6337
New York, New York 10286
Attention: Odell Romeo
Delivery or fax of the letter of transmittal to an address or number other
than those above is not a valid delivery of the letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer except for reimbursement of mailing expenses.
We will pay the estimated cash expenses connected with the exchange offer. We
estimate that these expenses will be approximately $1,000,000.
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 for its
outstanding notes must acknowledge that it acquired as a result of market-
making activities or other
34
<PAGE>
trading activities and that it will deliver a prospectus in connection with any
resale of the new notes. Broker-dealers who can make these representations may
use this exchange offer prospectus, as supplemented or amended, in connection
with resales of notes issued in the exchange offer.
However, because the Commission has not issued a no-action letter in
connection with this exchange offer, we cannot be sure that the staff of the
Commission would make a similar determination regarding the exchange offer as
it has made in similar circumstances.
Shelf Registration
The registration rights agreement also requires that we file a shelf
registration statement if:
(1) we cannot file a registration statement for the exchange offer
because the exchange offer is not permitted by law,
(2) law or Commission policy prohibits a holder from participating in
the exchange offer,
(3) a holder cannot resell the notes it acquires in the exchange offer
without delivering a prospectus and this prospectus is not
appropriate or available for resales by the holder, or
(4) a holder is a broker-dealer and holds notes acquired directly from
us or one of our affiliates.
We will also register the notes under the securities laws of jurisdictions
that holders may request before offering or selling notes in a public offering.
We do not intend to register notes in any jurisdiction unless a holder requests
that we do so.
Notes will be subject to restrictions on transfer until:
(1) a person other than a broker-dealer has exchanged notes in the
exchange offer,
(2) a broker-dealer has exchanged notes in the exchange offer and sells
them to a purchaser that receives a prospectus from the broker-
dealer on or before the sale,
(3) the notes are sold under an effective shelf registration statement
that we have filed, or
(4) the notes are sold to the public under Rule 144 of the Securities
Act.
35
<PAGE>
SELECTED 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 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, certain statement of operations information for the predecessors has
been reclassified to be consistent with the Mrs. Fields historical financial
statement presentation. 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 the related notes to it, contained elsewhere in this registration
statement.
<TABLE>
<CAPTION>
Predecessors
---------------------------------------------------------
The Original Cookie
Company, Incorporated
and the Carved-Out Portion
Mrs. Fields Inc. and of Hot Sam Company, Inc.
Subsidiaries(1) Combined(1)
---------------------------- ----------------------------
December 31, December 31,
52 Weeks Ended 1995 through 52 Weeks Ended 1995 through
December 30, September 17, December 30, September 17,
1995(2) 1996(2) 1995(2) 1996(2)
-------------- ------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales.................. $ 59,956 $ 29,674 $85,581 $54,366
Net store
contribution(3)........ 6,591 3,797 13,063 5,854
Franchising and
licensing, net......... 5,993 3,786 -- --
General and
administrative
expenses............... 15,612 8,984 9,216 7,538
Income (loss) from
operations............. (3,526) (1,742) 2,435 (2,772)
Net loss................ (2,368) (2,304) (2,096) (5,645)
Other Data:
Cash flows from
operating activities... (4,478) (447) 4,451 (378)
Cash flows from
investing activities... 2,526 (385) (568) (1,200)
Cash flows from
financing activities... (185) (58) (4,599) (1,380)
Interest expense........ 51 80 4,356 2,895
Total depreciation and
amortization........... 3,525 1,911 6,902 4,937
Capital expenditures.... 4,146 1,054 568 1,200
EBITDA(2)............... (1) 169 9,337 2,165
Store contribution for
stores in the process
of being closed or
franchised(3).......... (802) (695) (1,542) (1,751)
Ratio of earnings to
fixed charges(4)....... -- -- -- --
Balance Sheet Data:
Working capital
(deficit).............. $ (3,114) $(21,704) $ 128 $(3,640)
Total assets............ 23,033 19,144 66,282 59,024
Debt and capital lease
obligations, including
current portion........ 21,226 21,224 32,357 30,977
Total stockholders'
equity (deficit)....... (28,017) (30,318) 22,588 16,943
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields(1)
----------------------------------------------
September 18, 53 Weeks 52 Weeks 52 Weeks
1996 through Ended Ended Ended
December 28, January 3, January 2, January 1,
1996(2) 1998(2) 1999(2) 2000(2)
------------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net store and food sales....... $ 40,849 $127,845 $140,235 $152,268
Net store contribution(4)...... 9,707 25,044 20,166 20,802
Franchising and licensing...... 1,267 6,563 14,001 28,669
General and administrative
expenses...................... 4,035 16,192 19,017 21,972
Store closure provision
(benefit)..................... -- 538 7,303 (1,579)
Income (loss) from operations.. 5,649 8,415 (5,389) 10,381
Net income (loss).............. 1,961 (974) (19,143) (8,221)
Other Data:
Cash flows from operating
activities.................... 7,609 919 5,296 17,903
Cash flows from investing
activities.................... (21,131) (15,505) (40,894) (4,696)
Cash flows from financing
activities.................... 20,231 24,164 24,062 (13,039)
Interest expense............... 1,867 7,830 13,197 17,880
Total depreciation and
amortization.................. 2,344 10,403 19,820 24,206
Capital expenditures........... 1,638 4,678 8,235 9,154
EBITDA(3)...................... 10,327 18,818 14,431 34,587
Store contribution for stores
in the process of being
closed or franchised(4)....... 513 (1,798) (2,054) (312)
Ratio of earnings to fixed
charges(5).................... 2.85x -- -- --
Balance Sheet Data:
Working capital (deficit)...... $ (2,889) $ 13,133 $(12,727) $ (3,786)
Total assets................... 110,055 149,684 231,906 208,410
Mandatorily redeemable
cumulative preferred stock of
subsidiaries.................. 3,597 902 1,261 1,070
Debt and capital lease
obligations, including current
portion....................... 67,563 101,081 150,989 146,485
Total stockholder's equity..... 16,961 30,765 40,678 34,457
</TABLE>
(1) On September 17, 1996, Mrs. Fields completed the acquisitions of
substantially all of the assets and assumed certain liabilities of the
predecessors. As a result of purchase accounting adjustments related to the
acquisitions, the Mrs. Fields' financial statements are not directly
comparable to the predecessors' financial statements.
(2) Mrs. Fields and its predecessors operate using a 52/53-week year ending
near December 31.
(3) 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 accounting principles
generally accepted in the United States and should not be considered as an
alternative to net income (loss) as an indicator of operating performance
or to cash flows as a measure of liquidity. EBITDA has been included in
this prospectus because it is one of the indicators by which Mrs. Fields
assesses its financial performance and its capacity to service its debt.
(4) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with accounting
principles generally accepted in the United States. Store contribution may
not be comparable to other similarly titled measures.
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal year 1995 and the period December 31, 1995
through September 17, 1996, Mrs. Fields Inc. and subsidiaries' earnings
were insufficient to cover fixed charges by $2,127,000 and $2,099,000,
respectively. For fiscal year 1995 and the period December 31, 1995 through
September 17, 1996, Original Cookie and Hot Sam (combined) earnings were
insufficient to cover fixed charges by $1,833,000 and $5,645,000,
respectively. For the 53 weeks ended January 3, 1998, and the 52 weeks
ended January 2, 1999 and January 1, 2000, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000, $18,827,000 and
$8,003,000, 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 the 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 has been and
continues to be the closing or franchising of certain company-owned stores that
do not meet specific financial and geographical criteria established by
management. Implementation of this element of the business plan has resulted 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 have and are
expected to continue to increase and net store sales and overhead expenses
associated with operating those stores are expected to decrease.
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 are
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 certain 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 of 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
38
<PAGE>
purchase price of $18.4 million. Mrs. Fields also retired approximately $38.9
million of outstanding Great American notes. Concurrently, Cookies USA was
merged with and into Mrs. Fields, at which time Great American became a wholly
owned subsidiary of Mrs. Fields. At the same time Mrs. Fields also purchased
the stock of two Great American franchisees, Deblan Corporation and Chocolate
Chip Cookies of Texas, Inc., together owning and operating 29 Great American
franchised stores, for total consideration of $14.4 million. Deblan and
Chocolate Chip were merged with and into Great American at that time. On
September 9, 1998, Mrs. Fields acquired eight Great American franchise stores
(Karp) from a Great American franchisee, for a purchase price of $1.9 million.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American franchise stores
(Cookie Conglomerate) from a Great American franchisee for a total purchase
price of $2.8 million.
On November 19, 1998, Mrs. Fields, under a stock purchase agreement among
Pretzelmaker Holdings, Inc., holders of all outstanding capital stock of
Pretzelmaker Holdings, and Mrs. Fields, acquired all of the outstanding capital
stock of Pretzelmaker Holdings for $5.4 million and assumed liabilities of $1.6
million related to severance payments in lieu of outstanding stock options and
other liabilities. Pretzelmaker Holdings has since been merged into
Pretzelmaker.
Year 2000
Prior to January 1, 2000, management assessed the Year 2000 issue and
determined that all internal information technology systems including financial
software, corporate networks, the AS400 system and all other systems are Year
2000 compliant with the exception of systems used for collecting and
communicating sales data from retail locations. This assessment was based
primarily on independent, third-party verification from our vendors and
suppliers.
Mrs. Fields replaced its sales collection systems with software and hardware
that is Year 2000 compliant. The approximate cost of this project was $1.9
million and included software development and new store computers and
registers. Funding for this project was provided by internal cash flow and by a
lease finance company. No information technology projects were deferred as a
result of our Year 2000 efforts.
Prior to January 1, 2000, we completed an assessment of Year 2000 issues with
respect to our significant vendors and financial institutions as to their
compliance plans and whether any Year 2000 issues would impede the ability of
such vendors to continue providing goods and services to us. Failure of our key
suppliers to remedy their own Year 2000 issues could have delayed shipments of
essential products, thereby disrupting our operations. Furthermore, we rely on
various service providers, such as utility and telecommunication service
companies, which are beyond our control. We did not experience any disruptions
of our operations due to Year 2000 issues or Year 2000 issues experienced by
any of our vendors.
39
<PAGE>
Results of Operations of Mrs. Fields
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields expressed in thousands of
dollars and percentage changes from period to period.
<TABLE>
<CAPTION>
% %
For the 53 For the 52 Change For the 52 Change
Weeks Ended Weeks Ended From Weeks Ended From
January 3, January 2, 1997 to January 1, 1998 to
1998 1999 1998 2000 1999
----------- ----------- ------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Net store and food
sales................. $127,845 $140,235 9.7 % $152,268 8.6 %
Franchising............ 4,535 12,464 174.8 24,782 98.8
Licensing.............. 2,028 1,537 (24.2) 3,887 152.9
-------- -------- --------
Total revenues......... 134,408 154,236 14.8 180,937 17.3
-------- -------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 66,832 75,003 12.2 79,634 6.2
Cost of sales.......... 32,028 38,482 20.2 46,323 20.4
General and
administrative
expenses.............. 16,192 19,017 17.4 21,972 15.5
Store closure provision
(benefit)............. 538 7,303 1,257.4 (1,579) (121.6)
Depreciation and
amortization.......... 10,403 19,820 90.5 24,206 22.1
-------- -------- --------
Total operating costs
and expenses.......... 125,993 159,625 26.7 170,556 6.8
-------- -------- --------
Interest expense........ (7,830) (13,197) 68.5 (17,880) 35.5
Interest income......... 246 623 153.3 53 (91.5)
Other expense, net...... (1,805) (1,180) (34.6) (775) (34.3)
-------- -------- --------
Net loss................ $ (974) $(19,143) 1,865.4 % $ (8,221) (57.1)%
======== ======== ========
Supplemental
Information:
Continuing Company-owned
Stores:
Net store and food
sales................. $108,174 $122,713 13.4 % $136,821 11.5 %
-------- -------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 50,858 60,900 19.7 68,564 12.6
Cost of sales.......... 26,578 33,621 26.5 36,916 9.8
Depreciation and
amortization.......... 3,896 5,972 53.3 10,227 71.2
-------- -------- --------
Total operating costs
and expenses.......... 81,332 100,493 23.6 115,707 15.1
-------- -------- --------
Continuing company-owned
store contribution..... $ 26,842 $ 22,220 (17.2) $ 21,114 (5.0)
======== ======== ========
Stores in the Process of
Being Closed or
Franchised:
Net store and food
sales.................. $ 19,671 $ 17,522 (10.9) $ 15,447 (11.8)
-------- -------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 15,974 14,103 (11.7) 11,070 (21.5)
Cost of sales.......... 5,450 4,861 (10.8) 4,529 (6.8)
Depreciation and
amortization.......... 45 612 1,260.0 160 (73.9)
-------- -------- --------
Total operating costs
and expenses.......... 21,469 19,576 (8.8) 15,759 (19.5)
-------- -------- --------
Stores in the process of
being closed or
franchised loss........ $ (1,798) $ (2,054) 14.2 % $ (312) (84.8)%
======== ======== ========
</TABLE>
40
<PAGE>
52 Weeks Ended January 1, 2000 ("Fiscal 1999") Compared to the 52 Weeks Ended
January 2, 1999 ("Fiscal 1998")
Company-owned and Franchised or Licensed Store Activity
As of January 1, 2000, there were 462 company-owned stores and 981
franchised or licensed stores in operation. The store activity for fiscal 1998
and fiscal 1999 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
-------------------- --------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 481 553 566 972
Stores opened (including relocations
and acquisitions)................... 128 504 13 100
Stores closed (including
relocations)........................ (20) (78) (26) (123)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (30) -- (59) --
Stores sold to franchisees........... (11) 11 (13) 13
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (15) 15 (24) 24
Stores acquired from franchisees..... 33 (33) 5 (5)
--- --- --- ----
Stores open as of the end of the
fiscal year......................... 566 972 462 981
=== === === ====
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,033,000, or 8.6%,
from $140,235,000 to $152,268,000 for fiscal 1999 compared to fiscal 1998.
Net store sales from continuing company-owned stores and mail order
increased $14,108,000, or 11.5%, from $122,713,000 to $136,821,000 for fiscal
1999 compared to fiscal 1998. The increase in net store sales from continuing
company-owned stores was primarily attributable to:
(1) the operation for a full year of 66 Great American stores acquired in
connection with the acquisitions of Great American, Deblan, Chocolate
Chip and Karp in August and September 1998,
(2) the operation of two Pretzelmaker continuing company-owned stores
acquired in connection with the Pretzelmaker acquisition in November
1998,
(3) a 21% increase in mail order 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% during fiscal 1999 compared to the same period in fiscal
1998.
Net store sales from stores in the process of being closed or franchised
decreased $2,075,000, or 11.8%, from $17,522,000 to $15,447,000 for fiscal
1999 compared to fiscal 1998. This decrease results from closing or
franchising 150 stores during fiscal 1999.
Franchising Revenues. Franchising revenues increased $12,318,000, or 98.8%,
from $12,464,000 to $24,782,000 for fiscal 1999 compared to fiscal 1998. The
increase in franchising revenues was primarily attributable to royalties
earned from the 211 Great American franchised stores obtained in connection
with the acquisitions of Great American, Deblan, Chocolate Chip and Karp in
August and September 1998, the 199 Pretzelmaker franchised stores acquired in
November 1998 and the additional stores that were franchised by the Company in
1999.
41
<PAGE>
Licensing Revenues. Licensing revenues increased $2,350,000, or 152.9%, from
$1,537,000 to $3,887,000 for fiscal 1999 compared to fiscal 1998. The increase
in licensing revenues was attributable to license fees on new contracts entered
into in 1999 and royalties earned on existing licensing agreements. The
increase was partially offset by a decrease in the number of licensed locations
during 1999.
Total Revenues. Total revenues increased by $26,701,000, or 17.3%, from
$154,236,000 to $180,937,000 for fiscal 1999 compared to fiscal 1998 due to the
reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $4,631,000, or 6.2%, from $75,003,000 to $79,634,000 for fiscal 1999
compared to fiscal 1998.
Selling and store occupancy costs for continuing company-owned stores
increased by $7,664,000, or 12.6%, from $60,900,000 to $68,564,000 for fiscal
1999 compared to fiscal 1998. Within this overall increase, selling expenses
for continuing company-owned stores increased by $4,222,000, or 15.7%, from
$26,930,000 to $31,152,000 for fiscal 1999 compared to fiscal 1998. The
increase in selling expenses was primarily attributable to the 66 Great
American continuing company-owned stores acquired in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998 and the two Pretzelmaker stores acquired in November 1998. Store
occupancy costs for continuing company-owned stores increased $3,442,000, or
10.1%, from $33,970,000 to $37,412,000 for fiscal 1999 compared to fiscal 1998.
The increase in store occupancy costs was primarily attributable to the
increase in the number of stores discussed above, rent escalations in existing
leases and lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $3,033,000, or 21.5%, from $14,103,000 to $11,070,000
for fiscal 1999 compared to fiscal 1998. This decrease was primarily the result
of closing 150 stores throughout fiscal 1999.
Cost of Sales. Total cost of sales increased $7,841,000, or 20.4%, from
$38,482,000 to $41,455,000 for fiscal 1999 compared to fiscal 1998.
Cost of sales for continuing company-owned stores increased $3,295,000, or
9.8%, from $33,621,000 to $36,916,000 for fiscal 1999 compared to fiscal 1998.
This increase was primarily the result of the addition 65 Great American
continuing company-owned stores acquired in connection with the acquisitions of
Great American, Deblan, Chocolate Chip and Karp in August and September 1998
and 2 Pretzelmaker stores acquired in November 1998. Mail order cost of sales
increased consistent with the increased mail order sales.
Cost of sales for stores in the process of being closed or franchised
decreased $332,000, or 6.8%, from $4,861,000 to $4,529,000 for fiscal 1999
compared to fiscal 1998. This decrease was primarily the result of closing or
franchising 150 stores during fiscal 1999.
General and Administrative Expenses. General and administrative expenses
increased $2,955,000, or 15.5%, from $19,017,000 to $21,972,000 for fiscal 1999
compared to fiscal 1998. The increase in general and administrative expenses
was primarily attributable to the additional resources required to support the
stores acquired in 1998.
Store Closure Provision. During the fourth quarter of 1998, the Company
recorded an additional $7,303,000 in store closure reserves to cover early
lease termination costs under a plan to close or franchise 54 existing stores
that were not earning acceptable levels of contribution. During 1999, the
Company was successful in closing certain of these stores at a negotiated cost
less than had been provided for in the plan. A total of $1,579,000 of costs in
excess of the amounts required to close the stores have been reversed in 1999.
See Note 5 to the Consolidated Financial Statements for a detailed explanation
of the store closure reserve.
42
<PAGE>
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $4,386,000, or 22.1%, from $19,820,000 to $24,206,000 for
fiscal 1999 compared to fiscal 1998. This increase was primarily attributable
to increased goodwill amortization from the acquisitions of Great American,
Deblan, Chocolate Chip and Pretzelmaker in fiscal 1998.
During fiscal 1999, the Company wrote down, to net realizable value,
approximately $1,645,000 of impaired long-lived assets. This expense is
included in depreciation and amortization expense. The Company also assessed
the realization of goodwill associated with these stores and recorded an
impairment of goodwill totaling $237,000.
Depreciation and amortization expense for stores in the process of being
closed or franchised decreased $452,000, or 73.9%, from $612,000 to $160,000
for fiscal 1999 compared to fiscal 1998. This decrease in depreciation and
amortization expense was primarily attributable to closing or franchising 150
stores in fiscal 1999. Substantially all of the long-lived assets had been
written down to their net realizable value in fiscal 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $10,931,000, or 6.8%, from $159,625,000 to $170,556,000 for fiscal
1999 compared to fiscal 1998 for the reasons discussed above.
Interest Expense. Interest expense increased $4,683,000, or 35.5%, from
$13,197,000 to $17,880,000 for fiscal 1999 compared to fiscal 1998. This
increase was primarily attributable to interest expense for a full fiscal year
on the $40,000,000 senior notes issued in August 1998, increased levels of
capital leases and usage of the Company's line of credit.
Interest Income. Interest income decreased $570,000, or 91.5%, from $623,000
to $53,000 for fiscal 1999 compared to fiscal 1998. In 1998, the Company earned
interest on excess cash provided by the $100,000,000 senior notes that were
placed in November 1997 and the $40,000,000 senior notes placed in August 1998.
This excess cash was used to acquire Great American and Pretzelmaker and,
therefore, was not available for investment in 1999.
Other Expenses. Other expenses for fiscal 1999 were comparable to fiscal
1998.
Net Loss. The net loss decreased by $10,922,000, or 57.1%, from $19,143,000
to $8,221,000 for fiscal 1999, compared to fiscal 1998 due to the combination
of factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased $1,106,000, or 5.0%, from $22,220,000 in fiscal 1998 to
$21,114,000 in fiscal 1999. Depreciation and amortization from the stores
acquired in fiscal 1998 increased $4,255,000.
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised decreased by $1,742,000, or
84.8%, from $2,054,000 to $312,000 for fiscal 1999 compared to fiscal 1998. The
decreased loss was primarily attributable to closing 150 stores in fiscal 1999.
See Note 5 to the Consolidated Financial Statements for a detailed explanation
of the store closure reserve.
43
<PAGE>
52 Weeks Ended January 2, 1999 ("Fiscal 1998") Compared to the 53 Weeks Ended
January 3, 1998 ("Fiscal 1997")
Company-owned and Franchised or Licensed Store Activity
As of January 2, 1999, there were 566 company-owned stores and 972
franchised or licensed stores in operation. The store activity for fiscal 1997
and fiscal 1998 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
-------------------- --------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year.................... 482 418 481 553
Stores opened (including relocations
and acquisitions).................. 86 217 128 504
Stores closed (including
relocations)....................... (7) (89) (20) (78)
Non-continuing company-owned (exit
plan) stores closed
(September 18, 1996 forward)....... (73) -- (30) --
Stores sold to franchisees.......... (3) 3 (11) 11
Non-continuing company-owned (exit
plan) stores franchised
(September 18, 1996 forward)....... (9) 9 (15) 15
Stores acquired from franchisees.... 5 (5) 33 (33)
--- --- --- ---
Stores open as of the end of the
fiscal year........................ 481 553 566 972
=== === === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,390,000, or 9.7%,
from $127,845,000 to $140,235,000 for fiscal 1998 compared to fiscal 1997.
Net store sales from continuing company-owned stores and mail order
increased $14,539,000, or 13.4%, from $108,174,000 to $122,713,000 for fiscal
1998 compared to fiscal 1997. The increase in net store sales from continuing
company-owned stores was primarily attributable to:
(1) the operation of 85 Pretzel Time continuing company-owned stores
acquired in connection with the acquisition of H&M and Pretzel Time in
July 1997,
(2) the operation of 65 Great American stores acquired in connection with
the acquisitions of Great American, Deblan, Chocolate Chip, and Karp in
August and September 1998,
(3) a 35.5% increase in mail order sales.
This increase in net store sales from continuing company-owned stores was
offset in part by the negative effect of a calendar shift. Mrs. Fields' year
end was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New
Year's holiday week fell in the first quarter of fiscal 1997 and again in the
fourth quarter of fiscal 1997. The first quarter of 1998 did not benefit from
the New Year's holiday sales.
The increase in net store sales was also offset in part by negative same
store sales. Based on stores that have been open for at least two years
(adjusted for the calendar shift), system-wide continuing company-owned store
sales were down 1.8% during fiscal 1998 compared to fiscal 1997. Additionally,
there were only 52 weeks in fiscal 1998 compared to 53 weeks in fiscal 1997.
Net store sales from stores in the process of being closed or franchised
decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for fiscal
1998 compared to fiscal 1997. This decrease results from closing or
franchising 45 stores during fiscal 1998 and the effect of closing or
franchising 82 stores during fiscal 1997.
Franchising Revenues. Franchising revenues increased $7,929,000, or 174.8%,
from $4,535,000 to $12,464,000 for fiscal 1998 compared to fiscal 1997. The
increase in franchising revenues was primarily
44
<PAGE>
attributable to royalties earned from 141 Pretzel Time franchised stores
obtained in connection with the acquisition of H&M and Pretzel Time in 1997,
the 211 Great American franchised stores obtained in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998 and the 199 Pretzelmaker franchised stores acquired in November
1998.
Licensing Revenues. Licensing revenues decreased $491,000, or 24.2%, from
$2,028,000 to $1,537,000 for fiscal 1998 compared to fiscal 1997. The decrease
in licensing revenues was primarily attributable to reduced concept licensing
royalties.
Total Revenues. Total revenues increased by $19,828,000, or 14.8%, from
$134,408,000 to $154,236,000 for fiscal 1998 compared to fiscal 1997 due to the
reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for fiscal 1998
compared to fiscal 1997.
Selling and store occupancy costs for continuing company-owned stores
increased by $10,042,000, or 19.7%, from $50,858,000 to $60,900,000 for fiscal
1998 compared to fiscal 1997. Within this overall increase, selling expenses
for continuing company-owned stores increased by $4,836,000, or 21.9%, from
$22,094,000 to $26,930,000 for fiscal 1998 compared to fiscal 1997. The
increase in selling expenses was primarily attributable to the 85 Pretzel Time
continuing company-owned stores acquired in connection with the acquisitions of
H&M and Pretzel Time in 1997, the 65 Great American continuing company-owned
stores acquired in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998, the 2 Pretzelmaker stores
acquired in November 1998, and the effect of the minimum wage increasing to
$5.15 from $4.75 on September 1, 1997. Store occupancy costs for continuing
company-owned stores increased $5,206,000, or 18.1%, from $28,764,000 to
$33,970,000 for fiscal 1998 compared to fiscal 1997. The increase in store
occupancy costs was primarily attributable to the increase in the number of
stores discussed above, Mrs. Fields' reacquiring 33 continuing company-owned
stores from franchisees during fiscal 1998, rent escalations in existing leases
and lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $1,871,000, or 11.7%, from $15,974,000 to $14,103,000
for fiscal 1998 compared to fiscal 1997. This decrease was primarily the result
of closing or franchising 45 stores during fiscal 1998 and the effect of
closing or franchising 82 stores during fiscal 1997.
Cost of Sales. Total cost of sales increased $6,454,000, or 20.2%, from
$32,028,000 to $38,482,000 for fiscal 1998 compared to fiscal 1997.
Cost of sales for continuing company-owned stores increased $7,043,000, or
26.5%, from $26,578,000 to $33,621,000 for fiscal 1998. This increase was
primarily the result of the addition of 85 Pretzel Time continuing company-
owned stores in July 1997, 65 Great American continuing company-owned stores
acquired in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998 and 2 Pretzelmaker stores
acquired in November 1998. Cost of sales also increased due to the addition of
the Great American batter facility in August 1998 which produces batter for the
Great American stores, food costs associated with increased mail order sales
and the increasing cost of butter. Butter is one of the main ingredients in a
variety of our products and is a condiment for other products. The price of
butter has increased from $0.78/lb. at the beginning of fiscal 1997 to a peak
of $2.92/lb. in September 1998. Additionally, distribution costs increased
during fiscal 1998 as Mrs. Fields' changed distributors to improve product
availability and the reliability of service to the stores.
Cost of sales for stores in the process of being closed or franchised
decreased $589,000, or 10.8%, from $5,450,000 to $4,861,000 for fiscal 1998
compared to fiscal 1997. This decrease was primarily the result of
45
<PAGE>
closing or franchising 45 stores during fiscal 1998 and the effect of closing
or franchising 82 stores during fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased $2,825,000, or 17.4%, from $16,192,000 to $19,017,000 for fiscal 1998
compared to fiscal 1997. The increase in general and administrative expenses
was primarily attributable to the acquisitions of H&M and Pretzel Time in 1997,
the acquisitions of Great American, Deblan, Chocolate Chip, Karp and
Pretzelmaker in 1998.
Store Closure Provision. During the fourth quarter of 1998, management
reassessed its strategy with respect to acceptable levels of contribution from
certain existing stores. This resulted in management setting out a plan to
close or franchise 54 existing stores. The Company recorded an additional
$7,303,000 in store closure reserves to cover early lease termination costs.
Management believes that the level of store closure reserves is adequate to
provide for all closure costs for these stores.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $9,417,000, or 90.5%, from $10,403,000 to $19,820,000 for
fiscal 1998 compared to fiscal 1997. This increase was primarily attributable
to increased goodwill amortization from the acquisitions of H&M and Pretzel
Time in fiscal 1997 and the acquisitions of Great American, Deblan, Chocolate
Chip and Pretzelmaker in fiscal 1998.
For stores with negative contribution that were determined to be closed or
franchised, the Company wrote down the related long-lived assets to net
realizable value. This expense is included in depreciation and amortization in
the fiscal 1998 statement of operations and totaled $3,098,000. The Company
also assessed the realization of goodwill associated with these stores and
recorded an impairment of goodwill totaling $1,033,000 during fiscal 1998.
Depreciation and amortization expense for continuing company-owned stores
increased $ 2,076,000, or 53.3%, from $3,896,000 to $5,972,000 for fiscal 1998
compared to fiscal 1997. This increase in depreciation and amortization expense
was primarily attributable to the addition of 85 Pretzel Time continuing
company-owned stores in July 1997, 65 Great American continuing company-owned
stores in August and September 1998 and the acquisition of 2 Pretzelmaker
continuing company-owned stores in 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $33,632,000, or 26.7%, from $125,993,000 to $159,625,000 for
fiscal 1998 compared to fiscal 1997 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 fiscal 1998 compared to fiscal 1997. This
increase was primarily attributable to interest expense on the $100,000,000
senior notes that were placed in November 1997 and the $40,000,000 senior notes
placed in August 1998.
Interest Income. Interest income increased $377,000, or 153.3%, from $246,000
to $623,000 for fiscal 1998 compared to fiscal 1997. This increase was
primarily the result of interest earned on excess cash provided by the
$100,000,000 senior notes that were placed in November 1997 and the $40,000,000
senior notes placed in August 1998.
Other Expenses. Other expenses decreased $625,000, or 34.6%, from $1,805,000
to $1,180,000 for fiscal 1998 compared to fiscal 1997. This decrease was
primarily attributable to minority interest from the acquisitions of H&M and
Pretzel Time in 1997 and a decrease in the income tax provision during fiscal
1998.
Net Loss. The net loss increased by $18,169,000, or 1,865.4%, from $974,000
to $19,143,000 for fiscal 1998 compared to fiscal 1997 due to the combination
of factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased by $4,622,000, or 17.2%, from $26,842,000 to $22,220,000
for fiscal 1998 compared to fiscal 1997.
46
<PAGE>
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 fiscal 1998 compared to fiscal 1997.
