<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-67389
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 4
to
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Mrs. Fields' Great American The Mrs. Pretzelmaker Pretzel Time,
Original Cookie Company, Fields' Brand, Holdings, Inc. Inc.
Cookies, Inc. Inc. Inc. (Exact name of (Exact name
(Exact name of (Exact name of (Exact name of Registrant as of Registrant
Registrant as Registrant as Registrant as specified in as
specified in DELAWARE its charter)
its charter)
UTAH
specified in UTAH
specified in its charter) specified in
its charter) (State or other (State or other its charter)
jurisdiction of jurisdiction of (State or
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, Holdings, 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, copies to: agents for
code, of agents of agents for service)
for service) service)
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 Holdings, Inc. Guarantee with re-
spect 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>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(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)
, 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 Holdings, Inc. and
Pretzel Time, Inc.
Terms of the Exchange Offer
. Expires 12:00 midnight, . The notes mature on
New York City time, December 1, 2004, and pay
, 2000, unless extended. interest on June 1 and
December 1 of each year.
. 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.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Summary Historical and Pro Forma Financial and Store Data................ 10
Risk Factors............................................................. 13
Forward-Looking Information.............................................. 24
The Transactions......................................................... 25
Use of Proceeds.......................................................... 27
Capitalization........................................................... 28
The Exchange Offer....................................................... 29
Selected Historical Financial Data....................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Where You Can Find More Information...................................... 62
Business................................................................. 63
Management............................................................... 77
Beneficial Ownership of Capital Stock.................................... 82
Relationships and Related Transactions................................... 83
Description of Notes..................................................... 86
Description of Indebtedness.............................................. 118
Plan of Distribution..................................................... 118
United States Federal Income Tax Considerations.......................... 120
Legal Matters............................................................ 120
Experts.................................................................. 120
Unaudited Pro Forma Condensed Combined Financial Statements.............. P-1
Index to Historical Financial Statements................................. F-1
</TABLE>
----------------
The registrant's principal executive offices are located at 2855 East
Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, and their telephone
number is (801) 736-5600.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus or incorporated by reference in this prospectus.
We are not making offers to exchange notes in the exchange offer or soliciting
offers to exchange outstanding notes in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make an offer or solicitation.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus contains specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage
you to read this prospectus in its entirety.
The Exchange Offer
Registration Rights
Agreement.............. Holders of 10 1/8% Series C Senior Notes due 2004 are
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 , 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, , 2000.
United States Federal
Income
Tax Considerations..... The exchange offer should not result in any income,
gain or loss to the holders or Mrs. Fields for United
States federal income tax purposes. See "United
States Federal Income Tax Considerations."
Use of Proceeds......... We will not receive any proceeds from the issuance of
notes in the exchange offer.
The proceeds from the offering of notes in August
1998 were used to finance the acquisition of Great
American Cookie Company, Inc., other acquisitions,
and a tender offer for outstanding Great American
notes.
Exchange Agent.......... The Bank of New York is serving as the exchange agent
for the exchange offer.
Shelf Registration
Statement.............. In limited circumstances, holders of notes may
require us to register their notes under a shelf
registration statement.
6
<PAGE>
The Company
Overview
Mrs. Fields is one of the largest retailers in the premium snack-food
industry, with cookies and pretzels as its major product lines. Based on
numbers of retail units, Mrs. Fields is the largest retailer of baked on-
premises cookies and the second largest retailer of baked on-premises pretzels
in the United States. Mrs. Fields is one of the most widely recognized and
respected brand names in the premium cookie industry. Mrs. Fields has recently
developed a significant presence in the rapidly growing, health-oriented
pretzel market.
Mrs. Fields operates and franchises stores located predominantly in shopping
malls, and also licenses kiosks and carts at airports, universities, stadiums,
hospitals and office building lobbies.
How We Have Done
For the 52 weeks ended January 2, 1999, Mrs. Fields generated pro forma net
revenue and EBITDA of $191.2 million and $20.7 million, respectively. Actual
net revenue and EBITDA for the 53 weeks ended January 3, 1998 was $134 million
and $18.8 million, respectively. Mrs. Fields generated pro forma net revenue
and EBITDA of $139.5 millon and $15.8 million, respectively, during the
39 weeks ended October 3, 1998 and actual net revenue and EBITDA of $126.5
million and $17.5 million, respectively, during the 39 weeks ended October 2,
1999. EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense.
Pro Forma Information
Pro forma information is not indicative of actual results and may not be
indicative of future results. We have presented pro forma information
throughout this prospectus, however, because we believe that the changes to our
business since 1996 make the pro forma information more meaningful to you.
Our condensed pro forma combined statements of operations data in this
prospectus give effect to:
1. our offering of notes in August 1998
2. the acquisitions of Great American and the capital stock and stores of
some Great American franchisees,
3. an offering of units consisting of notes and warrants to purchase common
stock by Mrs. Fields' Holding Company, Inc., the parent company of Mrs.
Fields, and a capital contribution from Mrs. Fields' Holding to Mrs.
Fields and
4. the acquisitions of the capital stock of Pretzelmaker Holdings Inc., and
Cookie Conglomerate Inc.
as if all of these transactions had occurred on January 4, 1998.
Our Strategy
Our objective is to increase sales and profitability by focusing on
continuing company-owned stores.
An additional objective is to increase sales and profitability at both our
continuing company-owned and franchised stores in prime locations by
implementing the key elements of our long-term business strategy. The key
elements of our business strategy are as follows:
. Enhance Quality of Company-Owned Store Base.
. Improve Productivity of Continuing Company-Owned Stores.
. Capitalize on the Strong Mrs. Fields Brand Name.
. Develop the Great American Brand Name.
. Capitalize on the Strong Pretzel Time Brand Name.
. Develop New Company-Owned and Franchised Stores, including
Internationally.
. Realize Purchasing and Overhead Cost Savings As a Result of Recent
Acquisitions.
. Pursue Further Strategic Acquisitions of Related Businesses.
7
<PAGE>
SUMMARY DESCRIPTION OF NOTES
The form and terms of the notes to be issued in the exchange offer are the
same as the form and terms of the outstanding notes except that the notes to be
issued in the exchange offer have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain the registration rights and liquidated damages provisions contained in
the outstanding notes. The notes issued in the exchange offer will evidence the
same debt as the outstanding notes and both the outstanding notes and the notes
to be issued in the exchange offer are governed by the same indenture.
Aggregate Amount ....... $53,725,000 in principal amount of 10 1/8% Series B
Senior Notes due 2004 of Mrs. Fields' Original
Cookies, Inc.
Maturity Date........... December 1, 2004.
Interest Payment
Dates.................. June 1 and December 1 of each year.
Guarantee............... The notes issued in the exchange offer will be
guaranteed by our wholly owned subsidiaries, The Mrs.
Fields' Brand, Inc., Great American Cookie Company,
Inc., Pretzelmaker Holdings, Inc. and Pretzel Time,
Inc. The guarantees:
. will be identical in all material respects to the
guarantees on the outstanding notes
. are general unsecured obligations of the
guarantors
. rank senior in right of payment to all
subordinated indebtedness of the guarantors
. rank equal in right of payment with all existing
and future senior indebtedness of the guarantors
Our existing and future subsidiaries may also become
guarantors in the future. You should read
"Description of Notes--the Guarantees."
Ranking................. The notes being issued in the exchange offer:
. are general unsecured obligations of Mrs. Fields
. rank senior in right of payment to all
subordinated indebtedness of Mrs. Fields
. rank equal in right of payment with all existing
and future senior indebtedness of Mrs. Fields
As of October 2, 1999, we had $140,000,000 in-
aggregate principal amount of notes 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, and
. all debt of our subsidiaries that are not
guarantors of the notes
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 AND PRO FORMA FINANCIAL AND STORE DATA
The following table presents:
(1) summary historical financial and store data for Mrs. Fields and its
predecessors; namely, Mrs. Fields Inc. and subsidiaries, The Original
Cookie Company, Incorporated and the pretzel business of Hot Sam Company,
Inc., as of December 28, 1996 and for the 52-weeks then ended;
(2) summary consolidated historical financial and store data for Mrs.
Fields as of January 3, 1998 and January 2, 1999 and for the 53 weeks ended
January 3, 1998, the 52 weeks ended January 2, 1999 and the 39 weeks ended
October 3, 1998 and October 2, 1999; and
(3) summary combined pro forma financial and store data for Mrs. Fields,
Great American, Deblan, Chocolate Chip, the eight Great American stores
purchased from a Great American franchisee, Cookie Conglomerate and
Pretzelmaker for the 52 weeks ended January 2, 1999 as if each of the
following had occurred as of January 4, 1998:
. the Mrs. Fields' offering in August 1998,
. the acquisition of Great American,
. the acquisition of the stock of two Great American franchisees,
. the acquisition of eight Great American stores,
. the tender offer for outstanding Great American notes,
. the offering of units consisting of notes and warrants of Mrs. Fields'
Holding and the capital contribution of the net proceeds from the units
offering to Mrs. Fields in August 1998,
. and the acquisitions of Cookie Conglomerate and Pretzelmaker
The summary combined pro forma data do not purport to represent what Mrs.
Fields' results actually would have been had the above mentioned
transactions occurred as of January 4, 1998 nor do these data purport to
project the results of Mrs. Fields for any future period. The summary
historical and pro forma financial and store data should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the "Unaudited Pro Forma Condensed
Combined Financial Statements," "Selected Historical Financial Data," and
the historical financial statements and related notes, contained elsewhere
in this Registration Statement. The following information will also assist
you in understanding the Mrs. Fields and predecessors historical combined
financial and store data:
. On September 17, 1996, Mrs. Fields completed the acquisitions of
substantially all of the assets and assumed 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 generally accepted accounting
principles.
. In order for the data to be comparable for the periods presented, some of
the statements of operations data for the predecessors has been
reclassified to be consistent with the Mrs. Fields historical financial
statement presentation.
10
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
and Predecessors Mrs. Fields
---------------- --------------------------------------------------------------
Historical Historical Historical Pro Forma Historical Historical
Combined Consolidated Consolidated Combined Consolidated Consolidated
---------------- ------------ ------------ --------- ------------ ------------
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended 39 Weeks Ended
December January January January October 3, October 2,
28, 1996 3, 1998 2, 1999 2, 1999 1998 1999
---------------- ------------ ------------ --------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales.................. $126,330 $127,845 $140,235 $171,689 $92,850 $107,265
Net store and food
contribution(1)........ 19,308 25,044 20,166 21,015 16,321 14,470
Franchising and
licensing, net......... 5,103 6,563 14,001 19,557 5,693 19,269
General and
administrative
expenses............... 20,557 16,192 19,017 26,488 12,621 16,212
Store closure
provision.............. -- 538 7,303 7,303 -- --
Income (loss) from
operations............. 1,135 8,415 (5,389) (4,909) (314) 835
Net loss................ (5,988) (974) (19,143) (22,471) (9,690) (12,860)
Other Data:
Cash flows from
operating activities... 6,784 919 9,429 8,967 676 9,115
Cash flows from
investing activities... (22,716) (15,505) (40,894) (41,260) (34,315) (3,501)
Cash flows from
financing activities... 18,793 24,164 19,929 18,853 22,498 (2,598)
Interest expense........ 4,842 7,830 13,197 17,123 8,981 12,946
Total depreciation and
amortization........... 9,192 10,403 19,820 25,582 9,707 16,692
Capital expenditures.... 3,892 4,678 8,235 N/A 5,616 5,488
EBITDA(2)............... 10,327 18,818 14,431 20,673 9,393 17,527
Negative store
contribution for stores
in the process of being
closed or
franchised(1).......... $ (1,933) $ (1,798) $ (2,054) $ (2,284) $(2,137) $ (892)
Ratio of earnings to
fixed charges(3)....... -- -- -- -- -- .06X
Store Data:
Percentage change in
comparable store
sales(4)............... (1.2)% 0.6% (1.6)% NA 0.6% (0.4)%
Total company-owned
stores open at end of
period................. 482 481 566 566 568 479
Total franchised or
licensed stores open at
end of period.......... 418 553 972 972 765 961
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields
Historical
Consolidated
October 2, 1999
----------------------
(Dollars in thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $ 7,767
Total assets........................................... 217,439
Mandatorily redeemable cumulative preferred stock of
subsidiary............................................ 1,182
Total line of credit, debt and capital lease
obligations, including current portion................ 146,439
Total stockholder's equity............................. 29,818
</TABLE>
See footnotes on following page
11
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
and Predecessors Mrs. Fields
---------------- -------------------------------------------------------------
Historical Historical Historical Pro Forma Historical Historical
Combined Consolidated Consolidated Combined Consolidated Consolidated
---------------- ------------ ------------ --------- ------------ ------------
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended 39 Weeks Ended
December January January January October 3, October 2,
28, 1996 3, 1998 2, 1999 2, 1999 1998 1999
EBITDA Data: ---------------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income (loss) from
operations............. $ 1,135 $ 8,415 $(5,389) $(4,909) $ (314) $ 835
ADD:
Depreciation and
amortization.......... 9,192 10,403 19,820 25,582 9,707 16,692
------- ------- ------- ------- ------ -------
EBITDA................. $10,327 $18,818 $14,431 $20,673 $9,393 $17,527
======= ======= ======= ======= ====== =======
</TABLE>
- --------
(1) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures.
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of operating performance or to cash flows as
a measure of liquidity. EBITDA has been included in this prospectus because
it is one of the indicators by which Mrs. Fields assesses its financial
performance and its capacity to service its debt.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal year 1996, earnings were insufficient to
cover fixed charges by $3,985,000. For the 53 weeks ended January 3, 1998
and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000 and $18,827,000,
respectively. For the 39 weeks ended October 3, 1998 and October 2, 1999
earnings were insufficient to cover fixed charges by $9,622,000 and
$12,644,000, respectively. For the 52 weeks ended January 2, 1999, pro
forma combined earnings were insufficient to cover pro forma combined fixed
charges by $22,565,000.
(4) Mrs. Fields includes in comparable store sales only those stores that have
been in operation for a minimum of 24 consecutive months. The percentage
change in comparable store sales is calculated from the previous period.
12
<PAGE>
RISK FACTORS
You should consider carefully all of the information in this prospectus,
including the following risk factors and warnings, before deciding whether to
exchange your outstanding notes for the notes to be issued in the exchange
offer. Except for the first three risk factors described below, the risks
factors generally apply to the outstanding notes as well as to the notes to be
issued.
You may have difficulty selling the notes which you do not exchange, since
outstanding notes will continue to have restrictions on transfer and cannot be
sold without registration under securities laws or exemptions from registration
If a large number of outstanding notes are exchanged for notes issued in the
exchange offer, it may be difficult for holders of outstanding notes that are
not exchanged in the exchange offer to sell the notes, since those notes may
not be offered or sold unless they are registered or there are exemptions from
registration requirements under the Securities Act or state laws that apply to
them. In addition, if there are only a small number of notes outstanding, there
may not be a very liquid market in those old notes. There may be few investors
that will purchase unregistered securities in which there is not a liquid
market. See "The Exchange Offer--Consequences of Failure to Exchange Notes."
In addition, if you do not tender your outstanding notes or if we do not
accept some outstanding notes, those notes will continue to be subject to the
transfer and exchange provisions of the indenture and the existing transfer
restrictions of the outstanding notes that are described in the legend on such
notes and in the offering circulars relating to the outstanding notes.
If you do not exchange your outstanding notes in the exchange offer, you will
no longer be entitled to an increase in interest payments on outstanding notes
that the indenture provides for if we fail to complete the exchange offer
Once the exchange offer has been completed, holders of outstanding 10 1/8%
Series C Senior Notes due 2004 will not be entitled to any increase in the
interest rate on their notes, which the indenture provides for if we fail to
complete the exchange offer. Holders of outstanding notes will not have any
further rights to have their outstanding notes registered, except in limited
circumstances, once the exchange offer is completed. Holders of other
outstanding notes are not entitled to any increase in the interest rate on
their notes, regardless of whether the exchange offer is completed.
If you exchange your outstanding notes, you may not be able to resell the notes
you receive in the exchange offer without registering them and delivering a
prospectus
You may not be able to resell notes you receive in the exchange offer without
registering those notes or delivering a prospectus. Based on interpretations by
the Commission in no-action letters, we believe, with respect to notes issued
in the exchange offer, that:
. holders who are not "affiliates" of Mrs. Fields within the meaning of
Rule 405 of the Securities Act,
. holders who acquire their notes in the ordinary course of business, and
. holders who do not engage in, intend to engage in, or have arrangements
to participate in a distribution (within the meaning of the Securities
Act) of the notes
do not have to comply with the registration and prospectus delivery
requirements of the Securities Act.
Holders described in the preceding sentence must tell us in writing at our
request that they meet these criteria. Holders that do not meet these criteria
could not rely on interpretations of the Commission in no-action letters, and
would have to register the notes they receive in the exchange offer and deliver
a prospectus for them. In addition, holders that are broker-dealers may be
deemed "underwriters" within the meaning of the Securities Act in connection
with any resale of notes acquired in the exchange offer. Holders that are
broker-dealers must acknowledge that they acquired their outstanding notes in
market-making activities or other
13
<PAGE>
trading activities and must deliver a prospectus when they resell the notes
they acquire in the exchange offer in order not to be deemed an underwriter.
You should review the more detailed discussion in "The Exchange Offer--
Procedures for Tendering Notes and Consequences of Exchanging Outstanding
Notes."
We have substantial debt, which could 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 October 2,
1999
--------------
<S> <C>
Total indebtedness of Mrs. Fields and subsidiaries........... $146.4 million
</TABLE>
Of this indebtedness, $7 million was senior to the notes.
The number includes liabilities for leases of $2.6 million and preferred
stock required to be repurchased at a future date of $1.2 million outstanding,
together representing 2.6% of our total liabilities and equity. Substantially
all of our subsidiaries' debt is effectively senior to the notes.
<TABLE>
<S> <C>
Stockholder's equity.......................................... $ 29.8 million
Debt to equity ratio.......................................... 4.9 to 1
</TABLE>
Moreover, in recent periods our earnings have not been sufficient to cover
our fixed charges.
<TABLE>
<CAPTION>
39 weeks ended
October 2,
1999
--------------
<S> <C>
Approximate deficiency in earnings to fixed charges
presented on a combined basis............................. $ 12.6 million
</TABLE>
Additional borrowings available--despite current indebtedness levels, we and
our subsidiaries may still be able to incur substantially more debt; this could
further exacerbate the risks described above
Although the indenture and our existing credit agreement with LaSalle
National Bank limits our ability and that of our subsidiaries to incur
additional indebtedness and issue preferred stock, including secured
14
<PAGE>
indebtedness, we can incur additional indebtedness and issue preferred stock.
This can include secured indebtedness, which effectively ranks senior to the
notes with respect to the assets securing indebtedness. See "Unaudited Pro
Forma Condensed Combined Financial Statements," and "Description of Notes --
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
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
15
<PAGE>
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
16
<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 cost of integrating our information systems, which is currently underway,
could exceed what we have budgeted, which would decrease profits or increase
losses; if we do not successfully integrate our information systems, we may not
achieve anticipated cost savings
We have made a substantial investment in developing a customized,
sophisticated point-of-sale management information system. We are upgrading our
back-office system to a Windows NT environment and
17
<PAGE>
are currently upgrading all Mrs. Fields stores to Pentium computers, and we
plan to install our upgraded back-office system, along with the point-of-sale
registers and Pentium computers, in our core Original Cookie stores, Hot Sam
stores, Pretzelmaker stores, Pretzel Time stores and many of our Great American
stores by November 1999. We cannot be sure that we will successfully integrate
this system or that we will achieve a fully integrated system within budget.
Therefore, we cannot be sure that our attempts to integrate the point-of-sale
system will not decrease profits or increase losses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Failures in Year 2000 compliance by companies with which we do business could
disrupt our ability to make our products, as a result of delays in shipments,
or disrupt the telecommunications and utilities that we need to run our
business
Year 2000 computer problems may arise after the date of this prospectus.
Prior to January 1, 2000, we assessed 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 those vendors to
continue providing goods and services to us. Failure of our key suppliers to
remedy their own Year 2000 issues could delay shipments of essential products,
disrupting our ability to make our products as a result. Furthermore, we rely
on various service providers, such as utility and telecommunication service
companies, which are beyond our control, to keep our business running. Based on
the results of the assessment, management is not aware of any Year 2000 issues
relating to our significant vendors, financial institutions or our non-
information technology systems.
We do not have a contingency plan in place to address untimely or incomplete
remediation of Year 2000 issues. We are currently developing contingency plans.
These contingency plans are expected to address issues related to significant
vendors and financial institutions. Because we believe that we are compliant
with Year 2000 issues, we believe that any Year 2000 risks are those that could
occur due to non-compliance by companies with which we do business.
The minimum wage increase may increase our costs, with the result of decreasing
our profits or increasing our losses
As of October 2, 1999, 762 of our 4,280 employees that work at stores owned
by us earned the federal hourly minimum wage. As a result of an increase in the
minimum wage from $4.75 to $5.15 on September 1, 1997, we have experienced an
increase of wages of approximately $354,000 annually. These increased labor
costs could 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.
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 for 19.7% of our franchise revenues for the
52 weeks ended January 2, 1999. For the same period, franchise revenues made up
8.1% of our total net revenues. We cannot be sure that these franchise
agreements will not be terminated or that our relations with franchisees will
not change, or that our franchisees will continue to perform as they have in
the past. The termination of these key franchise agreements or poor performance
by our franchisees may have an adverse affect on our financial condition and
results of operations. In addition, three licensees accounted for 68% of our
licensing revenue for the 52 weeks ended January 2, 1999. For the same period,
licensing revenue was 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.
18
<PAGE>
If our trademarks are challenged, our revenues 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.
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 profitability. See "Business--Competition."
Adverse publicity, particularly about health concerns, could reduce our sales
and decrease profits
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 profits.
19
<PAGE>
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 profits 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 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 profits 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 profits or increase our losses.
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 controls all of our capital stock. As a result, Capricorn is in
a position to elect all of our directors who, in turn, elect all of our
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<PAGE>
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 profits or increased losses
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 profits or increased losses. 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 other assets
and capital stock of companies it has recently acquired and because Mrs. Fields
and the existing guarantors cannot be sure that their businesses will generate
enough cash flows from operations or that future borrowings will be available
in an amount that will allow Mrs. Fields and the existing guarantors to pay
principal and interest on their indebtedness including the notes and the
guarantees, we cannot be sure that a court would not set aside payments made to
holders of the notes as a fraudulent transfer.
A fraudulent transfer is a payment or obligation that a borrower makes in
exchange for less than reasonably equivalent value, if the borrower, when it
makes the payment or incurs the obligation:
. is insolvent or is rendered insolvent by the payment or the incurring of
the obligation, or
. is engaged or is about to engage in a business or transaction for which
its assets constitute unreasonably small capital, or
. intends to incur, or believes that it will incur, debts beyond its
ability to repay as they mature.
For these purposes, a borrower is generally considered insolvent:
. if the sum of its debts, including contingent liabilities, were greater
than all of its assets at a fair valuation,
. if it had unreasonably small capital to conduct its business, or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay the probable liability on its
existing debts, including contingent liabilities, as they become due.
A payment or obligation that the borrower made with actual intent to hinder,
delay, or defraud any of its creditors is also a fraudulent transfer.
A court may hold any obligation incurred by the borrower in these situations
void or unenforceable, may subordinate the obligation to the claims of other
creditors, or may require the holders of the obligations or the recipients of
any of these payments to return any payments received. If Mrs. Fields or the
existing guarantors met any of the fraudulent transfer law's financial
condition tests described above when they issued the notes or the guarantees,
or when they were called upon to make a payment on the notes or the guarantees,
and did not receive reasonably equivalent value in exchange, a court could
conclude that the issuance of the notes, the making of the guarantees or the
payment under the notes or the guarantees should be set aside or returned.
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<PAGE>
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 other assets and capital stock of
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 in recent periods we have not had
earnings sufficient to cover our fixed charges. In any future fraudulent
transfer litigation concerning the notes and the payments made to the holders
of the notes, a court may rely on these facts in determining our solvency, the
adequacy of our capital and our ability to pay our debts as they become due.
The guarantees are limited by their terms so as to not constitute a
fraudulent transfer under applicable law. If the guarantees were challenged
under this provision, the court would have to, among other things, analyze the
direct and indirect benefits obtained by the guarantors in comparison to the
probability that the guarantors would be called upon to pay the guarantees. It
is possible that a court would limit the guarantees under this provision to an
amount that is significantly below the amount of the notes. Management cannot
accurately predict what a court would do in this case.
If Mrs. Fields or a guarantor caused a subsidiary to pay a dividend when the
subsidiary met any of the fraudulent transfer law's financial condition tests
described above, in order to enable Mrs. Fields or the guarantor to make a
payment in respect of the notes or the guarantees, a court could conclude that
the dividend as well as the payment is a fraudulent transfer and that the
holders should be required to return the payment, because in the absence of
other facts, courts generally conclude that a subsidiary that pays a dividend
does not receive reasonably equivalent value in exchange.
In addition, subject to defenses, the holders may have to return payments
made by Mrs. Fields on the notes or the guarantors on the guarantees within 90
days before the commencement of a bankruptcy case by or against them, if, among
other things, Mrs. Fields or the guarantors were insolvent at the time the
payments were made. Mrs. Fields or the guarantor would be presumed insolvent on
and during the 90 days immediately preceding the date of the filing of its
bankruptcy petition.
In any of the preceding cases, there could be no assurance that the holders
would ultimately recover the amounts owing under the notes and the guarantees.
There is no public market for the notes to be issued; transfers of the
outstanding notes are restricted
The notes to be issued are being offered only to the holders of the
outstanding notes. There is no public market for the notes to be issued. If a
public market were to develop, the notes could trade at prices that may be
higher or lower than the initial offering price of the outstanding notes. The
placement agents for the outstanding notes currently make a market in the
outstanding notes. The placement agents have informed us that they currently
intend to make a market in the notes to be issued. However, the placement
agents may cease their market-making at any time. The liquidity of the trading
market in these notes, and the market price quoted for these notes, may be
adversely affected by changes in the overall market for similar securities,
existing interest rates, and by our operating results. As a result, you cannot
be sure that an active market will develop for these notes.
22
<PAGE>
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.
23
<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.
24
<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,
(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.
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<PAGE>
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 Recent Transactions
In June 1998, we acquired 5 additional Pretzel Time stores from a franchisee
for a purchase price of $657,000. We acquired one additional Pretzel Time store
from a franchisee and two cookie stores operating 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 is the holding
company for a pretzel retail company. The purchase price was approximately $5.7
million and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1.6 million.
Recent Developments
On February 10, 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 there
has been no agreement as to 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 various products in TCBY stores.
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.
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<PAGE>
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 October 2, 1999. This
table should be read in conjunction with the historical financial statements
and related notes included elsewhere in this Registration Statement. See
"Selected Historical Financial Data" and "Unaudited Pro Forma Condensed
Combined Statement of Operations."
<TABLE>
<CAPTION>
Mrs. Fields'
Original Cookies, Inc.
and Subsidiaries
at October 2, 1999
----------------------
(Dollars in thousands)
<S> <C>
Cash and Cash Equivalents............................... $ 7,767
========
Debt and Capital Lease Obligations, including current
portions:
Credit Facility(1).................................... $ 1,400
10 1/8% Series A, B and C Senior Notes due 2004(2).... 140,000
Original issue discount on 10 1/8% Series C Senior
Notes due 2004....................................... (558)
Pretzel Time Debt..................................... 164
Mrs. Fields' Original Cookies, Inc. Other Debt and
Capital Lease Obligations............................ 5,411
Pretzelmaker Debt and Capital Lease Obligations....... 22
--------
Total Debt and Capital Lease Obligations, including
current portion........................................ 146,439
--------
Mandatorily Redeemable Preferred Stock of Pretzel
Time(3)................................................ 1,182
--------
Stockholder's Equity:
Common Stock (pledged as collateral for parent company
debt)(4)............................................. --
Additional Paid-in Capital(5)......................... 61,899
Accumulated Deficit................................... (32,081)
--------
Total Stockholder's Equity............................ 29,818
--------
Total Capitalization.................................... $177,439
========
</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 October 2,
1999, Mrs. Fields had approximately $6.7 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 October 2, 1999 was approximately $1.2
million. Date of redemption is January 15, 2000.
(4) Less than $1,000.
(5) Gives effect to the capital contribution of Mrs. Fields' Holding of $29.1
million on August 24, 1998 and $2.0 million on May 27, 1999.
29
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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
, 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,
31
<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
32
<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.
33
<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.
34
<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
35
<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.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents historical financial data for Mrs. Fields'
Original Cookies, Inc. and subsidiaries and its predecessors; namely, Mrs.
Fields Inc. and subsidiaries, The Original Cookie Company, Incorporated and the
pretzel business of Hot Sam Company, Inc. as of the dates and for the periods
indicated. The results of operations for the periods December 31, 1995 through
September 17, 1996 and September 18, 1996 through December 28, 1996 are not
indicative of the results for the full fiscal year. The selected historical
financial data has been derived from the audited financial statements of Mrs.
Fields and its predecessors. Due to the acquisitions of the net assets of Mrs.
Fields Inc., Original Cookie and Hot Sam on September 17, 1996, the financial
data is not comparable for all periods. However, in order for the presentations
to be meaningful for the periods presented, some of the statement of operations
information for the predecessors has been reclassified to be consistent with
the Mrs. Fields historical financial statement presentation. Mrs. Fields and
its predecessors operate using a 52/53-week year ending near December 31. The
selected historical financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes,
contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessors
----------------------------------------------------------------------------
The Original Cookie
Company, Incorporated
and the Carved-
out Portion of Hot
Mrs. Fields Inc. and Subsidiaries Sam Company, Inc. (Combined)
-------------------------------------- -----------------------------------
December December
52 Weeks Ended 31, 1995 52 Weeks Ended 31, 1995
----------------------- through ---------------------- through
December December September December December September
31, 1994 30, 1995 17, 1996 31, 1994 30, 1995 17, 1996
----------- ---------- ------------ ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and fund
sales.................. $ 87,863 $ 59,956 $ 29,674 $ 89,648 $ 85,581 $ 54,366
Net store
contribution(1)........ 8,083 6,591 3,797 13,912 13,063 5,854
Franchising and
licensing, net......... 7,241 5,993 3,786 -- -- --
General and
administrative
expenses............... 16,379 15,612 8,984 12,546 9,216 7,538
Income (loss) from
operations............. (1,691) (3,526) (1,742) (750) 2,435 (2,772)
Net loss................ (5,320) (2,368) (2,304) (5,355) (2,096) (5,645)
Other Data:
Cash flows from
operating activities... 1,728 (4,478) (447) 3,699 4,451 (378)
Cash flows from
investing activities... (2,030) 2,526 (385) (3,779) (568) (1,200)
Cash flows from
financing activities... (732) (185) (58) 3,134 (4,599) (1,380)
Interest expense........ 2,155 51 80 4,381 4,356 2,895
Total depreciation and
amortization........... 4,415 3,525 1,911 7,423 6,902 4,937
Capital expenditures.... 4,895 4,146 1,054 3,779 568 1,200
EBITDA(2)............... 2,724 (1) 169 6,673 9,337 2,165
Store contribution for
stores in the process
of being closed or
franchised(1).......... $ 319 $ (802) $ (695) $ (542) $ (1,542) $ (1,751)
Ratio of earnings to
fixed charges(3)....... -- -- -- -- -- --
Balance Sheet Data:
Working capital
(deficit).............. $ (1,067) $ (3,114) $ (21,704) $ (46) $ 128 $ (3,640)
Total assets............ 30,128 23,033 19,144 74,490 66,282 59,024
Debt and capital lease
obligations, including
current portion........ 22,850 21,226 21,224 36,956 32,357 30,977
Total stockholders'
equity (deficit)....... (25,419) (28,017) (30,318) 24,684 22,588 16,943
</TABLE>
See footnotes on page 37
37
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields
---------------------------------------------------------
September 18, 53 Weeks 52 Weeks 39 Weeks 39 Weeks
1996 through Ended Ended Ended Ended
December 28, January 3, January 2, October 3, October 2,
1996 1998 1999 1998 1999
------------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales.................. $ 40,849 $127,845 $140,235 $ 92,850 $107,265
Net store
contribution(1)........ 9,707 25,044 20,166 16,321 14,470
Franchising and
licensing, net......... 1,267 6,563 14,001 5,693 19,269
General and
administrative
expenses............... 4,035 16,192 19,017 12,621 16,212
Store closure
provision.............. -- 538 7,303 -- --
Income (loss) from
operations............. 5,649 8,415 (5,389) (314) 835
Net income (loss)....... 1,961 (974) (19,143) (9,690) (12,860)
Other Data:
Cash flows from
operating activities... 7,609 919 9,429 676 9,115
Cash flows from
investing activities... (21,131) (15,505) (40,894) (34,315) (3,501)
Cash flows from
financing activities... 20,231 24,164 19,929 22,498 (2,598)
Interest expense........ 1,867 7,830 13,197 8,981 12,946
Total depreciation and
amortization........... 2,344 10,403 19,820 9,707 16,692
Capital expenditures.... 1,638 4,678 8,235 5,616 5,488
EBITDA(2)............... 7,993 18,818 14,431 9,393 17,527
Store contribution for
stores in the process
of being closed or
franchised(1).......... $ 513 $ (1,798) $ (2,054) $ (2,137) $ (892)
Ratio of earnings to
fixed charges(3)....... 2.85x -- -- -- .06x
Balance Sheet Data:
Working capital
(deficit).............. $ (2,889) $ 13,133 $(12,727) $ (2,276) $(13,251)
Total assets............ 110,055 149,684 231,906 222,657 217,439
Mandatorily redeemable
cumulative preferred
stock of subsidiaries.. 3,597 902 1,261 1,171 1,182
Line of credit, debt and
capital lease
obligations, including
current portion........ 67,563 101,081 150,989 140,156 146,439
Total stockholder's
equity................. 16,961 30,765 40,678 50,131 29,818
</TABLE>
<TABLE>
<CAPTION>
Predecessors
---------------------------------------------------------
The Original Cookie
Company, Incorporated
and the Carved-out Portion
of Hot
Mrs. Fields Inc. and Sam Company, Inc.
Subsidiaries (Combined)
----------------------------- ---------------------------
December December
52 Weeks Ended 31, 1995 52 Weeks Ended 31, 1995
------------------ through ----------------- through
December December September December December September
31, 1994 30, 1995 17, 1996 31, 1994 30, 1995 17, 1996
-------- -------- --------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations............. $(1,691) $(3,526) $(1,742) $ (750) $2,435 $(2,772)
ADD:
Depreciation and
amortization.......... 4,415 3,525 1,911 7,423 6,902 4,937
------- ------- ------- ------ ------ -------
EBITDA................. $ 2,724 $ (1) $ 169 $6,673 $9,337 $ 2,165
======= ======= ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields
---------------------------------------------------------
September 18, 53 Weeks 52 Weeks 39 Weeks 39 Weeks
1996 through Ended Ended Ended Ended
December 28, January 3, January 2, October 3, October 2,
1996 1998 1999 1998 1999
------------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations............. $5,649 $ 8,415 $(5,389) $ (314) $ 835
ADD:
Depreciation and
amortization.......... 2,344 10,403 19,820 9,707 16,692
------ ------- ------- ------ -------
EBITDA.................. $7,993 $18,818 $14,431 $9,393 $17,527
====== ======= ======= ====== =======
</TABLE>
- --------
(1) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures reported by other companies.
(footnotes continue on next page)
38
<PAGE>
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of operating performance or to cash flows as
a measure of liquidity. EBITDA has been included in this prospectus because
it is one of the indicators upon which Mrs. Fields assesses its financial
performance and its capacity to service its debt (see footnote 3 below).
EBITDA may not be comparable to similarly titled measures reported by other
companies.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal years 1994 and 1995 and the period December
31, 1995 through September 17, 1996, Mrs. Fields Inc. and subsidiaries'
earnings were insufficient to cover fixed charges by $5,129,000, $2,127,000
and $2,099,000, respectively. For fiscal years 1994 and 1995 and the period
December 31, 1995 through September 17, 1996, Original Cookie and Hot Sam
(combined) earnings were insufficient to cover fixed charges by $5,131,000,
$1,833,000 and $5,645,000, respectively. For the 53 weeks ended January 3,
1998 and the 52 weeks ended January 2, 1999, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000 and $18,827,000,
respectively. For the 39 weeks ended October 3, 1998 and October 2, 1999,
Mrs. Fields' earnings were insufficient to cover fixed charges by
$9,622,000 and $12,644,000, respectively.
39
<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 liabilities of Mrs. Fields Inc. and
subsidiaries, The Original Cookie Company, Incorporated and the pretzel
business of Hot Sam Company, Inc.
Mrs. Fields set out to increase sales and profitability of its cookie and
pretzel operations by implementing key elements of its business plan coupled
with strategic acquisitions. A key element of the business plan is closing or
franchising selected company-owned stores that do not meet specific financial
and geographical criteria established by management. Implementation of this
element of the business plan is expected to result in enhanced operating
margins as these stores are franchised or closed. In some of our tables we
refer to stores not planned to be franchised or closed as "core" stores,
meaning continuing company-owned stores. Continuing company-owned stores will
be operated by Mrs. Fields into the foreseeable future. As a result of
converting selected stores to franchises, royalty revenues are expected to
increase and net store sales and overhead expenses associated with operating
those stores are expected to be reduced.
As Mrs. Fields exits stores it has identified for closure through closing or
franchising, results from operations are expected to improve on both a short-
term and long-term basis. With respect to these specific stores both ongoing
operating losses and negative cash flows are expected to cease.
Cash payments to landlords for early lease termination costs negatively
impact our immediate liquidity position. However, our overall financial
position is expected to be strengthened over time as cash flows from operating
activities increase. As cash is used to fund the store closure plans,
corresponding store closure reserves are reduced which has a neutral impact on
working capital and financial position. Should Mrs. Fields' cost estimates for
exiting the remaining stores not prove sufficient, it would have a negative
impact on both liquidity and results of operations.
Mrs. Fields believes that it has sufficient liquidity to complete its store
closure plans. A complete analysis of Mrs. Fields' store closure plans is
included in Note 5 to the January 2, 1999 Consolidated Financial Statements and
Note 4 to the Unaudited Condensed Consolidated Financial Statements as of
October 2, 1999.
Mrs. Fields is pursuing growth in both its cookie and pretzel businesses
through strategic acquisitions. Management expects that significant operating
synergies, expense leveraging and geographic market share can be achieved
through targeted acquisitions. On July 25, 1997, a subsidiary of Mrs. Fields'
Holding, Mrs. Fields' Pretzel Concepts, Inc., acquired substantially all of the
assets and assumed liabilities of H&M Concepts Ltd. Co., the largest franchisee
of Pretzel Time, Inc. On September 2, 1997, Mrs. Fields' Holding acquired 56%
of the common stock of Pretzel Time, the franchisor of the Pretzel Time
concept.
On November 26, 1997, Mrs. Fields received as a contribution from Mrs.
Fields' Holding all of the common stock of The Mrs. Fields' Brand, Inc., the
business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock
of Pretzel Time. On January 2, 1998 and June 12, 1998, Mrs. Fields acquired an
additional 4% and 10%, respectively, of Pretzel Time common stock, bringing its
total ownership to 70%. On December 9, 1998, Mrs. Fields purchased three
percent of Pretzel Time common stock for $0.5 million in cash and on December
30, 1998 Mrs. Fields completed the acquisition of the remaining outstanding
common stock of Pretzel Time under a stock purchase agreement, for a purchase
price of approximately $4.7 million.
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, the parent company of Great
American Cookie Company, Inc., for a total
40
<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 into Mrs. Fields, at which time Great American became a wholly owned
subsidiary of Mrs. Fields. At the same time Mrs. Fields also purchased the
stock of two Great American franchisees, Deblan Corporation and Chocolate Chip
Cookies of Texas, Inc., together owning and operating 29 Great American
franchised stores, for total consideration of $14.4 million. Deblan and
Chocolate Chip were merged into Great American at that time. On September 9,
1998, Mrs. Fields acquired eight Great American franchise stores from a Great
American franchisee ("Karp"), for a purchase price of $1.9 million.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American franchise stores from
a Great American franchisee ("Cookie Conglomerate") for a total purchase price
of $2.8 million.
On November 19, 1998, Mrs. Fields, under a stock purchase agreement among
Pretzelmaker Holdings, Inc., holders of all outstanding capital stock of
Pretzelmaker, and Mrs. Fields, acquired all of the outstanding capital stock of
Pretzelmaker for $5.7 million, including $5.4 million related to outstanding
capital stock and $320,000 related to severance payments in lieu of outstanding
stock options, and assumed liabilities totaling $1.3 million.
Year 2000
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 Mrs. Fields' 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 $1.75
million and includes software development and new store computers and
registers. The costs to complete this project were included in Mrs. Fields'
1999 budget. Funding for this project was provided by internal cash flow and by
a lease finance company.
Upgrades of the plant production and distribution software were completed in
the first and second quarters of 1999 at an estimated cost of $10,000. No
information technology projects have been deferred as a result of Mrs. Fields'
Year 2000 efforts.
Prior to January 1, 2000, Mrs. Fields completed its assessment of 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 third-party vendors to continue providing goods and services to
Mrs. Fields. Failure of Mrs. Fields' key suppliers to remedy their own Year
2000 issues could delay shipments of essential products, thereby disrupting
Mrs. Fields' operations. Furthermore, Mrs. Fields relies on various service
providers, such as utility and telecommunication service companies, which are
beyond its control. Based upon the results of the assessment, Mrs. Fields is
not aware of any Year 2000 issues relating to its significant third-party
vendors, financial institutions.
We have performed an analysis to identify significant non-IT systems to
determine the probability of them not being year 2000 compliant. The analysis
indicated a very low probability of a disruption to our business due to any of
these systems not being year 2000 compliant because either there were no
embedded microchips in the systems or they have been certified by their
manufacturer to be year 2000 compliant.
Mrs. Fields does not have a contingency plan in place to address untimely or
incomplete remediation of Year 2000 issues, but it is currently developing
contingency plans. These contingency plans are expected to address issues
related to significant vendors and financial institutions.
41
<PAGE>
Results of Operations of Mrs. Fields and its Predecessors
The following table shows, for the periods indicated, information relating to
the operations of Mrs. Fields and its predecessors expressed in thousands of
dollars and percentage changes from period to period. Annual data in the table
reflects the combined results of the predecessors (for the period December 31,
1995 through September 17, 1996) and Mrs. Fields (for the period September 18,
1996 through December 28, 1996) and the consolidated results of Mrs. Fields for
the 53 weeks ended January 3, 1998 ("fiscal year 1997"), for the 52 weeks ended
January 2, 1999 ("fiscal year 1998") and for the 39 weeks ended October 3, 1998
and October 2, 1999. In order for the presentations to be comparable, some of
the historical financial statement information for the predecessors has been
reclassified to be consistent with the Mrs. Fields historical financial
statement presentation.
<TABLE>
<CAPTION>
For the 39 Weeks
% of Ended
For the 53 Change % of ---------------------
For the 52 Weeks from For the 52 Change % Change
Weeks Ended Ended 1996 Weeks Ended from from
December 28, January 3, to January 2, 1997 to October 3, October 2, 1998 to
1996 1998 1997 1999 1998 1998 1999 1999
------------ ---------- ------ ----------- ------- ---------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Net store and food
sales................. $126,330 $127,845 1.2 % $140,235 9.7 % $92,850 $107,265 15.5 %
Franchising, net....... 3,447 4,535 31.6 12,464 174.8 4,612 18,082 292.1
Licensing, net......... 1,656 2,028 22.5 1,537 (24.2) 1,081 1,187 9.8
-------- -------- -------- ------- --------
Total revenues......... 131,433 134,408 2.3 154,236 14.8 98,543 126,534 28.4
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 69,209 66,832 (3.4) 75,003 12.2 52,357 60,340 15.2
Cost of sales.......... 31,340 32,028 2.2 38,482 20.2 24,172 32,455 34.3
General and
administrative
expenses.............. 20,557 16,192 (21.2) 19,017 17.4 12,621 16,212 28.5
Store closure
provision............. -- 538 -- 7,303 1,257.4 -- -- 72.0
Depreciation and
amortization.......... 9,192 10,403 13.2 19,820 90.5 9,707 16,692 27.2
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 130,298 125,993 (3.3) 159,625 26.7 98,857 125,699 44.1
Interest expense........ (4,842) (7,830) 61.7 (13,197) 68.5 (8,981) (12,946) (78.3)
Interest income......... 141 246 74.4 623 153.3 530 115 (6.6)
Other income (expense).. (2,422) (1,805) (25.5) (1,180) (34.6) (925) (864) 46.1
-------- -------- -------- ------- --------
Net loss................ $ (5,988) $ (974) (83.7)% $(19,143) 1,865.4 % $(9,690) $(12,860) 32.7 %
======== ======== ======== ======= ========
Supplemental
Information:
Continuing company-owned
stores:
Net store and food
sales................. $ 95,635 $108,174 13.1 % $122,713 13.4 % $81,947 $ 95,735 16.8 %
-------- -------- -------- ------- --------
Operating costs and ex-
penses:
Selling and store
occupancy costs....... 44,963 50,858 13.1 60,900 19.7 42,768 51,681 20.8
Cost of sales.......... 24,499 26,578 8.5 33,621 26.5 20,329 22,119 8.8
Depreciation and
amortization.......... 4,932 3,896 (21.0) 5,972 53.3 3,833 7,024 83.3
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 74,394 81,332 9.3 100,493 23.6 66,930 80,824 20.8
-------- -------- -------- ------- --------
Continuing company-owned
store contribution..... $ 21,241 $ 26,842 26.4 % $ 22,220 (17.2)% $15,017 $ 14,911 (0.7)%
======== ======== ======== ======= ========
Stores in the Process of
Being Closed or
Franchised:
Net store and food
sales.................. $ 30,695 $ 19,671 (35.9)% $ 17,522 (10.9)% $10,903 $ 11,530 5.8 %
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 24,246 15,974 (34.1) 14,103 (11.7) 9,589 8,659 (9.7)
Cost of sales.......... 6,841 5,450 (20.3) 4,861 (10.8) 3,095 3,561 15.1
Depreciation and
amortization.......... 1,541 45 (97.1) 612 1,260.0 356 202 (43.3)
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 32,628 21,469 (34.2) 19,576 (8.8) 13,040 12,422 (4.7)
-------- -------- -------- ------- --------
Stores in the process of
being closed or
franchised negative
contribution........... $ (1,933) $ (1,798) (7.0) $ (2,054) 14.2 % $(2,137) $ (892) 58.3%
======== ======== ======== ======= ========
</TABLE>
42
<PAGE>
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. Core store
contribution measures the amount of store contribution from store that the
Company does not intend to close or franchise. Store contribution for stores in
the process of being closed or franchised measures the amount of store
contribution from stores that the Company has determined to either close or
franchise and the Company has included in a store closure reserve. Store
contribution for stores in the process of being closed or franchised as a
separate caption is not in accordance with generally accepted accounting
principles. Store contribution may not be comparable to other similarly titled
measures.
39 Weeks Ended October 2, 1999 Compared to the 39 Weeks Ended October 3, 1998
As of October 2, 1999, there were 479 Company-owned stores and 961 franchised
or licensed stores in operation. The store activity for the 39 weeks ended
October 2, 1999 and October 3, 1998 is summarized as follows:
Company-owned and Franchised or Licensed Store Activity
<TABLE>
<CAPTION>
October 2, 1999 October 3, 1998
-------------------- --------------------
Company- Franchised Company- Franchised
Owned Or Licensed Owned Or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the 39 weeks ended.................. 566 972 481 553
Stores opened (including
relocations)...................... 11 74 116 278
Stores closed (including
relocations)...................... (12) (110) (9) (65)
Stores sold to franchisees......... (5) 5 (4) 4
Non-core (exit plan) stores closed
(September 18, 1996 forward)...... (61) -- (21) --
Non-core (exit plan) stores
franchised (September 18, 1996
forward).......................... (24) 24 (13) 13
Stores acquired from franchisees... 4 (4) 18 (18)
--- ---- --- ---
Stores open as of the end of the 39
weeks ended......................... 479 961 568 765
=== ==== === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store sales increased $14,415,000, or
15.5%, from $92,850,000 to $107,265,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. For stores that had been open
one year or more, sales decreased .3% when compared to the same period in the
prior year. The decrease is primarily due to decreased foot traffic in the
malls where our stores are located.
Net store sales from core stores increased $13,788,000, or 16.8%, from
$81,947,000 to $95,735,000 for the 39 weeks ended October 2, 1999 compared to
the 39 weeks ended October 3, 1998. The increase in net store sales from core
stores was primarily attributable to the operation of 66 Great American and 2
Pretzelmaker core stores obtained in connection with the acquisitions of these
companies in August and November 1998, respectively.
Net store sales from stores in the process of being closed or franchised
increased $627,000, or 5.8%, from $10,903,000 to $11,530,000 for the 39 weeks
ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. This
increase resulted from the addition of 41 to be closed stores and 13 to be
franchised stores in the fourth quarter 1998.
Franchising Revenues. Franchising revenues increased $13,470,000, or 292.1%,
from $4,612,000 to $18,082,000 for the 39 weeks ended October 2, 1999 compared
to the 39 weeks ended October 3, 1998. The increase in franchising revenues was
primarily attributable to batter sales made to franchisees from the Atlanta
43
<PAGE>
batter facility purchased in August 1998 and the addition of 201 Great American
and 205 Pretzelmaker franchisees due to the acquisitions of these companies in
August and November 1998, respectively.
Licensing Revenues. Licensing revenues increased $106,000, or 9.8%, from
$1,081,000 to $1,187,000 for the 39 weeks ended October 2, 1999 compared to the
39 weeks ended October 3, 1998.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $7,983,000, or 15.2%, from $52,357,000 to $60,340,000 for the 39
weeks ended October 2, 1999 compared to the 39 weeks ended October 3, 1998.
Selling and store occupancy costs for core stores increased by $8,913,000, or
20.8%, from $42,768,000 to $51,681,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. These increases were primarily
attributable to the 66 Great American and 2 Pretzelmaker core stores obtained
in connection with the acquisitions in August and November 1998, respectively,
coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $930,000, or 9.7%, from $9,589,000 to $8,659,000 for
the 39 weeks ended October 2, 1999 compared to the 39 weeks ended October 3,
1998. This decrease was primarily the result of closing or franchising 98
stores during the 39 weeks ended October 2, 1999.
Cost of Sales. Total food cost of sales increased $8,283,000, or 34.3%, from
$24,172,000 to $32,455,000 for the 39 weeks ended October 2, 1999 compared to
the 39 weeks ended October 3, 1998.
Food cost of sales for core stores increased $1,790,000, or 8.8%, from
$20,329,000 to $22,119,000 for the 39 weeks ended October 2, 1999. This
increase was primarily the result of the addition of 66 Great American and 2
Pretzelmaker core stores in August and November 1998, respectively.
Food cost of sales for stores in the process of being closed or franchised
increased $466,000, or 15.1%, from $3,095,000 to $3,561,000 for the 39 weeks
ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. This
increase is primarily the result of the addition of 41 to be closed stores and
13 to be franchised stores in the fourth quarter 1998.
General and Administrative Expenses. General and administrative expenses
increased $3,591,000, or 28.4%, from $12,621,000 to $16,212,000 for the 39
weeks ended October 2, 1999 compared to the 39 weeks ended October 3, 1998. The
increase in general and administrative expenses was primarily attributable to
the acquisitions of Great American and Pretzelmaker.
Depreciation and Amortization. Total depreciation and amortization expense
increased by $6,985,000, or 72.0%, from $9,707,000 to $16,692,000 for the 39
weeks ended October 2, 1999 compared to the 39 weeks ended October 3, 1998.
This increase was primarily attributable to increased goodwill and fixed assets
from the Great American and Pretzelmaker acquisitions.
Depreciation and amortization expense for core stores increased $3,191,000,
or 83.3%, from $3,833,000 to $7,024,000 for the 39 weeks ended October 2, 1999
compared to the 39 weeks ended October 3, 1998. This increase in depreciation
and amortization expense was primarily attributable to the acquisitions of 66
Great American and 2 Pretzelmaker core stores in August and November 1998,
respectively.
Interest Expense. Interest expense increased $3,965,000, or 44.1%, from
$8,981,000 to $12,946,000 for the 39 weeks ended October 2, 1999 compared to
the 39 weeks ended October 3, 1998. This increase was primarily attributable to
interest on the $40,000,000 in high yield notes, which were issued in August
1998.
44
<PAGE>
Interest Income. Interest income decreased $415,000, or 78.3%, from $530,000
to $115,000 for the 39 weeks ended October 2, 1999 compared to the 39 weeks
ended October 3, 1998. This decrease was primarily the result of interest
income earned in 1998 on excess cash provided by the $100,000,000 in high yield
notes which were put in place in November 1997 that was not earned in fiscal
1999.
Other Expenses. Other expenses for the 39 weeks ended October 2, 1999 were
comparable to the 39 weeks ended October 3, 1998.
Net Loss. The net loss increased by $3,170,000, or 32.7%, from $9,690,000 to
$12,860,000 for the 39 weeks ended October 2, 1999 compared to the 39 weeks
ended October 3, 1998 due to the combination of factors described above.
Contribution from Core Stores. Contribution from core stores decreased by
$106,000, or .7%, from $15,017,000 to $14,911,000 for the 39 weeks ended
October 2, 1999 compared to the 39 weeks ended October 3, 1998, primarily due
to the depreciation of fixed assets from 66 Great American and 2 Pretzelmaker
core stores obtained in connection with the acquisitions in August and November
1998, respectively.
Negative Contribution from Stores in the Process of Being Closed or
Franchised. The negative contribution from stores in the process of being
closed or franchised decreased by $1,245,000, or 58.3%, from $2,137,000 to
$892,000 for the 39 weeks ended October 2, 1999 compared to the 39 weeks ended
October 3, 1998. This decrease was primarily the result of closing 43 stores
and franchising 14 stores during the 39 weeks ended October 2, 1999 and the
effect of closing or franchising 19 stores during the 39 weeks ended October 3,
1998. In addition, 22 stores were closed and 4 franchised over the remainder of
fiscal year 1998, which were in operation during the 39 weeks ended October 3,
1998. See Note 4 to the Unaudited Condensed Consolidated Financial Statements
as of October 2, 1999 for a more detailed analysis of Mrs. Fields' store
closure reserve.
52 Weeks Ended January 2, 1999 Compared to the 53 Weeks Ended January 3, 1998
Company-owned and Franchised or Licensed Store Activity
As of January 2, 1999, there were 566 company-owned stores and 972 franchised
or licensed stores in operation. The store activity for the 53 weeks ended
January 3, 1998 ("fiscal 1997") and the 52 weeks ended January 2, 1999 ("fiscal
1998") is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
-------------------- --------------------
Company- Franchised Company- Franchised
owned or Licensed owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 482 418 481 553
Stores opened (including relocations
and acquisitions)................... 86 217 128 504
Stores closed (including
relocations)........................ (7) (89) (20) (78)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (73) -- (30) --
Stores sold to franchisees........... (3) 3 (11) 11
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (9) 9 (15) 15
Stores acquired from franchisees..... 5 (5) 33 (33)
--- --- --- ---
Stores open as of the end of the fis-
cal year............................ 481 553 566 972
=== === === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,390,000, or 9.7%,
from $127,845,000 to $140,235,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998.
45
<PAGE>
Net store sales from continuing company-owned stores and mail order increased
$14,539,000, or 13.4%, from $108,174,000 to $122,713,000 for the 52 weeks ended
January 2, 1999 compared to the 53 weeks ended January 3, 1998. The increase in
net store sales from continuing company-owned stores was primarily attributable
to:
(1) the operation of 85 Pretzel Time continuing company-owned stores
acquired in connection with the acquisition of H&M and Pretzel Time in July
1997,
(2) the operation of 65 Great American stores acquired in connection with
the acquisitions of Great American, Deblan, Chocolate Chip, and Karp in
August and September 1998, and
(3) a 35.5% increase in mail order sales.
This increase in net store sales from continuing company-owned stores was
offset in part by the negative effect of a calendar shift. Mrs. Fields' year
end was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New
Year's holiday week fell in the first quarter of fiscal 1997 and again in the
fourth quarter of fiscal 1997. The first quarter of 1998 did not benefit from
the New Year's holiday sales.
The increase in net store sales was also offset in part by negative same
store sales. Based on stores that have been open for at least two years
(adjusted for the calendar shift), system-wide continuing company-owned store
sales were down 1.8% during the 52 weeks ended January 2, 1999 compared to the
same period in fiscal 1997. Additionally, there were only 52 weeks in fiscal
1998 compared to 53 weeks in fiscal 1997.
