SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 15, 1997
RED HOT CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-86166 52-1887105
(State of Organization) (Commission File No.) (IRS Employer
Identification Number)
6701 Democracy Boulevard, Suite 300
Bethesda, MD 20817
(Address of principal executive offices)
(301) 493-4553
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On December 15, 1997 Red Hot Concepts, Inc. (the "Company") completed
the merger (the "Merger") of its wholly owned United Kingdom subsidiary,
Restaurant House Limited ("Restaurant House"), with and into The Celebrated
Group Plc ("Celebrated") pursuant to the Agreement dated November 18, 1997 by
and between the Company and Celebrated (the "Merger Agreement"), which is filed
as an exhibit to this report and is incorporated herein by reference.
Pursuant to the Merger Agreement, the Company sold all of the issued
and outstanding stock of Restaurant House to Celebrated in exchange for
28,000,000 shares of Celebrated. Upon consummation of the Merger, the Company
owns approximately 45.6% of Celebrated. As part of the Merger, the Company
received options to purchase an additional 6,000,000 shares of Celebrated upon
the exercise of which the Company would own approximately 50.51% of the
outstanding shares of Celebrated.
Celebrated is a British Company that operates 22 roadside restaurants
and a luxury hotel. Celebrated shares trade on the Alternative Investment Market
of the London Stock Exchange.
On December 18, 1997 the Company sold to Brinker International, Inc.
("Brinker") the assets of its Australian subsidiary, Chili's Texas Grill Plc.,
for $2.68 million. The Company has allocated $1.25 million of the proceeds from
the sale to repay a short-term loan to Brinker dating from February 1997. An
additional $700,000 has been allocated for the payment of other debts. The
Company purchased the Australian operations from Brinker in November 1995.
Red Hot Concepts, Inc. intends to use the remaining proceeds from the
sale to further the expansion of the Chili's concept throughout the United
Kingdom.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
(i) Condensed Consolidated Balance sheet of the Company as of
November 30, 1997.
(ii) It is impractical to provide the required financial
information regarding The Celebrated Group Plc at the time of filing
this report. The required financial information will be filed by
amendment to this Form 8-K not later than February 18, 1998.
(b) Pro Forma Financial Information
(i) Pro Forma Condensed Consolidated Balance Sheets of
November 30, 1997 giving effect to the merger of Restaurant House
Limited with The Celebrated Group Plc and Red Hot Concept, Inc's
acquisition of 45.6% of the outstanding equity of the merged entities
as if such transaction took place on November 30, 1997.
(ii) Pro Forma Consolidated Balance Sheet as of November 30,
1997 giving effect to the sale of Chili's Texas Grill Plc to Brinker
International as if the sale took place on November 30, 1997.
(iii) Pro Forma Consolidated Balance Sheet as of November
30,1997 giving effect to the merger of Restaurant House, Limited with
the Celebrated Group Plc and Red Hot Concepts Inc's acquisition of
45.6% of the outstanding equity of the merged entities and the sale of
Chili's Texas Grill Plc to Brinker International, Inc. as if both
transactions took place on November 30, 1997.
(iv) It is impractical to provide the additional required pro
forma financial information at the time of filing this report. The
additional information will be filed by amendment to this Form 8-K not
later than February 18, 1998.
(c) Exhibits
10.1 Red Hot Concepts, Inc. and The Celebrated Group Plc
Agreement for the acquisition of the whole of the
issued shares in Restaurant House Limited in
consideration of the issue of ordinary shares and
options by the Celebrated Group Plc to Red Hot
Concepts, Inc.
10.2 Asset Sale Agreement between Red Hot Concepts, Inc.
and Red Hot Concepts-Pacific, Inc. and Chili's Texas
Grill PTY Limited and Brinker International, Inc.
and Brinker Australia PTY LTD dated December 18,
1997
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1997 [UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1997 December 29, 1996
[Audited]
Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 22,566 $ 534,145
Restricted Cash 556,596 490,718
Due From Related Parties 13,232 29,785
Accounts Receivable and Other Receivables 0 34,545
Inventories 154,648 201,755
Prepaid Expenses and Accrued Income 134,806 224,630
---------- ----------
Total Current Assets 881,848 1,515,578
---------- ----------
Furniture and Equipment - Net 4,379,472 4,302,773
---------- ----------
Other Assets:
Development and License Agreements - Net 641,270 670,281
Store Development and Unit Pre-opening Costs 719,524 662,000
Deferred Lease Guarantee 472,322 472,322
Loan to Officers 51,547 134,183
---------- ----------
Total Other Assets 1,884,663 1,938,786
---------- ----------
Total Assets $7,145,983 7,757,137
---------- ----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1997 [UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1997 December 29, 1996
[Audited]
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C> <C>
Accounts Payable and Accrued Expenses $ 2,470,398 $ 3,553,078
Current Portion of long-term Debt 1,571,165 937,051
Accrued Interest Payable - Related Parties 0 125,065
----------- -----------
Total Current Liabilities 4,041,563 4,615,194
----------- -----------
Long Term Liabilities:
Notes Payable 1,276,197 717,180
Obligations under Capital Leases 289,406 0
Due to Related Parties 837,994 1,195,302
----------- -----------
Total Long Term Liabilities 2,403,597 1,912,482
----------- -----------
Minority Interest (22,004) 3,123
----------- -----------
Stockholders' Equity:
Common Stock, $.01 Par Value,
19,275,000 Shares Authorized,
10,262,347 Shares Issued and Outstanding 102,623 92,623
Preferred Stock, $1.00 Par Value,
100,000 Shares Authorized,
0 Issued and Outstanding 0 0
Preferred Stock, $2.00 Par Value,
725,000 Shares Authorized,
725,000 Shares Issued and Outstanding 1,450,000 0
Additional Paid-in Capital 8,874,040 8,884,040
Retained Earnings (9,654,672) (7,693,155)
Cumulative Foreign Currency Translation Adjustment (49,163) (57,170)
----------- -----------
Total Stockholders' Equity 722,828 1,226,338
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,145,984 $ 7,757,137
----------- -----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET [UNAUDITED]
- --------------------------------------------------------------------------------
The following Pro Forma Consolidated Balance Sheet as of November 30, 1997
gives effect to the sale of Chili's Texas Grill PLC (RHC's Australian
subsidiary) to Brinker International as if the sale took place on November 30,
1997.
<TABLE>
<CAPTION>
Historical Pro Forma
As of November 30, 1997
Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 22,566 $ 918,213
Restricted Cash 556,596 478,000
Due From Related Parties 13,232 13,232
Accounts Receivable and Other Receivables 0 0
Inventories 154,648 102,772
Prepaid Expenses and Accrued Income 134,806 96,856
---------- ----------
Total Current Assets 881,848 1,609,073
---------- ----------
Furniture and Equipment - Net 4,379,472 3,421,167
---------- ----------
Other Assets:
Development and License Agreements - Net 641,270 336,047
Store Development and Unit Pre-opening Costs 719,524 43,512
Deferred Lease Guarantee 472,322 0
Loan to Officers 51,547 51,547
---------- ----------
Total Other Assets 1,884,663 431,106
---------- ----------
Total Assets $7,145,983 $5,461,346
---------- ----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET [UNAUDITED]
- --------------------------------------------------------------------------------
The following Pro Forma Consolidated Balance Sheet as of November 30, 1997
gives effect to the sale of Chili's Texas Grill PLC (RHC's Australian
subsidiary) to Brinker International as if the sale took place on November 30,
1997.
<TABLE>
<CAPTION>
Historical Pro Forma
As of November 30, 1997
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C> <C>
Accounts Payable and Accrued Expenses $ 2,470,398 $ 2,491,106
Current Portion of long-term Debt 1,571,165 156,000
Accrued Interest Payable - Related Parties 0 0
----------- -----------
Total Current Liabilities 4,041,563 2,647,106
----------- -----------
Long Term Liabilities:
Notes Payable 1,276,197 762,283
Obligations under Capital Leases 289,406 0
Due to Related Parties 837,994 807,534
----------- -----------
Total Long Term Liabilities 2,403,597 1,569,816
----------- -----------
Minority Interest (22,004) 0
----------- -----------
Stockholders' Equity:
Common Stock, $.01 Par Value,
19,275,000 Shares Authorized,
10,262,347 Shares Issued and Outstanding 102,623 102,623
Preferred Stock, $1.00 Par Value,
100,000 Shares Authorized,
0 Issued and Outstanding 0 0
Preferred Stock, $2.00 Par Value,
725,000 Shares Authorized,
725,000 Shares Issued and Outstanding 1,450,000 1,450,000
Additional Paid-in Capital 8,874,040 8,874,040
Retained Earnings (9,654,672) (9,166,450)
Cumulative Foreign Currency Translation Adjustment (49,163) (15,790)
----------- -----------
Total Stockholders' Equity 722,828 1,244,423
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,145,984 $ 5,461,346
----------- -----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET [UNAUDITED]
- --------------------------------------------------------------------------------
The following Pro Forma Consolidated Balance Sheet as of November 30, 1997
gives effect to the merger of Restaurant House Ltd. (RHC's UK subsidiary) with
the Celebrated Group and RHC's acquisition of 45.6% of the outstanding equity of
the merged entities as if such transaction occurred on November 30, 1997.
<TABLE>
<CAPTION>
Historical Pro Forma
As of November 30, 1997
Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 22,566 $ (13,814)
Restricted Cash 556,596 178,596
Due From Related Parties 13,232 13,232
Investment in The Celebrated Group PLC 0 6,266,126
Accounts Receivable and Other Receivables 0 0
Inventories 154,648 51,876
Prepaid Expenses and Accrued Income 134,806 56,427
----------- -----------
Total Current Assets 881,848 6,552,443
----------- -----------
Furniture and Equipment - Net 4,379,472 966,052
----------- -----------
Other Assets:
Development and License Agreements - Net 641,270 305,223
Store Development and Unit Pre-opening Costs 719,524 676,012
Deferred Lease Guarantee 472,322 472,322
Loan to Officers 51,547 51,547
----------- -----------
Total Other Assets 1,884,663 1,505,104
----------- -----------
Total Assets $ 7,145,983 $ 9,023,598
----------- -----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET [UNAUDITED]
- --------------------------------------------------------------------------------
The following Pro Forma Consolidated Balance Sheet as of November 30, 1997
gives effect to the merger of Restaurant House Ltd. (RHC's UK subsidiary) with
the Celebrated Group and RHC's acquisition of 45.6% of the outstanding equity of
the merged entities as if such transaction occurred on November 30, 1997.
<TABLE>
<CAPTION>
Historical Pro Forma
As of November 30, 1997
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C> <C>
Accounts Payable and Accrued Expenses $ 2,470,398 $ 703,776
Current Portion of long-term Debt 1,571,165 1,415,165
Accrued Interest Payable - Related Parties 0 0
----------- -----------
Total Current Liabilities 4,041,563 2,118,941
----------- -----------
Long Term Liabilities:
Notes Payable 1,276,197 574,197
Obligations under Capital Leases 289,406 289,406
Due to Related Parties 837,994 476,073
----------- -----------
Total Long Term Liabilities 2,403,597 1,339,676
----------- -----------
Minority Interest (22,004) (22,004)
----------- -----------
Stockholders' Equity:
Common Stock, $.01 Par Value,
19,275,000 Shares Authorized,
10,262,347 Shares Issued and Outstanding 102,623 102,623
Preferred Stock, $1.00 Par Value,
100,000 Shares Authorized,
0 Issued and Outstanding 0 0
Preferred Stock, $2.00 Par Value,
725,000 Shares Authorized,
725,000 Shares Issued and Outstanding 1,450,000 1,450,000
Additional Paid-in Capital 8,874,040 8,874,040
Retained Earnings (9,654,672) (4,882,120)
Cumulative Foreign Currency Translation Adjustment (49,163) 42,443
----------- -----------
Total Stockholders' Equity 722,828 5,586,986
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,145,984 $ 9,023,599
----------- -----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET [UNAUDITED]
- --------------------------------------------------------------------------------
The following Pro Forma Consolidated Balance Sheet as of November 30, 1997
gives effect to both the sale of Chili's Texas Grill PLC (RHC's Australian
subsidiary) to Brinker International and the merger of Restaurant House Ltd.
(RHC's UK subsidiary) with the Celebrated Group and RHC's acquisition of 45.6%
of the outstanding equity of the merged entities as if such transactions
occurred on November 30, 1997.
<TABLE>
<CAPTION>
Net Change
Net Change from from
Historical Brinker Celebrated Pro Forma
As of As of November As of As of November
November 30, 30, 1997 November 30, 30, 1997
1997 1997
<S> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents 22,566 895,646 (36,380) 881,832
Restricted Cash 556,596 (78,596) (378,000) 100,000
Due From Related Parties 13,232 0 0 13,232
Investment in Celebrated Group 0 0 6,266,126 6,266,126
Accounts Receivable and Other Receivables 0 0 0 0
Inventories 154,648 (51,876) (102,772) 0
Prepaid Expenses and Accrued Income 134,806 (37,950) (78,379) 18,477
----------- ----------- ----------- -----------
Total Current Assets 881,848 727,225 5,670,595 7,279,668
----------- ----------- ----------- -----------
Furniture and Equipment - Net 4,379,472 (958,306) (3,413,421) 7,746
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Other Assets:
Development and License Agreements - Net 641,270 (305,223) (336,047) 0
Store Development and Unit Pre-Opening Costs 719,524 (676,012) (43,512) 0
Deferred Lease Guarantee 472,322 (472,322) 0 0
Loan to Officers 51,547 0 0 51,547
----------- ----------- ----------- -----------
Total Other Assets 1,884,663 (1,453,557) (379,559) 51,547
----------- ----------- ----------- -----------
Total Assets $ 7,145,983 $(1,684,638) $ 1,877,615 $ 7,338,961
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET [UNAUDITED]
- --------------------------------------------------------------------------------
The following Pro Forma Consolidated Balance Sheet as of November 30, 1997
gives effect to both the sale of Chili's Texas Grill PLC (RHC's Australian
subsidiary) to Brinker International and the merger of Restaurant House Ltd.