The increased loss was primarily attributable to the addition of 65 stores from
the acquisitions of Great American, Deblan, Chocolate Chip and Karp in August
and September 1998, offset in part by closing or franchising 45 stores during
fiscal 1998. See Note 5 to the Consolidated Financial Statements for a complete
analysis of the closed store reserve.
Liquidity and Capital Resources
General
Mrs. Fields' principal sources of liquidity are cash flows from operating
activities, cash on hand and available borrowings under Mrs. Fields' existing
revolving credit facility. At January 1, 2000, Mrs. Fields had $4,919,000 of
cash and cash equivalents and a $15,000,000 credit facility. However, at
January 1, 2000, the availability under this facility was limited by the bond
indenture to $8,055,000. During fiscal 2000, Mrs. Fields expects that its
principal uses of cash will be for working capital, capital expenditures, store
closure costs, debt service requirements and other general corporate purposes.
Mrs. Fields is highly leveraged. Mrs. Fields believes that its sources of cash
will be adequate to meet its anticipated requirements through at least fiscal
2000. There can be no assurance, however, that Mrs. Fields' operating
activities will continue to generate cash flows at or above current levels. In
addition, given borrowing restrictions in the bond indenture and maintenance
covenants in the revolving credit facility, the ability for Mrs. Fields to make
additional borrowings is limited. Accordingly, Mrs. Fields may choose to defer
capital expenditure plans and extend vendor payments for additional cash flow
flexibility.
January 1, 2000 Compared to January 2, 1999
As of January 1, 2000, Mrs. Fields had liquid assets (cash and cash
equivalents and accounts receivable) of $12,922,000, a decrease of 7.4%, or
$1,040,000, from January 2, 1999 when liquid assets were $13,962,000. Current
assets decreased by $3,748,000, or 15.4%, to $20,595,000 at January 1, 2000
from $24,343,000 at January 2, 1999. This decrease was primarily the result of
a decrease in accounts receivable from franchisees and licensees, inventories
and prepaid rents, partially offset by an increase in accounts receivable.
Long-term assets decreased $19,748,000, or 9.5%, to $187,815,000 at January
1, 2000 from $207,563,000 at January 2, 1999. This decrease was primarily the
result of depreciation and amortization of property and equipment, goodwill and
other intangible assets.
Current liabilities decreased by $12,689,000, or 34.2%, to $24,381,000 at
January 1, 2000 from $37,070,000 at January 2, 1999. This decrease is due to
payments of debt due in 1999, the elimination of the bank overdraft and a
decrease in the current portion of the store closure reserve.
Mrs. Fields' working capital deficit decreased by $8,941,000, or 70.3%, to a
deficit of $3,786,000 at January 1, 2000 from a deficit of $12,727,000 at
January 2, 1999, for the reasons described above.
Mrs. Fields generated $17,903,000 of cash from operating activities during
fiscal 1999, primarily from store sales and franchising and licensing revenues
less costs and expenses incurred to generate the store sales and franchising
and licensing revenues, and less interest paid on the $140,000,000 senior
notes.
47
<PAGE>
Mrs. Fields utilized $4,696,000 of cash from investing activities during
fiscal 1999, primarily for capital expenditures relating to store remodels and
renovations.
Mrs. Fields utilized $13,039,000 of cash from financing activities during
fiscal 1999, primarily for the payment of long-term debt and to decrease its
bank overdraft.
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. We expect to expend approximately $9,000,000 for capital
expenditures in fiscal year 2000. Management anticipates that these
expenditures will be funded with cash generated from operating activities and
short-term borrowings under its credit facility as needed. As of March 31,
2000, the Company had available borrowing capacity of $8,055,000.
Inflation
The impact of inflation on the operations of the business has not been
significant in recent years. Most of Mrs. Fields' leases contain escalation
clauses. However, such leases are accounted for on a straight-line basis as
required by accounting principles generally accepted in the United States which
minimizes fluctuations in operating income. In addition, many of Mrs. Fields'
employees are paid hourly wages at the Federal minimum wage level. Minimum wage
increases will negatively impact Mrs. Fields' payroll costs in the short term,
but management believes such impact can be offset in the long term through
operational efficiency gains and, if necessary, through product price
increases.
Seasonality
Mrs. Fields' sales and income from store operations are highly seasonal given
the significant impact of its mall-based locations. Mrs. Fields' sales tend to
mirror customer traffic flow trends in malls which increase significantly
during the fourth quarter, primarily between Thanksgiving and the end of the
calendar year. Holiday gift purchases are also a significant factor in
increased sales in the fourth quarter.
The seasonality effect on income from store operations is even more
significant than the effect on sales. The impact on income from store
operations is more significant due to the fixed nature of certain store level
costs, such as occupancy costs and store manager salaries. Once these fixed
costs are covered by store sales, the flow through of sales to income from
store operations becomes greater. Accordingly, the fourth quarter is a key
determinant to overall profitability for the year.
48
<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 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
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. You can obtain information on the public reference facilities maintained
by the Commission by calling 1-800-SEC-0330. 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 June 13, 2000.
49
<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 January
1, 2000, our retail network consisted of 1,443 locations, of which 943 were
cookie stores and 500 were pretzel stores. Of the total 1,443 stores, 462 were
company-owned and 981 were franchised or licensed. Mrs. Fields' stores average
approximately 600 to 700 square feet in size and are located predominantly in
shopping malls. Mrs. Fields, through licensed locations, also operates kiosks
and carts at airports, universities, stadiums, hospitals and office building
lobbies. Mrs. Fields' objective is to increase sales and profitability by
focusing on its continuing company-owned stores. As a result, by the end of
fiscal year 2000, Mrs. Fields plans to close or franchise approximately 29
company-owned cookie stores and one company-owned pretzel store that do not
meet 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 1, 2000, Mrs. Fields
generated net revenue and EBITDA of $181 million and $34.6 million,
respectively. For the year ended January 2, 1999, Mrs. Fields generated net
revenue and EBITDA of $154 million and $14.4 million, respectively.
Cookies
We operate and franchise 943 retail cookie stores: 542 under the Mrs. Fields
brand, 93 under the Original Cookie brand and 308 under the Great American
brand. As a result of the acquisition of Great American, Mrs. Fields has cookie
stores in 48 states, with Great American stores concentrated in the
southeastern and south central states and Mrs. Fields and Original Cookie
stores strongly represented in the western, midwestern and eastern states.
There is little overlap between Mrs. Fields and Great American stores, with a
dual presence in 18 of the 723 malls in which we have cookie stores. Management
believes that Mrs. Fields is positioned in the premium quality, baked on-
premises segment of the approximately $12 billion U.S. cookie industry. We
offer over 50 different types of cookies, brownies and muffins, which are baked
continuously and served fresh throughout the day. Baked products are made using
only high quality ingredients, and all dough is centrally manufactured and
frozen or refrigerated to maintain product quality and consistency. All
products pass strict quality assurance and control steps at both the
manufacturing plants and the stores. In addition, Mrs. Fields continually
creates and tests new products to attract new customers and satisfy current
customers.
Mrs. Fields Inc., one of the predecessors of Mrs. Fields, was founded in 1977
by Debbi Fields and, following its initial success, embarked on an aggressive
national expansion program in the early 1980s. By the late 1980s, however, Mrs.
Fields Inc. experienced financial difficulty as a result of excessive debt
levels, poor real estate locations, and a recessionary retailing environment.
In connection with a financial restructuring by its lenders, Mrs. Fields put a
new management team into place in mid-1994 under the leadership of Larry A.
Hodges, who has extensive experience in the food and retailing industries. Mr.
Hodges introduced a new strategic plan for Mrs. Fields, which involved the
following key elements:
(1) identifying stores to close or franchise,
(2) introducing company-wide operating procedures to improve store income
before interest, taxes and other expenses
(3) developing a marketing strategy and promotional calendar to turn around
sales of stores that have been open at least two years, and
(4) improving employee morale through selective new senior hires, increased
training and various incentive plans.
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Mrs. Fields reinvested the savings from the improved store operations in
marketing and other measures designed to improve sales from stores that have
been open at least two years.
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of Mrs. Fields Inc., Original Cookie and Hot
Sam by Mrs. Fields' Holding, a subsidiary of Capricorn. As of January 1, 2000,
Capricorn had invested more than $30 million in Mrs. Fields through Mrs.
Fields' Holding. Capricorn retained Mr. Hodges as Chief Executive Officer of
Mrs. Fields.
Great American, incorporated in 1977, is a leading operator and franchisor of
mall-based specialty retail cookie outlets, including full-size stores and
satellite sites, consisting of carts, wagons and kiosks. As of January 1, 2000,
Great American had 308 in-line stores, including 93 Great American-operated and
215 franchised retail units, operating primarily in the southeastern and south
central United States, generating $109.3 million in estimated system-wide
annual sales for the 52-week period ended June 28, 1998. Great American derives
its revenue principally from:
(1) the sale of cookies and beverages at Great American-operated stores,
(2) the sale of proprietary batter to franchised stores, and
(3) the receipt of royalty payments based on gross sales of franchisees.
In addition, Great American generates revenues from initial franchise fees
and the sale of existing Great American-operated stores to franchisees.
Great American outlets sell a variety of cookies and brownies, including
"cookie cakes," as well as assorted soft drinks, frozen drinks, coffee and tea.
Cookie cakes are extra-large cookies, decorated with customer-selected
personalized messages, for special occasions. Although cookie sales are
generally the result of impulse buying, we believe that cookie cakes, which are
often purchased as gifts for special occasions, differentiate Great American
from other specialty cookie retailers by making Great American stores
destination outlets.
Pretzels
We operate and franchise 500 retail pretzel stores: 234 under the Pretzel
Time brand, 52 under the Hot Sam brand and 214 under the Pretzelmaker brand,
which offer "sweet dough" soft pretzels and "Bavarian" style pretzels with a
variety of toppings. Pretzel Time's primary product is an all-natural, hand-
rolled soft pretzel, freshly baked from scratch at each store location. Pretzel
Time stores prepare pretzels with a variety of flavors and specialty toppings,
including cheddar cheese, cream cheese and pizza sauce. The stores also offer
soft drinks and freshly squeezed lemonade. The Hot Sam pretzel stores
specialize in the Bavarian style pretzel. This product has declined in
popularity in recent years as sweet dough pretzel sales have grown
dramatically. In addition, Pretzel Time stores have, during fiscal year 1999,
achieved higher average revenue for the continuing company-owned stores than
Hot Sam stores ($277,000 versus $232,000). As a result, Mrs. Fields intends to
continue converting its continuing company-owned and to-be-franchised Hot Sam
stores to Pretzel Time stores, which it believes will result in an increase in
net sales, sales from stores that have been open at least two years, and income
from store operations.
Management believes that retail pretzel stores have similar operating
characteristics to retail cookie stores that will permit us to offer our
products with those of other well-known brand names. In addition, the retail
pretzel business has grown more quickly than the retail cookie business in
recent years. Hot Sam was acquired by Mrs. Fields in connection with the
acquisition of Original Cookie. In order to expand its presence in the retail
pretzel industry, Mrs. Fields acquired the business of H&M and the common stock
of Pretzel Time and Pretzelmaker.
Business Strategy
Mrs. Fields' objective is to increase sales and profitability at its
continuing company-owned and franchised stores by implementing the key elements
of its long-term business strategy. The percentage change in sales from stores
that have been open at least two years was a negative .9% for the fiscal year
ended January 1, 2000
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<PAGE>
compared to a negative 1.6% for the fiscal year ended January 2, 1999. Net
franchising and licensing revenues increased by 113.3% for the fiscal year
ended January 2, 1999 over the fiscal year ended January 3, 1998 and by 104.8%
for the fiscal year ended January 1, 2000 compared to the fiscal year ended
January 2, 1999. The key elements of Mrs. Fields' business strategy are as
follows:
Enhance Quality of Company-Owned Store Base. Since current management
assumed responsibility in 1994, we have focused on closing and franchising
company-owned stores that do not meet our financial and geographical
criteria. From September 1996 through January 1, 2000, Mrs. Fields closed
178 Mrs. Fields brand stores and franchised an additional 56 Mrs. Fields
brand stores. We have targeted 29 additional stores that sell our various
products to be either closed or franchised by the end of 2000. These
measures are expected to result in increased income before interest, tax
and other expenses, as unprofitable stores are closed and other stores are
converted into franchises, with the result of increasing royalty payments
and eliminating administrative and other costs of Mrs. Fields associated
with those stores.
Improve Productivity of Continuing Company-Owned Stores. We have embarked
on a program to improve the performance of our continuing company-owned
stores by:
(1) expanding product offerings to include breakfast items, such as
muffins, croissants and bagels, and low-fat cookies, brownies and
muffins,
(2) raising the average sales by tying sales of products together,
(3) promoting catering services by individual stores to corporate
customers,
(4) decreasing store expenses by reducing waste in the cookie baking
process and controlling the cost of ingredients and supplies,
(5) improving merchandising by enhancing product presentation and
refining the selection of products and
(6) increasing training and various incentive programs for management
and sales staff.
Capitalize on the Strong "Mrs. Fields" Brand Name. Management believes that
the Mrs. Fields brand is the most widely recognized and respected brand
name in the retail premium cookie industry, and that Mrs. Fields brand
stores, for fiscal year 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 29% and Great American stores
represent 29% of all company-owned cookie stores. In addition, we intend to
further capitalize on the Mrs. Fields brand name by:
(1) further developing and expanding the ways we distribute our
products, including kiosks and carts in malls, airports, convention
centers, office buildings, street fronts and sports complexes,
(2) increasing the emphasis on the mail order business, and
(3) developing and capitalizing on licensing opportunities, such as
linking sales of Mrs. Fields with prominent names in the retailing
and food service industry, expanding licensing agreements with our
existing licensees, entering into new licensing agreements with food
service operators and developing product line extensions, such as
frozen cookie dough and in-store bakery products to be sold in
supermarkets and other convenient locations.
Develop Great American Brand Name. Management believes that the Great
American brand name has high consumer awareness in the southeast United
States. We intend to build on the Great American brand name by continuing
to franchise additional Great American stores and by testing the success of
converting selected company-owned Original Cookie stores into Great
American stores.
Capitalize on the Strong "Pretzel Time" Brand Name. Through the acquisition
of Pretzel Time, we have obtained the use of the "Pretzel Time" brand name,
one of the leading brand names in pretzel retailing. Management believes
that there are significant opportunities to improve its existing Hot Sam
store
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<PAGE>
operations by continuing to convert our continuing company-owned and to-be-
franchised Hot Sam stores to Pretzel Time stores. Pretzel Time stores have,
during fiscal year 1998, achieved higher average revenue per continuing
company-owned store than Hot Sam stores ($277,000 vs. $232,000). Hot Sam
stores represent 37% of all company-owned pretzel stores. Management
believes that the conversion to the Pretzel Time name will result in an
increase in net sales, sales from stores that have been open at least two
years, and income from store operations for Mrs. Fields' pretzel business.
In addition, we believe there are significant new Pretzel Time franchising
opportunities.
Develop New Company-Owned and Franchised Stores. We plan to build and
franchise new stores, as well as carts and kiosks, in existing and new
markets. We have identified over 100 mall and non-traditional locations,
such as amusement parks and other entertainment centers, that we believe
would be ideal for cookie and pretzel stores. By the end of fiscal year
2000, we intend to franchise approximately 19 existing cookie and 1
existing pretzel store. From fiscal year 1999 on, we intend to add
approximately 20 new company-owned stores per year and to franchise
approximately 38 new cookie and 36 new pretzel stores per year. In addition
to pursuing new store development opportunities within the United States,
we plan to grow internationally by expanding our franchise operations. As
of January 1, 2000, there were 133 franchised Mrs. Fields and Pretzelmaker
brand stores open internationally.
Realize Purchasing and Overhead Cost Savings. As a result of the
acquisitions of Great American and the stock and stores of several of its
franchisees, we expect to realize significant cost savings from the
elimination of duplicative administrative functions, the consolidation of
management information systems and the reduction of the cost of food and
other supplies as a result of our enhanced purchasing power with vendors.
Management believes that incremental pre-tax cost savings would have
totaled approximately $4.1 million for the year ended January 2, 1999. The
savings include $2.2 million of savings on administrative and other costs
associated with stores of Mrs. Fields and $1.9 million of cost savings
related to one-time expenses of eliminating multiple headquarter
facilities.
Pursue Further Strategic Acquisitions of Related Businesses. We intend to
selectively pursue strategic acquisitions, in addition to the acquisitions
of Great American and the stock and stores of several of its franchises and
other recent acquisitions, in order to expand our geographic presence and
to achieve efficiencies from consolidating and reducing administrative and
other costs shared by stores. Our management has demonstrated its ability
to identify and integrate new businesses through its acquisitions of the
cookie and pretzel businesses of Original Cookie and Hot Sam, respectively,
in September 1996 and the majority interest in Pretzel Time and the
business of H&M in 1997.
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 1999, our revenue by product category consisted of the
following:
<TABLE>
<S> <C>
Cookies and Brownies................... 63%
Pretzels............................... 17%
Beverages.............................. 19%
Other.................................. 1%
</TABLE>
Cookies. The primary products of our cookie stores are a variety of cookies,
which are baked in view of customers throughout the day. Secondary product
lines include several varieties of brownies, muffins, other baked goods,
gourmet coffees, frozen drinks and other beverages. Mrs. Fields stores,
Original Cookie stores and Great American stores also sell decorated cookie
cakes, which are extra-large cookies decorated with customer-selected slogans
purchased as gifts for special occasions, such as birthdays, Valentine's day,
Father's day and Easter. Based on pounds of batter shipped, cookie cakes
constitute the second largest volume product of Great American stores. We plan
to utilize Great American's superior expertise in baking and marketing cookie
cakes to enhance sales of the existing cookie cake products in Mrs. Fields and
Original Cookie stores.
53
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Baked products are made using only pure, high quality, vanilla, chocolate,
raisins, nuts and other ingredients. To maintain product quality and
consistency at both company-owned and franchised stores, Mrs. Fields and
Original Cookie stores use centrally manufactured frozen dough, which is
manufactured by outside suppliers according to proprietary formulas of Mrs.
Fields. Great American stores use refrigerated batter that is shipped daily
from the Atlanta production facility. All products must pass strict quality
assurance and control steps at both the manufacturing plants and the stores.
Pretzels. Through its Hot Sam and Pretzel Time stores, Mrs. Fields offers a
wide variety of fresh-baked pretzels. Pretzels have become a popular snack due
to consumers' attraction to salted snacks and the increased demand for snacks
that are low in fat and cholesterol.
Hot Sam is the largest U.S. retailer of fresh-baked "Bavarian" style
pretzels. Pretzel Time stores offer all natural, hand-rolled sweet dough
pretzels prepared with a variety of flavors and special toppings, including
cheddar cheese, cream cheese and pizza sauce. In addition, Pretzel Time stores
offer specialty pretzels and related products, such as cinnamon pretzels and
cinnamon twists, as well as several recently introduced pretzel products, such
as pretzel dogs, chocolate chip pretzels and caramel crunch pretzels.
Product Development. We maintain a product development department which
continually creates and tests new products to attract new customers and
revitalize the interest of current customers. Once a new product is identified,
we develop prototypes to determine the initial formula. For Mrs. Fields
products, the formula is then scaled up for test production runs at one or more
approved facilities. Once the product has been successfully produced,
ingredient specifications, formulas, manufacturing processes, finished product
specifications, shelf life, storage and distribution procedures are
established. The new product is either immediately launched throughout the
system, as in the case of seasonal items or simple line extensions, or test
marketed in a limited number of stores. After a trial period to evaluate both
consumer response and store operations' ability to handle the new product, it
is fully commercialized, modified or discontinued. We continually review our
selection of products in an effort to maximize daytime offerings and
profitability. For example, new muffin flavors, bagels, croissants and a
revitalized coffee program were recently introduced to enhance morning
offerings, as cookies begin selling primarily after mid-day.
Store Operations
Store Base. As of January 1, 2000, Mrs. Fields' store portfolio consisted of
462 company-owned stores, 722 domestic franchised locations, 133 international
franchised locations and 126 licensed locations. By brand, the stores are
distributed as follows:
<TABLE>
<CAPTION>
Company-owned
----------------------------
Continuing
Company- To Be To Be Domestic International
Owned Closed Franchised Franchised Franchised Licensed Total
---------- ------ ---------- ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Mrs. Fields............. 113 3 18 206 88 114 542
Original Cookie......... 93 -- -- -- -- -- 93
Great American.......... 86 6 1 215 -- -- 308
--- --- --- --- --- --- -----
Cookie Subtotal......... 292 9 19 421 88 114 943
--- --- --- --- --- --- -----
Pretzel Time............ 85 1 148 -- -- 234
Hot Sam................. 52 -- -- -- -- -- 52
Pretzelmaker............ 4 -- -- 153 45 12 214
--- --- --- --- --- --- -----
Pretzel Subtotal........ 141 -- 1 301 45 12 500
--- --- --- --- --- --- -----
Totals.................. 433 9 20 722 133 126 1,443
=== === === === === === =====
</TABLE>
54
<PAGE>
As of January 1, 2000, our domestic stores were located in 48 states, Guam
and Washington DC as follows:
Mrs. Fields' Original Cookies, Inc.
Store Geography List
<TABLE>
<CAPTION>
% of
Company- Retail
State Owned Franchised Licensed Total Outlets
- ----- -------- ---------- -------- ----- -------
<S> <C> <C> <C> <C> <C>
California 66 91 15 172 11.9%
Texas 43 55 5 103 7.1%
New York 32 24 11 67 4.6%
Ohio 47 13 7 67 4.6%
Florida 17 41 7 65 4.5%
Illinois 27 22 8 57 4.0%
Georgia 13 33 3 49 3.4%
Michigan 25 20 3 48 3.3%
Missouri 3 35 2 40 2.8%
Pennsylvania 15 12 13 40 2.8%
Virginia 17 18 2 37 2.6%
Arizona 12 18 3 33 2.3%
North Carolina 4 23 3 30 2.1%
Colorado 3 23 3 29 2.0%
New Jersey 9 16 3 28 1.9%
Indiana 13 10 4 27 1.9%
Iowa 3 24 -- 27 1.9%
Utah 6 20 1 27 1.9%
Washington 8 17 -- 25 1.7%
Louisiana 12 10 2 24 1.7%
Connecticut 8 11 4 23 1.6%
Wisconsin 16 7 -- 23 1.6%
Alabama -- 19 3 22 1.5%
Tennessee 2 18 2 22 1.5%
Maryland 12 6 3 21 1.5%
Minnesota 3 16 -- 19 1.3%
Massachusetts 6 7 5 18 1.2%
South Carolina 8 6 3 17 1.2%
Nevada 3 8 3 14 1.0%
Kansas 2 10 -- 12 0.8%
Kentucky 3 8 1 12 0.8%
Nebraska 3 9 -- 12 0.8%
Oklahoma 3 7 2 12 0.8%
West Virginia 4 5 1 10 0.7%
Oregon 1 8 -- 9 0.6%
Hawaii 1 7 -- 8 0.6%
Idaho 2 6 -- 8 0.6%
North Dakota -- 7 1 8 0.6%
Arkansas 3 3 1 7 0.5%
New Mexico 1 3 2 6 0.4%
South Dakota 1 5 -- 6 0.4%
New Hampshire 1 4 -- 5 0.3%
Wyoming 1 4 -- 5 0.3%
Mississippi -- 4 -- 4 0.3%
Alaska -- 2 -- 2 0.1%
Delaware 2 -- -- 2 0.1%
Guam -- 2 -- 2 0.1%
Maine 1 1 -- 2 0.1%
Montana -- 2 -- 2 0.1%
Washington DC -- 2 -- 2 0.1%
--- --- --- ----- ------
Subtotal 462 722 126 1,310 90.8%
International Locations -- 133 -- 133 9.2%
--- --- --- ----- ------
TOTAL 462 855 126 1,443 100.0%
=== === === ===== ======
</TABLE>
55
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Configuration. We have developed a number of retail configurations that have
wide application and adaptability to a variety of retail environments. In
addition to the stores that have been designed for prime mall locations, we
have developed other formats intended to extend our presence within and beyond
mall locations. The introduction of frozen dough technology has led to a number
of new store configurations, expanded product offerings in smaller outlets and
non-traditional formats.
Cookie Stores. All stores are uniformly designed in accordance with the Mrs.
Fields, Original Cookie or Great American prototype, making extensive use of
glass, painted wood, brass, mirrors, lighting and point-of-sale displays
intended to create an upscale, open and inviting look. Stores also attractively
and efficiently display their fresh-baked products using custom-made showcases.
Store size ranges from 350 to 800 square feet, and the typical company-owned
store is about 600 to 700 square feet with a minimum of about 15 linear feet of
counter space. Locational possibilities for new stores include high traffic
regional malls, central downtown shopping districts and recreational shopping
environments.
Mrs. Fields and its franchisees and licensees also operate cookie kiosks and
carts in a number of malls on a year-round basis. Kiosks have 100 to 250 square
feet of retail space, supported by off-site storage and preparation space.
Carts range in size from 30 to 92 square feet. Currently only the Great
American kiosks have self-contained baking ovens. Because of their small size,
carts and kiosks do not have baking equipment, and are supplied cookie products
by a fully-equipped store usually located in the same mall. We plan to add
baking equipment to carts and kiosks in malls, airports, convention centers,
office buildings, street fronts and sports complexes, giving these outlets
greater flexibility in the products they can offer. All designs contain retail
display, small freezers and cash registers. We see expansion opportunities from
the use of carts, which create incremental revenue at a relatively low cost.
All of the retail store configurations are executed to include the same high-
quality marketing, merchandising and design features which customers have come
to expect from Mrs. Fields. The store designs are bright with high-profile
trademark identity. All products are baked throughout the day on the premises
with ovens located in full view of the customer to support the "fresh-baked"
image.
Pretzel Stores. Hot Sam stores are uniformly designed in accordance with the
Hot Sam brand, making extensive use of tile, stained wood, lighting and point-
of-sale displays intended to create an upscale, open and inviting look. Stores
also attractively and efficiently display their products using custom-made
showcases. The typical company-owned pretzel store is about 500 square feet.
Pretzel Time outlets have an average size of 700 square feet in both kiosks
and store locations. Pretzel Time stores are designed to enable customers to
enjoy watching the pretzels being rolled, twisted and baked, which underscores
freshness and lends to the product's growing appeal.
Location and Leasing. Locational possibilities include any high pedestrian
traffic areas, including second locations within malls, airport concourses,
office building lobbies, hospitals, universities, stadiums, and supermarket
foyers. Taking the impulse nature of its business into consideration, Mrs.
Fields tries to locate its outlets in areas of high pedestrian traffic, with
easy proximity to pedestrian traffic flow and at a distance from other food
providers of any kind.
The majority of Mrs. Fields' stores are located in shopping malls, with the
vast majority of Mrs. Fields brand stores in malls falling into the "A" and "B"
classifications, or the better-quality malls in the country. As of January 1,
2000, Mrs. Fields, including franchise locations, has a presence in 90% of the
top 150 (as measured in sales per foot) "A" and "B" malls in the country. Malls
in "A" and "B" classifications generally have the following characteristics:
. Size greater than 700,000 square feet
. Sales per square foot greater than $300
. Population density greater than 150,000 people within a five-mile radius
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. Median family income greater than $50,000
. Generally supported by national fashion anchor tenants
. Located to minimize competition from other malls
Great American stores are located primarily in high-traffic "B" malls.
Marketing and Advertising. Mrs. Fields' in-house marketing department and an
outside promotional agency emphasize product sampling, local store marketing
and brand name identification. We advertise at the store level, using the aroma
of fresh-baked cookies and the attractive arrangement of finished products to
create a store ambiance that is conducive to sales. Recently we experimented
with an advertising campaign with nationally televised commercials during peak
holiday periods. We cultivate local customer loyalty by offering regular 20%
discounts to employees in malls where stores are located and occasional other
discounts. Historically we have spent relatively little on paid advertising,
relying mainly on in-store signage, promotions and the public relations of
Debbi Fields, who has made store visits and local media appearances throughout
the country and internationally for Mrs. Fields. In addition to posters and
display of products, we promote products by offering special packaging and
selling other promotional items. A promotion for Mrs. Fields' 20th anniversary
featured a tie-in with the popular Peanuts characters from the syndicated comic
strip, a sweepstakes, and gifts with purchases. Mrs. Fields is currently
working on developing catered corporate accounts for both company-owned and
franchised stores and will be building awareness of products geared toward
corporate accounts at the store level for the local market area and through
catalogue sales. We also promote our products as gifts, particularly at holiday
time.
Great American's marketing strategy has emphasized strong merchandising of
its products and the use of proactive sales techniques, including the free
sampling of products and other methods intended to increase the size of
customer orders.
Mail Order Business. Our mail order division markets a variety of fresh-baked
and other gift items through its mail order gift catalogue using toll free
telephone numbers, including "1-800-COOKIES." The mail order division had
approximately $6.4 million in revenues during fiscal year 1999. We believe that
there is significant potential in the mail order business and are developing
this division by targeting both corporate customers and individuals with a
history of purchases at Mrs. Fields stores. Sales from the mail order division
for the fiscal year 1999 have increased approximately 23.1% over sales for the
prior fiscal year.
Customer Profile. We believe that our products are best targeted to a
demographic profile which is relatively young, with upper-middle income levels.
At the time of a May 1994 study, 66% of Mrs. Fields' customers were female and
34% were male, the mean age of a customer was 35.1 years of age, and 57% of
customers had a household income of $50,000 or more. We believe that this
demographic profile remains valid.
Seasonality. Our sales and profitability in both the cookie business and the
pretzel business are subject to seasonal fluctuation and are traditionally
higher during the Thanksgiving and Christmas holiday season and other gift-
giving holidays due to increased mall traffic and holiday gift purchases.
Supplies and Distribution
Ingredients and Supplies. We rely primarily on outside suppliers and
distributors for the ingredients used in our products and other items used in
our stores. Mrs. Fields stores receive frozen products, made according to
proprietary recipes of Mrs. Fields, from its primary supplier, Pennant Food
Corp. Pennant uses stringent quality controls in testing ingredients and
manufacturing, and products are not released for distribution unless they pass
all quality control steps, including an evaluation of the finished baked
product. Pennant's contract for making frozen products for Mrs. Fields expires
on December 31, 2000 and is renewable every three years at the option of Mrs.
Fields. Pennant supplies the majority of Mrs. Fields and Original Cookie frozen
bakery product. J&J Foods, Inc. supplies the majority of the frozen pretzel
dough to Hot Sam Stores. We have identified alternative suppliers for frozen
dough at Mrs. Fields and Hot Sam. Pretzel Time stores buy a proprietary dry mix
from selected distributors and mix and bake pretzels at individual stores.
Pretzel Time franchisees buy from various distributors.