Net store sales from stores in the process of being closed or franchised
decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
This decrease results from closing or franchising 45 stores during the 52 weeks
ended January 2, 1999 and the effect of closing or franchising 82 stores during
the 53 weeks ended January 3, 1998.
Franchising Revenues. Franchising revenues increased $7,929,000, or 174.8%,
from $4,535,000 to $12,464,000 for the 52 weeks ended January 2, 1999 compared
to the 53 weeks ended January 3, 1998. The increase in franchising revenues was
primarily attributable to royalties earned from 141 Pretzel Time franchised
stores obtained in connection with the acquisition of H&M and Pretzel Time in
1997, the 211 Great American franchised stores obtained in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998 and the 199 Pretzelmaker franchised stores acquired in November
1998.
Licensing Revenues. Licensing revenues decreased $491,000, or 24.2%, from
$2,028,000 to $1,537,000 for the 52 weeks ended January 2, 1999 compared to the
53 weeks ended January 3, 1998. The decrease in licensing revenues was
primarily attributable to reduced concept licensing royalties.
Total Revenues. Total revenues increased by $19,828,000, or 14.8%, from
$134,408,000 to $154,236,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998 due to the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
Selling and store occupancy costs for continuing company-owned stores
increased by $10,042,000, or 19.7%, from $50,858,000 to $60,900,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998.
Within this overall increase, selling expenses for continuing company-owned
stores increased by $4,836,000, or 21.9%, from $22,094,000 to $26,930,000 for
the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. The increase in selling expenses was primarily attributable to the 85
Pretzel Time continuing company-owned stores acquired in connection with the
acquisitions of H&M
46
<PAGE>
and Pretzel Time in 1997, the 65 Great American continuing company-owned stores
acquired in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998, the 2 Pretzelmaker stores
acquired in November 1998, and the effect of the minimum wage increasing to
$5.15 from $4.75 on September 1, 1997. Store occupancy costs for continuing
company-owned stores increased $5,206,000, or 18.1%, from $28,764,000 to
$33,970,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998. The increase in store occupancy costs was primarily
attributable to the increase in the number of stores discussed above, Mrs.
Fields' reacquiring 33 continuing company-owned stores from franchisees during
the 52 weeks ended January 2, 1999, rent escalations in existing leases and
lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $1,871,000, or 11.7%, from $15,974,000 to $14,103,000
for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January
3, 1998. This decrease was primarily the result of closing or franchising 45
stores during the 52 weeks ended January 2, 1999 and the effect of closing or
franchising 82 stores during the 53 weeks ended January 3, 1998.
Cost of Sales. Total cost of sales increased $6,454,000, or 20.2%, from
$32,028,000 to $38,482,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998.
Cost of sales for continuing company-owned stores increased $7,043,000, or
26.5%, from $26,578,000 to $33,621,000 for the 52 weeks ended January 2, 1999.
This increase was primarily the result of the addition of 85 Pretzel Time
continuing company-owned stores in July 1997, 65 Great American continuing
company-owned stores acquired in connection with the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998 and 2
Pretzelmaker stores acquired in November 1998. Cost of sales also increased due
to the addition of the Great American batter facility in August 1998 which
produces batter for the Great American stores, food costs associated with
increased mail order sales and the increasing cost of butter. Butter is one of
the main ingredients in a variety of our products and is a condiment for other
products. The price of butter has increased from $0.78/lb. at the beginning of
fiscal 1997 to a peak of $2.92/lb. in September 1998. Additionally,
distribution costs increased during the 52 weeks ended January 2, 1999 as Mrs.
Fields' changed distributors to improve product availability and the
reliability of service to the stores.
Cost of sales for stores in the process of being closed or franchised
decreased $589,000, or 10.8%, from $5,450,000 to $4,861,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
decrease was primarily the result of closing or franchising 45 stores during
the 52 weeks ended January 2, 1999 and the effect of closing or franchising 82
stores during the 53 weeks ended January 3, 1998.
General and Administrative Expenses. General and administrative expenses
increased $2,825,000, or 17.4%, from $16,192,000 to $19,017,000 for the 52
weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. The
increase in general and administrative expenses was primarily attributable to
the acquisitions of H&M and Pretzel Time in 1997, the acquisitions of Great
American, Deblan, Chocolate Chip, Karp and Pretzelmaker in 1998.
Store Closure Provision. During the fourth quarter of 1998, management
reassessed its strategy with respect to acceptable levels of contribution from
existing stores. This resulted in management setting out a plan to close or
franchise 54 existing stores. Mrs. Fields recorded an additional $7,303,000 in
store closure reserves to cover early lease termination costs. Management
believes that the level of store closure reserves is adequate to provide for
all closure costs for these stores. See the "Overview" section of Management's
Discussion and Analysis of Financial Condition and Results of Operation for a
more detailed discussion of the store closure provision.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $9,417,000, or 90.5%, from $10,403,000 to $19,820,000 for
the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3,
1998. This increase was primarily attributable to increased goodwill
47
<PAGE>
amortization from the acquisitions of H&M and Pretzel Time in fiscal 1997 and
the acquisitions of Great American, Deblan, Chocolate Chip and Pretzelmaker in
fiscal 1998.
For stores with negative contribution that were determined to be closed or
franchised, Mrs. Fields wrote down the related long-lived assets to net
realizable value. This expense is included in depreciation and amortization in
the 1998 statement of operations and totaled $3,098,000. Mrs. Fields also
assessed the realization of goodwill associated with these stores and recorded
an impairment of goodwill totaling $1,033,000 during fiscal 1998.
Depreciation and amortization expense for continuing company-owned stores
increased $ 2,076,000, or 53.3%, from $3,896,000 to $5,972,000 for the 52 weeks
ended January 2, 1999 compared to the 53 weeks ended January 3, 1998. This
increase in depreciation and amortization expense was primarily attributable to
the addition of 85 Pretzel Time continuing company-owned stores in July 1997,
65 Great American continuing company-owned stores in August and September 1998
and the acquisition of 2 Pretzelmaker continuing company-owned stores in 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $33,632,000, or 26.7%, from $125,993,000 to $159,625,000 for the
52 weeks ended January 2, 1999 compared to the 53 weeks ended January 3, 1998,
for the reasons discussed above.
Interest Expense. Interest expense increased $5,367,000, or 68.5%, from
$7,830,000 to $13,197,000 for the 52 weeks ended January 2, 1999 compared to
the 53 weeks ended January 3, 1998. This increase was primarily attributable to
interest expense on the $100,000,000 notes that were placed in November 1997
and the $40,000,000 notes placed in August 1998.
Interest Income. Interest income increased $377,000, or 153.3%, from $246,000
to $623,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998. This increase was primarily the result of interest
earned on excess cash provided by the $100,000,000 notes that were placed in
November 1997 and the $40,000,000 notes placed in August 1998.
Other Expenses. Other expenses decreased $625,000, or 34.6%, from $1,805,000
to $1,180,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998. This decrease was primarily attributable to minority
interest from the acquisitions of H&M and Pretzel Time in 1997 and a decrease
in the income tax provision during the 52 weeks ended January 2, 1999.
Net Loss. The net loss increased by $18,169,000, or 1,865.4%, from $974,000
to $19,143,000 for the 52 weeks ended January 2, 1999 compared to the 53 weeks
ended January 3, 1998 due to the combination of factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased by $4,622,000, or 17.2%, from $26,842,000 to $22,220,000
for the 52 weeks ended January 2, 1999 compared to the 53 weeks ended January
3, 1998. Income from continuing company-owned stores was negatively impacted by
a 1.8% decline in sales from stores that have been open at least two years and
by the increases in selling and store occupancy costs, food cost of sales and
depreciation and amortization described above. Income from continuing company-
owned stores was also negatively impacted by a calendar shift whereby Mrs.
Fields' year end was December 28 for fiscal 1996 and January 3, 1998 for fiscal
1997. As a result, the New Year's holiday week fell in the first quarter of
1997 and again in the fourth quarter fiscal 1997. The first quarter of fiscal
1998 did not benefit from the New Year's holiday sales. Additionally, there
were only 52 weeks in fiscal year 1998 compared to 53 weeks in fiscal 1997.
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised increased by $256,000, or
14.2%, from $1,798,000 to $2,054,000 for the 52 weeks ended January 2, 1999
compared to the 53 weeks ended January 3, 1998. The increased loss was
primarily
48
<PAGE>
attributable to the addition of 65 stores from the acquisitions of Great
American, Deblan, Chocolate Chip and Karp in August and September 1998, offset
in part by closing or franchising 45 stores during the 52 weeks ended January
2, 1999. See Note 5 to the January 2, 1999 Consolidated Financial Statements
and Note 4 to the Unaudited Condensed Consolidated Financial Statements as of
October 2, 1999 for a complete analysis of Mrs. Fields' store closure reserve.
53 Weeks Ended January 3, 1998 ("Fiscal Year 1997") Compared to the 52 Weeks
Ended December 28, 1996 ("Fiscal Year 1996") (Comprised of the Mrs. Fields
Inc., Original Cookie and Hot Sam Pre-Acquisition Period of December 31, 1995
through September 17, 1996 and the Mrs. Fields Post-Acquisition Period of
September 18, 1996 through December 28, 1996)
Company-owned and Franchised or Licensed Store Activity
As of January 3, 1998, there were 481 company-owned stores and 553 franchised
or licensed stores in operation. The store activity for the 52 weeks ended
December 28, 1996 and the 53 weeks ended January 3, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997
-------------------- --------------------
Company- Franchised Company- Franchised
owned or Licensed owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 540 415 482 418
Stores opened (including
relocations)........................ 5 118 3 76
Stores acquired through business
acquisitions........................ -- -- 83 141
Stores closed (including
relocations)........................ (39) (122) (7) (89)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (17) -- (73) --
Stores sold to franchisees........... (9) 9 (3) 3
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (3) 3 (9) 9
Stores acquired from franchisees..... 5 (5) 5 (5)
--- ---- --- ---
Stores open as of the end of the
fiscal year......................... 482 418 481 553
=== ==== === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $1,515,000, or 1.2%,
from $126,330,000 to $127,845,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996.
Net store sales from continuing company-owned stores and mail order increased
$12,539,000, or 13.1%, from $95,635,000 to $108,174,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in net store sales from continuing company-owned stores was primarily
attributable to the operation of Pretzel Time continuing company-owned stores
obtained in connection with the acquisitions of H&M and Pretzel Time in July
1997 and an increase in average transaction amounts resulting from the
introduction of product line extensions and aggressive marketing initiatives,
offset in part by declining transaction counts in some of our product lines.
Also, three new continuing company-owned stores were opened and five stores
were acquired from franchises during the 53 weeks ended January 3, 1998.
Based on stores that have been open for at least two years (adjusted for the
calendar shift), system-wide continuing company-owned store sales were up 0.8%
during the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996.
Net store sales from stores in the process of being closed or franchised
decreased $11,024,000, or 35.9%, from $30,695,000 to $19,671,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended
49
<PAGE>
December 28, 1996. This decrease results from the partial year effect of
closing 73 stores and franchising 7 (net) stores during fiscal year 1997 and
the full year effect of closing 56 stores and franchising 7 (net) stores during
fiscal year 1996.
Franchising Revenues. Franchising revenues increased $1,088,000, or 31.6%,
from $3,447,000 to $4,535,000 for the 53 weeks ended January 3, 1998 compared
to the 52 weeks ended December 28, 1996. The increase in franchising revenues
was primarily attributable to royalties earned from Pretzel Time franchised
stores obtained in connection with the acquisitions of H&M and Pretzel Time
coupled with new franchise openings in fiscal year 1997 and the full year
effect of new franchise openings in fiscal year 1996.
Licensing Revenues. Licensing revenues increased $372,000, or 22.5%, from
$1,656,000 to $2,028,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. The increase in licensing revenues is
primarily attributable to licensing fees earned on new license agreements
entered into during the 53 weeks ended January 3, 1998, and increased royalties
received from existing licensees.
Total Revenues. Total revenues increased by $2,975,000, or 2.3%, from
$131,433,000 to $134,408,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996, for the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
decreased $2,377,000, or 3.4%, from $69,209,000 to $66,832,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Selling and store occupancy costs for continuing company-owned stores
increased by $5,895,000, or 13.1%, from $44,963,000 to $50,858,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Within this overall increase, selling expenses increased by $4,029,000, or
15.7%, from $25,650,000 to $29,679,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The increase in selling
expenses was primarily attributable to an increase in the minimum wage during
the third quarter of 1996 from $4.15 to $4.75 an hour and an increase in labor
hours to support the increase in sales. Store occupancy costs increased
$1,866,000, or 9.7%, from $19,313,000 to $21,179,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in store occupancy costs was primarily attributable to the addition of Pretzel
Time continuing company-owned stores in July 1997, and the opening of three
continuing company-owned stores and acquiring five stores from franchises
during the 53 weeks ended January 3, 1998 coupled with lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $8,272,000, or 34.1%, from $24,246,000 to $15,974,000
for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December
28, 1996. This decrease is primarily the result of closing 73 stores and
franchising seven (net) stores during fiscal year 1997 and the full year effect
of closing 56 stores and franchising seven (net) stores during fiscal year
1996.
Cost of Sales. Total cost of sales increased $688,000, or 2.2%, from
$31,340,000 to $32,028,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996.
Cost of sales for continuing company-owned stores increased $2,079,000, or
8.5%, from $24,499,000 to $26,578,000 for the 53 weeks ended January 3, 1998.
This increase is primarily the result of the addition in July 1997 of Pretzel
Time continuing company-owned stores, offset by an aggressive product waste
control program which was uniformly applied to all product lines early in the
year. Additionally, Mrs. Fields re-negotiated some of its vendor contracts to
capitalize on Mrs. Fields' economies of scale.
Cost of sales for stores in the process of being closed or franchised
decreased $1,391,000, or 20.3%, from $6,841,000 to $5,450,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended
50
<PAGE>
December 28, 1996. This decrease is primarily the result of closing 73 stores
and franchising seven (net) stores during fiscal year 1997 and the full year
effect of closing 56 stores and franchising seven (net) stores during fiscal
year 1996.
General and Administrative Expenses. General and administrative expenses
decreased $4,365,000, or 21.2%, from $20,557,000 to $16,192,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
The decrease in expenses was primarily attributable to the cost savings
achieved by combining the operations of Mrs. Fields Inc. and subsidiaries,
Original Cookie, Hot Sam and Pretzel Time which resulted in:
(1) reduced headcount with corresponding decreases in administrative
salaries and benefits;
(2) decreased professional service fees, including legal and accounting
services; and
(3) decreased corporate office expenditures, including general insurance,
repairs and maintenance and utilities as a direct result of closing the
Original Cookie and Hot Sam headquarters in Cleveland, Ohio, the
Pretzel Time headquarters in Harrisburg, Pennsylvania and the H&M
headquarters in Boise, Idaho.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $1,211,000, or 13.2%, from $9,192,000 to $10,403,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996.
Depreciation and amortization expense for continuing company-owned stores
decreased $1,036,000, or 21.0%, from $4,932,000 to $3,896,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in depreciation and amortization expense was primarily attributable to
Mrs. Fields recording the acquired assets of Mrs. Fields Inc. and subsidiaries,
Original Cookie and Hot Sam at their fair values at the time of purchase on
September 17, 1996, resulting in an overall reduction to the store asset base
and the corresponding depreciation. This decrease is partially offset by
additional depreciation expense resulting from the addition of Pretzel Time
continuing company-owned stores in July 1997, three newly opened continuing
company-owned stores and five stores acquired from franchises in fiscal year
1997.
Total Operating Costs and Expenses. Total operating costs and expenses
decreased by $4,305,000, or 3.3%, from $130,298,000 to $125,993,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996,
for the reasons discussed above.
Interest Expense. Interest expense increased $2,988,000, or 61.7%, from
$4,842,000 to $7,830,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This increase is primarily attributable to an
increase in interest expense as a result of the debt incurred to fund the
purchase of the assets of Mrs. Fields Inc. and subsidiaries, Original Cookie
and Hot Sam on September 17, 1996.
Other Expenses. Other expenses decreased $617,000, or 25.5%, from $2,422,000
to $1,805,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996. This decrease was primarily attributable to a decrease
in income tax provision, offset in part by an increase in accretion and
dividends on preferred stock of subsidiaries.
Net Loss. The net loss decreased by $5,014,000, or 83.7%, from $5,988,000 to
$974,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996. The net loss equaled 0.7% of total revenues during the 53
weeks ended January 3, 1998 compared to 4.6% of total revenues during the 52
weeks ended December 28, 1996. The decrease in net loss is primarily due to
cost savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie and Hot Sam, cost savings associated with the
acquisitions of H&M and Pretzel Time and improved store operations.
51
<PAGE>
Income from Continuing Company-Owned Stores. The income from continuing
company-owned stores increased by $5,601,000, or 26.4%, from $21,241,000 to
$26,842,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996 due to the combination of the factors described above.
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised decreased by $135,000, or
7.0%, from $1,933,000 to $1,798,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The decrease in negative
income was primarily attributable to closing 73 stores and franchising seven
(net) stores during fiscal year 1997 and the full year effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996. See Note 5
to the January 2, 1999 Consolidated Financial Statements and Note 4 to the
Unaudited Condensed Consolidated Financial Statements as of October 2, 1999 for
a complete analysis of Mrs. Fields' store closure reserve.
Liquidity and Capital Resources
General
Mrs. Fields' principal sources of liquidity are cash flows from operations,
cash on hand and available borrowings under Mrs. Fields' existing lease and
revolving credit facilities. As of October 2, 1999, Mrs. Fields has $7,767,000
of cash and cash equivalents on hand and $6,749,000 additional borrowings
allowable under its revolving credit facilities. Mrs. Fields expects to use its
existing cash, cash flows from operating activities and its credit facilities
to provide working capital, finance capital expenditures and to meet debt
service requirements. Based on current operations and anticipated cost savings,
Mrs. Fields believes that its sources of liquidity will be adequate to meet its
anticipated requirements for working capital, capital expenditures, scheduled
debt service requirements and other general corporate purposes. There can be no
assurance, however, that Mrs. Fields' business will continue to generate cash
flows at or above current levels or that cost savings can be achieved.
October 2, 1999 Compared to January 2, 1999
As of October 2, 1999, Mrs. Fields had liquid assets (cash and cash
equivalents and accounts receivable) of $15,367,000, an increase of 10.1%, or
$1,405,000, from January 2, 1999 when liquid assets were $13,962,000. Cash
increased $3,016,000, or 63.5%, to $7,767,000 at October 2, 1999 from
$4,751,000 at January 2, 1999. Accounts receivable decreased $1,611,000, or
17.5%, to $7,600,000 at October 2, 1999 from $9,211,000 at January 2, 1999 due
to the seasonality of the business and improved collections.
Mrs. Fields' working capital decreased by $524,000, or 4.1%, to a negative
$13,251,000 at October 2, 1999 from a negative $12,727,000 at January 2, 1999.
This decrease is due to the decreases in current assets which more than offset
the decreases in current liabilities.
Long-term assets decreased $14,931,000, or 7.2%, to $192,632,000, at October
2, 1999 from $207,563,000 at January 2, 1999. This decrease was primarily the
result of scheduled depreciation and amortization of fixed assets, goodwill and
deferred loan costs.
During the 39 weeks ended October 2, 1999, Mrs. Fields' Holdings, Mrs.
Fields' sole shareholder, made a capital contribution of $2,000,000 by assuming
a $2,000,000 note payable due December 31, 1999.
Mrs. Fields' cash flows from operating activities of $9,115,000 for the 39
weeks ended October 2, 1999, resulted primarily from store sales and
franchising and licensing revenues net of costs and expenses incurred to
generate these sales and better management of cash flows.
Mrs. Fields utilized $3,501,000 of cash in investing activities during the 39
weeks ended October 2, 1999, primarily for capital expenditures relating to
store remodels and renovations.
Mrs. Fields utilized $2,598,000 of cash in financing activities during the 39
weeks ended October 2, 1999, primarily for the payment of debt related to the
acquisitions.
52
<PAGE>
The specialty cookie and pretzel businesses do not require the maintenance of
significant receivables or inventories; however, Mrs. Fields continually
invests in its business by upgrading and remodeling stores and adding new
stores, carts, and kiosks as opportunities arise. Investments in these long-
term assets, which are key to generating current sales, reduce Mrs. Fields'
working capital. During the 39 weeks ended October 2, 1999 and October 3, 1998,
Mrs. Fields expended $5,488,000 and $5,616,000, respectively, for capital
assets and expects to expend a total of approximately $7,000,000 in 1999.
Management anticipates that these expenditures will be funded with cash
generated from operating activities and short-term borrowings under its credit
facility as needed.
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' leases contain escalation
clauses (however, such leases are accounted for on a straight-line basis as
required by generally accepted accounting principles which minimizes
fluctuations in operating income) and many of Mrs. Fields' employees are paid
hourly wages at the Federal minimum wage level. Minimum wage increases will
negatively impact Mrs. Fields' payroll costs in the short term, but management
believes such impact can be offset in the long term through operational
efficiency gains and, if necessary, through product price increases.
Consolidated Results of Operations of Cookies USA and Its Wholly Owned
Operating Subsidiary, Great American, Prior to the Great American Acquisition
As Great American is a significant subsidiary of Mrs. Fields, management's
discussion and analysis of financial condition and results of operations is
also included for the consolidated operations of Cookies USA and Great American
for the 52 weeks ended June 28, 1998 compared to the 52 weeks ended June 29,
1997, for the 52 weeks ended June 29, 1997 compared to the 52 weeks ended June
30, 1996, and the 52 weeks ended June 30, 1996 compared to the 52 weeks ended
June 29, 1995. See the historical financial statements and the related notes to
the historical financial statements of Cookies USA, Inc. and subsidiary
contained elsewhere in this prospectus.
References to the beliefs of the management of Great American or Cookies USA
in this discussion are to management prior to the acquisition of Great American
by Mrs. Fields. As used in this discussion, "management" refers to David Barr,
the chief executive officer of Great American and Cookies USA at the time of
its acquisition by Mrs. Fields. The factors cited in the following discussion
as contributing to changes in operating results are listed in order of
importance; however, unless otherwise indicated in the discussion, the
quantitative importance of any such factors cannot be determined by Great
American management and have not been stated.
The "forward-looking statements" contained in this section represent Great
American's expectations or beliefs concerning future events, including
statements regarding unit growth and cash requirements. Management cautions
that a number of important factors could, individually or in the total, cause
actual results to differ materially from those stated in the forward-looking
statements including, without limitation, the following:
. consumer spending trends and habits,
. mall traffic trends,
. increased competition among snack retailers,
. economic conditions in the regions where Great American and its
franchisees operate stores,
. the ability to identify and secure suitable locations for new stores,
. the availability of experienced management and hourly employees, and
. the laws and regulations affecting labor and employee benefit costs.
53
<PAGE>
Accounting Period
During the 52 weeks ended June 30, 1996, Great American changed its year end
from the last Thursday in the month of June to the last Sunday in the month of
June. As a result, three days were added to the fifty-two week period ended
Thursday, June 27, 1996 to effectively change Great American's fiscal year end
to Sunday, June 30, 1996. This change does not materially impact the
comparability of the years presented in the accompanying consolidated financial
statements.
52 Weeks Ended June 28, 1998 ("Fiscal Year 1998") Compared to 52 Weeks Ended
June 29, 1997 ("Fiscal Year 1997")
Company and Franchise Store Activity
As of June 28, 1998, there were 77 company-operated stores and 247 franchised
stores in operation. The store activity for fiscal year 1997 and for fiscal
year 1998 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
------------------- -------------------
Company- Company-
operated Franchised operated Franchised
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Stores open as of beginning of the
fiscal year.......................... 104 225 91 233
Stores opened (including
relocations)......................... 1 12 3 7
Stores closed (including
relocations)......................... (10) (8) (2) (8)
Stores sold to franchisees............ (12) 12 (15) 15
Stores acquired from franchisees...... 8 (8) 0 0
--- --- --- ---
Stores open as of the end of the
year................................. 91 233 77 247
Satellite locations as of the end of
the year............................. 9 30 4 32
--- --- --- ---
Total outlets as of the end of the
year............................... 100 263 81 279
=== === === ===
</TABLE>
The above activity results in 5,161 company-operated equivalent store weeks
and 11,858 franchisee-operated equivalent store weeks during the fiscal year
ended June 29, 1997 compared to 4,288 company-operated equivalent store weeks
and 12,581 franchisee-operated equivalent store weeks during the fiscal year
ended June 28, 1998.
Total Revenue
Total revenue decreased approximately $2,696,000, or 6.7%, during the fiscal
year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. Each
of Great American's revenue sources is discussed below:
. Cookie and beverage sales at company-operated retail stores decreased
approximately $3,521,000, or 15.7%, during the fiscal year ended June 28,
1998 compared to the fiscal year ended June 29, 1997. The decrease in
revenue from company-operated retail stores was attributable to:
(a) a 16.9% decrease in company-operated equivalent store weeks offset
by
(b) a 1.2% increase in the average retail sales volume for company-
operated stores.
Based on those stores which were company-operated during the entire 1998 and
1997 fiscal years, sales volumes did not change.
. Batter sales to franchisees increased approximately $944,000, or 8.4%,
during the fiscal year ended June 28, 1998 compared to the fiscal year
ended June 29, 1997. The increase in batter sales to franchisees was
primarily attributable to
(a) a 6.1% increase in franchisee-operated equivalent store weeks and
54
<PAGE>
(b) a 2.3% increase in the volume of batter sold per franchisee-
operated equivalent store week.
. Franchise royalties increased approximately $538,000, or 11.4%, during
the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The increase in franchise royalties was attributable to:
(a) a 6.1% increase in franchisee-operated equivalent store weeks and
(b) an increase in the average retail sales volume per franchisee-
operated store of 5.3%.
Based on those stores which were franchisee-operated during the entire 1998
and 1997 fiscal years, management estimates franchisees' sales volumes
increased 3.5%.
. Revenue from franchise license fees decreased approximately $172,000, or
25.5%, during the fiscal year ended June 28, 1998 compared to the fiscal
year ended June 29, 1997. Revenue from selling existing and new stores to
franchisees is summarized as follows (rounded):
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees
--existing stores................................ 15 12
--new stores..................................... 5 12
Cash and notes from sale of existing stores........ $1,980,000 $2,045,000
Less: net book value of existing stores sold....... 1,235,000 818,000
---------- ----------
Revenue from sale of existing stores............... 745,000 1,227,000
---------- ----------
Revenue from license fees for new stores........... 125,000 300,000
Revenue from other fees............................ 3,000 75,000
---------- ----------
Revenue from license fees for new stores and other
fees.............................................. 128,000 375,000
---------- ----------
Total revenue from sale of existing and new stores
to franchisees.................................... 873,000 1,602,000
Less: Gain on sale of existing stores.............. 370,000 927,000
---------- ----------
Revenue from franchise license fees................ $ 503,000 $ 675,000
========== ==========
</TABLE>
. Other revenue increased approximately $73,000, or 111.6%, during the
fiscal year ended June 28, 1998 compared to the fiscal year ended June
29, 1997. The increase in other revenue was primarily attributable to:
(a) an increase in construction assistance revenue derived from
construction assistance performed by the company for the benefit of
franchisees and
(b) an increase in sales of miscellaneous supplies to franchise stores,
offset by
(c) an increase in batter discounts given to franchisees as a result of
increased batter sales to franchisees in fiscal 1998.
Cost of Sales
Cost of sales decreased approximately $1,559,000, or 8.4%, during the fiscal
year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The
decrease in cost of sales was primarily attributable to:
(a) a decline in cookie and beverage sales due to less company-operated
equivalent store weeks and
(b) an improvement in batter facility margins, offset by
(c) an increase in batter sales to franchisees.
55
<PAGE>
Retail Store Occupancy
Retail store occupancy costs decreased approximately $1,318,000, or 18.7%,
during the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The decrease was primarily attributable to a 16.9% decrease in
company-operated equivalent store weeks.
Other Retail Store Expenses
Other retail store expenses decreased approximately $149,000, or 14.6%,
during the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The decrease in other retail store expenses was primarily
attributable to a 16.9% decrease in company-operated equivalent store weeks.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately
$399,000, or 5.2%, during the fiscal year ended June 28, 1998 compared to the
fiscal year ended June 29, 1997. This decrease was primarily attributable to:
(a) a decrease in development and testing expense,
(b) a decrease in salaries and benefits at the support center, and
(c) a decrease in expenses associated with the franchise convention because
a franchise convention was not held in fiscal 1998, offset by
(d) an increase in marketing expenses and
(e) an increase in the cost of training materials related to the rollout of
a new training program.
In addition, in 1998 Great American revised its estimate of the useful life
of some of its computer equipment from five to three years decreasing pre-tax
income by $111,000. Management believes that this revision better reflects the
equipment's economic useful life.
Other Expenses, Net
Other expenses, net, increased approximately $557,000, or 60.0%, during the
fiscal year ended June 28, 1998 compared to the fiscal year ended June 29,
1997. The increase was primarily attributable to a decrease in gains on the
sale of existing stores.
Net Loss
Net loss decreased approximately $544,000, or 72.9%, for the fiscal year
ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The
decrease in net loss was primarily attributable to:
(a) a 12.7% increase in operating income,
(b) a 1.7% decrease in other expenses, net, offset by
(c) a 111.0% increase in state and federal income tax expense.
56
<PAGE>
52 Weeks Ended June 29, 1997 ("Fiscal Year 1997") Compared to 52 Weeks Ended
June 30, 1996 ("Fiscal Year 1996")
Great American-owned and Franchise Store Activity
As of June 29, 1997, there were 91 Great American-owned stores and 233
franchised stores in operation. The store activity for fiscal year 1996 and for
fiscal year 1997 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997
-------------------------- --------------------------
Great American- Great American-
owned Franchised owned Franchised
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Stores open as of
beginning of the fiscal
year................... 108 215 104 225
Stores opened (including
relocations)........... 12 14 1 12
Stores closed (including
relocations)........... (10) (10) (10) (8)
Stores sold to
franchisees............ (9) 9 (12) 12
Stores acquired from
franchisees............ 3 (3) 8 (8)
--- --- --- ---
Stores open as of the
end of the year........ 104 225 91 233
Satellite locations as
of the end of the
year................... 11 28 9 30
--- --- --- ---
Total outlets as of the
end of the year........ 115 253 100 263
=== === === ===
</TABLE>
The above activity resulted in 5,661 Great American-owned equivalent store
weeks and 11,544 franchised equivalent store weeks during fiscal year 1996
compared to 5,161 Great American-owned equivalent store weeks and 11,858
franchised equivalent store weeks during fiscal year 1997.
Total Revenue
Total revenue decreased approximately $342,000, or 0.9%, during fiscal year
1997 compared to fiscal year 1996. Each of Great American's revenue sources is
discussed below:
Cookie and beverage sales at Great American-owned retail stores decreased
approximately $2,344,000, or 9.5%, during fiscal year 1997 compared to fiscal
year 1996. The decrease in revenue from Great American-owned retail stores was
attributable to:
(a) an 8.8% decrease in Great American-owned equivalent store weeks and
(b) a 0.7% decrease in the average retail sales volume for Great American-
owned stores.
Based on those stores which were Great American-owned during the entire 1996
and 1997 fiscal years, sales volumes increased 1.3%. The change in average
store volume does not equal the change in sales volume from stores that have
been open at least two years due to differences in the stores being compared as
a result of opening, closing, selling, and acquiring stores throughout the
year.
Batter sales to franchisees increased approximately $1,166,000, or 11.5%,
during fiscal year 1997 compared to fiscal year 1996. The increase in batter
sales to franchisees was primarily attributable to:
(a) an 8.8% increase in the volume of batter sold per franchised equivalent
store week and
(b) a 2.7% increase in franchised equivalent store weeks.
Franchise royalties increased approximately $440,000, or 10.3%, during fiscal
year 1997 compared to fiscal year 1996. The increase in franchise royalties was
attributable to:
(a) an increase in the average retail sales volume per franchised store of
7.6% and
(b) a 2.7% increase in franchised equivalent store weeks.
Based on those stores which were franchised during the entire 1996 and 1997
fiscal years, management estimates franchisees' sales volumes increased 5.5%.
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<PAGE>
Revenue from franchise license fees increased approximately $154,000, or
29.6%, during fiscal year 1997 compared to fiscal year 1996. Revenue from
selling existing and new stores to franchisees is summarized as follows
(rounded):
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1997
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees:
Existing stores.................................... 9 12
New stores......................................... 11 12
Cash and notes from sale of existing stores.......... $1,602,000 $2,045,000
Less: net book value of existing stores sold......... (741,000) (818,000)
---------- ----------
Revenue from sales of existing stores................ 861,000 1,227,000
---------- ----------
Revenue from license fees for new stores............. 275,000 300,000
Revenue from other fees.............................. 21,000 75,000
---------- ----------
Revenue from license fees for new stores and other
fees................................................ 296,000 375,000
---------- ----------
Total................................................ 1,157,000 1,602,000
Less: Gain on sale of existing stores................ 636,000 927,000
---------- ----------
Revenue from franchise licensing fees................ $ 521,000 $ 675,000
========== ==========
</TABLE>
Other revenue, net decreased approximately $49,000, or 42.6%, during fiscal
year 1997 compared to fiscal year 1996. The decrease in other revenue, net was
primarily attributable to:
(a) a decrease in construction assistance revenue derived from construction
assistance performed by Great American for the franchisees and
(b) an increase in batter discounts given to franchisees as a result of
increased batter sales to franchisees in fiscal year 1997.
Cost of Sales
Cost of sales decreased approximately $908,000, or 4.7%, during fiscal year
1997 compared to fiscal year 1996. The decrease in cost of sales was primarily
attributable to:
(a) a decline in cookie and beverage sales due to less Great American-owned
equivalent store weeks, and
(b) a decrease in the cost of packaging and freight for Great American-
owned retail stores, offset by
(c) an increase in batter sales to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $324,000, or 4.4%,
during fiscal year 1997 compared to fiscal year 1996. The decrease was
primarily attributable to an 8.8% decrease in Great American-owned equivalent
store weeks.
Other Retail Store Expenses
Other retail store expenses decreased approximately $297,000, or 22.6%,
during fiscal year 1997 compared to fiscal year 1996. The decrease in other
retail store expenses was primarily attributable to:
(a) a decrease in operating supplies expense within Great American-owned
stores in fiscal year 1997 due to
(1) the opening of 11 less Great American-owned stores in fiscal year
1997 versus fiscal year 1996 and
(2) additional costs incurred in fiscal year 1996 related to the
rollout of a new cookie merchandising program, and
(b) an 8.8% decrease in Great American-owned equivalent store weeks, offset
by
(c) an increase in point-of-sale marketing expenses in Great American-owned
stores.
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<PAGE>
Selling, General, and Administrative Expenses
Selling, general and administrative expenses increased approximately
$310,000, or 4.2%, during fiscal year 1997 compared to fiscal year 1996. This
increase was primarily attributable to:
(a)an increase in professional service fees,
(b)an increase in point-of-sale marketing expenses on behalf of franchisee-
owned stores, and
(c)an increase in salaries, offset by
(d)a decrease in travel expense, and
(e)a decrease in insurance costs.
Other Expenses, Net
Other expenses, net decreased approximately $484,000, or 8.7%, during fiscal
year 1997 compared to fiscal year 1996. The decrease was primarily attributable
to an increase in gains on the sale of existing stores.
Net Loss
Net loss decreased approximately $615,000, or 45.2%, for fiscal year 1997
compared to fiscal year 1996. The decrease in net loss was primarily
attributable to:
(a) an $877,000 increase in operating income, and
(b) a $193,000 decrease in other expenses, net, offset by
(c) a $455,000 increase in state and federal income tax expense.
52 Weeks Ended June 30, 1996 ("Fiscal Year 1996") Compared to 52 Weeks Ended
June 29, 1995 ("Fiscal Year 1995")
Great American-owned and Franchise Store Activity
As of June 30, 1996 there were 104 Great American-owned stores and 225
franchised stores in operation. The store activity for fiscal year 1995 and for
fiscal year 1996 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1996
-------------------------- --------------------------
Great American- Great American-
owned Franchised owned Franchised
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Stores open as of
beginning of the
fiscal................. 111 204 108 215
Stores opened (including
relocations)........... 16 11 12 14
Stores closed (including
relocations)........... (8) (11) (10) (10)
Stores sold to
franchisees............ (12) 12 (9) 9
Stores acquired from
franchisees............ 1 (1) 3 (3)
--- --- --- ---
Stores open as of the
end of the fiscal
year................... 108 215 104 225
Satellite locations as
of the end of the
fiscal year............ 12 36 11 28
--- --- --- ---
Total outlets as of the
end of the fiscal
year................... 120 251 115 253
=== === === ===
</TABLE>
The activity reflected above resulted in 5,879 and 5,661 Great American-owned
equivalent store weeks and 10,716 and 11,544 franchised equivalent store weeks
during fiscal year 1995 and fiscal year 1996, respectively.
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<PAGE>
Total Revenue
Total revenue decreased approximately $1,024,000, or 2.5%, during fiscal year
1996 compared to fiscal year 1995, primarily attributable to the following:
Cookie and beverage sales at Great American-owned retail stores decreased
approximately $1,629,000, or 6.2%, during fiscal year 1996 compared to
fiscal year 1995. The decrease in revenue from Great American-owned retail
stores was primarily attributable to:
(a) an approximately 3.7% decrease in Great American-owned equivalent
store weeks and
(b) a decrease in the average retail sales volume for Great American-
owned stores. Specifically, the average retail sales volume for
Great American-owned stores decreased approximately 2.6% per
equivalent store week. Based on those stores which were Great
American-owned during the entire 1995 and 1996 fiscal years, sales
volumes decreased 0.3%.
Batter sales to franchisees increased approximately $729,000, or 7.8%,
during fiscal year 1996 compared to fiscal year 1995. The increase in
batter sales to franchisees was primarily attributable to:
(a) an increase of approximately 7.7% in franchised equivalent store
weeks and
(b) a 0.1% increase in the volume of batter sold per franchised
equivalent store week.
Franchise royalties increased approximately $313,000, or 7.9%, during
fiscal year 1996 compared to fiscal year 1995. The increase in franchise
royalties was primarily attributable to:
(a) an increase of approximately 7.7% in equivalent franchised retail
store weeks and
(b) an increase in the average franchised equivalent store sales volume
of 0.2%.
Based on those stores which were franchised during the entire 1995 and
1996 fiscal years, management estimates that franchisees' sales volumes did
not change materially.
Revenue from franchise license fees decreased approximately $391,000, or
25.3%, during fiscal year 1996 compared to fiscal year 1995. Revenue from
selling existing and new stores to franchisees is summarized below
(rounded):
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1995 1996
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees:
Existing stores................................. 12 9
New stores...................................... 11 11
Cash proceeds from sale of existing stores........ $ 2,558,000 $1,602,000
Less: net book value of existing stores sold...... (1,346,000) (741,000)
----------- ----------
Revenue from sales of existing stores............. 1,212,000 861,000
----------- ----------
Revenue from license fees for new stores.......... 280,000 275,000
Revenue from other fees........................... 56,000 21,000
----------- ----------
Revenue from license fees for new stores and other
fees............................................. 336,000 296,000
----------- ----------
Total............................................. 1,548,000 1,157,000
Less: Gain on sale of existing stores............. 912,000 636,000
----------- ----------
Revenue from franchise license fees............... $ 636,000 $ 521,000
=========== ==========
</TABLE>
Other revenue, net decreased approximately $46,000, or 28.6%, during fiscal
year 1996 compared to fiscal year 1995. The decrease in other revenue, net is
primarily attributable to:
(a) an increase in batter discounts taken by franchisees, which was
consistent with the increase in batter sales to franchisees, partially
offset by
(b) an increase in sales of miscellaneous supplies to franchise stores.
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<PAGE>
Cost of Sales
Cost of sales decreased approximately $452,000, or 2.3%, during fiscal year
1996 compared to fiscal year 1995. The decrease was primarily attributable to:
(a) a decline in retail cookie and beverages sales volume in Great
American-owned stores and
(b) an improvement in wholesale batter margins, partially offset by
(c) an increase in the volume of batter sold to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $209,000, or 2.8%,
during fiscal year 1996 compared to fiscal year 1995. The decrease in retail
store occupancy costs was primarily attributable to:
(a) a decrease of approximately 3.7% in Great American-owned store weeks,
partially offset by
(b) an increase in depreciation due to Great American revising its estimate
of the useful life of leasehold improvements.
Great American began amortizing leasehold improvements using accelerated
methods over an average of eight years instead of using the straight-line
method over ten years. The effect of this change in estimate was to increase
fiscal year 1996 pre-tax loss by $214,000. Management believes that this
revision better reflects the leasehold improvements' useful life.
Other Retail Store Expenses
Other retail store expenses decreased approximately $223,000, or 14.5%,
during fiscal year 1996 compared to fiscal year 1995. The decrease in other
retail store expenses was primarily attributable to:
(a) a decrease in marketing expenses and
(b) a decrease in bank charges and supplies expense as a result of cost
containment efforts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased approximately
$376,000, or 4.9%, during fiscal year 1996 compared to fiscal year 1995. The
decrease in selling, general and administrative expenses was primarily
attributable to:
(a) a reduction in administrative salaries and benefits,
(b) a decrease in professional service fees, including legal and accounting
services, and
(c) a decrease in various home office expenditures, including postage,
supplies, and training materials, partially offset by
(d) an increase in travel costs due to additional review of stores by field
supervisors.
Other Expenses, Net
Other expenses, net increased approximately $231,000, or 4.4%, during fiscal
year 1996 compared to fiscal year 1995. The increase was primarily
attributable to:
(a) decrease gains on the sale of existing stores,
(b) a decrease in interest income due to lower average cash balances, and
(c) an increase in interest expense due to an increase in capital lease
obligations.
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<PAGE>
Non-Recurring Litigation Charge
During the third quarter of fiscal year 1995, a non-recurring litigation
charge of $439,000 was recorded to cover a potential forthcoming judgment
against Great American in the Haagen-Burbank lawsuit. In June 1993, Great
American won a judgment for breach of written contract to a lease entered into
with a developer, Haagen-Burbank. On appeal, the Court of Appeals of the State
of California Second Appellate District overturned the jury's verdict and
directed the trial court to determine the amount of attorney fees and costs due
to Haagen-Burbank as the prevailing party in the litigation. Haagen-Burbank had
submitted to the court a request for legal fees totaling $439,000; however, on
April 27, 1995, the trial court entered a judgment of $417,985. On September
15, 1995 Great American paid $395,966 to Haagen-Burbank as settlement of the
judgment against Great American.
Net Loss
Net loss decreased approximately $469,000, or 25.6%, for fiscal year 1996
compared to fiscal year 1995. The decrease in net loss was primarily
attributable to:
(a) a $236,000 increase in operating income, and the occurrence of the non-
recurring litigation charge in fiscal 1995, offset by
(b) a $118,000 decrease in state and federal income tax benefit, and
(c) a $45,000 increase in other expenses, net.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Commission under the Exchange
Act. We have agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, we will deliver to The Bank of New York, as
trustee under the indenture, to each holder of notes and to each prospective
purchaser of notes identified to us by a placement agent for the offering in
August 1998, annual and quarterly financial statements substantially equivalent
to financial statements that would be included in reports filed with the
Commission, if we were subject to the reporting and other informational
requirements of the Exchange Act.
Mrs. Fields and Great American, Mrs. Fields' Brand, Pretzelmaker and Pretzel
Time, the guarantors of the notes, have filed with the Commission a
registration statement on Form S-4 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 , 2000.
63
<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 October
2, 1999, our retail network consisted of 1,440 locations, of which 941 were
cookie stores and 499 were pretzel stores. Of the total 1,440 stores, 479 were
company-owned and 961 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 60
company-owned cookie stores and 23 company-owned pretzel stores 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 2, 1999, Mrs. Fields
generated pro forma net revenue and EBITDA of $191.2 million and $20.7 million,
respectively. Actual net revenue and EBITDA for the year ended January 3, 1998
was $134.4 million and $18.8 million, respectively. For the 39 weeks ended
October 3, 1998 and October 2, 1999, Mrs. Fields generated pro forma net
revenue and EBITDA of $139.5 million and $15.8 million, and actual net revenue
and EBITDA of $126.5 million and $17.5 million, respectively.
Cookies
We operate and franchise 941 retail cookie stores: 532 under the Mrs. Fields
brand, 100 under the Original Cookie brand and 309 under the Great American
brand. As a result of the acquisition of Great American, Mrs. Fields has cookie
stores in 48 states, with Great American stores concentrated in the
southeastern and south central states and Mrs. Fields and Original Cookie
stores strongly represented in the western, midwestern and eastern states.
There is little overlap between Mrs. Fields and Great American stores, with a
dual presence in 9 malls. Management believes that Mrs. Fields is positioned in
the premium quality, baked on-premises segment of the approximately $12 billion
U.S. cookie industry. We offer over 50 different types of cookies, brownies and
muffins, which are baked continuously and served fresh throughout the day.
Baked products are made using only high quality ingredients, and all dough is
centrally manufactured and frozen or refrigerated to maintain product quality
and consistency. All products pass strict quality assurance and control steps
at both the manufacturing plants and the stores. In addition, Mrs. Fields
continually creates and tests new products to attract new customers and satisfy
current customers. Product development is currently focused on sugar-free dough
and reduced-fat cookies and brownies.
Mrs. Fields Inc., one of the predecessors of Mrs. Fields, was founded in 1977
by Debbi Fields and, following its initial success, embarked on an aggressive
national expansion program in the early 1980s. By the late 1980s, however, Mrs.
Fields Inc. experienced financial difficulty as a result of excessive debt
levels, 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,
64
<PAGE>
(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.
Mrs. Fields reinvested the savings from the improved store operations in
marketing and other measures designed to improve sales from stores that have
been open at least two years.
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of Mrs. Fields Inc., Original Cookie and Hot
Sam by Mrs. Fields' Holding, a subsidiary of Capricorn. As of January 2, 1999,
Capricorn had invested more than $28 million in Mrs. Fields through Mrs.
Fields' Holding. Capricorn retained Mr. Hodges as Chief Executive Officer of
Mrs. Fields.
Great American, incorporated in 1977, is a leading operator and franchisor of
mall-based specialty retail cookie outlets, including full-size stores and
satellite sites, consisting of carts, wagons and kiosks. As of October 2, 1999,
Great American had 309 in-line stores, including 99 Great American-operated and
210 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 499 retail pretzel stores: 232 under the Pretzel
Time brand, 54 under the Hot Sam brand and 213 under the Pretzelmaker brand,
which offer "sweet dough" soft pretzels and "Bavarian" style pretzels with a
variety of toppings. Pretzel Time's primary product is an all-natural, hand-
rolled soft pretzel, freshly baked from scratch at each store location. Pretzel
Time stores prepare pretzels with a variety of flavors and specialty toppings,
including cheddar cheese, cream cheese and pizza sauce. The stores also offer
soft drinks and freshly squeezed lemonade. The Hot Sam pretzel stores
specialize in the Bavarian style pretzel. This product has declined in
popularity in recent years as sweet dough pretzel sales have grown
dramatically. In addition, Pretzel Time stores have, during fiscal year 1998,
achieved higher average revenue for the continuing company-owned stores than
Hot Sam stores ($277,000 versus $232,000). As a result, Mrs. Fields intends to
continue converting its continuing company-owned and to-be-franchised Hot Sam
stores to Pretzel Time stores, which it believes will result in an increase in
net sales, sales from stores that have been open at least two years, and income
from store operations.
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<PAGE>
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 1.6% for the fiscal year
ended January 2, 1999 compared to a positive 0.6% for the fiscal year ended
January 3, 1998 and a negative 0.4% for the 39 weeks ended October 2, 1999
compared to a negative 0.9% for the same period of 1998. Net franchising and
licensing revenues increased by 29.9% for the fiscal year ended January 3, 1998
over the fiscal year ended December 28, 1996, by 113.3% for the fiscal year
ended January 2, 1999 compared to the fiscal year ended January 3, 1998 and by
238.5% for the 39 weeks ended October 2, 1999 compared to the same period of
1998. The key elements of Mrs. Fields' business strategy are as follows:
. Enhance Quality of Company-Owned Store Base. Since current management
assumed responsibility in 1994, we have focused on closing and
franchising company-owned stores that do not meet our financial and
geographical criteria. From June 1994 through January 2, 1999, Mrs.
Fields closed 178 Mrs. Fields brand stores and franchised an additional
136 Mrs. Fields brand stores. We have targeted 90 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
66
<PAGE>
franchise stores. Original Cookie stores represent 30% and Great American
stores represent 30% 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 operations by continuing to convert our
continuing company-owned and to-be-franchised Hot Sam stores to Pretzel
Time stores. Pretzel Time stores have, during fiscal year 1998, achieved
higher average revenue per continuing company-owned store than Hot Sam
stores ($277,000 vs. $232,000). Hot Sam stores represent 38% of all
company-owned pretzel stores. Management believes that the conversion to
the Pretzel Time name will result in an increase in net sales, sales from
stores that have been open at least two years, and income from store
operations for Mrs. Fields' pretzel business. In addition, we believe
there are significant new Pretzel Time franchising opportunities.
. Develop New Company-Owned and Franchised Stores. We plan to build and
franchise new stores, as well as carts and kiosks, in existing and new
markets. We have identified over 100 mall and non-traditional locations,
such as amusement parks and other entertainment centers, that we believe
would be ideal for cookie and pretzel stores. By the end of fiscal year
2000, we intend to franchise approximately 42 existing cookie and 35
existing pretzel stores. Beginning in fiscal year 1999, we intend to add
approximately 20 new company-owned stores per year and to franchise
approximately 38 new cookie and 36 new pretzel stores per year. In
addition to pursuing new store development opportunities within the
United States, we plan to grow internationally by expanding our franchise
operations. As of October 2, 1999, there were 129 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
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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 1998, pro forma for the acquisitions of Great American
and the stock and stores of several of its franchisees, our revenue by product
category consisted of the following:
<TABLE>
<S> <C>
Cookies and Brownies................................................... 56%
Pretzels............................................................... 21%
Beverages.............................................................. 22%
Other.................................................................. 1%
</TABLE>
Cookies. The primary products of our cookie stores are a variety of cookies,
which are baked in view of customers throughout the day. Secondary product
lines include several varieties of brownies, muffins, other baked goods,
gourmet coffees, frozen drinks and other beverages. Mrs. Fields stores,
Original Cookie stores and Great American stores also sell decorated cookie
cakes, which are extra-large cookies decorated with customer-selected slogans
purchased as gifts for special occasions, such as birthdays, Valentine's day,
Father's day and Easter. Based on pounds of batter shipped, cookie cakes
constitute the second largest volume product of Great American stores. We plan
to utilize Great American's superior expertise in baking and marketing cookie
cakes to enhance sales of the existing cookie cake products in Mrs. Fields and
Original Cookie stores.
Baked products are made using only pure, high quality, vanilla, chocolate,
raisins, nuts and other ingredients. To maintain product quality and
consistency at both company-owned and franchised stores, Mrs. Fields and
Original Cookie stores use centrally manufactured frozen dough, which is
manufactured by outside suppliers according to proprietary formulas of Mrs.
Fields. Great American stores use refrigerated batter that is shipped daily
from the Atlanta production facility. All products must pass strict quality
assurance and control steps at both the manufacturing plants and the stores.
Pretzels. Through its Hot Sam and Pretzel Time stores, Mrs. Fields offers a
wide variety of fresh-baked pretzels. Pretzels have become a popular snack due
to consumers' attraction to salted snacks and the increased demand for snacks
that are low in fat and cholesterol.
Hot Sam is the largest U.S. retailer of fresh-baked "Bavarian" style
pretzels. Pretzel Time stores offer all natural, hand-rolled sweet dough
pretzels prepared with a variety of flavors and special toppings, including
cheddar cheese, cream cheese and pizza sauce. In addition, Pretzel Time stores
offer specialty pretzels and related products, such as cinnamon pretzels and
cinnamon twists, as well as several recently introduced pretzel products, such
as pretzel dogs, chocolate chip pretzels and caramel crunch pretzels.
Product Development. We maintain a product development department which
continually creates and tests new products to attract new customers and
revitalize the interest of current customers. Once a new product is identified,
we develop prototypes to determine the initial formula. For Mrs. Fields
products, the formula is then scaled up for test production runs at one or more
approved facilities. Once the product has been successfully produced,
ingredient specifications, formulas, manufacturing processes, finished product
specifications, shelf life, storage and distribution procedures are
established. The new product is either immediately launched throughout the
system, as in the case of seasonal items or simple line extensions, or test
marketed in a limited number of stores. After a trial period to evaluate both
consumer response and store operations' ability to handle the new product, it
is fully commercialized, modified or discontinued. We
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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.
In the cookie business, product development efforts are currently focused on
a fresh-baked, sugar-free cookie dough and other products, such as low-fat
brownies, reduced-fat cookies and seasonal items that are designed to
capitalize on consumer trends and draw interest to our store locations. In the
pretzel business, we have been testing "made-from-scratch" hand rolled
pretzels, which serve as a platform for a variety of other products, such as
jalapeno, cinnamon raisin and garlic pretzels with a sweet dough base, meat and
cheese filled pretzel pockets and pretzelwiches (pretzel bun sandwiches).
STORE OPERATIONS
STORE BASE. As of October 2, 1999, Mrs. Fields' store portfolio consisted of
479 company-owned stores, 706 domestic franchised locations, 129 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............. 123 8 5 196 86 114 532
Original Cookie......... 84 6 10 -- -- -- 100
Great American.......... 68 21 10 210 -- -- 309
--- --- --- --- --- --- -----
Cookie Subtotal........ 275 35 25 406 86 114 941
--- --- --- --- --- --- -----
Pretzel Time............ 74 2 10 146 -- -- 232
Hot Sam................. 46 2 6 -- -- -- 54
Pretzelmaker............ 1 3 -- 154 43 12 213
--- --- --- --- --- --- -----
Pretzel Subtotal....... 121 7 16 300 43 12 499
--- --- --- --- --- --- -----
Totals................ 396 42 41 706 129 126 1,440
=== === === === === === =====
</TABLE>
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As of October 2, 1999, Mrs. Fields' domestic stores were located in 48
states. The following table represents states with ten or more outlets:
STORE GEOGRAPHY LIST
<TABLE>
<CAPTION>
% of Domestic
Company- Retail
State owned Franchised Licensed Total Outlets
- ----- -------- ---------- -------- ----- -------------
<S> <C> <C> <C> <C> <C>
California..................... 70 89 14 173 13.20%
Texas.......................... 43 54 6 103 7.86%
Florida........................ 19 42 7 68 5.19%
New York....................... 33 23 11 67 5.11%
Ohio........................... 47 12 7 66 5.03%
Illinois....................... 27 20 8 55 4.20%
Georgia........................ 14 31 3 48 3.66%
Michigan....................... 26 18 3 47 3.59%
Pennsylvania................... 16 12 13 41 3.13%
Missouri....................... 3 35 2 40 3.05%
Virginia....................... 18 18 2 38 2.90%
Arizona........................ 12 17 3 32 2.44%
North Carolina................. 6 22 3 31 2.36%
Colorado....................... 3 23 2 28 2.14%
New Jersey..................... 9 15 4 28 2.14%
Utah........................... 7 20 1 28 2.14%
Indiana........................ 13 10 4 27 2.06%
Iowa........................... 3 24 -- 27 2.06%
Washington..................... 8 17 -- 25 1.91%
Louisiana...................... 12 10 2 24 1.83%
Wisconsin...................... 16 7 -- 23 1.75%
Connecticut.................... 8 11 4 23 1.75%
Tennessee...................... 2 18 2 22 1.68%
Alabama........................ -- 19 3 22 1.68%
Maryland....................... 12 6 2 20 1.53%
Massachusetts.................. 6 8 5 19 1.45%
Minnesota...................... 3 16 -- 19 1.45%
South Carolina................. 9 6 3 18 1.37%
Nevada......................... 3 8 3 14 1.07%
Oklahoma....................... 5 5 2 12 0.92%
Nebraska....................... 3 9 -- 12 0.92%
Kentucky....................... 3 8 1 12 0.92%
Kansas......................... 2 10 -- 12 0.92%
West Virginia.................. 4 5 1 10 0.76%
</TABLE>
Configuration. We have developed a number of retail configurations that have
wide application and adaptability to a variety of retail environments. In
addition to the stores that have been designed for prime mall locations, we
have developed other formats intended to extend our presence within and beyond
mall locations. The introduction of frozen dough technology has led to a number
of new store configurations, expanded product offerings in smaller outlets and
non-traditional formats.
Cookie Stores. All stores are uniformly designed in accordance with the Mrs.