(RHC's UK subsidiary) with the Celebrated Group and RHC's acquisition of 45.6%
of the outstanding equity of the merged entities as if such transactions
occurred on November 30, 1997.
<TABLE>
<CAPTION>
Net Change
Net Change from from
Historical Brinker Celebrated Pro Forma
As of As of November As of As of November
November 30, 30, 1997 November 30, 30, 1997
1997 1997
<S> <C> <C> <C> <C>
Liabilities:
Current Liability:
Accounts Payable and Accrued Expenses 2,470,398 20,708 (1,766,622) 724,485
Current Portion of Long-Term Debt 1,571,165 (1,394,457) (156,000) 0
Accrued Interest Payable - Related Party 0 0 0 0
---------- ---------- ---------- ----------
Total Current Liability 4,041,563 (1,394,457) (1,922,621) 724,485
Long-Term Liabilities:
Notes Payable 1,276,197 (513,914) (702,000) 60,283
Obligations under Capital Leases 289,406 (289,406) 0 0
Due to Related Parties 837,994 (30,461) (361,922) 445,612
---------- ---------- ---------- ----------
Total Long-Term Liabilities 2,403,597 (833,781) (1,063,921) 505,895
Minority Interest (22,004) 22,004 0 0
Shareholders' Equity
Common Stock, $.01 Par Value,
19,275,000 Shares Authorized,
10,262,347 Shares Issued and Outstanding 102,623 0 0 102,623
Preferred Stock, $1.00 Par Value,
100,000 Shares Authorized,
0 Shares Issued and Outstanding 0 0 0 0
Preferred Stock, $2.00 Par Value,
725,000 Shares Authorized,
725,000 Shares Issued and Outstanding 1,450,000 1,450,000
Additional Paid-in-Capital 8,874,040 0 0 8,874,040
Retained Earnings (9,654,672) 488,223 4,772,552 (4,393,898)
Cumulative Foreign Currency Translation Adjustment
(49,163) 33,373 91,606 75,816
---------- ---------- ---------- ----------
Total Stockholders' Equity 722,828 521,596 4,864,158 6,108,581
Total Liabilities and Stockholders' Equity 7,145,984 (1,684,638) 1,877,615 7,338,961
---------- ---------- ---------- ----------
</TABLE>
RED HOT CONCEPTS, INC. AND SUBSIDIARIES (RHC)
- --------------------------------------------------------------------------------
NOTES TO THE PRO FORMA
- --------------------------------------------------------------------------------
[A] The proceeds from the sale of the Australian subsidiary are $2.68
million gross less liabilities of $513,700 to total net proceeds of
$2.166 million. The Company then retires the outstanding loan to
Brinker International of $1,251,906 with accrued interest.
As a result, the accounts change:
a. Cash into the Company $ 914,389
b. Retire Debt 1,251,906
c. Gain on Sale of Subsidiary 773,601
[B] The change to the other balance sheet accounts represent the elimination of
the Australian balances.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly authorized.
Red Hot Concepts, Inc.
By: /s/Colin Halpern
Colin Halpern
President
Date: December 30, 1997
<PAGE>
EXHIBITS
Exhibit Number and Description
(a) Financial Statements.
(i) Condensed Consolidated Balance sheet of the Company as of
November 30, 1997.
(ii) It is impractical to provide the required financial
information regarding The Celebrated Group Plc at the time of filing
this report. The required financial information will be filed by
amendment to this Form 8-K not later than February 18, 1998.
(b) Pro Forma Financial Information
(i) Pro Forma Condensed Consolidated Balance Sheets of
November 30, 1997 giving effect to the merger of Restaurant House
Limited with The Celebrated Group Plc and Red Hot Concept, Inc's
acquisition of 45.6% of the outstanding equity of the merged entities
as if such transaction took place on November 30, 1997.
(ii) Pro Forma Consolidated Balance Sheet as of November 30,
1997 giving effect to the sale of Chili's Texas Grill Plc to Brinker
International as if the sale took place on November 30, 1997.
(iii) Pro Forma Consolidated Balance Sheet as of November
30,1997 giving effect to the merger of Restaurant House, Limited with
the Celebrated Group Plc and Red Hot Concepts Inc's acquisition of
45.6% of the outstanding equity of the merged entities and the sale of
Chili's Texas Grill Plc to Brinker International, Inc. as if both
transactions took place on November 30, 1997.
(iv) It is impractical to provide the additional required pro
forma financial information at the time of filing this report. The
additional information will be filed by amendment to this Form 8-K not
later than February 18, 1998.
(c) Exhibits
10.1 Red Hot Concepts, Inc. and The Celebrated Group Plc Agreement for
the acquisition of the whole of the issued shares in Restaurant
House Limited in consideration of the issue of ordinary shares
and options by the Celebrated Group Plc to Red Hot Concepts, Inc.
10.2 Asset Sale Agreement between Red Hot Concepts, Inc. and Red Hot
Concepts-Pacific, Inc. and Chili's Texas Grill PTY Limited and
Brinker International, Inc. and Brinker Australia PTY LTD dated
December 18, 1997
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION- If You are in
Any doubt about the action you should take. you are recommended to seek your own
personal financial advice from your stockbroker, solicitor, accountant or other
independent Financial adviser authorized under the Financial Services Act 1986.
If you have sold or otherwise transferred all of your ordinary shares of 10p
each in Celebrated, please send this document together with the accompanying
Form of Proxy at once to the purchaser or transferee, or to the stockbroker,
bank or other agent through whom the sale or transfer was effected, for
transmission to the purchaser or transferee. However, such documents should not
be forwarded, transmitted or distributed in or into the United States, Canada,
Australia or Japan. If you have sold part only of your holding of shares you
should retain these documents.
Beeson Gregory Limited, which is regulated by the Securities and Futures
Authority, is acting exclusively for Celebrated and no- one else in relation to
the proposals described in this document and will not be responsible to anyone
other than Celebrated for providing protections afforded to customers of Beeson
Gregory Limited or for advising on the contents of this document or any matter
referred to herein.
The Directors of Celebrated, whose names are set out in Part 1, accept
responsibility for all information contained in this document other than that
relating to Red Hot Concepts and Restaurant House, the directors of Red Hot
Concepts and their immediate families. To the best of the knowledge and belief
the directors of Celebrated (who have taken all reasonable care to ensure that
such is the case) such information contained in this document for which they
accept responsibility is in accordance with the facts and does not omit anything
likely to affect the import of such information.
The directors of Red Hot Concepts, whose names arc set out in Part 1, accept
responsibility for all information contained in this document relating to Red
Hot Concepts and Restaurant House, the directors of Red Hot Concepts and their
immediate families. To the best of the knowledge and belief of the directors of
Red Hot Concepts (who have taken all reasonable care to ensure that such is the
case) such information contained in this document for which they accept
responsibility is in accordance with the fact, and does not omit anything likely
to affect the import of such information.
The Celebrated Group plc
(Registered in England and Wales, registered no. 2297958)
Acquisition of
Restaurant House Limited
Disposal of AJ's Restaurants
Notice of an Extraordinary General Meeting of Celebrated to be held at Robson
Rhodes, 186 City Road, London EC1V 2NU at 11:00 am on 15 December 1997 is set
out at the end of this document. Shareholders will find enclosed a Form of Proxy
for use at this Extraordinary General Meeting which should be completed and
returned to IRG p1c. Balfour house.390-398 High Road, Ilford, Essex IG1 1BR, as
soon an possible but, in any event, so as to arrive not later than 11.00 am on
13 December 1997.
Application has been made for the New Ordinary Shares to be admitted to trading
an AIM. AIM is a market designed primarily for emerging or smaller companies to
which a higher investment risk than that associated with established companies
tends to be attached. A prospective investor should be aware of the potential
risks in investing in such companies and should make the decision to invest only
after careful consideration and consultation with his or her own independent
financial adviser. The rules of AIM are less demanding than those of The
Official list. Furthermore the London Stock Exchange has not itself examined
this document. It is expected that trading will commence in the New Ordinary
Shares on 16 December 1997.
The New Ordinary Shares have not been and will not be registered under the
United States Securities Act of 1933, as amended, nor under the securities
legislation of any state of the United States, not any province of territory of
Canada. nor of the Commonwealth of Australia, nor of South Africa, nor of the
Republic of Ireland. Accordingly, subject to certain exceptions, the New
Ordinary Shares may not be offered, sold, resold, delivered or transferred in
the United States, Canada, Australia, South Africa or the Republic of Ireland.
<PAGE>
The Celebrated Group Plc
CONTENTS
Expected timetable of principal events
Definitions
Part I. Letter from the Chairman of Celebrated
I . Introduction
2. Reasons for and benefits of the Acquisition
3. Chili's Grill and Bar Restaurants
4. Details of the Acquisition
5. Information on Red Hot Concepts
6. Disposal of the AJ's Restaurants
7. Sale of Llyndir Hall Hotel
8. The City Code
9. Current trading and prospects
10. Dividend policy
11. Board changes
12. Extraordinary General Meeting
13. Action to be taken
14. Further information
15. Recommendation
Part II Financial Information
A. Unauditeded Interim Results for Celebrated for the six months ended 28
September 1997
B. Unaudited Interim Results for Restaurant House for the six months ended 29
June 1997
C. Pro forma Statement of Net Assets of the Enlarged Group
D. Extracted financial Information for the last 3 years for Celebrated
E. Extracted Financial Information for the last 3 years for Restaurant House
F. Extracted Financial Information for the last 3 years for Red Hot Concepts
Part III Statutory and General Information
Notice of Extraordinary General Meeting
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Latest time tor receipt of Forms of Proxy 11:00 am on 13 December 1997
Extraordinary General Meeting 11:00 am on 15 December 1997
Dealings expected to commence in New Ordinary Shares 16 December 1997
Despatching definitive share certificates for New Ordinary Shares
by 23 December 1997
<PAGE>
The Celebratcd Group plc
DEFINITIONS
The following definitions apply throughout this document unless the context
requires otherwise:
"Acquisition" the proposed acquisition of Restaurant House as described in this
document
"Act" the Companies Act 1985, as amended
"AJ's Restaurants" the 15 AJ's family restaurants owned by Celebrated
"Beeson Gregory" Beeson Gregory Limited
"Brinker" Brinker International, Inc.
"Celebrated" or "Company" The Celebrated Group plc
"the Chili's Restaurant Concept" any restaurant concept, merchandise or product
incorporating the Chili's's brand name
"City Code" the City Code on Takeovers and Mergers as published by the Panel on
Takeovers and Mergers
"Development and License Agreement" the development and license agreement dated
15 July 1994 (as amended) between Brinker and Restaurant House governing the
exclusive development rights for, and entitlement to operate, the Chili's
Restaurant Concept in the UK
"Directors" or "Board" the directors of Celebrated
"EGM" or "Extraordinary General Meeting" the extraordinary general meeting Of
the Company to be held on 15 December 1997
"Enlarged Group" the Group as enlarged by the Acquisition.
"Form of Proxy" the form of proxy for use in connection with the EGM which
accompanies this document
"Group" or "Celebrated Group" Celebrated and its subsidiaries
"Irrevocable Undertakings" the irrevocable undertakings from P G K Tucker, P R
Moody and N J Mitchell to vote in favour of the Resolution
"London Stock Exchange" London Stock Exchange Limited
<PAGE>
The Celebrated Group plc
"NASDAQ" the National Association Of Securities, Dealers, Inc.
"New Ordinary Shares" the 28,000,000 new Ordinary Shares to be issued to Red Hot
Concepts at completion of the Acquisition
"NYSE" New York Stock Exchange:
"Ordinary Shares" ordinary shares of 10p each in the Company
"Proposed Directors" Colin Halpern and Barry McGowan
"Red Hot Concepts" Red Hot Concepts, Inc.