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Most supplies other than dough are ordered from distributors by either Mrs.
Fields or the franchisee and are directly shipped to the store. We sell
exclusively Coca-Cola soft drinks in Mrs. Fields, Original Cookie, Pretzel
Time, Hot Sam and Great American stores under agreements with Coca-Cola USA
Fountain.
Great American stores receive "ready to bake" refrigerated batter from a
batter facility in Atlanta, which Mrs. Fields acquired in the acquisition of
Great American. The batter, which has a shelf life of about 90 days, is stored
at the batter facility for an average of one to three weeks, depending on
demand, before being shipped. Most other supplies are ordered from third-party
vendors by Great American or the franchisee and are shipped directly to the
store.
Distribution. Regional distributors handle distribution of perishable and
non-perishable items to Mrs. Fields and Original Cookie stores weekly. Regional
distributors own and maintain all of the inventory, but are authorized to
purchase inventory items only from authorized vendors at prices that have been
negotiated by Mrs. Fields. Hot Sam distributes perishable and non-perishable
items weekly to stores using seven different regional distribution companies.
Pretzel Time franchisees use a variety of distributors. Mrs. Fields ships
equipment related items, including smallwares equipment and oven parts,
directly from public warehouses. Great American stores receive batter from the
Atlanta batter facility by refrigerated common carrier.
Management Information Systems
We have made a substantial investment in developing our point-of-sale system,
which gathers information transmitted daily to corporate headquarters from most
of our Mrs. Fields brand continuing company-owned stores. We installed our
upgraded back-office system, along with the point-of-sale registers and Pentium
computers, in our continuing company-owned Original Cookie stores, Hot Sam
stores, Pretzelmaker stores, Pretzel Time stores and selected Great American
stores as of December 1999.
We have replaced our sales collection systems with software and hardware that
is Year 2000 compliant. Replacement of the plant production and distribution
software was completed in the first half of 1999 at an estimated cost of
$10,000. For more information on our information technology, see "Management's
Discussion and Analysis of Financial Conditions and Results of Operations--Year
2000."
Prior to January 1, 2000, management assessed Year 2000 issues with respect
to its significant vendors and financial institutions as to their compliance
plans and whether any Year 2000 issues would impede the ability of such vendors
to continue providing goods and services to us. See "Risk Factors--failures in
Year 2000 compliance could disrupt our operations." We did not experience any
interruptions of our operations due to year 2000 issues experienced by any of
our vendors.
Store Management
Management Structure. We monitor all company-owned stores with a regionally
based staff of district sales managers. District sales managers are responsible
for monitoring all cookie and pretzel stores in their territory. Until
recently, a separate staff of regionally based franchise operations consultants
had monitored franchisees. We plan to consolidate the franchise operations
consultants with the district sales managers. As a result, each district sales
manager is responsible for overseeing approximately 30 company-owned or
franchised cookie and pretzel stores within his or her region. Each district
sales manager reports to one of the four regional vice-presidents of store
operations. The field staff is also responsible for introducing new products
and processes to the stores, ensuring proper implementation and quality
control.
Management Incentives. Each store has an on-site management team consisting
of a manager and an assistant manager. The store manager is responsible for
hiring, training and motivating store personnel. Each manager of a company-
owned store is eligible for salary increases and bonuses based upon the
performance of his or her store, including sales, profits and store appearance.
We believe that our incentive and other programs for management have achieved a
strong retention rate for managers. Without giving effect to the acquisition of
Great American, 72% of Mrs. Fields' district sales managers have been with Mrs.
Fields for at least four years (67% for over five years), and 51% of Mrs.
Fields' store managers have been with Mrs. Fields for at least four years (40%
for over five years).
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Training. We believe store managers are a critical component in creating an
effective retail environment, and accordingly have developed ongoing programs
to improve the quality and effectiveness of our store managers and to increase
retention rates. New store managers are required to attend a two-week training
program at our Salt Lake City training facility and ongoing training courses in
new products, standards, and procedures are available throughout the year to
all Mrs. Fields personnel. New franchisees and store managers of Great American
are required to attend a one-week training program at Great American's Atlanta
training facility, known as "Cookie University." In addition, training courses
are available throughout the year to all Great American and franchisee
personnel.
Franchise Operations
In accordance with our business strategy, we have been selling, and expect to
continue to sell, selected company-owned stores to franchisees to reduce costs,
increase profitability and provide for liquidity and development of additional
stores in the future. We are also actively seeking to franchise new stores.
Cookie Business. Each franchisee pays Mrs. Fields an initial licensing fee of
$25,000 per Mrs. Fields store location and is responsible for funding the
building-out of the new store and purchasing initial dough inventory and
supplies, at a total cost of approximately $200,000, including the initial
franchise fee. However, the cost of opening a new store can vary based on
individual operating and location costs. We also charge franchisees a fee to
handle equipment purchases and to provide other assistance in helping the
franchisee to set up operations. After a store is set up, a franchisee pays
royalty fees to us of 6% of the franchised store's annual gross sales, and an
advertising fee of 1% of annual gross sales. We do not currently anticipate
franchising Original Cookie stores.
Franchisees come from a wide variety of business backgrounds and bring with
them different operating styles and business objectives. Among our franchisees
are full-time store operators, passive investors, retired professionals and
people seeking a second source of income. The majority of Mrs. Fields
franchisees own one store. As of January 1, 2000, the 11 largest Mrs. Fields
franchisees operated 130 stores, and the largest Mrs. Fields franchisee
operated 16 stores.
Each Great American franchisee pays an initial licensing fee of $25,000 per
store and is responsible for funding the build-out of the new store and
purchasing initial batter inventory and supplies, at a total cost of
approximately $164,000, including the initial licensing fee. However, the cost
of opening a new store can be significantly higher for franchisees who purchase
existing company-owned stores and otherwise varies based on individual
operating and location costs. We also charge franchisees a fee to purchase
equipment and to provide other assistance in helping the franchisee to set up
operations.
Pretzel Business. We do not franchise Hot Sam stores. We are a franchisee of
87 Pretzel Time stores, with rights to sub-franchise, if desired. Each
franchisee pays Pretzel Time an initial licensing fee of $25,000 per new
Pretzel Time store location and is responsible for funding the building-out of
the new store and supplies, at a total cost of approximately $190,000 to
$240,000, including the initial franchise fee. However, the cost of opening a
new store can vary based on individual operating and location costs. Pretzel
Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After
a store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual
gross sales.
Franchisee Recruiting and Training. We have been successful in recruiting
franchisees and completing franchise transactions and believe we will continue
to realize significant cash flow from franchising by:
(1) emphasizing the use of proprietary dough that minimizes product quality
issues and ensures a consistent product across all outlets,
(2) frequent quality, service and cleanliness evaluations of franchised
stores by operations support staff, and
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(3) initial and continuing training of franchisees to improve their
financial and retail sales skills.
We believe our franchisees are a critical component in creating an effective
retail environment, and accordingly we make our ongoing programs available to
franchisees to improve their quality and effectiveness. Franchisees are
required to attend a two-week training program at our Salt Lake City training
facility and ongoing training courses in new products, standards, and
procedures are available throughout the year to all franchisee personnel.
Licensing
In the past few years, we have utilized a "branding" strategy which allows a
licensee the right to use the Mrs. Fields name (which is a registered
trademark) from which a licensee can capitalize on the highly-recognized Mrs.
Fields brand to build traffic, expand sales, improve market share, and to
increase profits through cultivating different ways of distributing our
products. The following is a comprehensive list of branding strategies, with
examples of current licensees within Mrs. Fields' system:
Concept Licensing. We have developed a licensing program for non-mall
retail outlets that enables us to enter difficult-to-reach markets and
facilitate brand exposure through "presence" and "prestige" marketing. Our
licensees duplicate the Mrs. Fields store concept and purchase dough from
our various distributors. Several of these licensees are contract
management companies that manage and operate food service in host
locations. Our licensees include Host Marriott, which has a non-exclusive
license to sell our product in airports and travel plazas from which we
receive a license on product sold, ARAMark, which sells our product in
stadiums and convention centers and Holiday Inn Worldwide, which sells our
product in hotels.
Retail Licensing. We plan to capitalize on our brand awareness and the
perception of quality among consumers to expand the product line to include
products sold in other retail environments, including refrigerated dough,
dry-mix and non-food products, and other applications outside the original
scope of our retail cookie store concept. A current example is Maxfield's
Chocolates, which has the exclusive North American rights to manufacture
and sell, under our registered trademarks, boxed chocolates and chocolate
candy bats and offers Mrs. Fields chocolates throughout the supermarket
industry.
Supply Licensing. We currently have arrangements with United Airlines and
TWA under which our mail order division sells cookies to the airlines and
allows the airlines to promote the Mrs. Fields brand and products to their
first-class customers. We are pursuing similar relationships to compete
with other manufacturers' brands selling in this business.
Competition
We compete for both leasing opportunities and customers with other cookie and
pretzel retailers, as well as other confectionery, sweet snack and specialty
food retailers, including cinnamon rolls, yogurt, ice cream, baked goods and
candy shops. The specialty retail food and snack industry is highly competitive
with respect to price, service, location and food quality, and there are many
well-established competitors with greater resources than those of Mrs. Fields.
We compete with these retailers on the basis of price, quality, location and
service. We face competition from a wide variety of sources, including such
companies as Cinnabon, Inc., Auntie Anne's Soft Pretzels, and Baskin-Robbins 31
Flavors.
Properties
As of January 1, 2000, we leased 787 retail stores, of which 331 were
subleased to franchisees under terms which cover all obligations of Mrs. Fields
thereunder. Under our franchise agreements, we have rights to gain control of a
retail site in the event of default under the lease or the franchise agreement.
Most of our operating leases provide for the payment of lease rents plus real
estate taxes, utilities, insurance, common area charges and other expenses, as
well as contingent rents which generally range from 8% to 10% of net retail
store sales in excess of stipulated amounts. See "Risk Factors--We may not be
able to obtain leases in the future; if we do not obtain leases in high quality
shopping malls at reasonable rents", we may not be able to conduct our business
at a profit and "--We have continuing obligations under real estate leases; if
we close an unprofitable store but must still make lease payments on it, we
will lose money."
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We lease 31,000 square feet of office space in Salt Lake City, Utah, which we
use as our corporate headquarters. We also lease approximately 20,000 square
feet of office space in Salt Lake City, Utah for our product development,
training and mail order operations. We own substantially all of the equipment
used in both of these facilities and in company-owned retail outlets. Great
American owned its headquarters and batter production facility, located in a
building of approximately 28,000 square feet in Atlanta, Georgia. We acquired
this facility in the acquisition of Great American. Great American's
headquarters have been transferred to Salt Lake City since the acquisition of
Great American. The batter facility remains in Atlanta.
Employees
As of January 1, 2000, we had approximately 3,893 employees in company-owned
stores, of whom approximately 691 were store managers and assistant store
managers and 3,202 were part-time sales assistants. The typical Mrs. Fields
store employs 5 to 13 employees. During the period from November through
February, we may hire as many as 750 additional part-time employees to handle
additional mall traffic. Most employees are paid on an hourly basis, except
store managers. Our employees are not unionized. We have never experienced any
significant work stoppages and believe that our employee relations are good.
Many of our employees are paid hourly rates based upon the federal minimum
wage. The federal minimum wage increased from $4.75 to $5.15 on September 1,
1997. As of January 1, 2000, 602 of our 3,893 employees in company-owned stores
earned the federal minimum wage. The September 1, 1997 minimum wage increase is
expected to negatively impact our labor costs, increasing wages by
approximately $354,000 annually, but management believes this impact can be
negated in the long-term through increased efficiencies in our operations and,
as necessary, through retail price increases.
Trademarks
We are the holder of numerous trademarks that have been federally registered
in the United States and in other countries located throughout the world. We
are a party to disputes with respect to trademarks, none of which, in the
opinion of management of Mrs. Fields, is material to our business, financial
condition or results of operations.
We currently hold 52 trademarks that are federally registered in the United
States and 141 trademarks that are registered in 48 countries outside the
United States. Our trademarks consist of various brand and product names and
logos. Trademarks are registered under United States laws for periods of 7 to
10 years and in other countries for periods of 7 to 20 years, and at any time,
we may have trademarks whose registration will soon expire and must be renewed.
Under our license agreements, our licensees receive the rights to use our
recipes and our registered trademarks. We view our trademarks and the ability
to license them to third parties, as some of our most valuable assets.
Legal Proceedings; Government Regulation
In the ordinary course of business, we are involved in routine litigation,
including franchise disputes and trademark disputes. Except as described below,
we are not a party to any legal proceedings which, in the opinion of management
of Mrs. Fields, after consultation with legal counsel, is material to our
business, financial condition or results of operations.
In connection with the initial discussions relating to the acquisition of
Great American, on or about September 12, 1997, 9 franchisees of Great American
filed an action challenging a possible acquisition of Great American by Mrs.
Fields. Under settlement agreements and waivers with most Great American
franchisees, those franchisees released all claims with respect to this
litigation. It was a condition of the acquisition of Great American that this
litigation be dismissed with prejudice. A motion dismissing the litigation with
prejudice was filed on August 24, 1998. See "The Transactions--The Great
American Transactions."
Our stores and products are subject to regulation by numerous governmental
authorities, including, without limitation, federal, state and local laws and
regulations governing health, sanitation, environmental protection, safety and
hiring and employment practices.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding the executive officers
and directors of Mrs. Fields as of April 1, 2000. The directors are also
directors of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Larry A. Hodges.......... 51 Director, President and Chief Executive Officer
Pat W. Knotts............ 45 Senior Vice President of Operations
Garry Remington.......... 47 Senior Vice President of Real Estate
Mark S. Tanner........... 45 Senior Vice President and Chief Financial Officer
Michael R. Ward.......... 42 Vice President, General Counsel and Secretary
Herbert S. Winokur, Jr... 56 Chairman of the Board of Directors
Richard Ferry............ 62 Director
Nat Gregory.............. 51 Director
Walker Lewis............. 55 Director
Peter Mullin............. 59 Director
Gilbert Osnos............ 70 Director
</TABLE>
Mr. Hodges has been President and Chief Executive Officer of Mrs. Fields Inc.
and Mrs. Fields since March 1994, and a Director of Mrs. Fields and Mrs.
Fields' Holding since April 1993. From 1992 to 1994, Mr. Hodges was the Chief
Executive Officer of Food Barn Stores, Inc. (Kansas City, Missouri). Earlier
Mr. Hodges was a consultant to various manufacturers and retailers. For 25
years, Mr. Hodges was with American Stores Company where he served as President
of two of its subsidiaries ranging in annual sales from $600 million to $2.3
billion. Mr. Hodges has over 32 years of experience in the retail field serving
as president of four supermarket chains and consultant and director to large
food companies. Mr. Hodges is a director of Ameristar Casinos, Inc. and
Coinstar, Inc.
Mr. Knotts has been Senior Vice President of Mrs. Fields since October 1996.
Mr. Knotts' responsibilities include all aspects of store operations and
related support functions. Between January 1992 and October 1996, Mr. Knotts
served as Executive Vice President of Operations for Original Cookie and Hot
Sam, where he was responsible for store operations, marketing, purchasing,
construction and store design. Mr. Knotts also held the position of Regional
Vice President of Stores for Silo Inc., a $1 billion consumer electronics and
major appliance chain.
Mr. Remington has been Senior Vice President of Real Estate of Mrs. Fields
since July 1997. Mr. Remington's responsibilities include all aspects of real
estate, store construction, remodels and lease negotiations. Between October
1996 and July 1997, Mr. Remington served as Vice President of Real Estate for
Sbarro, Inc. From 1994 to 1996, Mr. Remington held the position of Senior Vice
President of Leasing for the Woolworth Corporation, with responsibilities for
Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other
divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director
of Leasing for the Woolworth Corporation, which he joined in 1972.
Mr. Tanner has been Chief Financial Officer and Senior Vice President of
Finance & Administration since June 1999. Prior to Mrs. Fields, Mr. Tanner held
the position of CFO and Sr. Vice President with the Salt Lake Organizing
Committee for the XIX Olympic Winter Games, where he was responsible for
finance and administration. Prior to SLOC, Mr. Tanner was Vice President and
CFO for Pepsi Cola International's operations in Asia, the Middle East, and
Africa (AMEA). He also held the positions of Vice President of Strategic
Planning & Finance for Pepsi Cola North America, and Chief Financial Officer,
Eastern Division of Pepsi Cola during his tenure with Pepsi Cola.
Mr. Ward serves as Vice President, General Counsel and Secretary for Mrs.
Fields. Mr. Ward's responsibilities include management of our Legal Department.
Between 1991 and 1996, Mr. Ward's
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responsibilities were overseeing the Legal Department and the Human Resources
Department for Mrs. Fields Inc. He is admitted to practice law in the State of
Utah. Mr. Ward was appointed acting Chief Financial Officer on April 30, 1999
and acted in that capacity prior to Mr. Tanner's assuming responsibilities of
Chief Financial Officer.
Mr. Winokur has been Chairman of the Board of Directors of Mrs. Fields and
Mrs. Fields' Holding since their inception in September 1996. Mr. Winokur is
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. Fields' Holding's stock. Mr. Winokur
is President of Winokur Holdings, Inc. (an investment company) and Managing
General Partner of Capricorn Investors, L.P. and Capricorn, private investment
partnerships concentrating on investments in restructure situations, organized
by Mr. Winokur in 1987 and 1994, respectively. Prior to his current
appointment, Mr. Winokur was Senior Executive Vice President and Director of
Penn Central Corporation. Mr. Winokur is also a Director of NAC Re Corporation,
The WMF Group, Ltd., C.C.C. Information Services Corp., Inc., 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.
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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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(4) Compensation
Principal Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- -------- ------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry Hodges........... 1999 $354,667 $87,500 $4,410 $ -- -- --
President and CEO 1998 339,583 150,000 4,833 -- -- $471,000(5)
1997 300,000 185,412 2,177 50,000(3) -- --
Mark S. Tanner......... 1999 137,873 20,000 -- -- 51,580 --
Senior Vice President 1998 -- -- -- -- -- --
and CFO 1997 -- -- -- -- -- --
L. Tim Pierce.......... 1999 114,842 40,000 1,915 -- -- 20,000(6)
Senior Vice President 1998 193,430 70,000 2,634 -- -- --
and CFO 1997 175,000 103,607 1,287 -- -- 71,867(6)
Pat Knotts............. 1999 222,001 43,000 -- -- -- --
Senior Vice President 1998 191,699 70,000 -- -- -- --
Operations 1997 162,500 27,321 -- -- -- 23,920(1)
Michael Ward........... 1999 158,013 42,000 6,133 -- -- --
Vice President 1998 135,385 50,000 1,370 -- -- --
Legal and 1997 109,904 56,393 619 -- -- 39,488(5)
Administration
Garry Remington........ 1999 192,533 38,000 -- -- -- --
Senior Vice President 1998 180,000 33,945 -- -- -- --
Real Estate 1997 82,859 -- -- -- 24,642 46,707(2)
</TABLE>
- --------
(1) Represents payment of relocation expenses of $20,920 and a grant of $3,000
under the Original Cookie 401(k) plan.
(2) Represents payment of relocation expenses.
(3) 50% of the restricted shares vested on January 1, 1999 and the other 50%
vest on January 1, 2000.
(4) The stock options for common stock of Mrs. Fields' Holding have 10-year
terms and were granted as of September 1996, with the exception of Garry
Remington's, which were granted as of July 1997 and Mark Tanner's, which
were granted June 1, 1999. All options have an exercise price of $10.00 per
share, with the exception of Garry Remington's and Mark Tanner's, which
have an exercise price of $13.00 and $19.72 per share, respectively.
(5) Represents payment under Mrs. Fields Inc. Management Value Creation Plan.
(6) Mr. Pierce resigned from Mrs. Fields 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. Fields' Holding and officers and
employees of Mrs. Fields' Holding's subsidiaries, including Mrs. Fields, of
which 451,446 shares, representing approximately 11% of the total common stock
of Mrs. Fields' Holding on a fully diluted basis, after giving effect to the
issuance of stock under the warrants to purchase common stock of
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Mrs. Fields' Holding and to issuances of stock under options currently issued
to directors and employees under the Plans, have been issued. See "Beneficial
Ownership of Capital Stock."
Board Compensation
The Board of Directors of Mrs. Fields 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 1,792 shares of common stock
of Mrs. Fields' Holding to each of Messrs. Mullin, Ferry, Gregory, Lewis, Osnos
and Winokur as of January 1, 1998, at an exercise price of $16.74 per share,
and the award of options to purchase 634 and 648 shares of common stock of Mrs.
Fields' Holding as of January 1, 1999 and January 2, 2000, at an exercise price
of $19.72 and $19.29, respectively, to each of the same directors, with the
options of Messrs. Gregory and Winokur being issued to Capricorn.
The Board members were also offered an opportunity to acquire shares of
common stock of Mrs. Fields' Holding under a director stock purchase plan (the
"Director Stock Purchase Plan"). The compensation in shares that would be
payable or issuable to Messrs. Winokur and Gregory will be paid to Capricorn. A
total of 51,667 vested shares of common stock of Mrs. Fields' Holding and
28,333 restricted shares of common stock of Mrs. Fields' Holding have been
issued to directors and officers of Mrs. Fields under the Director Stock
Purchase Plan.
Board Committees
Three functioning committees of the Board have been organized: an Executive
Committee, a Compensation Committee and an Audit Committee. Following is a
brief description of each of these committees.
Executive Committee. The Executive Committee is composed of Messrs. Winokur
(Chairman), Gregory and Hodges. The purpose of this committee is to act on the
behalf of the entire Board of Directors between Board meetings.
Compensation Committee. The Compensation Committee is composed of Messrs.
Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to
ensure that Mrs. Fields 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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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, $364,000,
Mark Tanner, Chief Financial Officer, $235,000, Pat Knotts, Senior Vice
President of Operations, $210,800, Michael Ward, Vice President, General
Counsel and Secretary, $165,000 and Garry Remington, Senior Vice President of
Real Estate, $197,600.
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<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
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 information,
as of April 1, 2000, believed by us to be accurate based on information
provided to it concerning the beneficial ownership of common stock by each
stockholder who is known by Mrs. Fields 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 April 1,
2000. 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 April 1,
2000 and give effect to the exercise of the warrants issued by Mrs. Fields'
Holding. See "Management--Option Grants and Exercises" and "--Board
Compensation," As of April 1, 2000, there were eight record holders of common
stock of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Common Stock
--------------------
Number of Percentage
Title of Class Name of Beneficial Owner Shares of Class
-------------- ------------------------ --------- ----------
<C> <S> <C> <C>
Capricorn Investors II,
Common stock, par L.P.(1)(2)(3).................. 3,184,401 86.1%
value $0.001 per share, Larry Hodges(2)(3)............. 105,569 2.9%
of Mrs. Fields' Holding Peter Mullin(2)(3)............. 18,567 0.5%
Richard Ferry(2)(3)............ 13,567 0.4%
Walker Lewis(2)(3)............. 11,067 0.3%
Gilbert Osnos(2)(3)............ 11,067 0.3%
Pat Knotts(3).................. 18,892 0.5%
Michael Ward(3)................ 15,607 0.4%
Garry Remington(3)............. 10,541 0.3%
Mark Tanner (3)................ 2,054 0.1%
All executive officers and
directors
as a group (10
persons)(2)(3)(4)............. 3,388,329 91.8%
</TABLE>
- --------
(1) The address of Capricorn is 30 East Elm Street, Greenwich, CT 06830.
(2) Larry Hodges, Peter Mullin, Richard Ferry, Walker Lewis and Gilbert Osnos
are directors of the Company. Herbert Winokur and Nat Gregory are managing
member and member, respectively, of Capricorn Holdings, L.L.C., the General
Partner of Capricorn, and are directors of Mrs. Fields. 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 April
1, 2000, as follows: Capricorn, 7,148 shares; Mr. Hodges, 75,569 shares;
Mr. Mullin, 3,567 shares; Mr. Ferry, 3,567 shares; Mr. Lewis, 3,567 shares;
Mr. Osnos, 3,567 shares; Mr. Knotts, 18,892 shares; Mr. Ward, 15,607
shares; and Mr. Remington, 10,541 shares; Mr. Tanner, 2,054 shares; all
executive officers and directors as a group, 144,065.
(4) Includes shares beneficially owned by Capricorn.
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<PAGE>
RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with Debbi Fields and Affiliates. In November 1996, Mrs. Fields
entered into a consulting agreement with Debbi Fields, a former director of
Mrs. Fields, under which Debbi Fields traveled and performed public relations
and advertising activities on behalf of Mrs. Fields for at least 50 days a year
for a fee of $250,000 per year, with an option to perform 20 additional days a
year for additional pay of $5,000 per day. The compensation increased by 10% a
year beginning on January 1, 1999. The consulting agreement expired on December
31, 1999.
In addition, Mrs. Fields has a license agreement with FSG Holdings, Inc., a
Delaware Corporation, under which Debbi Fields has a nonexclusive license to
use selected trademarks, names, service marks and logos of Mrs. Fields in
connection with book and television series projects. Debbi Fields is required
to pay 50 percent of any gross revenues in excess of $200,000 that she receives
from the book and television series projects to Mrs. Fields as a license fee.
Mrs. Fields leased certain office space to an entity which is owned in part
by Debbi Fields. Billings to the entity for the fiscal year ended January 3,
1998 totaled approximately $274,000, of which approximately $23,000 was
included in accounts receivable as of January 3, 1998. The lease was terminated
in the first quarter of fiscal year 1998. Mrs. Fields believes that the
arrangements were on terms that could have been obtained from an unaffiliated
third party.
Arrangements with Walker Lewis. Mr. Lewis, a director of Mrs. Fields, acts as
a consultant and an advisor to Dillon Read. Mr. Lewis' company, Devon Value
Advisers, received a fee of $250,000, plus expenses, from Mrs. Fields in the
first quarter of 1998 under an agreement to provide advisory acquisition and
consulting services to Mrs. Fields. Mrs. Fields believes that the arrangements
were on terms that could have been obtained from an unaffiliated third party.
Korn/Ferry Agreement. Mrs. Fields has paid fees of approximately $157,000,
$70,600 and $35,000 during the years ended January 3, 1998, January 2, 1999 and
January 1, 2000, respectively, to Korn/Ferry International, an executive search
firm of which Richard Ferry, a director of Mrs. Fields, 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--Covenants."
As of January 2, 1999, Mrs. Fields had a net payable of $105,000 due to Mrs.
Fields' Holding and as of January 1, 2000, a net receivable of $642,000 due
from Mrs. Fields' Holding. The receivables stem primarily from the payment of
debt offering costs by Mrs. Fields in behalf of Mrs. Fields' Holding. Mrs.
Fields believes that the terms of the transactions are essentially equivalent
to the terms that would have been obtained from an unaffiliated third party in
a similar transaction.
Incentive Arrangements. Under a senior management value creation plan that
was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of its
formation in September 1996, the following payments were made in 1998: $471,484
to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a
vice president of Mrs. Fields Inc. Mr. Hodges used $250,000, representing
substantially all of this payment after his payment of related taxes, to
purchase 25,000 shares of common stock of Mrs. Fields' Holding at $10.00 per
share.
Director Stock Purchase Plan. Each of the directors of Mrs. Fields 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'
68
<PAGE>
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. A total of 50,000 shares of common stock of Mrs.
Fields' Holding are reserved for issuance under the Director Stock Option Plan.
Common stock of Mrs. Fields' Holding issued under the Director Stock Option
Plan is subject to customary restrictions on transfer. Options have been
awarded under the Director Stock Option Plan to each of Messrs. Mullin, Ferry,
Gregory, Lewis, Osnos and Winokur to purchase 3,350, shares of common stock of
Mrs. Fields' Holding as of January 1, 1997, at an exercise price of $10.00, per
share, 1,792 shares of common stock of Mrs. Fields' Holdings at $16.74 per
share as of January 1, 1998, 634 shares of common stock of Mrs. Fields' Holding
at $19.72 per share as of January 1, 1999 and 648 shares of common stock of
Mrs. Fields' Holding at $19.29 per share as of January 2, 2000. Options of
Messrs. Gregory and Winokur have been issued to Capricorn.
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<PAGE>
The Stockholders' Agreement. Mrs. Fields' Holding has entered into a
stockholders' agreement with its stockholders. The stockholders' agreement
gives rights of first refusal to Mrs. Fields' Holding if any Mrs. Fields'
Holding stockholder receives an offer to purchase common stock of Mrs. Fields'
Holding and, if Mrs. Fields' Holding does not exercise its rights, gives the
rights of first refusal to other Mrs. Fields' Holding stockholders. In the
event of a sale to a third party approved by Capricorn, Capricorn has the right
to require the other Mrs. Fields' Holding stockholders to sell their common
stock of Mrs. Fields' Holding (the "Drag Along"). If Capricorn sells any common
stock of Mrs. Fields' Holding, the other Mrs. Fields' Holding stockholders will
have the opportunity to sell their common stock of Mrs. Fields' Holding in
proportion to their holdings (the "Tag Along"). The stockholders' agreement
also provides for piggyback registration rights for all Mrs. Fields' Holding
stockholders, and gives one Mrs. Fields' Holding stockholder demand
registration rights. The stockholders' agreement gives Mrs. Fields' Holding the
option to purchase all of the common stock of Mrs. Fields' Holding held by an
officer or director that holds common stock of Mrs. Fields' Holding if the
officer or director is terminated. If an officer or director is terminated
other than for cause, the officer or director has the right to sell shares to
Mrs. Fields' Holding. The stockholders' agreement provides for customary
restrictions on transfer of common stock of Mrs. Fields' Holding. The holders
of warrants to purchase common stock of Mrs. Fields' Holding will be subject to
the Drag Along and benefit from the Tag Along.
Arrangements With Capricorn. On May 27, 1999, Mrs. Fields, Mrs. Fields'
Holding, Pretzel Time, Martin Lisiewksi and Capricorn entered into an
Assignment and Assumption Agreement under which Capricorn agreed to assume a
$2,000,000 payment obligation of Mrs. Fields for Pretzel Time stock held by
Mr. Lisiewksi that was due on December 31, 1999. In a related transaction on
the same date, Capricorn and Mrs. Fields' Holding entered into a contribution
agreement under which Mrs. Fields' Holding and Capricorn agreed to treat the
assumption by Capricorn of the Mrs. Fields payment obligation described above
as a capital contribution from Capricorn to Mrs. Fields' Holding, and Mrs.
Fields' Holding agreed either to issue 101,419 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. Mrs. Fields' Holding subsequently issued
101,419 shares of common stock to Capricorn. Mrs. Fields' Holding accounted for
this transaction by reducing the debt obligation and increasing additional
paid-in capital.