Fields, Original Cookie or Great American prototype, making extensive use of
glass, painted wood, brass, mirrors, lighting and point-of-sale displays
intended to create an upscale, open and inviting look. Stores also attractively
and efficiently display their fresh-baked products using custom-made showcases.
Store size ranges from 350 to 800 square
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feet, and the typical company-owned store is about 600 to 700 square feet with
a minimum of about 15 linear feet of counter space. Locational possibilities
for new stores include high traffic regional malls, central downtown shopping
districts and recreational shopping environments.
Mrs. Fields and its franchisees and licensees also operate cookie kiosks and
carts in a number of malls on a year-round basis. Kiosks have 100 to 250 square
feet of retail space, supported by off-site storage and preparation space.
Carts range in size from 30 to 92 square feet. Currently only the Great
American kiosks have self-contained baking ovens. Because of their small size,
carts and kiosks do not have baking equipment, and are supplied cookie products
by a fully-equipped store usually located in the same mall. We plan to add
baking equipment to carts and kiosks in malls, airports, convention centers,
office buildings, street fronts and sports complexes, giving these outlets
greater flexibility in the products they can offer. All designs contain retail
display, small freezers and cash registers. We see expansion opportunities from
the use of carts, which create incremental revenue at a relatively low cost.
All of the retail store configurations are executed to include the same high-
quality marketing, merchandising and design features which customers have come
to expect from Mrs. Fields. The store designs are bright with high-profile
trademark identity. All products are baked throughout the day on the premises
with ovens located in full view of the customer to support the "fresh-baked"
image.
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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 October 2,
1999, Mrs. Fields, including franchise locations, has a presence in 90% of the
top 150 (as measured in sales per foot) "A" and "B" malls in the country. Malls
in "A" and "B" classifications generally have the following characteristics:
. Size greater than 700,000 square feet
. Sales per square foot greater than $300
. Population density greater than 150,000 people within a five-mile radius
. Median family income greater than $50,000
. Generally supported by national fashion anchor tenants
. Located to minimize competition from other malls
Great American stores are located primarily in high-traffic "B" malls.
Marketing and Advertising. Mrs. Fields' in-house marketing department and an
outside promotional agency emphasize product sampling, local store marketing
and brand name identification. We advertise at the store level, using the aroma
of fresh-baked cookies and the attractive arrangement of finished products to
create a store ambiance that is conducive to sales. Recently we experimented
with an advertising campaign with nationally televised commercials during peak
holiday periods. We cultivate local customer loyalty by offering regular 20%
discounts to employees in malls where stores are located and occasional other
discounts. Historically we have spent relatively little on paid advertising,
relying mainly on in-store signage, promotions and the public relations of
Debbi Fields, who makes store visits and local media appearances throughout the
country and internationally for Mrs. Fields. In addition to posters and display
of products, we promote products by offering special packaging and selling
other promotional items. A promotion for Mrs. Fields' 20th anniversary featured
a tie-in with the popular Peanuts characters from the syndicated comic strip, a
sweepstakes, and gifts with purchases. Mrs. Fields is currently working on
developing catered corporate accounts for both company-owned and franchised
stores and will be building awareness of products geared toward corporate
accounts at the store level for the local market area and through catalogue
sales. We also promote our products as gifts, particularly at holiday time.
Great American's marketing strategy has emphasized strong merchandising of
its products and the use of proactive sales techniques, including the free
sampling of products and other methods intended to increase the size of
customer orders.
Mail Order Business. Our mail order division markets a variety of fresh-baked
and other gift items through its mail order gift catalogue using toll free
telephone numbers, including "1-800-COOKIES." The
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mail order division had $5.2 million in revenues during fiscal year 1998. We
believe that there is significant potential in the mail order business and are
developing this division by targeting both corporate customers and individuals
with a history of purchases at Mrs. Fields stores. Sales from the mail order
division for the fiscal year 1999 have increased approximately 9.4% over sales
for the prior fiscal year.
Customer Profile. We believe that our products are best targeted to a
demographic profile which is relatively young, with upper-middle income levels.
At the time of a May 1994 study, 66% of Mrs. Fields' customers were female and
34% were male, the mean age of a customer was 35.1 years of age, and 57% of
customers had a household income of $50,000 or more. We believe that this
demographic profile remains valid.
Seasonality. Our sales and profitability in both the cookie business and the
pretzel business are subject to seasonal fluctuation and are traditionally
higher during the Thanksgiving and Christmas holiday season and other gift-
giving holidays due to increased mall traffic and holiday gift purchases.
Supplies and Distribution
Ingredients and Supplies. We rely primarily on outside suppliers and
distributors for the ingredients used in our products and other items used in
our stores. Mrs. Fields stores receive frozen products, made according to
proprietary recipes of Mrs. Fields, from its primary supplier, Pennant Food
Corp. Pennant uses stringent quality controls in testing ingredients and
manufacturing, and products are not released for distribution unless they pass
all quality control steps, including an evaluation of the finished baked
product. Pennant's contract for making frozen products for Mrs. Fields expires
on December 31, 2000 and is renewable every three years 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.
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.
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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."
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, 75% of Mrs. Fields' district sales managers have been with Mrs.
Fields for at least four years (70% for over five years), and 50% of Mrs.
Fields' store managers have been with Mrs. Fields for at least four years (40%
for over five years).
Training. We believe store managers are a critical component in creating an
effective retail environment, and accordingly have developed ongoing programs
to improve the quality and effectiveness of our store managers and to increase
retention rates. New store managers are required to attend a two-week training
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.
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Franchisees come from a wide variety of business backgrounds and bring with
them different operating styles and business objectives. Among our franchisees
are full-time store operators, passive investors, retired professionals and
people seeking a second source of income. The majority of Mrs. Fields
franchisees own one store. As of January 2, 1999, the 22 largest Mrs. Fields
franchisees operated 164 stores, and the largest Mrs. Fields franchisee
operated 14 stores.
Each Great American franchisee pays an initial licensing fee of $25,000 per
store and is responsible for funding the build-out of the new store and
purchasing initial batter inventory and supplies, at a total cost of
approximately $164,000, including the initial licensing fee. However, the cost
of opening a new store can be significantly higher for franchisees who purchase
existing company-owned stores and otherwise varies based on individual
operating and location costs. We also charge franchisees a fee to purchase
equipment and to provide other assistance in helping the franchisee to set up
operations.
Pretzel Business. We do not franchise Hot Sam stores. We are a franchisee of
87 Pretzel Time stores, with rights to sub-franchise, if desired. Each
franchisee pays Pretzel Time an initial licensing fee of $25,000 per new
Pretzel Time store location and is responsible for funding the building-out of
the new store and supplies, at a total cost of approximately $190,000 to
$240,000, including the initial franchise fee. However, the cost of opening a
new store can vary based on individual operating and location costs. Pretzel
Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After
a store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual
gross sales.
Franchisee Recruiting and Training. We have been successful in recruiting
franchisees and completing franchise transactions and believe we will continue
to realize significant cash flow from franchising by:
(1) emphasizing the use of proprietary dough that minimizes product quality
issues and ensures a consistent product across all outlets,
(2) frequent quality, service and cleanliness evaluations of franchised
stores by operations support staff, and
(3) initial and continuing training of franchisees to improve their
financial and retail sales skills.
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.
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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 Creative
Innovations, LLC, which has an exclusive 5 year license with 5 consecutive
5 year renewal options to manufacture and sell, under our registered
trademarks, a dry mix for cookies, brownies and muffins in North America.
Creative Innovations pays a royalty on each case of product sold. Another
licensee is Wham-O, Inc., which has an exclusive 5 year license with one 5
year renewal option to market the Mrs. Fields Baking Oven for children
which is sold in most toy stores and through mass merchandisers.
Supply Licensing. We currently have arrangements with United Airlines and
TWA under which our mail order division sells cookies to the airlines and
allows the airlines to promote the Mrs. Fields brand and products to their
first-class customers. We are pursuing similar relationships to compete
with other manufacturers' brands selling in this business.
Competition
We compete for both leasing opportunities and customers with other cookie and
pretzel retailers, as well as other confectionery, sweet snack and specialty
food retailers, including cinnamon rolls, yogurt, ice cream, baked goods and
candy shops. The specialty retail food and snack industry is highly competitive
with respect to price, service, location and food quality, and there are many
well-established competitors with greater resources than those of Mrs. Fields.
We compete with these retailers on the basis of price, quality, location and
service. We face competition from a wide variety of sources, including such
companies as Cinnabon, Inc., TCBY Yogurt Inc., Auntie Anne's Soft Pretzels, and
Baskin-Robbins 31 Flavors.
Properties
As of October 2, 1999, we leased 767 retail stores, of which 288 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."
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 October 2, 1999 we had approximately 4,280 employees in company-owned
stores, of whom approximately 752 were store managers and assistant store
managers and 3,528 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.
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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 October 2, 1999, 762 of our 4,280 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 February 1, 2000. The directors are also
directors of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Larry A. Hodges.......... 50 Director, President and Chief Executive Officer
Pat W. Knotts............ 44 Senior Vice President of Operations
Garry Remington.......... 47 Senior Vice President of Real Estate
Mark S. Tanner........... 45 Senior Vice President and Chief Financial Officer
Michael R. Ward.......... 41 Vice President, General Counsel and Secretary
Herbert S. Winokur, Jr... 55 Chairman of the Board of Directors
Richard Ferry............ 61 Director
Debbi Fields............. 43 Director
Nat Gregory.............. 50 Director
Walker Lewis............. 54 Director
Peter Mullin............. 58 Director
Gilbert Osnos............ 69 Director
</TABLE>
Mr. Hodges has been President and Chief Executive Officer of Mrs. Fields Inc.
and Mrs. Fields since March 1994, and a Director of Mrs. Fields and Mrs.
Fields' Holding since April 1993. From 1992 to 1994, Mr. Hodges was the Chief
Executive Officer of Food Barn Stores, Inc. (Kansas City, Missouri). Earlier
Mr. Hodges was a consultant to various manufacturers and retailers. For 25
years, Mr. Hodges was with American Stores Company where he served as President
of two of its subsidiaries ranging in annual sales from $600 million to $2.3
billion. Mr. Hodges has over 32 years of experience in the retail field serving
as president of four supermarket chains and consultant and director to large
food companies. Mr. Hodges is a director of Ameristar Casinos, Inc. and
Coinstar, Inc.
Mr. Knotts has been Senior Vice President of Mrs. Fields since October 1996.
Mr. Knotts' responsibilities include all aspects of store operations and
related support functions. Between January 1992 and October 1996, Mr. Knotts
served as Executive Vice President of Operations for Original Cookie and Hot
Sam, where he was responsible for store operations, marketing, purchasing,
construction and store design. Mr. Knotts also held the position of Regional
Vice President of Stores for Silo Inc., a $1 billion consumer electronics and
major appliance chain.
Mr. Remington has been Senior Vice President of Real Estate of Mrs. Fields
since July 1997. Mr. Remington's responsibilities include all aspects of real
estate, store construction, remodels and lease negotiations. Between October
1996 and July 1997, Mr. Remington served as Vice President of Real Estate for
Sbarro, Inc. From 1994 to 1996, Mr. Remington held the position of Senior Vice
President of Leasing for the Woolworth Corporation, with responsibilities for
Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other
divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director
of Leasing for the Woolworth Corporation, which he joined in 1972.
Mr. Tanner has been Chief Financial Officer and Senior Vice President of
Finance & Administration since June 1999. Prior to Mrs. Fields, Mr. Tanner held
the position of CFO and Sr. Vice President with the Salt Lake Organizing
Committee for the XIX Olympic Winter Games, where he was responsible for
finance and administration. Prior to SLOC, Mr. Tanner was Vice President and
CFO for Pepsi Cola International's operations in Asia, the Middle East, and
Africa (AMEA). He also held the positions of Vice President of Strategic
Planning & Finance for Pepsi Cola North America, and Chief Financial Officer,
Eastern Division of Pepsi Cola during his tenure with Pepsi Cola.
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<PAGE>
Mr. Ward serves as Vice President, General Counsel and Secretary for Mrs.
Fields. Mr. Ward's responsibilities include management of our Legal Department.
Between 1991 and 1996, Mr. Ward's responsibilities were overseeing the Legal
Department and the Human Resources Department for Mrs. Fields Inc. He is
admitted to practice law in the State of Utah. Mr. Ward was appointed acting
Chief Financial Officer on April 30, 1999 and acted in that capacity prior to
Mr. Tanner's assuming responsibilities of Chief Financial Officer.
Mr. Winokur has been Chairman of the Board of Directors of Mrs. Fields and
Mrs. Field's Holding since their inception in September 1996. Mr. Winokur is
managing member of Capricorn Holdings, L.L.C., the General Partner of
Capricorn. Mrs. Fields is owned by Mrs. Fields' Holding, a portfolio company of
Capricorn which owns the majority of Mrs. Field's Holding's stock. Mr. Winokur
is President of Winokur Holdings, Inc. (an investment company) and Managing
General Partner of Capricorn Investors, L.P. and Capricorn, private investment
partnerships concentrating on investments in restructure situations, organized
by Mr. Winokur in 1987 and 1994, respectively. Prior to his current
appointment, Mr. Winokur was Senior Executive Vice President and Director of
Penn Central Corporation. Mr. Winokur is also a Director of NAC Re Corporation,
The WMF Group, Ltd., C.C.C. Information Services Corp., Inc., DynCorp., and
Enron Corp.
Mr. Ferry has been a Director of Mrs. Fields since its inception in September
1996. Mr. Ferry is co-founder and Chairman of Korn/Ferry International, the
world's leading executive search firm. Mr. Ferry is on the Board of Directors
of Avery Dennison, Dole Food Company and Pacific Life Insurance Company.
Debbi Fields has been a Director of Mrs. Fields since its inception in
September 1996. Debbi Fields founded a predecessor to Mrs. Fields in 1977 and
served as President and Chief Executive Officer until 1993. She currently
serves on the Board of several non-profit organizations and lectures throughout
the United States to Fortune 500 companies. Debbi Fields is a director of
Outback Steakhouse, Inc.
Mr. Gregory has been a Director of Mrs. Fields since its inception in
September 1996. Since 1993, Mr. Gregory has served as Chairman and Chief
Executive Officer of NATCO, an international supplier of oilfield production
equipment, which is a portfolio company of Capricorn. Mr. Gregory is a member
and managing director of Capricorn Holdings, L.L.C., the General Partner of
Capricorn, and a director of Marine Drilling Companies, Inc.
Mr. Lewis has been a Director of Mrs. Fields since its inception in September
1996. Mr. Lewis is the Chairman of Devon Value Advisers. Mr. Lewis served as
Chairman of Strategic Planning Associates, specializing in shareholder value
strategies. Mr. Lewis was a Senior Advisor at Dillon Read & Co., Inc. and his
company, Devon Value Advisors, continues to act as a consultant to Dillon Read.
He was a Managing Director of Kidder, Peabody & Co., Inc., President of Avon
North America and Executive Vice President of Avon Products, Inc. Mr. Lewis has
served on the Board of Directors of Owens Corning, American Management Systems,
Incorporated, Jostens, Inc., Marakon Associates and London Fog.
Mr. Mullin has been a Director of Mrs. Fields since its inception in
September 1996. Mr. Mullin founded Mullin Consulting, Inc. in Los Angeles in
1969, and serves as its Chairman and Chief Executive Officer. He also co-
founded Strategic Compensation Associates and serves as Chairman of the firm's
Executive Committee. Mr. Mullin is a member of the Board of Directors of Avery
Dennison Corporation, 1st Business Bank, Process Technology Holdings, Inc.,
Golden State Vintners, M Life Insurance Company and the Board of Advisors of
CMS Companies.
Mr. Osnos has been a Director of Mrs. Fields since its inception in September
1996. Mr. Osnos has served since 1992 as Chairman of Osnos & Company, which
provides interim management to companies. He has served as Interim
President/CEO/COO to a large array of companies in manufacturing, distribution,
retailing and service industries. In 1979 he joined the predecessor firm and
became a partner in 1981. He has been Chairman of the Turnaround Management
Association and a member of its Board since prior to 1993. He is
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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.
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 -- -- -- --
Senior Vice President
and CFO
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 176,113 28,000 2,033 -- -- --
Vice President 1998 135,385 50,000 1,370 -- -- --
Legal and
Administration 1997 109,904 56,393 619 -- -- 39,488(5)
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. All options have an
exercise price of $10.00 per share, with the exception of Garry
Remington's, which have an exercise price of $13.00 per share.
(5) Represents payment under Mrs. Field's 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
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issuance of options to purchase common stock of Mrs. Fields' Holding to
officers and other employees of Mrs. Fields' Holding and its subsidiaries,
including Mrs. Fields. The Plans provide for the issuance of options to
purchase an total of 542,840 shares of common stock of Mrs. Fields' Holding to
directors of Mrs. Field's Holding and officers and employees of Mrs. Fields'
Holding's subsidiaries, including Mrs. Fields, of which 375,840 shares,
representing approximately 10% of the total common stock of Mrs. Fields'
Holding on a fully diluted basis, after giving effect to the issuance of stock
under the warrants to purchase common stock of Mrs. Fields' Holding and to
issuances of stock under options currently issued to directors and employees
under the Plans, have been issued. See "Beneficial Ownership of Capital Stock."
Board Compensation
The Board of Directors of Mrs. Fields meets regularly on a quarterly basis
and more often as required. Board members, other than officers of Mrs. Fields
and Mr. Winokur, Mr. Gregory and Ms. Fields, are compensated for services
rendered annually as follows:
(1) $12,000 cash; and
(2) grants of options to purchase common stock of Mrs. Fields' Holding,
under the Director Stock Option Plan.
The Board of Directors of Mrs. Fields' Holding approved the award of options
under the Director Stock Option Plan to purchase 3,350 shares of common stock
of Mrs. Fields' Holding to each of Messrs. Ferry, Gregory, Lewis, Osnos and
Winokur as of January 1, 1997, at an exercise price of $10.00 per share, and
the award of options to purchase 1,792 shares of common stock of Mrs. Fields'
Holding as of January 1, 1998, at an exercise price of $16.74 to each of the
same directors, with the options of Messrs. Gregory and Winokur being issued to
Capricorn.
The Board members were also offered an opportunity to acquire shares of
common stock of Mrs. Fields' Holding under a director stock purchase plan (the
"Director Stock Purchase Plan"). The compensation in shares that would be
payable or issuable to Messrs. Winokur and Gregory will be paid to Capricorn. A
total of 51,667 vested shares of common stock of Mrs. Fields' Holding and
28,333 restricted shares of common stock of Mrs. Fields' Holding have been
issued to directors and officers of Mrs. Fields under the Director Stock
Purchase Plan.
Board Committees
Three functioning committees of the Board have been organized: an Executive
Committee, a Compensation Committee and an Audit Committee. Following is a
brief description of each of these committees.
Executive Committee. The Executive Committee is composed of Messrs. Winokur
(Chairman), Gregory and Hodges. The purpose of this committee is to act on the
behalf of the entire Board of Directors between Board meetings.
Compensation Committee. The Compensation Committee is composed of Messrs.
Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to
ensure that Mrs. Fields has a broad plan of executive compensation that is
competitive and motivating to the degree that it will attract, hold and inspire
performance of managerial and other key personnel of a quality and nature that
will enhance the growth and profitability of Mrs. Fields.
Audit Committee. The Audit Committee is comprised of Messrs. Ferry (Chairman)
and Osnos. The purpose of the Audit Committee is to provide oversight and
review of Mrs. Fields' accounting and financial reporting process in
consultation with Mrs. Fields' independent and internal auditors.
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<PAGE>
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.
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,
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 February 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 February 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 February
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 February 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).................. 3,184,084 86.0%
value $0.001 per share, Larry Hodges(2)(3)............. 105,569 2.8%
of Mrs. Fields' Holding Peter Mullin(2)(3)............. 18,409 0.5%
Richard Ferry(2)(3)............ 13,409 0.4%
Walker Lewis(2)(3)............. 10,909 0.3%
Gilbert Osnos(2)(3)............ 10,909 0.3%
Pat Knotts(3).................. 18,892 0.5%
Michael Ward(3)................ 15,607 0.4%
Garry Remington(3)............. 10,541 0.3%
All executive officers and
directors
as a group (9
persons)(2)(3)(4)............. 3,388,329 91.5%
</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
February 1, 2000, as follows: Capricorn, 6,817 shares; Mr. Hodges, 75,569
shares; Mr. Mullin, 3,409 shares; Mr. Ferry, 3,409 shares; Mr. Lewis, 3,409
shares; Mr. Osnos, 3,409 shares; Mr. Knotts, 18,892 shares; Mr. Ward,
15,607 shares; and Mr. Remington, 10,541 shares; all executive officers and
directors as a group, 141,062.
(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 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 and is currently under negotiation.
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, until recently, leased certain office space to an entity which
is owned in part by Debbi Fields. Billings to the entity for the fiscal years
ended January 3, 1998 and January 2, 1999 totaled approximately $274,000 and
$0, respectively, of which approximately $23,000 and $0 is included in accounts
receivable as of January 3, 1998 and January 2, 1999, respectively. The lease
was terminated in the first quarter of fiscal year 1998. Mrs. Fields believes
that the arrangements were on terms that could have been obtained from an
unaffiliated third party.
Arrangements with Walker Lewis. Mr. Lewis, a director of Mrs. Fields, acts as
a consultant and an advisor to Dillon Read. Mr. Lewis' company, Devon Value
Advisers, received a fee of $250,000, plus expenses, from Mrs. Fields in the
first quarter of 1998 under an agreement to provide advisory acquisition and
consulting services to Mrs. Fields. Mrs. Fields believes that the arrangements
were on terms that could have been obtained from an unaffiliated third party.
Korn/Ferry Agreement. Mrs. Fields has paid fees of approximately $157,000 and
$70,600 during the years ended January 3, 1998 and January 2, 1999,
respectively, to Korn/Ferry International, an executive search firm of which
Richard Ferry, a director of Mrs. Fields, is the Chairman, in connection with
the hiring of employees for Mrs. Fields. Mrs. Fields believes that the
arrangements are on terms that could have been obtained from an unaffiliated
third party.
Arrangements With Mrs. Fields' Holding. Mrs. Fields and Mrs. Fields' Holding
expect to enter into a Tax Sharing Agreement as defined in and permitted by the
indenture. See "Description of Notes--Covenants."
As of January 3, 1998 and January 2, 1999, Mrs. Fields had payables of
$105,000 and $150,000 due to Mrs. Fields' Holding, respectively, and as of
October 2, 1999, a net receivable of $241,000 due from Mrs. Fields' Holding.
The receivables stem primarily from goods sold and an allocation of payroll and
other operating expenses. Mrs. Fields believes that the terms of the sale and
allocations are essentially equivalent to the terms that would have been
obtained from an unaffiliated third party in a similar transaction.
Incentive Arrangements. Under a senior management value creation plan that
was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of its
formation in September 1996, the following payments were made in 1998: $471,484
to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a
vice president of Mrs. Fields Inc. Mr. Hodges used $250,000, representing
substantially all of this payment after his payment of related taxes, to
purchase 25,000 shares of common stock of Mrs. Fields' Holding at $10.00 per
share.
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Director Stock Purchase Plan. Each of the directors of Mrs. Fields was
offered an opportunity to purchase common stock of Mrs. Fields Holding under
the Director Stock Purchase Plan. Under the Director Stock Purchase Plan,
shares of common stock of Mrs. Fields' Holding, either restricted or vested,
can be issued to outside directors of Mrs. Fields' Holding and its
subsidiaries, including Mrs. Fields. Restricted shares vest 50% on January 1,
1999 and 50% on January 1, 2000, or earlier, upon a change of control of Mrs.
Fields' Holding or Mrs. Fields. See "Management--Board Compensation." A total
of 51,667 vested shares of common stock of Mrs. Fields Holding and 28,333
restricted shares of common stock of Mrs. Fields Holding have been issued to
directors and officers of Mrs. Fields under the Director Stock Purchase Plan.
The Plans. Under the Employee Stock Option Plan, a committee of the Board of
Directors is authorized to administer the Employee Stock Option Plan and has
the power, among other things, to grant awards to officers and other employees
of Mrs. Fields' Holding and its subsidiaries, including Mrs. Fields, of options
for common stock of Mrs. Fields' Holding. The Employee Stock Option Plan
provides for the issuance of three types of options. Performance vested options
are deemed to be vested 20% for fiscal year 1997 and vest an additional 20% per
year for each subsequent fiscal year in which there is a 10% increase in the
implied valuation of Mrs. Fields, which is equal to the excess of 5.5 times
Adjusted EBITDA for that fiscal year over net debt at the end of that fiscal
year. Time vested options vest 25% per year on the anniversaries of the dates
on which they are granted, and vest in full upon a change of control of Mrs.
Fields' Holding or Mrs. Fields. Upside options vest upon the earlier to occur
of the expiration of the option and a change of control, in accordance with
internal rate of return targets:
(1) if the IRR through the vesting date is less than 20%, the option
will not vest;
(2) if the IRR is from 20% to 24.99%, the option will vest one-third;
(3) if the IRR is from 25% to 29.99%, the option will vest two-thirds;
and
(4) if the IRR is at least 30%, the option will vest in full.
IRR means, as of any date, the internal rate of return, determined in
accordance with generally accepted practice, on one share of common stock of
Mrs. Fields' Holding calculated from September 18, 1996, through the date as of
which the determination is being made, using
(1) a value of $10.00 per share at September 18, 1996 (subject to
adjustments),
(2) if the relevant date is the date of a change of control, the value
paid under or implicit in the change of control transaction (as
determined in good faith by a committee of the Board of Directors),
and
(3) if the relevant date of determination is the expiration of such
option, the value determined in good faith based on the implied
valuation for the four most recent fiscal quarters for which
financial statements are available.
A total of 492,840 shares of common stock of Mrs. Fields' Holding have been
reserved for issuance under the Employee Stock Option Plan. Stock issued under
the Employee Stock Option Plan is subject to customary restrictions on
transfer.
Under the Director Stock Option Plan, a committee of the Board is authorized
to administer the Director Stock Option Plan and has the power, among other
things, to grant awards of options for common stock of Mrs. Fields' Holding to
outside directors of Mrs. Fields' Holding and its subsidiaries, including Mrs.
Fields. The Director Stock Option Plan provides for the issuance of time vested
options, which vest 25% per year on the anniversaries of the dates on which
they are granted, and vest in full upon a change of control of Mrs. Fields'
Holding or Mrs. Fields. An total of 50,000 shares of common stock of Mrs.
Fields' Holding are reserved for issuance under the Director Stock Option Plan.
Common stock of Mrs. Fields' Holding issued under the Director Stock Option
Plan is subject to customary restrictions on transfer. Options have been
awarded under the Director Stock Option Plan to each of Messrs. Ferry, Gregory,
Lewis, Osnos and Winokur
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to purchase 3,350 shares of common stock of Mrs. Fields' Holding as of January
1, 1997, at an exercise price of $10.00 per share, and to purchase 1,792 shares
of common stock of Mrs. Fields' Holding as of January 1, 1998, at an exercise
price of $16.74 per share, with the options of Messrs. Gregory and Winokur
being issued to Capricorn.
The Stockholders' Agreement. Mrs. Fields' Holding has entered into a
stockholders' agreement with its stockholders. The stockholders' agreement
gives rights of first refusal to Mrs. Fields' Holding if any Mrs. Fields'
Holding stockholder receives an offer to purchase common stock of Mrs. Fields'
Holding and, if Mrs. Fields' Holding does not exercise its rights, gives the
rights of first refusal to other Mrs. Fields' Holding stockholders. In the
event of a sale to a third party approved by Capricorn, Capricorn has the right
to require the other Mrs. Fields' Holding stockholders to sell their common
stock of Mrs. Fields' Holding (the "Drag Along"). If Capricorn sells any common
stock of Mrs. Fields' Holding, the other Mrs. Fields' Holding stockholders will
have the opportunity to sell their common stock of Mrs. Fields' Holding in
proportion to their holdings (the "Tag Along"). The stockholders' agreement
also provides for piggyback registration rights for all Mrs. Fields' Holding
stockholders, and gives one Mrs. Fields' Holding stockholder demand
registration rights. The stockholders' agreement gives Mrs. Fields' Holding the
option to purchase all of the common stock of Mrs. Fields' Holding held by an
officer or director that holds common stock of Mrs. Fields' Holding if the
officer or director is terminated. If an officer or director is terminated
other than for cause, the officer or director has the right to sell shares to
Mrs. Fields' Holding. The stockholders' agreement provides for customary
restrictions on transfer of common stock of Mrs. Fields' Holding. The holders
of warrants to purchase common stock of Mrs. Fields' Holding will be subject to
the Drag Along and benefit from the Tag Along.
Arrangements With Capricorn. On May 27, 1999, Mrs. Fields, Mrs. Fields'
Holding, Pretzel Time, Martin Lisiewksi and Capricorn entered into an
assignment and assumption agreement under which Capricorn agreed to assume a
payment obligation of Mrs. Fields of $2,000,000 for Pretzel Time stock held by
Mr. Lisiewksi that is due on December 31, 1999. In a related transaction on the
same date, Capricorn and Mrs. Fields' Holding entered into a contribution
agreement under which Mrs. Fields' Holding and Capricorn agreed to treat the
assumption by Capricorn of the Mrs. Fields payment obligation described above
as a capital contribution from Capricorn to Mrs. Fields' Holding, and Mrs.
Fields' Holding agreed either to issue 101,419 shares of its common stock to
Capricorn at the request of Capricorn or to enter into an economically
equivalent transaction that is permitted under the debt instruments of Mrs.
Fields' Holding and its subsidiaries. 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
common stock and paid-in capital in the accompanying unaudited condensed
consolidated balance sheets as of October 2, 1999. This transaction enhanced
Mrs. Fields' Holding's tax planning and financial flexibility.
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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 October 2, 1999, 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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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 October 2, 1999, Mrs. Fields' subsidiaries had approximately $186,000
in indebtedness, not including the guarantees of the notes and had preferred
stock with a value upon liquidation of $1.2 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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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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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 $280,000 as of February
1, 2000, of which $196,000 has been paid to the holders of 10 1/8% Series C
Senior Notes due 2004.
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
adjusted to eliminate some historical expenses that are not
expected to recur after the
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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
October 2, 1999, there was $1.4 million outstanding under the agreement. Under
the borrowing base, Mrs. Fields is limited to borrowing an additional $6.7
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 borrowed, on May 28, 1999, $1,000,000 in
aggregate principal amount from LaSalle. Pretzel Time issued a revolving note
to LaSalle to evidence its borrowing, which bears interest at the Prime rate,
or Prime plus 2% for any balance payable after the note has matured on June 30,
2000. Pretzel Time has pledged its assets to LaSalle to secure its obligations,
and Mrs. Fields has guaranteed Pretzel Time's obligations to LaSalle.
PLAN OF DISTRIBUTION
Each broker-dealer that receives notes issued in the exchange offer for its
own account must acknowledge that it will deliver a prospectus in connection
with any resale of those notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of notes received in exchange for outstanding notes where those
outstanding notes were acquired as a result of market-making activities or
other trading activities. Mrs. Fields has agreed that, for a period of 120 days
after the consummation of the exchange offer, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any resale. In addition, until , 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.
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For a period of 120 days after the consummation of the exchange offer, Mrs.
Field will promptly send additional copies of this prospectus and any amendment
or supplement to this prospectus to any broker-dealer that requests those
documents in the letter of transmittal or agent's message. Mrs. Fields has
agreed to pay all expenses incident to the exchange offer (including the
expenses of one counsel for the holders of the notes in an amount up to
$50,000) other than commissions or concessions of any brokers or dealers and
will indemnify the holders of the notes (including any broker-dealer) against
some related liabilities, including liabilities under the Securities Act.
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 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. 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 3, 1998 and January 2, 1999, and
for the period from inception (September 18, 1996) to December 28, 1996 and for
the years ended January 3, 1998 and January 2, 1999; the historical financial
statements of Mrs. Fields Inc. and subsidiaries as of September 17, 1996 and
for the period from December 31, 1995 to September 17, 1996; the historical
combined financial statements of The Original Cookie Company, Incorporated and
the Carved-Out Portion of Hot Sam Company, Inc. as of September 17, 1996 and
for the year ended December 30, 1995 and for the period ended September 17,
1996; the historical financial statements of Chocolate Chip Cookies of Texas,
Inc. as of September 30, 1996 and 1997 and for the years ended September 30,
1995, 1996 and 1997; the historical financial statements of the Combined Karp
Entities as of December 31,
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1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 included
in this prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect to it, and are
included in this prospectus in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
The financial statements of Mrs. Fields Inc. and subsidiaries for the year
ended December 30, 1995 included in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing in this prospectus, and is included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements of Deblan Corporation as of December 31, 1996 and
1997, and for the years ended December 31, 1995, 1996 and 1997 included in this
prospectus, have been audited by Weinstein Spira & Company, P.C., independent
auditors, as stated in their report appearing in this prospectus.
The financial statements of Cookies USA, Inc. and subsidiary as of June 29,
1997 and June 28, 1998 and for each of the three years in the period ended June
28, 1998 included in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing in this prospectus.
The financial statements of Cookie Conglomerate, Inc. as of December 31, 1997
and 1996, and for the years ended December 31, 1997 and 1996 included in this
prospectus, have been audited by Habif, Arogeti & Wynne, P.C., independent
auditors, as stated in their report appearing in this prospectus.
The financial statements of Pretzelmaker Holdings, Inc. and subsidiaries as
of December 31, 1997 and for the year ended December 31, 1997 included in this
prospectus, has been audited by AJ. Robbins, PC, independent public accountants
as stated in their report appearing in this prospectus.
The financial statements of Pretzelmaker Holdings, Inc. as of December 31,
1996 and for the period from inception (February 24, 1995) to December 31, 1995
and for the year ended December 31, 1996 included in this prospectus, have been
audited by BDO Seidman, LLP, independent public accountants, as stated in their
report appearing in this prospectus.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 24, 1998, Mrs. Fields sold $40,000,000 in total principal amount of
Series C Senior Notes due 2004. The net proceeds of the Mrs. Field's offering
and the capital contribution of the net proceeds of the offering of units
consisting of notes and warrants of Mrs. Fields' Holding to Mrs. Fields,
together with existing Mrs. Field's cash were used to: (i) finance the
acquisition of all of the outstanding capital stock of Great American; (ii)
finance the tender offer to repurchase all of Great American's $40,000,000
total principal amount of 10 7/8% Senior Secured Notes due 2001, including
accrued but unpaid interest and a premium of $1,600,000; (iii) finance the
repayment of all of Great American's $10,000,000 total principal amount of
12.5% Subordinated Notes, including accrued but unpaid interest; (iv) finance
the retirement of Great American's Senior Redeemable Preferred Stock and Junior
Redeemable Preferred Stock at an total discounted purchase price of $8,400,000;
(v) finance the acquisition of all of the outstanding capital stock of Deblan
and Chocolate Chip, two franchisees of Great American, including the repayment
of assumed debt; and (vi) finance the asset purchase of eight stores controlled
by another Great American franchisee, defined as the Combined Karp Entities.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of Cookie Conglomerate for an total purchase
price of $2,800,000. The Cookie Conglomerate acquisition was funded with
financing provided by T&W Financial Services, L.L.C. and such funding is
secured by the assets of the acquired stores.
On November 19, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Pretzelmaker for $5,739,000, including $5,419,000 related to
outstanding capital stock and $320,000 related to severance payments in lieu of
outstanding stock options, and assumed liabilities totaling $1,299,000. The
transaction was financed with notes issued to the sellers that were paid by
Mrs. Fields in installments through January 4, 1999. Of the assumed
indebtedness, $722,000 was paid by Mrs. Fields in installments through January
4, 1999.
The unaudited pro forma condensed combined statements of operations for the
52 weeks ended January 2, 1999 are based upon the historical financial
statements of Mrs. Fields, Great American, Deblan, Chocolate Chip, the Combined
Karp Entities, Cookie Conglomerate and Pretzelmaker, and should be read in
conjunction with the audited and unaudited financial statements and related
notes of these entities included elsewhere in this Registration Statement. The
unaudited pro forma condensed combined financial statements have been prepared
using the purchase method of accounting for the acquisitions of Great American,
Deblan, Chocolate Chip, the Combined Karp Entities, Cookie Conglomerate and
Pretzelmaker. Mrs. Fields operates using a 52/53-week year ending near December
31. Great American operates using a 52/53-week year ending near June 30.
Deblan, Cookie Conglomerate and Pretzelmaker operate using a year ending
December 31, Chocolate Chip operates using a year ending September 30, and the
Combined Karp Entities operate using a year ending December 31. We have recast
the historical financial statements for those entities that did not operate
using a year ending near December 31 to be comparable for the 52 weeks ended
January 2, 1999. None of the revenues and income (loss) of any entity has been
excluded or included more than once in the unaudited pro forma condensed
combined financial statements.
The unaudited pro forma condensed combined statements of operations for the
52 weeks ended January 2, 1999 assumes that the above transactions occurred as
of January 4, 1998 (the first day of fiscal 1998) and combine the historical
results of operations of the entities for those periods with pro forma
adjustments to give effect to Mrs. Fields' offering in August 1998, the capital
contribution of the net proceeds of the offering of units consisting of notes
and warrants of Mrs. Fields' Holding to Mrs. Fields and the acquisitions.
The unaudited pro forma condensed combined financial statements included in
this Registration Statement are for illustrative purposes only. Such
information does not purport to be indicative of the results which would
actually have been effected on the date and for the periods indicated, nor is
it indicative of actual or future operating results or financial position that
may occur. See also "Risk Factors" included elsewhere in this Registration
Statement.
P-1
<PAGE>
MRS. FIELDS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the 52 Weeks Ended January 2, 1999
(unaudited)
<TABLE>
<CAPTION>
Combined
Great Chocolate Karp
American Deblan Chip Entities
Mrs. Fields (See Note 2) (See Note 3) (See Note 4) (See Note 5)
----------- ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net store and food
sales................ $140,235 $18,932 $6,370 $1,873 $1,489
Franchising, net...... 12,464 3,531 -- -- --
Licensing, net........ 1,537 -- -- -- --
-------- ------- ------ ------ ------
Total revenues...... 154,236 22,463 6,370 1,873 1,489
-------- ------- ------ ------ ------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 75,003 7,645 3,523 1,000 914
Cost of sales......... 38,482 6,428 1,108 454 373
General and
administrative....... 19,017 5,288 1,067 421 141
Store closure
provision 7,303 -- -- -- --
Depreciation and
amortization......... 19,820 1,510 182 22 82
-------- ------- ------ ------ ------
Total operating
costs and
expenses........... 159,625 20,871 5,880 1,897 1,510
-------- ------- ------ ------ ------
Income (loss) from
operations....... (5,389) 1,592 490 (24) (21)
INTEREST EXPENSE........ (13,197) (4,077) (43) (2) (8)
INTEREST INCOME......... 623 258 24 4 --
OTHER INCOME (EXPENSE),
net.................... (409) (149) 40 11 --
-------- ------- ------ ------ ------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of subsidi-
aries and minority
interest............. (18,372) (2,376) 511 (11) (29)
PROVISION (BENEFIT) FOR
INCOME TAXES........... 316 (38) 115 27 6
-------- ------- ------ ------ ------
Income (loss) before
preferred stock ac-
cretion and dividends
of subsidiaries and
minority interest.... (18,688) (2,338) 396 (38) (35)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ (444) -- -- -- --
MINORITY INTEREST....... (11) -- -- -- --
-------- ------- ------ ------ ------
Net income (loss)..... $(19,143) $(2,338) $ 396 $ (38) $ (35)
======== ======= ====== ====== ======
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
P-2
<PAGE>
MRS. FIELDS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
For the 52 Weeks Ended January 2, 1999
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Cookie Conglomerate Pretzelmaker Adjustments Pro Forma
(See Note 6) (See Note 7) (See Note 1) Combined
------------------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
REVENUES:
Net store and food
sales................ $2,906 $1,222 $(1,338)(a) $171,689
Franchising, net...... -- 2,634 (609)(b) 18,020
Licensing, net........ -- -- -- 1,537
------ ------ ------- --------
Total revenues...... 2,906 3,856 (1,947) 191,246
------ ------ ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 1,580 1,401 (609)(b) 90,457
Cost of sales......... 733 85 (1,338)(a) 46,325
General and
administrative....... 303 2,085 (1,834)(c) 26,488
Store closure
provision -- -- -- 7,303
Depreciation and
amortization......... 118 657 3,191 (d) 25,582
------ ------ ------- --------
Total operating
costs and
expenses........... 2,734 4,228 (590) 196,155
------ ------ ------- --------
Income (loss) from
operations....... 172 (372) (1,357) (4,909)
INTEREST EXPENSE........ (17) (179) 400 (e) (17,123)
INTEREST INCOME......... -- -- -- 909
OTHER INCOME (EXPENSE),
net.................... 32 -- -- (475)
------ ------ ------- --------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
minority interest.... 187 (551) (957) (21,598)
PROVISION (BENEFIT) FOR
INCOME TAXES........... -- (8) -- 418
------ ------ ------- --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
minority interest.... 187 (543) (957) (22,016)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- -- -- (444)
MINORITY INTEREST....... -- -- -- (11)
------ ------ ------- --------
Net income (loss)..... $ 187 $ (543) $ (957) $(22,471)
====== ====== ======= ========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
P-3
<PAGE>
MRS. FIELDS
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
1. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(a) Adjustment to reflect the elimination of batter sales and batter cost of
sales as a result of combining Great American, Deblan, Chocolate Chip, the
Combined Karp Entities and Cookie Conglomerate.
(b) Adjustment to reflect the elimination of franchise fees and related costs
as a result of combining Great American, Deblan, Chocolate Chip, the Combined
Karp Entities and Cookie Conglomerate.
(c) Adjustment to reflect the impact of the reduction in salaries and payroll
expenses related to employees of Great American, Deblan, Chocolate Chip, the
Combined Karp Entities, Cookie Conglomerate and Pretzelmaker terminated at the
date of the acquisitions assuming that the acquisitions were completed at
January 4, 1998. The terminations were a contractual component of the
acquisition agreements and occurred concurrent with and were a direct result of
the acquisitions. These terminations will have a continuing impact, as the
positions occupied by the terminated employees have been eliminated. The
terminated employees will not be replaced as Mrs. Fields has sufficient
resources with existing staff to fulfill the applicable responsibilities. Other
costs will not be incurred that will offset these reductions. The impact is
factually supportable as the employees were terminated at the time of the
acquisitions.
(d) Adjustment to reflect amortization of goodwill totaling $84,404,000
(including acquisition costs of $1,003,000), which was recorded in connection
with the purchase of the net assets of Great American, Deblan, Chocolate Chip,
the Combined Karp Entities, Cookie Conglomerate and Pretzelmaker. Goodwill is
being amortized over a 15-year period. Also includes adjustment to reflect a
reduction in depreciation expense as a result of reducing Great American,
Deblan, Chocolate Chip and the Combined Karp Entities property and equipment
and increasing Cookie Conglomerate's property and equipment to estimated fair
market value in connection with each respective acquisition. The average
estimated depreciable lives for these assets is seven years.
(e) Adjustment to reflect the reduction in interest expense related to: (i)
the retirement of $40,000,000 of Great American 10.875% Senior Secured Notes;
(ii) the retirement of $10,000,000 of Great American 12.5% Subordinated Notes;
(iii) the elimination of Great American's original issue discount; (iv) the
elimination of Great American's deferred loan costs; (v) the additional
interest expense related to approximately $5,007,000 of new deferred loan costs
amortized over a seven-year period; and (vi) the additional interest expense on
the $40,000,000 of Series C Senior Notes and amortization of $600,000 of
assumed discount; (vii) the interest expense on $2,800,000 of financing related
to the acquisition of Cookie Conglomerate, and (viii) the interest expense on
$4,682,000 of financing related to the acquisition of Pretzelmaker.
2. GREAT AMERICAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
and subordinated indebtedness of Great American for an total purchase price of
$18,400,000. The purchase price was allocated based on the estimated fair
values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired........................................... $ 11,439,000
Fixed assets acquired............................................. 2,978,000
Other assets acquired............................................. 3,128,000
Current liabilities acquired...................................... (7,825,000)
Other liabilities acquired........................................ (42,194,000)
Goodwill acquired................................................. 50,874,000
------------
Total purchase price............................................ $ 18,400,000
============
</TABLE>
P-4
<PAGE>
In the accompanying pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999, Great American's results of operations from
December 29, 1997 to August 23, 1998 are included under the "Great American"
column heading. Great American's results of operations from August 24, 1998 to
January 2, 1999 are included under the "Mrs. Fields" column heading. None of
Great American's revenues and income (loss) has been excluded from or included
more than once in the pro forma condensed combined statements of operations for
the 52 weeks ended January 2, 1999.
The following data reconciles the key components of Great American's results
of operations in the pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999 with the key components of Great American's
results of operations in its historical financial statements for the 52 weeks
ended June 28, 1998:
<TABLE>
<CAPTION>
Less Add
52 Weeks Ended 26 Weeks Ended June 29, 1998 To December 29, 1997
June 28, 1998 December 28, 1997 August 23, 1998 To August 23, 1998
-------------- ----------------- ---------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $18,854 $10,382 $2,753 $11,225
Batter sales to
franchisees............ 12,214 6,140 1,633 7,707
Franchising, net........ 5,770 2,884 563 3,449
Other, net.............. 139 72 15 82
Operating costs and
expenses............... 31,133 16,044 5,782 20,871
Income (loss) from
operations............. 5,844 3,738 (514) 1,592
Net income (loss)....... (202) 1,182 (954) (2,338)
</TABLE>
3. DEBLAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
of Deblan for an total purchase price of $10,465,000. Accordingly, in the
accompanying pro forma condensed combined statement of operations for the 52
weeks ended January 2, 1999, Deblan's results of operations from January 1,
1998 to August 23, 1998 are included under the "Deblan" column heading.
Deblan's results of operations from August 24, 1998 to January 2, 1999 are
included under the "Mrs. Fields" column heading. The purchase price was
allocated based on the estimated fair values of the net assets acquired, as
presented below:
<TABLE>
<S> <C>
Current assets acquired............................................ $ 1,241,000
Fixed assets acquired.............................................. 1,649,000
Other assets acquired.............................................. 245,000
Current liabilities acquired....................................... (1,006,000)
Other liabilities acquired......................................... (565,000)
Goodwill acquired.................................................. 8,901,000
-----------
Total purchase price............................................. $10,465,000
===========
</TABLE>
The following data reconciles the key components of Deblan's results of
operations in the pro forma condensed combined statement of operations for the
52 weeks ended January 2, 1999 with the key components of Deblan's results of
operations in its unaudited historical financial statements for the six months
ended June 30, 1998:
<TABLE>
<CAPTION>
Six Months Ended July 1, 1998 To January 1, 1998 To
June 30, 1998 August 23, 1998 August 23, 1998
---------------- --------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net store sales........... $4,768 $1,602 $6,370
Operating costs and
expenses................. 4,418 1,462 5,880
Income from operations.... 350 140 490
Net income................ 232 164 396
</TABLE>
P-5
<PAGE>
4. CHOCOLATE CHIP ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
of Chocolate Chip for a total purchase price of $3,965,000. The purchase price
was allocated based on the estimated fair values of the net assets acquired, as
presented below:
<TABLE>
<S> <C>
Current assets acquired............................................. $ 174,000
Fixed assets acquired............................................... 108,000
Other assets acquired............................................... 46,000
Current liabilities acquired........................................ (111,000)
Goodwill acquired................................................... 3,748,000
----------
Total purchase price.............................................. $3,965,000
==========
</TABLE>
In the accompanying pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999, Chocolate Chip's results of operations from
January 1, 1998 to August 23, 1998 are included under the "Chocolate Chip"
column heading. Chocolate Chip's results of operations from August 24, 1998 to
January 2, 1999 are included under the "Mrs. Fields" column heading. None of
Chocolate Chip's revenues and income (loss) has been excluded or included more
than once in the pro forma condensed combined statements of operations for the
52 weeks ended January 2, 1999.
The following data reconciles the key components of Chocolate Chip's results
of operations in the pro forma condensed combined statement of operations for
the 52 weeks ended January 2, 1999 with the key components of Chocolate Chip's
results of operations in its historical financial statements for the nine
months ended June 30, 1998:
<TABLE>
<CAPTION>
Less
Nine Months Three Months Add
Ended Ended July 1, 1998 To January 1, 1998
June 30, 1998 December 31, 1997 August 23, 1998 To August 23, 1998
------------- ----------------- --------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $2,266 $803 $410 $1,873
Operating costs and
expenses............... 2,100 646 443 1,897
Income (loss) from
operations............. 166 157 (33) (24)
Net income (loss)....... 116 155 1 (38)
</TABLE>
5. COMBINED KARP ENTITIES ACQUISITION
On September 9, 1998, Mrs. Fields acquired the Combined Karp Entities for a
total purchase price of $1,888,000. Accordingly, in the accompanying pro forma
condensed combined statement of operations for the 52 weeks ended January 2,
1999, the Combined Karp Entities' results of operations from January 1, 1998 to
September 9, 1998 are included under the "Combined Karp Entities" column
heading. The Combined Karp Entities' results of operations from September 10,
1998 to January 2, 1999 are included under the "Mrs. Fields" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired............................................. $ 54,000
Fixed assets acquired, net.......................................... 1,054,000
Goodwill acquired................................................... 780,000
----------
Total purchase price.............................................. $1,888,000
==========
</TABLE>
P-6
<PAGE>
The following data reconciles the key components of the Combined Karp
Entities' results of operations in the pro forma condensed combined statement
of operations for the 52 weeks ended January 2, 1999 with the key components of
the Combined Karp Entities' results of operations in its historical financial
statements for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Six Months Ended July 1, 1998 To January 1, 1998 To
June 30, 1998 September 9, 1998 September 9, 1998
---------------- ----------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net store sales......... $1,181 $308 $1,489
Operating costs and
expenses............... 1,259 251 1,510
Income (loss) from
operations............. (78) 57 (21)
Net income (loss)....... (91) 56 (35)
</TABLE>
6. COOKIE CONGLOMERATE ACQUISITION
On October 5, 1998, Mrs. Fields acquired Cookie Conglomerate for a total
purchase price of $2,800,000. Accordingly, in the accompanying pro forma
condensed combined statement of operations for the 52 weeks ended January 2,
1999, Cookie Conglomerate's results of operations from January 1, 1998 to
September 30, 1998 are included under the "Cookie Conglomerate" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Fixed assets acquired............................................... $1,270,000
Other intangibles acquired.......................................... 100,000
Goodwill acquired................................................... 1,430,000
----------
Total purchase price.............................................. $2,800,000
==========
</TABLE>
7. PRETZELMAKER ACQUISITION
On November 19, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Pretzelmaker for $5,419,000 and assumed liabilities of $320,000
related to severance payments in lieu of outstanding stock options to be paid
at closing. Mrs. Fields paid $1,100,000 in cash upon closing of the acquisition
and signed a promissory note for $4,319,000, which was paid in three
installments through January 4, 1999. Accordingly, in the accompanying pro
forma condensed combined financial statements of operations for the 52 weeks
ended January 2, 1999, Pretzelmaker's results of operations from January 1,
1998 to November 19, 1998 are included under the "Pretzelmaker" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets (liabilities) acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired............................................ $ 577,400
Fixed assets acquired.............................................. 248,700
Other assets acquired.............................................. 50,000
Current liabilities acquired....................................... (1,991,700)
Other liabilities acquired......................................... (1,108,400)
Goodwill acquired.................................................. 7,643,000
-----------
Total purchase price............................................. $ 5,419,000
===========
</TABLE>
P-7
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mrs. Fields' Original Cookies, Inc. and Subsidiaries
Report of Independent Public Accountants................................. F-4
Consolidated Balance Sheets as of January 3, 1998 and January 2, 1999 ... F-5
Consolidated Statements of Operations for the period from inception
(September 18, 1996) to December 28, 1996, for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999 ............. F-7
Consolidated Statements of Stockholder's Equity for the period from
inception (September 18, 1996) to December 28, 1996, for the 53 weeks
ended January 3, 1998 and for the 52 weeks ended January 2, 1999........ F-8
Consolidated Statements of Cash Flows for the period from inception
(September 18, 1996) to December 28, 1996, for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999.............. F-9
Notes to Consolidated Financial Statements............................... F-12
Unaudited Condensed Consolidated Balance Sheets as of January 2, 1999 and
July 3, 1999............................................................ F-45
Unaudited Condensed Consolidated Statements of Operations for the 39
weeks ended October 3, 1998 and October 2, 1999......................... F-47
Unaudited Condensed Consolidated Statements of Cash Flows for the 39
weeks ended October 3, 1998 and October 2, 1999......................... F-48
Unaudited Notes to Condensed Consolidated Financial Statements........... F-49
Mrs. Fields Inc. and Subsidiaries
Report of Independent Public Accountants (Arthur Andersen LLP)........... F-61
Independent Auditors' Report (Deloitte & Touche LLP)..................... F-62
Consolidated Balance Sheet as of September 17, 1996...................... F-63
Consolidated Statements of Operations for the year ended December 30,
1995 and for the period ended September 17, 1996........................ F-65
Consolidated Statements of Stockholders' Deficit for the year ended
December 30, 1995 and for the period ended September 17, 1996........... F-66
Consolidated Statements of Cash Flows for the year ended December 30,
1995 and for the period ended September 17, 1996........................ F-67
Notes to Consolidated Financial Statements............................... F-69
The Original Cookie Company, Incorporated and the Carved-out Portion of
Hot Sam Company, Inc. (Combined)
Report of Independent Public Accountants................................. F-76
Combined Balance Sheet as of September 17, 1996.......................... F-77
Combined Statements of Operations for the year ended December 30, 1995
and for the period ended September 17, 1996............................. F-79
Combined Statements of Stockholders' Equity for the year ended December
30, 1995 and for the period ended September 17, 1996.................... F-80
Combined Statements of Cash Flows for the year ended December 30, 1995
and for the period ended September 17, 1996............................. F-81
Notes to Combined Financial Statements................................... F-82
Cookies USA, Inc. and Subsidiary
Report of Independent Accountants........................................ F-86
Consolidated Balance Sheets as of June 29, 1997 and June 28, 1998........ F-87
Consolidated Statements of Operations for the fifty-two week periods
ended June 30, 1996, June 29, 1997 and June 28, 1998.................... F-89
Consolidated Statements of Changes in Stockholders' Deficit for the
fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28,
1998.................................................................... F-90
Consolidated Statements of Cash Flows for the fifty-two week periods
ended June 30, 1996, June 29, 1997 and June 28, 1998.................... F-91
Notes to Consolidated Financial Statements............................... F-93
</TABLE>
F-1
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Deblan Corporation
Independent Auditors' Report............................................ F-105
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-106
Statements of Earnings for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................................ F-108
Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1998
(unaudited)............................................................ F-109
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................................ F-110
Notes to Financial Statements........................................... F-112
Chocolate Chip Cookies of Texas, Inc.
Report of Independent Public Accountants................................ F-118
Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-119
Statements of Operations for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-121
Statements of Stockholders' Equity for the years ended September 30,
1995, 1996, and 1997 and for the nine months ended June 30, 1998
(unaudited)............................................................ F-122
Statements of Cash Flows for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-123
Notes to Financial Statements........................................... F-125
The Combined Karp Entities
Report of Independent Public Accountants................................ F-130
Combined Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)....................................................... F-131
Combined Statements of Operations for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1997 (unaudited)
and 1998 (unaudited)................................................... F-133
Combined Statements of Stockholders' Equity for the years ended December
31, 1995, 1996, and 1997 and for the six months ended June 30, 1998
(unaudited)............................................................ F-134
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1997 (unaudited)
and 1998 (unaudited)................................................... F-135
Notes to Combined Financial Statements.................................. F-137
The Cookie Conglomerate
Independent Auditors' Report............................................ F-144
Combined Balance Sheets as of December 31, 1997 and 1996................ F-145
Combined Statements of Operations for the years ended December 31, 1997
and 1996............................................................... F-147
Combined Statements of Changes in Equity for the years ended December
31, 1997 and 1996...................................................... F-148
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1996............................................................... F-149
Notes to Combined Financial Statements.................................. F-150
Combined Balance Sheet as of September 30, 1998 (unaudited)............. F-154
Combined Statements of Operations for the nine month periods ended
September 30, 1998 and 1997 (unaudited)................................ F-155
Combined Statements of Cash Flows for the nine month periods ended
September 30, 1998 and 1997 (unaudited)................................ F-156
Notes to Combined Financial Statements.................................. F-157
Pretzelmaker Holdings, Inc.