"Red Hot the right of Red Hot Concepts as part of the consideration under the
Concepts Option" Acquisition to subscribe for 6,000,000 new Ordinary Shares at a
price of 12.5p per share up to 31 March 1998, and 15p thereafter, exercisable at
any time in whole or in part within three years of completion of the Acquisition
"Resolution" the resolution set out in the notice convening the EGM
"Restaurant House" Restaurant House Limited
"Shareholders" holders of the Ordinary Shares
<PAGE>
The Celebrated Group plc
PART I
LETTER FROM THE CHAIRMAN OF CELEBRATED
The Celebrated Group plc
(Registered in England and Wales, registered no. 2297958)
Directors:
R W Littledale Non-executive Chairman
P G K Tucker Chief Executive
P R Moody Finance Director
N J Mitchell Non-executive Director
Registered Office:
12 Kingfisher Court
Farnham Road
Slough
Berkshire SL2 1JP
21 November 1997
To Shareholders and, for information only, to option holders
Dear Shareholder,
Acquisition by Celebrated of the whole of the issued share capital of Restaurant
Home and disposal of the AJ's Restaurants
I Introduction
It was announced on 19 November 1997 that Celebrated had conditionally agreed to
acquire the whole of the issued share capital of Restaurant House, a private
company registered in England and Wales. Restaurant House has the exclusive
development rights for the Chili's's Restaurant Concept in the UK. The Chili's
Restaurant Concept was created by Brinker (a NYSE quoted company) in the US and
is exclusively licensed to Restaurant House in the UK under the Development and
License Agreement. Restaurant House is currently a wholly owned subsidiary of
Red Hot Concepts, a US company listed on NASDAQ.
The consideration for the Acquisition is to be satisfied by the issue of the New
Ordinary Shares to Red Hot Concepts together with the grant of the Red Hot
Concepts Option.
A notice convening the Extraordinary General Meeting is set out at the end of
this document. Shareholders will be asked to pass a special resolution at the
meeting to authorize the Directors to allot and grant rights over the New
Ordinary Shares and grant the Red Hot Concepts Option, and to approve the
Acquisition together with the dispensation from Rule 9 of the City Code, which
is described on page 8 below.
Irrevocable Undertakings have been given by P G K Tucker, P R Moody and N J
Mitchell to vote in favout of the Resolution.
2 Reasons for and benefits of the Acquisition
The Acquisition is a major development of the Board's strategy to focus the
Group's business operations in the themed restaurant sector. It not only gives
it the rights to develop a brand in the UK which has achieved considerable
success in the US and elsewhere, but brings with it a successful concept and two
existing restaurants.
The Acquisition will enable the Enlarged Group to focus on the themed restaurant
sector. In addition, the acquisition of the two established sites in Cambridge
and London (together with the proposal for a third site) will ensure that
Celebrated has a solid base on which to build the development of the Chili's
Restaurant Concept.
5
<PAGE>
The Celebrated Group plc
The Directors believe that the Enlarged Group will also benefit from Brinker's
expertise and knowledge of the restaurant sector as well as the financial and
operational systems for individual restaurants that it has developed in the US.
Under the terms of the Development and License Agreement Restaurant House is
required to have opened and be operating a total of 11 restaurants by 31 October
2000. Should the Company fail to meet this target, Brinker will be entitled to
terminate the Development and License Agreement. Thee Directors are aware of a
number of sites suitable for development and believe that the Chili's Restaurant
Concept can be successfully developed at the Group's existing J W Johnson's
restaurant in Manchester.
Against this background, the Directors feel that there is significant scope for
developing the Chili's Restaurant Concept.
3. Chili's Grill and Bar Restaurant
The Chili's Restaurant Concept has formed an important part of the Brinker
development of themed restaurants for more than 20 years. Brinker is principally
engaged in the operation, development and franchise of the Chili's Restaurant
Concept and other themed restaurants in the US. There are currently over 500
Chili's restaurant systems worldwide. For the fiscal year ended 25 June 1997,
Brinker had consolidated revenues of over US$1 billion and total assets of
approximately US$890 million.
The Chili's Restaurant Concept has proved to be highly successful in the US. It
is based on a mid price range, casual family restaurant offering a variety of
foods ranging from burgers, ribs, fajitas, and steaks to soups and salads, all
with a southwestern US theme. The restaurants are suitable for free-standing out
of town locations and city centre sites. Chili's restaurants in the US are
traditionally free-standing units between 5000 and 7000 sq. ft. in size with a
seating capacity of approximately 200 people.
There are currently two restaurants operating in the UK-one in Cambridge and the
other at Canary Wharf, London. Sales in both restaurants during the current
calendar year continue to exceed budget. The Cambridge Chili's opened in March
1996 and sales for the period from March 1997 to November 1997 are 26 per cent-
greater than those for the comparable period in 1996. Canary Wharf opened in
October 1995 and sales for the period from January 1997 to November 1997 are 61
per cent. greater than those for the comparable period in 1996. The Cambridge
restaurant has 270 covers plus function room facilities for 100 and Canary Wharf
208 covers.
Brinker has licensed the Chili's Restaurant Concept to Restaurant House through
the Development and License Agreement. The Development and License Agreement
grants Restaurant House the exclusive right to operate and develop the Chili's
Restaurant Concept in the UK and establishes the development programme for the
restaurants referred to above.
4. Details of the Acquisition
As consideration for the Acquisition Celebrated is to issue the New Ordinary
Shares to Red Hot Concepts and grant the Red Hot Concepts Option.
The agreement for the Acquisition is conditional, inter alia, upon the passing
of the Resolution at the EGM. Red Hot Concepts and Celebrated have given
warranties relating to the businesses, assets and affairs of Restaurant House
and Celebrated respectively, and Red Rot Concepts his given a tax covenant in
favour of Celebrated. Further details of the agreement are set out in paragraph
3 of Part III of this document.
6
<PAGE>
The Celebrated Group plc
The New Ordinary Shares will be issued and allotted credited as fully paid and
will rank pari passu in all respects with the existing Ordinary Shares.
5. Information on Red Hot Concepts
Red Hot Concepts was incorporated in the US on 14 June 1994. It is currently
listed on NASDAQ and as at 20 November 1997 it had a market capitalisation of
$6.7m. Red Hot Concepts was established to develop the Chili's Restaurant
Concept outside the US through its subsidiaries in the UK, Australia and New
Zealand. The business of Red Hot Concepts includes selecting suitable sites for
the restaurants, hiring and training management personnel, establishing
administrative and financial policies and procedures and undertaking other
activities necessary to operate restaurants in the UK, Australia and New
Zealand. Red Hot Concepts owns 100 per cent. of the issued share capital of
Restaurant House.
Red Hot Concepts is 36 per cent. owned by Woodland Limited Partnership (a US
entity) and 64 per cent. owned by the public. Woodland Group, Inc. is the
general partner of Woodland Limited Partnership and has a twenty four per cent.
interest in it. Woodland Group, Inc. is owned one third by Mr. Jay Halpern, one
third by Ms. Nancy Gillon and one third by Mrs. Gail Halpern. Gail Halpern is
the wife of Colin Halpern. Jay Halpern and Nancy Gillon are the adult children
of Gail and Colin Halpern. The remaining interests in Woodland Limited
Partnership are held by the limited partners. Gail Halpern in her capacity as a
limited partner holds fifty one per cent. of the interest in the partnership and
Jay Halpern holds fifteen per cent. of the interest in the Woodland Limited
Partnership. No other limited partner has an interest in excess of 5 per cent.
in Woodland Limited Partnership.
The directors of Red Hot Concepts are:
Colin Halpern Chairman
Robert Pace Flack
Current trading and prospects
For the thirty-nine week period ended 28 September 1997, Red Hot Concepts had
195 restaurant operating weeks. In the comparable period for 1996, the total
restaurant operating weeks were 170. Average weekly sales for the thirty-nine
week period in 1997 were $44,449 as compared to $36,456 for the same period in
1996, an improvement of 22 per cent.
The directors of Red Hot Concepts continue to take steps to promote
profitability and shareholder value and believe that the transaction with
Celebrated will bring benefits to Red Hot Concepts.
Interests in share capital
Based on the information available at the date of this document, the following
persons own more than 10 per cent. of the issued share capital of Red Hot
Concepts:
<TABLE>
<CAPTION>
Per cent. of Per cent. of
issued issued
No. of No. of ordinary preferred
ordinary preferred share share
shares shares capital capital
<S> <C> <C> <C> <C>
Woodland Limited Partnership 3,737,500 725,000 36 100
</TABLE>
Save as described above the directors of Red Hot Concepts are not aware of any
person who is interested directly or indirectly (within the meaning of Part VI
of the Act) in 10 per cent. or more of the issued share capital of Red Hot
Concepts or could, directly or indirectly, jointly or severally, exercise
control over Red Hot Concepts.
7
<PAGE>
The Celebrated Group, plc
6. Disposal of the AJ's Restaurants
As part of the rationalization of the Group and in order to streamline the
business and focus on the development of the Chili's Restaurant Concept the
Company has disposed of the AJ's Restaurants.
The restaurants form part of the assets formerly owned by AJ's Family
Restaurants Limited which was acquired by Celebrated in May 1996. On 12 November
1997 they were sold to Forte (UK) Limited for a consideration of (Pound) 3.0
million.
The disposal is a major step in rationalising the Group's operations so that it
can focus financial and management resources on developing the Chili's
Restaurant Concept. The proceeds arising from the disposal will significantly
reduce gearing.
7. Sale of Llyndir Hall Hotel
As a further step in following this strategy of streamlining the business of the
Group, Llyndir Hall Hotel, which was acquired in 1988, has been put on the
market for a price in excess of (Pound)2,250,000.
8. The City Code
Immediately after the completion of the Acquisition and as a result of the issue
of the New Ordinary Shares, Red Hot Concepts will control in aggregate
28,000,000 New Ordinary Shares representing 45.6 per cent. of Celebrated's
enlarged issued ordinary share capital. Red Hot Concepts will simultaneously be
granted the Red Hot Concepts Option. If this option is exercised in full, and
none of the pre-existing options in the Company are exercised, Red Hot Concepts'
shareholding will increase to 34,000,000 Ordinary Shares representing 50.4 per
cent. of the enlarged issued ordinary share capital of the Company. The Red Hot
Concepts Option is exercisable at any time after completion of the Acquisition.
A person or a group of persons acting in concert holding 30 per cent. or more of
the voting rights of a company is normally required under Rule 9 of the City
Code to make a general offer in cash to all the shareholders of that company.
However, in this instance, the Panel on Takeovers and Mergers has agreed,
subject to Shareholders' approval (to be taken on a poll), to waive the
requirements which would otherwise arise for Red Hot Concepts to make a general
offer solely as a result of the issue of the New Ordinary Shares, and any
subsequent exercise of the Red Hot Concepts Option. As Red Hot Concepts will
initially control less than 49 per cent. of the voting rights of the Company,
they will be prohibited from increasing their holding of Ordinary Shares by more
than 3 per cent. in any 12 mouth period without incurring an obligation under
Rule 9 of the City Code to make a general offer, other than pursuant to the
exercise of the Red Hot Concepts Option. Red Hot Concepts will also be similarly
prohibited if, following any exercise of the Red Not Concepts Option, they still
control less than 49 per cent. of the voting rights of the Company.
In considering the Resolution in the notice of EGM, Shareholders should note
that, if it is passed, Red Hot Concepts will not be obliged to make a general
offer for the Company by reason of the issue of the New Ordinary Shares and the
exercise of the Red Hot Concepts Option. It at any time following the
Acquisition the aggregate shareholding of Red Hot Concepts represents over 49
per cent. of the voting rights of Celebrated, it would be free to acquire any
number of further shares carrying voting rights without incurring any obligation
under Rule 9 of the Code to make a general offer for the Company.
The Acquisition will not affect the existing operations or employees of the
Enlarged Group.
9
<PAGE>
The Celebrated Group plc
9. Current trading and prospects
The interim results of the Group for the six months ended 28 September 1997 are
set out in Part 11 of this document.
The Group's Starvin' Marvin's restaurants are now trading encouragingly
following the introduction of new menus in certain sites. it is intended to
introduce the new menus in all sites. The Acquisition will enable the Company to
develop the successful Chili's Restaurant Concept. Against this background and
taking into account the significantly reduced Scaring that has resulted from the
disposal of the AJ's Restaurants (which will further be reduced following the
sale of Llyndir Hall Hotel) your Directors view the future with confidence.
10. Dividend policy
Given the strategic refocusing of the Celebrated Group, the Directors do not
consider it appropriate to make a dividend payment whilst the Group is in the
early stages. of developing the Chili'-.; Restaurant Concept. It is the
intention of the Company to pay a dividend in the future.
11. Board changes
At completion of the Acquisition a number of change% to the Board will be
effected. Colin Halpern. (the current chairman of Red Hot Concepts) will join
the Board as a non-executive director and Barry McGowan will join as an
executive director.
Colin Halpern, aged 60, has. served as Chairman of the Board of Red Hot Concepts
since June 1994 and is President of Red Hot Concepts. He also currently serves
as President, Secretary, Treasurer and director of Crescent Capital, Inc.,
Chairman of the Board of International Franchise Systems, Inc., Chief Executive
Officer and Chairman of the Board of Directors of NPS Technologies Group, Inc.,
all of which are public companies. He has held these positions since July 1994,
December 1993, January 1992 and August 1983, respectively. He is also currently
a Director of Courter & Company, Inc., General Industrial Technology Inc.,
Alintube Inc., Park Chester, and Lincoln Mercury, Inc. In the UK he is currently
a director of Restaurant House, Domino's Pizza Group Limited, DP Realty Limited
and DPGS Limited. Mr. Halpern also served as Executive Vice President and
director of Lafayette Industries, Inc. from January 1992 to December 1.9%. Mr.