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<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of terms used in this description under the
subheading "Definitions." In this description, the word "Mrs. Fields" 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 January 1, 2000, Mrs. Fields had approximately $7 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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<PAGE>
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 January 1, 2000, Mrs. Fields' subsidiaries had approximately $526,000
in indebtedness, not including the guarantees of the notes and had preferred
stock with a value upon liquidation of $1.1 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. 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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<PAGE>
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: "--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.
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
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<PAGE>
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 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,
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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;
(2) to make a Permitted Investment;
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(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.
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 holders of Mrs. Fields' or any of its
Subsidiaries' Equity Interests in their capacity as such (other
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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;
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(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;
(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."
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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
(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.
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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
(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.
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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,
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.
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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 Significant
Subsidiary, all outstanding notes will become due and payable without further
action or notice. If any other Event of Default occurs and is continuing, the
trustee or the holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to limitations, holders of a majority in
principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
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;
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(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;
(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 some of the covenants
that are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
some of the events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute 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;
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(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;
(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.
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Concerning the Trustee
If the trustee becomes a creditor of Mrs. Fields, the indenture limits its
right to obtain payment of claims in some cases, or to realize on property
received in respect of any such claim as security or otherwise. The trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate the conflict within 90 days, apply to
the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
exceptions. The indenture provides that in case an Event of Default shall occur
and be continuing, the trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to 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 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 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
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indenture. Except as provided below, owners of beneficial interests in a New
Global Note will not be entitled to have new notes represented by the New
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of certificated notes, and will not be considered the
owners or holders thereof under the indenture for any purpose. As a result, the
ability of a person having a beneficial interest in new notes represented by a
New Global Note to pledge that interest to persons or entities that do not
participate in The Depository Trust Company's system or to otherwise take
actions in respect of that interest, may be affected by the lack of physical
certificate evidencing that interest. Accordingly, each person owning a
beneficial interest in a New Global Note must rely on the procedures of The
Depository Trust Company, 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 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
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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 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 statement to be declared effective by the Commission
on or prior to 150 days after that obligation arises.
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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,
(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 $375,000 as of May 1,
2000, of which $172,000 has been paid to the holders of 10 1/8% Series C Senior
Notes due 2004 as of May 1, 2000.
Holders of old notes will be required to make 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.
Definitions
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all 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.
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"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
as used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the voting stock of a person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale,
conveyance or other disposition of all or substantially all of the
assets of Mrs. Fields 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;
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(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(4) any other interest or participation that confers on a person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of
any of them having maturities of not more than six months from the
date of acquisition;
(3) marketable direct obligations issued by any State of the United
States or any local government or other political subdivision of
any of them rated (at the time of the acquisition of the security)
at least "AA" by Standard & Poor's Rating Service or an equivalent
rating by Moody's Investors Service, Inc. and having maturities of
not more than one year from the acquisition of the security;
(4) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers acceptances with maturities not exceeding six months and
overnight bank deposits, in each case, with any domestic commercial
bank having capital and surplus in excess of $500 million and a
Keefe Bank Watch Rating of B or better or with any registered
broker-dealer whose commercial paper is rated at least A-1 by
Standard & Poor's Rating Service or an equivalent rating by Moody's
Investors Service, Inc.;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (4)
above entered into with any financial institution meeting the
qualifications specified in clause (4) above;
(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;
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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
(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)
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or, directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its
stockholders;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of the acquisition
shall be excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of the person
and its consolidated Subsidiaries as of that date plus
(2) the respective amounts reported on that person's balance sheet as
of 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 "--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.
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"Fixed Charges" means, with respect to any person for any period, the sum,
without duplication, of
(1) the consolidated interest expense of the Person and its
Subsidiaries for that period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers acceptance
financings, and net payments (if any) under Hedging Obligations);
(2) the consolidated interest expense of the Person and its
Subsidiaries that was capitalized during that period;
(3) any interest expense on Indebtedness of another person that is
guaranteed by that person or one of its Subsidiaries or secured by
a Lien on assets of that person or one of its Subsidiaries (whether
or not that guarantee or Lien is called upon); and
(4) the product of
(a) all dividend payments, whether or not in cash, on any series of
preferred stock of the Person or any of its Subsidiaries, other
than dividend payments on Equity Interests payable solely in
Equity Interests of Mrs. Fields, 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
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adjusted to eliminate some historical expenses that are not expected
to recur after the consummation of the Pretzel Contributions so long
as those adjustments are not deemed to be contrary to the
requirements of Regulation S-X under the Securities Act 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.
"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
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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 "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, 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 "--
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;
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(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;
(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;
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(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.
"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
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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 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 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
April 1, 2000, there was no balance outstanding under the agreement. Under the
borrowing base, Mrs. Fields is limited to borrowing an additional $8.1 million
in accordance with restrictions of the indenture.
On May 27, 1999, Pretzel Time entered into agreements with LaSalle National
Bank under which Pretzel Time may borrow $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 August 13, 2000, 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.
103
<PAGE>
For a period of 120 days after the consummation of the exchange offer, Mrs.
Fields 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.
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 issued by 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 guarantees issued by
Pretzelmaker and Pretzel Time will be passed upon by Michael Ward, Esq., the
general counsel of Mrs. Fields, Pretzelmaker and Pretzel Time, in reliance as
to matters of New York Law on an opinion to him from Skadden, Arps, Slate,
Meagher & Flom LLP. Mr. Ward is the beneficial owner of 11,500 shares of common
stock of Mrs. Fields' Holding, the direct owner of Mrs. Fields, including
shares subject to options. See "Beneficial Ownership of Common Stock."
EXPERTS
The historical consolidated financial statements of Mrs. Fields' Original
Cookies, Inc. and subsidiaries as of January 2, 1999 and January 1, 2000, and
for each of the fiscal years in the period ended January 1, 2000, included in
this prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included in this prospectus in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
104
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mrs. Fields' Original Cookies, Inc. and Subsidiaries
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000 ... F-3
Consolidated Statements of Operations for the 53 weeks ended January 3,
1998 and for the 52 weeks ended January 2, 1999 and January 1, 2000 .... F-5
Consolidated Statements of Stockholder's Equity for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999 and January
1, 2000................................................................. F-6
Consolidated Statements of Cash Flows for the 53 weeks ended January 3,
1998 and for the 52 weeks ended January 2, 1999 and January 1, 2000..... F-7
Notes to Consolidated Financial Statements............................... F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields' Original Cookies, Inc.:
We have audited the accompanying consolidated balance sheets of Mrs. Fields'
Original Cookies, Inc. (a Delaware corporation) and subsidiaries as of January
2, 1999 and January 1, 2000, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the three fiscal
years in the period ended January 1, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of January 2, 1999
and January 1, 2000, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
January 1, 2000 in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Salt Lake City, Utah
March 27, 2000
F-2
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 4,751 $ 4,919
Accounts receivable, net of allowance for doubtful
accounts of and $74 and $111, respectively........... 3,208 4,295
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $1,078 and $821,
respectively......................................... 6,003 3,708
Inventories........................................... 5,503 4,977
Prepaid rent and other................................ 4,017 1,336
Deferred income tax assets............................ 861 1,360
-------- --------
Total current assets................................ 24,343 20,595
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................................ 29,914 26,698
Equipment and fixtures................................ 17,108 22,540
Land.................................................. 240 240
-------- --------
47,262 49,478
Less accumulated depreciation and amortization........ (15,465) (20,813)
-------- --------
Net property and equipment.......................... 31,797 28,665
-------- --------
DEFERRED INCOME TAX ASSETS.............................. 2,638 2,139
-------- --------
GOODWILL, net of accumulated amortization of $11,231 and
$21,156, respectively.................................. 145,782 132,479
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $2,615 and $3,700, respectively........ 14,296 13,062
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$1,320 and $4,052, respectively........................ 11,718 10,818
-------- --------
OTHER ASSETS ........................................... 1,332 652
-------- --------
$231,906 $208,410
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt..................... $ 8,046 $ 781
Current portion of capital lease obligations.......... 299 842
Accounts payable...................................... 10,723 10,514
Bank overdraft........................................ 4,133 --
Accrued liabilities................................... 3,597 2,851
Current portion of store closure reserve.............. 4,577 3,665
Accrued salaries, wages and benefits.................. 3,155 3,180
Accrued interest payable.............................. 1,260 1,288
Sales taxes payable................................... 962 1,128
Deferred credits...................................... 318 132
-------- --------
Total current liabilities........................... 37,070 24,381
LONG-TERM DEBT, net of current portion and discount..... 141,647 141,755
STORE CLOSURE RESERVE, net of current portion........... 10,134 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion....... 997 3,107
-------- --------
Total liabilities................................... 189,848 172,772
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of
Pretzel Time (a wholly owned subsidiary), aggregate
liquidation preference of $1,495 and $1,070,
respectively........................................... 1,261 1,070
-------- --------
MINORITY INTEREST....................................... 119 111
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized,
400 shares outstanding............................... -- --
Additional paid-in capital............................ 59,899 61,899
Accumulated deficit................................... (19,221) (27,442)
-------- --------
Total stockholder's equity.......................... 40,678 34,457
-------- --------
$231,906 $208,410
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-4
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net store and food sales.................... $127,845 $140,235 $152,268
Franchising................................. 4,535 12,464 24,782
Licensing................................... 2,028 1,537 3,887
-------- -------- --------
Total revenues............................ 134,408 154,236 180,937
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs........... 66,832 75,003 79,634
Cost of sales............................... 32,028 38,482 46,323
General and administrative.................. 16,192 19,017 21,972
Store closure provision (benefit)........... 538 7,303 (1,579)
Depreciation and amortization............... 10,403 19,820 24,206
-------- -------- --------
Total operating costs and expenses........ 125,993 159,625 170,556
-------- -------- --------
Income (loss) from operations........... 8,415 (5,389) 10,381
-------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest expense............................ (7,830) (13,197) (17,880)
Interest income............................. 246 623 53
Other expense, net.......................... (368) (409) (230)
-------- -------- --------
Total other expense, net.................. (7,952) (12,983) (18,057)
-------- -------- --------
Income (loss) before provision for income
taxes, preferred stock accretion and
dividends of subsidiaries and minority
interest................................... 463 (18,372) (7,676)
PROVISION FOR INCOME TAXES.................... (655) (316) (218)
-------- -------- --------
Loss before preferred stock accretion and
dividends of subsidiaries and minority
interest................................... (192) (18,688) (7,894)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES................................. (644) (444) (305)
MINORITY INTEREST............................. (138) (11) (22)
-------- -------- --------
Net loss.................................. $ (974) $(19,143) $ (8,221)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 28, 1996..... 400 $ -- $15,000 $ 1,961 $ 16,961
Parent contribution of
investment in Pretzel Time.. -- -- 4,200 -- 4,200
Parent contribution of note
receivable due from Pretzel
Time's minority stockholder
and founder................. -- -- 500 -- 500
Parent contribution of
investment in Mrs. Fields'
Brand....................... -- -- 6,500 -- 6,500
Conversion to equity of note
payable to parent........... -- -- 4,643 -- 4,643
Dividend paid to parent...... -- -- -- (1,065) (1,065)
Net loss..................... -- -- -- (974) (974)
--- ----- ------- -------- --------
BALANCE, January 3, 1998....... 400 -- 30,843 (78) 30,765
Parent equity infusion....... -- -- 29,056 -- 29,056
Net loss..................... -- -- -- (19,143) (19,143)
--- ----- ------- -------- --------
BALANCE, January 2, 1999....... 400 -- 59,899 (19,221) 40,678
Parent contribution.......... -- -- 2,000 -- 2,000
Net loss..................... -- -- -- (8,221) (8,221)
--- ----- ------- -------- --------
BALANCE, January 1, 2000....... 400 $ -- $61,899 $(27,442) $ 34,457
=== ===== ======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss..................................... $ (974) $(19,143) $ (8,221)
Adjustments to reconcile net loss to net cash
provided by operating activities, net of
effects from acquisitions:
Depreciation and amortization............... 10,403 19,820 24,206
Amortization of discount on notes........... -- 32 77
Amortization of deferred loan costs......... -- 1,250 2,732
Loss (gain) on disposition of assets........ 368 409 (142)
Deferred income taxes....................... 210 -- --
In-kind interest expense on note payable to
stockholder................................ 338 -- --
Preferred stock accretion and dividends of
subsidiaries............................... 644 444 305
Minority interest........................... 234 11 (8)
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable........................ (353) (1,673) (1,087)
Amounts due from franchisees and
licensees................................. (514) (866) 2,295
Inventories................................ 136 (822) 526
Prepaid rent and other..................... (895) 932 2,681
Other assets............................... 427 1,437 680
Accounts payable and accrued liabilities... (6,651) (1,364) (955)
Store closure reserve...................... (1,666) 5,196 (5,219)
Accrued salaries, wages and benefits....... 80 1,264 25
Accrued interest payable................... (586) (713) 28
Sales taxes payable........................ 261 (80) 166
Deferred credits........................... (543) (838) (186)
-------- -------- --------
Net cash provided by operating
activities............................... 919 5,296 17,903
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and related
costs....................................... (10,949) (32,835) --
Purchase of property and equipment, net of
effects from acquisitions................... (4,678) (8,235) (5,157)
Proceeds from the sale of assets............. 122 176 461
-------- -------- --------
Net cash used in investing activities..... (15,505) (40,894) (4,696)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... 108,250 39,400 --
Bank overdraft............................... -- 4,133 (4,133)
Principal payments on long-term debt......... (77,009) (41,257) (5,978)
Payment of debt financing costs.............. (5,976) (7,062) (1,832)
Cash advance from Mrs. Fields' Holding....... 1,500 -- --
Repayment of cash advance to Mrs. Fields'
Holding..................................... (1,500) -- --
Payment of cash dividend to Mrs. Fields'
Holding..................................... (1,065) -- --
Equity contribution from Mrs. Fields'
Holding..................................... -- 29,056 --
Principal payments on capital lease
obligations................................. (36) (123) (600)
Reduction in preferred stock of Pretzel
Time........................................ -- (85) (496)
-------- -------- --------
Net cash provided by (used in) financing
activities............................... 24,164 24,062 (13,039)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 9,578 (11,536) 168
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
YEAR......................................... 6,709 16,287 4,751
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR.. $ 16,287 $ 4,751 $ 4,919
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $8,416, $12,440 and $17,957 for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively.
Cash paid for income taxes was approximately $217, $209 and $401 for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") converted to common equity of the Company $4,643 total principal
amount of convertible subordinated notes and contributed to the Company all of
the common equity of Mrs. Fields' Brands after converting its preferred stock
interests totaling $3,935 to common equity.
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc.
("Pretzel Concepts") as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $15,780
Net cash paid.................................................... (5,750)
Notes payable issued............................................. (8,000)
-------
Liabilities assumed............................................ $ 2,030
=======
</TABLE>
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("Pretzel Time") were acquired by Mrs. Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other
accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 8,311
Net cash paid.................................................... (4,200)
-------
Liabilities assumed............................................ $ 4,111
=======
</TABLE>
On November 26, 1997, Mrs. Fields' Holding contributed all of the assets and
liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note receivable from Pretzel
Time's founder and minority stockholder to the Company. Mrs. Fields' Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs. Fields.
During the period from the acquisition of the majority ownership of Pretzel
Time (September 2, 1997) to January 1, 2000, Pretzel Time increased its
mandatorily redeemable cumulative preferred stock liquidation preference by
approximately $307, in lieu of paying cash dividends. In addition, for the same
period, Pretzel Time's mandatorily redeemable cumulative preferred stock was
increased by approximately $763 for the accretion required over time to
amortize the original issue discount.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
In August 1998, the Company acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for a total
purchase price of approximately $18,400. During August and September 1998, the
Company also entered into agreements with three franchisees of Cookies USA (the
"Great American Franchisees") under which the Company purchased a total of 37
Great American Cookies franchises for a total purchase price of $16,328. The
total purchase price for all of these acquisitions of $34,728 was allocated, as
follows. Additionally, in connection with the purchase accounting, certain
other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired................................... $ 77,410
Net cash paid................................................... (27,771)
--------
Liabilities assumed........................................... $ 49,639
========
</TABLE>
In October 1998, the Company acquired the assets of the Cookie Conglomerate,
Inc. ("Cookie Conglomerate") for a total purchase price of $2,800. The total
purchase price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired..................................... $2,800
Net cash paid..................................................... --
------
Liabilities assumed............................................. $2,800
======
</TABLE>
In November 1998, the Company acquired all of the outstanding stock of
Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase
price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 8,519
Net cash paid.................................................... (1,100)
-------
Liabilities assumed............................................ $ 7,419
=======
</TABLE>
During the years ended January 2, 1999 and January 1, 2000, the Company
acquired property and equipment under capitalized lease obligations and long-
term debt totaling $3,786 and $3,997 respectively. No property and equipment
was acquired under capitalized lease obligations during the year ended January
3, 1998.
During the year ended January 1, 2000, Mrs. Fields' Holding made an equity
contribution of $2,000 by assuming a $2,000 note payable that was due December
31, 1999.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-9
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation,
is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc. ("Mrs.
Fields' Holding"). Mrs. Fields' Holding is a majority owned subsidiary of
Capricorn Investors II, L.P. ("Capricorn"). The Company has eight wholly owned
operating subsidiaries; namely, Great American Cookie Company, Inc., The Mrs.
Fields' Brand, Inc., Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs.
Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and
Pretzelmaker of Canada; and three partially owned subsidiaries.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through six specialty
retail chains. As of January 1, 2000, the Company owned and operated 134 Mrs.
Fields Cookies stores, 93 Original Cookie Company stores, 93 Great American
Cookies stores, 52 Hot Sam Pretzels stores, 86 Pretzel Time stores, 4
Pretzelmaker stores in the United States. Additionally, the Company has
franchised or licensed 848 stores in the United States and 133 stores in
several other countries. As of January 1, 2000, the Company owned and operated
433 continuing stores and 29 stores which are in the process of being closed or
franchised. All of the stores in the process of being closed or franchised are
expected to be closed or franchised by the end of fiscal year 2000.
During the year ended January 1, 2000, the Company opened 13 new stores, and
franchised an additional 100 stores closed 37 stores, franchised 37 locations,
reacquired 5 stores from franchisees and had 123 franchisees discontinue
operations.
The Company holds legal title to certain trademarks for the "Mrs. Fields"
name and logo and licenses the use of these trademarks to third parties for the
establishment and operation of Mrs. Fields' cookie and bakery operations and
other merchandising activities. In connection with these licensing activities,
the Company authorizes third-party licensees to use certain business formats,
systems, methods, procedures, designs, layouts, specifications, trade names and
trademarks in the United States and other countries. Additionally, the Company
markets and distributes its products through catalogs, other print media, the
internet and mail order.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
Mrs. Fields, Inc. and Affiliates and Original Cookie Company and Affiliates
The Company began operations on September 18, 1996, following the completion
of two simultaneous but separate asset purchase transactions wherein the
Company (i) acquired certain assets and assumed certain liabilities of Mrs.
Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in
accordance with two Asset Purchase Agreements dated August 7, 1996, among these
parties and Capricorn, and (ii) acquired certain assets and assumed certain
liabilities of The Original Cookie Company, Incorporated and Hot Sam Company,
Inc. in accordance with an Asset Purchase Agreement dated August 7, 1996, as
amended by the First Amendment dated as of September 17, 1996, among these
parties and Capricorn.
F-10
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The combined purchase price for the acquired net assets was approximately
$85,243,000. The Company paid net cash of $19,508,000 and issued approximately
$65,735,000 in senior and subordinated notes to the selling shareholders. The
acquisitions were accounted for as purchases. The total purchase price was
allocated to the net assets acquired, based on their estimated fair values. The
organization of the Company and the acquisitions resulted in the recording of
intangible assets of approximately $49,942,000 principally made up of goodwill,
trademarks and organization costs. An additional $17,680,000 of goodwill and
$4,520,000 of deferred income tax assets (net of valuation allowances) were
recorded in connection with the Company recording certain other accruals
totaling $11,300,000 and providing reserves totaling $10,921,000 for impaired
property and equipment (see Note 5) at Company-owned stores the Company intends
to exit through closing or franchising. Goodwill and trademarks are amortized
using the straight-line method over 15 years. The $11,300,000 of accruals
established at the date of the acquisitions consisted of $5,060,000 for
obligations incident to store closures (see Note 5), $2,450,000 for contingent
legal and lease obligations that were firmed up before December 28, 1996,
$3,135,000 for transaction and finders' fees and $655,000 for severance and
related costs.
As of January 1, 2000, approximately $2,215,000 of the $2,450,000 accrual for
legal and lease obligations has been utilized. The remaining amount as of
January 1, 2000 of approximately $235,000 is expected to be utilized by the end
of 2000. All of the $3,135,000 accrual established for transaction and finders'
fees and the $655,000 accrual for severance and related costs associated with
the acquisitions were fully utilized for the purposes intended during fiscal
1997.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc., a wholly owned
subsidiary of Mrs. Fields' Holding, acquired substantially all of the assets
and assumed certain liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H
& M"). H & M owned and operated stores which engage in retail sales of
pretzels, toppings and beverages under a franchise agreement with Pretzel Time,
Inc. The total consideration of $13,750,000 consisted of (i) $5,750,000 of
cash, financed through an advance from Mrs. Fields' Holding of $1,500,000 and a
$4,250,000 bank loan to Pretzel Concepts, (ii) a $4,000,000 principal amount
bridge note of Pretzel Concepts and (iii) a $4,000,000 principal amount
subordinated note of Mrs. Fields' Holding retained by the sellers (all such
debt collectively referred to as the "H & M Debt"). The acquisition was
accounted for using the purchase method of accounting (based on the estimated
fair values of the net assets acquired) and resulted in recording approximately
$9,618,000 of goodwill that is being amortized using the straight-line method
over 15 years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
assets and liabilities of Pretzel Concepts to the Company and, in consideration
thereof, the Company assumed the H & M Debt, including all accrued but unpaid
interest. Pretzel Concepts and the Company merged on the same date with the
Company being the surviving entity. The contribution was accounted for in a
manner similar to that of pooling-of-interests accounting. There was no step-up
in the historical basis of Pretzel Concepts' assets or liabilities. Beginning
with July 25, 1997, the Company has included Pretzel Concepts' results of
operations in the Company's consolidated results of operations.
Pretzel Time, Inc.
On September 2, 1997, Mrs. Fields' Holding acquired 56 percent of the shares
of common stock of Pretzel Time for a total cash purchase price of $4,200,000,
$750,000 of which was paid to Pretzel Time for working capital purposes, and
the balance of which was paid to the selling shareholders. In connection with
the acquisition, Mrs. Fields' Holding extended a $500,000 loan to the founder
of Pretzel Time who continued to own 44 percent of the shares of common stock
of Pretzel Time. The note bears interest at an annual rate of ten percent (see
Note 8). Pretzel Time is a franchisor of hand rolled soft pretzel outlets
located in North America.
F-11
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The outlets are primarily located in shopping malls. The acquisition was
accounted for using the purchase method of accounting (based on the estimated
fair values of the net assets acquired) and resulted in recording approximately
$5,882,000 of goodwill that is being amortized using the straight-line method
over 15 years. The goodwill recorded was $1,682,000 more than the purchase
price as the Company assumed more liabilities than it acquired in assets at
their fair values. Additionally, severance and legal accruals were established
in accordance with EITF 95-3.
Effective November 26, 1997, Mrs. Fields' Holding contributed its 56 percent
of the shares of common stock of Pretzel Time to the Company. Mrs. Fields'
Holding also contributed to the Company the $500,000 note due from Pretzel
Time's founder and minority stockholder. The contribution was accounted for in
a manner similar to that of pooling-of-interests accounting. There was no step-
up in the book basis of Pretzel Time's assets or liabilities.
On January 2, 1998, the Company purchased an additional four percent of the
shares of common stock of Pretzel Time from the founder for $300,000 in cash.
The purchase was accounted for using the purchase method of accounting (based
on the estimated fair values of the net assets acquired) and resulted in
recording approximately $311,000 of goodwill. In June 1998, the Company
acquired an additional ten percent of the shares of common stock of Pretzel
Time from the founder for $875,000 in cash. On December 9, 1998, Mrs. Fields
purchased 3% of Pretzel Time common stock for $500,000 in cash. On December 30,
1998, Mrs. Fields completed the acquisition of the remaining outstanding common
stock of Pretzel Time under a stock purchase agreement dated December 30, 1998,
for a purchase price of approximately $4,700,000, $2,500,000 of which was paid
in cash on January 5, 1999 and $2,000,000 of which was paid in December 1999
(see Note 8). The Company has included the appropriate percentage of Pretzel
Time's results of operations for each respective period in its consolidated
results of operations.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, Mrs. Fields' Holding owned 50.1 percent of the
shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand holds
legal title to certain trademarks for the "Mrs. Fields" name and logo and
licenses the use of these trademarks to third parties for the establishment and
operation of Mrs. Fields' cookie and bakery operations and other merchandising
activities. In connection with these licensing activities, Mrs. Fields' Brand
authorizes third-party licensees to use certain business formats, systems,
methods, procedures, designs, layouts, specifications, trade names and
trademarks in the United States and other countries.
On November 26, 1997, Mrs. Fields' Holding acquired the remaining 49.9
percent of the shares of the common stock of Mrs. Fields' Brand from Harvard
Private Capital Holdings, Inc. for approximately $2,565,000. The consideration
consisted of $1,065,000 in cash and $1,500,000 in rights to common equity of
Mrs. Fields' Holding. Mrs. Fields' Holding's Board of Directors determined the
value of Harvard's rights to the common equity based on a fair value analysis.
This analysis appropriately considered a discount for lack of controlling
interest and marketability as Mrs. Fields' Holding's common equity is not
publicly traded. The acquisition was accounted for using the purchase method of
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording approximately $2,565,000 of intangible assets (primarily
goodwill) that are being amortized using the straight-line method over 15
years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
common stock of Mrs. Fields' Brand to the Company. As a result of this capital
contribution, Mrs. Fields' Brand became a wholly owned subsidiary of the
Company. The contribution was accounted for in a manner similar to that of
pooling-of-interests accounting. There was no step-up in the book basis of Mrs.
Fields' Brand's assets or liabilities
F-12
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Great American Cookie Company, Inc.
On August 24, 1998, the Company acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, Inc., the sole stockholder of
Great American Cookie Company, Inc., for a total purchase price of $18,400,000.
Great American is an operator and franchisor of mall-based specialty retail
cookie outlets and a manufacturer of cookie batter which is distributed to
Great American operated retail stores and sold to franchised retail stores.
Concurrently with the acquisition of Cookies USA, the Company entered into
agreements with two Great American franchisees under which the Company
purchased a total of 29 Great American franchises for a total purchase price of
$14,430,000. The Company acquired the franchises through the acquisition of 100
percent of the capital stock of the two corporations through which the
franchises operated. On September 9, 1998, the Company acquired eight
additional Great American franchised retail stores from a Great American
franchisee, under an asset purchase agreement, for a total purchase price of
$1,898,000. These acquisitions will be collectively referred to as the "Great
American Acquisitions."
The Great American Acquisitions have been accounted for using the purchase
method of accounting which resulted in recording approximately $69,390,000 of
goodwill that is being amortized using the straight-line method over 15 years.
Additionally, the Company caused Cookies USA to be merged with and into the
Company and caused the acquired franchisees corporations and/or net assets to
be merged with and into Great American. Great American became a wholly owned
subsidiary of the Company. The acquired entities' results of operations have
been included with those of the Company since the applicable dates of
acquisition.
The Great American Acquisitions were financed by (i) the net proceeds from
the Company issuing $40,000,000 Series C Senior Notes; (ii) the contribution of
the net proceeds totaling $29,056,000 from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement among The Cookie
Conglomerate, Inc., The Cookie Conglomerate, LLP and two individuals who were
the partners of Cookie Conglomerate, LLP and the shareholders of Cookie
Conglomerate, Inc. The sellers were franchisees of Great American. The sellers'
rights under franchise agreements and subleases with Great American were
terminated upon closing of the transaction. The acquisition was funded through
borrowings.
Pretzelmaker Holdings, Inc.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately
$5,400,000 and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1,600,000.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net assets
of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
$600,000 of goodwill and $53,000 of other assets. The goodwill is being
amortized using the straight-line method over 15 years.
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the years ended January 3,
1998 and January 2, 1999 presents the results of operations of the Company
assuming that the H & M, Pretzel Time, The Mrs. Fields'
F-13
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Brand, Great American, Cookie Conglomerate and Pretzelmaker acquisitions and
related financings had occurred at December 29, 1996. The results of operations
give effect to certain adjustments, including amortization of intangible assets
and interest expense on acquisition debt. The pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted or the results
which may occur in the future.
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended
January 3, January 2,
(Unaudited) 1998 1999
----------- -------------- --------------
<S> <C> <C>
Total revenues.............................. $200,574,000 $191,246,000
Store closure provision..................... (538,000) (7,303,000)
Depreciation and amortization............... (19,405,000) (25,582,000)
Income (loss) from operations............... 12,738,000 (4,909,000)
Net loss.................................... (3,638,000) (22,471,000)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
four suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of January
1, 2000, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As
of January 1, 2000, the Company had restricted cash of $192,000.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
F-14
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pre-Opening Costs
Pre-opening costs associated with new company-owned stores are charged to
expense as incurred. These amounts were not significant for the periods
presented in the accompanying consolidated financial statements. Pre-opening
costs associated with new franchised stores are the responsibility of the
franchisee.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
Intangible assets consist primarily of goodwill and trademarks and are
amortized using the straight-line method over 15 years. Other intangible assets
such as covenants not to compete are not significant and are being amortized
using the straight-line method over one to five years.
Deferred Loan Costs
Deferred loan costs totaling $14,870,000 resulted from the sale of
$100,000,000 total principal amount of 10 1/8 percent Series A Senior Notes
(the "Series A Senior Notes") and the sale of $40,000,000 total principal
amount of 10 1/8 percent Series C Senior Notes (the "Series C Senior Notes").
These costs are being amortized to interest expense over the approximate seven-
year life of the Series A Notes and the approximate six-year life of the Series
C Senior Notes (see Note 3).
Discount on Series C Senior Notes
The Series C Senior Notes were issued at a discount which is being amortized
to interest expense over the approximate six-year life of the related notes.
Long-Lived Assets
The Company reviews for impairment of long-lived assets when events or
changes in circumstances indicate that the book value of an asset may not be
fully recovered. The Company evaluates, at each balance sheet date, whether
events and circumstances have occurred that indicate possible impairment. The
Company uses an estimate of future undiscounted net cash flows of the related
asset or group of assets over the remaining life in measuring whether the
assets are recoverable. The Company assesses impairment of long-lived assets at
the lowest level for which there are identifiable cash flows that are
independent of other groups of assets.