Report of Independent Certified Public Accountants (AJ. Robbins, PC).... F-158
Report of Independent Certified Public Accountants (BDO Seidman, LLP)... F-159
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)......................................... F-160
</TABLE>
F-2
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Consolidated Statements of Operations For the Period from February 24
(Inception) to December 31, 1995 and the Years Ended December 31, 1996
and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and
1998 (unaudited)........................................................ F-162
Consolidated Statements of Stockholders' Equity For the Period from
February 24 (Inception) to December 31, 1995 and the Years Ended
December 31, 1996 and 1997 and the Nine Months Ended September 30, 1998
(unaudited)............................................................. F-163
Consolidated Statements of Cash Flows For the Period from February 24
(Inception) to December 31, 1995 and the Years Ended December 31, 1996
and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and
1998 (unaudited)........................................................ F-164
Notes to the Consolidated Financial Statements........................... F-165
</TABLE>
F-3
<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
3, 1998 and January 2, 1999, and the related consolidated statements of
operations, stockholder's equity and cash flows for the period from inception
(September 18, 1996) to December 28, 1996 and for each of the two years in the
period ended January 2, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of January 3, 1998
and January 2, 1999, and the consolidated results of their operations and their
cash flows for the period from inception (September 18, 1996) to December 28,
1996 and for each of the two years in the period ended January 2, 1999 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
April 1, 1999
F-4
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 16,287 $ 4,751
Accounts receivable, net of allowance for doubtful
accounts of $32 and $74, respectively................ 1,535 3,208
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $582 and $1,078,
respectively......................................... 2,176 6,003
Inventories........................................... 3,100 5,503
Prepaid rent and other................................ 2,960 4,017
Deferred income tax assets............................ 2,765 861
-------- --------
Total current assets................................ 28,823 24,343
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................................ 21,099 29,914
Equipment and fixtures................................ 14,100 17,108
Land.................................................. 128 240
-------- --------
35,327 47,262
Less accumulated depreciation and amortization........ (6,125) (15,465)
-------- --------
Net property and equipment.......................... 29,202 31,797
-------- --------
DEFERRED INCOME TAX ASSETS.............................. 734 2,638
-------- --------
GOODWILL, net of accumulated amortization of $4,980 and
$11,231, respectively.................................. 68,501 145,782
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $1,409 and $2,615, respectively........ 15,193 14,296
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$70 and $1,320, respectively........................... 5,906 11,718
-------- --------
OTHER ASSETS............................................ 1,325 1,332
-------- --------
$149,684 $231,906
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-5
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
January
3, January 2,
1998 1999
-------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt....................... $ 472 $ 8,046
Current portion of capital lease obligations............ 142 299
Accounts payable........................................ 3,805 10,723
Bank overdraft.......................................... -- 4,133
Accrued liabilities..................................... 2,826 3,597
Current portion of store closure reserve................ 3,664 4,577
Accrued salaries, wages and benefits.................... 1,891 3,155
Accrued interest payable................................ 1,082 1,260
Sales taxes payable..................................... 937 962
Deferred credits........................................ 871 318
-------- --------
Total current liabilities............................. 15,690 37,070
LONG-TERM DEBT, net of current portion and discount....... 100,284 141,647
STORE CLOSURE RESERVE, net of current portion............. 1,802 10,134
CAPITAL LEASE OBLIGATIONS, net of current portion......... 183 997
-------- --------
Total liabilities..................................... 117,959 189,848
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7 and 8)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of
Pretzel Time (a wholly owned subsidiary), aggregate
liquidation preference of $1,437 and $1,495,
respectively............................................. 902 1,261
-------- --------
MINORITY INTEREST......................................... 58 119
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized
and 400 shares outstanding............................. -- --
Additional paid-in capital.............................. 30,843 59,899
Accumulated deficit..................................... (78) (19,221)
-------- --------
Total stockholder's equity............................ 30,765 40,678
-------- --------
$149,684 $231,906
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-6
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception 53 52
(September 18, Weeks Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
-------------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net store and food sales................ $40,849 $127,845 $140,235
Franchising, net........................ 503 4,535 12,464
Licensing, net.......................... 764 2,028 1,537
------- -------- --------
Total revenues........................ 42,116 134,408 154,236
------- -------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs....... 19,492 66,832 75,003
Cost of sales........................... 10,596 32,028 38,482
General and administrative.............. 4,035 16,192 19,017
Store closure provision................. -- 538 7,303
Depreciation and amortization........... 2,344 10,403 19,820
------- -------- --------
Total operating costs and expenses.... 36,467 125,993 159,625
------- -------- --------
Income (loss) from operations....... 5,649 8,415 (5,389)
------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest expense........................ (1,867) (7,830) (13,197)
Interest income......................... 74 246 623
Other expense........................... -- (368) (409)
------- -------- --------
Total other expense, net.............. (1,793) (7,952) (12,983)
------- -------- --------
Income (loss) before provision for
income taxes, preferred stock accretion
and dividends of subsidiaries and
minority interest...................... 3,856 463 (18,372)
PROVISION FOR INCOME TAXES................ (1,798) (655) (316)
------- -------- --------
Income (loss) before preferred stock
accretion and dividends of subsidiaries
and minority interest.................. 2,058 (192) (18,688)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES............................. (97) (644) (444)
MINORITY INTEREST......................... -- (138) (11)
------- -------- --------
Net income (loss)..................... $ 1,961 $ (974) $(19,143)
======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
BALANCE, September 18, 1996..... -- $-- $ -- $ -- $ --
Issuance of common stock for
cash......................... 400 -- 15,000 -- 15,000
Net income.................... -- -- -- 1,961 1,961
--- ---- ------- -------- -------
BALANCE, December 28, 1996...... 400 -- 15,000 1,961 16,961
Parent contribution of
investment in Pretzel Time... -- -- 4,200 -- 4,200
Parent contribution of note
receivable due from Pretzel
Time's minority stockholder
and founder.................. -- -- 500 -- 500
Parent contribution of
investment in Mrs. Fields'
Brand........................ -- -- 6,500 -- 6,500
Conversion to equity of note
payable to parent............ -- -- 4,643 -- 4,643
Dividend paid to parent....... -- -- -- (1,065) (1,065)
Net loss...................... -- -- -- (974) (974)
--- ---- ------- -------- -------
BALANCE, January 3, 1998........ 400 -- 30,843 (78) 30,765
Parent equity infusion........ -- -- 29,056 -- 29,056
Net loss...................... -- -- -- (19,143) (19,143)
--- ---- ------- -------- -------
BALANCE, January 2, 1999........ 400 $-- $59,899 $(19,221) $40,678
=== ==== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception
(September 18, 53 Weeks 52 Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
-------------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................ $ 1,961 $ (974) $(19,143)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities, net of effects from
acquisitions:
Depreciation and amortization............ 2,344 10,403 19,820
Amortization of discount on notes........ -- -- 32
Amortization of deferred loan costs...... -- -- 1,250
Loss on disposition of assets............ -- 368 409
Deferred income taxes.................... 1,511 210 --
In-kind interest expense on note payable
to stockholder.......................... 97 338 --
Preferred stock accretion and dividends
of subsidiaries......................... 97 644 444
Minority interest........................ -- 234 11
Changes in assets and liabilities, net
of effects from acquisitions:
Accounts receivable..................... (294) (353) (1,673)
Amounts due from franchisees and
licensees.............................. (339) (514) (866)
Inventories............................. (159) 136 (822)
Prepaid rent and other.................. (31) (895) 932
Other assets............................ 39 427 1,437
Accounts payable and accrued
liabilities............................ 239 (6,651) 2,769
Store closure reserve................... (305) (1,666) 5,196
Accrued salaries, wages and benefits.... 212 80 1,264
Accrued interest payable................ 1,668 (586) (713)
Sales taxes payable..................... 542 261 (80)
Deferred credits........................ 27 (543) (838)
-------- -------- --------
Net cash provided by operating
activities............................ 7,609 919 9,429
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and
related costs........................... (19,508) (10,949) (32,835)
Purchase of property and equipment, net
of effects from acquisitions............ (1,638) (4,678) (8,235)
Proceeds from the sale of assets......... 15 122 176
-------- -------- --------
Net cash used in investing activities.. (21,131) (15,505) (40,894)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt.................................... -- 108,250 39,400
Principal payments on long-term debt..... (1,769) (77,009) (41,257)
Payment of debt financing costs.......... -- (5,976) (7,062)
Cash advance from Mrs. Fields' Holding... -- 1,500 --
Repayment of cash advance to Mrs. Fields'
Holding................................. -- (1,500) --
Payment of cash dividend to Mrs. Fields'
Holding................................. -- (1,065) --
Equity infusion from Mrs. Fields'
Holding................................. -- -- 29,056
Principal payments on capital lease
obligations............................. -- (36) (123)
Proceeds from the issuance of common
stock................................... 15,000 -- --
Proceeds from the issuance of mandatorily
redeemable cumulative preferred stock of
subsidiary.............................. 3,500 -- --
Reduction in preferred stock of Pretzel
Time.................................... -- -- (85)
Proceeds from the issuance of note
payable to related party................ 3,500 -- --
-------- -------- --------
Net cash provided by financing
activities............................ 20,231 24,164 19,929
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 6,709 9,578 (11,536)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD............................... -- 6,709 16,287
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD................................... $ 6,709 $ 16,287 $ 4,751
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-9
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $28, $8,416, and $12,440 for the
period ended December 28, 1996, and for the years ended January 3, 1998 and
January 2, 1999, respectively.
Cash paid for income taxes was approximately $0, $217, and $209 for the
period ended December 28, 1996, and for the years ended January 3, 1998 and
January 2, 1999, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
On September 18, 1996, the Company acquired certain assets and assumed
certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation,
Mrs. Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam
Company, Inc. In conjunction with the acquisitions, the following net
liabilities were assumed. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 93,494
Net cash paid.................................................... (19,508)
Notes payable issued............................................. (65,735)
--------
Liabilities assumed............................................ $ 8,251
========
On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") converted to common equity of the Company $4,643 total principal
amount of convertible subordinated notes and contributed to the Company all of
the common equity of Mrs. Fields' Brands after converting its preferred stock
interests totaling $3,935 to common equity.
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc.
("Pretzel Concepts") as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
Fair value of assets acquired.................................... $ 15,780
Net cash paid.................................................... (5,750)
Notes payable issued............................................. (8,000)
--------
Liabilities assumed............................................ $ 2,030
========
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("Pretzel Time") were acquired by Mrs. Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other
accruals were recorded (see Note 1).
Fair value of assets acquired.................................... $ 8,311
Net cash paid.................................................... (4,200)
--------
Liabilities assumed............................................ $ 4,111
========
</TABLE>
On November 26, 1997, Mrs. Fields' Holding contributed all of the assets and
liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note receivable from Pretzel
Time's founder and minority stockholder to the Company. Mrs. Fields' Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs. Fields.
F-10
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
During the period from the acquisition of the majority ownership of Pretzel
Time (September 2, 1997) to January 2, 1999, Pretzel Time increased its
mandatorily redeemable cumulative preferred stock liquidation preference by
approximately $212, in lieu of paying cash dividends. In addition, for the same
period, Pretzel Time's mandatorily redeemable cumulative preferred stock was
increased by approximately $538 for the accretion required over time to
amortize the original issue discount.
In August 1998, the Company acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for a total
purchase price of approximately $18,400. During August and September 1998, the
Company also entered into agreements with three franchisees of Cookies USA (the
"Great American Franchisees") under which the Company purchased a total of 37
Great American Cookies franchises for a total purchase price of $16,328. The
total purchase price for all of these acquisitions of $34,728 was allocated, on
a preliminary basis, as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 77,410
Net cash paid.................................................... (27,771)
--------
Liabilities assumed............................................ $ 49,639
========
In October 1998, the Company acquired the assets of the Cookie Conglomerate,
Inc. ("Cookie Conglomerate") for a total purchase price of $2,800. The total
purchase price was allocated as follows:
Fair value of assets acquired.................................... $ 2,800
Net cash paid.................................................... --
--------
Liabilities assumed............................................ $ 2,800
========
In November 1998, the Company acquired all of the outstanding stock of
Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase
price was allocated as follows:
Fair value of assets acquired.................................... $ 8,519
Net cash paid.................................................... (1,100)
--------
Liabilities assumed............................................ $ 7,419
========
</TABLE>
F-11
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation,
is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc. Mrs. Fields'
Holding is a majority owned subsidiary of Capricorn Investors II, L.P.
("Capricorn"). The Company has eight wholly owned operating subsidiaries;
namely, Great American Cookie Company, Inc., The Mrs. Fields' Brand, Inc.,
Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs. Fields' Cookies
Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and Pretzelmaker of
Canada; and three partially owned subsidiaries.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through six specialty
retail chains. As of January 2, 1999, the Company owned and operated 147 Mrs.
Fields Cookies stores, 120 Original Cookie Company stores, 119 Great American
Cookies stores, 77 Hot Sam Pretzels stores, 93 Pretzel Time stores, 9
Pretzelmaker stores in the United States and one Pretzel Time store in Canada.
Additionally, the Company has franchised or licensed 859 stores in the United
States and 113 stores in several other countries. As of January 2, 1999, the
Company owned and operated 437 core stores and 129 stores which are in the
process of being closed or franchised. All of the stores in the process of
being closed or franchised are expected to be closed or franchised by the end
of fiscal year 2000.
During the year ended January 2, 1999, the Company acquired 421 franchisees
through various acquisitions, franchised 83 locations, acquired 33 stores from
franchisees, subsequently refranchised 26 of these stores, and had 78
franchisees discontinue operations.
The Company holds legal title to certain trademarks for the "Mrs. Fields"
name and logo and licenses the uses of these trademarks to third parties for
the establishment and operation of Mrs. Fields' cookie and bakery operations
and other merchandising activities. In connection with these licensing
activities, the Company authorizes third-party licensees to use certain
business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries. Additionally, the Company markets and distributes its products
through catalogs, other print media and mail order.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
Mrs. Fields, Inc. and Affiliates and Original Cookie Company and Affiliates
The Company began operations on September 18, 1996, following the completion
of two simultaneous but separate asset purchase transactions wherein the
Company (i) acquired certain assets and assumed certain liabilities of Mrs.
Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in
accordance with two Asset Purchase Agreements dated August 7, 1996, among these
parties and Capricorn, and (ii) acquired certain assets and assumed certain
liabilities of The Original Cookie Company, Incorporated and Hot Sam Company,
Inc. in accordance with an Asset Purchase Agreement dated August 7, 1996, as
amended by the First Amendment dated as of September 17, 1996, among these
parties and Capricorn.
The combined purchase price for the acquired net assets was approximately
$85,243,000. The Company paid net cash of $19,508,000 and issued approximately
$65,735,000 in senior and subordinated notes to the selling shareholders. The
acquisitions were accounted for as purchases. The total purchase price was
allocated to the net assets acquired, based on their estimated fair values. The
organization of the Company and the
F-12
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The Company
terminated all of the Original Cookie Company and Affiliates corporate
employees as planned.
As of January 2, 1999, approximately $2,068,000 of the $2,450,000 accrual for
legal and lease obligations has been utilized. The remaining amount as of
January 2, 1999 of approximately $382,000 is expected to be utilized by the end
of 1999. All of the $3,135,000 accrual established for transaction and finders'
fees and the $655,000 accrual for severance and related costs associated with
the acquisitions were fully utilized for the purposes intended during fiscal
1997.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc., a wholly owned
subsidiary of Mrs. Fields' Holding, acquired substantially all of the assets
and assumed certain liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H
& M"). H & M owned and operated stores which engage in retail sales of
pretzels, toppings and beverages under a franchise agreement with Pretzel Time,
Inc. The total consideration of $13,750,000 consisted of (i) $5,750,000 of
cash, financed through an advance from Mrs. Fields' Holding of $1,500,000 and a
$4,250,000 bank loan to Pretzel Concepts, (ii) a $4,000,000 principal amount
bridge note of Pretzel Concepts and (iii) a $4,000,000 principal amount
subordinated note of Mrs. Fields' Holding retained by the sellers (all such
debt collectively referred to as the "H & M Debt"). The acquisition was
accounted for using the purchase method of accounting (based on the estimated
fair values of the net assets acquired) and resulted in recording approximately
$9,618,000 of goodwill that is being amortized using the straight-line method
over 15 years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
assets and liabilities of Pretzel Concepts to the Company and, in consideration
thereof, the Company assumed the H & M Debt, including all accrued but unpaid
interest. Pretzel Concepts and the Company merged on the same date with the
Company being the surviving entity. The contribution was accounted for in a
manner similar to that of pooling-of-interests accounting. There was no step-up
in the historical basis of Pretzel Concepts' assets or liabilities. Beginning
with July 25, 1997, the Company has included Pretzel Concepts' results of
operations in the Company's consolidated results of operations.
Pretzel Time, Inc.
On September 2, 1997, Mrs. Fields' Holding acquired 56 percent of the shares
of common stock of Pretzel Time for a total cash purchase price of $4,200,000,
$750,000 of which was paid to Pretzel Time for working capital purposes, and
the balance of which was paid to the selling shareholders. In connection with
the acquisition, Mrs. Fields' Holding extended a $500,000 loan to the founder
of Pretzel Time who continued to own 44 percent of the shares of common stock
of Pretzel Time. The note bears interest at an annual rate of ten percent (see
Note 8). Pretzel Time is a franchisor of hand rolled soft pretzel outlets
located in North America. The outlets are primarily located in shopping malls.
The acquisition was accounted for using the purchase method of accounting
(based on the estimated fair values of the net assets acquired) and resulted in
recording
F-13
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 three shares of Pretzel Time common stock for $500,000 in cash. On
December 30, 1998, Mrs. Fields completed the acquisition of the remaining
outstanding common stock of Pretzel Time under a stock purchase agreement dated
December 30, 1998, for a purchase price of approximately $4,700,000, $2,500,000
of which was paid in cash on January 5, 1999 and $2,000,000 of which is payable
on or before December 30, 1999. The Company has included the appropriate
percentage of Pretzel Time's results of operations for each respective period
in its consolidated results of operations.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, Mrs. Fields' Holding owned 50.1 percent of the
shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand holds
legal title to certain trademarks for the "Mrs. Fields" name and logo and
licenses the use of these trademarks to third parties for the establishment and
operation of Mrs. Fields' cookie and bakery operations and other merchandising
activities. In connection with these licensing activities, Mrs. Fields' Brand
authorizes third-party licensees to use certain business formats, systems,
methods, procedures, designs, layouts, specifications, trade names and
trademarks in the United States and other countries.
On November 26, 1997, Mrs. Fields' Holding acquired the remaining 49.9
percent of the shares of the common stock of Mrs. Fields' Brand from Harvard
Private Capital Holdings, Inc. for approximately $2,565,000. The consideration
consisted of $1,065,000 in cash and $1,500,000 in rights to common equity of
Mrs. Fields' Holding. Mrs. Fields' Holding's Board of Directors determined the
value of Harvard's rights to the common equity based on a fair value analysis.
This analysis appropriately considered a discount for lack of controlling
interest and marketability as Mrs. Fields' Holding's common equity is not
publicly traded. The acquisition was accounted for using the purchase method of
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording approximately $2,565,000 of intangible assets (primarily
goodwill) that are being amortized using the straight-line method over 15
years.
Effective November 26, 1997, Mrs. Fields' Holding contributed all of the
common stock of Mrs. Fields' Brand to the Company. As a result of this capital
contribution, Mrs. Fields' Brand became a wholly owned subsidiary of the
Company. The contribution was accounted for in a manner similar to that of
pooling-of-interests accounting. There was no step-up in the book basis of Mrs.
Fields' Brand's assets or liabilities. Although the Company owned 50.1 percent
of Mrs. Fields' Brand until November 25, 1997, the Company has included 100
percent of Mrs. Fields' Brand's results of operations with the Company's
consolidated results of operations for all periods presented as a result of
Mrs. Fields' Brand incurring net losses for these periods.
F-14
<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 (based on preliminary estimates of fair values of the net
assets acquired) and resulted in recording approximately $69,390,000 of
goodwill that is being amortized using the straight-line method over 15 years.
Additionally, the Company caused Cookies USA to be merged with and into the
Company and caused the acquired franchisees corporations and/or net assets to
be merged with and into Great American. Great American became a wholly owned
subsidiary of the Company. The acquired entities' results of operations have
been included with those of the Company since the applicable dates of
acquisition.
The Great American Acquisitions were financed by (i) the net proceeds from
the Company issuing $40,000,000 Series C Senior Notes; (ii) the contribution of
the net proceeds totaling $29,056,000 from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement among The Cookie
Conglomerate, Inc., The Cookie Conglomerate, LLP and two individuals who were
the partners of Cookie Conglomerate, LLP and the shareholders of Cookie
Conglomerate, Inc. The sellers were franchisees of Great American. The sellers'
rights under franchise agreements and subleases with Great American were
terminated upon closing of the transaction. The acquisition was funded through
borrowings.
Pretzelmaker Holdings, Inc.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately
$5,400,000 and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1,600,000.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net assets
of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
$600,000 of goodwill and $53,000 of other assets. The goodwill is being
amortized using the straight-line method over 15 years.
F-15
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the period from inception
(September 18, 1996) to December 28, 1996, and for the years ended January 3,
1998 and January 2, 1999, presents the results of operations of the Company
assuming the H & M, Pretzel Time and Mrs. Fields' Brand acquisitions and the
Refinancing, as defined in Note 3, had occurred at the date of inception
(September 18, 1996) and that the Great American Acquisitions, Cookie
Conglomerate acquisition, Pretzelmaker acquisition and related financing had
occurred at December 29, 1996. The results of operations give effect to certain
adjustments, including amortization of intangible assets and interest expense
on acquisition debt. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted or the results which may occur in the
future.
<TABLE>
<CAPTION>
Inception
(September 18, 1996)
to December 28, 53 Weeks Ended 52 Weeks Ended
(Unaudited) 1996 January 3, 1998 January 2, 1999
- ----------- -------------------- --------------- ---------------
<S> <C> <C> <C>
Total revenues........... $48,090,000 $200,574,000 $191,246,000
Store closure provision.. -- (538,000) (7,303,000)
Depreciation and
amortization............ (2,344,000) (19,405,000) (25,582,000)
Income (loss) from
operations.............. 6,718,000 12,738,000 (4,909,000)
Net income (loss)........ 1,029,000 (3,638,000) (22,471,000)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
four suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of January
2, 1999, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As
of January 2, 1999, the Company had restricted cash of $225,000.
F-16
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
Pre-Opening Costs
Pre-opening costs associated with new Company-owned stores are charged to
expense as incurred. These amounts were not significant for the periods
presented in the accompanying consolidated financial statements. Pre-opening
costs associated with new franchised stores are the responsibility of the
franchisee.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
Intangible assets consist primarily of goodwill and trademarks and are
amortized using the straight-line method over 15 years. Other intangible assets
such as covenants not to compete are not significant and are being amortized
using the straight-line method over two to five years.
Deferred Loan Costs
Deferred loan costs totaling $13,038,000 resulted from the sale of
$100,000,000 total principal amount of 10 1/8 percent Series A Senior Notes
(the "Series A Senior Notes") on November 26, 1997 and the sale of $40,000,000
total principal amount of 10 1/8 percent Series C Senior Notes (the "Series C
Senior Notes") on August 24, 1998. These costs are being amortized to interest
expense over the approximate seven-year life of the Series A Notes and the
approximate six-year life of the Series C Senior Notes (see Note 3).
Discount on Series C Senior Notes
The Series C Senior Notes were issued at a discount which is being amortized
to interest expense over the approximate six-year life of the related notes.
Long-Lived Assets
The Company reviews for impairment of long-lived assets when events or
changes in circumstances indicate that the book value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred that indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset or
group of assets over the remaining life in measuring whether the assets are
recoverable. The Company assesses impairment of long-lived assets at the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets.
During the year ended January 2, 1999, the Company wrote-down approximately
$4,131,000 of impaired long-lived assets. The write-down included approximately
$2,243,000 of equipment and leasehold
F-17
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
improvements at company-owned stores that the Company intends to close or
franchise (see Note 5). These assets are expected to be disposed of by the end
of fiscal year 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 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. The net book value of the assets has been fully
written-down because the carrying amounts exceeded the estimated future cash
flows as determined in accordance with guidance in SFAS 121. During the year
ended January 2, 1999, stores associated with the impaired assets generated
operating losses of approximately $2,351,000. The impairment provision was
included in depreciation and amortization in the accompanying consolidated
statement of operations for the year ended January 2, 1999. No provision was
recorded for estimated future operating losses.
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a
nonperforming store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchising and licensing fee revenues are recognized when all
material services or conditions relating to the sale have been substantially
performed or satisfied. Franchise and license royalties, which are based on a
percentage of gross store sales, are recognized as earned. Revenues from the
sale of batter that the Company produces and sales to franchisees are
recognized at the time of shipment and are classified in franchising revenue.
The Company receives rebates or other payments from suppliers based (directly
or indirectly) on sales to franchisees and company-owned stores. Rebates
related to franchisees are recorded as franchising revenue when earned. Rebates
related to company-owned stores are recorded as a reduction to cost of sales
when earned.
Leases
The Company has various operating lease commitments on both company-owned and
franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases. The Company accrues contingent rental expense on a monthly
basis for those retail stores where contingent rental expense is probable.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the applicable balance sheet date exchange
rates, while revenues and expenses are translated using the average exchange
rates for the periods presented. Translation gains or losses are insignificant
for the periods presented.
F-18
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company estimates that the total fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$101,250,000 and $135,100,000 as of January 3, 1998 and January 2, 1999,
respectively. These estimates are based on quoted market prices. The book
values of the Company's other financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
other long-term debt obligations, approximate fair values at the respective
balance sheet dates.
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. This statement is effective for fiscal years beginning after June 15, 1999
and is not expected to have a material impact on the Company's consolidated
financial statements.
Reclassifications
Certain reclassifications have been made to the prior periods' consolidated
financial statements to conform with the current period presentation.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
------------ ------------
<S> <C> <C>
Series A/B senior unsecured notes, interest at 10
1/8 percent payable semi-annually in arrears on
June 1 and December 1, commencing June 1, 1998,
due December 1, 2004............................. $100,000,000 $100,000,000
Series C senior unsecured notes, interest at 10
1/8 percent payable semi-Annually in arrears on
June 1 and December 1, commencing December 1,
1998, due December 1, 2004....................... -- 40,000,000
Discount related to the issuance of $40,000,000
Series C senior unsecured notes, net of
accumulated amortization of $0 and $33,000,
respectively..................................... -- (566,000)
Notes payable to individuals or corporations with
interest terms ranging from non-interest bearing
to 15 percent, due at various dates from 1999
through 2001, requiring monthly payments......... 756,000 10,259,000
------------ ------------
100,756,000 149,693,000
Less current portion.............................. (472,000) (8,046,000)
------------ ------------
$100,284,000 $141,647,000
============ ============
</TABLE>
On November 26, 1997, the Company issued $100,000,000 total principal amount
of Series A Senior Notes due December 1, 2004 pursuant to an indenture between
the Company and the Bank of New York (the "Indenture"). The Series A Senior
Notes were issued pursuant to a private transaction that was not subject to the
registration requirements of the Securities Act of 1933. On June 12, 1998, a
majority of the Series A Senior Notes were exchanged for 10 1/8% Series B
Senior Notes due December 1, 2004 (collectively, the "Series A/B Senior
Notes"), which were registered under the Securities Act.
F-19
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 24, 1998, the Company issued $40,000,000 total principal amount of
Series C Senior Notes due December 1, 2004 in connection with the Great
American Acquisitions. The Series C Senior Notes were issued under the
Indenture which also governs the terms of the Series A/B Senior Notes in a
private transaction that was not subject to the registration requirements of
the Securities Act. The Series A/B Senior Notes and the Series C Senior Notes
will be collectively referred to as the "Senior Notes."
In connection with the issuance of the Series C Senior Notes, the Company
recorded a discount of approximately $600,000. This discount is being amortized
to interest expense over the approximate six-year life of the Series C Senior
Notes.
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 2001 in cash at redemption prices
defined in the Indenture, plus accrued and unpaid interest. In addition, at any
time prior to December 1, 2001, the Company may redeem up to a total of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that limit, among other things,
the ability of the Company and its subsidiaries to: (i) declare or pay
dividends or make any other payment or distribution on account of the Company's
or any of its subsidiaries' equity interest (including without limitation, any
payment in connection with any merger or consolidation involving the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any equity interest of the Company or any direct or indirect
parent of the Company or other affiliate of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any indebtedness that is subordinated to the Senior Notes,
except as payment of interest or principal at stated maturity; or (iv) make any
restricted investments except under conditions provided for in the Indenture.
The total amount of principal maturities of debt at January 2, 1999 are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................ $ 8,046,000
2000............................................................ 648,000
2001............................................................ 539,000
2002............................................................ 583,000
2003............................................................ 443,000
Thereafter...................................................... 140,000,000
------------
$150,259,000
============
</TABLE>
Line of Credit
On February 28, 1998, the Company entered into an amended and restated line
of credit agreement with a commercial bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all of the assets of the
Company. The availability under the line of credit was limited by the Company's
Indenture to $4,777,000 as of January 2, 1999. Borrowings under the agreement
bear interest, at the Company's option, at either the bank's prime rate or the
applicable LIBOR rate plus two percent, with interest payable monthly in
F-20
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
arrears. The Company is also obligated to pay the bank a commitment fee in the
amount of one quarter of one percent of the unused portion of the revolving
loan commitment. As of January 2, 1999, the Company had no outstanding
borrowings under the agreement, which expires March 31, 2001. The agreement
requires the Company to maintain certain financial ratios including a minimum
debt service coverage ratio. At January 2, 1999, the Company was in compliance
with the terms of the agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 2, 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................. $ 415,000
2000............................................................. 357,000
2001............................................................. 358,000
2002............................................................. 287,000
2003............................................................. 182,000
----------
Total future minimum lease payments............................ 1,599,000
Less amount representing interest................................ (303,000)
----------
1,296,000
Less current portion........................................... (299,000)
----------
$ 997,000
==========
</TABLE>
As of January 3, 1998 and January 2, 1999, total assets held under capital
lease arrangements were approximately $376,000 and $1,024,000 with accumulated
amortization of approximately $59,000 and $108,000, respectively.
4. INCOME TAXES
The components of the provision for income taxes for the period ended
December 28, 1996, and for the years ended January 3, 1998 and January 2, 1999
are as follows:
<TABLE>
<CAPTION>
December 28, January 3, January 2,
1996 1998 1999
------------ ---------- -----------
<S> <C> <C> <C>
Current:
Federal................... $ 207,000 $ 70,000 $ --
State..................... 75,000 228,000 245,000
Foreign................... 5,000 57,000 71,000
Deferred:
Federal................... 1,112,000 367,000 (3,021,000)
State..................... 277,000 55,000 (469,000)
Change in valuation
allowance................ 122,000 (122,000) 3,490,000
---------- --------- -----------
Total provision for
income taxes........... $1,798,000 $ 655,000 $ 316,000
========== ========= ===========
</TABLE>
F-21
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the consolidated statements of operations are as
follows for the period ended December 28, 1996 and for the years ended January
3, 1998 and January 2, 1999:
<TABLE>
<CAPTION>
December 28, January 3, January 2,
1996 1998 1999
------------ ---------- ----------
<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
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
Foreign taxes......................... -- 12.3 0.4
Change in valuation allowance......... 3.2 (26.3) 19.0
Other................................. 4.1 29.3 12.6
---- ----- -----
Effective income tax rate............... 46.6% 141.5% 1.7 %
==== ===== =====
</TABLE>
The significant components of the Company's deferred income tax assets and
liabilities at January 3, 1998 and January 2, 1999 are as follows:
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
----------- ------------
<S> <C> <C>
Deferred income tax assets:
Property and equipment reserve.................... $ 2,014,000 $ 3,311,000
Store closure reserve............................. 2,202,000 5,845,000
Transaction cost accrual.......................... 565,000 514,000
Net operating loss carryforward................... 4,875,000 12,268,000
Legal reserve..................................... 302,000 150,000
Lease accrual..................................... 92,000 --
Other reserves.................................... 81,000 388,000
Accrued expenses.................................. 230,000 529,000
Alternative minimum tax credit carryforward....... 207,000 215,000
----------- ------------
Total deferred income tax assets................ 10,568,000 23,220,000
Valuation allowance............................... (5,160,000) (15,560,000)
----------- ------------
Deferred income tax assets net of valuation
allowance...................................... 5,408,000 7,660,000
----------- ------------
Deferred income tax liabilities:
Accumulated depreciation and amortization......... (1,548,000) (3,464,000)
Other............................................. (361,000) (697,000)
----------- ------------
Total deferred income tax liabilities........... (1,909,000) (4,161,000)
----------- ------------
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. As of January 2, 1999,
the Company had net operating losses of $31,232,000 that can be carried forward
to reduce
F-22
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. No operating losses are accrued for. If and when a
reserve that was established as part of purchase accounting is not fully
utilized, the Company reduces the reserve to zero and goodwill is adjusted for
the corresponding amount.
Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates
In connection with the Mrs. Fields Inc. and Original Cookie Company
acquisitions (see Note 1), the Company formulated a plan to exit certain stores
that did not meet certain financial and geographical criteria. In general the
plan entailed closing stores that were not profitable and franchising stores
that were profitable but contributed less than $50,000 in store annual cash
contribution for cookie stores and less than $35,000 in annual store cash
contribution for pretzel stores. Management identified 138 stores to be closed
(13 of these stores were closed prior to the acquisition but had continuing
lease obligations) and 64 stores to be franchised. As of January 2, 1999, there
were 23 stores remaining to be closed and 36 stores remaining to be franchised.
Management estimates that implementation of the plan will be substantially
complete by June 30, 2000. The timing to implement the plan was developed based
on discussions and relationships with major shopping mall developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3 ("EITF 95-3"), the Company established a store closure reserve
of $5,060,000 for the 138 stores the Company intended to close. The reserve was
established to provide for estimated early lease termination costs and
penalties. There was no reserve established related to the 64 stores to be
franchised. Management continued to refine the plan for closing the stores
after the date of the acquisitions which entailed further analysis of lease
agreements and meeting with developers to assess timing and estimated lease
termination costs.
Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions. At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized
plan estimates of lease termination costs and adjusted goodwill by a comparable
amount under the 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
F-23
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
As of January 2, 1999, no other significant changes had been made to this 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.
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. All of the stores identified for closure are planned
to be closed by the end of fiscal year 1999. The timing to implement the plan
was developed based on discussions and relationships with major shopping mall
developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $1,000,000 for the 11 stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. Additionally, the Company established an
impairment reserve of $2,500,000 against the property and equipment of the
stores the Company planned to exit, in order to record those assets at net
realizable value. As of January 2, 1999, no other significant changes had been
made to this plan.
F-24
<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 four H&M stores that were
not meeting certain financial and geographical criteria. 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 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 $367,000 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.
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. All
of the stores identified for closure are planned to be closed by the end of
fiscal year 1999. The timing to implement the plan was developed based on
discussions and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the four stores the Company
intended to close. The reserve was established to provide for estimated early
lease termination costs and penalties. As of January 2, 1999, no other
significant changes had been made to this plan.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit two Pretzel Time stores
that were not meeting certain financial and geographical criteria. The plan
also committed the Company to exit two 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 $265,000 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.
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. 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.
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. As of January 2, 1999, no other significant changes had been made to
this plan.
F-25
<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 four 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. 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 $306,000 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.
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. All
of the stores identified for closure are planned to be closed by the end of
fiscal year 2000. The timing of implementation of the plan was developed based
on discussion and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven stores the
Company intended to close. The reserve was established to provide for estimated
early lease termination costs and penalties. Additionally, the Company
established an impairment reserve of $327,000 against the property and
equipment of the stores the Company planned to exit in order to record those
assets at net realizable value. As of January 2, 1999, no other significant
changes had been made to this plan.
F-26
<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 Pretzelmaker
------------------------ ------------------------ ----------------------- ------------------------ ------------
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 Business
Adjustments Acquisition Combination Acquisition Combination Acquisition Combination Acquisition Combination
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <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 52 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............ -- -- -- -- -- -- -- -- 500,000
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 $500,000
=========== ========== ========== ======== ======== ======== ========== ======== ========
<CAPTION>
Consolidated
---------------------------------------
Company-
Business Owned Total
Combination Stores Business
and Unrelated Combinations
Subsequent to and Company-
Adjustments Acquisition Owned Stores
------------ ------------ -------------
<S> <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 52 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
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......... $ 9,101,000 $5,610,000 $14,711,000
============ ============ =============
</TABLE>
F-27
<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 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
===== ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== ========
</TABLE>
F-28
<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 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................... 28 14 3 1 3 1 4 -- 38 16
Stores closed or
franchised for the 52
weeks ended January 2,
1999................... (1) -- (1) -- -- -- -- -- (2) --
--------- --------- --- --- --- --- --- --- --- ---
Balance, January 2,
1999................... 28 14 2 1 3 1 4 -- 37 16
========= ========= === === === === === === === ===
</TABLE>
Store Closure Reserve Payment Obligations
As of January 2, 1999, the future estimated cash payments under the store
closure reserve are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999......................................................... $ 4,577,000
2000......................................................... 2,546,000
2001......................................................... 2,049,000
2002......................................................... 1,625,000
2003......................................................... 1,376,000
Thereafter................................................... 2,538,000
-----------
$14,711,000
===========
</TABLE>
F-29
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the periods indicated for stores to be
closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields,
Inc. and
Original Great
Cookie Co. H&M American Pretzelmaker Consolidated
------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $10,921,000 $ -- $ -- $ -- $10,921,000
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be closed.... (854,000) -- -- -- (854,000)
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be
franchised............. (215,000) -- -- -- (215,000)
----------- ---------- ---------- -------- -----------
Balance, December 28,
1996................... 9,852,000 -- -- -- 9,852,000
To record property and
equipment impairment
upon acquisition, July
25, 1997............... -- 2,500,000 -- -- 2,500,000
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
closed................. (3,299,000) (208,000) -- -- (3,507,000)
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
franchised............. (492,000) -- -- -- (492,000)
----------- ---------- ---------- -------- -----------
Balance, January 3,
1998................... 6,061,000 2,292,000 -- -- 8,353,000
To record property and
equipment impairment
upon acquisition,
August 24, 1998........ -- -- 2,150,000 -- 2,150,000
To record property and
equipment impairment
upon acquisition,
September 9, 1998...... -- -- 973,000 -- 973,000
To record property and
equipment impairment
upon acquisition,
November 19, 1998...... -- -- -- 327,000 327,000
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be closed........... (1,782,000) (93,000) (246,000) -- (2,121,000)
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be franchised....... (435,000) (819,000) -- -- (1,254,000)
----------- ---------- ---------- -------- -----------
Balance, January 2,
1999................... $ 3,844,000 $1,380,000 $2,877,000 $327,000 $ 8,428,000
=========== ========== ========== ======== ===========
</TABLE>
6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.
The mandatorily redeemable cumulative preferred stock of Pretzel Time (the
"Pretzel Time Preferred Stock") is nonvoting and the preferred stockholders are
entitled to cumulative preferred dividends of ten percent for three years,
accrued and payable upon redemption. The Pretzel Time Preferred Stock must be
redeemed at $10,000 per share, plus unpaid and accumulated dividends, on
September 1, 1999. The excess of the redemption price over the carrying value
is being accreted over the period from issuance to September 1, 1999, using the
effective interest method and is being charged to the accumulated deficit of
Pretzel Time. In the event of a liquidation or sale of Pretzel Time, the
preferred stockholders are entitled to receive payment of $10,000 per share,
plus accumulated dividends.
During the period from the acquisition of a majority ownership in Pretzel
Time (September 2, 1997) to January 2, 1999, Pretzel Time increased the
liquidation preference of the Pretzel Time Preferred Stock by $212,000, in lieu
of paying cash dividends. In addition, the Pretzel Time Preferred Stock was
increased by $538,000, for the accretion required over time to amortize the
original issue discount incurred at the time of issuance. As of January 2,
1999, accrued dividends of $339,000, were unpaid.
During the period from September 2, 1997 to January 2, 1999, Pretzel Time
repurchased 17.5 shares of the Pretzel Time Preferred Stock for an total of
$175,000 in cash, or $10,000 per share, plus accrued dividends totaling
approximately $20,200. As of January 2, 1999, there are 127 shares of Pretzel
Time Preferred Stock issued and outstanding with a total liquidation preference
of approximately $1,495,000.
F-30
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. COMMITMENTS AND CONTINGENCIES
Stock Pledged as Collateral
Mrs. Fields' Holding has pledged all of the Company's capital stock as
collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the " Mrs. Fields' Holding Discount Notes"). Mrs. Fields'
Holding issued the Mrs. Fields' Holding Discount Notes on August 24, 1998, in
connection with the Great American Acquisitions and the Mrs. Fields' Holding
Equity Infusion (see Note 1). In connection with the issuance of the
$55,000,000 principal amount at maturity of Mrs. Fields' Holding Discount
Notes, Mrs. Fields' Holding recorded an total original issue discount of
approximately $24,136,000. The principal amount of the Mrs. Fields' Holding
Discount Notes will accrete at a rate of 14 percent compounded semi-annually to
a total principal amount of $55,000,000 at December 1, 2002. Thereafter, the
Mrs. Fields' Holding Discount Notes will accrue interest at the annual rate of
14 percent, payable semi-annually on June 1 and December 1 of each year,
commencing June 1, 2003.
Mrs. Fields' Holding is a holding company and does not have separate
operations from which it can generate cash flows. Under the circumstances, Mrs.
Fields' Holding would likely be dependent on its owners' and the Company's cash
flows to make principal and interest payments when due. Interest payments
totaling $7,700,000 per year will commence in 2003. The Company has not
guaranteed, nor is it obligated to make principal or interest payments related
to the Mrs. Fields' Holding Discount Notes. However, in accordance with the
Company's Indenture, the Company may pay dividends to Mrs. Fields' Holding, in
order for Mrs. Fields' Holding to service the debt, if no default or event of
default occurs under the Indenture and certain fixed charge coverage ratios and
consolidated net income tests are met. The Mrs. Fields' Holding Discount Notes
are effectively subordinated to the Company's Senior Notes.
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. Management, after consultation with legal
counsel, believes that the potential liability to the Company under any such
actions is adequately accrued for or will not materially affect the Company's
consolidated financial position or results of operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to ten years. Certain of the retail store leases provide for contingent rentals
based on gross revenues. Additionally, as part of the Company's franchising
program, certain locations have been subleased to franchisees.
Rent expense was as follows for the periods presented:
<TABLE>
<CAPTION>
Inception
(September 18, 53 Weeks 52 Weeks
1996) to Ended Ended
December 28, January 3, January 2,
1996 1998 1999
-------------- ----------- ------------
<S> <C> <C> <C>
Minimum rentals....................... $ 8,216,000 $30,654,000 $ 36,834,000
Contingent rentals.................... 105,000 432,000 553,000
Sub-lease rentals..................... (2,220,000) (8,756,000) (12,550,000)
----------- ----------- ------------
$ 6,101,000 $22,330,000 $ 24,837,000
=========== =========== ============
</TABLE>
F-31
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 2, 1999, the future minimum lease payments due under operating
leases (including future minimum lease payments for stores in the process of
being closed or franchised), which include required lease payments for those
stores that have been subleased, are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................ $ 37,686,000
2000............................................................ 32,337,000
2001............................................................ 27,066,000
2002............................................................ 23,033,000
2003............................................................ 18,246,000
Thereafter...................................................... 33,504,000
------------
$171,872,000
============
As of January 2, 1999, the future minimum sublease payments due to the
Company under these leases are as follows:
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999............................................................ $ 12,550,000
2000............................................................ 10,676,000
2001............................................................ 8,741,000
2002............................................................ 7,277,000
2003............................................................ 5,716,000
Thereafter...................................................... 8,717,000
------------
$ 53,677,000
============
</TABLE>
Contractual Arrangements
The Company entered into a supply agreement to buy frozen dough products
through 2000. The agreement stipulates minimum annual purchase commitments of
not less than 23,000,000 pounds of the products each year through the end of
the contract. The Company also entered into two supply agreements to buy
chocolate products through August 1999 and January 2000. The agreements
stipulate minimum purchase commitments of which 1.9 million and 1.5 million
pounds, respectively, had not been purchased as of January 2, 1999. The terms
the frozen dough and chocolate purchase agreements include certain volume
incentives and penalties. Under each, the Company and the supplier may
terminate the supply agreement if the other party defaults on any of the
performance covenants. The Company also entered into several other immaterial
purchase agreements to buy products.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 3, 1998 and January 2, 1999 were approximately
$550,000 and $295,000, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee obligations which are in default
as defined. As of January 2, 1999, the Company has assumed obligations totaling
approximately $54,000, respectively, which are included in capital lease
obligations.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred credits represent volume rebates associated
with the assumption of a long-term marketing and supply
F-32
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
agreement with a supplier in connection with the Mrs. Fields Inc. and
affiliates and Original Cookie Company and affiliates business combinations
discussed in Note 1. Under terms of the agreement, the Company is obligated to
purchase a minimum amount of product from the supplier. The supplier
periodically prepays rebates to the Company for anticipated purchases. The
Company records the prepayments as deferred credits and amortizes them ratably
as purchases are made from the supplier. This agreement was amended in January
1997 and an additional $600,000 in deferred credits were recorded. The amended
agreement expires on the later of December 31, 2003 or when the Company has met
its revised purchase commitment. In conjunction with this amendment, certain
minimum commitments from the previous agreement were carried forward and others
were forgiven. Additionally, in November 1997, Pretzel Time entered into a
long-term marketing and supply agreement with a supplier. Under terms of the
agreement, the Company is obligated to purchase a minimum amount of product
from the supplier. An additional $437,000 in deferred credits were recorded
under this agreement. The termination date of this agreement will be the later
of December 31, 2003 or when Pretzel Time has met its purchase commitment.
Under these agreements, the Company recognized approximately $1,393,000, and
$812,000 primarily as a reduction to food cost of sales during the years ended
January 3, 1998 and January 2, 1999.
In November 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Debbi Fields, a director of the Company, under
which Debbi Fields travels and performs public relations and advertising
activities on behalf of the Company for at least 50 days a year for a fee of
$250,000 per year, with an option to perform these services for 20 additional
days a year for additional pay of $5,000 per day. The compensation increases by
10 percent a year beginning on January 1, 1999. The Consulting Agreement
expires on December 31, 1999. Under the Consulting Agreement, Debbi Fields may
not disclose any confidential information of the Company, such as recipes and
trade secrets, and may not, without the prior written consent of the Company,
compete with the Company.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for a total annual base
salary of $1,095,000. If the Company terminates employment without cause, or
the employee terminates employment with good reason, the employee can receive
in severance pay the amount equal to the product of his or her then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the notice of termination or 36 to 48 semi-monthly periods, plus a portion
of any discretionary bonus that would otherwise have been payable. The
agreements have customary provisions for other benefits and also include
noncompetition clauses.
8. RELATED-PARTY TRANSACTIONS
As of January 3, 1998 and January 2, 1999, the Company had receivables due
from franchisees and licensees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $2,176,000
and $6,003,000, respectively. These amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $582,000 and $1,078,000, respectively.
As of January 3, 1998 and January 2, 1999, the Company had net payables of
approximately $105,000 and $150,000, respectively, due to Mrs. Fields' Holding.
The amounts due to or from Mrs. Fields' Holding are recorded in prepaid rent
and other in the accompanying consolidated balance sheets.
During the years ended January 3, 1998 and January 2, 1999, the Company
accrued approximately $441,000 and $0, respectively, of interest expense due to
Mrs. Fields' Holding related to the convertible subordinated notes Mrs. Fields'
Holding purchased. As part of the Refinancing, Mrs. Fields' Holding converted
all of the $4,643,000 convertible subordinated notes to equity and the notes
were cancelled (see Note 3).
F-33
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling
approximately $157,000 and $70,600, during the years ended January 3, 1998 and
January 2, 1999, respectively. Korn/Ferry is an executive search firm of which
one of the Company's directors is the Chairman.
A director of the Company is a consultant and an advisor to Dillon Read &
Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the restructuring of the Company in
September 1996. The director's company did not receive a fee from the Company
during the fiscal year ended January 2, 1999. The Company believes that the
arrangements were on terms that could have been obtained from an unaffiliated
third party.
As of January 2, 1999, the Company has a loan due from the founder and
minority stockholder of Pretzel Time totaling $567,000. The note bears interest
at an annual rate of ten percent and is payable in monthly installments of
principal and interest beginning January 1998 by setoff of, and to the extent
of, the founder's bonus payments and dividends received by the founder in his
Pretzel Time stock; provided that in any calendar year no more than $100,000
may be so offset. In addition, as of January 2, 1999, the Company is due
approximately $451,000 from the founder in connection with certain lease
payments related to the purchase of Pretzel Time for which the Company is
indemnified. These amounts are recorded in accounts receivable and other assets
in the accompanying consolidated balance sheets.
The Company and Mrs. Fields' Holding expect to enter into a tax-sharing
arrangement but as of the date of these financial statements no such agreement
has been finalized.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k)
Retirement Savings Plan (the "Plan") for all eligible employees. Under the
terms of the Plan, employees may make contributions to the Plan, a portion of
which is matched by contributions from the Company. The total Company
contributions to the Plan for the years ended January 3, 1998 and January 2,
1999 were approximately $97,900 and $171,000, respectively.
10. REPORTABLE SEGMENTS
Operating segments are components of the Company for which separate financial
information is available that is evaluated regularly by the Chief Operating
decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance. Mrs. Fields has two reportable
operating segments; namely, company-owned stores and related activity and
franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise or license fee and monthly royalties based on a percentage of
gross sales and other licensing activity not related to cookie or pretzel
stores. The accounting policies for the segments are discussed in the summary
of significant accounting policies (see Note 2). Sales and transfers between
segments are eliminated in consolidation.
F-34
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mrs. Fields evaluates performance of each segment based on contribution
margin. Mrs. Fields does not allocate any interest income, interest expense,
depreciation and amortization or assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table.
<TABLE>
<CAPTION>
Company-owned Franchising and
Stores Licensing Total
------------- --------------- -----------
<S> <C> <C> <C>
Period ended December 28, 1996
Revenue.............................. $40,849,000 $1,267,000 $42,116,000
Contribution Margin.................. 10,761,000 1,267,000 12,028,000
Year ended January 3, 1998
Revenue.............................. 127,845,000 6,563,000 134,408,000
Contribution Margin.................. 28,985,000 6,563,000 35,548,000
Year ended January 2, 1999
Revenue.............................. 140,235,000 14,001,000 154,236,000
Contribution Margin.................. 30,337,000 10,414,000 40,751,000
</TABLE>
The reconciliation of contribution margin to net income (loss) is as follows:
<TABLE>
<CAPTION>
Period Ended
December 28, 1996 Fiscal 1997 Fiscal 1998
----------------- ------------ ------------
<S> <C> <C> <C>
Contribution margin............. $12,028,000 $ 35,548,000 $ 40,751,000
General and administrative
expense........................ (4,035,000) (16,192,000) (19,017,000)
Store closure provision......... -- (538,000) (7,303,000)
Depreciation and amortization... (2,344,000) (10,403,000) (19,820,000)
Interest expense................ (1,793,000) (7,584,000) (12,574,000)
Other expense, net.............. (1,895,000) (1,805,000) (1,180,000)
----------- ------------ ------------
Net income (loss)............... $ 1,961,000 $ (974,000) $(19,143,000)
=========== ============ ============
</TABLE>
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic International Domestic International
Company-owned Company-owned Franchising Franchising
Stores Stores and Licensing and Licensing
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue
Period ended December
28, 1996............... $ 40,849,000 $ -- $ 1,158,000 $109,000
Fiscal 1997............. 127,736,000 109,000 6,150,000 413,000
Fiscal 1998............. 140,018,000 217,000 13,738,000 263,000
</TABLE>
Revenues from international franchising and licensing are secured from Canada
and Australia with no other countries having material representation. Revenues
from international company-owned stores are immaterial.
There were no customers who accounted for more than 10% of Mrs. Fields' total
revenue or either segment's revenue.