Halpern also served as President of International Franchise Systems, Inc. from
December 1993 to May 1996. From 1985 to the present, Mr. Halpern has served as
the Chairman of Universal Service Corp. Mr. Halpern was formerly the Chairman of
DRC Industries, Inc., a company which, from November 1975 to October 1985, had a
Budget Rent-A-Car master license agreement for the New York metropolitan area,
including LaGuardia and John F. Kennedy Airports and formerly a director of Kona
Restaurant Group Inc. and TDH Lafayette.
George Barry McGowan, aged 32, graduated from the University of North Texas with
a Bachelor of Science in Hotel and Restaurant Management and Business
Administration. Be joined Brinker in 1985 where he held various senior positions
including Franchise Operations Director for Chili's International Development,
Special Project% Director and Opening Unit Director. He has extensive experience
in opening units. training and development, product sourcing, purchasing and
distribution and management of operational units. In 1996 he joined Restaurant
House where he is currently the manager of operations and has been the driving
force in establishing the UK Chili's restaurant sites.
Following these changes the board will consist of:
RW Littledale Non-executive Chairman
P G K Tucker Chief Executive
G B McGowan Operations Director
P R Moody Finance Director
C Halpern Non-executive Director
N J Mitchell Non-executive Director
9
<PAGE>
The Celebrated Group plc
Subject to completion of the Acquisition. Barry McGowan has been granted an
option over a total of 1,000,000 new ordinary Shares. Further details on this
option are set out in paragraph 1 of Part 111 of this document.
12 Extraordinary General, Meeting
You will find set out at the end of this document a notice convening an EGM at
11.00 am on IS December 3997. At that meeting the Resolution will he proposed to
approve the Acquisition and the waiver by the Panel of the obligations of Red
Hot Concepts to make 1 general offer under Rule 9 of the City Code, and subject
to the Acquisition becoming unconditional:
(a) to increase the authorised share capital of Celebrated;
(b) to authorise the Directors to allot the authorised but unissued share
capital of Celebrated. such authority to expire on 14 December 2002; and
(c) to authorise the Directors to allot equity securities for cash pursuant to
a rights issue, open offer or similar issue, other than pro-rata to
Shareholders up to a nominal amount of (Pound)1,006,970, such authority to
expire at the conclusion of the Annual General Meeting to be held in 3998.
The authority and power granted to the Directors pursuant to the Resolution will
enable them to allot the New Ordinary Shares. grant the Red Hot Concepts Option
and provide for the option granted to Barry McGowan. The Directors will in
addition be given the authority to allot and grant rights over relevant shares
up to a nominal amount of (Pound)2,010,600, of which up to (Pound)306,970 in
nominal amount maybe issued for cash other than pursuant to a rights issue, open
offer or similar issue.
The Resolution will be taken on a poll.
13. Action to be taken
Shareholders will find enclosed a Form of Proxy for use at the Extraordinary
General Meeting and whether or not they intend to attend the meeting they are
requested to complete the form in accordance with the instructions on it and to
return it to IRG p1c, Balfour House, 390-398 High Road, Word, Essex IG1 1BR, as
soon as possible and in any event so as to be received not later than 11:00 am
on 13 December 1997. By completing and returning the Form of Proxy, you will not
be precluded from attending and voting in person at the EGM, should you so wish.
14. Further information
Your attention is drawn to Parts U and III of this document, which are deemed to
be incorporated into and form part of this document.
15. Recommendation
The Directors, who have been so advised by Beeson Gregory, consider that the
Acquisition is fair and reasonable and in the best interests of Shareholders.
Accordingly, the Directors unanimously recommend that Shareholders vote in
favour of the Resolution to he proposed at the EGM as they intend to do in
respect of their own beneficial holdings of Ordinary Shares amounting to 32.5
per cent. of the issued ordinary share capital of the Company and certain
Directors have accordingly entered into the Irrevocable Undertakings.
Yours sincerely
R W Littledale
Chairman
10
<PAGE>
PART II
FINANCIAL INFORMATION
The Celebrated Group pie
A UNAUDITED INTERIM RESULTS FOR CELEBRATED FOR THE SIX MONTHS ENDED 28
SEPTEMBER 1997
Set out below is the full text of the Group's unaudited interim results for the
six months ended 29 September 1997:
CHAIRMAN'S STATEMENT
The six months to 28 September 1997 was a period of considerable change for the
Group. A review of the Starvin' Marvin's's operation resulted in the closure of
two under-performing units. changes in management controls and a relaunched
menu. A new Starvin' Marvin's was opened in Perivale in October and is trading
particularly well and the performance of existing units where a relaunched menu
has been introduced. has also been encouraging.
As announced on 12 November 1997. your Board has decided That the further
development of the AJ's Restaurant chain would involve a disproportionate
commitment of the Group's resources. As a result of this, the Group has sold the
remaining 15 AF& units; to Granada Group Pie for a consideration of 0.0 million.
The contribution from JW Johnson's restaurant is increasing following the
reopening of the club arcs and Llyndir Hall Hotel continues to enjoy steady
growth in sale% and profitability.
Your Board believes That the major issues affecting the Group have now been
addressed and that, taken in conjunction with the prospective acquisition of the
Chili's Grill and Bar Restaurants, the outlook~ for future trading is very
promising.
R W Littledale
Chairman
IS November 1997
11
<PAGE>
The Celebrated Group plc
UNAUDITED ACCOUNTS FOR THE SIX MONTHS ENDED 29 SEPTEMBER W
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
6 Months to 6 months to Year ended
28 September 30 September 30 March
1997 1996 1997
Notes (Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C> <C>
Turnover-continuing operations 1 2,374 2,168 4,516
-discontinued operations 1,588 1,519 2,944
----- ----- -----
3,962 3,687 7,460
Cost of sales (3,543) (3,069) (6,267)
----- ----- -----
Gross profit 419 618 1,193
Administrative expenses (271) (331) (688)
Analysis of operating profit
Continuing operations 52 88 201
Discontinued operations 96 199 304
Operating profit 148 287 505
Exceptional items 2 (190) 385 (46)
Interest receivable 2 5 10
Interest payable (175) (107) (189)
(Loss)/profit on ordinary activities
before taxation (215) 570 280
Taxation 69 (143) (128)
(Loss)/profit on ordinary activities
after taxation (146) 427 152
Dividends-equity 3 - (53) (150)
Retained (loss)/profit (146) 374 2
Earnings per share 4 (0.44p) 1.33p 0.46p
</TABLE>
12
<PAGE>
The Celebrated Group plc
UNAUDITED ACCOUNTS AT 28 SEPTEMBER 1997
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At At Year ended
28 September 30 September 30 March
1997 1996 1997
(Unaudited) (Unaudited)
(Pound)000 (Pound)000 (Pound)000
Fixed Assets
<S> <C> <C> <C>
Tangible assets 9,529 9,268 9,625
Current assets
Stocks 195 124 224
Debtors 509 437 354
Cash at bank and in hand 225 891 301
929 1,452 879
Creditors Amounts falling due within one year (1,963) (1,800) (1,848)
New current (liabilities) (1,034) (348) (969)
Total assets less current liabilities 8,495 8,920 8,656
Creditors: Amounts falling due after more than year (3,770) (3,648) (3,811)
Provisions for liabilities and charges (586) - (91)
Net assets 4,189 5,272 4,754
Capital and reserves
Called up share capital 3,339 3,339 3,339
Share premium account 991 991 991
Capital reserve - 564 419
Profit and loss account (141) 378 5
Shmeholders' funds-equity interests 4,189 5,272 4,754
</TABLE>
NOTES
1. On 12 November 1997, the Company disposed of the AJ's Family Restaurants
division for (Pound)3 rnillion cash. The trading results are reflected as
discontinued and the provision for loss on disposal is included as an
exceptional item (Ice note 2).
2. The exceptional item comprises:
(pound)000
Redundancy costs. pre-opening expenditure and stock write-offs (45)
following the closure of two Diner units
Provision for the loss on the sate of the AJ's Restaurants division (564)
Release of Capital Reserve arising on the acquisition of the
AJ's Restaurants 419
---
(190)
3. No interim dividend will be paid.
4. Earnings per share share have been calculated on the 33394,010 ordinary
shares in i- issue during the Period and the loss for the period Of
(Pound)146,000. Comparable figures for the six months to 30 September 1996
have been calculated on a weighted average of 32,224,504 ordinary shares,
and on earnings of (Pound)427,000.
5. The results for the year ended 30 March 1997 are an abridged version of the
Company's fun accounts which have been filed with the Registrar of
Companies. The auditors gave an unqualified report on these accounts and
did not make it statement under Section 237 (2) or (3) of the Companies Act
1985.
6. The interim report will be posted to all shareholders and will also be
available on request from the Secretary, The Celebrated Group p1c.
12 Kingfisher Court, Farnham Road, Slough SL.2 1JF.
13
<PAGE>
The Celebrated Group plc
REVIEW REPORT
by the Auditors to The Celebrated" Group pk
We have reviewed the interim financial information for the six months ended 28
September 1997 which is the responsibility of, and has been approved by the
Directors. Our responsibility is to report an the results of our review.
Our review was carried out having regard to the Bulletin "Review of Interim
Financial Information" issued by the Auditing Practices Board- This review
consisted principally of applying analytical procedures to the underlying
financial data, assessing whether accounting policies have been consistently
applied, &and making enquiries of Group management responsible for financial and
accounting matters. The review excluded audit procedures, such as tests of
controls and verification of assets and liabilities, and was therefore
substantially less in scope than an audit performed in accordance with Auditing
Standards. We do not express an opinion an the interim financial information.
On the basis of our review:
In our opinion, the interim financial information has bets prepared using
accounting policies consistent with those adopted by The Celebrated Group
pie in its financial statements lot the year ended -V March 1997; and
We are not aware of any material modifications that should be made to the
interim financial information as presented.
ROBSON RHODES
Chartered Accountants
Hemel Hempstead
18 November 1997
14
<PAGE>
The Celebrated Group pplc
UNAUDITED INTERIM RESULTS FOR RESTAURANT HOUSE FOR THE SIX MONTHS ENDED
29 JUNE 1997
The Board of Directors,
Restaurant House Limited,
Unit 10,
Maryland Road,
Tongwell,
Milton Keynes MK15 8AF
The Board of Directors,
Red Hot Concepts, Inc.
6701 Democracy Boulevard.
Bethesda MD 20817
The Directors.
Beeson Gregory Limited,
The Registry,
Royal Mint Court,
London EON 4EY
Moore Stephens,
St. Paul's House,
London EC4P 4BN
21 November 1997
Dear Sirs
RESTAURANT HOUSE LIMITED ("Restaurant House")
At the request of the directors of Restaurant House we have prepared the
following Unaudited interim financial statements for Restaurant House Lot the
period ended 29 June 1997 from Restaurant House accounting records- slid from
information supplied to us, and representations made, by Restaurant House's
management. We have not performed an audit and, accordingly. we do not express
an opinion on the company's interim financial statements.
Yours faithfully
Moore Stephens
St. Paul's House
London EC4P 4BN
Registered Auditor
Chartered Accountants
15
<PAGE>
The Celebrated Group plc
Unaudited Interim Financial Statements
Profit and Loan Account
<TABLE>
<CAPTION>
Unaudited Audited
6 months to Year ended
Note 29 June 1997 29 December 1996
(Pound) (Pound) (Pound) (Pound)
<S> <C> <C> <C> <C> <C>
Turnover 1 (c)
Continuing operations 1,492,260 2,054,396
Discontinued operations - 574,371
Cost of Sales
Continuing operations 940,947 1,278,732
Discontinued operations - 385,197
(940,947) (1,664,129)
Gross Profit 551,673 964,638
Net Operating Costs 2 (a)
Continuing operations 743,945 2,498,978
discontinued operations - 591,045
(743,945) (3,090,023)
Operating Loss 2 (b) (192,272) (2,125,385)
Loss on disposal of discontinued
operations 3 - (982,578)
Interest receivable 11,209 5,893
interest payable and similar charges 5 (47,035) (63,395)
(Loss) on Ordinary Activities before
Taxation (228,098) (3,165,455)
Taxation on loss on ordinary activities 6
(Loss) for the Period (pound)(228,098) (3,165,455)
Summary of Retained Losses I-asses
At 30 December 1996 (3,721,254) (555,799)
Retained (loss) for the financial period (228,098) (3,165,455)
At 29 June 1997 (pound)(3,949,352) (pound)(3,721,254)
</TABLE>
There are no recognized gains or losses other than those included in the profit
and loss account.