During the year ended January 2, 1999, the Company wrote-down approximately
$4,131,000 of impaired long-lived assets. The write-down included approximately
$2,243,000 of equipment and leasehold improvements at company-owned stores that
the Company intends to close or franchise (see Note 5). Substantially all of
these assets were disposed of during the year ended January 1, 2000. The write-
down also included approximately $855,000 of equipment and leasehold
improvements at ten company-owned stores that the Company intends to continue
to operate through the end of contractual lease terms. These assets are
F-15
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expected to be disposed of when the leases expire ranging from June 1999 to
December 2008. Additionally, approximately $1,033,000 of goodwill that had been
allocated to the impaired assets was written-down.
During the year ended January 1, 2000, the Company wrote down approximately
$1,645,000 of impaired long-lived assets. The write down included approximately
$1,408,000 of equipment and leasehold improvements at 35 company-owned stores
that the Company intends to franchise or continue to operate through the end of
contractual lease terms. These assets are expected to be disposed of when the
leases expire or the store is franchised. Additionally, approximately $237,000
of goodwill that had been allocated to the impaired assets was written-down.
The net book value of the assets has either been fully or partially written-
down because the carrying amounts exceeded the estimated future cash flows as
determined in accordance with guidance in SFAS 121. During the years ended
January 2, 1999 and January 1, 2000, stores associated with impaired assets
generated losses of approximately $2,351,000 and $2,642,000, respectively. The
impairment provisions were included in depreciation and amortization in the
accompanying consolidated statements of operations for the years ended January
2, 1999 and January 1, 2000. No provisions were recorded for estimated future
operating losses.
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a non-
performing store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchising and licensing fee revenues are recognized when all
material services or conditions relating to the sale have been substantially
performed or satisfied. Franchise and license royalties, which are based on a
percentage of gross store sales, are recognized as earned. Revenues from the
sale of batter that the Company produces and sells to franchisees are
recognized at the time of shipment and are classified in franchising revenue.
The Company receives rebates or other payments from suppliers based (directly
or indirectly) on sales to franchisees and company-owned stores. Rebates
related to franchisees are recorded as franchising revenue when earned. Rebates
related to company-owned stores are recorded as a reduction to cost of sales
when earned.
Leases
The Company has various operating lease commitments on both company-owned and
franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases. The Company accrues contingent rental expense on a monthly
basis for those retail stores where contingent rental expense is probable.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
F-16
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the applicable balance sheet date exchange
rates, while revenues and expenses are translated using the average exchange
rates for the periods presented. Translation gains or losses are insignificant
for the periods presented.
Fair Value of Financial Instruments
The Company estimates that the total fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$135,100,000 and $113,400,000 as of January 2, 1999 and January 1, 2000,
respectively. These estimates are based on quoted market prices. The book
values of the Company's other financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
other long-term debt obligations, approximate fair values at the respective
balance sheet dates.
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. This statement is effective for fiscal years beginning after June 15, 1999
and is not expected to have a material impact on the Company's consolidated
financial statements.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year presentation.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
------------ ------------
<S> <C> <C>
Series A/B senior unsecured notes, interest at 10
1/8 percent payable semi-annually in arrears on
June 1 and December 1, due December 1, 2004...... $100,000,000 $100,000,000
Series C senior unsecured notes, interest at 10
1/8 percent payable semi-annually in arrears on
June 1 and December 1, due December 1, 2004...... 40,000,000 40,000,000
Discount related to the issuance of $40,000,000
Series C senior unsecured notes, net of
accumulated amortization of $33,000 and $110,000,
respectively..................................... (566,000) (489,000)
Notes payable to individuals or corporations with
interest terms ranging from non-interest bearing
to 15 percent, due at various dates from 1999
through 2001, requiring monthly payments......... 10,259,000 3,025,000
------------ ------------
149,693,000 142,536,000
Less current portion.............................. (8,046,000) (781,000)
------------ ------------
$141,647,000 $141,755,000
============ ============
</TABLE>
On November 26, 1997, the Company issued $100,000,000 total principal amount
of Series A Senior Notes due December 1, 2004 pursuant to an indenture between
the Company and the Bank of New York (the
F-17
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
"Indenture"). The Series A Senior Notes were issued pursuant to a private
transaction that was not subject to the registration requirements of the
Securities Act of 1933 (the "Securities Act"). On June 12, 1998, a majority of
the Series A Senior Notes were exchanged for 10 1/8% Series B Senior Notes due
December 1, 2004 (collectively, the "Series A/B Senior Notes"), which were
registered under the Securities Act.
On August 24, 1998, the Company issued $40,000,000 total principal amount of
Series C Senior Notes due December 1, 2004 in connection with the Great
American Acquisitions. The Series C Senior Notes were issued under the
Indenture which also governs the terms of the Series A/B Senior Notes in a
private transaction that was not subject to the registration requirements of
the Securities Act. The Series A/B Senior Notes and the Series C Senior Notes
will be collectively referred to as the "Senior Notes." As of January 1, 2000,
the Series C Senior Notes had not been registered under the Securities Act.
In connection with the issuance of the Series C Senior Notes, the Company
recorded a discount of approximately $600,000. This discount is being amortized
to interest expense over the approximate six-year life of the Series C Senior
Notes.
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 2001 in cash at redemption prices
defined in the Indenture, plus accrued and unpaid interest. In addition, at any
time prior to December 1, 2001, the Company may redeem up to a total of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that limit, among other things,
the ability of the Company and its subsidiaries to: (i) declare or pay
dividends or make any other payment or distribution on account of the Company's
or any of its subsidiaries' equity interest (including without limitation, any
payment in connection with any merger or consolidation involving the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any equity interest of the Company or any direct or indirect
parent of the Company or other affiliate of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any indebtedness that is subordinated to the Senior Notes,
except as payment of interest or principal at stated maturity; or (iv) make any
restricted investments except under conditions provided for in the Indenture.
The total amount of principal maturities of debt at January 1, 2000 are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000......................................................... $ 781,000
2001......................................................... 673,000
2002......................................................... 729,000
2003......................................................... 619,000
2004......................................................... 140,104,000
Thereafter................................................... 119,000
------------
$143,025,000
============
</TABLE>
Line of Credit
On February 28, 1998, the Company entered into an amended and restated line
of credit agreement with a commercial bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all
F-18
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the assets of the Company. The availability under the line of credit was
limited by the Company's Indenture to $8,055,000 as of January 1, 2000.
Borrowings under the agreement bear interest, at the Company's option, at
either the bank's prime rate or the applicable LIBOR rate plus two percent,
with interest payable monthly in arrears. The Company is also obligated to pay
the bank a commitment fee in the amount of one quarter of one percent of the
unused portion of the revolving loan commitment. As of January 1, 2000, the
Company had no outstanding borrowings under the agreement, which expires March
31, 2001. The agreement requires the Company to maintain certain financial
ratios including a minimum debt service coverage ratio. At January 1, 2000, the
Company was in compliance with the terms of the agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.......................................................... $1,192,000
2001.......................................................... 1,181,000
2002.......................................................... 1,099,000
2003.......................................................... 889,000
2004.......................................................... 297,000
Thereafter.................................................... 200,000
----------
Total future minimum lease payments......................... 4,858,000
Less amount representing interest............................. (909,000)
----------
3,949,000
Less current portion........................................ (842,000)
----------
$3,107,000
==========
</TABLE>
As of January 2, 1999 and January 1, 2000, total assets held under capital
lease arrangements were approximately $1,024,000 and $8,170,000 with
accumulated amortization of approximately $108,000 and $1,907,000 respectively.
4. INCOME TAXES
The components of the provision for income taxes for the years ended January
3, 1998, January 2, 1999 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
January 3, January 2, January 1,
1998 1999 2000
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $ 70,000 $ -- $ --
State.................................... 228,000 245,000 186,000
Foreign.................................. 57,000 71,000 32,000
Deferred:
Federal.................................. 367,000 (3,021,000) 106,000
State.................................... 55,000 (469,000) 17,000
Change in valuation allowance............ (122,000) 3,490,000 (123,000)
--------- ----------- ---------
Total provision for income taxes....... $ 655,000 $ 316,000 $ 218,000
========= =========== =========
</TABLE>
F-19
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the consolidated statements of operations are as
follows for the years ended January 3, 1998, January 2, 1999 and January 1,
2000:
<TABLE>
<CAPTION>
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory income tax rate...... 34.0% (34.0)% (34.0)%
Dividends paid by subsidiary......... 34.5 -- --
Amortization of non-deductible
goodwill............................ 12.3 7.7 25.3
Net operating losses utilized........ (3.9) -- --
State income taxes, net of federal
tax effect.......................... 5.3 (5.3) (5.3)
State franchise minimum taxes........ 44.0 1.3 2.4
Foreign taxes........................ 12.3 0.4 0.4
Change in valuation allowance........ (26.3) 19.0 (1.6)
Other................................ 29.3 12.6 15.6
----- ----- -----
Effective income tax rate.............. 141.5% 1.7% 2.8%
===== ===== =====
</TABLE>
The significant components of the Company's deferred income tax assets and
liabilities at January 2, 1999 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Property and equipment reserve..................... $ 3,311,000 $ 1,760,000
Store closure reserve.............................. 5,845,000 2,826,000
Transaction cost accrual........................... 514,000 306,000
Net operating loss carryforward.................... 12,268,000 13,095,000
Legal reserve...................................... 150,000 157,000
Other reserves..................................... 388,000 539,000
Accrued expenses................................... 529,000 450,000
Alternative minimum tax credit carryforward........ 215,000 215,000
----------- -----------
Total deferred income tax assets................. 23,220,000 19,348,000
Valuation allowance................................ (15,560,000) (15,683,000)
----------- -----------
Deferred income tax assets net of valuation
allowance....................................... 7,660,000 3,665,000
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation and amortization.......... (3,464,000) (16,000)
Other.............................................. (697,000) (150,000)
----------- -----------
Total deferred income tax liabilities............ (4,161,000) (166,000)
----------- -----------
Net deferred income tax assets................... $ 3,499,000 $ 3,499,000
=========== ===========
</TABLE>
Management has provided valuation allowances on portions of the deferred
income tax assets arising from the Company's business combinations. The
valuation allowances established in connection with purchase accounting are not
recorded through the provision for income taxes, but rather, as an increase to
goodwill. During the years ended January 3, 1998 and January 2, 1999, valuation
allowances of $800,000 and $6,910,000, respectively, were recorded in
connection with accounting for business combinations.
F-20
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 1, 2000, the Company had net operating losses of $33,337,000
that can be carried forward to offset federal income taxes. If not utilized,
the tax net operating loss carryforwards begin to expire in 2009. As defined in
Section 382 of the Internal Revenue Code, the Company has acquired companies
which have had a greater than 50 percent ownership change. Consequently, a
certain amount of these companies' tax net operating loss carryforwards
available to offset future taxable income in any one year may be limited. The
maximum amount of carryforwards available in a given year is limited to the
product of these companies' value on the date of ownership change and the
federal long-term tax-exempt rate, plus any limited carryforwards not utilized
in prior years. Although realization of the net deferred income tax assets of
$3,499,000 is not assured, management believes that it is more likely than not
that these assets will be realized. The amount of net deferred tax assets
considered realizable, however, could be reduced in the near term based on
changing conditions.
5. STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
The Company's management reviews the historical and projected operating
performance of its stores on a periodic basis to identify underperforming
stores for impairment of net property investment or for targeted closing. The
Company's policy is to recognize a loss for that portion of the net property
investment determined to be impaired. Additionally, when a store is identified
for targeted closing, the Company's policy provides for the costs of closing
the store, which are predominantly estimated lease termination costs. Lease
termination costs include both one-time settlement payments and continued
contractual payments over time under the original lease agreements where no
settlement can be resolved with the landlord. As a result, although all stores
under the current exit plans will be exited by at least the end of fiscal year
2000, a portion of the store closure reserve will remain until all cash
payments have been made. The Company did not accrue for future expected
operating losses. If and when a reserve that was established as part of
purchase accounting is not fully utilized, the Company reduces the reserve to
zero and goodwill is adjusted for the corresponding amount.
During fiscal year 1999, in accordance with accounting principles generally
accepted in the United States, the Company reassessed its lease termination
obligations on a store by store basis for stores closed or targeted for
closing. Management reassessed the remaining store closure reserves based on
all available relevant data. A portion of the reversal of the reserves was
recorded as a reduction to goodwill for those stores that had reserves
established at the time of an acquisition in accordance with Emerging Issues
Task force Issue 95-3 ("EITF 95-3"). The remaining portion of the reversal of
the reserves was recorded to the store closure provision (benefit) in the
accompanying consolidated statement of operations for those stores that
initially had reserves established through that income statement line item in
accordance with the SEC Staff Accounting Bulletin No. 100, "Restructuring and
Impairment Charges". As of January 1, 2000, the remaining store closure reserve
was $7,194,000.
Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates
In connection with the Mrs. Fields Inc. and Original Cookie Company
acquisitions (see Note 1), the Company formulated a plan to exit certain stores
that did not meet certain financial and geographical criteria. In general, the
plan entailed closing stores that were not profitable and franchising stores
that were profitable but contributed less than $50,000 in store annual cash
contribution for cookie stores and less than $35,000 in annual store cash
contribution for pretzel stores. Management identified 138 stores to be closed
(13 of these stores were closed prior to the acquisition but had continuing
lease obligations) and 64 stores to be franchised. As of January 1, 2000, there
were no stores remaining to be closed and 14 stores remaining to be franchised.
Management estimates that the remaining stores will be franchised during the
first quarter of fiscal year 2000.
F-21
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3 ("EITF 95-3"), the Company established a store closure reserve
of $5,060,000 for the 138 stores the Company intended to close.
The reserve was established to provide for estimated early lease termination
costs and penalties. There was no reserve established related to the 64 stores
to be franchised. Management continued to refine the plan for closing the
stores after the date of the acquisitions which entailed further analysis of
lease agreements and meeting with developers to assess timing and estimated
lease termination costs.
Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions. At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized
plan estimates of lease termination costs and adjusted goodwill by a comparable
amount under the provisions of purchase accounting. The increase in the reserve
related solely to the 138 stores originally identified to be closed. During the
year ended January 2, 1999, the Company reassessed the adequacy of the store
closure reserve related to the remaining stores left to be closed and recorded
an additional $1,693,000 to the reserve. The additional $1,693,000 resulted
from management's expectation of higher lease termination costs than the costs
originally anticipated when the plan was finalized. This portion of the store
closure reserve was expensed in the Company's statement of operations for the
fiscal year ended January 2, 1999 as the decision to increase the reserve was
made subsequent to finalization of the original plan.
Pursuant to the exit plan, at the date of the acquisitions, the Company
established an impairment reserve of $10,921,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value. The property and equipment of 117 of the total
stores to be closed were recorded at net values of zero. The property and
equipment of 54 of the total stores to be franchised were recorded at the
estimated net realizable amount recoverable through a franchise sale. The
property and equipment of the remainder of the stores to be closed or
franchised had already been reduced to net realizable value prior to the
acquisitions.
During the fiscal year ended January 3, 1998, the Company increased its store
closure reserve by $538,000 for nine continuing company-owned stores that were
closed during fiscal year 1997 and for one continuing company-owned store
targeted for closure. These costs represent lease termination costs which
include both one-time settlement payments and continued contractual payments
over time under the original lease agreements where no settlement has been
reached with the landlord. The amount also includes certain costs to write-down
equipment and leasehold improvements to their net realizable value. This
portion of the store closure reserve was expensed in the Company's consolidated
statement of operations for the year ended January 3, 1998, as these stores
were not identified for closure as part of any of the Company's store closure
plan associated with the business combinations.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit 35 Mrs. Fields stores that
were not meeting certain financial and geographical criteria. The plan also
committed the Company to exit seven underperforming franchised stores that the
Company determined to disenfranchise as of January 2, 1999. The identified
stores to be exited under this plan are not part of the stores in the process
of being closed in connection with the business combination exit plan discussed
above. These stores were originally identified as continuing company-owned
stores at the date of acquisition, however, the stores have not performed as
expected. The Company intends to exit the stores primarily through closing and
franchising. In connection with this plan, the Company increased the store
closure reserve by $4,674,000 primarily for costs to be incurred for settling
lease termination costs for these stores. All of the stores identified for
closure are planned to be closed or franchised by the end of fiscal 2000. The
charge was included in the store closure provision in the accompanying
consolidated statement of operations for the year ended January 2, 1999.
F-22
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
H&M
In connection with the H&M acquisition (see Note 1), the Company formulated a
plan to exit pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed and 14
stores to be franchised. At the date of the acquisition, in accordance with
EITF 95-3, the Company established a store closure reserve of $1,000,000 for
the 11 stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties.
Additionally, the Company established an impairment reserve of $2,500,000
against the property and equipment of the stores the Company planned to exit,
in order to record those assets at net realizable value. All of the stores
identified to be exited were closed or franchised by the end of fiscal year
1999.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five H&M stores that were
not meeting certain financial and geographical criteria. The stores identified
to be exited under this plan were not part of the stores in the process of
being closed in connection with the business combination exit plan discussed
above. In connection with this plan, the Company increased the store closure
reserve by $367,000 primarily for costs to be incurred for settling lease
termination costs for these stores. The charge was included in the store
closure provision in the accompanying consolidated statement of operations for
the year ended January 2, 1999. All of the stores identified for closure were
closed or franchised by the end of fiscal year 1999.
Pretzel Time
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit pretzel stores that did not meet certain financial
and geographical criteria. Management identified four stores to be closed. At
the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the four stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. All of the stores identified for closure
were closed by the end of fiscal year 1999.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five Pretzel Time stores
that were not meeting certain financial and geographical criteria. The
identified stores to be exited under this plan are not part of the stores in
the process of being closed in connection with the business combination exit
plan discussed above. In connection with this plan, the Company increased the
store closure reserve by $264,000 primarily for costs to be incurred for
settling lease termination costs for these stores. The charge was included in
the store closure provision in the accompanying consolidated statement of
operations for the year ended January 2, 1999. All of the stores identified for
closure were closed or franchised by the end of fiscal year 1999.
Great American
In connection with the Great American Acquisitions (see Note 1), the Company
formulated a plan to exit cookie stores that did not meet certain financial and
geographical criteria. Management identified 54 stores to be closed and 11
stores to be franchised. At the date of the acquisitions, in accordance with
EITF 95-3, the Company established a store closure reserve of $3,548,000 for
the 54 stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties. There was no
reserve established related to the 11 stores to be franchised. The Company
established an impairment reserve of $2,150,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value. All of the stores identified for closure are
planned to be closed by the end of fiscal year 2000. The timing to implement
the plan was developed based on discussions and relationships with major
shopping mall developers.
F-23
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five underperforming Great
American franchised stores that the Company determined to disenfranchise as of
January 2, 1999. The identified stores to be exited under this plan were not
part of the stores in the process of being closed in connection with the
business combination exit plan discussed above. These stores were originally
franchised stores at the date of acquisition, however, the stores have not
performed as expected. In connection with this plan, the Company increased the
store closure reserve by $305,000 primarily for costs to be incurred for
settling lease termination costs for these stores. The charge was included in
the store closure provision in the accompanying consolidated statement of
operations for the year ended January 2, 1999. All of the stores identified for
closure were closed by the end of fiscal year 1999.
Pretzelmaker
In connection with the Pretzelmaker acquisition (see Note 1), the Company
formulated a plan to exit pretzel stores that did not meet certain financial
and geographical criteria. Management identified seven stores to be closed. At
the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven stores the
Company intended to close. The reserve was established to provide for estimated
early lease termination costs and penalties. Additionally, the Company
established an impairment reserve of $327,000 against the property and
equipment of the stores the Company planned to exit in order to record those
assets at net realizable value. All of the stores identified for closure were
closed by the end of fiscal year 1999.
F-24
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Analysis
The following table presents a summary of the activity in the store closure
reserve for the periods indicated for stores to be closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie Co. H&M Pretzel Time Great American
------------------------ ----------------------- ----------------------- ------------------------
Company- Company- Company- Company-
Business Owned Owned Owned Owned
Combination Stores Stores Stores Stores
and Unrelated Unrelated Unrelated Unrelated
Subsequent to Business to Business to Business to
Adjustments Acquisition Combination Acquisition Combination Acquisition Combination Acquisition
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception,
September 16,
1996............ $ 5,060,000 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Utilization from
inception
(September 16,
1996) to
December 28,
1996............ (305,000) -- -- -- -- -- --
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance,
December 28,
1996............ 4,755,000 -- -- -- -- -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
July 25, 1997... -- -- 1,000,000 -- -- -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
September 2,
1997............ -- -- -- -- 500,000 -- -- --
Finalization of
store closure
plan for
obligations
related to
stores
originally
identified...... 1,357,000 -- -- -- -- -- -- --
Provision for
continuing
company-owned
stores targeted
for closure..... 538,000 -- -- -- -- -- --
Utilization for
the 53 weeks
ended January 3,
1998............ (2,145,000) (538,000) -- -- (1,000) -- -- --
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance, January
3, 1998......... 3,967,000 -- 1,000,000 -- 499,000 -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
August 24,
1998............ -- -- -- -- -- -- 3,548,000 --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
November 29,
1998............ -- -- -- -- -- -- -- --
Additional
reserves for
stores
originally
identified for
closure upon
acquisition,
January 2,
1999............ 1,693,000 -- -- -- -- -- -- --
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 2,
1999............ -- 4,674,000 -- 367,000 -- 264,000 -- 305,000
Utilization for
the 52 weeks
ended January 2,
1999............ (1,932,000) -- (19,000) -- (6,000) (149,000) --
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance, January
2, 1999......... 3,728,000 4,674,000 981,000 367,000 493,000 264,000 3,399,000 305,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 1,
2000............ 810,000 -- 151,000 85,000 66,000 -- -- 389,000
Reversal during
the 52 weeks
ended January 1,
2000............ (1,524,000) (2,093,000) (418,000) -- (362,000) (155,000) (1,159,000) (100,000)
Utilization for
the 52 weeks
ended January 1,
2000............ (1,400,000) (1,001,000) (178,000) (158,000) (88,000) (23,000) (566,000) (49,000)
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance, January
1, 2000......... $ 1,614,000 $ 1,580,000 $ 536,000 $ 294,000 $ 109,000 $ 86,000 $ 1,674,000 $ 545,000
=========== =========== ========= ========= ========= ========= =========== =========
<CAPTION>
Pretzelmaker Consolidated
----------------------- ---------------------------------------
Company- Company-
Business Owned Business Owned Total
Combination Stores Combination Stores Business
and Unrelated and Unrelated Combinations
Subsequent to Subsequent to and Company-
Adjustments Acquisition Adjustments Acquisition Owned Stores
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Inception,
September 16,
1996............ $ -- $ -- $ 5,060,000 $ -- $ 5,060,000
Utilization from
inception
(September 16,
1996) to
December 28,
1996............ -- -- (305,000) -- (305,000)
----------- ----------- ------------ ------------ -------------
Balance,
December 28,
1996............ -- -- 4,755,000 -- 4,755,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
July 25, 1997... -- -- 1,000,000 -- 1,000,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
September 2,
1997............ -- -- 500,000 -- 500,000
Finalization of
store closure
plan for
obligations
related to
stores
originally
identified...... -- -- 1,357,000 -- 1,357,000
Provision for
continuing
company-owned
stores targeted
for closure..... -- -- -- 538,000 538,000
Utilization for
the 53 weeks
ended January 3,
1998............ -- -- (2,146,000) (538,000) (2,684,000)
----------- ----------- ------------ ------------ -------------
Balance, January
3, 1998......... -- -- 5,466,000 -- 5,466,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
August 24,
1998............ -- 3,548,000 -- 3,548,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
November 29,
1998............ 500,000 -- 500,000 -- 500,000
Additional
reserves for
stores
originally
identified for
closure upon
acquisition,
January 2,
1999............ -- -- 1,693,000 -- 1,693,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 2,
1999............ -- -- -- 5,610,000 5,610,000
Utilization for
the 52 weeks
ended January 2,
1999............ -- -- (2,106,000) -- (2,106,000)
----------- ----------- ------------ ------------ -------------
Balance, January
2, 1999......... 500,000 -- 9,101,000 5,610,000 14,711,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 1,
2000............ 88,000 650,000 1,115,000 1,124,000 2,239,000
Reversal during
the 52 weeks
ended January 1,
2000............ (366,000) -- (3,830,000) (2,347,000) (6,177,000)
Utilization for
the 52 weeks
ended January 1,
2000............ (117,000) -- (2,348,000) (1,231,000) (3,579,000)
----------- ----------- ------------ ------------ -------------
Balance, January
1, 2000......... $ 105,000 $650,000 $ 4,038,000 $ 3,156,000 $ 7,194,000
=========== =========== ============ ============ =============
</TABLE>
F-25
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores originally
identified to be closed or franchised in connection with the applicable
business combination for the periods indicated. This table does not include a
summary of activity for stores the Company intends to close or franchise that
were not originally identified in connection with a business combination.
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original
Cookie Co. H&M Pretzel Time Great American Pretzelmaker Consolidated
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stores
identified for
closure or
franchise at
inception,
September 18,
1996............ 138 64 -- -- -- -- -- -- -- -- 138 64
Stores closed
prior to
Inception....... (13) -- -- -- -- -- -- -- -- -- (13) --
Stores closed or
franchised from
Inception
(September 18,
1996)
to December 28,
1996............ (17) (3) -- -- -- -- -- -- -- -- (17) (3)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance,
December 28,
1996............ 108 61 -- -- -- -- -- -- -- -- 108 61
Stores
identified for
closure or
franchise upon
acquisition,
July 25, 1997... -- -- 11 14 -- -- -- -- -- -- 11 14
Stores
identified for
closure or
franchise upon
acquisition,
September 2,
1997............ -- -- -- -- 4 -- -- -- -- -- 4 --
Stores closed or
franchised from
December 28,
1996 to January
3, 1998......... (70) (9) (3) -- -- -- -- -- -- -- (73) (9)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
3, 1998......... 38 52 8 14 4 -- -- -- -- -- 50 66
Stores
identified for
closure or
franchise upon
acquisition,
August 24,
1998............ -- -- -- -- -- -- 54 11 -- -- 54 11
Stores
identified for
closure or
franchise upon
acquisition,
November 19,
1998............ -- -- -- -- -- -- -- -- 7 -- 7 --
Stores closed or
franchised for
the 52 weeks
ended January 2,
1999............ (15) (16) (2) (7) (1) -- (11) -- -- -- (29) (23)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
2, 1999......... 23 36 6 7 3 -- 43 11 7 -- 82 54
Stores closed,
franchised or
reversed for the
52 weeks ended
January 1,
2000............ (23) (22) (6) (7) (3) -- (37) (10) (7) -- (76) (39)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
1, 2000......... -- 14 -- -- -- -- 6 1 -- -- 6 15
=== === === === === === === === === === === ===
</TABLE>
F-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 the Company
intends to close or franchise that were not originally identified to be closed
or franchised in connection with a business combination:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and
Original Cookie
Co. H&M Pretzel Time Great American Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stores identified for
closure (not included in
the original store
closure plan), during
the 52 weeks ended
January 3, 1998......... 10 -- -- -- -- -- -- -- 10 --
Stores closed or
franchised during the 52
weeks ended January 3,
1998.................... (9) -- -- -- -- -- -- -- (9) --
--- ---- ---- ---- ---- ---- ---- ---- --- -----
Balance, January 3,
1998.................... 1 -- -- -- -- -- -- -- 1 --
Stores identified for
closure or franchise
(not included in the
original store closure
plan), January 2, 1999.. 20 10 4 1 2 3 5 -- 31 14
Stores closed or
franchised for the 52
weeks ended January 2,
1999.................... (1) (2) -- -- -- -- -- (3) --
--- ---- ---- ---- ---- ---- ---- ---- --- -----
Balance, January 2,
1999.................... 20 10 2 1 2 3 5 -- 29 14
Stores closed or
franchised for the 52
weeks ended January 1,
2000.................... (17) (6) (2) (1) (2) (2) (5) -- (26) (9)
--- ---- ---- ---- ---- ---- ---- ---- --- -----
Balance, January 1,
2000.................... 3 4 -- -- -- 1 -- -- 3 5
=== ==== ==== ==== ==== ==== ==== ==== === =====
</TABLE>
F-27
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Store Closure Reserve Payment Obligations
As of January 1, 2000, the future estimated cash payments under the store
closure reserve are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.......................... $3,665,000
2001.......................... 1,401,000
2002.......................... 802,000
2003.......................... 591,000
2004.......................... 415,000
Thereafter.................... 320,000
----------
$7,194,000
==========
</TABLE>
The following table presents a summary of changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the periods indicated for stores to be
closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields
Inc. and
Original Great
Cookie Co. H&M American Pretzelmaker Consolidated
----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $10,921,000 $ -- $ -- $ -- $10,921,000
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be closed.... (854,000) -- -- -- (854,000)
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be
franchised............. (215,000) -- -- -- (215,000)
----------- ---------- ----------- --------- -----------
Balance, December 28,
1996................... 9,852,000 -- -- -- 9,852,000
To record property and
equipment impairment
upon acquisition, July
25, 1997............... -- 2,500,000 -- -- 2,500,000
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
closed................. (3,299,000) (208,000) -- -- (3,507,000)
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
franchised............. (492,000) -- -- -- (492,000)
----------- ---------- ----------- --------- -----------
Balance, January 3,
1998................... 6,061,000 2,292,000 -- -- 8,353,000
To record property and
equipment impairment
upon acquisition,
August 24, 1998........ -- -- 2,150,000 -- 2,150,000
To record property and
equipment impairment
upon acquisition,
September 9, 1998...... -- -- 973,000 -- 973,000
To record property and
equipment impairment
upon acquisition,
November 19, 1998...... -- -- -- 327,000 327,000
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be closed........... (1,782,000) (93,000) (246,000) -- (2,121,000)
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be franchised....... (435,000) (819,000) -- -- (1,254,000)
----------- ---------- ----------- --------- -----------
Balance, January 2,
1999................... 3,844,000 1,380,000 2,877,000 327,000 8,428,000
Addition to impairment
for the 52 weeks ended
January 1, 2000 related
to stores to be
closed................. 86,000 5,000 25,000 -- 116,000
Addition to impairment
for 52 weeks ended
January 1, 2000 related
to stores to be
franchised............. 443,000 11,000 -- -- 454,000
Utilization for the 52
weeks ended January 1,
2000 related to stores
to be closed........... (1,192,000) (410,000) (1,434,000) (158,000) (3,194,000)
Utilization for the 52
weeks ended January 1,
2000 related to stores
to be franchised....... (935,000) (346,000) (41,000) -- (1,322,000)
----------- ---------- ----------- --------- -----------
Balance, January 1,
2000................... $ 2,246,000 $ 640,000 $ 1,427,000 $ 169,000 $ 4,482,000
=========== ========== =========== ========= ===========
</TABLE>
F-28
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.