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's obligation related to its $140,000,000 total principal amount
of Senior Notes due 2004 (see Note 3) is 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
F-35
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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-36
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $41,557 $ 559 $-- $-- $42,116
------- ----- ---- ---- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 19,492 -- -- -- 19,492
Cost of sales......... 10,596 -- -- -- 10,596
General and
administrative....... 3,871 146 18 -- 4,035
Depreciation and
amortization......... 2,027 317 -- -- 2,344
------- ----- ---- ---- -------
Total operating
costs and
expenses........... 35,986 463 18 -- 36,467
------- ----- ---- ---- -------
Income (loss) from
operations......... 5,571 96 (18) -- 5,649
INTEREST EXPENSE AND
OTHER, net............. (1,410) (383) -- -- (1,793)
------- ----- ---- ---- -------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 4,161 (287) (18) -- 3,856
PROVISION FOR INCOME
TAXES.................. (1,798) -- -- -- (1,798)
------- ----- ---- ---- -------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 2,363 (287) (18) -- 2,058
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (97) -- -- (97)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (402) -- -- 402 --
------- ----- ---- ---- -------
NET INCOME (LOSS)....... $ 1,961 $(384) $(18) $402 $ 1,961
======= ===== ==== ==== =======
</TABLE>
F-37
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES.. $ 6,990 $ 589 $ 30 $-- $ 7,609
-------- ------- ---- ---- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses.... (12,508) (7,000) -- -- (19,508)
Purchase of property
and equipment, net.. (1,622) (1) -- -- (1,623)
-------- ------- ---- ---- --------
Net cash used in
investing
activities........ (14,130) (7,001) -- -- (21,131)
-------- ------- ---- ---- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of common
stock............... 15,000 -- -- -- 15,000
Proceeds from the
issuance of
mandatorily
redeemable
cumulative preferred
stock of
subsidiary.......... -- 3,500 -- -- 3,500
Proceeds from the
issuance of note
payable............. -- 3,500 -- -- 3,500
Principal payments on
long-term debt...... (1,769) -- -- -- (1,769)
-------- ------- ---- ---- --------
Net cash provided by
financing
activities.......... 13,231 7,000 -- -- 20,231
-------- ------- ---- ---- --------
NET INCREASE IN CASH
AND CASH EQUIVALENTS.. 6,091 588 30 -- 6,709
CASH AND CASH
EQUIVALENTS, beginning
of period............. -- -- -- -- --
-------- ------- ---- ---- --------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 6,091 $ 588 $ 30 $-- $ 6,709
======== ======= ==== ==== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid........ $ 28 $ -- $-- $-- $ 28
</TABLE>
F-38
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 14,270 $ 725 $1,292 $ -- $ 16,287
Accounts receivable,
net.................. 1,388 -- 147 -- 1,535
Amounts due from (to)
franchisees and
licensees, net....... 1,517 659 -- -- 2,176
Inventories........... 3,094 -- 6 -- 3,100
Other current assets.. 6,593 (615) (253) -- 5,725
-------- ------- ------ -------- --------
Total current
assets............. 26,862 769 1,192 -- 28,823
PROPERTY AND EQUIPMENT,
net.................... 28,907 1 294 -- 29,202
INTANGIBLES, net........ 59,928 17,725 6,041 -- 83,694
INVESTMENT IN
SUBSIDIARIES........... 23,089 -- -- (23,089) --
OTHER ASSETS............ 7,902 -- 63 -- 7,965
-------- ------- ------ -------- --------
$146,688 $18,495 $7,590 $(23,089) $149,684
-------- ------- ------ -------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ -- $ -- $ 614 $ -- $ 614
Accounts payable...... 3,621 36 148 -- 3,805
Accrued liabilities... 10,499 25 747 -- 11,271
-------- ------- ------ -------- --------
Total current
liabilities........ 14,120 61 1,509 -- 15,690
LONG-TERM DEBT AND
CAPITAL
LEASE OBLIGATIONS, net
of current portion..... 100,000 -- 467 -- 100,467
OTHER ACCRUED
LIABILITIES............ 1,802 -- -- -- 1,802
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- -- 902 -- 902
MINORITY INTEREST....... -- -- -- 58 58
STOCKHOLDER'S EQUITY.... 30,766 18,434 4,712 (23,147) 30,765
-------- ------- ------ -------- --------
$146,688 $18,495 $7,590 $(23,089) $149,684
======== ======= ====== ======== ========
</TABLE>
F-39
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $125,991 $ 2,004 $7,077 $ (664) $134,408
-------- ------- ------ ------ --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 63,765 -- 3,731 (664) 66,832
Cost of sales......... 31,173 -- 855 -- 32,028
General and
administrative....... 14,215 1,066 911 -- 16,192
Store closure
provision............ 538 -- -- -- 538
Depreciation and
amortization......... 8,745 1,125 533 -- 10,403
-------- ------- ------ ------ --------
Total operating
costs and
expenses........... 118,436 2,191 6,030 (664) 125,993
-------- ------- ------ ------ --------
Income (loss) from
operations......... 7,555 (187) 1,047 -- 8,415
INTEREST EXPENSE AND
OTHER, net............. (6,329) (1,230) (393) -- (7,952)
-------- ------- ------ ------ --------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 1,226 (1,417) 654 -- 463
PROVISION FOR INCOME
TAXES.................. (535) (25) (95) -- (655)
-------- ------- ------ ------ --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 691 (1,442) 559 -- (192)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (338) (306) -- (644)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (1,665) -- -- 1,527 (138)
-------- ------- ------ ------ --------
NET INCOME (LOSS)....... $ (974) $(1,780) $ 253 $1,527 $ (974)
======== ======= ====== ====== ========
</TABLE>
F-40
<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-41
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
Accounts receivable,
net.................. 2,860 304 44 -- 3,208
Amounts due from
franchisees and
licensees, net....... 1,297 4,706 -- -- 6,003
Inventories........... 4,631 863 9 -- 5,503
Other current assets
and amounts due from
(to) affiliates,
net.................. 39,368 (33,898) (592) -- 4,878
-------- ------- ---- -------- --------
Total current
assets............. 51,695 (26,891) (461) -- 24,343
PROPERTY AND EQUIPMENT,
net.................... 29,900 1,654 243 -- 31,797
INTANGIBLES, net........ 75,875 95,601 320 -- 171,796
INVESTMENT IN
SUBSIDIARIES........... 66,484 -- -- (66,484) --
OTHER ASSETS............ 3,688 252 30 -- 3,970
-------- ------- ---- -------- --------
$227,642 $70,616 $132 $(66,484) $231,906
======== ======= ==== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 7,141 $ 1,204 $-- $ -- $ 8,345
Accounts payable...... 14,223 564 69 -- 14,856
Accrued liabilities... 10,956 2,895 18 -- 13,869
-------- ------- ---- -------- --------
Total current
liabilities........ 32,320 4,663 87 -- 37,070
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,367 216 61 -- 142,644
OTHER ACCRUED
LIABILITIES............ 10,134 -- -- -- 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,261 -- -- 1,261
MINORITY INTEREST....... -- -- -- 119 119
STOCKHOLDERS' EQUITY.... 42,821 64,476 (16) (66,603) 40,678
-------- ------- ---- -------- --------
$227,642 $70,616 $132 $(66,484) $231,906
======== ======= ==== ======== ========
</TABLE>
F-42
<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-43
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars In thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............. $(23,820) $ 33,382 $(133) $-- $ 9,429
-------- -------- ----- ---- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses..... (39,873) 7,038 -- -- (32,835)
Purchase of property
and equipment, net... (8,228) (7) -- -- (8,235)
Proceeds for asset
sales................ 176 -- -- -- 176
-------- -------- ----- ---- -------
Net cash (used in)
provided by
investing
activities......... (47,925) 7,031 -- -- (40,894)
-------- -------- ----- ---- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 39,400 -- -- -- 39,400
Payment of debt
financing costs...... (7,062) -- -- -- (7,062)
Equity infusion from
Mrs. Fields'
Holding.............. 29,056 -- -- -- 29,056
Principal payments on
long-term debt and
capital lease
obligations.......... (257) (41,000) -- -- (41,257)
Capital lease
repayments........... (123) -- -- -- (123)
Reduction in preferred
stock of Pretzel
Time................. -- (85) -- -- (85)
-------- -------- ----- ---- -------
Net cash provided by
(used in) financing
activities......... 61,014 (41,085) -- -- 19,929
-------- -------- ----- ---- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS....... (10,731) (672) (133) -- (11,536)
CASH AND CASH EQUIVA-
LENTS, beginning of pe-
riod................... 14,270 1,806 211 -- 16,287
-------- -------- ----- ---- -------
CASH AND CASH EQUIVA-
LENTS, end of Period... $ 3,539 $ 1,134 $ 78 $-- $ 4,751
======== ======== ===== ==== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMA-
TION:
Interest paid......... $ 12,405 $ 35 $ -- $-- $12,440
Taxes paid............ 141 68 -- -- 209
</TABLE>
F-44
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 7,767 $ 4,751
Accounts receivable, net of allowance for doubtful
accounts of $759 and $74, respectively............... 3,116 3,208
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $246 and $1,078,
respectively......................................... 4,484 6,003
Inventories........................................... 4,987 5,503
Prepaid rent and other................................ 3,682 4,017
Deferred income tax assets, current portion........... 771 861
-------- --------
Total current assets................................ 24,807 24,343
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................................ 33,815 29,914
Equipment and fixtures................................ 11,946 17,108
Land.................................................. 240 240
-------- --------
46,001 47,262
Less accumulated depreciation and amortization........ (17,394) (15,465)
-------- --------
Net property and equipment.......................... 28,607 31,797
-------- --------
DEFERRED INCOME TAX ASSETS, net of current portion...... 2,728 2,638
-------- --------
GOODWILL, net of accumulated amortization of $19,033 and
$11,231, respectively.................................. 135,711 145,782
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $3,560 and $2,615, respectively........ 13,451 14,296
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$2,958 and $1,320, respectively........................ 11,554 11,718
-------- --------
OTHER ASSETS............................................ 581 1,332
-------- --------
$217,439 $231,906
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
F-45
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft......................................... $ 8,171 $ 4,133
Current portion of long-term debt...................... 852 8,046
Current portion of capital lease obligations........... 822 299
Line of credit......................................... 1,400 --
Accounts payable....................................... 9,127 10,723
Accrued liabilities.................................... 3,576 3,597
Current portion of store closure reserve............... 5,269 4,577
Accrued salaries, wages and benefits................... 3,279 3,155
Accrued interest payable............................... 4,869 1,260
Sales taxes payable.................................... 510 962
Deferred income........................................ 183 318
-------- --------
Total current liabilities............................ 38,058 37,070
LONG-TERM DEBT, net of current portion................... 141,597 141,647
STORE CLOSURE RESERVE, net of current portion............ 4,887 10,134
CAPITAL LEASE OBLIGATIONS, net of current portion........ 1,768 997
-------- --------
Total liabilities.................................... 186,310 189,848
-------- --------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of PTI
(a wholly owned subsidiary), aggregate liquidation
preference of $1,182 and $1,495, respectively........... 1,182 1,261
-------- --------
MINORITY INTEREST........................................ 129 119
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized
and 400 shares outstanding............................ -- --
Additional paid-in capital............................. 61,899 59,899
Accumulated deficit.................................... (32,081) (19,221)
-------- --------
Total stockholder's equity........................... 29,818 40,678
-------- --------
$217,439 $231,906
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these balance sheets.
F-46
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
October 2, 1999 October 3, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
REVENUES:
Net store and food sales...................... $107,265 $92,850
Franchising, net.............................. 18,082 4,612
Licensing, net................................ 1,187 1,081
-------- -------
Total revenues............................... 126,534 98,543
-------- -------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs............. 60,340 52,357
Cost of sales................................. 32,455 24,172
General and administrative.................... 16,212 12,621
Depreciation and amortization................. 16,692 9,707
-------- -------
Total operating costs and expenses........... 125,699 98,857
-------- -------
Income (loss) from operations............... 835 (314)
-------- -------
OTHER INCOME (EXPENSE), net:
Interest expense.............................. (12,946) (8,981)
Interest income............................... 115 530
Other expense................................. (303) (256)
-------- -------
Total other expense, net..................... (13,134) (8,707)
-------- -------
Loss before provision for income taxes,
preferred stock accretion and dividends of
subsidiaries and minority interest......... (12,299) (9,021)
PROVISION FOR INCOME TAXES..................... (216) (68)
-------- -------
Loss before preferred stock accretion and
dividends of subsidiaries and minority
interest................................... (12,515) (9,089)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES.................................. (333) (333)
MINORITY INTEREST.............................. (12) (268)
-------- -------
Net loss.................................... $(12,860) $(9,690)
======== =======
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
F-47
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
October 2, 1999 October 3, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................... $(12,860) $ (9,690)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 16,692 9,707
Amortization of deferred loan costs.......... 1,638 658
Loss on sale of assets....................... 285 256
Preferred stock accretion and dividends of
subsidiaries................................ 333 333
Minority interest............................ 12 268
Changes in assets and liabilities:
Accounts receivable, net.................... 92 (361)
Amounts due from franchisees and licensees,
net........................................ 1,519 (1,624)
Inventories................................. 516 (127)
Prepaid rent and other...................... 335 1,306
Other assets................................ 751 (207)
Accounts payable and accrued liabilities.... (1,617) 356
Store closure reserve....................... (1,840) (1,892)
Accrued salaries, wages and benefits........ 124 (110)
Accrued interest payable.................... 3,722 2,886
Sales taxes payable......................... (452) (530)
Deferred income............................. (135) (553)
-------- --------
Net cash provided by operating activities.. 9,115 676
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition expenses........ (100) (28,699)
Purchase of property and equipment............ (3,401) (5,616)
-------- --------
Net cash used in investing activities...... (3,501) (34,315)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit.................. 1,400 --
Bank overdraft................................ 4,038 --
Proceeds from issuance of long-term debt...... -- 39,400
Reduction of long-term debt................... (5,244) (40,838)
Payment of debt financing costs............... (1,474) (5,007)
Proceeds from common stock infusion........... 29,056
Principal payments on capital lease
obligations.................................. (793) (49)
Reduction in preferred stock.................. (525) (64)
-------- --------
Net cash (used in) provided by financing
activities................................ (2,598) 22,498
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 3,016 (11,141)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD........................................ 4,751 16,287
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD........................................ $ 7,767 $ 5,146
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest....................... $ 12,946 $ 6,291
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
F-48
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Mrs. Fields' Original Cookies, Inc. and subsidiaries ("Mrs.
Fields") in accordance with the rules and regulations of the Securities and
Exchange Commission for Form 10-Q, and accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, these condensed consolidated financial statements
reflect all adjustments, which consist only of normal recurring adjustments
necessary to present fairly the financial position of Mrs. Fields as of October
2, 1999 and January 2, 1999, and the results of its operations and its cash
flows as of and for the periods presented herein. These unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
January 2, 1999 contained in Mrs. Fields' Annual Report on Form 10-K.
The results of operations for the 39 weeks ended October 2, 1999 are not
necessarily indicative of the results that may be expected for the remainder of
the fiscal year ending January 1, 2000. Loss per share is not presented as Mrs.
Fields is wholly owned by Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") and therefore, its shares are not publicly traded.
(2) RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's condensed
consolidated financial statements to conform with the current period's
presentation.
(3) PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma information presents a summary of the
consolidated results of operations of Mrs. Fields assuming the Great American,
Deblan, Chocolate Chip, Karp, Cookie Conglomerate and Pretzelmaker acquisitions
and related financings had occurred at the beginning of the 39 weeks ended
October 3, 1998. Pro forma adjustments have been made to give effect to
amortization of goodwill, interest expense on acquisition debt and certain
other adjustments. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisitions been consummated at the
beginning of the 39 weeks ended October 3, 1998 (in thousands).
<TABLE>
<CAPTION>
39 Weeks Ended
October 3,
1998
--------------
(Unaudited)
<S> <C> <C>
Total revenues....................................... $139,491
Income from operations............................... 1,269
Net loss............................................. (11,865)
</TABLE>
(4) STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
Mrs. Fields' 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. Mrs.
Fields' 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 Mrs. Fields' policy provides for the costs of closing
the store, which are predominantly estimated lease termination costs. Lease
termination
F-49
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. No operating losses are accrued for. If and when a reserve that was
established as part of purchase accounting is not fully utilized, Mrs. Fields
reduces the reserve to zero, and goodwill is adjusted for the corresponding
amount.
During the 39 weeks ended October 2, 1999, management updated an analysis of
the status of the store closure plans, by concept and by store, and recorded a
$2,163,000 reduction to the store closure reserve. The net reduction in the
reserve was recorded in connection with management's reassessment of the
estimated store closure costs. The adjustment to the reserve related only to
those stores that were originally planned to be exited at the time of a related
business combination. A net amount of $2,100,000 was offset as a reduction to
goodwill and a net amount of $63,000 was recorded as an offset to general and
administrative expenses in the accompanying unaudited condensed financial
statements.
F-50
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following table presents a summary of the activity in the store closure
reserve during the 39 weeks ended October 2, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie Co. H&M Pretzel Time Great American
------------------------- ---------------------------- ---------------------------- ----------------------------
Business Company- Company- Company- Company-
Combination Owned Business Owned Business Owned Business Owned
And Stores Combination and Stores Combination and Stores Combination and Stores
Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to Subsequent Unrelated to
Adjustments Acquisition Adjustments Acquisition Adjustments Acquisition Adjustments Acquisition
----------- ------------ --------------- ------------ --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
2, 1999......... $3,728,000 $4,674,000 $981,000 $367,000 $493,000 $264,000 $3,399,000 $305,000
Utilization for
the 39 weeks
Ended October 2,
1999............ (1,019,000) (789,000) -- (79,000) -- (48,000) (457,000) --
Decrease in
reserve for the
39 weeks ended
October 2,
1999............ (540,000) -- (212,000) -- (191,000) -- (852,000) --
---------- ---------- -------- -------- -------- -------- ---------- --------
Balance, October
2, 1999......... $2,169,000 $3,885,000 $769,000 $288,000 $302,000 $216,000 $2,090,000 $305,000
========== ========== ======== ======== ======== ======== ========== ========
<CAPTION>
Pretzelmaker Consolidated
--------------- ----------------------------------------
Company-
Business Owned
Business Combination Stores Total Business
Combination and and Unrelated Combinations
Subsequent Subsequent To and Company-
Adjustments Adjustments Acquisition Owned Stores
--------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Balance, January
2, 1999......... $500,000 $ 9,101,000 $5,610,000 $14,711,000
Utilization for
the 39 weeks
Ended October 2,
1999............ -- (1,476,000) (916,000) (2,392,000)
Decrease in
reserve for the
39 weeks ended
October 2,
1999............ (368,000) (2,163,000) -- (2,163,000)
--------------- ------------ ------------ --------------
Balance, October
2, 1999......... $132,000 $ 5,462,000 $4,694,000 $10,156,000
=============== ============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and
Original Cookie H&M Pretzel Time Great American Pretzelmaker Consolidated
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
2, 1999......... 23 36 6 7 3 -- 43 11 7 -- 82 54
Stores closed or
franchised for
the 39 weeks
ended October 2,
1999............ (14) (14) (4) (4) (3) -- (22) (1) (4) -- (47) (19)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, October
2, 1999......... 9 22 2 3 -- -- 21 10 3 -- 35 35
=== === === === === === === === === === === ===
</TABLE>
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 39 weeks ended October 2, 1999. This table does
not include a summary of activity for stores Mrs. Fields intends to close or
franchise that were not originally identified in connection with a business
combination.
F-51
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following table presents a summary of activity for stores Mrs. Fields
intends to close or franchise that were not originally identified to be closed
or franchised in connection with a business combination for the 39 weeks ended
October 2, 1999:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original Cookie 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>
Balance, January 2,
1999................... 28 14 2 1 3 1 4 -- 37 16
Stores closed or
franchised during the
39 weeks ended October
2, 1999................ (20) (7) (2) -- (1) (1) (2) -- (25) (8)
--------- --------- --- --- --- --- --- --- --- ---
Balance, October 2,
1999................... 8 7 -- 1 2 -- 2 -- 12 8
========= ========= === === === === === === === ===
</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 39 weeks ended October 2, 1999 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>
Balance, January 2,
1999................... $ 3,844,000 $1,380,000 $ 2,877,000 $ 327,000 $ 8,428,000
Utilization for the 39
weeks ended October 2,
1999 related to stores
to be closed........... (1,137,000) (405,000) (1,190,000) (157,000) (2,889,000)
Utilization for the 39
weeks ended October 2,
1999 related to stores
to be franchised....... (694,000) (332,000) (5,000) -- (1,031,000)
----------- ---------- ----------- --------- -----------
Balance, October 2,
1999................... $ 2,013,000 $ 643,000 $ 1,682,000 $ 170,000 $ 4,508,000
=========== ========== =========== ========= ===========
</TABLE>
(5) REPORTABLE SEGMENTS
Management evaluates performance at Mrs. Fields using two reportable
operating segments; namely, (1) company-owned stores and related activity and
(2) franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise fee and monthly royalties based on a percentage of gross
sales and other licensing activity not related to cookie or pretzel stores.
Sales and transfers between segments are eliminated in consolidation.
Mrs. Fields evaluates performance of each segment based on contribution
margin. Contribution margin is computed as the difference between the revenues
generated by a reportable segment and the selling and store occupancy costs and
cost of sales related to that reportable segment. It is used as a measure of
the operating performance of an operating segment. Mrs. Fields does not
allocate any general and administrative expense,
F-52
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
other income (expense), interest expense, depreciation and amortization of
assets to its reportable operating segments. Segment revenue and contribution
margin are presented in the following table (in thousands).
<TABLE>
<CAPTION>
Company- Franchising
owned Stores and Licensing Total
------------ ------------- --------
<S> <C> <C> <C>
39 weeks ended October 2, 1999
Total revenues.......................... $107,265 $19,269 $126,534
Contribution margin..................... 22,119 11,620 33,739
39 weeks ended October 3, 1998
Total revenues.......................... $ 92,850 $ 5,693 $ 98,543
Contribution margin..................... 16,321 5,693 22,014
</TABLE>
The reconciliation of contribution margin to net loss is as follows (in
thousands):
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
October 2, 1999 October 3, 1998
--------------- ---------------
<S> <C> <C>
Contribution margin.......................... $ 33,739 $ 22,014
General and administrative expense........... (16,212) (12,621)
Depreciation and amortization................ (16,692) (9,707)
Interest expense............................. (12,946) (8,981)
Other income (expense), net.................. (749) (395)
-------- --------
Net loss..................................... $(12,860) $ (9,690)
======== ========
</TABLE>
Geographic segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Domestic International Domestic International
Company- Company- Franchising and Franchising
Total revenues owned Stores owned Stores Licensing and Licensing
-------------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C>
39 weeks ended October
2, 1999................ $107,244 $ 21 $18,980 $289
39 weeks ended October
3, 1998................ 92,716 134 5,231 462
</TABLE>
Revenues from international franchising and licensing are generated from
Canada and Australia with no other countries having material representation.
Revenues from international company-owned stores are immaterial. As of October
2, 1999 there are no remaining international company-owned stores.
There were no customers who accounted for more than 10% of Mrs. Fields' total
revenues or either segment's revenues.
F-53
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(6) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Mrs. Fields' obligation related to its $140,000,000 aggregate principal
amount of 10 1/8 percent Series A, B and C Senior Notes due 2004 is fully and
unconditionally guaranteed (the "Guarantee") on a senior basis by four of Mrs.
Fields' wholly owned subsidiaries. The Guarantee is a general unsecured
obligation of The Mrs. Fields' Brand, Inc., Great American Cookies, Inc.,
Pretzel Time, Inc. and Pretzelmaker Holdings, Inc. (the "Guarantors"), rank
senior in right of payment to all subordinated indebtedness of the Guarantors
and rank equal in right of payment with all existing and future senior
indebtedness of the Guarantors. There are no restrictions on Mrs. Fields'
ability to obtain cash dividends or other distributions of funds from the
Guarantors, except those imposed by applicable law. The following supplemental
financial information sets forth, on a condensed consolidating basis, balance
sheets, statements of operations and statements of cash flows for Mrs. Fields'
Original Cookies, Inc. (the "Parent Company"), the Guarantor Subsidiaries and
the Non-guarantor Subsidiaries (which include Mrs. Fields' Cookies Australia,
Mrs. Fields' Cookies (Canada) Ltd., H & M Canada, and Fairfield Foods, Inc. and
three partially owned subsidiaries). Mrs. Fields has not presented separate
financial statements and other disclosures concerning the Guarantors because
management has determined that such information is not material.
F-54
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 5,748 $ 1,756 $263 $ $ 7,767
Accounts receivable,
net.................. 2,651 62 (1) 2,712
Amounts due from
franchisees and
licensees, net....... 873 3,611 4,484
Inventories........... 3,808 1,173 6 4,987
Other current assets
and amounts due from
(to) affiliates,
net.................. 20,310 (14,665) (788) 4,857
-------- -------- ---- -------- --------
Total current
assets............. 33,390 (8,063) (520) 24,807
PROPERTY AND EQUIPMENT,
net.................... 26,865 1,562 180 28,607
INTANGIBLES, net........ 77,261 83,167 288 160,716
INVESTMENT IN
SUBSIDIARIES........... 64,926 (64,926)
OTHER ASSETS............ 3,150 126 33 3,309
-------- -------- ---- -------- --------
$205,592 $ 76,792 $(19) $(64,926) $217,439
======== ======== ==== ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 1,387 $ 287 $ $ $ 1,674
Accounts payable...... 15,600 1,712 (14) 17,298
Accrued liabilities... 17,142 1,934 10 19,086
-------- -------- ---- -------- --------
Total current
liabilities........ 34,129 3,933 (4) 38,058
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 143,365 143,365
OTHER ACCRUED
LIABILITIES............ 4,887 4,887
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. 1,182 1,182
MINORITY INTEREST....... 129 129
STOCKHOLDER'S EQUITY
(DEFICIT).............. 23,211 71,677 (144) (64,926) 29,818
-------- -------- ---- -------- --------
$205,592 $ 76,792 $(19) $(64,926) $217,439
======== ======== ==== ======== ========
</TABLE>
F-55
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES.......... $111,190 $ 19,494 $ 360 $ (4,510) $ 126,534
-------- -------- ----- -------- ---------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 61,145 162 (967) 60,340
Cost of sales......... 29,170 6,775 53 (3,543) 32,455
General and
administrative....... 16,057 29 126 16,212
Depreciation and
amortization......... 11,694 4,998 16,692
-------- -------- ----- -------- ---------
Total operating
costs and
expenses........... 118,066 11,802 341 (4,510) 125,699
-------- -------- ----- -------- ---------
Income (loss) from
operations......... (6,876) 7,692 19 835
INTEREST EXPENSE AND
OTHER, net............. (12,975) (159) (13,134)
-------- -------- ----- -------- ---------
(Loss) income before
provision for income
taxes and equity in
net loss of
consolidated
subsidiaries......... (19,851) 7,533 19 (12,299)
PROVISION FOR INCOME
TAXES.................. (216) (216)
-------- -------- ----- -------- ---------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... (20,067) 7,533 19 (12,515)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ (333) (333)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... 7,219 (7,231) (12)
-------- -------- ----- -------- ---------
NET (LOSS) INCOME....... $(12,848) $ 7,200 $ 19 $ (7,231) $ (12,860)
======== ======== ===== ======== =========
</TABLE>
F-56
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 39 WEEKS ENDED OCTOBER 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............ $ 6,369 $ 2,561 $185 $ $9,115
------- ------- ---- --- ------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions........ (100) (100)
Purchase of property
and equipment, net.. (3,145) (256) (3,401)
------- ------- ---- --- ------
Net cash used in
investing
activities........ (3,245) (256) (3,501)
------- ------- ---- --- ------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowing on line of
credit.............. 1,400 1,400
Bank overdraft....... 4,038 4,038
Reduction of long-
term debt and
capital lease
obligations......... (4,904) (1,133) (6,037)
Payment of debt
financing fees...... (1,449) (25) (1,474)
Reduction in
preferred stock..... (525) (525)
------- ------- ---- --- ------
Net cash used in
financing
activities........ (915) (1,683) (2,598)
------- ------- ---- --- ------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 2,209 622 185 3,016
CASH AND CASH
EQUIVALENTS, beginning
of the period......... 3,539 1,134 78 4,751
------- ------- ---- --- ------
CASH AND CASH
EQUIVALENTS, end of
the period............ $ 5,748 $ 1,756 $263 $ $7,767
======= ======= ==== === ======
</TABLE>
F-57
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 3,539 $ 1,134 $ 78 $ $ 4,751
Accounts receivable,
net.................. 2,860 304 44 3,208
Amounts due from
franchisees and
licensees, net....... 1,297 4,706 6,003
Inventories........... 4,631 863 9 5,503
Other current assets
and amounts due from
(to) affiliates,
net.................. 39,368 (33,898) (592) 4,878
-------- -------- ----- -------- --------
Total current
assets............. 51,695 (26,891) (461) 24,343
PROPERTY AND EQUIPMENT,
net.................... 29,900 1,654 243 31,797
INTANGIBLES, net........ 75,875 95,601 320 171,796
INVESTMENT IN
SUBSIDIARIES........... 66,484 (66,484)
OTHER ASSETS............ 3,688 252 30 3,970
-------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
======== ======== ===== ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 7,141 $ 1,204 $ $ $ 8,345
Accounts payable...... 14,223 564 69 14,856
Accrued liabilities... 10,956 2,895 18 13,869
-------- -------- ----- -------- --------
Total current
liabilities........ 32,320 4,663 87 37,070
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,367 216 61 142,644
OTHER ACCRUED
LIABILITIES............ 10,134 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. 1,261 1,261
MINORITY INTEREST....... 119 119
STOCKHOLDER'S EQUITY
(DEFICIT).............. 42,821 64,476 (16) (66,603) 40,678
-------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
======== ======== ===== ======== ========
</TABLE>
F-58
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $ 93,926 $ 3,194 $ 2,842 $ (1,419) $ 98,543
-------- ------- ------- -------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 53,096 251 (990) 52,357
Food cost of sales.... 23,780 748 73 (429) 24,172
General and
administrative....... 10,692 812 1,117 12,621
Depreciation and
amortization......... 8,073 1,285 349 9,707
-------- ------- ------- -------- --------
Total operating
costs and
expenses........... 95,641 2,845 1,790 (1,419) 98,857
-------- ------- ------- -------- --------
(Loss) income from
operations......... (1,715) 349 1,052 (314)
INTEREST EXPENSE AND
OTHER, net............. (8,733) 18 8 (8,707)
-------- ------- ------- -------- --------
(Loss) income before
provision for income
taxes and equity in
net loss of
consolidated
subsidiaries......... (10,448) 367 1,060 (9,021)
PROVISION FOR INCOME
TAXES.................. (68) (68)
-------- ------- ------- -------- --------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... (10,516) 367 1,060 (9,089)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ (333) (333)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... 1,094 (1,362) (268)
-------- ------- ------- -------- --------
NET (LOSS) INCOME....... $ (9,422) $ 367 $ 727 $ (1,362) $ (9,690)
======== ======= ======= ======== ========
</TABLE>
F-59
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
--------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH (USED IN)
PROVIDED BY OPERATING
ACTIVITIES............. $ (37,783) $ 37,954 $ 505 $ -- $ 676
--------- -------- ------- ---- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions......... (35,656) 6,957 (28,699)
Purchase of property
and equipment,
net................ (5,609) (7) (5,616)
--------- -------- ------- ---- -------
Net cash (used in)
provided by
investing
activities......... (41,265) 6,957 (7) (34,315)
--------- -------- ------- ---- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 39,400 39,400
Payment of debt
financing costs...... (5,007) (5,007)
Equity from MFH..... 29,056 29,056
Reduction of long-
term debt and
capital lease
obligations........ (49) (40,522) (316) (40,887)
Reduction in
preferred stock.... (64) (64)
--------- -------- ------- ---- -------
Net cash provided by
(used in) financing
activities............. 63,400 (40,522) (380) 22,498
--------- -------- ------- ---- -------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ (15,648) 4,389 118 (11,141)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 14,270 725 1,292 16,287
--------- -------- ------- ---- -------
CASH AND CASH
EQUIVALENTS, end of
period................. $ (1,378) $ 5,114 $ 1,410 $ $ 5,146
========= ======== ======= ==== =======
</TABLE>
F-60
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields Inc.:
We have audited the accompanying consolidated balance sheet of Mrs. Fields
Inc. (a Delaware corporation) and subsidiaries as of September 17, 1996, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the period from December 31, 1995 to September 17, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mrs. Fields
Inc. and subsidiaries as of September 17, 1996, and the results of their
operations and their cash flows for the period from December 31, 1995 to
September 17, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
June 27, 1997
F-61
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Mrs. Fields Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of Mrs. Fields Inc. and subsidiaries for
the year ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Mrs. Fields Inc.
and subsidiaries for the year ended December 30, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Salt Lake City, Utah
February 9, 1996
F-62
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,883
Accounts receivable, net of allowance for doubtful accounts of
$269.......................................................... 1,611
Inventories.................................................... 1,296
Prepaid rent................................................... 420
Other prepaid expenses......................................... 1,042
--------
Total current assets......................................... 6,252
--------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements......................................... 23,223
Equipment and fixtures......................................... 18,422
--------
41,645
Less accumulated depreciation and amortization................. (29,409)
--------
Net property and equipment................................... 12,236
--------
DEPOSITS......................................................... 656
--------
Total assets..................................................... $ 19,144
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
F-63
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
CURRENT LIABILITIES:
Notes payable.................................................. $ 18,352
Premium on restructured debt................................... 2,872
Accounts payable............................................... 3,708
Accrued liabilities............................................ 1,329
Current portion of store closure reserve....................... 1,270
Current portion of deferred credits............................ 425
---------
Total current liabilities.................................... 27,956
STORE CLOSURE RESERVE, net of current portion.................... 294
DEFERRED CREDITS, net of current portion......................... 1,212
---------
Total liabilities............................................ 29,462
---------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 8)
MINORITY INTEREST IN MAJORITY OWNED SUBSIDIARY:
20,000,000 cumulative preferred stock; involuntary liquidation
preference of $24,834, including $4,834 of unrecorded
dividends in arrears.......................................... 20,000
---------
STOCKHOLDERS' DEFICIT:
Cumulative preferred stock, $.001 par value; 21,885,000 shares
authorized and issued, involuntary liquidation preference of
$32,085, including $10,200 of unrecorded dividends in
arrears....................................................... 22
Common stock, $.001 par value; 200,000,000 shares authorized
and outstanding............................................... 200
Additional paid-in capital..................................... 83,863
Accumulated deficit............................................ (114,371)
Cumulative translation adjustment.............................. (32)
---------
Total stockholders' deficit.................................. (30,318)
---------
Total liabilities and stockholders' deficit.................. $ 19,144
=========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet
F-64
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Period Ended
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
REVENUES:
Net store sales.................................... $59,956 $29,674
Net franchising.................................... 1,870 1,793
Net licensing...................................... 2,031 892
Net other.......................................... 2,092 1,101
------- -------
Total revenues................................... 65,949 33,460
------- -------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................. 36,965 17,782
Food cost of sales................................. 13,373 6,525
General and administrative......................... 12,612 7,984
Depreciation and amortization...................... 3,525 1,911
Provision for store closure costs.................. 3,000 1,000
------- -------
Total operating costs and expenses............... 69,475 35,202
------- -------
Loss from operations............................. (3,526) (1,742)
INTEREST EXPENSE..................................... (51) (80)
(LOSS) GAIN ON SALE OF ASSETS........................ 1,450 (277)
------- -------
Loss before provision for income taxes........... (2,127) (2,099)
PROVISION FOR INCOME TAXES........................... (241) (205)
------- -------
Net loss......................................... $(2,368) $(2,304)
======= =======
</TABLE>
The accompany notes to consolidated financial statements are an integral part
of these statements.
F-65
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock Additional Cumulative
----------------- ------------------ Paid-in Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
---------- ------ ----------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995................... 21,885,000 $22 200,000,000 $200 $83,863 $(109,699) $195 $(25,419)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (230) (230)
Net loss............... -- -- -- -- -- (2,368) -- (2,368)
---------- --- ----------- ---- ------- --------- ---- --------
BALANCE, December 30,
1995................... 21,885,000 22 200,000,000 200 83,863 (112,067) (35) (28,017)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- 3 3
Net loss............... -- -- -- -- -- (2,304) -- (2,304)
---------- --- ----------- ---- ------- --------- ---- --------
BALANCE, September 17,
1996................... 21,885,000 $22 200,000,000 $200 $83,863 $(114,371) $(32) $(30,318)
========== === =========== ==== ======= ========= ==== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-66
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended Period Ended
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(2,368) $(2,304)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 3,525 1,911
Amortization of premium on restructured debt.... -- (1,541)
In-kind expense on note payable................. (1,610) 1,598
Provision for store closure costs............... 3,000 1,000
Net loss (gain) on asset sales, disposals and
store closures................................. (1,450) 277
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable.... (163) 2,039
Decrease in inventories....................... 853 267
Increase in prepaid rent...................... -- (420)
Increase in other prepaid expenses............ (337) (673)
Increase in deposits.......................... -- (15)
Decrease in accounts payable and accrued
liabilities.................................. (5,821) (194)
Decrease in store closure reserve............. -- (1,696)
Decrease in deferred credits.................. (107) (696)
------- -------
Net cash used in operating activities....... (4,478) (447)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................ (4,146) (1,054)
Proceeds from the sale of assets.................. 6,672 669
------- -------
Net cash provided by (used in) investing
activities................................. 2,526 (385)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable............... (145) (58)
Payments for debt restructuring................... (40) --
------- -------
Net cash used in financing activities....... (185) (58)
------- -------
EFFECT OF FOREIGN EXCHANGE RATES.................... -- 3
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS........... (2,137) (887)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD............................................. 4,907 2,770
------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD...... $ 2,770 $ 1,883
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-67
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in Thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $1,661 and $24 for the year ended
December 30, 1995 and for the period ended September 17, 1996, respectively.
Cash paid for income taxes was approximately $128 and $39 for the year ended
December 30, 1995 and for the period ended September 17, 1996, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
During the year ended December 30, 1995 and the period ended September 17,
1996, the Company, in accordance with the Amended and Restated Restructuring
Agreement, entered into the following noncash financing activities:
. The Company converted accrued interest payable incurred from January 1,
1995 through March 31, 1995 and from July 1, 1994 through December 31,
1994 into approximately $520 and $1,000 of Series A interest deferral
notes, respectively. In addition, the Company amortized approximately
$2,100 of its premium on restructured debt as a reduction to interest
expense during the year ended December 30, 1995.
. The Company converted accrued interest payable from December 31, 1995
through September 17, 1996 into $1,598 of 15 percent interest bearing
Series A interest deferral notes.
During the year ended December 30, 1995 and for the period ended September
17, 1996, the Company entered into the following noncash investing and
financing activities:
. In accordance with the Company's franchise financing arrangement, the
Company assumed long-term debt of franchisees which was in default
totaling approximately $132 and $0 during the year ended December 30,
1995 and the period ended September 17, 1996, respectively.
. In connection with its sale of several cookie stores, the Company
accepted notes receivable in the approximate amount of $305 during the
year ended December 30, 1995. In addition, during the year ended
December 30, 1995 and the period ended September 17, 1996, the Company
charged off approximately $1,960 and $651 of assets against accrued
expenses.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-68
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Mrs. Fields Inc. ("MFI"), a Delaware corporation, was incorporated on May 2,
1986 and is a holding company for its wholly owned subsidiaries Mrs. Fields
Cookies Australia, Mrs. Fields Cookies, Ltd. (Canada) plus other inactive
subsidiaries (collectively termed "Mrs. Fields International") and its majority
owned subsidiary, Mrs. Fields Development Corporation ("MFD") and MFD's wholly
owned subsidiary, Mrs. Fields Cookies ("MFC"). Collectively, these entities are
referred to in this prospectus as the "Company".
Nature of Operations
The most significant part of the Company's operations are its retail stores
which sell freshly baked cookies, brownies and other food products. As of
September 17, 1996, the Company operates 147 "Mrs. Fields Cookies" stores all
of which are located in the United States. Additionally, the Company has
franchised approximately 163 stores in the United States and approximately 55
stores in nine other countries.
Additionally, the Company holds legal title to certain trademarks for the
"Mrs. Fields" name and logo, and licenses the use of these trademarks to third
parties for the establishment and operation of Mrs. Fields cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, the Company authorizes third-party licensees to use
certain business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company usually experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
somewhat dependent on the performance of those malls. The results for the
period ended September 17, 1996 presented in the accompanying consolidated
financial statements may not be indicative of results that would have been
achieved for an entire calendar year.
Effective September 18, 1996, the Company sold substantially all of its net
assets to Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc.
(see Note 11). Subsequently, the Company has been solely involved in
liquidating remaining assets and collecting certain outstanding notes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of MFI, Mrs.
Fields International, MFD and MFC. All significant intercompany balances and
transactions have been eliminated in consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
three suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and
F-69
<PAGE>
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
September 17, 1996 and at various times during the period then ended, the
Company had demand deposits at various banks in excess of the $100,000 limit
for insurance by the Federal Deposit Insurance Corporation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventory consisted of the following at September 17, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Food and beverages............................................. $ 792,000
Smallwares..................................................... 504,000
----------
$1,296,000
==========
</TABLE>
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are included in the determination of net
income or loss.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an
asset may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable. As of September 17, 1996, the
Company has reserved for any of its long-lived assets that are considered to be
impaired.
Revenue Recognition
The Company recognizes franchising and licensing revenues on an accrual basis
as those revenues are earned. Product sales are recognized as the product is
delivered or shipped to the customer.
F-70
<PAGE>
Leases
The Company has various operating lease commitments on both Company-owned and
franchised store locations and equipment. Operating leases with escalating
payment terms, including leases underlying subleases with franchisees, are
expensed on a straight-line basis over the life of the related lease.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Fair Value of Financial Instruments
The notes payable and cumulative preferred stock (see Note 6) are presented
in the accompanying consolidated balance sheet at a total of $60,237,000 as of
September 17, 1996. All such obligations were subsequently settled in two sales
transactions (see Note 11) for $41,800,000.
Cumulative Foreign Currency Translation Adjustment
The assets and liabilities of foreign operations are translated into United
States dollars using exchange rates in effect at the end of the accounting
period. Revenues and expenses are translated using the average exchange rate
during the period. Differences in exchange rates arising from foreign currency
translation are recorded as a separate component of stockholders' deficit. In
connection with a sale or liquidation of an investment in a foreign subsidiary,
the accumulated translation adjustment attributable to that subsidiary is
transferred from stockholders' deficit and is reported as a gain or loss.
3. NOTES PAYABLE
On June 30, 1994, the Company entered into the Amended and Restated
Restructuring Agreement (the "Restructuring Agreement") with its lenders of
long-term debt (the "Lenders"). In connection with the Restructuring Agreement,
the Lenders exchanged approximately $56,900,000 of existing long-term notes
payable for $15,000,000 of new Series A secured notes, 51,292,000 shares of the
Company's common stock, 21,885,000 shares of cumulative preferred stock of MFI
and 20,000,000 shares of cumulative preferred stock of MFD.
After the issuances of common stock, the Lenders' total ownership interest in
the Company's common stock was approximately 85 percent. Because the total
estimated future cash payments (including interest and principal) required as
of June 30, 1994 under the terms of the new Series A secured notes was less
than the principal amount plus the previous carrying amount of the unamortized
premium on restructured debt by approximately $25,200,000, the Company reduced
the premium on restructured debt by that amount. The remaining unamortized
premium on restructured debt is being amortized over the life of the Series A
secured notes to produce an effective interest rate of zero percent.
Notes payable consist of the following as of September 17, 1996:
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Series A secured notes, interest at 13 percent, payable
quarterly, secured by all common stock and essentially all
assets of the Company, principal due in varying installments
through March 31, 1998...................................... $15,000,000
Series A interest deferral notes, interest at 13 percent,
payable quarterly, secured by all common stock and
essentially all assets of the Company, principal due March
31, 1998.................................................... 1,511,000
</TABLE>
F-71
<PAGE>
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Series A interest deferral notes, interest at 15 percent,
secured by all common stock and essentially all assets of
the Company, principal and interest originally due August
15, 1996, subsequently extended through September 20, 1996.. 1,598,000
Other........................................................ 243,000
Premium on restructured debt................................. 2,872,000
21,224,000
Less current portion......................................... (21,224,000)
------------
$ --
============
</TABLE>
The Series A secured notes and the Series A interest deferral notes were paid
by the Company on September 20, 1996 in connection with the receipt of proceeds
from two simultaneous but separate asset sale transactions (see Note 11). As a
result, all of the Series A notes referred to above are reflected as current
liabilities in the accompanying September 17, 1996 consolidated balance sheet.
4. INCOME TAXES
The components of the provision (benefit) for income taxes for the year ended
December 30, 1995 and for the period ended September 17, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -----------
<S> <C> <C>
Current:
Federal.............................................. $ -- $ --
State................................................ 241,000 205,000
Deferred:
Federal.............................................. -- (1,125,000)
State................................................ -- (109,000)
Change in valuation allowance........................ -- 1,234,000
-------- -----------
Total provision for income taxes................... $241,000 $ 205,000
======== ===========
</TABLE>
The Company incurred financial reporting losses for the year ended December
30, 1995 and for the period ended September 17, 1996 for which no benefits have
been recorded in the accompanying consolidated statements of operations due to
appropriate valuation allowances being provided. The provisions for income
taxes are solely related to minimum state income tax requirements.
Current deferred income tax assets relate to temporary differences between
financial statement and income tax recognition of bad debts, unearned revenues,
and the store closure reserve. Long-term deferred income tax assets relate to
temporary differences between financial statement and income tax recognition of
depreciation and write-downs of certain property and equipment, net operating
losses and other income tax credit carryforwards.
Management has provided a valuation allowance equal to the amount of the
deferred income tax assets arising from the Company's net operating loss
carryforwards. As of September 17, 1996, the Company had net operating loss
carryforwards for tax reporting purposes totaling approximately $90,900,000.
These net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2001.......................................................... $ 214,000
2002.......................................................... 4,600,000
2003.......................................................... 19,993,000
2004.......................................................... 7,693,000
2005.......................................................... 9,143,000
</TABLE>
F-72
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
Thereafter (through 2011)................................... 49,257,000
-----------
$90,900,000
===========
</TABLE>
Subsequent to the sale of substantially all of its assets (see Note 1), the
Company utilized certain of its net operating loss carryforwards to offset the
related gain. The remainder of the net operating loss carryforwards may not be
used.
5. STORE CLOSURE RESERVE
As of December 30, 1995, the Company had a store closure reserve of
approximately $2,510,000 for the anticipated costs to franchise or close 26
stores during 1996. During the period from December 31, 1995 to September 17,
1996, the Company closed 12 stores and provided for additional store closure
expenses totaling $1,000,000. As of September 17, 1996, the remaining store
closure reserve totaled approximately $1,564,000, of which approximately
$1,270,000 is current and approximately $294,000 is long-term. In management's
opinion, the store closure reserve is adequate for stores identified to be
closed.
The Company's management reviews the historic and projected operating
performance of its stores on an annual basis to identify underperforming stores
for impairment of property investment or targeted closing. The Company's policy
is to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. When a store is
identified for targeted closing, the Company's policy is to provide for the
costs of closing the store, which are predominantly estimated lease settlement
costs.
6. CUMULATIVE PREFERRED STOCK
In connection with the Restructuring Agreement, the Company issued 21,885,000
and 20,000,000 shares of cumulative preferred stock of MFI and MFD,
respectively. The MFD preferred stock is reflected as "minority interest in
majority owned subsidiary" in the accompanying consolidated balance sheet. The
MFI and MFD cumulative preferred stocks have dividend rates of 18 percent and
10 percent, respectively, which accumulate on a semi-annual basis. The
dividends are computed based upon the liquidation preference rates which are
defined in the Restructuring Agreement as $1.00 per share plus any unrecorded
dividends in arrears for each issue and are payable only as declared by the
Board of Directors. As of September 17, 1996, the Board of Directors had not
declared dividends for either series of preferred stock. Accordingly, dividends
in arrears on the MFI and MFD preferred stocks which have not been recorded in
the accompanying consolidated financial statements as of September 17, 1996
totaled $10,200,000 and $4,834,000, respectively.
In the event of liquidation or dissolution of the Company, the holders of the
cumulative preferred stocks of MFI and MFD will be entitled to receive from the
assets of the Company available for distribution prior to any distribution to
common stockholders an amount per share equal to the sum of (i) $1.00 for each
outstanding preferred share and (ii) an amount equal to all unpaid dividends on
such preferred shares through the distribution date. As of September 17, 1996,
the distribution preference for the MFI and MFD preferred stockholders totaled
$32,085,000 and $24,834,000, respectively. Also, if a change in control of the
Company occurs, preferred stockholders shall have the right to convert all (but
not less than all) of their preferred shares into notes payable in an amount
equal to the liquidation preference value of their preferred shares. The
Company also has the right at any time to redeem shares of the MFI and MFD
preferred stocks at a price of $1.00 per share plus all accrued but unpaid
dividends through the date of redemption.
Subsequent to period end, the Company completed two sales transactions (see
Note 11) wherein all of the cumulative preferred stock was redeemed at a
discount.
F-73
<PAGE>
7. OPTION AGREEMENT
As part of the Restructuring Agreement, the Lenders granted two directors an
option to acquire common stock from the Lenders which, if the option was
exercised as of September 17, 1996, would constitute approximately 51 percent
of the Company's issued common stock. The option is exercisable through
September 30, 1999 in whole, but not in part, at a price approximating the
amount of debt forgiven by the Lenders plus interest at nine percent from the
date of the grant of the option. In the event the option is exercised, the
directors are also required to offer other minority stockholders the same price
per share for their common stock.
In connection with the two sales transactions described in Note 11, the two
directors waived their options to acquire common stock from the Lenders.
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of September 17, 1996, management, after
consultation with legal counsel, believes that the potential liability to the
Company under such actions is adequately accrued or insured for, or will not
materially affect the Company's consolidated financial position or results of
operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to 10 years. The future minimum lease payments due under these operating
leases, which include required lease payments for those stores that have been
subleased, as of September 17, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997.......................................................... $12,395,000
1998.......................................................... 10,684,000
1999.......................................................... 8,376,000
2000.......................................................... 5,737,000
2001.......................................................... 3,757,000
Thereafter.................................................... 4,855,000
-----------
$45,804,000
===========
</TABLE>
Certain of the leases provide for contingent rentals based on gross revenues.
Total rental expense including contingent rentals and net of sublease rentals
received, under the above operating leases for the year ended December 30, 1995
and for the period ended September 17, 1996 was approximately $13,697,000 and
$7,405,000, respectively. As part of the Company's franchising program, certain
leases have been subleased to franchisees. The future minimum sublease payments
due to the Company under these leases as of September 17, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997.......................................................... $ 3,741,000
1998.......................................................... 3,119,000
1999.......................................................... 2,512,000
2000.......................................................... 1,776,000
2001.......................................................... 1,038,000
Thereafter.................................................... 374,000
-----------
$12,560,000
===========
</TABLE>
F-74
<PAGE>
Contractual Arrangements
The Company has entered into a supply agreement to buy frozen dough products
through 1998. The agreement stipulates minimum annual purchase commitments for
1997 and 1998. The Company and the supplier may terminate the supply agreement
if the other party defaults on any of the performance covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at September 17, 1996 were approximately $707,400. Under the
terms of the agreement, the Company is required to assume any franchisee
borrowings which are in default as defined. As of September 17, 1996, the
Company has assumed loans totaling approximately $240,000, which are included
in notes payable.
As of December 30, 1995, the Company had recorded deferred credits,
representing vendor rebates, of approximately $1,486,000 under a long-term
marketing and supply agreement with a supplier. Under the terms of the
agreement, the Company was obligated to purchase a minimum amount of product
from the supplier. The supplier periodically prepays rebates to the Company for
anticipated purchases. The Company records the prepayments as deferred credits
and amortizes them ratably as purchases are made from the supplier. In April
1996, the Company and the supplier renegotiated the agreement whereby the
supplier would reduce the unearned portion of the deferred credits to $504,000
and advance the Company a rebate of $800,000 in exchange for an extension of
the termination date and a modification of the purchase commitment. The
termination date of the renegotiated agreement will be the later of March 31,
2001 or when the Company has met its purchase commitment. The Company reduced
food costs by approximately $1,082,000 during the period ended September 17,
1996 related to this arrangement and its renegotiation. The remaining balance
of approximately $1,204,000 is included in deferred credits as of September 17,
1996.
9. RELATED-PARTY TRANSACTIONS
Under the terms of a licensing agreement with an entity which is owned in
part by a former director of the Company, the Company is required to pay an
annual software maintenance fee. During the year ended December 30, 1995 and
for the period ended September 17, 1996, the Company paid maintenance fees of
approximately $100,000 and $17,000, respectively, which are included in general
and administrative expenses.
The Company leases certain office space to an entity which is owned in part
by a former director of the Company. Billings to the entity during the year
ended December 30, 1995 and the period ended September 17, 1996 totaled
approximately $152,000 and $136,000, respectively, of which approximately
$9,000 is included in accounts receivable as of September 17, 1996.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields 401(k) Plan (the "Plan") for all
eligible employees. Under the terms of the Plan, employees can make
contributions to the Plan, a portion of which is matched by contributions from
the Company. The total Company contributions to the Plan for the year ended
December 30, 1995 and for the period ended September 17, 1996 were
approximately $42,000 and $23,000, respectively.
11. SUBSEQUENT EVENT
On September 17, 1996, the Company completed two simultaneous but separate
asset sale transactions wherein the Company (i) sold certain assets and
relinquished certain liabilities of the Company in accordance with an Asset
Purchase Agreement dated August 7, 1996, among the Company, Mrs. Fields'
Original Cookies, Inc. and Capricorn Investors II, L.P., and (ii) sold certain
assets of the Company in accordance with an Asset Purchase Agreement dated
August 7, 1996, as amended by the First Amendment dated as of September 17,
1996, among the Company, The Mrs. Fields' Brand, Inc. and Capricorn Investors
II, L.P.
The combined sales price for the net assets sold was approximately
$41,800,000. The Company received approximately $12,157,000 in cash and
approximately $29,643,000 in senior and subordinated notes.
The proceeds from these net asset sales were used in part to repay the Series
A notes and the Series A interest deferral notes on September 20, 1996 (see
Note 3).
F-75
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Original Cookie Company, Incorporated and Hot Sam Company, Inc.:
We have audited the accompanying combined balance sheet of The Original
Cookie Company, Incorporated and the carved-out portion of Hot Sam Company,
Inc., both Delaware corporations (subsidiaries of Chocamerican, Inc.), as of
September 17, 1996, and the related combined statements of operations,
stockholders' equity and cash flows for the year ended December 30, 1995, and
for the period December 31, 1995 to September 17, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The
Original Cookie Company, Incorporated and the carved-out portion of Hot Sam
Company, Inc. as of September 17, 1996, and the results of their operations and
their cash flows for the year ended December 30, 1995, and for the period
December 31, 1995 to September 17, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Cleveland, Ohio
July 11, 1997
F-76
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 655
Accounts receivable........................................... 340
Inventories................................................... 1,728
Prepaids and other............................................ 984
--------
Total current assets........................................ 3,707
--------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements........................................ 31,329
Furniture and fixtures........................................ 7,719
Buildings and improvements.................................... 639
Land.......................................................... 69
--------
39,756
Accumulated depreciation and amortization..................... (22,687)
--------
Net property and equipment.................................. 17,069
--------
OTHER ASSETS, net............................................... 256
--------
COST IN EXCESS OF FAIR VALUE OF NET ASSETS OF PURCHASED
BUSINESS, net of accumulated amortization of $9,092............ 37,992
--------
$ 59,024
========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this combined balance sheet.
F-77
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEET (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 1,696
Accrued payroll and related expenses............................ 2,208
Accrued liabilities............................................. 3,443
-------
Total current liabilities..................................... 7,347
-------
LONG-TERM LIABILITIES:
Deferred lease credit........................................... 1,653
Store closure reserve........................................... 1,002
Related-party notes payable..................................... 30,977
Other........................................................... 1,102
-------
Total long-term liabilities................................... 34,734
-------
COMMITMENTS (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock.................................................... 10,000
Additional paid-in capital...................................... 15,873
Accumulated deficit............................................. (8,930)
-------
Total stockholders' equity.................................... 16,943
-------
Total liabilities and stockholders' equity.................... $59,024
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this combined balance sheet.
F-78
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Year Ended 1995 to
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
NET SALES............................................ $85,581 $54,366
------- -------
OPERATING COSTS AND EXPENSES:
Food cost of sales................................. 19,996 12,728
Selling and occupancy expenses..................... 47,032 31,935
General and administrative expenses................ 8,425 5,538
Severance and related expenses..................... -- 2,000
Depreciation and amortization...................... 6,902 4,937
Provision for store closure costs.................. 791 --
------- -------
Total operating costs and expenses............... 83,146 57,138
------- -------
INCOME (LOSS) FROM OPERATIONS........................ 2,435 (2,772)
INTEREST EXPENSE, net................................ (4,268) (2,828)
OTHER EXPENSE........................................ -- (45)
------- -------
LOSS BEFORE INCOME TAXES............................. (1,833) (5,645)
PROVISION FOR INCOME TAXES........................... 263 --
------- -------
NET LOSS............................................. $(2,096) $(5,645)
======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-79
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-in Earnings Stockholders'
Stock Capital (Deficit) Equity
------- ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $10,000 $15,873 $(1,189) $24,684
Net loss.......................... -- -- (2,096) (2,096)
------- ------- ------- -------
BALANCE, DECEMBER 30, 1995.......... 10,000 15,873 (3,285) 22,588
Net loss.......................... -- -- (5,645) (5,645)
------- ------- ------- -------
BALANCE, SEPTEMBER 17, 1996......... $10,000 $15,873 $(8,930) $16,943
======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-80
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Year Ended 1995 to
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(2,096) $(5,645)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities--
Depreciation and amortization...................... 6,902 4,937
Changes in assets and liabilities--
Increase in accounts receivable.................. (61) (279)
Decrease (increase) in related-party
receivables/payables............................ 18 (169)
Decrease (increase) in inventories............... 461 (65)
Decrease in prepaids and other................... 695 967
Decrease (increase) in other assets.............. 64 (60)
(Decrease) increase in accounts payable.......... (476) 410
Decrease in accrued payroll and related
expenses........................................ (331) (384)
Increase (decrease) in accrued liabilities....... (1,196) 330
Increase in other long-term liabilities.......... 231 73
Increase (decrease) in deferred lease credit..... 38 (111)
Increase (decrease) in store closure reserve..... 202 (382)
------- -------
Net cash provided by (used in) operating
activities.................................... 4,451 (378)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net........... (568) (1,200)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to related party........................ (4,599) (1,380)
------- -------
CASH AND CASH EQUIVALENTS:
Net decrease during the period..................... (716) (2,958)
Balance, beginning of the period................... 4,329 3,613
------- -------
Balance, end of the period......................... $ 3,613 $ 655
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
State and local income taxes paid.................. $ 234 $ 82
======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-81
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Original Cookie Company, Incorporated ("OCCI") and Hot Sam Company, Inc.
("HSCI") (collectively, the "Companies") are wholly owned subsidiaries of
Chocamerican, Inc., which is a wholly owned subsidiary of Midial S.A., a French
company (collectively, the "Parent"). The Companies operated specialty
retailing outlets providing prepared goods. OCCI operated approximately 240
stores in over 35 states, offering a variety of fresh baked cookies and
brownies and beverages. HSCI operated approximately 190 stores in over 30
states providing a variety of fresh baked pretzels and pretzel sticks, toppings
and beverages.
On September 17, 1996, all of the operations of the Companies including
certain assets and liabilities were sold to a nonrelated party (the "Buyer")
who assumed responsibility for all retail locations as of that date. Except for
approximately $2,000,000 of payments to employees for severance and related
costs which is included in the operating results for the period December 31,
1995 to September 17, 1996, these combined financial statements do not reflect
any effect of such sale.
The Companies traditionally experienced their highest revenues in the fourth
calendar quarter. Because the Companies' stores were heavily concentrated in
shopping malls, the Companies' sales performance was somewhat dependent on the
performance of those malls. Because of such seasonality and the extra payroll
costs noted above, the results for the period December 31, 1995 to September
17, 1996 are not necessarily indicative of results that would have been
achieved for an entire calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Companies' fiscal year ends on the Saturday closest to December 31, which
results in a 52 or 53-week year.
Basis of Presentation
The combined financial statements include the accounts of OCCI and HSCI
except that these statements do not reflect the results of the operations and
the related assets and liabilities of a group of retail food locations owned
and operated by HSCI primarily under the name of Corn Dog. The Corn Dog
operations were sold to a nonrelated entity in April 1996 and the accompanying
combined financial statements exclude these operations and net assets, as well
as the results of the sale. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-82
<PAGE>
Inventories
The Companies' inventories were stated at the lower of cost (first-in, first-
out method) or market value. Inventories consisted of the following at
September 17, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Food and beverages................................................ $1,215,000
Small wares....................................................... 513,000
----------
$1,728,000
==========
</TABLE>
Property and Equipment
The Companies' policy is to provide depreciation using the straight-line
method over a period which is sufficient to amortize the cost of the asset
during its useful life.