16
<PAGE>
The Celebrated Group plc
<TABLE>
<CAPTION>
Unaudited Interim Financial Statements
Balance Sheet
Unaudited Audited
as at 29 June 1997 as at 29 December 1996
Note As restated
(Pound) (Pound) (Pound) (Pound)
<S> <C> <C> <C> <C> <C>
Fixed Assets
Intangible assets 7 254,668 172,757
Tangible assets 8 2,087,278 2,147,387
2,341,946 2,120,144
Current Assets
Stock 9 59,931 73,745
Debtors to 10 377,945 115,000
Cash at bank 11 249,564 327,074
482,439 515,819
Creditors: amounts fallind due within
one year 12 (1,524,927) (2,261,979)
Net Current/(Liabilities) (1,042,488) (1,746,160)
Total Assets less Current Liabilities 1,299,456 573,984
Creditors amounts in fling due after more
than one year 13 (449,810) (495,238)
850,648 78,146
Equity Capital and Reserves
Called up share capital 14 4,800,000 3,800,000
Profit and loss account (3,949,352) (1,721,254)
Shareholders' Funds 850,648 78,746
These financial statements were approved by the board on 21 November 1997 and
signed on their behalf by
C. HALPERN -Director
</TABLE>
17
<PAGE>
The Celebrated Group plc
Unaudited Interim Financial Statements
Cash Flow Statement
<TABLE>
<CAPTION>
Unaudited Audited
6 months to Year ended
Note 29 June 1997 29 December 1996
(Pound) (Pound) (Pound) (Pound)
<S> <C> <C> <C> <C> <C>
Net Cash Inflow from Operating Activities 19 41,107 226,515
V
Returns on Investments and Servicing of Finance
Interest received 3,209 5,893
Interest paid (47,035) (63,385)
Net cash (outflow) from returns on (43,826) (57,492)
investments and servicing of finance
Capital expenditure and financial
investment
Purchase of tangible fixed assets (28,563) (2,135,400)
Purchase of intangible fixed assets-sets - (604,513)
Proceeds on sale of tangible: and intangible - 54,249
fixed assets
Net Cash (outflow) from investing activities (28,563) (2,685,664)
Net Cash (Outflow) before Financing (1,031,092) (2,516,641)
Financing
Issue of shares - 1,800,000
Bank loans drawn down - 600,000
Loan repayment made (46,428) (11,905)
Capital element of finance lease rental
payments - (27,000)
Net cash (outflow)/inflow from financing (46,428) 2,361,095
(Decrease) in Cash and Cash Equivalents 20 (77,510) (155,546)
</TABLE>
18
<PAGE>
The Celebrated Group plc
Unaudited Interim Financial Statements
Notes to the Financial Statements for the period ended 29 June 1997
1 Principal Accounting Policies
(a) Basis of accounting
The financial statements have been prepared under the historical cost convention
and in accordance, with applicable Accounting Standards.
(b) Going concern
The financial statements have been prepared on a going concern basis which
assumes the realisation of assets and the satisfaction of liabilities and
commitments in the normal course of business.
During the period under review Restaurant House continued to develop i(s
presence in the UK and expanded significant efforts focusing on developing a
business strategy, selecting sites, hiring and training of management personnel
and various activities relating to the start up operations of the business.
Since Restaurant House commenced trading, revenues have not been sufficient to
cover Restaurant House's rived administrative costs which has resulted in a net
loss of (Pound)3,165,455 for 1996 and accumulated deficits of (Pound)3,721,254
at 29 December 1996. Restaurant House bad to close one of its restaurants at the
end of 1996 which contributed (Pound)982,578 to the deficit for that year.
To date Restaurant House has been significantly funded by its parent company Red
Hot Concepts, Inc. In this regard we set out below an extract of a note that
appeared in the financial statements for the year ended 29 December 1996 of Red
Hot Concepts, Inc.:
The Company was organised on 14 June 1994 and was in the development stage
until October 1995 when operations commenced. To date, this company has
spent significant time focusing its efforts on various organisational
"activities including negotiating the development and licence agreements,
developing a business strategy, selecting sites, hiring and training of
management personnel and undertaking various other activities necessary for
start-up operation in the UK and Australia.
Since the Company's operations commenced in October 1995, revenues have not
been sufficient to cover the Company's fixed administrative costs resulting
in net losses of $6,294,829 and (Pound)1,306,327 for the fifty-two week
periods ended 29 December 1996 and 29 December 1995 respectively and
working capital deficit and in accumulated deficit at 29 December 1996 of
$3,099,616 and $7,693.155, respectively. The Company has had to close one
if its three AJ's restaurants. The Company has been funded through 29
December 1996 through loans from related parties and affiliated entities as
well as equity transactions.
The Company has taken several significant steps to improve the overall
profitability of its restaurant operations and to reduce it% administrative
costs. In June 1996. the Company began a restructuring programme. The
restructuring included reducing the bead count from thirteen to two
employees and sharing administrative services with a related company, In
December 1996 the Company decided to close one of its restaurants that was
not consistent with management expectations. In addition the Company plans
to enter into a loan agreement with its franchiser which will provide
interim financing and provide working capital for the Company's UK
subsidiary. 'Me Company has been negotiating with investment groups in
Australia to help finance the purchase of land and construction of the
restaurants in Australia-aha. The Company would pay rent as a fraction of
the landlord building costs. The Company is pursuing discussions with banks
and other finance companies to finance leasing the restaurant equipment and
furniture. The Company is planning to convert some of its related party
debt into equity.
There can be no assurances that management's's plans to reduce operating
losses and obtain additional financing to fund operations will be
successful. The financial statements. do not include any adjustment.
relating to the recoverability and classification of recorded assets, or
the amounts and classification of liabilities that might be necessary in
the event the Company cannot continue iii existence."
(c) Turnover
Turnover represents restaurant sales net of discounts and value added tax.
(d) Intangible assets
Expenditure on nut-up costs (including training costs), restaurant development
and design costs are capitalised!.ed as incurred. and where such costs are not
in integral part of the fabric of the restaurant they will be amortised over the
first 12 to 24 months of the start opening. Where development costs. can be
reasonable attributed to the overall cost of the fabric of a particular
restaurant then such costs. where reasonable and distinguishable, will he
included in the costs of the property and amortised over the life of the lease
of the property. Design costs are amortised over the length of the agreement to
operate restaurants
Expenditure on licence ices paid to operate restaurants is capitalised and
amortised over the length of the agreement.
19
<PAGE>
The Celebrated Group pie
I Principal Accounting Policies -(continued)
(e) Tangible fixed assets
Fixed assets are stated at cost. Depreciation is charged on a straight line
basis over the expected useful lives of the assets over the following period:
Leasehold improvements% life of the lease or useful economic fire
Furniture, fittings and
office equipment 2-9 years,
Motor vehicles 3 years
(J) Stock
Stock is valued at the lower of cost and net realisable value.
(g) Foreign currencies
Transactions in foreign currencies am translated into sterling at the rates
ruling at the date of transactions. Liabilities and current assets expressed in
foreign currencies at the balance sheet date arc translated into sterling at the
rates ruling on that date, except for liabilities which are covered by forward
exchange contracts which have been translated at the rates as per the forward
exchange contracts. Gain or losses arising on translation are reflected in the
profit -and loss account of the period in which they arise
(h) Operating leases
Rentals paid under operating leases arc charged to income on a straight line
basis over the lease term.
(i) Leasing and hire purchase commitments
Assets held under finance leases and hire purchase contracts are capitalised in
the balance sheet and art depreciated over their useful lives.
The interest element of the rental obligations is charged to the profit and loss
account over the period of the lease and represents a constant proportion of the
balance of capital repayments outstanding.
2. Profit and Loss Account
(a) Net Operating Costs
Unaudited Audited
6 month
period ended Year ended
29 June 29 December
1997 1996
(pound) (pound)
Administrative expenses -Continuing 791,663 2,498,978
-Discontinued - 591,045
Other operating income (47,718) -
743,945 3,090,023
(b) Operating loss
Operating (loss) is stated after charging(crediting):
Amortisation of intangible fixed assets 53,099 404,934
Depreciation of tangible fixed assets 88,672 166,055
Auditors' remuneration 9,000 15,000
Operating lease rentals - land and buildings 133,109 229,034
Exchange losses/(gains) 98 (140,417)
Closure costs of Shaftesbury Avenue - 129,686
Redundancy costs - 57,744
Stock depletions - 72,575
Store development write offs 0 199,861
Included within net operating casts are the following credits
of an exceptional nature:
Start up casts amortised in period recharged to parent company 47,718
Rates rebate following reassessment of restaurant rateable value 43,700
Release of excess accruals for rent, rates and other expenses 131,000
20
<PAGE>
The Celebrated Group plc
3. Loss on Disposal of Discontinued Operations
The loss relates to the loss on the disposal of intangible and tangible fixed
assets sustained as a result of the closure of the Shaftesbury Avenue
restaurant.
A. Directors and Employees
Staff costs
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Staff costs during the, year were as follows:
Directors emoluments in respect of UK duties -- 41,506
Wages and salaries 435,311 1,164,596
Social security Costs 34,032 65,687
469,343 1,271,779
Directors' emoluments, excluding pension
contributions, are as follows:
Fees -- 24,083
Compensation for loss of office -- 13,000
-- 37,083
The chairman -- --
The highest paid director -- 37,083
The number of other directors whose emoluments
were within the ranges, was:
(Pound)0-5,000 1 2
The average weekly number of persons employed
by the company was as follows:
Administration 2 13
Restaurant operations and management 108 193
110 206
S. Interest Payable
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
On short term finance 16,819 1,221
On bank loans repayable after more than 5 years 30,216 48,026
-- 14,138
On finance leases
47,035 63,385
Taxation on Ordinary Activities
No liability to United Kingdom corporation tax arises due to the availability of
losses.
21
<PAGE>
The Celebrated Group plc
7. Intangible Fixed Assets
Restaurant
Development
Start up and Design Licence
Costs Costs Fees Total
(Pound) (Pound) (Pound) (Pound)
Cost
At 30 December 1996 397,541 14,500 107,410 519,451
Additions in period -- -- 135,000 135,000
At 29 June 1997 397,541 14,500 242,410 654,451
Amortisation
At 30 December 1996 323,923 -- 22,771 346,694
Charge for period 47,719 -- 5,371 53,089
At 29 June 1997 371,641 -- 28,142 399,783
Net book value
At 29 June 1997 25,900 14,500 214,288 254,668
At 30 December 1996 73,618 14,500 84,639 172,757
8. Tangible Fixed Assets
Furniture
Leasehold Fittings and
Improvements Equipment Total
(Pound) (Pound) (Pound)
Cost
At 30 December 1996 1,573,509 732,768 2,306,277
Additions 19,299 9,264 28,563
Disposals -- -- --
At 29 June 1997 1,592,808 742,012 2,334,840
Depreciation
At 30 December 1996 65,318 93,572 158,890
Charge for the period 39,753 49,919 88,672
Disposals 104,071 143,491 247,562
At 29 June 1997
Net book value 1,488,737 599,541 2,097,278
At 29 June 1997
At 30 December 1996 1,508,191 639,196 2,147,397
The net book value of assets aquired under finance leases included in motor
vehicles amounted to (Pound) Nil (1996 Nil) the depreciation charge on which was
(Pound)- (1996 (Pound)14,211).
9. Stock
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Raw materials 18,3130 32,145
Uniforms, cutlery and other 41,600 41,600
59,930 73,745
22
<PAGE>
The Celebrated Group plc
10. Debtors
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Amounts due from related undertakings 20 17,622
Other debtors 250 17,622
Prepayments and accrued income 172,675 97,128
172,945 115,000
11. Cash at bank
Included in cash at bank is (Pound) 225,000 (1996: (Pound)225,000) of funds held
in a restricted bank account which cannot be accessed for a minimum 3 year
period.
12. Creditors amounts falling due within one year
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Bank loans 92,857 92,857
Trade creditors 461,242 713,254
Amounts due to related undertakings 43,235 723,781
Other creditors 200,597 48,250
Other taxation and social security payable 110,024 129,623
Accruals and deferred income 616,972 553,944
1,524,927 2,261,979
13. Creditors: amounts falling, due after more than one year
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Bank loans payable after more than five years 448,810 495,238
448,810 495,238
The bank loan is secured by fixed and floating charges over the company's
assets. The loan is repayable by installments at a rate of interest of 11 per
cent.
14. Called up Share Capital and Reserves
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Authorised 5,000,000 (1996: 5,000,000)
Ordinary shares of (Pound)1 each
5,000,000 5,000,000
Allotted and called up
Allotted, called up and fully paid
3,800,000 (19%; 3,800,000) ordinary
shares of (Pound)1 each 3,800,000 3,800,000
1,000,000 called up ordinary shares
of (Pound)1 each 1,000,000 -
4,800,000 3,800,000
On 23 December 1996 the authorised share capital was increased to 5,000,000
ordinary shares of (Pound)1 each and on the same day the Company issued
1,800,000 shares at par to provide further working capital for the company. On
22 September 1997 a further 1,000,000 shares at par were issued as fully paid
ordinary shares of (Pound)1 each.
Audited
Share capital Reserves Total
(Pound) (Pound) (Pound)
Balance at 30 December 1996 3,800,000 (3,721,254) 78,746
Share issue 1,000,000 -- 1,000,000
Loss for the period -- (228,098) (228,098)
Shareholders'cquity 4,800,000 (3,949,352) 850,648
23
<PAGE>
The Celebrated Group plc
15. Lease Obligations and Other Financial Commitments
(a) The company has an annual commitment in respect of operating leases which
expire in:
Land and Land and
Buildings buildings
Unuudited Audited
29 June 1997 29 December 1996
Two to five years -- --
Over five years 219,120 254,436
219,120 254,436
(b) The rent on the first restaurant has been guarantced by letter of credit
issued in the name of the parent company. The rent on the second restaurant has
been guaranteed by the company.
(c) Included within accruals is (Pound)250,000 in respect of rent potentially
due on one of the restaurants and if provision to terminate a lease entered
into.
16. Related Parties
In the opinion of the directors the ultimate parent company of Restaurant House
Limited at 29 June 1997 was Red Hot Concepts Inc., a company incorporated in the
United States of America. Ultimate control rests with Woodland Limited
Partnership. if limited partnership controlled by members of the Halpern family.