The mandatorily redeemable cumulative preferred stock of Pretzel Time (the
"Pretzel Time Preferred Stock") is nonvoting and the preferred stockholders are
entitled to cumulative preferred dividends of ten percent for three years,
accrued and payable upon redemption. The Pretzel Time Preferred Stock must be
redeemed at $10,000 per share, plus unpaid and accumulated dividends. The
excess of the redemption price over the carrying value was accreted over the
period from issuance through September 1, 1999, using the effective interest
method and was charged to the accumulated deficit of Pretzel Time. During the
period from the acquisition of a majority ownership in Pretzel Time (September
2, 1997) to January 1, 2000, Pretzel Time increased the liquidation preference
of the Pretzel Time Preferred Stock by $307,000, in lieu of paying cash
dividends. In addition, the Pretzel Time Preferred Stock was increased by
$736,000, for the accretion required over time to amortize the original issue
discount incurred at the time of issuance.
As of January 1, 2000, the liquidation preference and the recorded amount in
the accompanying consolidated balance sheet was $1,070,000. Subsequent to
January 1, 2000, the Company redeemed all of the remaining Pretzel Time
Preferred Stock for $1,070,000.
7. COMMITMENTS AND CONTINGENCIES
Stock Pledged as Collateral
Mrs. Fields' Holding has pledged all of the Company's capital stock as
collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the "Mrs. Fields' Holding Discount Notes"). Mrs. Fields'
Holding issued the Mrs. Fields' Holding Discount Notes on August 24, 1998, in
connection with the Great American Acquisitions and the Mrs. Fields' Holding
equity contribution (see Note 1). In connection with the issuance of the
$55,000,000 principal amount at maturity of Mrs. Fields' Holding Discount
Notes, Mrs. Fields' Holding recorded an total original issue discount of
approximately $24,136,000. The principal amount of the Mrs. Fields' Holding
Discount Notes will accrete at a rate of 14 percent compounded semi-annually to
a total principal amount of $55,000,000 at December 1, 2002. Thereafter, the
Mrs. Fields' Holding Discount Notes will accrue interest at the annual rate of
14 percent, payable semi-annually on June 1 and December 1 of each year,
commencing June 1, 2003.
Mrs. Fields' Holding is a holding company and does not have separate
operations from which it can generate cash flows. Under the circumstances, Mrs.
Fields' Holding would likely be dependent on its owners' and the Company's cash
flows to make principal and interest payments when due. Interest payments
totaling $7,700,000 per year will commence in 2003. The Company has not
guaranteed, nor is it obligated to make principal or interest payments related
to the Mrs. Fields' Holding Discount Notes. However, in accordance with the
Company's Indenture, the Company may pay dividends to Mrs. Fields' Holding, in
order for Mrs. Fields' Holding to service the debt, if no default or event of
default occurs under the Indenture and certain fixed charge coverage ratios and
consolidated net income tests are met. The Mrs. Fields' Holding Discount Notes
are effectively subordinated to the Company's Senior Notes.
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. Management, after consultation with legal
counsel, believes that the potential liability to the Company under any such
actions is adequately accrued for or will not materially affect the Company's
consolidated financial position or results of operations.
F-29
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to ten years. Certain of the retail store leases provide for contingent rentals
based on gross revenues. Additionally, as part of the Company's franchising
program, certain locations have been subleased to franchisees.
Rent expense was as follows for the periods presented:
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 3, 1998 January 2, 1999 January 1, 2000
--------------- --------------- ---------------
<S> <C> <C> <C>
Minimum
rentals........ $30,654,000 $ 36,834,000 $ 35,510,000
Contingent
rentals........ 432,000 553,000 415,000
Sub-lease
rentals........ (8,756,000) (12,550,000) (10,487,000)
----------- ------------ ------------
$22,330,000 $ 24,837,000 $ 25,438,000
=========== ============ ============
</TABLE>
As of January 1, 2000, the future minimum lease payments due under operating
leases (including future minimum lease payments for stores in the process of
being closed or franchised), which include required lease payments for those
stores that have been subleased, are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000............................ $ 32,513,000
2001............................ 27,832,000
2002............................ 23,957,000
2003............................ 19,691,000
2004............................ 15,163,000
Thereafter...................... 28,650,000
------------
$147,806,000
============
</TABLE>
As of January 2, 1999, the future minimum sublease payments due to the
Company under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000............................. $11,510,000
2001............................. 9,617,000
2002............................. 8,261,000
2003............................. 6,619,000
2004............................. 4,754,000
Thereafter....................... 6,066,000
-----------
$46,827,000
===========
</TABLE>
Contractual Arrangements
The Company entered into a supply agreement to buy frozen dough products
through 2000. The agreement stipulates minimum annual purchase commitments of
not less than 23,000,000 pounds of the products each year through the end of
the contract. The terms of the supply agreement include certain volume
incentives and penalties. The Company and the supplier may terminate the supply
agreement if the other party defaults on any of the performance covenants.
F-30
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 2, 1999 and January 1, 2000 were approximately
$295,000 and $92,000, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee obligations which are in default
as defined. As of January 1, 2000, the Company has assumed obligations totaling
approximately $33,000 which are included in the current portion of long-term
debt in the accompanying consolidated balance sheet.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred credits represent volume rebates associated
with the assumption of a long-term marketing and supply agreement with a
supplier in connection with the Mrs. Fields Inc. and affiliates and Original
Cookie Company and affiliates business combinations discussed in Note 1. Under
terms of the agreement, the Company is obligated to purchase a minimum amount
of product from the supplier. The supplier periodically prepays rebates to the
Company for anticipated purchases. The Company records the prepayments as
deferred credits and amortizes them ratably as purchases are made from the
supplier. This agreement was amended in January 1997 and an additional $600,000
in deferred credits were recorded. The amended agreement expires on the later
of December 31, 2003 or when the Company has met its revised purchase
commitment. In conjunction with this amendment, certain minimum commitments
from the previous agreement were carried forward and others were forgiven.
Additionally, in November 1997, Pretzel Time entered into a long-term marketing
and supply agreement with a supplier. Under terms of the agreement, the Company
is obligated to purchase a minimum amount of product from the supplier. An
additional $437,000 in deferred credits were recorded under this agreement. The
termination date of this agreement will be the later of December 31, 2003 or
when Pretzel Time has met its purchase commitment. Under these agreements, the
Company recognized approximately $1,393,000, and $812,000 primarily as a
reduction to food cost of sales during the years ended January 3, 1998 and
January 2, 1999.
In connection with the Pretzelmaker acquisition the Company recorded deferred
credits of approximately $170,000 relating to a long-term marketing and supply
agreement that Pretzelmaker had entered into in November of 1997, which was
later amended in April of 1998. Under the terms of the agreement, the Company
is obligated to purchase a minimum amount of product from the supplier. Under
this agreement the Company recognized approximately $40,000 primarily as a
reduction to food cost of sales during fiscal 1999. The termination date of
this agreement is April 2003.
In November 1996, the Company entered into a consulting agreement with Debbi
Fields, a former director of the Company, under which Debbi Fields traveled and
performed public relations and advertising activities on behalf of the Company
for at least 50 days a year for a fee of $250,000 per year, with an option to
perform these services for 20 additional days a year for additional pay of
$5,000 per day. The compensation increased by 10 percent for 1999. The
consulting agreement expired on December 31, 1999 and is not expected to be
renewed.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for a total annual base
salary of $1,172,000. If the Company terminates employment without cause, or
the employee terminates employment with good reason, the employee can receive
in severance pay the amount equal to the product of his or her then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the notice of termination or 36 to 48 semi-monthly periods, plus a portion
of any discretionary bonus that would otherwise have been payable. The
agreements have customary provisions for other benefits and also include
noncompetition clauses.
F-31
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. RELATED-PARTY TRANSACTIONS
As of January 2, 1999 and January 1, 2000, the Company had receivables due
from franchisees and licensees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $6,003,000
and $3,708,000, respectively. These amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $1,078,000 and $821,000, respectively.
As of January 2, 1999 and January 1, 2000, the Company had a net payable and
a net receivable of approximately $150,000 and $642,000, respectively, with
Mrs. Fields' Holding. The amounts due to or from Mrs. Fields' Holding are
recorded in prepaid rent and other in the accompanying consolidated balance
sheets.
During the years ended January 3, 1998, the Company accrued approximately
$441,000 of interest expense due to Mrs. Fields' Holding related to the
convertible subordinated notes Mrs. Fields' Holding purchased. Mrs. Fields'
Holding converted all of the $4,643,000 convertible subordinated notes to
equity and the notes were cancelled (see Note 3) in 1997.
The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling
approximately $157,000 and $70,600 and $35,200, during the years ended January
3, 1998, January 2, 1999 and January 1, 2000, respectively. Korn/Ferry is an
executive search firm of which one of the Company's directors is the Chairman.
A director of the Company is a consultant and an advisor to Dillon Read &
Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the restructuring of the Company in
September 1996. The director's company did not receive a fee from the Company
during the fiscal years ended January 2, 1999 or January 1, 2000. The Company
believes that the arrangements were on terms that could have been obtained from
an unaffiliated third party.
As of January 2, 1999, the Company has a loan due from the founder and
minority stockholder of Pretzel Time totaling $567,000. The note bears interest
at an annual rate of ten percent and is payable in monthly installments of
principal and interest beginning January 1998 by setoff of, and to the extent
of, the founder's bonus payments and dividends received by the founder in his
Pretzel Time stock; provided that in any calendar year no more than $100,000
may be so offset. In addition, as of January 2, 1999, the Company is due
approximately $451,000 from the founder in connection with certain lease
payments related to the purchase of Pretzel Time for which the Company is
indemnified. These amounts are recorded in accounts receivable and other assets
in the accompanying consolidated balance sheets.
In May 1999, Mrs. Fields, Mrs. Fields' Holding, Pretzel Time, a former
Pretzel Time shareholder and Capricorn entered into an assignment and
assumption agreement under which Capricorn agreed to assume a payment
obligation of Mrs. Fields of $2,000,000 for Pretzel Time stock held by the
former shareholder that was due on December 31, 1999. In a related transaction
on the same date, Capricorn and Mrs. Fields' Holding entered into a
contribution agreement under which Mrs. Fields' Holding and Capricorn agreed to
treat the assumption by Capricorn of the Mrs. Fields payment obligation as a
capital contribution from Capricorn to Mrs. Fields' Holding, and as a capital
contribution from Mrs. Fields' Holding to Mrs. Fields.
The Company and Mrs. Fields' Holding expect to enter into a tax-sharing
arrangement but as of the date of these financial statements no such agreement
has been finalized.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k)
Retirement Savings Plan (the "Plan") for all eligible employees. Under the
terms of the Plan, employees may make contributions to the
F-32
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plan, a portion of which is matched by contributions from the Company. The
total Company contributions to the Plan for the years ended January 3, 1998,
January 2, 1999 and January 1, 2000 were approximately $97,900, $171,000 and
$168,000, respectively.
10. REPORTABLE SEGMENTS
Operating segments are components of the Company for which separate financial
information is available that is evaluated regularly by the Chief Operating
decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance. Mrs. Fields has two reportable
operating segments; namely, company-owned stores and related activity and
franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise or license fee and monthly royalties based on a percentage of
gross sales and other licensing activity not related to cookie or pretzel
stores. The accounting policies for the segments are discussed in the summary
of significant accounting policies (see Note 2). Sales and transfers between
segments are eliminated in consolidation.
Mrs. Fields evaluates performance of each segment based on contribution
margin. Mrs. Fields does not allocate any interest income, interest expense,
depreciation and amortization or assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table:
<TABLE>
<CAPTION>
Franchising,
Company- Licensing
Owned Stores and Other Total
------------ ------------ ------------
<S> <C> <C> <C>
Year ended January 3, 1998
Revenue................................. $127,845,000 $ 6,563,000 $134,408,000
Contribution Margin..................... 28,985,000 6,563,000 35,548,000
Year ended January 2, 1999
Revenue................................. 140,235,000 14,001,000 154,236,000
Contribution Margin..................... 30,337,000 10,414,000 40,751,000
Year ended January 1, 2000
Revenue................................. 152,268,000 28,669,000 180,937,000
Contribution Margin..................... 31,189,000 23,791,000 54,980,000
</TABLE>
The reconciliation of contribution margin to net income (loss) is as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998 Fiscal 1999
------------ ------------ ------------
<S> <C> <C> <C>
Contribution margin.................. $ 35,548,000 $ 40,751,000 $ 54,980,000
General and administrative expense... (16,192,000) (19,017,000) (21,972,000)
Store closure (provision) benefit.... (538,000) (7,303,000) 1,579,000
Depreciation and amortization........ (10,403,000) (19,820,000) (24,206,000)
Interest expense, net................ (7,584,000) (12,574,000) (17,827,000)
Other expense, net................... (1,805,000) (1,180,000) (775,000)
------------ ------------ ------------
Net income (loss).................... $ (974,000) $(19,143,000) $ (8,221,000)
============ ============ ============
</TABLE>
F-33
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic
Domestic International Franchising International
Company-owned Company-owned and Franchising
Stores Stores Licensing and Licensing
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue
Fiscal 1997............... $127,736,000 $109,000 $ 6,150,000 $413,000
Fiscal 1998............... 140,018,000 217,000 13,738,000 263,000
Fiscal 1999............... 152,249,000 19,000 28,450,000 219,000
</TABLE>
Revenues from international franchising and licensing are secured from Canada
and Australia with no other countries having material representation. Revenues
from international company-owned stores are immaterial.
There were no customers who accounted for more than 10 percent of Mrs.
Fields' total revenue or either segments' revenue. The Company has a $1,326,000
receivable due from one company which represents 14.8 percent of the Company's
total receivables.
11. SUBSEQUENT EVENT
On February 9, 2000, Capricorn, Investors III, L.P., an affiliate of
Capricorn, entered into an agreement to acquire TCBY Enterprises, Inc.
("TCBY"), a retail snack food company. It is expected that, if this acquisition
is completed, Mrs. Fields will enter into a management agreement to provide
management services to TCBY. If completed, this acquisition would occur no
earlier than the second quarter of fiscal year 2000. We cannot be sure that
this acquisition will be completed, and there has been no agreement signed
regarding the terms of the management agreement. Management of Mrs. Fields
believes that, if completed, this acquisition would offer Mrs. Fields the
opportunity to sell its products in TCBY stores.
12. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's obligation related to its $140,000,000 total principal amount
of Senior Notes due 2004 (see Note 3) is fully and unconditionally guaranteed
on a joint and several basis and on a senior basis by four of the Company's
wholly owned subsidiaries (the "Guarantors"). These guarantees are general
unsecured obligations of the Guarantors, rank senior in right of payment to all
subordinated indebtedness of the Guarantors and rank pari passu in right of
payment with all existing and future senior indebtedness of the Guarantors.
There are no restrictions on the Company's ability to obtain cash dividends or
other distributions of funds from the Guarantors, except those imposed by
applicable law. The following supplemental financial information sets forth, on
a condensed consolidating basis, balance sheets, statements of operations and
statements of cash flows for Mrs. Fields' Original Cookies, Inc. (the "Parent
Company"), Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc.,
Pretzelmaker Holdings, Inc., which are Guarantors, and Pretzel Time, Inc.,
which will become a Guarantor (collectively, the "Guarantor Subsidiaries") and
Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M
Canada and Pretzelmaker of Canada, and three partially owned subsidiaries,
(collectively, the "Non-guarantor Subsidiaries"). The Company has not presented
separate financial statements and other disclosures concerning the Guarantor
Subsidiaries because management has determined that such information is not
material to investors.
F-34
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $125,991 $ 2,004 $7,077 $ (664) $134,408
-------- ------- ------ ------ --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 63,765 -- 3,731 (664) 66,832
Cost of sales......... 31,173 -- 855 -- 32,028
General and
administrative....... 14,215 1,066 911 -- 16,192
Store closure
provision............ 538 -- -- -- 538
Depreciation and
amortization......... 8,745 1,125 533 -- 10,403
-------- ------- ------ ------ --------
Total operating
costs and
expenses........... 118,436 2,191 6,030 (664) 125,993
-------- ------- ------ ------ --------
Income (loss) from
operations......... 7,555 (187) 1,047 -- 8,415
INTEREST EXPENSE AND
OTHER, net............. (6,329) (1,230) (393) -- (7,952)
-------- ------- ------ ------ --------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 1,226 (1,417) 654 -- 463
PROVISION FOR INCOME
TAXES.................. (535) (25) (95) -- (655)
-------- ------- ------ ------ --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 691 (1,442) 559 -- (192)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (338) (306) -- (644)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (1,665) -- -- 1,527 (138)
-------- ------- ------ ------ --------
NET INCOME (LOSS)....... $ (974) $(1,780) $ 253 $1,527 $ (974)
======== ======= ====== ====== ========
</TABLE>
F-35
<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-36
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
Accounts receivable,
net.................. 2,860 304 44 -- 3,208
Amounts due from
franchisees and
licensees, net....... 1,297 4,706 -- -- 6,003
Inventories........... 4,631 863 9 -- 5,503
Other current assets
and amounts due from
(to) affiliates,
net.................. 39,368 (33,898) (592) -- 4,878
-------- -------- ----- -------- --------
Total current
assets............. 51,695 (26,891) (461) -- 24,343
PROPERTY AND EQUIPMENT,
net.................... 29,900 1,654 243 -- 31,797
INTANGIBLES, net........ 75,875 95,601 320 -- 171,796
INVESTMENT IN
SUBSIDIARIES........... 66,484 -- -- (66,484) --
OTHER ASSETS............ 3,688 252 30 -- 3,970
-------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
======== ======== ===== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 7,141 $ 1,204 $ -- $ -- $ 8,345
Accounts payable...... 14,223 564 69 -- 14,856
Accrued liabilities... 10,956 2,895 18 -- 13,869
-------- -------- ----- -------- --------
Total current
liabilities........ 32,320 4,663 87 -- 37,070
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,367 216 61 -- 142,644
OTHER ACCRUED
LIABILITIES............ 10,134 -- -- -- 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,261 -- -- 1,261
MINORITY INTEREST....... -- -- -- 119 119
STOCKHOLDERS' EQUITY.... 42,821 64,476 (16) (66,603) 40,678
-------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
======== ======== ===== ======== ========
</TABLE>
F-37
<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-38
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............. $(27,953) $33,382 $ (133) $ -- $ 5,296
-------- ------- ------ ----- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related Expenses..... (39,873) 7,038 -- -- (32,835)
Purchase of property
and equipment, net... (8,228) (7) -- -- (8,235)
Proceeds for asset
sales................ 176 -- -- -- 176
-------- ------- ------ ----- -------
Net cash (used in)
provided by Investing
activities........... (47,925) 7,031 -- -- (40,894)
-------- ------- ------ ----- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 39,400 -- -- -- 39,400
Bank overdraft........ 4,133 -- -- -- 4,133
Payment of debt
financing costs...... (7,062) -- -- -- (7,062)
Equity infusion from
Mrs. Fields'
Holding.............. 29,056 -- -- -- 29,056
Principal payments on
long-term debt and
capital lease
obligations.......... (257) (41,000) -- -- (41,257)
Capital lease
repayments........... (123) -- -- -- (123)
Reduction in preferred
stock of Pretzel
Time................. -- (85) -- -- (85)
-------- ------- ------ ----- -------
Net cash provided by
(used in) Financing
activities......... 65,147 (41,085) -- -- 24,062
-------- ------- ------ ----- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS....... (10,731) (672) (133) -- (11,536)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 14,270 1,806 211 -- 16,287
-------- ------- ------ ----- -------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
======== ======= ====== ===== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid......... $ 12,405 $ 35 $ -- $ -- $12,440
Taxes paid............ 141 68 -- -- 209
</TABLE>
F-39
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 1, 2000
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 3,886 $ 792 $ 241 $ -- $ 4,919
Accounts receivable,
net.................. 2,151 2,131 13 -- 4,295
Amounts due from
franchisees and
licensees, net....... 1,314 2,394 -- -- 3,708
Inventories........... 4,009 968 -- -- 4,977
Other current assets
and amounts due from
(to) affiliates,
net.................. 22,236 (18,898) (642) -- 2,696
-------- -------- ----- -------- --------
Total current
assets............. 33,596 (12,613) (388) -- 20,595
PROPERTY AND EQUIPMENT,
net.................... 26,481 2,033 151 -- 28,665
INTANGIBLES, net........ 74,301 81,769 289 -- 156,359
INVESTMENT IN
SUBSIDIARIES........... 65,468 -- -- (65,468) --
OTHER ASSETS............ 2,714 134 (57) -- 2,791
-------- -------- ----- -------- --------
$202,560 $ 71,323 $ (5) $(65,468) $208,410
======== ======== ===== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 1,377 $ 246 $ -- $ -- $ 1,623
Accounts payable...... 8,823 1,676 15 -- 10,514
Accrued liabilities... 11,134 1,000 110 -- 12,244
-------- -------- ----- -------- --------
21,334 2,922 125 -- 24,381
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 144,582 280 -- -- 144,862
OTHER ACCRUED
LIABILITIES............ 3,529 -- -- -- 3,529
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,070 -- -- 1,070
MINORITY INTEREST....... -- -- -- 111 111
STOCKHOLDER'S EQUITY.... 33,115 67,051 (130) (65,579) 34,457
-------- -------- ----- -------- --------
$202,560 $ 71,323 $ (5) $(65,468) $208,410
======== ======== ===== ======== ========
</TABLE>
F-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 1, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES........... $156,727 $29,691 $658 $(6,139) $180,937
-------- ------- ---- ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs..... 80,702 -- 288 (1,356) 79,634
Cost of sales........ 41,369 9,678 74 (4,798) 46,323
General and
administrative...... 11,622 10,140 210 -- 21,972
Depreciation and
amortization........ 15,933 6,702 -- (8) 22,627
-------- ------- ---- ------- --------
Total operating
costs and
expenses.......... 149,626 26,520 572 (6,162) 170,556
-------- ------- ---- ------- --------
(Loss) income from
operations.......... 7,101 3,171 86 23 10,381
INTEREST EXPENSE AND
OTHER, net............ (17,634) (435) 12 -- (18,057)
-------- ------- ---- ------- --------
(Loss) income before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (10,533) 2,736 98 23 (7,676)
PROVISION FOR INCOME
TAXES................. (218) -- -- -- (218)
-------- ------- ---- ------- --------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (10,751) 2,736 98 23 (7,894)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.......... -- (305) -- -- (305)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES.......... 2,507 -- -- (2,529) (22)
-------- ------- ---- ------- --------
NET (LOSS) INCOME...... $ (8,244) $ 2,431 $ 98 $(2,506) $ (8,221)
======== ======= ==== ======= ========
</TABLE>
F-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 1, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............. $16,392 $ 1,348 $ 163 $ -- $ 17,903
------- ------- ----- ----- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment, net... (5,157) -- -- -- (5,157)
Proceeds for asset
sales................ 461 -- -- -- 461
------- ------- ----- ----- --------
Net cash (used in)
provided by
investing
activities......... (4,696) -- -- -- (4,696)
------- ------- ----- ----- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payment of debt
financing costs...... (1,832) -- -- -- (1,832)
Principal payments on
long-term debt and
capital lease
obligations.......... (5,384) (1,194) -- -- (6,578)
Bank overdraft........ (4,133) -- -- -- (4,133)
Reduction in preferred
stock of Pretzel
Time................. -- (496) -- -- (496)
------- ------- ----- ----- --------
Net cash provided by
(used in) financing
activities......... (11,349) (1,690) -- -- (13,039)
------- ------- ----- ----- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS....... 347 (342) 163 -- 168
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 3,539 1,134 78 -- 4,751
------- ------- ----- ----- --------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 3,886 $ 792 $ 241 $ -- $ 4,919
======= ======= ===== ===== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid......... $17,444 $ 513 $ -- $ -- $ 17,957
Taxes paid............ 204 197 -- -- 401
</TABLE>
F-42
<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.
Until August 13, 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$53,725,000
MRS. FIELDS'
ORIGINAL COOKIES, INC.
10 1/8% Series B Senior Notes
Due 2004
---------------
PROSPECTUS
---------------
May 16, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY.
As authorized by Section 145 of the General Corporation Law of the State of
Delaware, each director and officer of Mrs. Fields 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.
2.2+ 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.
II-1
<PAGE>
EXHIBIT (CONTINUED)
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+ Amended and Restated Articles of Incorporation of Pretzelmaker, Inc.
3.6+ Articles of Incorporation of Pretzel Time of Utah, Inc.
3.7+ Articles of Amendment to the Articles of Incorporation of Pretzel Time
of Utah, Inc.
3.8+ 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.
3.9+ 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.
3.10+ By-Laws of Great American Cookie Company, Inc.
3.11+ By-Laws of Pretzelmaker, Inc.
3.12+ 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.
II-2
<PAGE>
EXHIBIT (CONTINUED)
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+ Fourth Supplemental Indenture, dated as of December 30, 1998, among
Mrs. Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc.,
Great American Cookie Company, Inc., Pretzelmaker Holdings, Inc.,
Pretzel Time, Inc., and The Bank of New York, as trustee.
4.8 Fifth Supplemental Indenture, dated as of January 27, 2000, among Mrs.
Fields' Original Cookies, Inc., Great American Cookie Company, Inc.,
The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., Pretzel
Time, Inc. and The Bank of New York, as trustee.
4.9+ 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.
5.2 Opinion and consent of Michael Ward, Esq. as to legality of the new
guarantees to be issued by Pretzelmaker, 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.
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.
II-3
<PAGE>
EXHIBIT (CONTINUED)
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.
10.13+ 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.
10.25+ 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).
10.30+ Trademark license agreement dated January 3, 2000 between The Mrs.
Fields' Brand, Inc. and Nonni's Food Company, Inc.
10.31+ Purchase agreement dated December 1, 1999 between The Mrs. Fields'
Brand, Inc. and Nonni's Food Company, Inc.
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.
10.36+ 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.
II-4
<PAGE>
EXHIBIT (CONTINUED)
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.
10.51 First Amendment to Amended and Restated Loan Agreement, dated as of
July 31, 1998 by and between Mrs. Fields' Original Cookies, Inc. and
LaSalle National Bank.
10.52 Second Amendment to Amended and Restated Loan Agreement, dated as of
April 1, 1999 by Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank.
10.53 Third Amendment to Amended and Restated Loan Agreement, dated as of
February 1, 2000 by Mrs. Field's Original Cookies, Inc. and LaSalle
National Bank.
10.55+ Employment Agreement, dated as of June 1, 1999, between Mark Tanner and
Mrs. Fields' Original Cookies, filed as Exhibit 10.12 to the Mrs.
Fields' Holdings Company, Inc. Registration Statement on Form S-4 (No.
333-67393) and incorporated herein by reference.
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
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.9 Consent of Michael Ward, Esq. (included in Exhibit 5.2)
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 1, 2000
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
II-5
<PAGE>
EXHIBIT (CONTINUED)
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
+Filed previously
II-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.
The undersigned hereby undertakes that:
(1) For purposes of determining liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purpose of determining liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-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 16th day of
May, 2000.
MRS. FIELDS' ORIGINAL COOKIES, INC.
Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-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 May 16, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Larry A. Hodges President, Chief Executive
______________________________________ Officer and Director
(Larry A. Hodges)
/s/ Mark S. Tanner Senior Vice President and
______________________________________ Chief Financial Officer
(Mark S. Tanner) (Principal Financial and
Accounting Officer)
/s/ * Chairman of the Board of
______________________________________ Directors
(Herbert S. Winokur)
/s/ * Director
______________________________________
(Richard M. Ferry)
/s/ * Director
______________________________________
(Nathaniel A. Gregory)
/s/ * Director
______________________________________
(Walker Lewis)
/s/ * Director
______________________________________
(Peter W. Mullin)
/s/ * Director
______________________________________
(Gilbert C. Osnos)
/s/ Michael R. Ward
*By: _________________________________
Michael R. Ward
Attorney-in-Fact
</TABLE>
II-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 16th day of May,
2000.
THE MRS. FIELDS' BRAND, INC.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-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 May 16, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Larry A. Hodges President, Chief Executive Officer and
______________________________________ Director, Secretary & Treasurer
(Larry A. Hodges)
/s/ Mark S. Tanner Chief Financial Officer (Principal
______________________________________ Financial and Accounting Officer)
(Mark S. Tanner)
* Chairman of the Board of Directors
______________________________________
(Herbert S. Winokur)
* Director
______________________________________
(Walker Lewis)
/s/ Michael R. Ward
*By: _________________________________
Michael R. Ward
Attorney-in-Fact
</TABLE>
II-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 16th day of
May, 2000.
GREAT AMERICAN COOKIE COMPANY, INC.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-12
<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 May 16, 2000.
<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) (Principal Financial and
Accounting Officer)
/s/ Michael R. Ward Director and Secretary
______________________________________
(Michael R. Ward)
</TABLE>
II-13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Pretzelmaker, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Salt Lake City, State of Utah, on the 16th day of May, 2000.
Pretzelmaker, Inc.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-14
<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 May 16, 2000.
<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) (Principal Accounting and
Financial Officer)
/s/ Michael R. Ward Director and Secretary
______________________________________
(Michael R. Ward)
</TABLE>
II-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 16th day of May, 2000.
Pretzel Time, Inc.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-16
<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 May 16, 2000.
<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) (Principal Financial and
Accounting Officer)
/s/ Michael R. Ward Director and Secretary
______________________________________
(Michael R. Ward)
</TABLE>
II-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., Great American
Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex. Brown
Incorporated.
2.2+ Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of
June 12, 1998.
2.3+ Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998.
2.4+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998.
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.
<PAGE>
EXHIBIT (CONTINUED)
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+ Amended and Restated Articles of Incorporation of Pretzelmaker, Inc.
3.6+ Articles of Incorporation of Pretzel Time of Utah, Inc.
3.7+ Articles of Amendment to the Articles of Incorporation of Pretzel Time
of Utah, Inc.
3.8+ 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.
3.9+ 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.
3.10+ By-Laws of Great American Cookie Company, Inc.
3.11+ By-Laws of Pretzelmaker, Inc.
3.12+ 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.
<PAGE>
EXHIBIT (CONTINUED)
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+ Fourth Supplemental Indenture, dated as of December 30, 1998, among
Mrs. Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc.,
Great American Cookie Company, Inc., Pretzelmaker Holdings, Inc.,
Pretzel Time, Inc., and The Bank of New York, as trustee.