The estimated useful lives for depreciation purposes are:
<TABLE>
<S> <C>
Leasehold improvements........................................ 5 to 10 years
Furniture and fixtures........................................ 3 to 10 years
Buildings and improvements.................................... 10 to 50 years
</TABLE>
Intangible Assets
Cost in excess of fair value of net assets of purchased business which was
recorded as part of the acquisition of the Companies by the Parent was
amortized on a straight-line basis over 40 years. Management evaluated the
expected cash flows of such assets periodically and determined no adjustments
were appropriate. Subsequent to September 17, 1996, the Companies expensed all
such intangibles in connection with recording the effects of the sales of the
operations.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Companies consider all
temporary cash investments purchased with an original maturity of three months
or less to be cash equivalents.
Leases
The Companies have various operating lease commitments on their retail store
locations. Operating leases with escalating payment terms are expensed on a
straight-line basis over the life of the related lease.
Asset Impairment
The Companies adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" for the period December 31, 1995 to September 17,
1996. SFAS No. 121 requires the Companies to evaluate the recoverability of
long-lived assets based on expected future cash flows. Prior to the adoption of
SFAS No. 121, the Companies accounted for long-lived operating assets as
discussed both above and in Note 6. The adoption of this standard did not have
a material impact on the Companies' financial position or results of
operations.
Revenue Recognition
Revenues from product sales are recognized at the point of sale to the
customer.
F-83
<PAGE>
Income Taxes
The Companies recognize deferred income tax assets or liabilities for
expected future income tax consequences of events that have been recognized in
the financial statements or income tax returns. Under this method, deferred
income tax assets or liabilities are determined based upon the difference
between the financial and income tax bases of assets and liabilities using
enacted tax rates expected to apply when differences are expected to be settled
or realized.
3. STOCKHOLDERS' EQUITY
The Companies' common stock at December 30, 1995 and September 17, 1996 is
comprised of the following:
OCCI has common stock with a par value $1 per share, 10,000,000 shares
authorized, issued and outstanding.
HSCI has common stock with a par value $1 per share, 10 shares authorized,
issued and outstanding.
4. RELATED-PARTY NOTES PAYABLE
In addition to debt incurred as part of the purchase by the Parent, the
Companies' cash requirements were provided for by the Parent. These amounts
were evidenced by notes, bearing interest rates ranging from 8% to 12%, and
consisted of $30,977,000 as of September 17, 1996. The notes were paid in part
by the Companies subsequent to September 17, 1996 in connection with the
receipt of proceeds from the sale of certain assets and liabilities to the
Buyer.
5. INCOME TAXES
The Companies have been included in the consolidated income tax returns of a
subsidiary of the Parent which was in a cumulative loss carryforward position
during all of the periods presented in the accompanying combined financial
statements.
The Companies incurred financial reporting losses for the year ended December
30, 1995 and the period December 31, 1995 to September 17, 1996 for which no
benefits have been recorded in the accompanying combined statements of
operations due to appropriate valuation allowances being provided. The
provisions for income taxes are solely related to minimum state income tax
requirements.
Deferred income tax assets relate to temporary differences between financial
statement and income tax recognition of depreciation, store closure reserve and
other accrued liabilities. Management has provided a valuation allowance equal
to the amount of the deferred income tax assets.
6. STORE CLOSURE RESERVE
The Companies annually reviewed the historic and projected operating
performance of their stores and identified underperforming stores for
impairment of property investment and/or targeted closing. The Companies'
policy was to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. Additionally, when a
store was identified for targeted closing, the Companies' policy was to provide
for the costs of closing the store, which are predominantly estimated lease
settlement costs and/or estimated lease payments after the date of the store
closing.
F-84
<PAGE>
An analysis of the activity in the store closure reserve is as follows for
the year ended December 30, 1995 and for the period December 31, 1995 to
September 17, 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Beginning Balance.................................... $1,182,000 $1,384,000
Provision............................................ 791,000 --
Payments and Other Deductions........................ (589,000) (382,000)
---------- ----------
Ending Balance....................................... $1,384,000 $1,002,000
========== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Companies' employees participate in a defined contribution saving plan
which was funded by voluntary employee contributions and by contributions from
the Companies. The Companies' expense for the year ended December 30, 1995, and
for the period December 31, 1995 to September 17, 1996 was $143,000 and
$106,000, respectively.
The Companies do not provide for any other post-retirement benefits.
8. RELATED-PARTY TRANSACTIONS
The Parent provides certain services to the Companies, such as human
resources, accounting and legal, among others. Charges to the Companies for
such administrative services totaled $520,000 for the year ended December 30,
1995 and $175,000 for the period December 31, 1995 to September 17, 1996. In
management's opinion, these charges approximate the fair market value of such
services.
9. COMMITMENTS
Operating Leases
The Companies leased all of their retail store locations. These leases
typically had initial terms of up to 10 years. Certain leases provided for
contingent rentals based on store sales. Generally, the Companies were required
to pay taxes and normal expenses of operating the premises under retail store
leases. Total rental expense was approximately $15,038,000 for the year ended
December 30, 1995. Total rental expense for the period ended September 17, 1996
was approximately $11,165,000.
The minimum rentals under operating leases subsequent to September 17, 1996
are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
Remaining 1996................................................... $ 5,346,000
1997............................................................. 15,886,000
1998............................................................. 13,763,000
1999............................................................. 11,691,000
2000............................................................. 9,712,000
Thereafter....................................................... 20,190,000
-----------
$76,588,000
===========
</TABLE>
Effective September 17, 1996, the Buyer assumed responsibility for all open
store leases but the Companies remain contingently liable under certain of
these leases. However, management is not aware of any actual or threatened
claims under these leases.
F-85
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Cookies USA, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' deficit, and
of cash flows present fairly, in all material respects, the financial position
of Cookies USA, Inc. and its subsidiary at June 29, 1997 and June 28, 1998, and
the results of their operations and their cash flows for each of the three
fifty-two week periods in the period ended June 28, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
August 24, 1998
F-86
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,885 $ 8,382
Accounts receivable--trade................................. 1,702 2,042
Inventory (Notes 1 and 2).................................. 1,292 1,212
Prepaid expenses (Note 3).................................. 1,227 1,245
Current deferred income tax benefit (Notes 1 and 10)....... 392 872
Current portion of notes receivable (Note 4)............... 867 88
Other receivables.......................................... 8 8
------- -------
Total current assets..................................... 10,373 13,849
------- -------
Property and equipment, net of accumulated depreciation (Note
5).......................................................... 6,304 4,916
Construction in progress, net of construction deposits
received from franchisees................................... 92 163
------- -------
6,396 5,079
------- -------
Other assets:
Deferred loan costs, net of accumulated amortization of
$2,050 and $2,626, respectively (Note 1).................. 2,050 1,474
Notes receivable, net of current portion (Note 4).......... 302 352
Deferred income tax benefit (Notes 1 and 10)............... 2,372 1,438
Deposits................................................... 50 49
Accrued straight-line minimum rent receivable for subleases
to franchisees (Note 1)................................... 1,267 1,388
------- -------
6,041 4,701
------- -------
Cost in excess of fair value of net assets acquired
(goodwill), net of accumulated amortization of $3,104 and
$3,975, respectively (Note 1)............................... 31,848 30,977
------- -------
$54,658 $54,606
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-87
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable......................................... $ 376 $ 913
Sales taxes payable...................................... 105 102
Accrued interest payable................................. 2,202 2,202
Accrued expenses (Note 6)................................ 1,568 1,075
Deposits................................................. 673 727
-------- --------
Total current liabilities.............................. 4,924 5,019
-------- --------
Capital lease obligations (Note 9)......................... 62 36
-------- --------
Accrued straight-line minimum rent payable (Note 1)........ 2,113 2,164
-------- --------
Long-term debt (Note 7):
Senior secured notes..................................... 40,000 40,000
Original issue discount, net of accumulated amortization
of $102 and $131, respectively.......................... (98) (69)
Subordinated unsecured notes payable..................... 10,000 10,000
-------- --------
Total long-term debt................................... 49,902 49,931
-------- --------
Commitments and contingencies (Note 9)
Mandatorily redeemable preferred stock (Note 11):
Senior cumulative (6.00%) convertible; $1.00 par value;
10,500 shares authorized, issued and outstanding........ 12,739 13,369
Junior Class A cumulative ($50 per annum); $1.00 par
value; 2,500 shares authorized, issued and outstanding.. 2,944 3,069
Junior Class B cumulative ($50 per annum); $1.00 par
value; 750 shares authorized, issued and outstanding.... 883 921
-------- --------
Total mandatorily redeemable preferred stock........... 16,566 17,359
-------- --------
Common stock and other stockholders' deficit:
Common stock, $.01 par value; 115,000 shares authorized;
82,800 shares issued and outstanding.................... 1 1
Additional paid-in capital............................... 449 449
Excess of purchase price over predecessor basis.......... (10,164) (10,164)
Accumulated deficit...................................... (9,195) (10,189)
-------- --------
Total stockholders' deficit............................ (18,909) (19,903)
-------- --------
$ 54,658 $ 54,606
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-88
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Fifty-Two For the Fifty-Two For the Fifty-Two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Cookie and beverage
sales................ $24,719 $22,375 $18,854
Batter sales to
franchisees.......... 10,104 11,270 12,214
Franchise royalties... 4,289 4,729 5,267
Franchise license
fees--existing and
new stores........... 521 675 503
Other, net............ 115 66 139
------- ------- -------
Total revenue....... 39,748 39,115 36,977
------- ------- -------
Operating expenses:
Cost of sales......... 19,523 18,615 17,056
Retail store
occupancy............ 7,379 7,055 5,737
Other retail store
expenses............. 1,316 1,019 870
Selling, general and
administrative
expenses............. 7,309 7,619 7,220
Management fee expense
(Note 14)............ 250 250 250
------- ------- -------
Total operating
expenses........... 35,777 34,558 31,133
------- ------- -------
Income from operations.. 3,971 4,557 5,844
------- ------- -------
Other (income) expenses,
net:
Interest income....... (56) (251) (346)
Interest expense...... 5,646 5,634 5,635
Amortization of
deferred loan costs.. 572 586 576
Gain on sale of
existing stores...... (636) (927) (370)
------- ------- -------
Total other
expenses, net...... 5,526 5,042 5,495
------- ------- -------
Income (loss)
before income
taxes............ (1,555) (485) 349
State and federal income
tax expense (benefit)
(Note 10).............. (194) 261 551
------- ------- -------
Net loss.......... $(1,361) $ (746) $ (202)
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statement are an integral part
to these statements.
F-89
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Excess of
Purchase
Common Stock Additional Price Over Total
------------- Paid-in Predecessor Accumulated Stockholders'
Shares Amount Capital Basis Deficit Deficit
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 29,
1995................... 82,800 $ 1 $449 $(10,164) $ (5,503) $(15,217)
Net loss for the
fifty-two week period
ended June 30, 1996.. -- -- -- -- (1,361) (1,361)
Redeemable preferred
stock accretion...... -- -- -- -- (792) (792)
------ ---- ---- -------- -------- --------
Balance at June 30,
1996................... 82,800 1 449 (10,164) (7,656) (17,370)
Net loss for the
fifty-two week period
ended June 29, 1997.. -- -- -- -- (746) (746)
Redeemable preferred
stock accretion...... -- -- -- -- (793) (793)
------ ---- ---- -------- -------- --------
Balance at June 29,
1997................... 82,800 1 449 (10,164) (9,195) (18,909)
Net loss for the
fifty-two week period
ended June 28, 1998.. -- -- -- -- (202) (202)
Redeemable preferred
stock accretion...... -- -- -- -- (792) (792)
------ ---- ---- -------- -------- --------
Balance at June 28,
1998................... 82,800 $ 1 $449 $(10,164) $(10,189) $(19,903)
====== ==== ==== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-90
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Fifty- For the Fifty- For the Fifty-
Two Week Two Week Two Week
Period Ended Period Ended Period Ended
June 30, 1996 June 29, 1997 June 28, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(1,361) $ (746) $ (202)
Adjustments to reconcile net loss
to net cash provided by (used
for) operating activities:
Depreciation..................... 1,854 1,940 1,604
Amortization of cost in excess of
fair value of net assets
acquired (goodwill)............. 870 871 871
Amortization of deferred loan
costs........................... 572 586 576
Amortization of original issue
discount........................ 29 29 29
Net gain on sales and disposals
of property, equipment and
inventory....................... (402) (550) (247)
Net (decrease) increase in
accrued straight-line minimum
rent receivable and payable..... 86 (29) (70)
Changes in assets and
liabilities:
Decrease (increase) in accounts
receivable.................... (550) (195) (340)
Decrease (increase) in
inventory..................... (140) 95 80
Decrease (increase) in prepaid
expenses...................... (100) (52) (18)
Decrease (increase) in current
deferred tax benefit.......... (50) (195) (480)
Decrease (increase) in other
receivables................... 165 56 --
Decrease (increase) in deferred
tax benefit................... (186) 348 934
Decrease (increase) in other
assets........................ (7) 11 1
Increase (decrease) in accounts
payable....................... (462) (456) 538
Increase (decrease) in sales
taxes payable................. 2 (25) (3)
Increase (decrease) in accrued
interest payable.............. -- (3) --
Increase (decrease) in accrued
expenses...................... (913) 172 (493)
Increase (decrease) in
deposits...................... (22) (66) 54
------- ------- -------
Net cash provided by (used
for) operating activities.... (615) 1,791 2,834
------- ------- -------
Cash flows from investing
activities:
Acquisitions of property and
equipment, including net
increase in construction in
progress, net of construction
deposits received from
franchisees..................... (1,913) (1,084) (1,263)
Proceeds from sales and disposals
of property and equipment....... 1,146 453 1,005
Proceeds from collection of notes
receivable...................... 448 474 947
------- ------- -------
Net cash provided by (used
for) investing activities.... (319) (157) 689
------- ------- -------
Cash flows from financing
activities:
Payments of deferred loan costs.. -- (27) --
Principal repayments under
capital lease obligations....... (15) (25) (26)
------- ------- -------
Net cash used for financing
activities................... (15) (52) (26)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents during
period........................... (949) 1,582 3,497
Cash and cash equivalents,
beginning of period.............. 4,252 3,303 4,885
------- ------- -------
Cash and cash equivalents, end of
period........................... $ 3,303 $ 4,885 $ 8,382
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-91
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
For the Fifty- For the Fifty- For the Fifty-
Two Week Two Week Two Week
Period Ended Period Ended Period Ended
June 30, 1996 June 29, 1997 June 28, 1998
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash paid for:
Interest......................... $5,617 $5,609 $5,606
State and federal income taxes... $ 119 $ 91 $ 286
</TABLE>
Cash paid for state and federal income taxes represents payments made to
government authorities during the periods presented.
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the fifty-two weeks ended June 30, 1996, June 29,1997 and June 28,
1998, the Company recorded accretion on mandatorily redeemable preferred stock
totaling $792,000, $793,000 and $793,000, respectively.
During the fifty-two weeks ended June 30, 1996, the Company exchanged
accounts receivable from unrelated franchisees totaling $156,000 for fixtures
and equipment and leasehold improvements representing retail cookie stores
previously licensed by franchisees.
During the fifty-two weeks ended June 30, 1996, notes receivable with face
amounts totaling $296,000 were received from unrelated franchisees in
connection with the sale of two Company-operated stores.
During the fifty-two weeks ended June 29, 1997, notes receivable with face
amounts totaling $1,353,000 were received from unrelated franchisees in
connection with the sale of eight Company-operated stores.
During the fifty-two weeks ended June 29, 1997, the Company exchanged
accounts receivable from unrelated franchisees totaling $91,000 for fixtures
and equipment and leasehold improvements representing retail cookie stores
previously licensed by the franchisees.
During the fifty-two weeks ended June 28, 1998, notes receivable with face
amounts totaling $217,000 were received from unrelated franchisees in
connection with the sale of five Company-operated stores.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-92
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Cookies USA, Inc. ("Cookies USA") was incorporated in December 1993 and was
formed by the Jordan Company to acquire 100% of the common stock of The
Original Great American Chocolate Chip Cookie Company, Inc. ("Great American
Cookies"). Great American Cookies is in the business of franchising cookie
stores and manufacturing cookie batter which is sold to Company-operated and
franchised retail stores. The financial statements include the consolidated
accounts of Cookies USA and Great American Cookies (the "Company").
On December 10, 1993, Cookies USA acquired Great American Cookies in several
transactions. Immediately following the acquisition, Great American Cookies
changed its name from The Original Great American Chocolate Chip Cookie
Company, Inc. to Great American Cookie Company, Inc. Due to the 22% interest
retained by the selling stockholders of Great American Cookies via their common
and convertible preferred stock interest in Cookies USA, the excess of purchase
price over predecessor basis as reflected in the stockholders' deficit section
of the accompanying consolidated balance sheets represents the limitation on
the write-up of the assets acquired.
The Company's business follows seasonal trends and experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
significantly dependent on the performance of those malls.
Consolidation
The consolidated financial statements include the accounts of Cookies USA and
its subsidiary, Great American Cookies. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Accounting Periods
During the fiscal year ended June 30, 1996, the Company changed its year end
from the last Thursday in the month of June to the last Sunday in the month of
June. As a result, three days were added to the fifty-two week period ended
Thursday, June 27, 1996 to effectively change the Company's fiscal year end to
Sunday, June 30, 1996. This change does not materially impact the comparability
of the years presented in these financial statements.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value at the
respective balance sheet dates due to the relatively short period to maturity
of these instruments. The long-term notes payable with fixed interest rates are
recorded at face values of $50.0 million at June 29, 1997 and June 28, 1998;
however, the fair values of such long-term notes, based on quoted market
values, are approximately $50.5 million and $51.4 million at June 29, 1997 and
June 28, 1998, respectively.
F-93
<PAGE>
Revenue Recognition
Revenues from the Company-operated stores are recognized in the period the
related cookies and beverages are sold. Revenues from the sale of batter are
recognized at the time of shipment. Franchise royalties, which are based on a
percentage of franchised store sales, are recognized in the same period related
franchise store revenues are generated. Franchise license fee revenues are
recognized at the time that all Company obligations regarding the franchise
sale have been met. Fees received under development agreements which grant the
right to develop franchised units in future periods in specific geographic
areas are deferred and recognized as income on a pro rata basis as the
Company's obligations regarding the franchised units subject to the development
agreements are met.
Cash Equivalents
The Company considers all highly liquid, short-term investments with original
maturities of three months or less to be cash equivalents. Cash equivalents at
June 29, 1997 and June 28, 1998 consist of short-term commercial paper. These
investments are stated at cost, which approximates market.
Inventories
Inventories of cookie and brownie products, beverage products, paper and
supplies and smallwares are stated at the lower of cost or market with cost
determined based on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are expensed in the year incurred, while renewals and betterments
that materially extend the life of an asset are capitalized. The cost of assets
sold, retired, or otherwise disposed, and the related accumulated depreciation,
are eliminated from the accounts, and any resulting gain or loss is recognized
in the statement of operations.
Depreciation is provided using straight-line and accelerated methods over the
estimated lives of the assets which are as follows:
<TABLE>
<S> <C>
Building................ 20 years
Furniture, fixtures and
equipment.............. 3-7 years
Building and leasehold
improvements........... Lesser of 8 years or the life of the related lease
</TABLE>
During fiscal year 1996, the Company revised its estimate of the useful life
of certain leasehold improvements. The Company began amortizing leasehold
improvements using accelerated methods over an average of eight years instead
of using the straight-line method over an average of ten years. The effect of
this change in estimate was to increase fiscal year 1996 pre-tax loss by
$214,000.
During fiscal year 1998, the Company revised its estimate of the useful life
of certain computer equipment from five to three years. The effect of this
change in estimate was to decrease fiscal 1998 pre-tax income by $111,000.
Store Opening and Closing Costs
Non-capital expenditures incurred in opening new stores or remodeling
existing stores are expensed in the year incurred. When a store is closed, the
store's unamortized investment in leasehold improvements and fixtures and
equipment is recorded as a loss on store closing.
F-94
<PAGE>
Deferred Loan Costs
Debt issue costs of approximately $4.0 million were incurred in connection
with the issuance of the 10.875% senior secured notes payable due 2001 (see
Note 7). Deferred loan costs are being amortized over the life of the related
notes (85 months), with annual charges to income of approximately $576,000.
Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)
Cost in excess of fair value of net assets acquired (goodwill) is being
amortized over a forty-year period, with annual charges to income of
approximately $870,000.
The carrying value of goodwill is periodically evaluated for indications of
possible impairment. The review is based on comparing the carrying amount to
the undiscounted estimated cash flows from continuing operations over the
remaining amortization period.
Operating Leases
The Company has various operating lease commitments on both Company-operated
and franchised store locations and equipment. Operating leases with escalating
payment terms, including those subleased to franchisees, are recorded on a
straight-line basis over the life of the related lease.
Original Issue Discount
The Company has issued warrants to the holders of the senior secured notes.
The value of the warrants has been accounted for as an original issue discount
and is being amortized over the life of the related notes (85 months), with
annual charges to income of approximately $29,000.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Concurrent with the acquisition and its termination of the S Corporation
status (see Note 10), the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). In accordance
with the provisions of SFAS 109, deferred income taxes are determined based on
the estimated future tax effects of differences between the financial statement
and tax basis of assets and liabilities given the provisions of the enacted tax
laws.
Earnings Per Share
Earnings per share is not presented, as the Company is a non-public entity
that is closely held.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
F-95
<PAGE>
2. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Raw ingredients...................................... $ 237,000 $ 279,000
Batter, including retail stores...................... 368,000 254,000
Beverage syrup....................................... 56,000 43,000
Paper goods and packaging supplies................... 168,000 149,000
Purchased icing and decorative toppings held for
resale.............................................. 52,000 57,000
Equipment held for resale............................ 75,000 43,000
Marketing and miscellaneous supplies held for
resale.............................................. 336,000 387,000
---------- ----------
$1,292,000 $1,212,000
========== ==========
</TABLE>
3. PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Rent................................................... $1,158,000 $1,178,000
Other.................................................. 69,000 67,000
---------- ----------
$1,227,000 $1,245,000
========== ==========
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- --------
<S> <C> <C>
Notes receivable....................................... $1,169,000 $440,000
Less current portion................................... (867,000) (88,000)
---------- --------
Notes receivable, net of current portion............... $ 302,000 $352,000
========== ========
</TABLE>
Notes receivable are due from various franchisees and principally result from
the sale of existing Company-operated stores to franchisees. Each note is
guaranteed by the purchaser and collateralized by the assets sold. Short-term
notes generally carry an interest rate of 15% per annum and are intended to
serve as interim financing until the franchisee can secure long-term financing
from a third-party lender. Notes classified as non-current are generally due in
monthly installments of principal and interest, with the interest rates ranging
from between 9% and 12.5% per annum. The total maturities of the notes
receivable are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending June
1999................................................................. $ 88,000
2000................................................................. 140,000
2001................................................................. 94,000
2002................................................................. 41,000
2003................................................................. 8,000
Thereafter........................................................... 69,000
--------
$440,000
========
</TABLE>
F-96
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
Land................................................ $ 240,000 $ 240,000
Building............................................ 761,000 761,000
Building and leasehold improvements................. 6,829,000 6,189,000
Furniture, fixtures and equipment................... 3,228,000 3,067,000
----------- -----------
11,058,000 10,257,000
Less accumulated depreciation....................... (4,754,000) (5,341,000)
----------- -----------
Property and equipment, net......................... $ 6,304,000 $ 4,916,000
=========== ===========
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
Employee compensation including payroll taxes....... $ 379,000 $ 388,000
Bonuses payable..................................... 480,000 475,000
Construction expenses............................... 15,000 --
Professional fees................................... 293,000 88,000
Management fees..................................... 188,000 62,000
Other............................................... 213,000 62,000
----------- -----------
$ 1,568,000 $ 1,075,000
=========== ===========
7. LONG-TERM DEBT
Notes payable at June 29, 1997 and June 28, 1998 are described as follows:
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
10.875% senior secured notes payable due January
15, 2001, Series B. Interest accrues daily and is
payable semi-annually on January 15 and July 15.
(The notes are secured by certain tangible and
intangible assets, including, but not limited to,
the equipment constituting Great American
Cookies' batter production facility, the capital
stock of all current and future subsidiaries of
Great American Cookies, intellectual property
rights and other intangible assets of Great
American Cookies)................................ $40,000,000 $40,000,000
Original issue discount related to the issuance of
7,200 detachable warrants with the 10.875% senior
secured notes.................................... (98,000) (69,000)
12.5% subordinated unsecured note payable due
October 31, 2003 with initial annual prepayment
thereof due October 31, 2001. Interest accrues
daily and is payable semi-annually on April 30
and October 31................................... 10,000,000 10,000,000
----------- -----------
$49,902,000 $49,931,000
=========== ===========
</TABLE>
F-97
<PAGE>
The $10 million of subordinated notes issued by Cookies USA have principal
payments due as follows: $2.5 million due October 31, 2001; $2.5 million due
October 31, 2002; and $5.0 million due October 31, 2003. As Great American
Cookies is the sole operating unit of the consolidated entity, Great American
Cookies is the sole source of any cash to be paid by Cookies USA as interest
and principal payment on such debt. Such payments will be made primarily via
dividends to Cookies USA. Such dividends are subject to certain covenants
provided for under the senior secured notes (see Note 11).
Great American Cookies is subject to certain covenants provided for under the
indenture including limitations on restricted payments, incurrence of
indebtedness and issuances of preferred stock, asset sales, granting of liens,
restrictions on subsidiary dividends, mergers, consolidations, sale of assets,
and on transactions with affiliates, various reporting requirements to the
holders of the senior secured notes and the Securities and Exchange Commission
and maintenance of a fixed charge coverage ratio. If a violation of a covenant
occurs, the holders of at least 25% in principal amount of the then outstanding
senior secured notes may declare all outstanding senior secured notes to be due
and payable immediately (see Note 11).
Upon the occurrence of a change of control as defined in the note agreements,
the Company will be required to (i) offer to repurchase all of the 10.875%
senior secured notes then outstanding at a purchase price equal to 101% of the
total principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase and (ii) repurchase the 12.5% subordinated notes at par plus
accrued and unpaid interest, if any, to the date of repurchase.
8. 401(K) PROFIT-SHARING PLAN
The Company provides a defined contribution profit-sharing plan (the "Plan")
for all employees meeting certain requirements. On February 14, 1997, the
Company amended the Plan to include a pre-tax savings provision in accordance
with Section 401(k) of the Internal Revenue Code.
Under the Plan, eligible employees may contribute as much as 15% of
compensation up to the federal statutory limit, with the Company matching 25%
of the first 6% of compensation contributed by the employee. The Company's
matching portion of the Plan contributions resulted in expense of $9,000 and
$39,000 in fiscal years 1997 and 1998, respectively. During fiscal year 1996,
no amounts were expensed for profit-sharing plan contributions.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has various operating lease commitments on both Company-operated
and franchised store locations. These leases generally contain escalating
rental payments and various provisions for contingent rental payments based on
sales volume. Future minimum lease payments, including scheduled escalating
rental payments, as of June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Subleases to
Leases Franchises Net
----------- ------------ -----------
<S> <C> <C> <C>
Fiscal Year Ending June
1999.................................. $ 9,796,000 $ 7,071,000 $ 2,725,000
2000.................................. 8,797,000 6,369,000 2,428,000
2001.................................. 7,586,000 5,589,000 1,997,000
2002.................................. 6,540,000 4,747,000 1,793,000
2003.................................. 5,368,000 3,909,000 1,459,000
Thereafter............................ 9,737,000 7,331,000 2,406,000
----------- ----------- -----------
$47,824,000 $35,016,000 $12,808,000
=========== =========== ===========
</TABLE>
F-98
<PAGE>
Operating leases with escalating payment terms, including those subleased to
franchisees, are expensed on a straight-line basis over the life of the related
lease.
For the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, gross rent expense (including mall pass-through charges) was
approximately $13,332,000, $14,135,000 and $13,593,000, respectively, while
sublease income (including mall pass-through charges) was approximately
$9,628,000, $10,533,000 and $10,571,000, respectively.
Capital Leases
The Company leases various office equipment under capital lease agreements
expiring on various dates through 2000. The Company's total future obligation
under these agreements, net of interest expense, is $62,000 as of June 29, 1997
and $36,000 as of June 28, 1998.
Lease Guarantees
In connection with the sale of existing Company-operated stores to
franchisees, the Company has guaranteed certain lease renewals to the
prospective franchisee. If such leases are not obtained, then predetermined
payments shall be made to the franchisees as follows:
<TABLE>
<CAPTION>
Number
of
Lease Amount of
Renewals Guarantee
-------- ---------
<S> <C> <C>
Fiscal Year of Lease Expiration
1999.................................................... 1 $ 75,000
2000.................................................... 1 24,000
2001.................................................... -- --
2002.................................................... 1 60,000
--- --------
$159,000
========
</TABLE>
As of June 28, 1998, the Company has not recorded any liability with respect
to these guarantees as these amounts represent loss contingencies which
management believes are not probable.
Purchase Commitments
The Company is committed to purchase certain raw materials from various
suppliers over the next year at fixed prices. As of June 28, 1998, such
purchase commitments totaled approximately $1,750,000.
Employment Agreements
On December 10, 1993, the Company entered into annual renewable employment
agreements with the founders of Great American Cookies ("Founders"), who are
also directors of the Company. Under these employment agreements, each Founder
receives a salary of $150,000 and a payment in connection with an agreement not
to compete of $100,000 per year. Additionally, whether employed or not, each
Founder is also entitled to receive an annual $100,000 bonus if Great American
Cookies advances funds to Cookies USA to permit Cookies USA to pay interest on
its subordinated notes. The Company's employment of the two Founders ended on
December 7, 1995 and December 9, 1996. Under the above agreements, the Company
made total payments to the Founders of $564,000, $285,000 and $200,000, during
the fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28,
1998, respectively. As of June 30, 1996, June 29, 1997 and June 28, 1998,
$200,000 was due to the Founders and included in accrued liabilities in the
accompanying consolidated balance sheets.
F-99
<PAGE>
The Company has entered into employment agreements with its Executive Vice
President of Development, Vice President of Operations and Director of
Production with terms of one to two years. The agreements are for an total
annual base salary of $355,000. The agreements have customary provisions for
benefits and noncompetition.
Incentive and Severance Agreements
In connection with the Company's negotiations (see Note 15) with Mrs. Fields'
Original Cookies, Inc. ("Mrs. Fields"), the Company has entered into agreements
with a number of employees incenting them to assist with the sale process and
to stay until the closing of such sale. In addition, the Company has informed
its home office employees of the severance payments to be paid to them in the
event their employment is terminated without cause subsequent to the closing of
the proposed sale. The total amount of these incentives and severance payments,
as well as any severance payments to employees with employment agreements, is
$1,623,000. These amounts are conditional upon the closing of the sale and no
amounts will be due or paid if a sale to Mrs. Fields does not occur.
Legal
On September 22, 1997, nine Great American Cookies franchisees filed a
lawsuit against Great American Cookies and certain other parties alleging
certain anticipatory breaches of contract and violations of certain state,
franchise and unfair trade practice laws. These allegations resulted from
discussions held be Cookies USA and Mrs. Fields regarding the possibility of
Mrs Fields acquiring all of the outstanding shares of Common Stock of Cookies
USA, Inc. As of August 14, 1998, a settlement has been reached whereby the
franchisees have been granted certain rights upon the sale of the Company to
Mrs. Fields for a period of three years. In exchange, Cookies USA has been
released from further legal action.
10. INCOME TAXES
Cookies USA and Great American Cookies file consolidated federal income tax
returns. The following information has been determined based upon the
provisions of SFAS 109 for the fifty-two week periods ended June 30, 1996, June
29, 1997 and June 28, 1998.
<TABLE>
<CAPTION>
Fifty-two Fifty-two Fifty-two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Income tax (benefit) provision:
Current:
Federal......................... -- -- --
State........................... $ 48,000 $107,000 $ 97,000
--------- -------- --------
48,000 107,000 97,000
Deferred:
Federal......................... (217,000) 131,000 386,000
State........................... (25,000) 23,000 68,000
--------- -------- --------
(242,000) 154,000 454,000
--------- -------- --------
Total (benefit) provision for
income taxes................. $(194,000) $261,000 $551,000
========= ======== ========
</TABLE>
The differences between income taxes at the statutory federal and state
income tax rates and the income tax expense reported in the statements of
operations for the fifty-two week periods ended June 30, 1996, June 29, 1997
and June 28, 1998 are as follows:
F-100
<PAGE>
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory tax rate....... (34.0)% 34.0% 34.0%
State income taxes, net of
federal benefit................. (4.0)% 4.0% 4.0%
Goodwill amortization and other.. 25.5 % 15.8% 119.9%
----- ---- -----
(12.5)% 53.8% 157.9%
===== ==== =====
</TABLE>
Deferred income tax assets are comprised of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Current:
NOL carryforward..................................... $ 350,000 $ 872,000
Other................................................ 42,000 --
---------- ----------
$ 392,000 $ 872,000
========== ==========
Non-current:
NOL carryforward..................................... $1,079,000 $ --
Depreciation......................................... 841,000 1,191,000
Other................................................ 452,000 247,000
---------- ----------
$2,372,000 $1,438,000
========== ==========
</TABLE>
As of June 28, 1998, the Company had net operating loss carryforwards for
income tax reporting purposes of approximately $2.2 million, which are
scheduled to expire in varying amounts in the years 2009 to 2011. The Company's
net operating loss carryforwards are limited under Section 382 of the Internal
Revenue Code regarding changes in ownership.
11. PREFERRED STOCK
In connection with Cookies USA's acquisition of Great American Cookies on
December 10, 1993, Cookies USA issued $2.5 million of Junior Class A Preferred
Stock and $750,000 of Junior Class B Preferred Stock. Additionally, Cookies USA
issued $10.5 million of Senior Preferred Stock to the Founders of Great
American Cookies in exchange for a portion of the stock of Great American
Cookies ($3.5 million) and the assets of other entities owned by the Founders
($7.0 million). As Great American Cookies is a wholly owned subsidiary of
Cookies USA and is the sole operating unit of the consolidated entity, Great
American Cookies is the sole source of any cash to be paid by Cookies USA as
dividends on such securities.
The 10,500 shares of $1.00 par Senior Preferred Stock issued by Cookies USA
on December 10, 1993 are 6% cumulative convertible shares. A share of the
Senior Preferred Stock is convertible at any time at the option of the holder
into 1.1308 shares of Cookies USA Common Stock. The holders of Senior Preferred
Stock are entitled to certain antidilution protections to maintain their
percentage of ownership in Cookies USA. Accumulated dividends on the Senior
Preferred Stock have priority over any dividends of "Junior Securities" (Junior
Class A and Class B Preferred and Common Stock), but are subordinate to any
debt payments of Cookies USA or the Company. Such preferred shares may be
redeemed at any time for $1,000 per share plus accrued but unpaid dividends at
the option of Cookies USA; however, all such shares not previously converted or
redeemed shall be redeemed by payment in cash of $1,000 per share plus accrued
but unpaid dividends on November 30, 2003. As of June 28, 1998, Cookies USA has
accrued $2,869,000 for unpaid dividends due to the holders of the Senior
Preferred Stock.
The 2,500 shares of $1.00 par Junior Class A Preferred Stock and the 750
shares of $1.00 par Junior Class B Preferred Stock issued by Cookies USA are
entitled to receive, when legally available and when declared,
F-101
<PAGE>
dividends at the rate of $50 per share per annum. Such shares may be redeemed
by Cookies USA at any time for $1,000 per share plus all dividends accrued and
unpaid; however, all such shares not previously redeemed shall be redeemed by
payment of cash of $1,000 per share plus all accrued and unpaid dividends on
the first business day of January 2004. The Junior Class A and B Preferred
Stock have no conversion, preemptive, voting or subscription rights. As of June
28, 1998, Cookies USA has accrued $740,000 for unpaid dividends due to the
holders of the Junior Class A and B Preferred Stock.
Great American Cookies' debt covenants related to the senior secured notes
limit the ability of Great American Cookies to pay dividends. Under the debt
covenants, as outlined in the Indenture under which the Senior Secured Notes
were issued, Great American Cookies may pay dividends if:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof,
(b) immediately after the dividend and after giving effect to it on a pro
forma basis, the Company could incur at least $1.00 of additional
indebtedness under the provisions of the debt covenants, and
(c) such dividend, together with the total of all other "Restricted
Payments" (as defined in the Indenture) made by Great American Cookies and
its subsidiaries after the date of the Indenture, is less than the sum of
(x) 50% of the Adjusted Consolidated Net Income of Great American Cookies
for the period (taken as one accounting period) from the beginning of the
first quarter commencing immediately after the date of the Indenture to the
end of Great American Cookies' most recently ended first quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Adjusted Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus (y) 100% of the total net cash
proceeds received by Great American Cookies from the issue or sale of
Equity Interest of Great American Cookies (other than Equity Interests sold
to a subsidiary of Great American Cookies and other than Disqualified
Stock) after the date of the Indenture and on or prior to the time of such
Restricted Payment, plus (z) 100% of the net cash proceeds received by
Great American Cookies from the issuance or sale, other than to a
subsidiary of Great American Cookies, of any convertible or exchangeable
debt security of Great American Cookies that has been converted or
exchanged into equity interests of Great American Cookies under the terms
thereof (other than Disqualified Stock) after the date of the Indenture and
on or prior to the time of such dividend. The foregoing limitations on
Restricted Payments do not prohibit, among other items, payments to Cookies
USA under the Tax Sharing Agreement, payments to Cookies USA to permit
payments of current interest then due on the Subordinated Debt or for any
other purpose provided that certain fixed coverage ratio tests have been
achieved, or making other Restricted Payments in the total amount not to
exceed $1.5 million.
12. STOCK OPTION AGREEMENTS, WARRANTS AND OTHER STOCKHOLDERS' AGREEMENT
As part of its acquisition of Great American Cookies, Cookies USA entered
into Non-Qualified Stock Option Agreements (the "Stock Option Agreements") with
the Founders. Under the Stock Option Agreements, each of the Founders is
granted an option to purchase 5,600 shares of common stock of Cookies USA at an
exercise price of $2.23 per share, which expires on December 10, 2003. The
options will not be vested initially. The options will become vested at the
rate of 20% per year for each fiscal year in which certain operating cash flow
targets are achieved. Notwithstanding the foregoing, if Cookies USA's operating
cash flow targets are achieved on a cumulative basis in subsequent years, then
the options will be vested. As of June 28, 1998, none of the outstanding stock
options were vested.
If the employment with the Company of either of the Founders is terminated,
each Founder will have the right to require Cookies USA to repurchase all of
his shares of Common Stock, and all other securities of Cookies USA convertible
into, exchangeable for or entitling the holder to acquire its Common Stock, at
the appraised fair market value thereof. The purchase price will be paid with a
subordinated note that will bear interest at 8% per annum until the fifth
anniversary of the Stockholders' Agreement dated December 10, 1993 and at the
prime rate plus 2% thereafter. The note will be secured by the Common Stock
purchased by Cookies
F-102
<PAGE>
USA and will be payable in equal installments on each of the sixth through the
tenth anniversaries of the Stockholders' Agreement. As of June 28, 1998, the
employment of both of the Founders has been terminated and such Founders have
not requested Cookies USA to repurchase their shares. At June 29, 1997 and June
28, 1998, the fair value of these options was de minimis.
In connection with the issuance of the 10.875% senior secured notes payable
(see Note 7), the Company issued 7,200 warrants to purchase common stock at a
purchase price of $27.78 per warrant. The warrants expire on January 15, 2001
and have an exercise price of $0.01 per share subject to anti-dilution
protection. Additionally, the warrants have certain rights related to the
purchase of shares of common stock to a third party whereby the warrant holder
may require the purchaser to purchase a determined number of warrants at the
common stock purchase price less the exercise price per warrant. If the holders
of at least 75% of the common stock agree to sell their shares to a third
party, the warrants have certain obligations whereby the warrant holders may be
required to sell their warrants for a price equal to the purchase price of the
common stock less the exercise price per warrant.
13. COMPANY AND FRANCHISED STORES
As of June 30, 1996, June 29, 1997 and June 28, 1998 there were 115, 100 and
81 Company-operated outlets and 253, 263 and 279 franchised outlets in
operation, respectively.
During the fifty-two week period ended June 30, 1996, the Company earned
initial license fees of $275,000 from the sale of 11 new in-line stores to
franchisees. Additionally, the Company earned $21,000 from license transfer,
upgrade and other fees.
During the fifty-two week period ended June 29, 1997, the Company earned
initial license fees of $300,000 from the sale of 12 new in-line stores to
franchisees. Additionally, the Company earned $75,000 from license transfer,
upgrade and other fees.
During the fifty-two week period ended June 28, 1998, the Company earned
initial license fees of $125,000 from the sale of five new in-line stores to
franchisees. Additionally, the Company earned $13,000 from license transfer,
upgrade and other fees.
14. RELATED-PARTY TRANSACTIONS
The majority shareholders of the Common Stock of Cookies, USA, Inc. are
affiliated with the holders of the $10 million of Subordinated Notes issued by
Cookies USA. The holders of the Senior Preferred Stock of Cookies USA are also
holders of some of the Common Stock of Cookies USA. The holders of the Junior
Class A and B Preferred Stock of Cookies USA are also affiliated with the
majority of the holders of the Common Stock of Cookies USA (see Note 11).
A franchisee who owns eight franchise outlets is related to one of the
Company's directors. During the fifty-two week periods ended June 30, 1996,
June 29, 1997 and June 28, 1998, the Company had sales of batter and supplies
of approximately $497,000, $476,000 and $419,000, respectively, to this related
party. The Company also received royalty revenues of approximately $202,000,
$199,000 and $186,000 for the fifty-two week periods ended June 30, 1996, June
29, 1997 and June 28, 1998, respectively, from this franchisee. As of June 30,
1996, June 29, 1997 and June 28, 1998, this franchisee owed the Company
approximately $91,000, $34,000 and $47,000, respectively.
During the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, the Company expensed $250,000 for management services provided by TJC
Management Corp. ("TJC"), an affiliate of the majority shareholder of Cookies
USA. Under the agreement with TJC, these fees are not to exceed $300,000 per
year. Amounts due to TJC as of June 30, 1996, June 29, 1997 and June 28, 1998
were $375,000, $188,000 and $63,000, respectively, and are included in accrued
liabilities in the accompanying consolidated balance sheets.
F-103
<PAGE>
15. SUBSEQUENT EVENTS
On August 24, 1998, Mrs. Fields, acquired 100% of the common stock,
redeemable preferred stock and subordinated indebtedness of Cookies USA, Inc.,
for an total purchase price of approximately $18.4 million, under a Securities
Purchase Agreement (the "Purchase Agreement"), dated as of August 13, 1998
among Mrs. Fields, Cookies USA, and the individuals and entities identified as
sellers therein. In addition, Mrs Fields assumed all principal and accrued
interest on the senior secured notes totaling approximately $42.4 million. Per
the terms of the Purchase Agreement, the Stock Option Agreements and all other
options and warrants, as discussed in Note 12, were cancelled. Mrs Fields also
purchased eight stored from a related party franchise, as disclosed in Note 14,
for a total purchase price of $1.75 million on September 9, 1998. The franchise
was also a holder of Cookies USA securities and a party to the Purchase
Agreement.
The foregoing summary should be read in conjunction with and is qualified by
reference to the Purchase Agreement, the stock purchase agreements between Mrs.
Fields and the holders of the capital stock of Deblan and Chocolate Chip, the
merger agreements between each of Deblan and Chocolate Chip, the Indenture, the
First Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields,
The Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, the Second
Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields, The
Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, and the Credit
Agreement, which are described as exhibits hereto.
The foregoing summary should be read in conjunction with and is qualified by
reference to the Purchase Agreement, to the stock purchase agreements between
Mrs. Fields and the holders of the capital stock of Deblan and Chocolate Chip,
and to the merger agreements between each of Deblan and Chocolate Chip and the
Company, which are described as exhibits to this report.
In connection with the contemplated acquisition of Cookies USA, the Company
commenced a tender offer on August 17, 1998 for all of the outstanding $40.0
million in total principal amount of Great American's 10 7/8% Senior Secured
Notes due 2001 (the "Notes"). On August 24, 1998, the Company purchased
approximately $33.5 million of the Notes that had been tendered through August
20, 1998 and an additional $5.4 million of the Notes that had been tendered
through August 21, 1998. All remaining Notes outstanding were tendered as of
the expiration of the tender offer at Midnight on September 14, 1998, and Mrs.
Fields accepted and paid for the approximately $1.1 million of remaining Notes
on September 16, 1998.
F-104
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Deblan Corporation
Houston, Texas
We have audited the accompanying Balance Sheets of Deblan Corporation as of
December 31, 1996 and 1997 and the related Statements of Earnings,
Shareholders' Equity and Cash Flows for the years ended December 31, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Deblan Corporation as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1995, 1996 and 1997, in conformity with
generally accepted accounting principles.
Weinstein Spira & Company, P.C.
Houston, Texas
August 17, 1998
F-105
<PAGE>
DEBLAN CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1996 1997 1998
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 399 $ 689 $ 702
Temporary investment.............................. 50 50 50
Accounts receivable:
Employees....................................... 12 10 12
Other........................................... 12 18 11
Inventory......................................... 161 145 180
Prepaid expenses.................................. 4 2 17
------ ------ ------
Total Current Assets.......................... 638 914 972
------ ------ ------
Property and Equipment:
Machinery and equipment........................... 1,173 1,269 1,339
Furniture and fixtures............................ 62 75 81
Leasehold improvements............................ 1,531 1,721 1,721
Transportation equipment.......................... 21 80 55
------ ------ ------
2,787 3,145 3,196
Less: Accumulated depreciation and amortization... 1,319 1,417 1,520
------ ------ ------
Net Property and Equipment...................... 1,468 1,728 1,676
------ ------ ------
Deferred Federal Income Tax Asset................... 3 2 14
------ ------ ------
Goodwill, net of accumulated amortization of $7, $8
and $8, respectively............................... 13 12 12
------ ------ ------
Intangibles, net of accumulated amortization of
$317, $325 and $347, respectively.................. 275 285 263
------ ------ ------
Other Assets........................................ 185 181 181
------ ------ ------
$2,582 $3,122 $3,118
====== ====== ======
</TABLE>
See notes to financial statements.
F-106
<PAGE>
DEBLAN CORPORATION
BALANCE SHEETS--(Continued)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1996 1997 1998
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Current portion of long-term debt................. $ 278 $ 291 $ 244
Accounts payable.................................. 212 232 335
Accrued expenses.................................. 191 230 108
Accrued payroll................................... 143 190 137
Federal income tax payable........................ 95 44 44
------ ------ ------
Total Current Liabilities..................... 919 987 868
Long-Term Debt, net of current portion.............. 299 479 362
------ ------ ------
1,218 1,466 1,230
------ ------ ------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common Stock--$.10 par, 110,000 shares authorized,
97,800 shares issued and outstanding............... 10 10 10
Additional Paid-In Capital.......................... 104 104 104
Retained Earnings................................... 1,250 1,542 1,774
------ ------ ------
Total Shareholders' Equity.......................... 1,364 1,656 1,888
------ ------ ------
$2,582 $3,122 $3,118
====== ====== ======
</TABLE>
See notes to financial statements
F-107
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF EARNINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
---------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Store Sales.......................... $8,512 $8,572 $9,503 $4,342 $4,768
------ ------ ------ ------ ------
Operating Costs and Expenses
Selling and store occupancy costs.... 5,465 5,400 5,744 2,570 2,666
Food cost of sales................... 1,518 1,519 1,675 773 831
General and administrative........... 971 1,061 1,169 672 779
Depreciation and amortization........ 266 237 255 138 142
------ ------ ------ ------ ------
Total operating costs and
expenses.......................... 8,220 8,217 8,843 4,153 4,418
------ ------ ------ ------ ------
Earnings From Operations............... 292 355 660 189 350
------ ------ ------ ------ ------
Other Income (Expense)
Interest income...................... 14 19 26 10 17
Gain (loss) on disposition of
property and equipment.............. (124) 32 (147) -- (4)
Interest expense..................... (109) (79) (73) (32) (34)
Other................................ 21 13 21 22 18
------ ------ ------ ------ ------
(198) (15) (173) -- (3)
------ ------ ------ ------ ------
Earnings Before Income Tax............. 94 340 487 189 347
------ ------ ------ ------ ------
Federal and State Income Tax (Recovery)
Current.............................. 52 145 194 82 127
Deferred............................. (9) (9) 1 (10) (12)
------ ------ ------ ------ ------
43 136 195 72 115
------ ------ ------ ------ ------
Net Earnings........................... $ 51 $ 204 $ 292 $ 117 $ 232
====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-108
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1996, 1997 and
For the Six Months Ended June 30, 1998 (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1994............ 97,800 $10 $104 $ 995 $1,109
Net Earnings........................ -- -- -- 51 51
------ --- ---- ------ ------
Balance--December 31, 1995............ 97,800 10 104 1,046 1,160
Net Earnings........................ -- -- -- 204 204
------ --- ---- ------ ------
Balance--December 31, 1996............ 97,800 10 104 1,250 1,364
Net Earnings........................ -- -- -- 292 292
------ --- ---- ------ ------
Balance--December 31, 1997............ 97,800 10 104 1,542 1,656
Net Earnings (unaudited)............ -- -- -- 232 232
------ --- ---- ------ ------
Balance--June 30, 1998 (unaudited).... 97,800 $10 $104 $1,774 $1,888
====== === ==== ====== ======
</TABLE>
See notes to financial statements.
F-109
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Cash received from customers and
employees...................... $ 8,506 $ 8,563 $ 9,500 $ 4,348 $ 4,773
Cash paid to vendors and
employees...................... (7,777) (8,146) (8,442) (4,082) (4,389)
Interest paid................... (109) (79) (73) (32) (34)
Income tax paid................. (100) (9) (245) (165) (127)
Interest received............... 14 19 26 10 17
Other income received........... 21 13 21 22 18
------- ------- ------- ------- -------
Net Cash Provided by Operating
Activities................... 555 361 787 101 258
------- ------- ------- ------- -------
Cash Flows From Investing
Activities:
Purchase of property and
equipment...................... (282) (203) (685) (348) (78)
Purchase of license agreement... -- (59) (75) (50) --
Payment of store start-up
costs.......................... (5) (13) (36) (21) --
Purchase of additional cash
value of life insurance........ (18) (13) (19) (9) (9)
Proceeds from sale of property
and equipment.................. -- 226 125 -- 6
------- ------- ------- ------- -------
Net Cash Used in Investing
Activities................... (305) (62) (690) (428) (81)
------- ------- ------- ------- -------
Cash Flows From Financing
Activities:
Proceeds from long-term
financing...................... 228 -- 482 284 --
Payment of debt................. (323) (306) (289) (147) (164)
------- ------- ------- ------- -------
Net Cash Provided by (Used in)
Financing Activities......... (95) (306) 193 137 (164)
------- ------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents............. 155 (7) 290 (190) 13
Cash and Cash Equivalents--
Beginning of Period.............. 251 406 399 399 689
------- ------- ------- ------- -------
Cash and Cash Equivalents--End of
Period........................... $ 406 $ 399 $ 689 $ 209 $ 702
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-110
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year For the Six
Ended December Months Ended
31, June 30,
----------------- -------------
1995 1996 1997 1997 1998
---- ----- ---- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings............................... $ 51 $ 204 $292 $ 117 $ 232
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization............ 266 237 255 138 142
(Gain) Loss on disposition of property
and equipment........................... 124 (32) 147 -- 4
Deferred taxes (recovery)................ (9) (9) 1 (10) (12)
(Increase) Decrease in:
Accounts receivable.................... (5) (9) (4) 6 5
Inventory.............................. 25 (16) 16 (16) (35)
Prepaid expenses....................... (2) 5 2 (11) (15)
Prepaid federal income tax............. (41) 41 -- -- --
Deposits............................... 4 9 23 7 9
Accounts payable....................... 66 (109) 20 37 103
Accrued expenses....................... 84 (55) 86 (82) (175)
Federal income tax payable............. (8) 95 (51) (85) --
---- ----- ---- ----- ------
Net Cash Provided by Operating
Activities.......................... $555 $ 361 $787 $ 101 $ 258
==== ===== ==== ===== ======
</TABLE>
See notes to financial statements.
F-111
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
1. ACCOUNTING POLICIES
Doing business as The Great American Chocolate Chip Cookie Company, the
Company operated twenty-three franchise locations at December 31, 1995, 1996
and 1997 and June 30, 1998, in various Texas, Louisiana, Colorado and Florida
shopping malls. The Company maintains its accounts on the accrual method of
accounting in accordance with generally accepted accounting principles.
Accounting principles followed by the Company and the methods of applying those
principles which materially affect the determination of financial position,
results of operations and cash flows are summarized below:
Revenue Recognition
Revenue is recognized at the time sales are made.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. At all balance sheet dates, the
Company had deposits in excess of federally insured limits.
Inventory
Inventory consists of packaging materials, beverages and baking ingredients
for use in the ordinary course of business. All inventory is valued at the
lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line and accelerated methods over the following estimated useful
lives:
<TABLE>
<S> <C>
Machinery and equipment.......... 5-7 years
Furniture and fixtures........... 5-7 years
Leasehold improvements........... 10-20 years
Transportation equipment......... 5 years
</TABLE>
Temporary Investment
Temporary investment includes certificates of deposit with an original
maturity of greater than three months.
Federal and State Income Tax
Federal and state income tax is provided at current prevailing rates.
The Company records deferred tax liabilities and assets for the anticipated
future tax effects of temporary differences that arise as a result of
differences in the carrying amounts and tax bases of assets and liabilities.
Licenses
Fees paid in connection with obtaining operating licenses are amortized over
the life of the license, ranging from 60 months to 360 months.
F-112
<PAGE>
Intangibles
Intangibles consist of organization and store start-up costs which are
amortized over a 60-month period, and store license fees which are amortized
over periods ranging from 60 months to 360 months. In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5 which requires store start-up expenses to be expensed as incurred. This
SOP is effective for financial statements for fiscal years beginning after
December 15, 1998.
Goodwill
Goodwill represents the excess of cost over book value of assets acquired.
The Company amortizes goodwill using the straight-line method over twenty
years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1997 and 1998, presented in this prospectus,
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the Company's financial position,
results of operations, shareholders' equity and cash flows for the interim
period. The results of operations and cash flows for the six months ended June
30, 1997 and 1998 are not necessarily indicative of the results which would be
expected for a full year.
Long-Lived Assets
The Company assesses and measures for impairment of all long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether the assets are recoverable. The Company assesses impairment
of long-lived assets at the store level which the Company believes is the
lowest level for which there are identifiable cash flows that are independent
of other groups of assets. As of December 31, 1996, December 31, 1997 and June
30, 1998, the Company does not consider any of its long-lived assets to be
impaired.
Fair Value of Financial Instruments
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
F-113
<PAGE>
Recent Accounting Pronouncements
The Company has not yet adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income." The Statement will be effective for
the fiscal year 1998. It establishes standards for reporting and displaying of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required.
The Company has not yet adopted Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
The Statement will be effective for the fiscal year 1998. It establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. In the initial year of application,
comparative information for earlier years is to be restated.
The Company believes that adoption of these Statements will not have a
material impact on its financial condition, results of operations or cash
flows.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements to conform with the presentation as of June 30, 1998.
2. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
License fees (net of accumulated amortization of $263,
$270 and $285, respectively)............................ $243 $237 $222
Organization and store start-up costs (net of accumulated
amortization of $54, $55 and $62, respectively)......... 32 48 41
---- ---- ----
$275 $285 $263
==== ==== ====
3. OTHER ASSETS
Other assets consist of the following (in thousands):
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Cash value of officer's life insurance................... $ 82 $101 $110
Deposits................................................. 103 80 71
---- ---- ----
$185 $181 $181
==== ==== ====
</TABLE>
F-114
<PAGE>
4. FEDERAL INCOME TAXES
Differences between the effective tax rate and the statutory federal tax rate
are as follows (in thousands):
<TABLE>
<CAPTION>
For the Six
For the Year Months
Ended Ended June
December 31, 30,
---------------- --------------
1995 1996 1997 1997 1998
---- ---- ---- ----- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax expense at the
statutory rate........................... $32 $116 $166 $ 64 $ 118
Increase (Decrease) in:
State income taxes, net of income tax
benefit.................................. 6 4 5 2 1
Officer's life insurance and other
nondeductible expenses................... 17 20 23 7 4
Surtax exemption.......................... (12)
Other..................................... -- (4) 1 (1) (8)
--- ---- ---- ----- ------
$43 $136 $195 $ 72 $ 115
=== ==== ==== ===== ======
</TABLE>
The net deferred federal income tax asset results from differences in
depreciation between tax reporting and financial statement reporting, as
follows (in thousands):
<TABLE>
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Accumulated depreciation.............................. $ 3 $ 2 $ 14
==== ==== ====
5. NOTES PAYABLE
Notes payable are as follows (in thousands):
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable--bank, bearing interest at bank prime
plus 1%, secured by certificate of deposit,
equipment, leasehold improvements, assignment of life
insurance, common stock and guaranty of majority
shareholder, due in total monthly installments of
$6.6, including interest, maturing in 1998........... $ 98 $ 27 $--
Notes payable--bank, bearing interest at bank prime
plus .5%, secured by certificate of deposit,
equipment, leasehold improvements, assignment of life
insurance, common stock and guaranty of majority
shareholder, due in total monthly installments of
$26.5, including interest, maturing in various years
through 2002......................................... 465 686 561
Notes payable--bearing interest at 8.5% to 8.6%,
secured by transportation equipment, due in total
monthly installments of $1.8, including interest,
maturing in various years through 2002............... 14 57 45
---- ---- ----
577 770 606
Less: Current maturities.............................. 278 291 244
---- ---- ----
$299 $479 $362
==== ==== ====
</TABLE>
F-115
<PAGE>
The following is a schedule of future minimum principal payments on debt (in
thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31, Amount
-------------------------------- ------
<S> <C>
1998.................................................................. $291
1999.................................................................. 210
2000.................................................................. 113
2001.................................................................. 124
2002.................................................................. 32
----
$770
====
</TABLE>
In connection with the notes payable-bank, the Company has entered into a
loan agreement which contains certain restrictive covenants, including
maintenance of certain financial ratios, and limitations on borrowings, capital
expenditures, loans, sale of assets, dividend payments and executive
compensation. At December 31, 1996, December 31, 1997 and June 30, 1998, the
Company was in compliance with the covenants or had obtained waivers for those
covenants for the succeeding 12 months for which it was not in compliance.
6. OPERATING LEASES
The Company leases facilities at various locations from unrelated third
parties. The facility leases expire in years ranging from 1998 through 2005.
Rent expense is composed of the following items (in thousands):
<TABLE>
<CAPTION>
For the Six
Months
For the Year Ended Ended June
December 31, 30,
-------------------- -----------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Facilities.................................. $ 997 $ 908 $ 953 $ 478 $ 478
Equipment................................... 20 18 8 5 2
Contingent rents............................ 78 101 162 54 54
------ ------ ------ ----- -----
$1,095 $1,027 $1,123 $ 537 $ 534
====== ====== ====== ===== =====
</TABLE>
The following is a schedule of future minimum rental payments (in thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31, Facilities Equipment Total
-------------------------------- ---------- --------- ------
<S> <C> <C> <C>
1998............................................ $ 805 $ 2 $ 807
1999............................................ 726 -- 726
2000............................................ 624 -- 624
2001............................................ 529 -- 529
2002............................................ 477 -- 477
Thereafter...................................... 1,305 -- 1,305
------ --- ------
$4,466 $ 2 $4,468
====== === ======
</TABLE>
7. PROFIT SHARING PLAN
The Company has a profit sharing plan under Section 401(k) of the Internal
Revenue Code for all eligible employees. All eligible employees are permitted
to defer compensation up to the maximum percentage of annual compensation
allowed by the Internal Revenue Code. The plan provides for a matching 50%
contribution and a discretionary contribution by the Company. The Company
provided contributions of $40,560, $49,974 and $77,877 for the years ended
December 31, 1995, 1996 and 1997, and $14,470 and $25,211 for the six months
ended June 30, 1997 and 1998, respectively.
F-116
<PAGE>
8. COMMITMENTS
The Company is required to pay its franchisor seven percent of revenues as a
franchise fee.
9. CORPORATE REGISTRATION
In a corporate reorganization in February, 1997, the par value of the common
stock was changed from $1.00 to $.10, followed by a 150-to-1 stock split which
increased the number of issued shares to 97,800. Additionally, the number of
shares authorized was increased to 110,000. The financial statements presented
have been restated to reflect the stock split. Common stock was increased
$3,000, and retained earnings were reduced $3,000.
10. REDEMPTION AGREEMENT
The shareholders of the Company entered into a stock redemption agreement
with the Company in March, 1997. The following is a brief overview of the
general terms:
Upon the death of the majority shareholder, the Company is obligated to
purchase his stock (87,300 shares at December 31, 1997). The price per share
shall be the greater of the proceeds from the redemption of life insurance or
the value of the stock as stipulated by the shareholders, annually. The initial
value stipulated in March, 1997 was $22.75 per share. The Company owns and is
beneficiary of life insurance in the amount of $1,500,000 on the life of the
majority shareholder, the proceeds of which may be used toward this redemption.
Upon the death of the other shareholders, the Company is obligated to
purchase the stock at the above described stipulated value.
11. SUBSEQUENT EVENT
Subsequent to year end, the shareholders of the Company agreed to sell their
shares to Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields") subject to
certain events, including Mrs. Fields obtaining financing through a private
placement of debt securities.
F-117
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chocolate Chip Cookies of Texas, Inc.:
We have audited the accompanying balance sheets of Chocolate Chip Cookies of
Texas, Inc. (a Texas corporation) as of September 30, 1996 and 1997, and the
related statements of operations, stockholders' equity and cash flows for the
years ended September 30, 1995, 1996 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chocolate Chip Cookies of
Texas, Inc. as of September 30, 1996 and 1997, and the results of its
operations and its cash flows for the years ended September 30, 1995, 1996 and
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
July 22, 1998
F-118
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................. $ 161 $ 66 $ 173
Accounts receivable.................. -- -- 2
Inventories.......................... 21 22 34
Prepaid assets....................... 4 1 20
----- ----- -----
Total current assets............... 186 89 229
----- ----- -----
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements............... 353 494 496
Equipment and fixtures............... 150 168 168
Vehicles............................. 26 26 26
----- ----- -----
529 688 690
Less accumulated depreciation and
amortization........................ (377) (408) (435)
----- ----- -----
Net property and equipment......... 152 280 255
----- ----- -----
OTHER ASSETS:
Deposits............................. -- -- 13
Intangibles, net of accumulated
amortization of $216, $245 and $257,
respectively........................ 47 43 31
----- ----- -----
Total other assets................. 47 43 44
----- ----- -----
DEFERRED TAX ASSET..................... 2 3 1
----- ----- -----
Total assets....................... $ 387 $ 415 $ 529
===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-119
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
BALANCE SHEETS--(Continued)
(In Thousands, Except Share and Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.... $ 31 $ 33 $ --
Accounts payable..................... 73 73 50
Accrued salaries..................... 33 43 94
Accrued liabilities.................. 18 45 50
Deferred rent expense................ 22 31 34
Income taxes payable................. 12 15 57
----- ----- -----
Total current liabilities.......... 189 240 285
LONG-TERM DEBT, net of current
portion............................... 81 47 --
----- ----- -----
Total liabilities.................. 270 287 285
----- ----- -----
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 1,000,000
shares authorized and 250 shares
outstanding......................... -- -- --
Treasury stock, 750 shares at cost... (216) (216) (216)
Retained earnings.................... 333 344 460
----- ----- -----
Total stockholder's equity........... 117 128 244
----- ----- -----
Total liabilities and stockholders'
equity............................ $ 387 $ 415 $ 529
===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-120
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET STORE SALES......... $2,168 $2,321 $2,650 $1,962 $2,266
------ ------ ------ ------ ------
OPERATING COSTS:
Selling and store
occupancy costs...... 1,197 1,234 1,373 1,005 1,101
Food cost of sales.... 504 603 634 472 531
General and
administrative....... 352 363 565 424 429
Depreciation and
amortization......... 48 49 60 41 39
------ ------ ------ ------ ------
Total operating
costs and
expenses........... 2,101 2,249 2,632 1,942 2,100
------ ------ ------ ------ ------
Income from
operations......... 67 72 18 20 166
------ ------ ------ ------ ------
OTHER INCOME/(EXPENSE):
Interest expense...... (21) (11) (8) (6) (4)
Interest income....... 4 3 6 4 4
------ ------ ------ ------ ------
Income before
provision for
income taxes....... 50 64 16 18 166
PROVISION FOR INCOME
TAXES.................. 12 12 5 6 50
------ ------ ------ ------ ------
NET INCOME.............. $ 38 $ 52 $ 11 $ 12 $ 116
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-121
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Treasury
Common Stock Stock
------------- ------------- Retained
Shares Amount Shares Amount Earnings Total
------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994....... 250 $-- 750 $(216) $243 $ 27
Net income...................... -- -- -- -- 38 38
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1995....... 250 -- 750 (216) 281 65
Net income...................... -- -- -- -- 52 52
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1996....... 250 -- 750 (216) 333 117
Net income...................... -- -- -- -- 11 11
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1997....... 250 -- 750 (216) 344 128
Net income (unaudited).......... -- -- -- -- 116 116
--- ---- --- ----- ---- ----
BALANCE, JUNE 30, 1998 (unau-
dited)........................... 250 $-- 750 $(216) $460 $244
=== ==== === ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-122
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 38 $ 52 $ 11 $ 12 $116
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 48 49 60 41 39
Changes in assets and
liabilities:
Accounts receivable.. -- -- -- -- (2)
Inventories.......... (11) 9 (1) (13) (12)
Prepaid assets....... (7) 3 3 4 (19)
Deposits............. -- -- -- -- (13)
Deferred tax asset... (1) 1 (1) (2) 2
Accounts payable..... -- (10) -- 4 (23)
Income taxes
payable............. (20) 7 3 4 42
Accrued liabilities,
salaries and
deferred rent
expense............. 28 4 46 121 59
----- ---- ----- ---- ----
Net cash provided by
operating
Activities......... 75 115 121 171 189
----- ---- ----- ---- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of property
and equipment......... (143) (10) (159) (69) (2)
Amounts paid for non-
compete agreements.... (63) -- -- -- --
Amounts paid for
franchise agreements.. (25) -- (25) (26) --
----- ---- ----- ---- ----
Net cash used in
investing
activities......... (231) (10) (184) (95) (2)
----- ---- ----- ---- ----
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt............... 160 -- -- -- --
Principal payments on
debt.................. (21) (27) (32) (24) (80)
----- ---- ----- ---- ----
Net cash provided by
(used in) financing
activities......... 139 (27) (32) (24) (80)
----- ---- ----- ---- ----
NET (DECREASE) INCREASE
IN CASH................ (17) 78 (95) 52 107
CASH, beginning of
period................. 100 83 161 161 66
----- ---- ----- ---- ----
CASH, end of period..... $ 83 $161 $ 66 $213 $173
===== ==== ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-123
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF CASH FLOWS--(Continued)
(In Thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was approximately $21, $11, $8, $6 (unaudited) and $4
(unaudited) for the years ended September 30, 1995, 1996 and 1997 and for the
nine months ended June 30, 1997 and 1998, respectively.
Cash paid for income taxes was approximately $17, $2, $1, $1 (unaudited) and
$1 (unaudited) for the years ended September 30, 1995, 1996 and 1997 and for
the nine months ended June 30, 1997 and 1998, respectively.
The accompanying notes to financial statements are an integral part of these
statements.
F-124
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Notes to Unaudited Periods)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Chocolate Chip Cookies of Texas, Inc. (the "Company"), a Texas corporation,
was incorporated in 1981. The Company operates retail stores which sell freshly
baked cookies and other food products. The Company's stores are franchised from
Great American Cookie Company, Inc. ("GACC"). As of June 30, 1998, the Company
owned and operated six stores, of which five are located in Texas and one in
Louisiana.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the first fiscal quarter. Because the Company's stores are all located in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls. As a franchisee of GACC, substantially all of
the Company's sales are derived from products purchased from GACC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
payable and debt instruments. The carrying value of those instruments reported
in the balance sheets are considered to estimate their respective fair values
due to the short-term nature of such instruments and the current interest rate
environment.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the FIFO (first-in, first-out) method (see Note 3).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the remaining term of the
applicable lease. The depreciable lives of equipment, fixtures and vehicles
range from five to ten years.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the
useful lives of existing equipment are capitalized and depreciated. On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
Intangibles
Intangibles primarily consist of franchise fees paid to GACC and amounts paid
for non-compete agreements between the Company and various other parties.
Intangibles are being amortized on a straight-line 2.SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
F-125
<PAGE>
basis over the lives of the agreements, which are generally ten years for
franchise agreements and three years for non-compete agreements.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Revenue Recognition
Revenues generated from the Company's stores are recognized at the point of
sale.
Sources of Supply
The Company currently buys a significant amount of its food products and
supplies from GACC and an unrelated supplier. In accordance with the franchise
agreement, the Company must buy its food products from GACC (see Note 6).
Management believes that the Company could obtain its supplies from numerous
other suppliers at comparable prices and terms.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether assets are recoverable. The Company assesses impairment of
long-lived assets at the store level, which the Company believes is the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets. As of June 30, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Recent Accounting Pronouncements
During the nine months ended June 30, 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
130, "Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company does not expect
that these statements will have a significant impact on its financial
statements.
Interim Financial Statements
The financial statements as of and for the nine months ended June 30, 1998,
and for the nine months ended June 30, 1997, are unaudited. In the opinion of
management, these financial statements have been presented on the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for these periods. These interim
financial statements are not necessarily indicative of the results that may be
achieved for the full fiscal year.
F-126
<PAGE>
3. INVENTORIES
The Company's inventories consist of the following as of September 30, 1996
and 1997 and June 30, 1998:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Food................................. $12,000 $13,000 $23,000
Beverages............................ 3,000 3,000 4,000
Supplies............................. 6,000 6,000 7,000
------- ------- -------
$21,000 $22,000 $34,000
======= ======= =======
</TABLE>
4. LONG-TERM DEBT
As of September 30, 1996 and September 30, 1997, long-term debt consisted of
a promissory note payable to Wells Fargo Bank secured by the property and
equipment of the Company. The note was originally issued by the Company on
October 17, 1994 with a variable interest rate equal to the prime rate. As of
September 30, 1997 the interest rate on the note was 8.50%. During April 1998,
the note was paid in full.
5. INCOME TAXES
The components of the provision for income taxes for the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current............... $11,000 $11,000 $ 5,000 $ 8,000 $44,000
Deferred.............. (1,000) -- (1,000) (2,000) 2,000
State:
Current............... 2,000 1,000 1,000 -- 4,000
------- ------- ------- ------- -------
Total................... $12,000 $12,000 $ 5,000 $ 6,000 $50,000
======= ======= ======= ======= =======
</TABLE>
The differences between income taxes at the statutory income tax rate and
income taxes reported in the statements of operations are as follows for the
years ended September 30, 1995, 1996 and 1997 and the nine months ended June
30, 1997 and 1998:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate.. 15% 15% 15% 15% 30%
State franchise taxes... 4 2 6 -- 2
Other................... 5 2 10 18 (2)
--- --- --- --- ---
24% 19% 31% 33% 30%
=== === === === ===
</TABLE>
F-127
<PAGE>
The significant components of the Company's deferred income tax assets and
liabilities at September 30, 1996 and 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Deferred rent expense............ $ 3,000 $ 5,000 $ 10,000
Amortization of non-compete
agreements and franchise
agreements...................... 6,000 9,000 20,000
------- -------- --------
Total deferred income tax
assets........................ 9,000 14,000 30,000
Deferred income tax liabilities:
Accumulated depreciation......... (7,000) (11,000) (29,000)
------- -------- --------
Net deferred income tax assets..... $ 2,000 $ 3,000 $ 1,000
======= ======== ========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
Related-Party Operating Leases
The Company leases retail store facilities under long-term noncancelable
operating lease agreements with remaining terms of one to nine years from GACC.
The future minimum lease payments due under these operating leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending September 30,
-------------------------
<S> <C>
1998........................................................... $ 185,000
1999........................................................... 185,000
2000........................................................... 192,000
2001........................................................... 193,000
2002........................................................... 166,000
Thereafter..................................................... 326,000
----------
$1,247,000
==========
</TABLE>
Each of these leases provides for contingent rentals based on gross revenues.
Total rental expense, which has been accounted for on a straight-line basis for
escalating leases included above, for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 and 1998 was approximately
$280,000, $299,000, $335,000, $239,000 (unaudited) and $219,000 (unaudited),
respectively.
Franchise Royalties
The Company pays GACC franchise royalties in connection with its franchise
agreements with GACC. Franchise royalties are calculated as 7% of gross
revenues (as defined in the individual agreements). During the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998, the Company incurred approximately $152,000, $163,000, $185,000, $132,000
(unaudited) and $158,000 (unaudited), respectively, for franchise royalties,
which are included as part of selling and store occupancy costs in the
accompanying statements of operations. As of September 30, 1996 and 1997 and
June 30, 1998, approximately $13,000, $15,000 and $17,000 (unaudited),
respectively, in franchise royalties were payable to GACC.
F-128
<PAGE>
6.RELATED PARTY TRANSACTIONS (Continued)
Inventory
The Company, in connection with its franchise agreements with GACC, purchases
the majority of its inventories from GACC. During the years ended September 30,
1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998, the
Company purchased approximately $311,000, $348,000, $387,000, $298,000
(unaudited) and $327,000 (unaudited), respectively, in inventories from GACC.
As of September 30, 1996 and 1997 and June 30, 1998, approximately $12,000,
$14,000 and $15,000 (unaudited), respectively, were payable to GACC related to
inventory purchases.
7. SUBSEQUENT EVENT
On August 24, 1998, the Company sold 100 percent of its common stock to Mrs.
Fields' Original Cookies, Inc.
F-129
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Combined Karp Entities:
We have audited the accompanying combined balance sheets of the Combined Karp
Entities (the "Company") identified in Note 1 as of December 31, 1996 and 1997,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 1995, 1996 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Combined Karp
Entities as of December 31, 1996 and 1997, and the results of their operations
and their cash flows for the years ended December 31, 1995, 1996 and 1997 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
October 6, 1998
F-130
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1996 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................... $ 179 $ 176 $ 98
Inventories............................ 57 54 62
Prepaid assets......................... 42 34 31
------ ------ ------
Total current assets................. 278 264 191
------ ------ ------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................. 803 803 803
Equipment and fixtures................. 460 460 462
------ ------ ------
1,263 1,263 1,265
Less accumulated depreciation.......... (617) (718) (768)
------ ------ ------
Net property and equipment........... 646 545 497
------ ------ ------
OTHER ASSETS:
Deposits............................... 42 37 35
Intangibles, net of accumulated
amortization of $159, $179 and $191,
respectively.......................... 136 121 111
------ ------ ------
Total other assets................... 178 158 146
------ ------ ------
NON-CURRENT DEFERRED TAX ASSET........... 8 20 23
------ ------ ------
Total assets......................... $1,110 $ 987 $ 857
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-131
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED BALANCE SHEETS--(Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 30, December 30, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................... $ 39 $ 95 $ 63
Accrued salaries....................... 55 52 42
Accrued liabilities.................... 123 121 107
Income taxes payable................... 128 142 147
------ ------ -------
Total current liabilities............ 345 410 359
------ ------ -------
RELATED-PARTY PAYABLES................... 23 23 23
------ ------ -------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock (Note 5).................. 90 90 90
Additional paid-in capital............. 1,324 1,452 1,536
Accumulated deficit.................... (672) (988) (1,151)
------ ------ -------
Total stockholders' equity........... 742 554 475
------ ------ -------
Total liabilities and stockholders'
equity.............................. $1,110 $ 987 $ 857
====== ====== =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-132
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET STORE SALES......... $2,342 $2,445 $2,500 $1,144 $1,181
------ ------ ------ ------ ------
OPERATING COSTS:
Food cost of sales.... 614 668 683 336 339
Selling and store
occupancy costs...... 1,421 1,488 1,635 788 744
General and
administrative....... 192 199 238 101 114
Depreciation and
amortization......... 104 127 121 59 62
------ ------ ------ ------ ------
Total operating
costs.............. 2,331 2,482 2,677 1,284 1,259
------ ------ ------ ------ ------
Income (loss) from
operations......... 11 (37) (177) (140) (78)
INTEREST EXPENSE........ (54) (30) (18) (9) (7)
------ ------ ------ ------ ------
Loss before
provision for
income taxes....... (43) (67) (195) (149) (85)
PROVISION FOR INCOME
TAXES.................. (26) (19) (15) (4) (6)
------ ------ ------ ------ ------
NET LOSS................ $ (69) $ (86) $ (210) $ (153) $ (91)
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-133
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-In Capital Deficit Total
------------ --------------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994..... $90 $ 398 $ (13) $ 475
Distributions................ -- -- (137) (137)
Net loss..................... -- -- (69) (69)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1995..... 90 398 (219) 269
Distributions................ -- -- (367) (367)
Capital contributions........ -- 926 -- 926
Net loss..................... -- -- (86) (86)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1996..... 90 1,324 (672) 742
Distributions................ -- -- (106) (106)
Capital contributions........ -- 128 -- 128
Net loss..................... -- -- (210) (210)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1997..... 90 1,452 (988) 554
Distributions (unaudited).... -- -- (72) (72)
Capital contributions
(unaudited)................. -- 84 -- 84
Net loss (unaudited)......... -- -- (91) (91)
--- ------ ------- -----
BALANCE, JUNE 30, 1998
(unaudited)................... $90 $1,536 $(1,151) $ 475
=== ====== ======= =====
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-134
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (69) $ (86) $(210) $(153) $(91)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 104 127 121 59 62
Changes in assets and
liabilities:
Related-party
receivables......... (79) 143 -- -- --
Inventories.......... -- -- 3 -- (8)
Prepaid assets....... (5) 5 8 11 3
Deposits............. 1 (11) 5 5 2
Deferred taxes....... (2) (9) (12) (7) (3)
Accounts payable..... 38 (52) 56 25 (32)
Accrued salaries..... -- 17 (3) (15) (10)
Accrued liabilities.. 15 13 (2) (21) (14)
Income taxes
payable............. 13 14 14 3 5
Related-party
payables............ 69 (567) -- -- --
----- ----- ----- ----- ----
Net cash provided by
(used in) operating
activities......... 85 (406) (20) (93) (86)
----- ----- ----- ----- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of property
and equipment......... (13) (111) -- -- (2)
Acquisition of
intangibles........... 4 (20) (5) (5) (2)
Distributions.......... (137) (367) (106) (66) (72)
Additional investment.. -- 926 128 62 84
----- ----- ----- ----- ----
Net cash provided by
(used in) investing
activities......... (146) 428 17 (9) 8
----- ----- ----- ----- ----
NET INCREASE (DECREASE)
IN CASH................ (61) 22 (3) (102) (78)
CASH, beginning of
period................. 218 157 179 179 176
----- ----- ----- ----- ----
CASH, end of period..... $ 157 $ 179 $ 176 $ 77 $ 98
===== ===== ===== ===== ====
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-135
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF CASH FLOWS--(Continued)
SUPPLEMENTAL DISCLOSURE OF COMBINED CASH FLOW INFORMATION:
Cash paid for interest was approximately $40,000, $18,000, $18,000, $9,000
(unaudited) and $7,000 (unaudited) for the years ended December 31, 1995, 1996
and 1997 and for the six months ended June 30, 1997 and 1998, respectively.
Cash paid for income taxes was approximately $18,000, $10,000, $10,000,
$2,000 (unaudited) and $1,000 (unaudited) for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998,
respectively.
During the year ended December 31, 1996, related-party payables of Hot White
Plains Cookies, Inc, Hot Roosevelt Cookies, Inc. and Hot Rockaway Cookies of
approximately $364,000, $264,000 and $198,000, respectively, were forgiven and
accounted for as capital contributions to these entities.
During the year ended December 31, 1996 and December 31,1997, related party
receivables of Hot Barton and Northpark Cookies, Inc. and Northpark Cookies,
Inc. of approximately $71,000 and $0 and $120,000 and $4,000, respectively,
were distributed to stockholders.
The accompanying notes to combined financial statements
are an integral part of these statements.
F-136
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Including Notes to Unaudited Periods)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Combined Karp Entities (the "Company") established operations on the
following dates under the laws of the respective states:
<TABLE>
<CAPTION>
Structure of State of State of
Company Inception date Entity Incorporation Operation
------- ------------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
Hot Barton and Northpark
Cookies, Inc........... August 6, 1981 C-corporation Georgia New Jersey
Northpark Cookies,
Inc.................... October 5, 1981 C-corporation Iowa Iowa
Crossroads Cookies,
Inc.................... December 9, 1981 C-corporation Georgia Oklahoma
Quail Springs Cookies,
Inc.................... April 20, 1982 C-corporation Georgia Oklahoma
Westgate Cookies, Inc... August 30, 1982 S-corporation Texas Texas
Hot White Plains
Cookies, Inc........... September 23, 1992 S-corporation Georgia New York
Hot Roosevelt Cookies,
Inc.................... April 7, 1993 S-corporation Georgia New York
Hot Rockaway Cookies.... April 11, 1996 -- Florida New Jersey
</TABLE>
Northpark Cookies, Inc.'s status of incorporation became inactive as of
November 25, 1987. The successor in interest is Hot Barton and Northpark
Cookies, Inc.
The ASK & MSK Family Limited Partnership-II(B), Inc. (the "Partnership") was
incorporated in Florida on April 11, 1996. On this date, the Partnership
acquired Hot Roosevelt Cookies, Inc. and Hot White Plains Cookies, Inc. As
these entities share common control, these acquisitions were accounted for in
a manner similar to a pooling of interests. In addition, on April 11, 1996,
the Partnership invested in the Hot Rockaway Cookies store.
The Company operates retail stores that sell freshly baked cookies and other
food products. The retail stores are franchised from Great American Cookie
Company, Inc. ("GACC").
The entities that make up the Company have various fiscal year ends which
have been recast to December 31 for purposes of these combined financial
statements. These fiscal year ends are as follows:
<TABLE>
<CAPTION>
Company Fiscal Year End
------- ---------------
<S> <C>
Hot Barton and Northpark Cookies, Inc....................... July 31
Northpark Cookies, Inc...................................... July 31
Crossroads Cookies, Inc..................................... November 30
Quail Springs Cookies, Inc.................................. November 30
Westgate Cookies, Inc....................................... December 31
Hot White Plains Cookies, Inc............................... December 31
Hot Roosevelt Cookies, Inc.................................. December 31
Hot Rockaway Cookies........................................ December 31
</TABLE>
F-137
<PAGE>
The Company's business follows seasonal trends and is affected by climate and
weather conditions. The Company experiences its highest revenues in the fourth
quarter. Because the stores are located in shopping malls, sales performance is
significantly dependent on the performance of those malls. As a franchisee of
GACC, substantially all of the Entities' sales are derived from products
purchased from GACC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The individuals entities included within the combined financial statements
operate under similar ownership and common control. All significant
intercompany balances and transactions have been eliminated in the combination.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
payable and related-party payables. The carrying value of cash and accounts
payable reported in the combined balance sheets are considered to approximate
their respective fair values due to the short-term nature of such instruments
and the current interest rate environment. The fair value of related-party
payables at prevailing market rates is estimated to be $25,000 as of December
31, 1996, 1997 and June 30, 1998.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the FIFO (first-in, first-out) method (see Note 3).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the remaining term of the
applicable lease. The depreciable lives of equipment and fixtures are ten
years.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the
useful lives of existing equipment are capitalized and depreciated. On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in the statement of operations.
Intangibles
Intangibles consist primarily of franchise fees and store operating lease
costs paid to GACC. Intangibles are being amortized on a straight-line basis
over the lives of the franchise or lease agreements, which are generally ten
years.
F-138
<PAGE>
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the combined
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial and income tax bases of assets and liabilities using enacted tax
rates expected to apply when differences are expected to be settled or
realized.
Revenue Recognition
Revenues generated from the combined stores are recognized at the point of
sale.
Sources of Supply
The Company currently buys a significant portion of their food products and
supplies from GACC and an unrelated supplier. In accordance with the franchise
agreements, the Company must buy its food products from GACC (see Note 6).
Management believes that the Company could obtain its supplies from numerous
other suppliers at comparable prices and terms.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long- Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether assets are recoverable. The Company assesses impairment of
long-lived assets at the store level, which management believes is the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets. As of June 30, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Recent Accounting Pronouncements
During the six months ended June 30, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company does not expect the
implementation of these pronouncements will have a significant impact on its
financial statements.
Interim Combined Financial Statements
The combined financial statements as of and for the six months ended June 30,
1998 and for the six months ended June 30, 1997 are unaudited. In the opinion
of management, these combined financial statements have been presented on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the combined financial position and results of operations for
these periods. These combined interim financial statements are not necessarily
indicative of the results that may be achieved for the full fiscal year.
F-139
<PAGE>
3. INVENTORIES
The Company's inventories consist of the following as of December 31, 1996
and 1997 and June 30, 1998:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Food................................... $38,000 $33,000 $40,000
Beverages.............................. 5,000 6,000 7,000
Supplies............................... 14,000 15,000 15,000
------- ------- -------
$57,000 $54,000 $62,000
======= ======= =======
</TABLE>
4. INCOME TAXES
The following four entities are not included in income tax calculations due
to their status as S-corporations or as a business operated within a
partnership: Westgate Cookies, Inc., Hot White Plains Cookies, Inc., Hot
Roosevelt Cookies, Inc. and Hot Rockaway Cookies. Had these entities been
taxable entities, on a pro forma basis, an income tax provision (benefit) of
approximately $22,000, $(27,000), $16,000, $(14,000) and $15,000 would have
been provided for the years ended December 31, 1995, 1996, 1997 and the six
months ended June 30, 1997 and 1998, respectively. Income taxes were provided
for all entities with C-corporation status.
The components of the provision for income taxes for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current.... $10,000 $13,000 $ 9,000 $ 4,000 $ 3,000
Deferred... (2,000) (8,000) (12,000) (7,000) (3,000)
State:
Current.... 18,000 14,000 18,000 7,000 6,000
------- ------- -------- ------- -------
Total........ $26,000 $19,000 $ 15,000 $ 4,000 $ 6,000
======= ======= ======== ======= =======
</TABLE>
The differences between income taxes at the statutory income tax rate and
income taxes reported in the statements of operations are the result of
permanent differences.
The significant components of the Entities' deferred income tax assets and
liabilities at December 31, 1996 and 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Accumulated depreciation........... $5,000 $ 9,000 $11,000
Net operating loss carryforwards... 3,000 8,000 9,000
Capital losses in excess of capital
gains............................. -- 3,000 3,000
------ ------- -------
Net deferred income tax assets... $8,000 $20,000 $23,000
====== ======= =======
</TABLE>
F-140
<PAGE>
5. STOCKHOLDERS' EQUITY
Share Data
The individual entities had the following assigned par value, authorized and
outstanding shares at December 31, 1996 and 1997, and June 30, 1998:
<TABLE>
<CAPTION>
Shares Shares
Entity Par Value Authorized Outstanding
------ --------- ---------- -----------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies, Inc. ... $0.10 1,000 200
Northpark Cookies, Inc. .................. 0.50 1,000,000 180,000
Crossroads Cookies, Inc. ................. 0.10 2,000 1,000
Quail Springs Cookies, Inc. .............. 0.10 1,000 500
Westgate Cookies, Inc. ................... 0.10 1,000 1,000
Hot White Plains Cookies, Inc. ........... 0.01 10,000 500
Hot Roosevelt Cookies, Inc. .............. 0.01 10,000 500
</TABLE>
Capital Contributions
The individual entities received the following capital contributions:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months
December 31, December 31, Ended
Entity 1996 1997 June 30, 1998
------ ------------ ------------ -------------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies,
Inc. ............................ $ -- $ 7,000 $ --
Northpark Cookies, Inc. .......... -- -- 7,000
Crossroads Cookies, Inc. ......... -- -- --
Quail Springs Cookies, Inc. ...... -- -- --
Westgate Cookies, Inc. ........... -- -- --
Hot White Plains Cookies, Inc. ... 428,000 46,000 15,000
Hot Roosevelt Cookies, Inc. ...... 300,000 27,000 12,000
Hot Rockaway Cookies.............. 198,000 48,000 50,000
-------- -------- -------
$926,000 $128,000 $84,000
======== ======== =======
</TABLE>
Distributions
The individual entities made the following distributions to stockholders:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months
December 31, December 31, Ended
Entity 1996 1997 June 30, 1998
------ ------------ ------------ -------------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies,
Inc. ............................ $ (71,000) $ -- $ --
Northpark Cookies, Inc. .......... (120,000) (4,000) --
Crossroads Cookies, Inc. ......... (24,000) (3,000) --
Quail Springs Cookies, Inc. ...... (45,000) (45,000) (30,000)
Westgate Cookies, Inc. ........... (107,000) (54,000) (42,000)
Hot White Plains Cookies, Inc. ... -- -- --
Hot Roosevelt Cookies, Inc. ...... -- -- --
Hot Rockaway Cookies.............. -- -- --
--------- --------- --------
$(367,000) $(106,000) $(72,000)
========= ========= ========
</TABLE>
F-141
<PAGE>
6. RELATED-PARTY TRANSACTIONS
Related-party Operating Leases
The Company leases retail store facilities under long-term noncancelable
operating lease agreements with remaining terms of one to nine years from GACC.
The future minimum lease payments due under these operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998............................................................ $ 370,000
1999............................................................ 347,000
2000............................................................ 240,000
2001............................................................ 222,000
2002............................................................ 110,000
Thereafter...................................................... 152,000
----------
$1,441,000
==========
</TABLE>
Each of these leases provides for contingent rentals based upon gross
revenues. Total rental expense, which has been accounted for on a straight-line
basis for escalating leases included above, for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998 was
approximately $457,000, $486,000, $553,000, $276,000 (unaudited) and $225,000
(unaudited), respectively.
Franchise Royalties
The Company pays GACC franchise royalties in connection with its franchise
agreements with GACC. Franchise royalties are calculated as 7% of gross
revenues (as defined in the individual agreements). During the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and
1998, the Company incurred approximately $164,000, $165,000, $175,000, $80,000
(unaudited) and $83,000 (unaudited), respectively, for franchise royalties,
which are included as part of selling and store occupancy costs in the
accompanying combined statements of operations. As of December 31, 1996 and
1997 and June 30, 1998, approximately $21,000, $21,000 and $14,000 (unaudited),
respectively, in franchise royalties were payable to GACC.
Inventory
The Company, in connection with its franchise agreements with GACC, purchases
the majority of its inventory from GACC. During the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998, the
Company purchased approximately $372,000, $406,000, $425,000, $190,000
(unaudited) and $178,000 (unaudited), respectively, in inventory from GACC. As
of December 31, 1996 and 1997 and June 30, 1998, approximately $14,000, $24,000
and $8,000 (unaudited), respectively, were payable to GACC related to inventory
purchases.
Related-party Payables
The related-party payables of $23,000, $23,000 and $23,000 (unaudited) as of
December 31, 1996, December 31, 1997 and June 30, 1998 represent loans from
stockholders to Hot Barton and Northpark Cookies, Inc. These loans are non-
interest bearing and have no specific payment terms or maturity dates.
Management Fees
Each entity was responsible for paying management fees to a company owned by
a related party. For the years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998, the Entities paid approximately
$24,000, $60,000, $80,000, $40,000 (unaudited) and $40,000 (unaudited),
F-142
<PAGE>
respectively, in management fees. As of December 31, 1996 and 1997 and June 30,
1998 approximately $5,000, $7,000 and $7,000 (unaudited), respectively, were
payable to a related party for management fees.
7. SUBSEQUENT EVENT
On July 29, 1998, the Entities entered into individual Asset Purchase
Agreements with Mrs. Fields' Original Cookies, Inc. In accordance with these
agreements, Mrs. Fields' Original Cookies, Inc. purchased the following assets
of the entities: leasehold rights and interests, tangible personal property,
such as inventories and property and equipment, certain agreements between the
sellers and GACC, customer and vendor lists, recipes and production techniques,
store petty cash, deposits and prepaid expenses. On September 9, 1998, the
agreements were completed.
F-143
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners
The Cookie Conglomerate, Inc., Cookie Conglomerate, L.L.P.,
and The Cookie Conglomerate of Carolina Place, Inc.
We have audited the accompanying combined balance sheets of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES (The Cookie Conglomerate, L.L.P. and The
Cookie Conglomerate of Carolina Place, Inc.) as of December 31, 1997 and 1996
and the related combined statements of operations, changes in equity [deficit]
and cash flows for the years then ended. These financial statements are the
responsibility of the Companies' and Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
November 12, 1998
F-144
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current assets
- --------------
Cash................................................. $ 227,385 $ 184,963
Advances............................................. 0 0
Inventories.......................................... 52,029 61,909
Prepaid expenses..................................... 26,993 33,064
----------- ----------
Total current assets................................. 306,407 279,936
----------- ----------
Property and equipment, at cost
- -------------------------------
Equipment............................................ 720,050 688,156
Fixtures............................................. 174,103 174,103
Leasehold improvements............................... 679,892 679,892
----------- ----------
1,574,045 1,542,151
Accumulated depreciation............................. (1,099,171) ( 938,942)
----------- ----------
474,874 603,209
----------- ----------
Other assets
- ------------
Deposits............................................. 34,450 34,450
Franchise costs, net of accumulated amortization of
$61,456 for 1997 and $49,122 for 1996............... 73,544 85,936
Organizational costs, net of accumulated amortization
of $4,004 for 1997 and $6,832 for 1996.............. 1,854 3,026
Intangible assets, net of accumulated amortization of
$13,394 for 1997 and $9,474 for 1996................ 45,406 49,326
Loan costs, net of accumulated amortization of $6,999
for 1997 and $1,729 for 1996........................ 4,708 9,978
----------- ----------
159,962 182,716
----------- ----------
$ 941,243 $1,065,861
=========== ==========
</TABLE>
See auditors' report and accompanying notes
F-145
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Current liabilities
- -------------------
Accounts payable....................................... $ 156,264 $ 191,219
Accrued expenses....................................... 160,482 139,164
Line-of-credit......................................... 40,000 80,000
Current portion of long-term debt...................... 155,107 176,098
--------- ----------
Total current liabilities............................. 511,853 586,481
--------- ----------
Other liabilities
- -----------------
Long-term debt, net of current portion................. 108,671 268,664
Deferred rent payable.................................. 81,998 84,182
--------- ----------
190,669 352,846
--------- ----------
Equity (deficit)
- ----------------
Common stock, $1 par value, 20,000 shares of Class A
(voting) authorized and 10,000 shares of Class B
(nonvoting) authorized; 2,357 shares of Class A issued
and outstanding....................................... 2,357 2,357
Additional paid-in capital............................. 473,643 473,643
Accumulated deficit.................................... (239,117) (330,174)
Partner capital (deficit).............................. 1,838 (19,292)
--------- ----------
238,721 126,534
--------- ----------
$ 941,243 $1,065,861
========= ==========
</TABLE>
See auditors' report and accompanying notes
F-146
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales.................................................... $4,202,799 $3,651,231
Food cost of sales....................................... 1,097,277 1,042,314
---------- ----------
Gross profit.......................................... 3,105,522 2,608,917
---------- ----------
Selling, general, and administrative expenses............ 2,787,260 2,519,005
---------- ----------
Interest expense......................................... 40,075 56,762
---------- ----------
Net income............................................ $ 278,187 $ 33,150
========== ==========
</TABLE>
See auditors' report and accompanying notes
F-147
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Partners'
Common Paid-In Accumulated Capital
Stock Capital Deficit (Deficit) Total
------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1995.......... $2,357 $473,643 $(255,382) $ (60,217) $ 160,401
Net income (loss)........... (71,792) 104,942 33,150
Dividends paid.............. (3,000) (64,017) (67,017)
------ -------- --------- --------- ---------
Balances,
December 31, 1996.......... 2,357 473,643 (330,174) (19,292) 126,534
Net income.................. 91,057 187,130 278,187
Dividends paid.............. 0 (166,000) (166,000)
------ -------- --------- --------- ---------
Balances,
December 31, 1997.......... $2,357 $473,643 $(239,117) $ 1,838 $ 238,721
====== ======== ========= ========= =========
</TABLE>
See auditors' report and accompanying notes
F-148
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................... $ 278,187 $ 33,150
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation........................................... 160,229 198,535
Amortization........................................... 22,754 25,882
Changes in assets and liabilities
Decrease in advances.................................. 0 1,600
Decrease in inventories............................... 9,880 10,915
Decrease (Increase) in prepaid expenses............... 6,071 (6,793)
Decrease in deposits.................................. 0 8,767
Decrease in accounts payable.......................... (34,955) (56,024)
Increase in accrued expenses.......................... 21,318 34,500
Increase (Decrease) in deferred rent payable.......... (2,184) 16,830
--------- ---------
Total adjustments................................... 183,113 234,212
--------- ---------
Net cash provided by operating activities............... 461,300 267,362
--------- ---------
Cash flows from investing activities
Acquisition of property and equipment.................... (31,894) (87,109)
Franchise costs reimbursed............................... 0 8,000
Loan costs incurred...................................... 0 (9,462)
--------- ---------
Net cash used by investing activities................... (31,894) (88,571)
--------- ---------
Cash flows from financing activities
Net proceeds from (payments on) line-of-credit........... (40,000) 55,000
Payments on long-term debt............................... (180,984) (161,252)
Dividends paid........................................... (166,000) (67,017)
--------- ---------
Net cash used by financing activities................... (386,984) (173,269)
--------- ---------
Net increase in cash.............................. 42,422 5,522
Cash, beginning of year................................... 184,963 179,441
--------- ---------
Cash, end of year................................. $ 227,385 $ 184,963
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for
Interest................................................. $ 36,616 $ 55,347
</TABLE>
See auditors' report and accompanying notes
F-149
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Combination Policy
The accompanying combined financial statements include the accounts of The
Cookie Conglomerate Inc., The Cookie Conglomerate, L.L.P., and The Cookie
Conglomerate of Carolina Place, Inc., all of which are under common control.
Intercompany transactions and balances have been eliminated in the
combination.
Nature of Operations
The Companies and Partnership operate retail cookie stores in North Carolina,
South Carolina, and Ohio. The stores are franchised from Great American Cookie
Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc.
Inventories
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out method.
Property and Equipment
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation is provided using both the straight-line and accelerated methods
over the estimated useful lives of the assets which are as follows:
<TABLE>
<CAPTION>
Equipment.......................................... 5 years
<S> <C>
Fixtures........................................... 7 years
Leasehold improvements............................. Life of related lease
</TABLE>
Franchise Costs
Franchise costs represent amounts paid to open the stores and for operating
under the name of Great American Cookie Company, Inc., now a subsidiary of Mrs.
Fields' Original Cookies, Inc. These costs are being amortized over the eight
to fifteen year lives of the related agreements using the straight-line method
of amortization.
Organizational Costs
Organizational costs are carried at cost. Amortization is provided using the
straight-line method over a period of sixty months.
Intangible Assets:
Intangible assets include goodwill and restrictive convenant fees. Goodwill
represents the excess of the cost of the Carolina Place franchise over the fair
value of its net assets at the date of acquisition. Restrictive convenant fees
represent the costs of a non-compete agreement with the previous owners of the
Carolina Place franchise. These assets are being amortized on the straight-line
method over the fifteen year life of the related agreement.
F-150
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENT--(Continued)
DECEMBER 31, 1997 AND 1996
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan Costs
Loan costs represent bank loan and closing fees incurred in connection with
the procurement of long-term debt. These costs are being amortized over the
terms of the related loan agreements, which are two to five years.
Income Taxes
The Cookie Conglomerate, Inc. and The Cookie Conglomerate of Carolina Place,
Inc. elected by unanimous consent of its stockholders to be taxed under the
provisions of subchapter S of the Internal Revenue Code. Under those
provisions, the Companies do not pay corporate income taxes on their taxable
income. Instead, the stockholders are liable for individual income taxes on
their respective shares of the Company's taxable income.
The Cookie Conglomerate, L.L.P. is also not subject to income tax. Income is
taxed directly to its partners. On December 30, 1997, the partners elected to
become a limited liability partnership under the Georgia Uniform Partnership
Act.
Compensated Absences
Employees of the Companies and Partnership are entitled to paid vacation,
paid sick days and personal days off, depending on job classification, length
of service, and other factors. It is impractical to estimate the amount of
compensation for future absences, and accordingly, no liability has been
recorded in the accompanying financial statements. The Companies' and
Partnership's policy is to recognize the costs of compensated absences when
actually paid to employees.
Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
B.LINES-OF-CREDIT
A summary of the lines-of-credit is as follows:
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Riverside Bank -- $100,000 Guarantee of Ronald Eichel,
note payable dated Alan Kuehn, and Cookie
September 30, 1996 with Conglomerate, Inc.
interest payable monthly at
prime plus 1%. Principal
payable at maturity on
September 30, 1997. $ 0 $80,000
Riverside Bank -- $100,000 Inventory, accounts
note payable dated November receivable,
4, 1997 with interest equipment, general
payable monthly at prime intangibles,
plus 1%. Principal payable corporate guarantee of Cookie
at maturity on November 4, Conglomerate Partnership,
1998. personal guarantees of Ronald
Eichel, Nancy Eichel, and
Alan
Kuehn. 40,000 0
------- -------
$40,000 $80,000
======= =======
</TABLE>
F-151
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
C.LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Tony Hege - $160,000 note Notes and accounts
payable dated July 18, receivable,
1994. Principal payments inventory, fixtures and
of $1,905 plus interest equipment.
at 9% per annum payable
monthly beginning August
10, 1994 until July 10,
1998 when remaining
principal due. $ 77,778 $104,762
Alan Kuehn (stockholder)-- Notes and accounts
$20,000 note payable at receivable,
9%. Interest only payable inventory, fixtures and
through December of 1995. equipment.
Principal payments of
$417 plus interest due
monthly through July 10,
1998 when remaining
principal due. Interest
expense incurred for each
year totals $3,600. 20,000 20,000
Ron Eichel (stockholder)-- Notes and accounts
$20,000 note payable at receivable,
9%. Interest only payable inventory, fixtures and
through December of 1995. equipment.
Principal payments of
$417 plus interest due
monthly through July 10,
1998 when remaining
principal due. Interest
expense incurred for each
year totals $3,600. 20,000 20,000
Riverside Bank--$106,222 Inventory, equipment,
note payable dated accounts
September 30, 1996 with receivable, general
50 monthly installment intangibles.
payments of principal and Personal guarantees of Ronald
interest of $2,574 Eichel, Nanci Eichel, Alan
beginning on October 30, Kuehn
1996. Interest at 9.25%. and corporate guarantee of
Matures November 30, Cookie
2000. Conglomerate Partnership. 76,000 100,000
Riverside Bank--$196,747 Inventory, equipment,
note payable dated accounts
September 30, 1996 with receivable, general
25 monthly installment intangibles.
payments beginning Personal guarantees of Ronald
October 30, 1996 of Eichel and Alan Kuehn
principal of $7,870 plus and corporate guarantee of
interest at prime plus Cookie
1%. Matures October 30, Conglomerate Partnership.
1998. 70,000 173,000
Riverside Bank--$30,837 Inventory, accounts
note payable dated receiveable,
September 30, 1996 with general intangibles.
25 monthly installment Corporate
payments beginning guarantee of Cookie
October 30, 1996 of Conglomerate
principal of $1,233 plus partnership, personal
interest at 9.25%. guarantees
Matures October 30, 1998. of Ronald Eichel, Nanci
Eichel and
Alan Kuehn. 0 27,000
-------- --------
263,778 444,762
Less: Current maturities 155,107 176,098
-------- --------
$108,671 $268,664
======== ========
</TABLE>
F-152
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
C.LONG-TERM DEBT (Continued)
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1998............................................................... $155,107
1999............................................................... 49,907
2000............................................................... 49,557
2001............................................................... 9,207
2002............................................................... 0
--------
$263,778
========
</TABLE>
D.COMMITMENTS
The Cookie Conglomerate, Inc. and Affiliates are the lessee of store space in
various malls under sublease arrangements with Great American Cookie Company,
Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc. Minimum future
lease payments under non-cancelable operating leases having remaining terms in
excess of one year as of December 31, 1997 for each of the next five years and
in total are:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1998............................................................ $ 481,036
1999............................................................ 454,143
2000............................................................ 297,246
2001............................................................ 237,789
2002............................................................ 195,536
Thereafter...................................................... 353,804
----------
$2,019,554
==========
</TABLE>
Additional rental payments are contingent on sales exceeding certain
breakpoint levels specified in each lease. Rent expense totaled $640,870 for
1997 and $620,355 for 1996.
Franchise agreements provide for the Companies and Partnership to pay annual
service fees equal to 7% of gross sales. The service fees due the franchiser in
connection with these agreements are due on a monthly basis. The franchise
agreements end simultaneously with the termination of the lease of the premises
in which the cookie facilities are located.
E.SUBSEQUENT EVENT
The Cookie Conglomerate of Carolina Place, Inc. effectively merged with The
Cookie Conglomerate, Inc. on January 1, 1998.
The Cookie Conglomerate, Inc. and The Cookie Conglomerate, L.L.P. entered
into an asset purchase agreement on October 5, 1998 with Mrs. Fields' Original
Cookies, Inc. to sell substantially all the assets of the Company and
Partnership.
F-153
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
Current assets
- --------------
Cash............................................................ $135,749
Inventories..................................................... 71,635
Other current assets............................................ 2,011
--------
Total current assets........................................... 209,395
Property and equipment, net...................................... 435,604
Intangibles, net................................................. 111,490
Other assets..................................................... 34,451
--------
$790,940
========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Current liabilities
- -------------------
<S> <C>
Accounts payable................................................ $101,243
Accrued expenses................................................ 91,213
Current portion of long-term debt............................... 121,621
--------
Total current liabilities...................................... 314,077
<CAPTION>
Other liabilities
- -----------------
<S> <C>
Long-term debt, net of current portion.......................... 29,366
--------
Total liabilities.............................................. 343,443
--------
<CAPTION>
Stockholders' equity
- --------------------
<S> <C>
Common stock, $1 par value, 20,000 shares of Class A [voting]
authorized and 10,000 Shares of Class B [nonvoting] authorized;
2,357 shares of Class A issued and outstanding................. 2,357
Additional paid-in capital...................................... 473,643
Partner capital................................................. 23,629
Accumulated Deficit............................................. (52,132)
--------
447,497
--------
$790,940
========
</TABLE>
See footnote
F-154
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales...................................................... $2,906,499 $2,926,659
Cost of sales.............................................. 2,313,079 2,388,393
---------- ----------
Gross profit............................................. 593,420 538,266
<CAPTION>
Selling, general, and administrative expenses.............. 389,462 380,901
<S> <C> <C>
Interest expense........................................... 16,972 27,649
---------- ----------
Net income............................................... $ 186,986 $ 129,716
========== ==========
</TABLE>
See footnote
F-155
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income.............................................. $ 186,985 $ 129,716
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation & amortization............................ 117,584 125,688
Changes in assets and liabilities
Increase (decrease) in inventories.................... (19,606) 7,908
Decrease in prepaid expenses.......................... 24,981 28,124
Decrease in accounts payable & accrued expenses....... (246,288) (212,000)
--------- ---------
Total adjustments.................................... (123,329) (50,280)
--------- ---------
Net cash provided by operating activities........... 63,656 79,436
--------- ---------
Cash flows from investing activities
- ------------------------------------
Acquisition of equipment................................ (64,292) (25,003)
--------- ---------
Net cash used by investing activities.................. (64,292) (25,003)
--------- ---------
Cash flows from financing activities
- ------------------------------------
Dividends paid.......................................... (43,906) (43,365)
Payments on long-term debt and line-of-credit........... (47,095) (76,854)
--------- ---------
Net cash used by financing activities.................. (91,001) (120,219)
--------- ---------
Net decrease in cash.................................. (91,637) (65,786)
Cash, beginning of period............................... 227,385 184,963
--------- ---------
Cash, end of period................................... $ 135,748 $ 119,177
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the years for interest................. $ 16,972 $ 27,649
</TABLE>
See footnote
F-156
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1)BASIS OF PRESENTATION
The accompanying interim unaudited combined financial statements have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission, and accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, these combined financial statements reflect all
adjustments, which consist only of normal recurring adjustments, which are
necessary to present fairly the Company's financial position as of September
30, 1998 and results of operations and cash flows for the nine months ended
September 30, 1998 and September 30, 1997. These interim unaudited combined
financial statements should be read in conjunction with the audited combined
financial statements and notes to it included in this filing.
F-157
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, during 1997
the Company's subsidiary became non-compliant with the covenants under its bank
debt agreements and the lender has not agreed to provide waivers. Accordingly,
such debt has been reclassified as a current liability since, due to the
covenant default, the lender has the right to accelerate the repayment of the
loans.