Red Hot Concepts has undertaken not to demand repayment of its loan until the
company's liquidity improves sand will continue in provide funding for the
foreseeable future.
The company his relied an the exemption under FRS8 from disclosing transactions
with group companies on the basis that the company is a wholly owned subsidiary
and the immediate parent company products consolidated amounts which are
publicly available.
Transaction, between the Compnay and Domino's Pizza Group Limited, if company
also controlled by Woodland Limited Partnership. are set out below.
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
Administration support and services 14,100 22,700
Delivery charges -- 20,214
Sale of motor vehicles -- --
Rent 4,000 4,000
17. Capital Commitments
The company had the following commitments:
Unaudited Audited
29 June 1997 29 December 1996
(pound) $ (pound) $
Construction costs - - -- --
Additional licence fees due to franchiser - - 266,667 400,000
18. Contingent Liabilities
A liability of (Pound)484,028 of the company, due to a third party, has been
taken over by the parent company. although the third party has not yet given
formal acceptance of the assignment.
24
<PAGE>
The Celebrated Group plc
19.Reconciliation of Operating Loss to Net Cash Inflow from Operation Activities
<TABLE>
<CAPTION>
Unaudited Audited
29 June 29 December
1997 1996
(pound) (pound)
(as restated)
<S> <C> <C>
Operating (loss) (192,272) (2,125,385)
Dcpreciatlon charge 88,672 186,055
Amortisation charge 53,089 404,934
Loss on write off of intangible fixcd assets -- 199,861
Lam on write off of restaurant -- 32,123
Loss on sale of tangible and intangible fixcd assets -- 31,369
Decrease of stocks 13,815 13,700
(Increase)/decrease in debtors (49,945) 24,230
Increase in creditors 127,948 1,459,628
41,307 226,515
</TABLE>
20. Analysis of Changes in Cash and Cash Equivalents during the period
Unaudited Audited
1997 1996
(pound) (pound)
Cash at bank and in hand at 30 December 1996 102,074 257,620
Net cash (outflow) (77,510) (155,546)
Cash at bank and in hand at 29 June 1997 24,564 102,074
25
<PAGE>
The Celebrated Group plc
C. PRO FORMA STATEMENT OF NET ASSETS OF THE ENLARGED GROUP
The pro forma statement of net "assets of the Enlarged Group reflecting the
Acquisition together with the disposal of the AJ's Restaurant% is unaudited, is,
for illustrative purposes only an, because of its, nature, cannot give a
complete picture of the financial position of the Enlarged Group.
<TABLE>
<CAPTION>
Disposal of The
The Group AJ's Acquisition Pro Forma
(Pound)000 (Pound)000 (Pound)000 (Pound)000
(Note 1) (note 2) (note 3)
<S> <C> <C> <C> <C>
Fixed Assets
Intangible assets - -- 173 173
Tangible assets 9,529 (3,564) 2,147 8,112
9,529 (3,564) 2,320 8,285
Current Assets
Stock 195 (74) 74 195
Debtors 509 -- 616 1,125
Cash at bank and in hand 225 1,678 102 2,005
929 1,604 792 3,325
Creditors Amounts; due within one year (1,963) 177 (1,888) (3,674)
Net current (liabilities) (1,034) 1,781 (1,096) (349)
Total Assets Less Current Liabilities 8,495 (1,783) l,224 7,936
Creditors: Amounts due after one year (3,720) 1,219 (495) (2,996)
Provision for Liabilities and Charges (586) 564 -- (22)
4,189 0 729 4,918
</TABLE>
NOTES
1.The information in respect of the Group as at 28 September 1997 is based on
the interim financial information for Celebrated set out in Pan n of this
document.
2.The disposal of the AJ's Restaurants for (Pound)3m less" a repayment of
related loans of (Pound)1,395,625. It also includes the disposal of the related
stock &L Net Book Value. A provision of 564,000 made in the September 1997
interim financial information W the anticipated loss on disposals is released in
the adjustment.
3. The acquisition of Restaurant House Limited based an its audited financial
statements as at 29 December 1997. The Directors have not yet made any
adjustments to fair value. An adjustment of 350,000 has also been made to
reflect the costs relating to the Acquisition. As the consideration is for
shares in the Enlarged Group, there are no other cash adjustments. On 22
September 1997. Restaurant House converted (Pound)1m intercompany loan to share
capital. An adjustment has also been made to reflect this conversion.
4. No adjustments have been made to reflect the trading results of the Group
since 28 September 1997 or of Restaurant House since 29 December 1996.
26
<PAGE>
The Celebrated Group plc
EXTRACTED FINANCIAL INFORMATION FOR THE LAST 3 FINANCIAL YEARS FOR CELEBRATED.
The Directors Dryanston Court
The Celebrated Group plc Selden Hill
12 Kingfisher Court Hemel Hempstead
Farnham Road Hertfordshire
Slough SL2 1JF HP2 4TN
The Directors 21 November 1997
Beeson Gregory Limited
The Registry
Royal Mint Court
London EC3N 4EY
Members of the Board
THE CELEBRATED GROUP plc ("CELEBRATED") AND SUBSIDIARY UNDERTAKINGS
In accordance with your instructions, we have prepared an extract from the
audited account- of Celebrated in accordance with the 242 of the City Code. The
financial information relating to Celebrated contained in this report does not
constitute statutory accounts within the meaning of tile Companies Act 1985.
Statutory Accounts for each of the three years ended 30 March 1997 ("the
Relevant Periods") have been delivered to the Registrar of Companies. No audited
financial statements have been prepared in respect of any period subsequent to
31 March 1997.
We were auditors throughout the Relevant Periods and issued unqualified
reports.
1 CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
Note 26 March 31 March 30 March
1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C> <C>
Turnover 5 3,953 5,059 7,460
Cost of sales (2,197) (3,945) (6,267)
Gross profit 1,756 1,114 1,193
Administration expenses (1,280) (614) (688)
Operating profit 6 476 500 505
Exceptional items 7 - 149 (46)
Interest receivable 4 5 10
Interest payable 8 (161) (131) (189)
Profit on ordinary activities before taxation 319 523 280
Taxation 11 (71) (37) (128)
Profit on ordinary activities after taxation 248 486 152
Minority interest (6) - -
Profit for the financial year 242 486 152
Appropriation for non-equity preference shares
of (Pound)1 each (27) - -
Dividends 12 - (160) (150)
Retained profit for the financial year 215 326 2
Earnings per Share 13 2.23p 2.35p 0.46p
</TABLE>
27
<PAGE>
The Celebrated Group plc
2. CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Note 31 March 30 March
1996 1997
(Pound)000 (Pound)000
Fixed assets
<S> <C> <C> <C>
Tangible assets 14 4,016 9,625
Investments 17 78 --
4,094 9,625
Current assets 18
Stocks 19 58 224
Debtors 409 354
Cash at bank and in hand 937 301
1,404 879
Creditors Amounts falling due within one year 20 (1,158)
(1,848)
Net current assets/(liabilities) 246 (969)
Total assets less current liabilities 4,340 8,656
Creditors: Amounts falling due after more than one year 21 (650)
(3,811)
Provisions for liabilities and charges 21 -- (91)
Net assets 3,690 4,754
Capital and reserves
Called up share capital 24 2,934 3,339
Share premium accountt 25 753 991
Capital reserve 25 -- 419
Profit and loss amount 25 3 5
Shareholders' funds - equity 26 1,690 4,754
</TABLE>
3. CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
Note 31 March 30 March
1996 1997
(Pound)000 (Pound)000
<S> <C> <C> <C>
Net cash inflow from operating activities 27 573 988
Returns on investment and servicing at finance
Interest received 5 10
Interest paid (118) (184)
Interest element of finance lease paymemts (4) (5)
(117) (179)
Taxation paid (76) (121)
capital expenditure and fmancial investment
Payments for tangible fixed assets (910) (2,283)
Receipts from sale of tangible fixed assets -- 101
Proceeds from sale of operation 712 484
(198) (1,698)
Acquisition and disposal
Purchase of subsidiary undertaking -- (2,377)
Cash acquired with subsidiary undertaking -- 74
Equity dividends paid (70) 143
Financing
New bank loans 785 2,644
Repayment of bank loans (1,704) (458)
Capital element of finance least payments (75) (9)
Issue of shares 2,250 717
Expenses of share issues (252) (74)
Redemption of preference shares (380) --
Net cask inflow from financing 624 2,82O
Increase (decrease) in cash 28 736 (636)
</TABLE>
28
<PAGE>
The Celebrated Group p1c
4. ACCOUNTING POLICIES
(a) Basis of accounting
The financial statements have been prepared in accordance with applicable
accounting standards under the historical cost convention as modified by the
revaluation of certain freehold land and buildings except as disclosed below.
The following principal account policies have been consistently applied
throughout the Relevant Periods.
As permitted by section 230 of the Companies Act 1985, the profit and loss
accounts of the parent company has not been separately presented in the
financial statements.
(b) Basis of Consolidation
The Group accounts consolidate the accounts; of the Company and all it,,
subsidiaries at the relevant period end using acquisition accounting.
'Die result, of subsidiaries acquired or disposed of during a financial year
tire included from the effective date of acquisition or disposal. Goodwill,
representing the difference; between the cost kind the fair value of the net
assets acquired, is written off to reserves.
(c) Turnover
Turnover consists; of the invoiced value (excluding VAT) for g,-kids and
services supplied to third parties.
(d) Tangible fixed awn and depreciation
Depreciation is provided on the cost of tangible fixed assets, to write down to
their estimated residual values over their expected useful lives. Statement of
Standard Accounting Practice No. 12 and the Companies Act 1995 require that
provision be made for depreciation on fixed assets having a finite useful life.
No depreciation i.'t provided on freehold land and buildings as it is the policy
of the Group to maintain the properties. in a good state of repair and to such a
standard that the Directors consider depreciation would be immaterial and is
accordingly not provided. The principal annual rates u-wd for other assets are.
Leasehold property over the term of the lease
Furniture, equipment and diner unit 5%-15%
Motor vehicles 2-5%
Computer equipment 33%
(e) Pre-opening costs
Costs associated with the refurbishment and opening of new branches are written
off over 36 months (1996.12 months) from the date of opening,
(1) Leased assets
Assets held under finance leases art included in the balance sheet and
depreciated in accordance with the Groups's normal accounting policies. The
present value of future rentals is shown as a liability. The interest element of
rental obligations is charged to the profit and loss account over the period of
the least in proportion to the balance of capital repayments outstanding&.
Rentals payable under operating leases are charged to the profit and loss
account t as incurred.
(g) Stocks
Stocks are valued at the lower of cast and net realisable value.
(h) Foreign currencies
Transactions in foreign currencies are recorded at the exchange rates ruling at
the date of the transaction. Assets and liabilities, in foreign currencies am
translated at the rates of exchange ruling at the balance sheet date. Exchange
differences are dealt with through the profit and loss account.
(i) Taxation
The charge for taxation is based on the profit for the year and takes into
account taxation deferred or accelerated because of time differences between the
treatment of certain times for accounting and taxation purposes*.
Provision for deferred taxation is made only to the extent that it A probable
that the liability will become payable in the foreseeable future.
29
<PAGE>
The Celebrated Group pie
5. Segmented Analysis
All turnover was from operations within the United Kingdom.
Hotels Restaurants Total
(Pound)000 (Pound)000 (Pound)000
1997
Turnover 1,128 6,332 7,460
Operating Profit 211 294 505
Net assets 90 5,136 5,226
Hotels Restaurants Total
(Pound)000 (Pound)000 (Pound)000
1996
Turnover 1,304 3,755 5,059
Operating Profit 202 298 500
Net (liability)/assets (121) 3,811 3,690
Hotels Restaurants Total
(Pound)000 (Pound)000 (Pound)000
1995
Turnover 149 2,724 3,953
Operating Profit 264 212 476
Net assets 475 1,963 2,439
6. Operating Profit
<TABLE>
<CAPTION>
Operating profit is arrivcd at after charging 1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C>
Depreciation 108 160 296
Operating lease rentals:
Land and buildings -rent 107 132 327
Auditors' remuneration 14 17 22
Other remuneration paid to the auditors
(not all through the profit and loss account) -- 82 56
Profitl(loss) on sale of fixed assets 14 (6)
</TABLE>
7. Exceptional Items
The effect on Taxation of exceptional items is:
1996 J997
(Pound)000 (Pound)000 (Pound)000
Profit on sale of operation 149 --
Provision against one of the freehold properties
following consideration of
market rates -- (300)
Profit on sale of the hotel management operation 406
Costs of fundamental reorganisation of the group,
following the acquisition of a
subsidiary -- (152)
149 (46)
<TABLE>
<CAPTION>
8. Interest Payable 1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
Comprises interest on:
<S> <C> <C> <C>
Finance leases 5 4 5
Bank loans and overdrafts wholly repayable within 5 years 5 10 10
Bank loans and overdrafts repayable after 5 years 151 117 174
161 131 189
</TABLE>
30
<PAGE>
The Celebrated Group plc
9. Employees
Average monthly number of employees, including directors;
1995 1996 1997
Number Number Number
Administration and management 25 34 83
Hotel and catering 150 194 313
175 228 396
1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
Staff costs, including directors
Wages and salaries 1,124 1,528 2,579
Social security costs 101 105 164
Other pension costs 8 25 38
1,233 1,658 2,781
10. Directors
Group emoluments of the company's directors:
1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
Remuneration as executives 78 180 153
Pension Scheme Contributions 8 18 20
Non-executive fees -- 17 29
86 215 202
<TABLE>
<CAPTION>
1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C>
Chairman. excluding pension contributions -- 6 18
Highest paid director, excluding pension contributions 49 87 88
</TABLE>
M Taxation
<TABLE>
<CAPTION>
1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C>
Taxation charge based on the profit before tax comprises:
UKCorporation tax at 33 per cent. (1996: 33 per cent.