4.8 Fifth Supplemental Indenture, dated as of January 27, 2000, among Mrs.
Fields' Original Cookies, Inc., Great American Cookie Company, Inc.,
The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., Pretzel
Time, Inc. and The Bank of New York, as trustee.
4.9+ 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, Slate, 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. and Great American Cookie Company, Inc.
5.2 Opinion and consent of Michael Ward, Esq. as to legality of the new
guarantees to be issued by Pretzelmaker, Inc. and Pretzel Time, Inc.,
with an attached opinion to him from Skadden, Arps, Slate, Meagher &
Flom LLP as to matters of New York law.
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.
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.
<PAGE>
EXHIBIT (CONTINUED)
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.
10.13+ 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.
10.25+ 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).
10.30+ Trademark license agreement dated January 3, 2000 between The Mrs.
Fields' Brand, Inc. and Nonni's Food Company, Inc.
10.31+ Purchase agreement dated December 1, 1999 between The Mrs. Fields'
Brand, Inc. and Nonni's Food Company, Inc.
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.
10.36+ 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.
<PAGE>
EXHIBIT (CONTINUED)
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.
10.51 First Amendment to Amended and Restated Loan Agreement, dated as of July
31, 1998 by and between Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank.
10.52 Second Amendment to Amended and Restated Loan Agreement, dated as of
April 1, 1999 by Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank.
10.53 Third Amendment to Amended and Restated Loan Agreement, dated as of
February 1, 2000 by Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank.
10.55+ Employment Agreement, dated as of June 1, 1999, between Mark Tanner and
Mrs. Fields' Original Cookies, filed as Exhibit 10.12 to the Mrs.
Fields' Holding Company, Inc. Registration Statement on Form S-4 (No.
333-67393) and incorporated herein by reference.
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
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.9 Consent of Michael Ward, Esq. (included in Exhibit 5.2)
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 1, 2000
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
<PAGE>
EXHIBIT (CONTINUED)
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
+Filed previously
<PAGE>
FIFTH SUPPLEMENTAL INDENTURE
FIFTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as
of April 4, 2000, among Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (or its permitted successor) (the "Company"), The Mrs. Fields'
Brand, Inc., a Delaware corporation and a subsidiary of the Company, ("MFB"),
Great American Cookie Company, Inc., a Delaware corporation and a subsidiary of
the Company ("Great American"), Pretzelmaker, Inc., a Utah corporation and a
subsidiary of the Company ("Pretzelmaker"), and Pretzel Time, Inc. ("Pretzel
Time"), a Utah corporation and a subsidiary of the Company (together with
Pretzelmaker, the "Guaranteeing Subsidiaries" and, together with the other
Guarantors defined in the Indenture referred to herein, the "Guarantors"), and
The Bank of New York, as trustee under the Indenture referred to herein (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture, dated as of November 26, 1997, as amended by the First
Supplemental Indenture, dated as of August 24, 1998, the Second Supplemental
Indenture, dated as of August 24, 1998, the Third Supplemental Indenture, dated
as of November 20, 1998 and the Fourth Supplemental Indenture, dated as of
December 30, 1998 (as so amended, the "Indenture"), providing for the issuance
of an aggregate principal amount of up to $200.0 million of 10/1//8% Notes due
2004 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiaries shall execute and deliver to the Trustee a
supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall
unconditionally guarantee all of the Company's Obligations under the Notes and
the Indenture on the terms and conditions set forth herein (the "Guarantee");
and
WHEREAS, Pretzelmaker Holdings, Inc., a Colorado corporation ("Old
Pretzelmaker"), heretofore executed and delivered the Third Supplemental
Indenture, dated as of November 20, 1998, pursuant to which it unconditionally
guaranteed all of the Company's Obligations under the Notes and the Indenture;
and
WHEREAS, Pretzel Time, Inc., a Pennsylvania corporation ("Old Pretzel
Time"), heretofore executed and delivered the Fourth Supplemental Indenture,
dated as of December 30, 1998, pursuant to which it unconditionally guaranteed
all of the Company's Obligations under the Notes and the Indenture; and
WHEREAS, (i) Old Pretzelmaker was merged with and into Pretzelmaker
Holdings, Inc. ("Pretzelmaker Holdings"), a Utah corporation and the predecessor
of Pretzelmaker, with Pretzelmaker Holdings as the surviving corporation, as of
January 27, 2000, (ii) Pretzelmaker Holdings was merged with and into
Pretzelmaker, effective as of April 4, 2000, and (iii) Old Pretzel Time has been
merged
<PAGE>
with and into Pretzel Time, with Pretzel Time as the surviving corporation, as
of January 27, 2000; and
WHEREAS, Pretzelmaker acknowledges that the Indenture requires it to,
and Pretzelmaker desires to, assume Old Pretzelmaker's guarantee of the
Obligations under the Indenture and the Notes, and Pretzel Time acknowledges
that the Indenture requires it to, and Pretzel Time desires to, assume Old
Pretzel Time's guarantee of the Obligations under the Indenture and the Notes;
and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiaries hereby
agree as follows:
(a) Along with all Guarantors named in the Indenture, to jointly
and severally Guarantee to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, irrespective of the validity and enforceability of the
Indenture, the Notes or the obligations of the Company hereunder or
thereunder, that:
(i) the principal of and interest on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful,
and all other obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be promptly paid in
full or performed, all in accordance with the terms hereof
and thereof; and
(ii) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that same will
be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason,
2
<PAGE>
the Guarantors shall be jointly and severally obligated to
pay the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the
Notes or the Indenture, the absence of any action to enforce the same,
any waiver or consent by any Holder of the Notes with respect to any
provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.
(c) The following is hereby waived: diligence presentment,
demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands
whatsoever.
(d) This Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the
Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guaranteeing Subsidiaries,
MFB, Great American, or any Custodian, Trustee, liquidator or other
similar official acting in relation to either the Company or the
Guaran teeing Subsidiaries, MFB, or Great American, any amount paid by
either to the Trustee or such Holder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiaries shall not be entitled to any
right of subrogation in relation to the Holders in respect of any
obliga tions guaranteed hereby until payment in full of all
obligations guaran teed hereby.
(g) As between the Guarantors, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in
Article 6 of the Indenture for the purposes of this Guarantee, notwith
standing any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y)
in the event of any declaration of acceleration of such obligations as
provided in Article 6 of the Indenture, such obligations (whether or
not
3
<PAGE>
due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Guarantee.
(h) The Guarantors shall have the right to seek contribution
from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving
effect to any maximum amount and any other contingent and fixed
liabilities that are relevant under any applicable Bankruptcy or
fraudulent conveyance laws, and after giving effect to any collections
from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such
other Guarantor under Article 10 of the Indenture shall result in the
obligations of such Guarantor under its Guarantee not constituting a
fraudulent transfer or conveyance.
3. Execution and Delivery. The Guaranteeing Subsidiaries agree that
the Guarantee shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Guarantee.
4
<PAGE>
4. Guaranteeing Subsidiaries May Consolidate, Etc. on Certain Terms.
(a) The Guaranteeing Subsidiaries may not consolidate with or
merge with or into (whether or not such Guarantor is the surviving
Person) another corporation, Person or entity whether or not
affiliated with such Guarantor unless:
(i) subject to Section 10.05 of the Indenture, the Person formed
by or surviving any such consolidation or merger (if other
than a Guarantor or the Company) uncondition ally assumes
all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and sub stance reasonably
satisfactory to the Trustee, under the Notes, the Indenture
and the Guarantee on the terms set forth herein or therein;
and
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Guarantee endorsed upon
the Notes and the due and punctual performance of all of the covenants
and conditions of the Indenture to be performed by the Guarantor, such
successor corporation shall succeed to and be substituted for the
Guarantor with the same effect as if it had been named herein as a
Guarantor. Such successor corporation thereupon may cause to be signed
any or all of the Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture as the Guarantees theretofore and thereafter issued in
accordance with the terms of the Indenture as though all of such
Guarantees had been issued at the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Notes shall prevent any consolidation or
merger of a Guarantor with or into the Company or another Guarantor,
or shall prevent any sale or conveyance of the property of a Guarantor
5
<PAGE>
as an entirety or substantially as an entirety to the Company or
another Guarantor.
5. Releases.
---------
(a) In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise,
or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other
disposition, by way of merger, consolidation or otherwise, of all of
the capital stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be released
and relieved of any obligations under its Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture, including
without limitation Section 4.10 of the Indenture. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such sale or other disposi tion was made by
the Company in accordance with the provisions of the Indenture,
including without limitation Section 4.10 of the Indenture, the
Trustee shall execute any documents reasonably required in order to
evidence the release of any Guarantor from its obligations under its
Guarantee.
(b) Any Guarantor not released from its obligations under its
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Guarantor
under the Indenture as provided in Article 10 of the Indenture.
6. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company, the Guaranteeing Subsidiaries or under the Notes, any Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT
6
<PAGE>
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiaries, MFB, Great American,
and the Company.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemen tal
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: As of April 4, 2000
PRETZEL TIME, INC.
By:/s/ Michael Ward
---------------------------------
Name: Michael Ward
Title: Vice President
PRETZELMAKER, INC.
By: /s/ Michael Ward
------------------------------
Name: Michael Ward
Title:Vice President
MRS. FIELDS' ORIGINAL
COOKIES, INC.
By: /s/ Michael Ward
---------------------------------
Name:Michael Ward
Title: Vice President
THE MRS. FIELDS' BRAND,
INC.
By: /s/ Michael Ward
---------------------------------
Name: Michael Ward
Title: Vice President
GREAT AMERICAN COOKIE
COMPANY, INC.
By:/s/ Michael Ward
----------------------------------
Name: Michael Ward
Title: Vice President
8
<PAGE>
THE BANK OF NEW YORK,
AS TRUSTEE
By: /s/ Michele L. Russo
---------------------------------
Name: Michele L. Russo
Title: Assistant Vice President
9
<PAGE>
EXHIBIT 5.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
May 16, 2000
Mrs. Fields' Original Cookies, Inc.
The Mrs. Fields' Brand, Inc.
Great American Cookie Company, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Re: Exchange Offer Offering $53,725,000 Aggregate
Principal Amount of 10 1/8% Series B
Senior Notes due 2004
Mrs. Fields' Original Cookies, Inc.
Registration Statement on Form S-4
---------------------------------------------------------
Ladies and Gentlemen:
We have acted as special New York and Delaware counsel to Mrs. Fields'
Original Cookies, Inc., a Delaware corporation (the "Company"), in connection
with the public offering of $53,725,000 aggregate principal amount of the
Company's 10 1/8% Series B Senior Notes due 2004 (the "New Senior Notes"), which
are to be guaranteed pursuant to guarantees (the "Guarantees") by The Mrs.
Fields' Brand, Inc., a Delaware corporation ("MFB"), Great American Cookie
Company, Inc., a Delaware corporation ("Great American" and, together with MFB,
the "Covered Guarantors"), Pretzelmaker, Inc., a Utah corporation (together with
its predecessor corporations, "Pretzelmaker"), and Pretzel Time, Inc., a Utah
corporation (together with its predecessor corporations, "Pretzel Time" and,
together with MFB, Great American and Pretzelmaker, the "Guarantors"). The New
Senior Notes are to be issued pursuant to an exchange offer (the "Exchange
Offer") in exchange for a like principal amount of the issued and outstanding 10
1/8% Series A Senior Notes due 2004 of the Company and 10 1/8% Series C Senior
Notes due 2004 of the Company (such Series A and Series C Senior Notes,
together, the "Old Senior Notes"), and are to be governed by the Indenture,
dated as of November 26, 1997, among the Company, MFB
<PAGE>
Mrs. Fields' Original Cookies, Inc.
The Mrs.Fields' Brand, Inc.
Great American Cookie Company, Inc.
May 16, 2000
Page 2
and The Bank of New York, as trustee (the "Trustee"), as amended by the First
Supplemental Indenture, dated as of August 24, 1998, among the Company, MFB and
the Trustee, the Second Supplemental Indenture, dated as of August 24, 1998,
among the Company, MFB, Great American and the Trustee, the Third Supplemental
Indenture, dated as of November 20, 1998, among the Company, MFB, Great
American, Pretzelmaker and the Trustee, the Fourth Supplemental Indenture, dated
as of December 30, 1998, among the Company, MFB, Great American, Pretzelmaker,
Pretzel Time and the Trustee, and the Fifth Supplemental Indenture, dated as of
May 12, 2000, among the Company, MFB, Great American, Pretzelmaker, Pretzel Time
and the Trustee (as so amended, the "Indenture").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 (File No. 333-67389) relating to the Exchange Offer as
filed with the Securi ties and Exchange Commission (the "Commission") on
November 17, 1998 under the Act, Amendment No. 1 thereto, filed with the
Commission on February 5, 1999, Amendment No. 2 thereto, filed with the
Commission on September 8, 1999, Amendment No. 3 thereto, filed with the
Commission on November 4, 1999, Amendment No. 4 thereto, filed with the
Commission on February 11, 2000, Amendment No. 5 thereto, filed with the
Commission on April 20, 2000, and Amendment No. 6 thereto, filed with the
Commission on the date hereof (such Registra tion Statement, as so amended,
being hereinafter referred to as the "Registration State ment"), (ii) an
executed copy of the Registration Rights Agreement, dated August 24,
<PAGE>
Mrs. Fields' Original Cookies, Inc.
The Mrs.Fields' Brand, Inc.
Great American Cookie Company, Inc.
May 16, 2000
Page 3
1998 (the "Registration Rights Agreement"), by and among the Company, MFB and
Great American and Jefferies & Companies, Inc. and BT Alex. Brown Incorporated,
(iii) an executed copy of the Indenture, (iv) the Certificates of Incorporation
of the Company and the Covered Guarantors, as amended to date, (v) the By-Laws
of the Company and the Covered Guarantors, as amended to date, (vi) certain
resolutions adopted by the Board of Direc tors of the Company (dated October 30,
1997, August 20, 1998, November 20, 1998, December 30, 1998 and February 15,
2000), relating to, among other things, the Exchange Offer, the issuance of the
Old Senior Notes and the New Senior Notes, the Indenture and related matters,
(vii) certain resolutions adopted by the Board of Directors of MFB (dated
November 26, 1997 and August 20, 1998) relating to, among other things, the
issuance of the Guarantee by MFB, (viii) certain resolutions adopted by the
Board of Directors of Great American (dated August 24, 1998) relating to, among
other things, the issuance of the Guarantee by Great American, (ix) the Form T-1
of the Trustee filed as an exhibit to the Registration Statement, and (x) the
form of the New Senior Notes (including the form of the Notations of Guarantee)
included as exhibits to the Indenture. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such records
of the Company and the Covered Guarantors and such agreements, certificates of
public officials, certificates of officers or other representatives of the
Company, the Covered Guarantors and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
<PAGE>
Mrs. Fields' Original Cookies, Inc.
The Mrs.Fields' Brand, Inc.
Great American Cookie Company, Inc.
May 16, 2000
Page 4
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company and the Covered Guarantors, we have assumed that such parties had or
will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof on such parties.
As to any facts material to the opinions expressed herein which we did not
independently establish or verify, we have relied upon oral or written
statements and representations of officers, trustees and other representatives
of the Company, the Covered Guarantors and others.
Our opinion set forth herein is limited to the corporate law of the
State of Delaware and the laws of the State of New York which are normally
applicable to transactions of the type contemplated by the Exchange Offer and,
to the extent that judicial or regulatory orders or decrees or consents,
approvals, licenses, authorizations, validations, filings, recordings or
registrations with governmental authorities are relevant, to those required
under such laws (all of the foregoing being referred to as "Opined on Law"). We
do not express any opinion with respect to the law of any jurisdiction other
than Opined on Law or as to the effect of any such non-opined law on the
opinions herein stated.
<PAGE>
Mrs. Fields' Original Cookies, Inc.
The Mrs.Fields' Brand, Inc.
Great American Cookie Company, Inc.
May 16, 2000
Page 5
Based upon and subject to the foregoing and limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when (i) the Registration Statement becomes effective and the
Indenture has been qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and (ii) the New Senior Notes have been duly
executed by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and have been delivered, together with the Notations
of Guarantee of the Guarantors, upon consummation of the Exchange Offer against
receipt of Old Senior Notes surrendered in exchange therefor in accordance with
the terms of the Exchange Offer, the New Senior Notes will be valid and binding
obligations of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, each of the
Guarantees by a Covered Guarantor will constitute a valid and binding obligation
of the respective Covered Guarantor, entitled to the benefits of the Indenture,
enforceable against such Covered Guarantor in accordance with its terms, in each
case, except to the extent that enforcement thereof may be limited by (A)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
In rendering the foregoing, we have assumed that the execution and
delivery by the Company and the Guarantors of the New Senior Notes, the
Guarantees and the Indenture and the performance by the Company and the
Guarantors of their respective obligations thereunder do not and will not
violate or constitute a default under any agreement or instrument to which the
Company, the Guarantors or any of their properties is subject (except that we do
not make the assumptions set forth in this clause with respect to the
Certificates of Incorporation or By-Laws of each of the Company,
<PAGE>
Mrs. Fields' Original Cookies, Inc.
The Mrs.Fields' Brand, Inc.
Great American Cookie Company, Inc.
May 16, 2000
Page 6
and the Covered Guarantors or to the agreements filed as exhibits to the
Registration Statement).
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meager & Flom LLP
<PAGE>
EXHIBIT 5.2
[Letterhead of Mrs. Fields' Original Cookies, Inc.]
May 16, 2000
Pretzelmaker, Inc.
Pretzel Time, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Re: Exchange Offer Offering $53,725,000 Aggregate
Principal Amount of 10 1/8% Series B
Senior Notes due 2004
Mrs. Fields' Original Cookies, Inc.
Registration Statement on Form S-4
--------------------------------------------------------
Ladies and Gentlemen:
I am general counsel of Pretzelmaker, Inc., a Utah corporation
(together with its predecessor corporations, "Pretzelmaker"), and Pretzel Time,
Inc., a Utah corporation (togetherwith its predecessor corporations, "Pretzel
Time"). I am rendering this opinion in connection with the public offering of
$53,725,000 aggregate principal amount of 10 1/8% Series B Senior Notes due 2004
(the "New Senior Notes"), of Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (the "Company"), which are to be guaranteed pursuant to guarantees
(the "Guarantees") by The Mrs. Fields' Brand, Inc., a Delaware corporation
("MFB"), Great American Cookie Company, Inc., a Delaware corporation ("Great
American"), Pretzelmaker, and Pretzel Time. The New Senior Notes are to be
issued pursuant to an exchange offer (the "Exchange Offer") in exchange for a
like principal amount of the issued and outstanding 10 1/8% Series A Senior
Notes due 2004 of the Company and 10 1/8% Series C Senior Notes due 2004 of the
Company (such Series A and Series C Senior Notes, together, the "Old Senior
Notes"), and are to be governed by an Indenture dated as of November 26, 1997,
among the Company, MFB and The Bank of New York, as trustee (the "Trustee"), as
amended by the First Supplemental Indenture, dated as of August 24, 1998, among
the Company, MFB and the Trustee, the Second Supplemental Indenture, dated as of
August 24, 1998, among the Company, MFB, Great American and the Trustee, the
Third Supplemental
<PAGE>
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 2
Indenture, dated as of November 20, 1998, among the Company, MFB, Great
American, Pretzelmaker and the Trustee, the Fourth Supplemental Indenture, dated
as of December 30, 1998, among the Company, MFB, Great American, Pretzelmaker,
Pretzel Time and the Trustee, and the Fifth Supplemental Indenture, dated as of
May 12, 2000, among the Company, MFB, Great American, Pretzelmaker, Pretzel Time
and the Trustee (as so amended, the "Indenture").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, I have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 (File No. 333-67389) relating to the Exchange Offer as
filed with the Securi ties and Exchange Commission (the "Commission") on
November 17, 1998 under the Act, Amendment No. 1 thereto, filed with the
Commission on February 5, 1999, Amendment No. 2 thereto, filed with the
Commission on September 8, 1999, Amendment No. 3 thereto, filed with the
Commission on November 4, 1999, Amendment No. 4 thereto, filed with the
Commission on February 11, 2000, Amendment No. 5 thereto, filed with the
Commission on April 19, 2000, and Amendment No. 6 thereto, filed on the date
hereof (such Registration Statement, as so amended, being hereinafter referred
to as the "Registration Statement"), (ii) an executed copy of the Registration
Rights Agreement, dated August 24, 1998 (the "Registration Rights Agreement"),
by and among the Company, MFB and Great American and Jefferies & Companies, Inc.
and BT Alex. Brown Incorporated, (iii) an executed copy of the Indenture, (iv)
the Articles of Incorporation of Pretzelmaker, as amended to date, (v) the By-
Laws of Pretzelmaker, as amended to date, (vi) certain resolutions by the Board
of Directors of Pretzelmaker (dated as of November 20, 1998 and February 15,
2000) relating to, among other things, the issuance of the Guarantee by
Pretzelmaker, (vii) the Articles of Incorporation of Pretzel Time, as amended
to date, (viii) the By-
<PAGE>
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 3
laws of Pretzel Time, as amended to date, (ix) certain resolutions of Pretzel
Time, (dated as of December 30, 1998 and February 15, 2000), (x) the Form T-1 of
the Trustee filed as an exhibit to the Registration Statement, and (xi) the form
of the New Senior Notes (including the form of the Notations of Guarantee)
included as exhibits to the Indenture. I have also examined originals or copies,
certified or otherwise identified to my satisfac tion, of such records of
Pretzelmaker and Pretzel Time and such agreements, certificates of public
officials, certificates of officers or other representatives of Pretzelmaker,
Pretzel Time and others, and such other documents, certificates and records as I
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In my examination, I have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making my examination
of documents executed or to be executed by parties other than Pretzelmaker or
Pretzel Time, I have assumed that such parties had or will have the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect thereof on such parties. As to any facts material
to the opinions expressed herein which we did not independently establish or
verify, I have relied upon oral or written statements and representations of
officers, trustees and other representatives of Pretzelmaker, Pretzel Time and
others.
My opinion set forth herein is limited to the laws of the States of
Utah and New York which are normally applicable to transactions of the type
contemplated by the Exchange Offer and, to the extent that judicial or
regulatory orders or decrees or consents, approvals, licenses, authorizations,
validations, filings, recordings or registrations with governmental authorities
are relevant, to those required under such laws (all of the foregoing being
referred to as "Opined on Law"). As to matters under New York law, I have relied
on an opinion addressed to me from Skadden, Arps, Slate, Meagher & Flom LLP, a
copy of which is attached to this opinion.
<PAGE>
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 4
Based upon and subject to the foregoing and limitations,
qualifications, exceptions and assumptions set forth herein, I am of the opinion
that:
1. The choice of New York law in the Indenture is legal and valid
under the law of Utah, and insofar as any obligation under the Guarantees of
Pretzelmaker or Pretzel Time is to be performed outside the State of New York,
its performance will not be illegal or ineffective by virtue of the laws of
Utah.
2. When (i) the Registration Statement becomes effective and the
Indenture has been qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and (ii) the New Senior Notes have been duly
executed by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and have been delivered, together with the Notations
of Guarantee of
<PAGE>
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 5
Pretzelmaker and Pretzel Time, respectively, upon consummation of the Exchange
Offer against receipt of Old Senior Notes surrendered in exchange therefor in
accordance with the terms of the Exchange Offer, the Guarantees of Pretzelmaker
and Pretzel Time, respectively, will constitute valid and binding obligations of
Pretzelmaker and Pretzel Time, respectively, entitled to the benefits of the
Indenture, enforceable against Pretzelmaker and Pretzel Time, respectively, in
accordance with its terms, in each case, except to the extent that enforcement
thereof may be limited by (1) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and (2) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
In rendering the foregoing, I have assumed that the execution and
delivery by Pretzelmaker and Pretzel Time of their Guarantees and the
performance by Pretzelmaker and Pretzel Time of their obligations thereunder do
not and will not violate or constitute a default under (i) any agreement or
instrument to which Pretzelmaker or Pretzel Time or any of their respective
properties are subject (except that I do not make the assumptions set forth in
this clause (i) with respect to the Articles of Incorporation or By-Laws of
Pretzelmaker or the Articles of Incorporation or By-laws of Pretzel Time or to
the agreements filed as exhibits to the Registration Statement).
I hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. I also consent to the reference to me
under the caption "Legal Matters" in the Registration Statement. In giving this
consent, I do not thereby admit that I am included in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ Michael Ward
<PAGE>
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
May 16, 2000
Michael Ward, Esq.
General Counsel
Pretzelmaker, Inc.
Pretzel Time, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Re: Exchange Offer Offering $53,725,000 Aggregate
Principal Amount of 10 1/8% Series B
Senior Notes due 2004
Mrs. Fields' Original Cookies, Inc.
Registration Statement on Form S-4
---------------------------------------------------
Dear Mr. Ward:
We have acted as special New York and Delaware counsel to Mrs. Fields'
Original Cookies, Inc., a Delaware corporation (the "Company"), in connection
with the public offering of $53,725,000 aggregate principal amount of the
Company's 10 1/8% Series B Senior Notes due 2004 (the "New Senior Notes"), which
are to be guaranteed pursuant to guarantees (the "Guarantees") by The Mrs.
Fields' Brand, Inc., a Delaware corporation ("MFB"), Great American Cookie
Company, Inc., a Delaware corporation ("Great American"), Pretzelmaker, Inc., a
Utah corporation (together with its predecessor corporations, "Pretzelmaker"),
and Pretzel Time, Inc., a Utah corporation (together with its predecessor
corporations, "Pretzel Time" and, together with Pretzelmaker, the "Covered
Guarantors" and, together with Pretzelmaker, MFB and Great American, the
"Guarantors"). The New Senior Notes are to be issued pursuant to an exchange
offer (the "Exchange Offer") in exchange for a like principal amount of the
issued and outstanding 10 1/8% Series A Senior Notes due 2004 of the Company and
10 1/8% Series C Senior Notes due 2004 of the Company (such Series A and Series
C Senior Notes, together, the "Old Senior Notes"), and are to be governed by the
Indenture, dated as of November 26, 1997, among the Company, MFB and The Bank of
New York, as trustee (the "Trustee"), as amended by the First Supplemental
Indenture, dated as of August 24, 1998, among the Company, MFB and the Trustee,
the
<PAGE>
Michael Ward, Esq.
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 2
Second Supplemental Indenture, dated as of August 24, 1998, among the Company,
MFB, Great American and the Trustee, the Third Supplemental Indenture, dated as
of November 20, 1998, among the Company, MFB, Great American, Pretzelmaker and
the Trustee, the Fourth Supplemental Indenture, dated as of December 30, 1998,
among the Company, MFB, Great American, Pretzelmaker, Pretzel Time and the
Trustee, and the Fifth Supplemental Indenture, dated as of May 12, 2000, among
the Company, MFB, Great American, Pretzelmaker, Pretzel Time and the Trustee (as
so amended, the "Indenture").
This opinion is being furnished to you in support of an opinion being
delivered by you (the "Covered Opinion") in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act"), as to the validity of the Guarantees being provided by the Covered
Guarantors.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 (File No. 333-67389) relating to the Exchange Offer as
filed with the Securities and Exchange Commission (the "Commission") on
November 17, 1998 under the Act, Amendment No. 1 thereto, filed with the
Commission on February 5, 1999, Amendment No. 2 thereto, filed with the
Commission on September 8, 1999, Amendment No. 3 thereto, filed with the
Commission on November 4, 1999, Amendment No. 4 thereto, filed with the
Commission on February 11, 2000, Amendment No. 5 thereto, filed with the
Commission on April 20, 2000, and Amendment No. 6 thereto, filed with the
Commission on the date hereof (such Registration Statement, as so amended,
being hereinafter referred to as the "Registration Statement"), (ii) an
executed copy of the Registration Rights Agreement, dated August 24, 1998 (the
"Registration Rights Agreement"), by and among the Company, MFB and Great
American and Jefferies & Companies, Inc. and BT Alex. Brown Incorporated, (iii)
an executed copy of the Indenture, (iv) the Certificates of Incorporation of
the Covered
<PAGE>
Michael Ward, Esq.
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 3
Guarantors, as amended to date, (v) the By-Laws of the Company and the Covered
Guarantors, as amended to date, (vi) certain resolutions adopted by the Board of
Directors of Pretzelmaker (dated November 20, 1998 and February 15, 2000)
relating to, among other things, the issuance of the Guarantee by Pretzelmaker,
(vii) certain resolutions of the Board of Directors of Pretzel Time (dated
December 30, 1998 and February 15, 2000) relating to, among other things, the
issuance of the Guarantee by Pretzel Time, (viii) the Form T-1 of the Trustee
filed as an exhibit to the Registration Statement, and (xii) the form of the New
Senior Notes (including the form of the Notations of Guarantee) included as
exhibits to the Indenture. We have also examined originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company and
the Covered Guarantors and such agreements, certificates of public officials,
certificates of officers or other representatives of the Company, the Covered
Guarantors and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, MFB and Great American, we have assumed that such parties had or will
have the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and the validity and binding effect thereof on such parties. In the case of
Pretzel Time and Pretzelmaker, the foregoing assumption as to due execution and
delivery is that due execution and delivery by them has occurred under Utah law.
As to any facts material to the opinions expressed herein which we did not
independently establish or verify, we have relied upon oral or written
statements and representations
<PAGE>
Michael Ward, Esq.
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 4
of officers, trustees and other representatives of the Company, the Covered
Guarantors and others.
Our opinion set forth herein is limited to the corporate law of the
State of Delaware and the laws of the State of New York which are normally
applicable to transactions of the type contemplated by the Exchange Offer and,
to the extent that judicial or regulatory orders or decrees or consents,
approvals, licenses, authorizations, validations, filings, recordings or
registrations with governmental authorities are relevant, to those required
under such laws (all of the foregoing being referred to as "Opined on Law"). We
do not express any opinion with respect to Utah law or the law of any other
jurisdiction other than Opined on Law or as to the effect of any such non-opined
law on the opinions herein stated.
Based upon and subject to the foregoing and limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when (i) the Registration Statement becomes effective and the
Indenture has been qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and (ii) the New Senior Notes have been duly
executed by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and have been delivered, together with the Notations
of Guarantee of the Covered Guarantors, upon consummation of the Exchange Offer
against receipt of Old Senior Notes surrendered in exchange therefor in
accordance with the terms of the Exchange Offer, each of the Guarantees of the
Covered Guarantors will constitute a valid and binding obligation of the Covered
respective Guarantor, entitled to the benefits of the Indenture, enforceable
against such Covered Guarantor in accordance with its terms, in each case,
except to the extent that enforcement thereof may be limited by (A) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
<PAGE>
Michael Ward, Esq.
Pretzelmaker, Inc.
Pretzel Time, Inc.