AJ. ROBBINS, PC
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
December 11, 1998
F-158
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (February 24, 1995) to December 31, 1995 and for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1996, and the results of its
operations and its cash flows for the period from inception (February 24, 1995)
to December 31, 1995 and for the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
February 7, 1997
F-159
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Substantially all pledged)
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1997 1998
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................... $ 95,914 $ 115,805 $ 216,261
Accounts receivable, net of allowance for
doubtful
accounts of $10,000, $10,000 and
$45,000.................................. 485,002 642,821 510,904
Due from affiliates....................... 77,904 46,129 24,809
Refundable income taxes................... -- 56,524 --
Inventories............................... 31,583 74,226 47,400
Prepaid expenses and supplies............. 14,126 237 22,677
---------- ---------- ----------
Total Current Assets.................... 704,529 935,742 822,051
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Store fixtures and equipment.............. 719,509 872,864 646,598
Leasehold improvements.................... 336,301 416,631 267,233
Computer equipment........................ 54,346 71,761 70,811
Furniture and fixtures.................... 54,264 54,134 34,959
---------- ---------- ----------
1,164,420 1,415,390 1,019,601
Less accumulated depreciation and
amortization............................. 150,336 341,523 453,193
---------- ---------- ----------
Net Property and Equipment................ 1,014,084 1,073,867 566,408
---------- ---------- ----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization............................. 1,414,628 1,258,470 1,141,351
Deferred tax asset........................ 62,000 62,000 62,000
Other assets.............................. 122,762 46,880 62,533
Restricted cash........................... -- 64,575 59,112
---------- ---------- ----------
Total Other Assets...................... 1,599,390 1,431,925 1,324,996
---------- ---------- ----------
$3,318,003 $3,441,534 $2,713,455
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-160
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1996 1997 1998
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank debt............................... $ -- $ 732,916 $ 443,742
9% Notes payable in 1998................ -- 215,587 38,500
Accounts payable........................ 367,904 461,124 330,541
Accruals and other payables............. 47,810 138,065 185,213
Income taxes payable.................... 70,000 23,449 --
Deferred initial franchise fees......... 357,760 151,500 214,950
Current maturities of long-term debt.... 151,797 45,647 49,141
Current portion of non-compete
agreements............................. 130,416 151,418 168,082
---------- ---------- ----------
Total Current Liabilities............. 1,125,687 1,919,706 1,430,169
---------- ---------- ----------
LONG-TERM OBLIGATIONS:
Long-term debt, less current
maturities............................. 288,639 237,130 180,555
Unsecured promissory notes.............. 534,000 540,000 540,000
Non-compete agreements payable.......... 327,221 175,803 --
Deferred revenues....................... -- -- 180,906
---------- ---------- ----------
Total Liabilities..................... 2,275,547 2,872,639 2,331,630
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; shares
authorized 1,000,000;
shares issued and outstanding 135,155.. 135 135 135
Additional paid-in capital.............. 1,070,814 1,070,814 1,070,814
Accumulated deficit..................... (28,493) (502,054) (689,124)
---------- ---------- ----------
Total Stockholders' Equity............ 1,042,456 568,895 381,825
---------- ---------- ----------
$3,318,003 $3,441,534 $2,713,455
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-161
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 24 Years Ended December Nine Months Ended
(Inception) to 31, September 30,
December 31, --------------------- -----------------------
1995 1996 1997 1997 1998
-------------- ---------- ---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Franchising............ $ 706,410 $1,663,846 $2,026,385 $1,415,632 $1,538,486
Net company-owned store
sales................. 254,124 1,061,889 1,818,919 1,222,149 1,038,775
Initial franchise
fees.................. 435,988 893,099 778,294 593,285 186,202
Product and equipment
revenue 329,523 1,795,262 1,441,815 1,322,613 598,068
---------- ---------- ---------- ---------- ----------
Total Revenues........ 1,726,045 5,414,096 6,065,413 4,553,679 3,361,531
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and
administrative
expenses.............. 1,088,763 2,588,832 2,685,646 2,007,944 1,546,513
Company-owned stores
expenses.............. 275,163 1,104,908 1,815,775 1,370,404 992,336
Product and equipment
costs................. 209,910 1,173,866 921,131 895,829 121,254
Losses on store
closings and asset
dispositions.......... -- -- 340,491 153,611 108,858
Litigation settlement.. -- -- 148,702 148,702 --
Depreciation and
amortization.......... 156,382 291,862 402,693 288,566 627,337
Interest expense....... 89,247 157,242 224,536 171,316 152,303
---------- ---------- ---------- ---------- ----------
Total Costs and
Expenses............. 1,819,465 5,316,710 6,538,974 5,036,372 3,548,601
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
TAXES ON INCOME (93,420) 97,386 (473,561) (482,693) (187,070)
TAXES ON INCOME -- 32,459 -- -- --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (93,420) $ 64,927 $ (473,561) $ (482,693) $ (187,070)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-162
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balances at February 24,
1995 (Inception)........... -- $-- $ -- $ -- $ --
Issuance of Capital Stock.. 135,155 135 1,070,814 -- 1,070,949
Net loss for the period.... -- -- -- (93,420) (93,420)
------- ---- ---------- --------- ----------
Balances at December 31,
1995....................... 135,155 135 1,070,814 (93,420) 977,529
Net income for the year.... -- -- -- 64,927 64,927
------- ---- ---------- --------- ----------
Balances at December 31,
1996....................... 135,155 135 1,070,814 (28,493) 1,042,456
Net loss for the year...... -- -- -- (473,561) (473,561)
------- ---- ---------- --------- ----------
Balances at December 31,
1997....................... 135,155 135 1,070,814 (502,054) 568,895
Net loss for the period
(unaudited)............... -- -- -- (187,070) (187,070)
------- ---- ---------- --------- ----------
Balances at September 30,
1998 (unaudited)........... 135,155 $135 $1,070,814 $(689,124) $ 381,825
======= ==== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-163
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 24, Years Ended Nine Months Ended
(Inception) to December 31, September 30,
December 31, -------------------- ----------------------
1995 1996 1997 1997 1998
-------------- --------- --------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...... $ (93,420) $ 64,927 $(473,561) $(482,693) $(187,070)
Adjustments to
reconcile net income
(loss)
to net cash provided
by (used in)
operating activities:
Depreciation and amor-
tization............. 156,382 291,862 402,693 288,566 627,337
Loss on disposal of
equipment............ -- -- 108,890 6,795 (76,601)
Interest accretion.... 73,637 69,974 51,884 38,904 23,161
Deferred revenues..... -- -- -- -- 180,906
Deferred income tax-
es................... (22,000) (40,000) -- -- --
Accounts receivable
allowance............ 5,000 5,000 -- -- 35,000
Changes in operating
assets and
liabilities:
Accounts receivable.. (172,836) (211,469) (81,319) (52,693) 71,917
Refundable income
taxes............... (23,000) 23,000 (56,524) -- 56,524
Inventories.......... (11,254) (18,779) (42,643) (60,727) 26,826
Due from affiliates.. -- (77,904) 31,775 51,565 21,320
Prepaid expenses and
supplies............ (14,126) -- 13,889 (24,722) (22,440)
Accounts payable..... 147,000 184,788 72,520 255,828 (130,583)
Accruals and other
payables............ 62,995 (86,315) 110,955 52,476 23,699
Income taxes pay-
able................ -- 70,000 (46,551) (70,000) --
Deferred initial
franchise fees...... 90,679 16,561 (206,261) (147,910) 63,450
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Operating
Activities............ 199,057 291,645 (114,253) (144,611) 713,446
--------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment......... (445,612) (665,948) (278,529) (161,209) (75,296)
Proceeds from sale of
property and
equipment............. -- -- 199,564 191,064 166,361
Purchase of business,
net of cash acquired.. (333,784) -- -- -- --
Other assets........... (63,003) (70,451) 80,335 49,972 (7,876)
Restricted cash........ -- -- (64,575) (69,560) 5,463
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Investing
Activities............ (842,399) (736,399) (63,205) 10,267 88,652
--------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of capital stock...... 795,000 -- -- -- --
Proceeds from notes
payable............... 399,000 593,878 518,426 406,728 --
Principal payments on
notes payable......... -- (49,727) (128,928) (84,804) (466,261)
Principal payments on
non-compete
agreements............ (360,000) (182,300) (182,300) (182,300) (182,300)
Principal payments on
capital lease
obligations........... (3,165) (8,676) (9,849) (3,830) (53,081)
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Financing
Activities............ 830,835 353,175 197,349 135,794 (701,642)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH................ 187,493 (91,579) 19,891 1,450 100,456
CASH BALANCE, beginning
of period.............. -- 187,493 95,914 95,914 115,805
--------- --------- --------- --------- ---------
CASH BALANCE, end of pe-
riod................... $ 187,493 $ 95,914 $ 115,805 $ 97,364 $ 216,261
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-164
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Pretzelmaker Holdings, Inc. and Subsidiaries (the Company), was incorporated
on February 24, 1995 and acquired all the issued and outstanding common stock
of Pretzelmaker, Inc. (Pretzelmaker) on March 28, 1995. Pretzelmaker holds
legal title to certain trademarks and recipes for specialty bakery products.
Pretzelmaker licenses use of the trademarks and recipes to qualified third
parties for the establishment and operation of Pretzelmaker stores. In
connection with these licensing activities, Pretzelmaker will require third-
party-licensees to use certain business formats, systems, methods, procedures,
designs, layouts, specifications, tradenames and trademarks. There are licensed
locations located throughout the United States and Canada, as well as Korea.
Pretzelmaker also operates company-owned stores and sports venues for the sale
of its bakery products.
On September 26, 1996, Pretzelmaker Canada, Inc. (Canada) was incorporated.
Pretzelmaker owns all the issued and outstanding stock of Canada. Canada has a
master franchise agreement with Pretzelmaker which covers all locations in
Canada.
Basis of Presentation
The Consolidated financial statements include the accounts of the Company,
Pretzelmaker and Canada, its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The acquisition of
Pretzelmaker has been accounted for as a purchase and accordingly these
consolidated financial statements include the results of Pretzelmaker from the
date of acquisition forward.
Unaudited Information
The accompanying consolidated financial statements as of September 30, 1998
and for the nine months ended September 30, 1997 and 1998 are unaudited and
have been prepared on a substantially equivalent basis with that of the annual
consolidated financial statements. In the opinion of management, the unaudited
information contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations as of September 30, 1998 and for such
periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash and accounts receivable. The Company places
its cash in what it believes to be highly rated financial institutions. The
balance in each cash account maintained in the United States is insured by the
Federal Deposit Insurance Corporation up to $100,000. From time to time,
balances in these accounts may exceed the insured limits.
F-165
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of credit risk with respect to accounts receivable are limited
due to a broad franchisee base and generally short payment terms.
Cash and Equivalents
For the purposes of the statement of cash flows, the Company considers cash
and all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories consisting of food products, ovens, belts and promotional
materials are stated at the lower of cost or market, cost being determined on a
first-in, first-out basis.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Store fixtures and equipment................................. 5-7 years
Leasehold improvements....................................... Term of lease
Computers and equipment...................................... 5 years
Furniture and fixtures....................................... 7 years
</TABLE>
Intangible Assets
Intangible assets consist primarily of goodwill and non-compete agreements,
which arose in connection with the acquisition of Pretzelmaker by the Company
in 1995. The goodwill and non-compete agreements are being amortized over
periods of fifteen and nine years, respectively.
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchise fees are recognized after the Company has completed
performance of its initial license obligations. A portion of the franchise fee
revenue is deferred until commencement of operations of the licensee's
location. Franchise and license royalties, which are based upon a percentage of
gross store sales, are recognized as earned.
Advance payments received from suppliers are recorded as deferred revenues
and recognized as income over the life of the related supply agreement.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax basis of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized. Valuation
allowances will be established when necessary, to reduce deferred tax assets to
the amount expected to be realized.
F-166
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign currency
into U.S. dollars is computed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains and losses
resulting from such translation are immaterial.
Recent Accounting Pronouncement
During the nine months ended September 30, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires an "all-inclusive" income
presentation approach which specifies that all revenues, expenses, gains and
losses recognized during the period be reported in income, regardless of
whether they are considered to be results of operations of the period. The
adoption of SFAS No. 130 had no material impact on the Company's financial
statement presentation.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
Year 2000 Issues
Management of the Company has assessed the year 2000 issue and has determined
that its financial software and related corporate systems and retail sales data
collecting systems are not year 2000 compliant. As a result of the acquisition
of the Company (Note 12) all of the Company's year 2000 non-compliant systems
will be converted to Mrs. Fields' systems by early 1999.
NOTE 2--BANK DEBT
During April 1997, the Company through Pretzelmaker established a $300,000
line-of-credit with a bank and subsequently finalized a term loan facility to
repay then outstanding term debt as well as to provide financing for expansion
equipment and fixtures. Advances under the line-of-credit were made based upon
75% of eligible accounts receivable and 30% of allowable inventories. Advances
under the term loan facility are repayable in 36 monthly installments, plus
interest. Interest on amounts outstanding on the bank debt is computed at the
bank's prime rate plus 1% and the debt is collateralized by the Company's
accounts receivable, inventories, intangibles and property and equipment.
F-167
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 2--BANK DEBT (Continued)
The following amounts were outstanding under the bank debt agreements:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Line-of-credit.................................. $300,000 $279,692
Term loans, payable $14,114 monthly, plus
interest....................................... 432,916 164,050
-------- --------
Total......................................... $732,916 $443,742
======== ========
</TABLE>
Under the terms of the agreements, the Company is subject to certain debt
covenants, which include, among other items, limitations on capital
expenditures, minimum tangible net worth and debt coverage ratio amounts and
maximum leverage ratio (all as defined under the agreements). As of December
31, 1997 and September 30, 1998 the Company was not in compliance with the
covenant requirements and the lender has not agreed to provide waivers of such
violations. Accordingly, the term debt which by its original terms would have
been classified as a long-term obligation, has been reclassified as a current
liability due to the default, as the lender has the right to accelerate the
repayment of the loans. Subsequent to the acquisition as discussed in Note 12,
Mrs. Fields is in discussions with the lender regarding repayment or
refinancing.
All required payments under the terms of the debt are current and on March 5,
1998, by mutual agreement with the lender, the Company made a $200,000
prepayment on the term loan portion of the debt. Subsequent to December 31,
1997, advances under the line-of-credit were frozen and an agreement was
reached to extend the repayment of the line-of-credit balance to January 31,
1999.
As of December 31, 1996 there was approximately $409,000 outstanding in 10.1%
to 10.25% term loans, payable to a bank in monthly installments through October
1999. Such amounts, which at that time totaled approximately $360,000 were
repaid out of proceeds from the Company's new term loan facility discussed
above.
NOTE 3--STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Articles of Incorporation authorize $0.001 par value, non-
voting preferred stock in series A (300,000 shares authorized) and series B
(800 shares authorized). In connection with the 1995 acquisition of
Pretzelmaker by the Company, there were 275,942 share of series A and 800
shares of series B preferred shares issued. The series A and B shares contained
dividends and liquidation preferences, cumulative dividend rights and were
convertible into common stock of the Company under terms as defined in the
agreements. No dividends were paid on the preferred shares. In connection with
the acquisition of the Company discussed in Note 12, the 275,942 shares of
series A and 800 shares of series B preferred stock were converted into 35,155
shares of common stock. The accompanying financial statements retroactively
reflect the conversion (which has no affect on total stockholders' equity
amounts) for all periods presented.
F-168
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 3--STOCKHOLDERS' EQUITY (Continued)
Stock Options
The Company has 35,000 shares of common stock reserved for issuance under
three stock option plans (Incentive Stock Option Plan, Non-Qualified Stock
Option Plan and Stock Bonus Plan) collectively referred to as the "Plan".
Through December 31, 1997, options to acquire 13,250 shares had been granted at
exercise prices ranging from $13.20 to $25.00 per share. There were no options
granted in 1998. The Company applies APB Opinion No. 25, Accounting for Stock
Issues to Employees, in accounting for its plans. FASB Statement No. 123,
Accounting for Stock-Basis Compensation, requires the Company to provide pro
forma information regarding net income as if compensation cost for the
Company's stock option plans has been determined in accordance with the fair
value based method prescribed in FASB Statement No. 123. Under the accounting
provisions of FASB Statements No. 123 the Company's reported net income (loss)
would not have been materially impacted for the periods presented under FASB
Statement No. 123.
As part of the acquisition of the Company discussed in Note 12, all of the
stock options were cancelled in connection with the consulting, bonus and
service agreements.
NOTE 4--NON-COMPETE AGREEMENTS
In connection with the 1995 acquisition of Pretzelmaker, the Company entered
into non-compete agreements with the two principal former owners of
Pretzelmaker. The non-interest bearing obligations have been recorded as a
liability on a discounted present value basis using an imputed interest rate of
15%. The agreements require annual payments of $182,300 and as of December 31,
1997, future minimum payments under the obligations are summarized as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ---------
<S> <C>
1998.............................................................. $ 182,300
1999.............................................................. 182,300
---------
Total Payments.................................................... 364,600
Less: Amounts Representing Interest............................... (37,379)
---------
Present Value of Payments......................................... 327,221
Less: Current Portion............................................. (151,418)
---------
$ 175,803
=========
</TABLE>
NOTE 5--UNSECURED PROMISSORY NOTES
During 1995, the Company issued 15% unsecured promissory notes due September
30, 2000 to various parties, who at the time, were also shareholders of the
Company. In addition to the stated interest, which is payable quarterly, the
notes also contain a net profits interest, as defined, in all Pretzelmaker
company-owned stores and sports venues. Through September 30, 1998, there has
been no net profit interest due under the agreements.
In connection with the acquisition of the Company during November 1998 (as
discussed in Note 12), the acquirer has agreed to repay the outstanding
unsecured promissory notes in January, 1999.
F-169
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 6--CAPITAL LEASE OBLIGATIONS
At December 31, 1997 included with long-term debt are capitalized lease
obligations incurred for store equipment, fixtures and improvements. The
obligations bear implicit interest rates of 16.9% to 21.6% and require total
monthly payments of approximately $6,800, decreasing as the leases are paid off
through October 2001.
Total future payments required under the lease obligations at December 31,
1997 are approximately $78,600 in 1998, $76,300 in 1999, $66,800 in 2000 and
$67,300 in 2001.
As of December 31, 1997, property and equipment includes $197,469 acquired
through capital leases. Accumulated depreciation related to these assets was
$19,183.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases retail store facilities and corporate office space under
long-term non-cancelable operating lease agreements requiring monthly payments
over their remaining terms which expire through 2007. Certain of the retail
store leases also provide for contingent rentals based upon gross revenue of
the store as well as adjustments for operating costs. Additionally, as a result
of master franchise agreements in Canada and former company-owned stores which
have been franchised, the Company is contingently liable under lease guarantees
or assignment agreements.
Total rent expense, including lease termination costs for closed company-
owned stores is summarized as follows:
<TABLE>
<CAPTION>
February 24 Nine Months Ended
(Inception) to Years Ended December 31, September 30,
December 31, ------------------------ -------------------
1995 1996 1997 1997 1998
--------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Rent expense............ $77,100 $256,900 $446,100 $308,700 $256,200
Lease termination
expense................ -- -- 109,200 103,600 186,600
------- ------------ ------------ --------- ---------
$77,100 $256,900 $555,300 $412,300 $442,800
======= ============ ============ ========= =========
</TABLE>
As of December 31, 1997, future minimum lease payments due under operating
leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ----------
<S> <C>
1998............................................................. $ 242,000
1999............................................................. 248,000
2000............................................................. 216,000
2001............................................................. 151,000
2002............................................................. 130,000
Thereafter....................................................... 356,000
----------
$1,343,000
==========
</TABLE>
F-170
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 7--COMMITMENTS AND CONTINGENCIES (Continued)
During September 1998, the Company entered into a sub-lease agreement for its
corporate office space providing for sub-rental income to the Company of
approximately $8,000 monthly to July 2000. Such amounts are not reflected in
the table above.
As of December 31, 1997, future minimum amounts due under operating leases
where the Company is contingently liable under lease guarantees or assignment
agreements are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, Amount
------------------------ ----------
<S> <C>
1998............................................................ $ 390,000
1999............................................................ 398,000
2000............................................................ 405,000
2001............................................................ 401,000
2002............................................................ 352,000
Thereafter...................................................... 1,262,000
----------
$3,208,000
==========
</TABLE>
Approximately 51% of the above amounts relate to franchised locations which
are owned in whole or in part by individuals or entities which were
stockholders of the Company prior to the acquisition discussed in Note 12.
Legal Matters
From time to time the Company is the subject of legal actions or threatened
legal actions, which it considers routine to its business activities.
Management of the Company believes that the potential liability to the Company
under such matters would not have a material affect on the Company's
consolidated financial position, results of operations or cash flows.
NOTE 8--RELATED PARTY TRANSACTIONS
Since 1996, the Company has had business relationships with various entities
owned in whole or in part by its Chairman, President, and Chief Executive
Officer (the "Officer") summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -------------
1996 1997 1998
-------- ------- -------------
<S> <C> <C> <C>
Franchise Fee Income from Related Entities.. $200,000 $ -- $ --
Royalty and Advertising Fees from Related
Entities in Illinois....................... 25,400 55,000 37,765
Account Receivables Outstanding at Period
End from Related Entities.................. 77,904 46,129 24,809
</TABLE>
During 1997, Canada received loans totaling approximately $65,000 (U.S.) from
the two largest franchisees in Canada who are related to the Company through
common ownership. The proceeds are invested in a Canadian certificate of
deposit and the debt evidenced by non-interest bearing promissory notes. The
certificate of deposit is presented as restricted cash and the notes are
included with long-term debt. The advances were made to secure a limited loan
guarantee made by Canada on behalf of the franchisees. Subsequent to September
30, 1998, the loan guarantee obligation was transferred to another corporation
affiliated with the franchisees and the certificate of deposit used to
liquidate the related debt obligations, thereby releasing Canada from any
further obligations under the agreements.
F-171
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 9--INCOME TAXES
Income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996 1997
-------- -------- ----
<S> <C> <C> <C>
CURRENT:
Federal........................................... $ 19,000 $ 68,507 $--
State............................................. 3,000 3,952 --
-------- -------- ----
22,000 72,459 --
-------- -------- ----
DEFFERED (BENEFIT):
Federal........................................... (20,000) (37,000) --
State............................................. (2,000) (3,000) --
-------- -------- ----
(22,000) (40,000) --
-------- -------- ----
Total........................................... $ -- $ 32,459 $--
======== ======== ====
</TABLE>
The components of the net deferred tax assets (liabilities) are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
------- ---------
<S> <C> <C>
Net operating loss carryforward.......................... $ -- $ 55,000
Intangible assets........................................ 65,000 95,000
Accrued expenses......................................... -- 21,000
Accounts receivable allowance............................ 4,000 4,000
Other.................................................... -- 13,000
Accumulated depreciation................................. (7,000) (17,000)
------- ---------
62,000 171,000
Valuation allowance...................................... -- (109,000)
------- ---------
$62,000 $ 62,000
======= =========
</TABLE>
As of December 31, 1997, the Company has a net operating loss carryforward
for income tax purposes of approximately $149,000, expiring in 2012.
A reconciliation of the effective tax rates to the federal statutory rate is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal Statutory Income
Tax Rate (Benefit)..... (34.0)% 34.0 % (34.0)%
Amortization Of Non-
Deductible Goodwill.... 18.2 21.6 12.0
Non-Deductible
Expenses............... -- -- 15.1
Other................... 15.8 (22.3) 6.9
----- ----- -----
Effective Income Tax
Rate................... 0.0 % 33.3 % 0.0 %
===== ===== =====
</TABLE>
F-172
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 10--LITIGATION SETTLEMENT
During 1997, the Company settled a lawsuit, which arose in 1996 in a case in
which the plaintiffs claimed that the Company breached the Franchise Agreement
by failing to grant a specific mall location. The plaintiffs sought damages of
approximately $600,000, plus punitive damages and attorney fees. The cost of
the settlement, including the Company's outside legal fees, was approximately
$149,000.
NOTE 11--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
February 24 Years Ended Nine Months Ended
(Inception) to December September 30,
December 31, ---------------- -----------------
1995 1996 1997 1997 1998
--------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure of
Cash Flow Information:
Cash Paid for:
Interest.................. $ 69,600 $87,900 $157,400 $106,700 $106,800
Income taxes.............. 45,000 4,000 103,800 89,700 8,600
Supplemental Disclosure of
Non-Cash Investing and
Financing Activities:
Preferred Stock Issued in
Pretzelmaker
Acquisition.............. 279,800 -- -- -- --
Equipment Acquired under
Financing Obligations.... 42,100 -- 417,200 297,200 --
Company-owned Stores Sold
with Deferred Terms...... -- -- 76,500 76,500 25,000
</TABLE>
NOTE 12--SUBSEQUENT EVENT--ACQUISITION OF COMPANY
During November 1998 the stockholders of the Company sold their shares to
Mrs. Field's Original Cookies, Inc. ("Mrs. Fields"). As a condition to closing,
by mutual agreement among the parties, all preferred shares previously
outstanding were converted to common shares, outstanding stock option
agreements were terminated, and the repayment terms under the non-compete
agreements and unsecured promissory notes were modified so that such
obligations would be repaid by Mrs. Fields by January 1999.
In connection with the acquisition of the Company, Pretzelmaker entered into
various consulting, bonus and severance agreements totaling $327,300 to be paid
during December 1998 and January 1999.
F-173
<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 , 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
---------------
, 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
2.1 + Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of
January 2, 1998
2.2 + Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of
June 12, 1998.
2.3 + Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998
2.4 + Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998.
2.5 + Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton,
Steven J. Bryan and Jason A. Piltzmaker, holders of all outstanding
capital stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2 to
the 8-K dated September 3, 1998.
II-1
<PAGE>
EXHIBIT (CONTINUED)
2.6 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as exhibit
2.4 to the 8-K dated September 3, 1998.
2.7 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Crossroads Cookies, Inc. Filed as exhibit 2.5 to the 8-K dated
September 3, 1998.
2.8 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Hot Barton and Northpark Cookies, Inc. Filed as exhibit 2.6 to the
8-K dated September 3, 1998.
2.9 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Northpark Cookies, Inc. Filed as exhibit 2.7 to the 8-K dated
September 3, 1998.
2.10 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Quail Springs Cookies, Inc. Filed as exhibit 2.8 to the 8-K dated
September 3, 1998.
2.11 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Westgate Cookies, Inc. Filed as exhibit 2.9 to the 8-K dated
September 3, 1998.
2.12 + Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer, The Cookie Conglomerate, Inc. and The Cookie Conglomerate, LLP.,
as sellers, and Ronald A. Eichel and Alan M. Kuchn, partners of The
Cookie Conglomerate LLP. and shareholders of the Cookie Conglomerate,
Inc., dated as of October 5, 1998.
2.13 + Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc.,
as buyer, and Martin E. Lisiewski, a shareholder of Pretzel Time, Inc.,
dated as of December 9, 1998.
2.14 + Stock Purchase Agreement between Mrs. Fields' Holding Company, Inc.,
and Mrs. Fields' Original Cookies, Inc. as buyer, and Pretzel Time,
Inc. and Martin E. Lisiewski, as seller, dated as of December 30, 1998.
2.15 + Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc.,
as buyer and Pretzelmaker Holdings, Inc., Mark N. Geman, Donald G. Cox,
Jr. and Louis H. Marks as principal sellers, dated as of November 19,
1998.
3.1 + Restated Certificate of Incorporation of Mrs. Fields' Original Cookies,
Inc., filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (No. 333-45179) and incorporated by reference herein
3.2 + Restated Certificate of Incorporation of The Mrs. Fields' Brand, Inc.,
filed as Exhibit 3.2 to the Company's Registration Statement on Form S-
4 (No. 333-45179) and incorporated by reference herein
3.3 + Certificate of Designations of the Mrs. Fields' Brand, Inc., dated as
of September 18, 1996, filed as Exhibit 3.3 to the Company's
Registration Statement on Form S-4 (No. 333-45179) and incorporated by
reference herein
3.4 + Amended and Restated Certificate of Incorporation of Great American
Cookie Company, Inc.
3.5* Articles of Incorporation of Pretzelmaker Holdings, Inc.
3.6* Articles of Incorporation of Pretzel Time, Inc.
3.7+ By-Laws of Mrs. Fields' Original Cookies, Inc., filed as Exhibit 3.4 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
II-2
<PAGE>
EXHIBIT (CONTINUED)
3.8 + By-Laws of The Mrs. Fields' Brand, Inc., filed as Exhibit 3.5 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
3.9 + By-Laws of Great American Cookie Company, Inc.
3.10 By-Laws of Pretzelmaker Holdings, Inc.
3.11 By-Laws of Pretzel Time, Inc.
4.1 + Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York,
as Trustee, filed as Exhibit 4.1 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein.
4.2 + Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.1)
4.3 + Form of Certificate of Senior Note (included as Exhibit A to Exhibit
4.4 + 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 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 Holdings, Inc. and Pretzel
Time, Inc.
10.1+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P., filed as Exhibit 10.1 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
10.2 + Asset Purchase Agreement, dated as of August 7, 1996, among Mrs.
Fields, Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn
Investors II, L.P., filed as Exhibit 10.11 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
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
II-3
<PAGE>
EXHIBIT (CONTINUED)
10.4 + Amendment dated December 1, 1997, to Amended and Restated Marketing
Agreement between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain
10.5 + Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on November 13, 1997
and December 1, 1997, between Mrs. Fields' Original Cookies, Inc. and
Coca-Cola USA
10.6+ Employment Agreement, dated as of October 1, 1997, between Michael R.
Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.7+ Employment Agreement, dated as of October 1, 1997, between Pat Knotts
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.29 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.8+ Employment Agreement, dated as of October 1, 1997, between L. Tim
Pierce and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.9+ Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.31 the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.10+ Employment Agreement, dated as of July 10, 1997, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.11+ Lease Agreement, dated as of February 23, 1993, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.32 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.12+ Lease Agreement, dated as of October 10, 1995, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.33 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.13+ Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as
Exhibit 10.34 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.14+ Lease Agreement, dated as of January 18, 1998, between 2855 E.
Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc., filed
as Exhibit 10.35 to the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.15+ Amendment to Supply Agreement, dated as of June 19, 1995 between Van
Den Bergh Foods Company and Mrs. Fields, Inc., filed as Exhibit 10.37
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.16+ Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.17+ License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit
10.40 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
II-4
<PAGE>
EXHIBIT (CONTINUED)
10.18+ License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp., filed
as Exhibit 10.41 to the Company's Registration Statement on S-4 (No.
333-45170) and incorporated by reference herein.
10.19+ Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E.
Lisiewski, filed as Exhibit 10.43 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.20+ Franchise Agreement Addendum 2 and Area Development Agreement Addendum
2, dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs.
Fields' Original Cookies, Inc., filed as Exhibit 10.44 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.21+ Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.45 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.22+ Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.46 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.23+ Shareholder Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Martin E. Lisiewski and Pretzel Time,
Inc., filed as Exhibit 10.47 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
10.24+ Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.25+ Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein 10.26 + $500,000 Promissory
Note, dated as of September 2, 1997, between Martin E. Lisiewski and
Mrs. Fields' Holding Company, Inc., filed as Exhibit 10.50 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.26+ $500,000 Promissory Note, dated as of September 2, 1997, between Martin
E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as Exhibit
10.50 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.27+ Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.28+ Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.52 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.29+ Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.53 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein.
10.30+ Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members of
H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
II-5
<PAGE>
EXHIBIT (CONTINUED)
10.31+ Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.54 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.32+ Uniform Franchise Offering Circular of Pretzel Time, Inc., as amended
on August 24, 1998
10.33+ Uniform Franchise Offering Circular of Great American Cookie Company,
Inc., as amended on November 24, 1998
10.34+ Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.57 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein.
10.35+ Assignment of Assets and Assumption of Liabilities Agreement, dated
July 25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc., filed as Exhibit 10.62 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.36+ First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited,
filed as Exhibit 10.64 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.37+ First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July
25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen,
filed as Exhibit 10.65 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.38+ Lease Agreement, dated March 2, 1995, between Price Development
Company, Limited Partnership and Mrs. Fields Cookies, filed as Exhibit
10.69 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.39+ Consulting Agreement, dated November 26, 1996, between Debra J. Fields
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.40+ Mrs. Fields' Holding Company, Inc. Director Stock Option Plan
10.41+ Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan
10.42+ Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan
10.43+ Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as Exhibit 10.73 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.44+ Intellectual Property Security Agreement, dated as of February 28,
1998, between Mrs. Fields' Original Cookies, Inc. and LaSalle National
Bank
10.45+ Pledge and Security Agreement, dated as of February 28, 1998, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank
10.46+ Stockholders' Agreement, dated as of July 17, 1998, between Mrs.
Fields' Holding Company, Inc. and its Stockholders
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
6
<PAGE>
EXHIBIT (CONTINUED)
10.48+ Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a/ Pennant Foods.
12.1+ Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
21.1+ Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Weinstein Spira & Company, P.C.
23.4 Consent of PricewaterhouseCoopers LLP
23.5* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Habif, Arogeti & Wynne, P.C.
23.7 Consent of BDO Siedman, LLP
23.8 Consent of AJ Robbins, P.C.
23.9* Consent of 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 2, 1999
99.1+ Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3+ Schedule II--Valuation and Qualifying Accounts
99.4 Guidelines for certification of taxpayer identification number on
substitute Form W-9
99.5 Letter to Brokers
99.6 Letter to Clients
*To be filed by amendment.
+Filed previously
II-7
<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-8
<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 11th day of
February, 2000.
MRS. FIELDS' ORIGINAL COOKIES, INC.
Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-9
<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 February 11, 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
______________________________________
(Debbi Fields)
/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-10
<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 11th day of February,
2000.
THE MRS. FIELDS' BRAND, INC.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-11
<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 February 11, 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-12
<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 11th day of
February, 2000.
GREAT AMERICAN COOKIE COMPANY, INC.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-13
<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 February 11, 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
______________________________________
(Michael R. Ward)
</TABLE>
II-14
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Pretzelmaker
Holdings, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Salt Lake City, State of Utah, on the 11th day of February,
2000.
Pretzelmaker Holdings, Inc.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-15
<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 February 11, 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
______________________________________
(Michael R. Ward)
</TABLE>
II-16
<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 11th day of February,
2000.
Pretzel Time, Inc.
/s/ Larry A. Hodges
By___________________________________
Larry A. Hodges
President/CEO
II-17
<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 February 11, 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
______________________________________
(Michael R. Ward)
</TABLE>
II-18
<PAGE>
EXHIBIT INDEX
EXHIBIT
1.1+ Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Original Cookies, Inc., The Mrs. Fields Brand Inc., Jefferies & Company,
Inc. and BT Alex. Brown Incorporated
2.1+ Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time,Inc., dated as of
January 2, 1998
2.2+ Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc., dated as of June
12, 1998.
2.3+ Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998
2.4+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998.
2.5+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton, Steven
J. Bryan and Jason A. Piltzmaker, holders of all outstanding capital
stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2 to the 8-K
dated September 3, 1998.
2.6+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as Exhibit 2.4 to
the 8-K dated September 3, 1998.
2.7+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Crossroads Cookies, Inc. Filed as Exhibit 2.5 to the 8-K dated September
3, 1998.
2.8+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Hot Barton and Northpark Cookies, Inc. Filed as Exhibit 2.6 to the 8-K
dated September 3, 1998.
2.9+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Northpark Cookies, Inc. Filed as Exhibit 2.7 to the 8-K dated September
3, 1998.
2.10+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Quail Springs Cookies, Inc. Filed as Exhibit 2.8 to the 8-K dated
September 3, 1998.
2.11+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Westgate Cookies, Inc. Filed as Exhibit 2.9 to the 8-K dated September 3,
1998. See changes on Pg 3 (2.10-2.13)
2.12+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer, The Cookie Conglomerate, Inc. and The Cookie Conglomerate,
LLP., the sellers, and Ronald A. Eichel and Alan M. Kuehn, partners of
The Cookie Conglomerate LLP. and shareholders of The Cookie Conglomerate,
Inc., dated as of October 5, 1998.
2.13+ Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer and Martin E. Lisiewski, a shareholder of Pretzel Time, Inc., dated
as of December 9, 1998.
2.14+ Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Mrs. Fields' Original Cookies, Inc. as buyer, and Pretzel Time, Inc. and
Martin E. Lisiewski as seller, dated as of December 30, 1998.
2.15+ Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc. as
buyer and Pretzelmaker Holdings, Inc., Mark A. Geman, Donald G. Cox, Jr.
and Louis H. Marks as principal sellers, dated as of November 19, 1998.
3.1+ Restated Certificate of Incorporation of Mrs. Fields' Original Cookies,
Inc., filed as Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (No. 333-45179) and incorporated by reference herein
3.2+ Restated Certificate of Incorporation of The Mrs. Fields' Brand, Inc.,
filed as Exhibit 3.2 to the Company's Registration Statement on Form S-4
(No. 333-45179) and incorporated by reference herein
3.3+ Certificate of Designations of the Mrs. Fields' Brand, Inc., dated as of
September 18, 1996, filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-4 (No. 333-45179) and incorporated by reference
herein
3.4+ Amended and Restated Certificate of Incorporation of Great American
Cookie Company, Inc.
3.5* Articles of Incorporation of Pretzelmaker Holdings, Inc.
3.6* Articles of Incorporation of Pretzel Time, Inc.
3.7+ By-Laws of Mrs. Fields' Original Cookies, Inc., filed as Exhibit 3.4 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
3.8+ By-Laws of The Mrs. Fields' Brand, Inc., filed as Exhibit 3.5 to the
Company's Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
3.9+ By-Laws of Great American Cookie Company, Inc.
3.10 By-Laws of Pretzelmaker Holdings, Inc.
3.11 By-Laws of Pretzel Time, Inc.
4.1+ Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York, as
Trustee, filed as Exhibit 4.1 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein.
4.2+ Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.1)
4.3+ Form of Certificate of Senior Note (included as Exhibit A to Exhibit 4.1)
4.4+ First Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields Brand, Inc., and The Bank
of New York, as Trustee
4.5+ Second Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., and The Bank of New York, as trustee
4.6+ Third Supplemental Indenture, dated as of November 20, 1998, among Mrs.
Fields' Original Cookies, Inc., Great American Cookie Company, Inc., The
Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., and The Bank of
New York, as a Trustee
4.7 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 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 Holdings, Inc. and Pretzel Time,
Inc.
10.1+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P., filed as Exhibit 10.1 to the Company's Registration Statement on S-
4 (No. 333-45179) and incorporated by reference herein
10.2+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn Investors II,
L.P., filed as Exhibit 10.11 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.3+ Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain,
filed as Exhibit 10.27 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.4+ Amendment, dated December 1, 1997, to Amended and Restated Marketing
Agreement between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain
10.5+ Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on November 13, 1997
and December 1, 1997 between Mrs. Fields' Original Cookies, Inc. and
Coco-Cola USA Fountain.
10.6+ Employment Agreement, dated as of October 1, 1997, between Michael R.
Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28 to
the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.7+ Employment Agreement, dated as of October 1, 1997, between Pat Knotts
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.29 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.8+ Employment Agreement, dated as of October 1, 1997, between L. Tim
Pierce and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.9+ Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.31 the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.10+ Employment Agreement, dated as of July 10, 1997, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.11+ Lease Agreement, dated as of February 23, 1993, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.32 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.12+ Lease Agreement, dated as of October 10, 1995, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.33 the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.13+ Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as
Exhibit 10.34 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.14+ Lease Agreement, dated as of January 18, 1998, between 2855 E.
Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc., filed
as Exhibit 10.35 to the Company's Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.15+ Amendment to Supply Agreement, dated as of June 19, 1995 between Van
Den Bergh Foods Company and Mrs. Fields, Inc., filed as Exhibit 10.37
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.16+ Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.17+ License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit
10.40 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.18+ License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp., filed
as Exhibit 10.41 to the Company's Registration Statement on S-4 (No.
333-45170) and incorporated by reference herein.
10.19+ Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E.
Lisiewski, filed as Exhibit 10.43 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.20+ Franchise Agreement Addendum 2 and Area Development Agreement Addendum
2, dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs.
Fields' Original Cookies, Inc., filed as Exhibit 10.44 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.21+ Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.45 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.22+ Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.46 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.23+ Shareholder Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Martin E. Lisiewski and Pretzel Time,
Inc., filed as Exhibit 10.47 to the Company's Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
10.24+ Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.25+ Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Company's Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.26+ $500,000 Promissory Note, dated as of September 2, 1997, between Martin
E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as Exhibit
10.50 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.27+ Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51
to the Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.28+ Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.52 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.29+ Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.53 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein.
10.30+ Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members of
H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Company's
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.31+ Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.54 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.32+ Uniform Franchise Offering Circular of Pretzel Time, Inc., as amended
on August 24, 1998
10.33+ Uniform Franchise Offering Circular of Great American Cookie
Company, Inc., as amended on November 24, 1998
10.34+ Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.57 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein.
10.35+ Assignment of Assets and Assumption of Liabilities Agreement, dated
July 25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc., filed as Exhibit 10.62 to the Company's Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.36+ First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited,
filed as Exhibit 10.64 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.37+ First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July
25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen,
filed as Exhibit 10.65 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.38+ Lease Agreement, dated March 2, 1995, between Price Development
Company, Limited Partnership and Mrs. Fields Cookies, filed as Exhibit
10.69 to the Company's Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.39+ Consulting Agreement, dated November 26, 1996, between Debra J. Fields
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the
Company's Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.40+ Mrs. Fields' Holding Company, Inc. Director Stock Option Plan
10.41+ Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan
10.42+ Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan
10.43+ Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as Exhibit 10.73 to the Company's Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.44+ Intellectual Property Security Agreement, dated as of February 28,
1998, between Mrs. Fields' Original Cookies, Inc. and LaSalle National
Bank
10.45+ Pledge and Security Agreement, dated as of February 28, 1998, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank
10.46+ Stockholders' Agreement, dated as of July 17, 1998, between Mrs.
Fields' Holding Company, Inc. and its Stockholders
10.47+ Form of Settlement Agreement and Release, by and among Mrs. Fields'
Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware
limited partnership, Great American Cookie Company, Inc., Cookies USA,
Inc., The Jordan Company, and the Franchisees parties thereto
10.48+ Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a Pennant Foods.
12.1+ Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
21.1+ Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Weinstein Spira & Company, P.C.
23.4 Consent of PricewaterhouseCoopers LLP
23.5* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Habif, Arogeti, & Wynne, P.C.
23.7 Consent of BDO Siedman, LLP
23.8 Consent of AJ Robbins, P.C.
23.9* Consent of Prior Management of Great American Cookie Company
24.1+ Power of Attorney of certain officers and directors of the Company,
included in Part II of this Registration Statement
24.2+ Power of Attorney of certain officers and directors of The Mrs. Fields'
Brand, Inc., included in Part II of this Registration Statement
24.3+ Power of attorney of certain officers and directors of Great American
Cookie Company, Inc., included in Part II of this Registration
Statement
25.1+ Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
27.1+ Financial Data Schedule (for SEC use only), filed as Exhibit 27 to the
Company's Form 10-K for the year ended January 2, 1999
99.1+ Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3+ Schedule II - Valuation and Qualifying Accounts
99.4 Guidelines for certification of taxpayer identification number on
substitute Form W-9
99.5 Letter to Brokers
99.6 Letter to clients
________
* To be filed by amendment.
+ Filed previously
<PAGE>
BY-LAWS
OF
PRETZELMAKER HOLDINGS OF UTAH, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be in the Salt Lake City, County of Salt Lake, State of Utah.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Utah as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Utah as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall
--------- ---------------
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the
<PAGE>
stockholders shall elect by a plurality vote a Board of Directors, and transact
such other business as may properly be brought before the meeting. Written
notice of the Annual Meeting stating the place, date and hour of the meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
--------- ----------------
the Articles of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by either (i) the Chairman, if there be one, or (ii)
the President, (iii) any Vice President, if there be one, (iv) the Secretary or
(v) any Assistant Secretary, if there be one, and shall be called by any such
officer at the request in writing of a majority of the Board of Directors or at
the request in writing of stockholders owning a majority of the capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
--------- ------
Articles of Incorporation, the holders of a majority of the capital stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute
2
<PAGE>
a quorum at all meetings of the stockholders for the transaction of business.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Articles of
--------- ------
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be case in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be case by written ballot.
3
<PAGE>
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
--------- ------------------------------------------
otherwise provided in the Articles of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 7. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at
4
<PAGE>
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be
--------- ------------
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of Directors
--------- --------------------------------
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed by the Incorporator and thereafter from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the next Annual Meeting and until his successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any time
upon notice to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
--------- ---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors than in office, through less than a quorum, or by
a sole remaining director,
5
<PAGE>
and the directors so chosen shall hold office until the next annual election and
until their successors are duly elected and qualified, or until their earlier
resignation or removal.
Section 3. Duties and Powers. The business of the Corporation shall be
--------- -----------------
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may
--------- --------
hold meetings, both regular and special, either within or without the State of
Utah. Regular meetings of the Board of Directors may be held without notice at
such time and at such place as may from time to time be determined by the Board
of Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or any directors. notice thereof
stating the place, date, hour and agenda of the meeting shall be given to each
director by telecopy not less than five business days prior to the meeting;
provided that, in the event the Chairman determines that such notice is not
practicable, such notice may be given not later than forty-eight (48) hours
before the date of the meeting. This Section 4 cannot be amended without the
consent of each director then in office.
Section 5. Quorum. Except as may be otherwise specifically provided by
--------- ------
law, the Articles of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of
6
<PAGE>
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Actions of the Board. Unless otherwise provided by the
--------- --------------------
Articles of Incorporation or these By-Laws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
--------- -----------------------------------------
provided by the Articles of Incorporation or these By-Laws, members of the Board
of Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of which all persons participating in the meeting can hear
each other, the participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate one or
--------- ----------
more committees, each committee to consist of one or more of the directors of
the Corporation.
7
<PAGE>
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
nor not he or they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.
Section 9. Compensation. The directors may be paid their expenses, if
--------- ------------
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 10. Interested Directors. No contract or transaction between
---------- --------------------
the Corporation and one or more of its directors or officers, or between the
Corporation and
8
<PAGE>
any other corporation, partnership, association or other organization in which
one or more of its directors or officers are directors or officer, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (i) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or the committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorized the contract or transaction.
ARTICLE IV
OFFICERS
--------
9
<PAGE>
Section 1. General. The officers of the Corporation shall be chosen by
--------- -------
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Articles of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, exception the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors at its first meeting held
--------- --------
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
10
<PAGE>
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same powers as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties
11
<PAGE>
and may exercise such other powers as from time to time may be assigned to him
by these By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of
--------- ---------
the Board of Directors, and if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these By-Laws, the Board of Directors or the President.
In the absence or disability of the Chairman of the Board of Directors, or if
there be none, the President shall preside at all meetings of the stockholders
and the Board of Directors. If there be no Chairman of the Board of Directors,
the President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
Section 6. Vice Presidents. At the request of the President or in his
--------- ---------------
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and
12
<PAGE>
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Each Vice President shall perform such other
duties and have such other powers as the Board of Directors from time to time
may prescribe. If there be no Chairman of the Board of Directors and no Vice
President, the Board of Directors shall designate the officer of the Corporation
who, in the absence of the President or in the event of the inability or refusal
of the President to act, shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
--------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary or any
Assistant Secretary, if there be one, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be
13
<PAGE>
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or
14
<PAGE>
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise provided
--------- ---------------------
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
---------- --------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers,
15
<PAGE>
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Any and all of the signatures on a certificate
--------- ----------
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
16
<PAGE>
Section 3. Lost Certificates. The Board of Directors may direct a new
--------- -----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
--------- ---------
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine
--------- -----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change,
17
<PAGE>
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty days nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
--------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Subject to Section 4 of Article III hereof,
--------- -------
whenever written notice is required by law, the Articles of Incorporation or
these By-Laws, to be given to any director, member of a committee or
stockholder, such notice may be given by mail, addressed to such director,
member of a committee or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid,
18
<PAGE>
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
--------- -----------------
the Articles of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
19
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the Corpora
--------- ---------
tion, subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
---------- -------------
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
20
<PAGE>
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
--------- ---------------------------------------------------------
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corpo ration serving at the request
of the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not, of itself, create a presumption that the
person did not act in good faith and in a manner which
21
<PAGE>
he reasonably believed to be in or not opposed to the best interests of the
Corpora tion, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
--------- ------------------------------------------------------------
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
- ----------------------------
Corpora tion shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to
22
<PAGE>
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
--------- --------------------------------
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. Good Faith Defined. For purposes of any determination under
--------- ------------------
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had
23
<PAGE>
no reasonable cause to believe his conduct was unlawful, if his action is based
on the records or books of account of the Corporation or another enterprise, or
on informa tion supplied to him by the officers of the Corporation or another
enterprise in the course of their duties, or on the advice of legal counsel of
the Corporation or another enterprise or on information of records given or
reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corpora tion or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
--------- --------------------------
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of Utah
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that
24
<PAGE>
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standards of conduct set forth in Sections 1
and 2 of this Article VIII, as the case may be. Neither a contrary determination
in the specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the Corporation promptly upon the
filing of such application. If successful, in whole or in part, the director or
officer seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
--------- ---------------------------
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
--------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled
25
<PAGE>
under any By-Law, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, it being the
policy of the Corporation that indemnification of the persons specified in
Sections 1 and 2 of this Article VIII shall be made to the fullest extent
permitted by law. The provisions of this Article VIII shall not be deemed to
preclude the indemnification of any person who is not specified in Sections 1 or
2 of this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the Utah Revised Business Corporation Act, or
otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corpora tion, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partner ship, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the Corporation would have the power or the obligation to indemnify him against
such liability under the provisions of this Article VIII.
26
<PAGE>
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partner ship,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes
of this Article VIII, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
27
<PAGE>
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
---------- -------------------------------------------------------
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
---------- -----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof)
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
---------- ---------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
28
<PAGE>
ARTICLE IX
AMENDMENTS
----------
Section 1. Amendments. Subject to Section 4 of Article III hereof,
--------- ----------
these By-Laws may be altered, amended or repealed, in whole or in part, or new
By-Laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. Subject to Section 4 of Article III
hereof, all such amendments must be approved by either the holders of a majority
of the outstanding capital stock entitled to vote thereon or by a majority of
the entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX and
--------- -------------------------
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
29
<PAGE>
BY-LAWS
OF
PRETZEL TIME OF UTAH, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be in Salt Lake City, County of Salt Lake, State of Utah.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Utah as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Utah as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall
--------- ---------------
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the
<PAGE>
stockholders shall elect by a plurality vote a Board of Directors, and transact
such other business as may properly be brought before the meeting. Written
notice of the Annual Meeting stating the place, date and hour of the meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
--------- ----------------
the Articles of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by either (i) the Chairman, if there be one, or (ii)
the President, (iii) any Vice President, if there be one, (iv) the Secretary or
(v) any Assistant Secretary, if there be one, and shall be called by any such
officer at the request in writing of a majority of the Board of Directors or at
the request in writing of stockholders owning a majority of the capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
--------- ------
Articles of Incorporation, the holders of a majority of the capital stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute
2
<PAGE>
a quorum at all meetings of the stockholders for the transaction of business.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Articles of
--------- ------
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be case in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be case by written ballot.
3
<PAGE>
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
--------- ------------------------------------------
otherwise provided in the Articles of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 7. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at
4
<PAGE>
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be
--------- ------------
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
--------- --------------------------------
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed by the Incorporator and thereafter from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by a plurality of the votes cast at Annual
Meetings of Stockholders, and each director so elected shall hold office until
the next Annual Meeting and until his successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any time
upon notice to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
--------- ---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors than in office, through less than a quorum, or by
a sole remaining
5
<PAGE>
director,m and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and qualified, or until
their earlier resignation or removal.
Section 3. Duties and Powers. The business of the Corporation shall be
--------- -----------------
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Articles of Incorporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may
--------- --------
hold meetings, both regular and special, either within or without the State of
Utah. Regular meetings of the Board of Directors may be held without notice at
such time and at such place as may from time to time be determined by the Board
of Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or any directors. notice thereof
stating the place, date, hour and agenda of the meeting shall be given to each
director by telecopy not less than five business days prior to the meeting;
provided that, in the event the Chairman determines that such notice is not
practicable, such notice may be given not later than forty-eight (48) hours
before the date of the meeting. This Section 4 cannot be amended without the
consent of each director then in office.
6
<PAGE>
Section 5. Quorum. Except as may be otherwise specifically provided by
--------- ------
law, the Articles of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions of the Board. Unless otherwise provided by the
--------- --------------------
Articles of Incorporation or these By-Laws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
--------- -----------------------------------------
provided by the Articles of Incorporation or these By-Laws, members of the Board
of Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of which all persons participating in the meeting can hear
each other, the participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
7
<PAGE>
Section 8. Committees. The Board of Directors may designate one or
--------- ----------
more committees, each committee to consist of one or more of the directors of
the Corpora tion. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether nor not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to
the extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The directors may be paid their expenses, if
--------- ------------
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other
8
<PAGE>
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction between
---------- --------------------
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officer, or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose if (i) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or the committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the
9
<PAGE>
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorized the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
--------- -------
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Articles of Incorporation or these By-Laws. The officers of the Corporation
need not be stockholders of the Corporation nor, exception the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors at its first meeting held
--------- --------
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the
10
<PAGE>
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corpora tion shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and powers incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the
11
<PAGE>
Chairman of the Board of Directors shall possess the same powers as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Directors shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by these
By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of
--------- ---------
the Board of Directors, and if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corpora tion may sign and execute
documents when so authorized by these By-Laws, the Board of Directors or the
President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other
12
<PAGE>
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
Section 6. Vice Presidents. At the request of the President or in his
--------- ---------------
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Each
Vice President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
--------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the
13
<PAGE>
Board of Directors or President, under whose supervision he shall be. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
President may choose another officer to cause such notice to be given. The
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing
by his signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of
14
<PAGE>
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise provided
--------- ---------------------
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
---------- --------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so
15
<PAGE>
acting, shall have all the powers of and be subject to all the restrictions upon
the Treasurer. If required by the Board of Directors, an Assistant Treasurer
shall give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Any and all of the signatures on a certificate
--------- ----------
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose
16
<PAGE>
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
--------- -----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
--------- ---------
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
17
<PAGE>
Section 5. Record Date. In order that the Corporation may determine
--------- -----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
--------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VI
NOTICES
18
<PAGE>
Section 1. Notices. Subject to Section 4 of Article III hereof,
--------- -------
whenever written notice is required by law, the Articles of Incorporation or
these By-Laws, to be given to any director, member of a committee or
stockholder, such notice may be given by mail, addressed to such director,
member of a committee or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram, telex
or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
--------- -----------------
the Articles of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corpora
--------- ---------
tion, subject to the provisions of the Articles of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for
19
<PAGE>
dividends such sum or sums as the Board of Directors from time to time, in its
absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corpora tion, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
---------
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other
--------- ---------------------------------------------------------
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corpo-
20
<PAGE>
ration serving at the request of the Corporation as a director or officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not,
of itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Corpora tion, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
--------- ------------------------------------------------------------
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
- ----------------------------
Corpora tion shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was a director or officer of the
21
<PAGE>
Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
--------- --------------------------------
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such determination shall be
made (i) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or
22
<PAGE>
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
--------- ------------------
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel of the Corporation or another enterprise or on
information of records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corpora tion or any partnership, joint venture, trust, employee
benefit plan or other enterprise
23
<PAGE>
of which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
--------- --------------------------
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of Utah
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 1 and 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful,
24
<PAGE>
in whole or in part, the director or officer seeking indemnification shall also
be entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
--------- ---------------------------
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
--------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation
25
<PAGE>
has the power or obligation to indemnify under the provisions of the Revised
Business Corporation Act of the State of Utah, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corpora tion, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partner ship, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the Corporation would have the power or the obligation to indemnify him against
such liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partner ship,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the
26
<PAGE>
same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VIII, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
---------- -------------------------------------------------------
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
---------- -----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof)
the Corporation
27
<PAGE>
shall not be obligated to indemnify any director or officer in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors of the
Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
---------- ---------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. Subject to Section 4 of Article III hereof,
--------- ----------
these By-Laws may be altered, amended or repealed, in whole or in part, or new
By-Laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. Subject to Section 4 of Article III
hereof, all such amendments must be approved by either the holders of a majority
of the outstanding capital stock entitled to vote thereon or by a majority of
the entire Board of Directors then in office.
28
<PAGE>
Section 2. Entire Board of Directors. As used in this Article IX and
--------- -------------------------
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
29
<PAGE>
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"),
dated as of December 30 , 1998, 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 Holdings, Inc., a
Colorado corporation and a subsidiary of the Company ("Pretzelmaker"), and
Pretzel Time, Inc., a Pennsylvania corporation and a subsidiary of the Company
(the "Guaranteeing Subsidiary" 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, and the Third Supplemental Indenture,
dated as of November 20, 1998 (as so amended, the "Indenture"), providing for
the issuance of an aggregate principal amount of up to $200.0 million of 101/8%
Notes due 2004 (the "Notes");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary
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, 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 Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
<PAGE>
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 Subsidiary
----------------------
hereby agrees 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, 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
2
<PAGE>
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
Subsidiary, MFB, Great American, Pretzelmaker, or any
Custodian, Trustee, liquidator or other similar official
acting in relation to either the Company or the Guaranteeing
Subsidiary, MFB, Great American, or Pretzelmaker, 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 Subsidiary shall not be entitled
to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in
full of all obligations guaranteed 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, notwithstanding 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 due and payable) shall forthwith
become due and payable by the Guarantors for the purpose of
this Guarantee.
3
<PAGE>
(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 Subsidiary
----------------------
agrees that the Guarantee shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on
------------------------------------------------
Certain Terms.
- -------------
(a) The Guaranteeing Subsidiary 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) unconditionally
assumes all the obligations of such Guarantor,
pursuant to a supplemental indenture in form
and substance 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
4
<PAGE>
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 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 disposition 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
5
<PAGE>
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 Subsidiary 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.
8. 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 THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
9. 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.
10. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
11. 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 Subsidiary, MFB, Great
American, Pretzelmaker, and the Company.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: As of December 30, 1998
PRETZEL TIME, INC.
By: /s/ Michael Ward
Name: Michael Ward
Title: V.P.
PRETZELMAKER HOLDINGS, INC.
By: /s/ Michael Ward
Name: Michael Ward
Title: V.P.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: /s/ Michael Ward
Name: Michael Ward
Title: V.P.
THE MRS. FIELDS' BRAND, INC.
By: /s/ Michael Ward
Name: Michael Ward
Title: V.P.
GREAT AMERICAN COOKIE COMPANY, INC.
By: /s/ Michael Ward
Name: Michael Ward
Title: V.P.
THE BANK OF NEW YORK,
AS TRUSTEE
By: /s/ Michele L. Russo
Name: Michele L. Russo
Title: Assistant Treasurer
7
<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
February 11, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 to Registration Statement No.
333-67389 of Mrs. Fields' Original Cookies, Inc. of our report dated February 9,
1996, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 2000
<PAGE>
[LETTERHEAD OF WEINSTEIN SPIRA & COMPANY] Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated August 17, 1998 on the
financial statements of Deblan Corporation included in Mrs. Fields' Original
Cookies, Inc. and Mrs Fields' Holding Company, Inc. Registration
Statements on Forms S-4.
WEINSTEIN SPIRA & COMPANY P.C.
/s/ Weinstein Spira $ Company P.C.
Houston, Texas
February 11, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 4 to Form S-4 (No. 333-67389) of Mrs.
Fields' Original Cookies, Inc. of our report dated August 24, 1998 relating to
the financial statements of Cookies USA, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
February 7, 2000
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Mrs. Fields' Original Cookies, Inc., and
in the Prospectus constituting part of this registration Statement on Form S-4
of Mrs. Fields' Holding Company, Inc. of our report dated November 12, 1998 as
amended on February 4, 1999 relating to the financial statements of Cookie
Conglomerate, Inc. and its Affiliates, which appears in such documents.
/s/ Habif, Arogeti & Wynne, LLP
- ----------------------------------
Habif, Arogeti & Wynne, LLP
Atlanta, Georgia 30309-3837
February 11, 2000
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
Mrs. Fields' Original Cookie's, Inc.
Salt Lake City, Utah
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement our report dated February 7, 1997, relating to the
consolidated financial statement of Pretzelmaker Holdings, Inc., for the period
from inception (February 24, 1995) to December 31, 1995 and for the year ended
December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Denver, Colorado
February 11, 2000
<PAGE>
EXHIBIT 23.8
AJ. ROBBINS PC
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
3033 EAST FIRST AVENUE, SUITE 201
DENVER, COLORADO 80206
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment #4 of Form S-4 of Mrs. Fields' Original
Cookies, Inc. of our report dated December 11, 1998 relating to the consolidated
financial statements of Pretzelmaker Holdings, Inc. and to the reference made to
our firm under the caption "Experts" which appear in such documents.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
November 17, 1999
<PAGE>
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 February , 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>
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
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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.
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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 February
, 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 February , 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 March , 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.
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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
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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 February , 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 March 5, 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 March 5,
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.
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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.
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Dated: , 2000 Signature(s)
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Please print name(s) here
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Address(es)
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Area Code and Telephone Number
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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.
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