May 16, 2000
Page 5
In rendering the foregoing, we have assumed that the execution and
delivery by the Company and the Guarantors of the New Senior Notes, the
Guarantees and the Indenture and the performance by the Company and the
Guarantors of their respective obligations thereunder do not and will not
violate or constitute a default under any agreement or instrument to which the
Company, the Guarantors or any of their properties is subject (except that we do
not make the assumptions set forth in this clause with respect to the
Certificates of Incorporation or By-Laws of each of the Company, MFB and Great
American or to the agreements filed as exhibits to the Registration Statement).
We hereby consent to your reliance on this opinion for purposes of
your delivery of the Covered Opinion and to the filing of this opinion with the
Commission as an exhibit to the Registration Statement as an attachment to the
Covered Opinion. We also consent to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In giving this consent, we do
not thereby admit that we are included in the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
EXHIBIT 10.51
FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
The First Amendment to Amended and Restated Loan Agreement is made as of
the 31st day of July, 1998 by and between Mrs. Fields' Original Cookies, Inc.,
a Delaware corporation ("Borrower") and LaSalle National Bank ("Lender").
WITNESSETH;
WHEREAS, Lender and borrower are the parties to that certain Amended and
Restated Loan Agreement dated as of February 28, 1998 (the same, as it may be
further amended, restated, modified or supplemented and in effect from time to
time, being herein referred to as the "Loan Agreement") under which Lenders
has agreed to make certain loans and extensions of credit to Borrower, and
WHEREAS, Borrower has requested that Lender agree to amend the Loan
Agreement in certain respects, and Lender is agreeable to such request, on and
subject to the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto each hereby agrees as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
-----------
herein are used with the meanings given such terms in the Loan Agreement. In
addition, "First Amendment" means this First Amendment to Amended and Restated
Loan Agreement.
2. Amendment of Loan Agreement. The Loan Agreement is hereby amended by
---------------------------
deleting the last paragraph of Section 11.11 in its entirety and replacing it
with the following:
Notwithstanding the foregoing in this Section 11.11, "Acquisition" shall
also mean Borrower's acquisition of 100% of the issued and outstanding
Capital Stock of Cookies USA, Inc., a Delaware corporation ("Cookies"),
which is the parent corporation of Great American Cookies Company, Inc., a
Delaware corporation ("GACC") or of 100% of the issued and outstanding
Capital Stock of GACC, and/or of either 100% of the issued and outstanding
capital stock, or all, or substantially all, of the assets of Deblin
Corporation, Chocolate Chip Cookies of Texas, Inc., Christiana Cookies,
Inc. (d/b/a Larry's Cookies), Ragin Enterprises, Inc., Virginia Concepts,
Inc., J.M.P.S., Inc., (d/b/a Blue Chip Coolies) and of the eight (8)
stores owned by Arthur Karp, and, provided that (i) such acquisition is
consummated by August 31, 1998; (ii) such acquisition is consummated for a
total purchase price not to exceed an amount equal to $90,000,000 (such
dollar amount includes transaction costs and expenses of this acquisition,
as well as costs and expenses of other recent transactions and related
remodel costs); (iii) the Borrower pledges 100% of the Capital Stock of
Cookies and/or GACC and their respective Subsidiaries (but only to the
extent permitted by then existing agreements of Cookies and/or GACC, as
applicable) as Collateral for the Obligations (provided that such entities
are Subsidiaries of the Borrower, and are not merged or consolidated into
the Borrower); and (iv) no more than $41,000,000 of Additional Notes (as
1
<PAGE>
defined in the Indenture) are issued in connection with, or to facilitate
consummation of, such acquisition.
3. Miscellaneous.
-------------
(a) Captions. Section captions and headings used in this First Amendment
--------
are for convenience only and are not part of and shall not affect the
construction of this First Amendment.
(b) Governing Law. This First Amendment shall be a contract made under and
-------------
governed by the laws of the State of Illinois, without regard to conflict of
laws principles. Whenever possible, each provision of this First Amendment
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this First Amendment 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 First Amendment.
(c) Counterparts. This First Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute but one and the same document. The signatures on any
such counterparts executed and delivered by facsimile transmission shall be
deemed to be original signatures.
(d) Successors and Assigns. This First Amendment shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(e) References. From and after the date of execution of this First
----------
Amendment, any reference to the Loan Agreement or the other Loan Documents
contained in any notice, request, certificate or other instrument, document or
agreement executed concurrently with or after the execution and delivery of this
First Amendment shall be deemed to include this First Amendment unless the
context shall otherwise require.
(f) Continued Effectiveness. Notwithstanding anything contained herein,
-----------------------
the terms of this First Amendment are not intended to and do not serve to effect
a novation as to the Loan Agreement. The parties hereto expressly do not intend
to extinguish the Loan Agreement. Instead, it is the express intention of the
parties hereto to reaffirm the indebtedness created under the Loan Agreement
which is evidenced by the Revolving Note provided for therein and secured by the
Collateral. The Loan Agreement, except as modified hereby, and each of the
other Loan Documents remain in full force and effect and are hereby reaffirmed
in all respects.
[Balance of page left intentionally blank; signature page follows.]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this, First Amendment to
Amended and Restated Loan Agreement as of the date first set forth above.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: /s/ L. Tim Pierce
-------------------------------
Name: L. Tim Pierce
-----------------------------
Title: Senior Vice President
----------------------------
LASALLE NATIONAL BANK
By: [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
-----------------------------
Title: Senior Vice President
----------------------------
<PAGE>
SECOND AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
This Second Amendment to Amended and Restated Loan Agreement (this "Second
Amendment") is made as of the 1st day of April, 1999 by Mrs. Fields' Original
Cookies, Inc., a Delaware corporation ("Borrower"), and LaSalle National Bank, a
national banking association ("LaSalle").
WITNESSETH:
WHEREAS, Borrower and LaSalle are all of the parties to that certain
Amended and Restated Loan Agreement dated as of February 28, 1998, as amended by
that certain First Amendment to Amended and Restated Loan Agreement dated as of
July 31, 1998 (the "First Amendment")(the Amended and Restated Loan Agreement,
together with the First Amendment, as ???? amended, restated, modified or
supplemented and in effect from time to time, being herein referred to as the
"Loan Agreement"); and
WHEREAS, Borrower has requested that LaSalle amend the Loan Agreement with
respect to certain matters, and LaSalle is agreeable to such request, on and
subject to the ??? and conditions set forth herein;
NOW, THEREFORE, the parties hereto hereby agrees as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
-----------
herein are used with the meanings given each terms in the Loan Agreement.
2. Amendment. The Loan Agreement is hereby amended as follows:
---------
a) by deleting the definition of "Debt Service Coverage Ratio" in its
entirety and replacing it with the following:
"Debt Service Conversion Ratio" shall mean, as to any Person for any
-----------------------------
period, (i) ??? Cash Flow of such Person and its subsidiaries for such period,
divided by (ii) the aggregate of all cash payments required to be made
(including interest expense actually paid) with respect to Indebtedness of such
Person of its Subsidiaries for such period, plus all mandatory and optional
redemptions or acquisitions of Equity Interests of each Person and its
Subsidiaries actually made in such for such period.
b) for the period ended January 2, 1999 and the three following fiscal
quarters thereafter, Borrower shall add back to Consolidated Cash Flow the
$7,303,000 "??? ??? provision", as disclosed in Borrower's 10K report dated
January 2, 1999, solely for the purpose of calculating Debt Service
Coverage Ratio.
<PAGE>
3. Miscellaneous.
-------------
a) Captions. Section captions and headings used in this Second Amendment
--------
are for convenience only and are not part of and shall to affect the
construction of this Second Amendment.
b) Governing Law. This Second Amendment shall be a contract made under
-------------
and governed by the laws of the State of Illinois, without regard to conflict of
laws principles. Whenever possible, each provision of this Second Amendment
shall be intergrated in such a manner as to be effective and valid under
applicable law, but if any provision of this Second Amendment 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 Second Amendment.
c) Counterparts. This Second Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute but one and the same document.
d) Successors and Assigns. This Second Amendment shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns.
e) References. From and after the date of execution of this Second
----------
Amendment, and reference to the Loan Agreement or the other Loan Documents
contained in any notice, request, certificate or other instrument, document or
agreement executed concurrently with or after the execution and delivery of
this Second Amendment shall be deemed to include this Second Amendment unless
the context shall otherwise require.
f) Continued Effectiveness. Notwithstanding anything contained herein,
-----------------------
the terms of this Second Amendment are not intended to and do not serve to
effect a ??? as to the Loan Agreement. The parties herein expressly do not
intend to extinguish the Loan Agreement. Instead, it is the express intention of
the parties hereto to reaffirm the indebtedness executed under the Loan
Agreement which is evidenced by the Notes provided for therein and assured by
the Collateral. The Loan Agreement, except as modified hereby, and such of the
other Loan Documents remains in full force and effect and are hereby reaffirmed
in all respects.
[Balance of page left intentionally blank; signature page follows.]
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this, Second Amendment to
Amended and Restated Loan and Security Agreement as of the date first set forth
above.
MRS. FIELDS' ORIGINAL COOKIES, INC., a
Delaware corporation.
By: /s/ L. Tim Pierce
-------------------------------
Name: L. Tim Pierce
-----------------------------
Title: Senior Vice President
----------------------------
LASALLE BANK NATIONAL, a national
banking association.
By: /s/ Kristin T. Freund
-------------------------------
Name: Kristin T. Freund
-----------------------------
Title: Vice President
----------------------------
<PAGE>
THIRD AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
This Third Amendment to Amended and Restated Loan Agreement (this "Third
Amendment") is made as of the 31/st/ day of March, 1999 by Mrs. Fields' Original
Cookies, Inc., a Delaware corporation ("Borrower"), and LaSalle Bank National
Association, a national banking association ("LaSalle").
W I T N E S S E T H:
WHEREAS, Borrower and LaSalle are all of the parties to that certain
Amended and Restated Loan Agreement dated as of February 28, 1998, as amended by
that certain First Amendment to Amended and Restated Loan Agreement dated as of
July 31, 1998 (the "First Amendment"), and that certain Second Amendment to
Amended and Restated Loan Agreement dated as of April 1, 1999 ("Second
Amendment") (the Amended and Restated Loan Agreement, together with the First
Amendment and the Second Amendment, as further amended, restated, modified or
supplemented and in effect from time to time, being herein referred to as the
"Loan Agreement"); and
WHEREAS, Borrower has requested that LaSalle amend the Loan Agreement with
respect to certain matters, and LaSalle is agreeable to such request, on and
subject to the terms and conditions set forth herein;
NOW, THEREFORE, the parties hereto hereby agrees as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
-----------
herein are used with the meanings given such terms in the Loan Agreement.
2. Amendment. The Loan Agreement is hereby amended as follows:
---------
(1) by deleting Section 13.1 in its entirety and replacing it
with the following:
Section 13.1 Minimum Debt Service Coverage Ratio. The Borrower shall
-----------------------------------
maintain a minimum Debt Service Coverage Ratio, (a) measured as of
March 31, 1999 and June 30, 1999 and for the four fiscal quarters then
ended, of 0.90 to 1.00, and (b) measured as of the end of any other
fiscal quarter of the Borrower and for the four fiscal quarters then
ended, of 1.10 to 1.00; provided, however, that for purposes of this
Section 13.1, for any four fiscal quarter period that includes any
period of time prior to November 27, 1997 (a "Pre-Reorganization
Period"), determination of the numerator and denominator of the Debt
Service Coverage Ratio shall be based on actual consolidated financial
information for the Borrower and its Subsidiaries for
<PAGE>
the period occurring after November 26, 1997 and pro forma
consolidated financial information for the Borrower, The Mrs. Fields'
Brand, Inc. and Pretzel Time for the applicable Pre-Reorganization
Period (determined in accordance with GAAP as if the Borrower owned
the same interests in The Mrs. Fields' Brand, Inc. and Pretzel Time as
it owns on the date of this Agreement, but subject to the condition
that such consolidated financial information of the Borrower with
respect to such Pre-Reorganization Period may be adjusted to eliminate
certain historical expenses that are not expected to recur after the
consummation of the Pretzel Contributions on November 26, 1997 so long
as such adjustments are not deemed to be contrary to the requirements
of Regulation S-X under the Securities Act of 1933 (the "Securities
Act") by an Accounting Firm and the further condition that, in
calculating the Debt Service 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, the Borrower
may include any pro forma adjustments permitted by Regulation S-X
under the Securities Act in its calculation of the amount of Free Cash
Flow that relates solely to such acquisition, so long as such pro
forma adjustments are not deemed to be contrary to the requirements of
Rule 11-02 of Regulation S-X under the Securities Act in writing by an
Accounting Firm.)
3. Miscellaneous.
-------------
(1) Captions. Section captions and headings used in this Third
--------
Amendment are for convenience only and are not part of and shall
not affect the construction of this Third Amendment.
(2) Governing Law. This Third Amendment shall be a contract made and
-------------
under governed by the laws of the State of Illinois, without
regard to conflict of laws principles. Whenever possible, each
provision of this Third Amendment shall be interpreted in such a
manner as to be effective and valid under applicable law, but if
any provision of this Second Amendment 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 Third Amendment.
2
<PAGE>
(3) Counterparts. This Third Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original,
but all of which shall together constitute but one and the same
document.
(4) Successors and Assigns. This Third Amendment shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
(5) References. From and after the date of execution of this Third
----------
Amendment, any reference to the Loan Agreement or the other Loan
Documents contained in any notice, request, certificate or other
instrument, document or agreement executed concurrently with or
after the execution and delivery of this Third Amendment shall be
deemed to include this Third Amendment unless the context shall
otherwise require.
(6) Continued Effectiveness. Notwithstanding anything contained
-----------------------
herein, the terms of this Third Amendment are not intended to and
do not serve to effect a novation as to the Loan Agreement. The
parties hereto expressly do not intend to extinguish the Loan
Agreement. Instead, it is the express intention of the parties
hereto to reaffirm the indebtedness created under the Loan
Agreement which is evidenced by the Notes provided for therein
and secured by the Collateral. The Loan Agreement, except as
modified hereby, and each of the other Loan Documents remain in
full force and effect and are hereby reaffirmed in all respects.
[Balance of page left intentionally blank; signature page follows.]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Third Amendment to
Amended and Restated Loan and Security Agreement as of the date first set forth
above.
MRS. FIELDS' ORIGINAL COOKIES, INC., a
Delaware corporation
By: /s/ Larry A. Hodges
---------------------------------
Name: Larry A. Hodges
------------------------------
Title: Chief Executive Officer
-----------------------------
LASALLE BANK NATIONAL ASSOCIATION, a
national banking association
By: /s/ Michael K. Kriz
---------------------------------
Name: Michael K. Kriz
Title: Vice President Leveraged Finance
<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
May 12, 2000
<PAGE>
EXHIBIT 99.1
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 May 16, 2000
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT NEW YORK CITY TIME, ON JUNE 20,
2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: The Bank of New York, Exchange Agent
By Mail, By Hand or Overnight Courier:
The Bank of New York
101 Barclay Street 7 East
New York, New York 10286
Attention: Odell Romeo
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY OF THIS LETTER OF
TRANSMITTAL.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated May 16, 2000 (the "Prospectus"), of Mrs. Fields' 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.
<PAGE>
This Letter is to be completed by a Holder of Old Notes either if
certificates for such Old Notes are to be forwarded herewith or if a tender is
to be made by book-entry transfer to the account maintained by The Bank of New
York, as Exchange Agent for the Exchange Offer (the "Exchange Agent"), at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in "The Exchange OfferCBook-Entry Transfers" section of
the Prospectus and an Agent's Message is not delivered. Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu of this
Letter. The term "Agent's Message" means a message, transmitted by the Book-
Entry Transfer Facility to and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation (as defined below), which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by this Letter and that the Issuers may
enforce this Letter against such participant. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-
Entry Confirmation") and all other documents required by this Letter to the
Exchange Agent on or prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The Exchange
OfferCGuaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES
- ----------------------------------------------------------------------------
1 2 3
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and Address(es) of
Registered Holder(s) Aggregate Principal
(Please fill in, if Certificate Amount of Principal Amount
blank) Number(s)* Old Note(s) Tendered**
- ----------------------------------------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total
- ----------------------------------------------------------------------------
</TABLE>
*Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a Holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes indicated
in column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------
Account Number Transaction Code Number
----------------------- -------------------
By crediting the Old Notes to the Exchange Agent's account at the Book-Entry
Transfer Facility's Automated Tender Offer Program ("ATOP") and by complying
with applicable ATOP procedures with respect to the
2
<PAGE>
Exchange Offer, including transmitting to the Exchange Agent a computer-
generated Agent's Message in which the Holder of the Old Notes acknowledges
and agrees to be bound by the terms of, and makes the representations and
warranties contained in, the Letter, the participant in the Book-Entry
Transfer Facility confirms on behalf of itself and the beneficial owners of
such Old Notes all provisions of this Letter (including all representations
and warranties) applicable to it and such beneficial owner as fully as if it
had completed the information required herein and executed and transmitted
this Letter to the Exchange Agent.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
----------------------------------------------------
Window Ticket Number (if any)
----------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------------------
Name of Institution Which Guaranteed Delivery
-----------------------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number
---------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------
Name of Tendering Institution
------------------------------------------------------
[_]CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------------------------------------------------
Address:
---------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale of such New Notes; however, by
so acknowledging and by delivering such a prospectus the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. If the undersigned is a broker-dealer that
will receive New Notes, it represents that the Old Notes to be exchanged for
the New Notes were acquired as a result of market-making activities or other
trading activities.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of Old
Notes indicated above. Subject to, and
effective upon, the acceptance for exchange of the Old Notes tendered hereby,
the undersigned hereby sells, assigns and transfers to, or upon the order of,
the Issuer all right, title and interest in and to such Old Notes as are being
tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among
other things, to cause the Old Notes to be assigned, transferred and
exchanged. The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old
Notes, and to acquire New Notes issuable upon the exchange of such tendered
Old Notes, and that, when the same are accepted for exchange, the Issuer will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim
when the same are accepted by the Issuer. The undersigned hereby further
represents that any New Notes acquired in exchange for Old Notes tendered
hereby will have been acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the
undersigned, that neither the Holder of such Old Notes nor such other person
has any arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes
nor any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Issuer.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred
by Holders or other persons receiving the New Notes thereof (other than any
such Holder or other person that is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of business
of the person receiving such New Notes, whether or not such person is the
Holder, and neither the Holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the SEC
would make a similar determination with respect to the Exchange Offer as in
other circumstances. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of New Notes and has no arrangement or understanding
to participate in a distribution of New Notes. If any Holder is an affiliate
of the Issuer, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus meeting the requirements of the
Securities Act, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal
4
<PAGE>
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
OfferCWithdrawal Rights" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are to
be issued in the name of someone
other than the person or persons
whose signature(s) appear(s) on
this Letter above, or if Old Notes
delivered by book-entry transfer
which are not accepted for
exchange are to be returned by
credit to an account maintained at
the Book-Entry Transfer Facility
other than the account indicated
above.
Issue: New Notes and/or Old Notes
to:
Name(s)
-----------------------------
(Please Type or Print)
-----------------------------------
(Please Type or Print)
Address
-----------------------------
-----------------------------------
(Zip Code)
(Complete Substitute Form W-9)
[_]Credit unexchanged Old Notes
delivered by book-entry trans-
fer to the Book-Entry Transfer
Facility account set forth be-
low.
-----------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are to
be sent to someone other than the
person or persons whose
signature(s) appear(s) on this
Letter above or to such person or
persons at an address other than
shown in the box entitled
"Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes
to:
Name(s)
-----------------------------
(Please Type or Print)
-----------------------------------
(Please Type or Print)
Address
-----------------------------
-----------------------------------
(Zip Code)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU
THEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO MIDNIGHT, NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
5
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
Dated:........................., 2000
X ........................................
..................... , 2000
X ........................................
Signature(s) of Owner ..................... , 2000
Date
Area Code and Telephone Number .................................................
This Letter must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for the Old Notes hereby tendered or on a
security position, on listing or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s): .......................................................................
(Please Type or Print)
Capacity: ......................................................................
Address: .......................................................................
................................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution: ............................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name and Firm)
Dated: ............................................................. , 2000
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for the
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 OfferCBook-Entry Transfers" section of the Prospectus and an
Agent's Message is not delivered. Tenders by book-entry transfer may also be
made by delivering an Agent's Message in lieu of this Letter. The term
"Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility to and received by the Exchange Agent and forming a part of a Book-
Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Issuer may enforce the Letter
of Transmittal against such participant. Certificates for all physically
tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as
a properly completed and duly executed Letter (or manually signed facsimile
hereof or Agent's Message in lieu thereof) and any other documents required by
this Letter, must be received by the Exchange Agent at the address set forth
herein on or prior to the Expiration Date, or the tendering Holder must comply
with the guaranteed delivery procedures set forth below. Old Notes tendered
hereby must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange OfferCGuaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) prior to midnight, New York City time, on the Expiration
Date, the Exchange Agent must receive from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
five New York Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, together with a properly completed and duly executed
Letter (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and any other documents required by this Letter
will be deposited by the Eligible Institution with the Exchange Agent, and
(iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, together with
a properly completed and duly executed Letter (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and all other
documents required by this Letter, are received by the Exchange Agent within
five NYSE trading days after the Expiration Date. An "Eligible Institution" is
a firm which is a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be registered mail, properly insured, with return receipt requested,
made sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to midnight, New York City time, on the Expiration Date.
7
<PAGE>
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to Holders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering Holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of
Old NotesCPrincipal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering Holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the Holder of the Old Notes tendered hereby, the
signature must correspond exactly with the name as written on the face of the
certificates or on the Book-Entry Transfer Facility's security position
listing as the Holder of such Old Notes without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
written instrument or instruments of transfer or exchange are required. If,
however, the Old Notes are registered in the name of a person other than a
signer of the Letter, the Old Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Issuer in its sole
discretion, duly executed by the registered national securities exchange with
the signature thereon guaranteed by an Eligible Institution.
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.
8
<PAGE>
To prevent backup withholding, each tendering Holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding, or (ii) the
Holder has not been notified by the Internal Revenue Service that such Holder
is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
Holder that such Holder is no longer subject to backup withholding. If the
tendering Holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such Holder must give the Exchange Agent a
completed Form W-8, Certificate of Foreign Status. These forms may be obtained
from the Exchange Agent. If the Old Notes are in more than one name or are not
in the name of the actual owner, such Holder should consult the W-9 Guidelines
for information on which TIN to report. If such Holder does not have a TIN,
such Holder should consult the W-9 Guidelines for instructions on applying for
a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied
for" in lieu of its TIN. Note: Checking this box and writing "applied for" on
the form means that such Holder has already applied for a TIN or that such
Holder intends to apply for one in the near future. If such Holder does not
provide its TIN to the Exchange Agent within 60 days, backup withholding will
begin and continue until such Holder furnishes its TIN to the Exchange Agent.
The information requested above should be directed to the Exchange Agent at
the following address:
Delivery To: The Bank of New York, Exchange Agent
By mail, By Hand and Overnight Courier:
The Bank of New York
101 Barclay Street 7 East
New York, New York 10286
Attention: Odell Romeo
By Facsimile
(for Eligible Institutions Only):
(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.
9
<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 OfferCBook-Entry Transfers" section of the Prospectus,
any notice of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer and no
New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes that have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures set
forth in "The Exchange OfferCBook-Entry Transfers" section of the Prospectus,
such Old Notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the Old Notes) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following the procedures described above at any
time on or prior to midnight, New York City time, on the Expiration Date.
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices
of Guaranteed Delivery and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: THE BANK OF NEW YORK
Part 1: PLEASE PROVIDE YOUR TIN: _________________
TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND or Employer
DATING BELOW. Identification Number
SUBSTITUTE
Form W-9
Department of
the Treasury --------------------------------------------------------
Internal Part 2: TIN Applied For
Revenue --------------------------------------------------------
Service Payor's Request For Taxpayer Identification Number
("TIN") and Certification
Payor's Request for Taxpayer Identification Number ("TIN") and Certification
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) the number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me).
(2) I am not subject to backup withholding either
because: (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding, and
(3) any other information provided on this form is
true and correct.
SIGNATURE ______________ DATE _______
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
______________________________________ ______________________________________
Signature Date
11
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
MRS. FIELDS' ORIGINAL COOKIES, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Mrs. Fields' Original Cookies, Inc. (the "Issuer") made
pursuant to the Prospectus, dated May 16, 2000 (the "Prospectus"), if
certificates for the outstanding 10 1/8% Series A Senior Notes due 2004 of the
Issuer (the "Series A Senior Notes") or outstanding 10 1/8% Series C Senior
Notes due 2004 of the Issuer (the "Series C Senior Notes" and, together with
the Series A Senior Notes, the "Old Notes") are not immediately available or if
the procedure for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Bank of New York, as
exchange agent (the "Exchange Agent") prior to midnight, New York City time, on
the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. Capitalized terms not defined herein are defined in
the Prospectus.
Delivery To: The Bank of New York, Exchange Agent
By Mail or Hand Delivery or Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Odell Romeo
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus, the undersigned
hereby tenders to the Issuer the principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program), hereby guarantees
that the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof) with any required signature
guarantees and any other documents required by the Letter of Transmittal, will
be received by the Exchange Agent at the address set forth above, within five
New York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address Title
- ------------------------------------- Name: _______________________________
Zip Code (Please Type or Print)
Dated: ______________________________
Area Code and Tel. No. ______________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
<PAGE>
Principal Amount of Old Notes
Tendered:*
Series A Senior Notes:
$ ___________________________________ If Old Notes will be delivered by
Series C Senior Notes: book-entry transfer to The
$ ___________________________________ Depository Trust Company, provide
Certificate Nos. (if available): account number.
- ------------------------------------- Account Number ______________________
Total Principal Amount Represented by Old Notes Certificate(s):
$ ___________________________________
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _______________________________ --------
X _______________________________ --------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: __________________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s):
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Capacity:
---------------------------------------------------------------------
Address(es):
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
- --------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
<PAGE>
EXHIBIT 99.4
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer-- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
Give the
TAXPAYER
IDENTIFICATION
For this type of account: number of--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor
guardian or committee or
for a designated ward, incompetent(3)
minor, or incompetent
person(3)
7.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
8. Sole proprietorship The owner(4)
account
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Give the
TAXPAYER
IDENTIFICATION
For this type of account: number of--
--
<S> <C>
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
--
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number or employer identification number.
(4) Show your individual name. You may also enter your business name. You may
use your social security umber or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a) of the Code.
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
. A future commission merchant registered with the Commodity Futures Trading
Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441
of the Code.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to an appropriate nominee.
. Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
. Payments described in section 6049(b)(5) of the Code to nonresident
aliens.
. Payments on tax-free covenant bonds under section 1451 of the Code.
. Payments made by certain foreign organizations.
. Payments of mortgage interest to you.
. Payments made to an appropriate nominee.
Exempt payees described above should file substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT
ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A
COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your correct taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 20% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information With Respect To Withholding.--If you
make a false statement with no reasonable basis that results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT 99.5
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
To: Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
Mrs. Fields' Original Cookies, Inc. (the "Issuer") is offering, upon and
subject to the terms and conditions set forth in the prospectus dated May 16,
2000 (the "Prospectus"), and the enclosed letter of transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") their 10 1/8% Series B Senior
Notes due 2004, which have been registered under the Securities Act of 1933, as
amended, for their outstanding 10 1/8% Series A Senior Notes due 2004 (the
"Series A Senior Notes") and their outstanding 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"). The Exchange Offer is being made in order to satisfy
certain obligations of the Issuer contained in the registration rights
agreement in respect of the Series C Senior Notes, dated August 24, 1998, by
and among the Issuer and the initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated May 16, 2000;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if
certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to The Bank of New York, the Exchange Agent for
the Exchange Offer.
Your prompt action is requested. The Exchange Offer will expire at midnight,
New York City time, on June 20, 2000, unless extended by the Issuer (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof or Agent's Message in lieu
thereof), with any required signature guarantees and any other required
documents, should be sent to the Exchange Agent and certificates representing
the Old Notes, or a timely confirmation of a book-entry transfer of such Old
Notes, should be delivered to the Exchange Agent, all in accordance with the
instructions set forth in the Letter of Transmittal and the Prospectus.
<PAGE>
If a registered holder of Old Notes desires to tender, but such Old Notes are
not immediately available, or time will not permit such holder's Old Notes or
other required documents to reach the Exchange Agent before the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
The Issuer will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Issuer will not make any payments to brokers, dealers, or others soliciting
acceptances of the Exchange Offer. The holders will not be obligated to pay or
cause to be paid all stock transfer taxes applicable to the exchange of Old
Notes pursuant to the Exchange Offer.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Bank
of New York, the Exchange Agent for the Exchange Offer, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
Mrs. Fields' Original Cookies, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE
IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
<PAGE>
EXHIBIT 99.6
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
To Our Clients:
Enclosed for your consideration is a prospectus dated May 16, 2000 (the
"Prospectus"), and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Mrs. Fields'
Original Cookies, Inc. (the "Issuer") to exchange their 10 1/8% Series B
Senior Notes due 2004, which have been registered under the Securities Act of
1933, as amended, for their outstanding 10 1/8% Series A Senior Notes due 2004
(the "Series A Senior Notes") and their outstanding 10 1/8% Series C
Senior Notes (the "Series C Senior Notes" and, together with the Series A
Senior Notes, the "Old Notes"), upon the terms and subject to the conditions
described in the Prospectus and the Letter of Transmittal. The Exchange Offer
is being made in order to satisfy certain obligations of the Issuer contained
in the registration rights agreement in respect of the Series C Senior Notes,
dated August 24, 1998, by and among the Issuer and the initial purchasers
referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at midnight,
New York City time, on June 20, 2000, unless extended by the Issuer. Any Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions to the
Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Issuer will be paid by the Issuer.
4. The Exchange Offer expires at midnight, New York City time, on June 20,
2000, unless extended by the Issuer.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for information
only and may not be used directly by you to tender Old Notes.
1
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Mrs.
Fields' Original Cookies, Inc with respect to their Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Aggregate Principal Amount of Old
Notes
10 1/8% Series A Senior Notes due -------------------------------------
2004.................................
10 1/8% Series C Senior Notes due -------------------------------------
2004.................................
[_]Please do not tender any Old
Notes held by you for my account.
-------------------------------------
-------------------------------------
Dated: May 16, 2000 Signature(s)
-------------------------------------
-------------------------------------
Please print name(s) here
-------------------------------------
-------------------------------------
-------------------------------------
Address(es)
-------------------------------------
Area Code and Telephone Number
-------------------------------------
Tax Identification or Social
Security No(s).
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for
your account.
2