1995: 33 per cent) 55 50 55
Deferred taxation 15 -- 66
Irrecoverable advanced corporation tax 1 -- --
Prior year adjustments:
Corporation tax (2) 4 7
Deferred taxation 2 (17) --
71 37 129
</TABLE>
12. Dividends-Equity
<TABLE>
<CAPTION>
1995 1996 1997
(Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C>
Interim dividend paid of 0.16p (1996:0.24p, 1995; nil) per share -- 70 53
Final dividend declared of 0.29p (1996:0.27p, 1995- nil) per share -- 90 97
-- 160 150
</TABLE>
13. Earnings per Share
These have been calculated on the weighted average number of shares issued of
32,924,421 (1996:.17,724,108; 1995: 10,802,675). The exercise of outstanding
share options would not materially dilute earnings per share.
31
<PAGE>
The Celebrated Group plc
14. Tangible Assets
<TABLE>
<CAPTION>
Land Furniture
and and Motor
buildings equiptment vehicles Total
(Pound)000 (Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C> <C>
Cost
At 1 April 1996 3,608 698 80 4,386
Additions 1,821 462 -- 2,283
Acquisition of subsidiary 3,790 977 25 4,782
Provision for permanent diminotion in value (100) (200) -- (300)
Disposals (25) (64) (25) (114)
At 30 March 1997 9,094 1,873 80 11,037
Depreciation
At 1 April 1 1996 93 256 21 370
Charged in the year 114 157 25 296
Acquisition of subsidiary 82 674 9 765
Disposals (1) (6) (12) (19)
At 30 March 1997 288 1,081 43 1,412
Net Book Value
At 30 March 1997 8,796 792 37 9,625
At 31 March 1996 3,515 442 59 4,016
</TABLE>
The net book value of the tangible fixed assets includes (Pound)37,247 (1996:
(Pound)57,377) in respect of assets held under finance leases. Depreciation
charged in the year on those assets amounted to (Pound)20,130 (1996:
(Pound)16,432).
Land and buildings comprise:
Freehold Short
properties leasehold Total
(Pound)000 (Pound)000 (Pound)000
Cost 3,779 5,305 9,984
Depreciation -- (299) (288)
At 30 March 1997 3,779 5,017 8,796
At 31 March 1996 2,376 1,139 3,515
15. Investments in Subsidiary Companies
Interest in Interest in
ordinary ordinary
shares and shares and
voting rights voting rights Principal
1996 1997 activity
Principal trading subsidiaries
AJ's Family Restaurants limited nil 100% Restaurateurs
Celebrated Hotels Limited 100% 100% Hoteliers
Elegant Hotels limited 100% 100% Hoteliers
Celebrated Restaurants Limited 100% 100% Restaurateurs
The, Rolling Rock Cafe Limited 100% 100% Restaurateurs
Starvin Marvin's Limited 100% 100% Restaurateurs
All the above subsidiaries are included in the consolidation
32
<PAGE>
The Celebrated Group ple
16. Acquisition of Subsidiary
<TABLE>
<CAPTION>
Initial book Fair value
value adjustment Fair value
(Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C>
Tangible fixed assets 4,788 (771) 4,017
Stocks 66 -- 66
Debtors 536 -- 536
Cash at bank and in hand 74 -- 74
Loans (1,225) -- (1,225)
Taxation (59) -- (59)
Other creditors (449) -- (449)
Provision for liabilities and charges - deferred taxation (64) -- (64)
3,667 (771) 2,896
Capital reserve (Note 25) (419)
Consideration 2,477
</TABLE>
On 20 May 1996 the Group purchased the entire issued share capital of AJ's
Family Restaurants Limited for cash.
The fair value adjustment was made to write down the value of the restaurants to
a fair market value.
17. Other investmetns
Trade
investments
(Pound)000
Cost
At 1 April 1996 78
Disposals (78)
At 30 March 1997 --
During the year to 30 March 1997 the Group disposed of its interest in
St. Helens Hotels Limited.
18. Stocks
1996 1997
(Pound)000 (Pound)000
Goods for resale 58 224
19. Debtors
1996 1997
(Pound)000 (Pound)000
Trade debtors 58 94
Other debtors 205 162
Prepayments and accrued income 106 84
ACT recoverable 40 24
409 354
ACT recoverable includes (Pound)24,211 (1996: (Pound)39,954) which is
recoverable after more than one year.
33
<PAGE>
The Celebrated Group plc
20. Creditors- Amounts falling due within one year
1996 1997
(Pound)000 (Pound)000
Bank loans and overdrafts 233 474
Obligations under finance leases 10 10
Debt due within one year (note 22) 243 484
Trade creditors 270 398
Corporation tax 51 71
Other taxation and sncial security 149 216
Proposed dividend 90 97
Advance corporation tax 22 24
Other creditors 9 --
Accruals and deffered income 324 558
1,158 1,848
21 Creditors: Amounts failing due after more than one year
1996 1997
(Pound)000 (Pound)000
Bank loans 618 3,788
Obligations under finance terms 32 23
Debt due after more than one year (Note 22) 650 3,811
22. Debt Analysis
1996 1997
(Pound)000 (Pound)000
The total debt is repayable as follows:
Within one year 243 484
Between one and two years 184 484
Between two and five years 466 1,375
After more than five years -- 1,952
893 4,295
The loans are secured by way of a fixed and floating charge ovcr the property
and other assets of the group.
The debt repayable after more than five years is repayable at equal quarterly
installments and is subject to interest of 1.5, per cent. above base rate.
23. Provisions for liabilities and charges
<TABLE>
<CAPTION>
Amounts Amounts not
provided provided
1996 1997 1996 1997
(Pound)000 (Pound)000 (Pound)000 (Pound)000
Deferred taxation comprises:
<S> <C> <C> <C> <C>
Accelerated capital allowances -- 131 39 (45)
Other timing differences -- -- -- (1)
Losses -- (40) (226) (113)
-- 91 (187) (159)
</TABLE>
34
<PAGE>
The Celebrated Group plc
24. Called up share capital
<TABLE>
<CAPTION>
Authorized
1996 1996 1997 1997
No. '000 (Pound)000 No. '000 (Pound)000
<S> <C> <C> <C> <C>
Ordinary shares of 10p each 50,000 5,000 50,000 5,000
Allotted and fully paid
1996 1996 1997 1997
No. '000 (Pound)000 No. '000 (Pound)000
Ordinary shares of 10p each 29,344 2,934 33,394 3,339
</TABLE>
On 20 May 1996 the Company acquired AJ's Family Restaurants Limited. The
acquisition was partly financed by the issue of 3.9 million new shares at 18p.
The remaining increase was 150,000 share options exercised during the year.
Share Options
Under the Executive Share Option scheme the directors may grant options to
eligible employees which may be subject to specified performance criteria.
The aggregate number of shares which way be issued in the form of share options,
is restricted to 10 per cent. of the issued share capital of the company.
Options are exercisable three years after being granted. and are granted at the
prevailing market value at the date of issue.
Directors Share options arc approved by the Remuneration Committee.
Directors Share Options
At start At end
of Year Lapsed Granted of Year Exercise Exercisable
Director No. No. No. No. price from
P G K Tucker 600,000 - - 600,000 18p 5/12/98
P R Moody 187,500 - - 187,500 16p 31/12/97
162,500 - - 162,500 18p 5/12/98
P Pullan - - 250,000 250,000 18p 28/01/00
D J Marks 500,000 (500,000) - -
1,450,000 (500,000) 250,000 1,200,000
Employees' Share Options
Options issued in respect of non directors are 605,000 shares at 18p.
exercisable between 1 April 1999 and 28 January 2000 (1995:950,000 option,
exercisable at 10-18p each at varying dates up to 31 December 2000).
25. Reserves
Share Profit
premiurn Capital and loss
account reserve account
Group (Pound)000 (Pound)000 (Pound)000
At 1 April 1996 753 -- 3
Retained profit -- -- 2
Premium on issue of shares 312 -- --
Expenses on issue of shares (74) -- --
Goodwill -- 419 --
At 30 March 1997 991 419 5
Cumulative goodwill written off against group reserves is (Pound)000201,798
(1996:(Pound)000201,798).
35
<PAGE>
The Celebrated Group plc
26. Reconciliation of movements in shareholders' funds
1996 1997
(Pound)000 (Pound)000
Total recognized gains (205) 152
Dividends (160) (150)
Redemption of preference shares (380) --
Proceeds of share issues (net) 1,997 628
Share options exercised -- 15
Goodwill -- 419
Increase in shareholders' funds 1,252 1,064
Opening shareholders' funds 2,438 3,690
Closing shareholders' funds 3,690 4,754
27. Reconciliation of operating profit to net cash inflow from
operating activities
1996 1997
(Pound)000 (Pound)000
Operating profit 500 505
Exceptional reorganisation costs -- (152)
Depreciation charged 160 296
(Profit)loss on sale of fixed assets 14 (5)
Working capital movements:
(Increase) in stocks (2) (100)
Decrease/(increase) in debtors (99) 573
(Increase) in creditors -- (129)
Net cash inflow from continuing operating activities 573 988
28. Reconciliation of net cash flow, to movement in debt
1996 1997
(Pound)000 (Pound)000
Increase/(decrease) in cash 736 (636)
Cash inflow/(outflow) from debt and lease finance 992 (2,177)
Increasel(decreasc) in net debt from cash flows 1,728 (2,813)
Loan acquired with subsidiary -- (1,225)
Inception of finance leases (60) --
Increase/(reduction) in net debt 1,668 (4,038)
Net (debt)/funds at beginning of period (1,624) 44
Net funds/(debt) at end of period 44 (3,994)
29. Analysis of net debt
<TABLE>
<CAPTION>
Cash at Changes in
bank and Finance Changes net
in hand Loans leases in debt funds/(debt)
(Pound)000 (Pound)000 (Pound)000 (Pound)000
<S> <C> <C> <C> <C> <C>
31 March 1996 937 (851) (42) (893) 44
Cash flow (636) (2,186) 9 (2,177) (2,813)
Acquisition of subsidiary excluding
cash and overdraft -- (1,225) -- (1,225)
30 March 1997 301 (4,262) (33) (4,295) (3,994)
</TABLE>
36
<PAGE>
The Celebrated Group plc
30. Capital commitments
1996 1997
(Pound)000 (Pound)000
Contracted but not provided 626 128
A Operating lease commitments
Operating lease commitments payable in the next year, analysed
according to the period in which each lease expires, are as follows:
1996 1997
(Pound)000(Pound)000
Land and buildings
Expiring in 2-5 years 46 46
Expiring after 5 years 68 281
114 327
Other
Expiring within 1 year -- 32
Expiring in 2-5 years 15 23
15 55
32. Related party transactions
There were no related party transactiuns during the Relevant Periods.
37
<PAGE>
The Celebrated Group plc
E EXTRACTED FINANCIAL INFORMATION FOR THE LAST 3 FINANCIAL YEARS FOR
RESTAURANT HOUSE
The Directors Bryanston Court
Restaurant House Limited Selden Hill
Unit 10 Hemel Hempstead
Maryland Road Hertfordshire
Tongwcll HP2 4TN
Milton Keynes MK158AF
The Directors
Beeson Gregory Limited 21 November 1997
The Registry
Royal Mint Court
London EC3N 4EY
Members of the Board
RESTAURANT HOUSE LIMITED ("Restaurant House")
In accordance with your instructions we have prepared an extract from the
audited accounts of the Restaurant House in accordance with rule 24.2 of the
City Code. The financial information relating to The Restaurant House contained
in this report does not constitute statutory accounts within the meaning of the
Companies Act 1985. Statutory accounts for each of the three years ended 29
December 1996 ("Relevant Periods") hive been delivered to the Registrar of
Companies. No audited financial statements have been prepared in respect of a
full year subsequent to 29 December 1996.
The auditors throughout the Relevant Periods were Moore Stephens who issued
unqualified audit reports. However, reference was made to a fundamental
uncertainty on the principal of going concern (in 1995 And 1996 (see note 4)).
1. PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
41 weeks to Year to Year to
1 January 31 December 29 December
1995 1995 1996
Note (Pound) (Pound) (Pound)
<S> <C> <C> <C> <C>
Turnover -- 227,139 2,628,767
Cost of sales -- (221,242) (1,664,129)
Gross profit -- 5,897 964,638
Net operating costs (27,997) (539,659) (3,090,023)
Operaft loss 5 (27,997) (533,762) (2,125,385)
Exceptionals -- -- (982,578)
Interest receivable 41 7,881 5,893
Interest payable 8 -- (1,962) (63,385)
(Loss) on ordinary activities before taxation (27,956) (527,843) (3,165,455)
Taxation 9 -- -- --
(Loss) for the period (27,956) (527,843) (3,165,455)
</TABLE>
38
<PAGE>
The Celebrated Group plc
2. BALANCE SHEET
<TABLE>
<CAPTION>
31 December 29 December
1995 1996
Note (Pound) (Pound)
Fixed assets
<S> <C> <C> <C>
Intangible assets 10 587,315 172,757
Tangible assets 11 951,788 2,147,387
1,539,103 2,320,144
Current assets
Stocks 12 87,445 73,745
Debtors 13 364,230 340,000
Cash at bank and in hand 257,620 102,074
709,295 515,819
Creditors: Amounts falling due within one year 14 (787,528) (2,261,979)
Net current (liabilities) (78,233) (1,746,160)
Total assets less current liabilities 1,460,870 573,984
Creditors: Amounts falling due after more than
one year 15 (16,669) (495,238)
Net assets 1,444,201 78,746
Capital and reserves
Called up share capital 2,000,000 3,800,000
Profit and loss account (555,799) (3,721,254)
Shareholders' funds - equity 1,444,201 78,746
</TABLE>
3. CASH FLOW STATEMENT
<TABLE>
<CAPTION>
31 December 29 December
1995 1996
Note (Pound) (Pound)
<S> <C> <C> <C>
Net cash (outflow)/inflow from operating acdvities 20 (306,662) 226,515
Returns on investments and servicing of finance
Interest received 7,881 5,893
Interest paid (1,962) (83,385)
Net cash inflow/(outflow) from returns on investments and
servicing of finance 5,919 (57,492)
Investing activities
Purchase of tangible fixed assets (896,486) (2,135,400)
Purchase of intangible fixed assets (538,256) (604,513)
Proceeds, on sale of tangible and intangible fixed assets -- 54,249
Net cash outflow from invcsting activities (1,434,742) (2,685,664)
Net cash (outflow) before financing (1,735,485) (2,516,641)
Financing
Issue of shares 1,965,000 1,800,000
Bank loans drawn down 26,980 600,000
Loan repayments made -- (11,905)
Capital element of finance lease rental payments -- (27,000)
Net cash inflow from financing 1,991,980 2,361,095
Increase/(deacrease) in cash and cash equivalents 21 256,495 (155,546)
</TABLE>
38
<PAGE>
The Celebrated Group plc
4. ACCOUNTING POLICIES
(A) Basis of accounting
The financial statements have been prepared under the historical cost convention
and in accordance with applicable Accounting Standards.
(b) Going concern (1996 only)
The. financial statements have been prepared on a going concern basis which
assumes the realization of assets and the satisfaction of liabilities aud
commitments in the normal course of business.
During the year under review the company continued to develop its presence
in the UK and expended significant efforts focusing on developing a
business strategy, selecting sites, hiring and training of management
personnel and various activities relating to the start up operations of the
business.
Since the company commenced trading, revenues, have not been sufficient to
cover the company's fixed administrative costs which has resulted in a net
loss of (pound)3,165,455 for the year and accumulated deficits of
(pound)3,721,254 at 29 December 1996. The company had to close one of its
restaurants at the end of the year which contributed (pound)982,578 to the
deficit for the year.
To date the company has been significantly funded by its parent company,
Red Hot Concepts Inc. In this regard we set out below an extract of a note
that appeared in the financial statements for the year ended 29 December
1996 of Red Hot Concepts. Inc.
"The Company was organized on 14 June, 1994 and was in the development
stage until October 1995 Mien operations commenced. TO date. the
Company has spent significant time focusing its efforts on various
organizational activities including negotiating the development and
license agreements, developing it business strategy, selecting sites,
hiring and training of management personnel and undertaking various
other activities necessary for start-up operations in the UK and
Australia.
Since the Company's operations only commenced in October 1995,
revenues have not been sufficient to cover the Company's fixed
administrative costs resulting in net losses of $6,294,829 and
$1,306,327 for the fifty-two week period$ ended 29 December. 1906 and
31 December, 105, respectively. and a working capital deficit. and an
accumulated deficit at 29 December, 1996 of $3,099,616 and $7,693,155
respectively. The Company has had to close one of its three UK
restaurants. The Company has been funded through 29 December. 1996
through loans front related parties and affiliated entities. as well
as equity transactions.
The Company has taken several significant steps to improve the overall
profitability of the restaurant operations and to reduce its
administrative costs. In June of 1996, the Company began a
restructuring program. The restructuring included reducing the head
count from thirteen to two employees and sharing administrative
services with a related company. In December 1996, the Company decided
to close one of its restaurants that was not consistent with
management's expectations. In addition, the company plans to enter
into a loan agreement with its franchiser which will provide interim
financing and provide working capital for the Company's UK subsidiary.
The Company has been negotiating with investment groups in Australia
to help finance the purchase of land and construction of the
restaurant,; in Australia. The Company would pay rent as a fraction of
the landlord building costs. Vie Company is pursuing discussions with
banks and other finance companies to finance leasing the restaurant
equipment and furniture. The Company is planning to convert some of
its related party debt into equity.
There can be no assurances that management's plans to reduce operating
losses and obtain additional financing to fund operations will he
successful. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets,
or the amounts and classification of liabilities; that might be
necessary in the event the Company cannot continue in existence".
Since the issuing of the RM Hot Concepts. Inc. financial statements. the
company has obtained loans from the franchiser in the United States and
continues to actively seek other forms of financing to ensure the continued
development of the UK operations.
(c) Turnover
Turnover represents restaurant sales net of discounts and Value Added Tax-
(d) Intangible assets
Expenditure On start-up costs (including training costs), restaurant
development and design costs are capitalized as incurred, and where such
costs are not an integral pant of the fabric of the restaurant they will be
amortized over the first 12 to 24 months (1995: 24 months) of the store
opening. Where development cost, can be reasonably attributed to the
overall cost of the fabric of a particular restaurant then such costs,
where reasonable and distinguishable, will be included in the costs of the
Property and amortized over the life of the lease of the property. Design
costs are amortized over the length of the agreement to operate
restaurants.
40
<PAGE>
The Celebrated Group plc
Expenditure on licence fees paid to operate restaurants is capitalized and
amortized over the length of the agreement.
(e) Tangible fixed assets
Fixed assets are stated at cost. Depreciation is charged on a straight line
basis over the expected useful lives of the assets over the following
periods:
Leasehold improvements life of the lease or useful economic life
Furniture fittings and office
equipment 2 to 9 years
Motor vehicles 3 years
(F) Stock
Stock is valued at the lower of cost and net realizable value.
(g) Foreign currencies
Transactions in foreign currencies are translated into sterling at the rat"
ruling at the dates of transactions. Liabilities and current assets
expressed in foreign currencies at the balance sheet date arc translated
into sterling at the rates ruling on that date, except for liabilities
which are covered by forward exchange contracts which have been translated
at the rates as per the forward exchange contract. Gains or losses arising
on translation are reflected in the profit and loss account of the period
in which they arise.
(h) Operating leases
Rentals paid under operating leases are charged to income on a straight
line basis over the lease term.
(i) Leaving and hire purchase commitments
Assets held under finance leases and hire purchase contracts are
capitalized in the balance sheet and are depreciated over their useful
lives.
The interest element of the rental obligation, is charged to the profit and
loss account over the period of the lease and represents a constant
proportion of the balance of capital repayments outstanding.
5. Profit and Loss Account
(a) Operating loss
Operating loss is stated after charging/(crediting):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C>
Amortization of intangible fixed assets -- 30,395 404,934
Depreciation of tangible fixed assets -- 15,935 186,055
Auditors' remuneration 1,000 13,500 15,000
Operating lease rental, -land and buildings -- 14,031 229,034
Exchange gains -- (9,036) (140,417)
Closure cogs of Shaftsbury Avenue -- 129,686
Redundancy costs -- -- 57,744
Stock depictions -- 72,575
Store development write offs -- -- 199,861
</TABLE>
6. Loss on Disposal of Discontinued Operations
The loss relates; to the loss on the disposal of intangible and tangible
fixed assets sustained as a result of the closure of the Shaftsbury Avenue
restaurant.
41
<PAGE>
The Celebrated Group plc
7. Directors and Employees
<TABLE>
<CAPTION>
Staff costs
Staff costs during the year were as follows
1994 1995 1996
<S> <C> <C>
Directors' emoluments in respect of UK duties -- 40,916 41,506
Wages and salaries 27,214 276,868 1,164.586
Social security costs 1,639 29,894 65,687
28,853 346,678 1,271,779
Directors' emoluments, excluding pension contributions, are as follows:
1994 1995 1996
Fees -- 40,916 24,083
Compensation for loss of office -- -- 13,000
-- 40,916 37,083
The chairman -- --
The highest paid director 40,916 37,083
</TABLE>
The average weekly number of persons employed by the company was as
follows:
1994 1995 1996
Administration 3 9 13
Restaurant operations -- 11 193
-- 20 206
Following the closure of the Shaftsbury Avenue restaurant the average
weekly number of persons employed has been 177.
8. Interest Payable
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C>
On short term finance -- 1,962 1,221
On bank loans repayable after more than 5 years -- -- 48,026
On finance losses -- -- 14,138
-- 1,962 63,395
</TABLE>
9. Taxation on Ordinary Activities
No liability to United Kingdom corporation tax arises due to the
availability of losses.
42
<PAGE>
The Celebrated Group p1c
14. Intangible Fixed Assets
<TABLE>
<CAPTION>
Restaurant
Development
Start-up and Design Licence
Costs Costs Fees total
<S> <C> <C> <C> <C>
Cost:
At I January 1996 181,878 341,058 94,774 617,710
Additions in the year 536,390 42,666 25,457 604,513
Reanalysis to tangible -- (198,820) -- (198,820)
Disposals (320,727) (170,404) (12,821) (503,952)
At 29 December 1996 397,541 14,500 107,410 519,451
Amortization:
At 1 January 1996 12,389 5,701 12,197 30,395
Charge for the year 389,990 3,730 11,214 404,934
Disposals (78,456) (9,439) (740) (88,635)
At 29 December 1996 323,923 -- 22,771 346,694
Net Book Value
At 29 December 1996 73,619 14,500 84,639 172,757
Net Book Value
At 1 January 1996 169,489 335,349 82,477 587,315
</TABLE>
11. Tangible Fixed Assets
<TABLE>
<CAPTION>
Furniture
Leasehold Motor Fittings and
Improvements Vehicles Equipment Total
<S> <C> <C> <C> <C>
Cost:
At 1 January 1996 694,325 2,205 261,193 967,723
Additions 1,443,91.5 45,822 578,066 2,067,697
Reanalysis from intangible 183,221 -- 15,599 198,820
Disposals (737,852) (68,027) (122,064) (927,963)
At 29 January 1996 1,573,509 -- 732,768 2,306,277
Depreciation:
At I January 1996 6,751 -- 9,184 15,935
Charge for the year 79,401 14,221 92,443 186,055
Disposals (20,834) (14,211) (8,055) (43,100)
At 29 December 1996 65,318 -- 93,572 158,890
Net Book Value
At 29 December 1996 1,508,191 -- 639,196 2,147,387
Net Book Value
At I January 1996 677,574 22,205 252,009 951,788
</TABLE>
The net book value of assets acquired under finance leases included in
motor vehicles amounted to (pound)Nil (1995: (Pound)22,205) the
depreciation charge on which was (pound)14,211 (1995: (pound)Nil).
12. Stock
1995 1996
(pound) (pound)
Raw materials 53,711 32,145
Uniforms, cutlery and other 33,734 41,600
87,445 73,745
43
<PAGE>
The Celebrated Group plc
13. Debtors
1995 1996
(pound) (pound)
Trade debtors 14,049
Amounts due from related undertakings 17,235 17,622
Other debtors 312,675 225,250
Prepayments and accrued income 20,271 97,128
364,230 340,000
Included in other debtors is the sum of (pound)225,250 due after more than
one year.
14. Creditors: amounts falling due within one year
1995 1996
(pound) (pound)
Bank loans -- 92,857
Trade creditors 405,277 713,254
Amounts due to related undertakings 101,428 723,781
Other creditors 4,514 48,520
Other taxation antisocial security payable 23,716 129,623
Accruals and deferred income 242,282 553,944
Obligations under finance leases 10,311 --
787,528 2,261,979
15. Creditors: amounts falling due after more than one year
1995 1996
(pound) (pound)
Bank loans payable after more than 5 years -- 495,238
Obligations under finance leaves due within 5 years 16,669 --
16,669 495,238
The bank loan is secured by fixed and floating charges over the company's
assets. The loan is repayable by installments at a rate of interest of 11
per cent.
16. Called Up Share Capital and Reserves
1995 1996
(pound) (pound)
Authorized
5,000,000 (1995:3,000,000) ordinary share,
of (pound)1 each 3,000,000 5,000,000
Allotted and called up
Allotted, called up and fully paid 2,000,000 3,800,000
On 23 December 1996 the authorized share capital was increased to 5,000,000
ordinary shares of (pound)1 each, and on the same day the company issued
1,800,000 shares at par to provide further working capital for the company.
<TABLE>
<CAPTION>
Share Capital Reserves Total
(pound) (pound) (pound)
<S> <C> <C> <C>
Balance at 1 January 1996 2,000,000 (555,799) 1,444,201
Share issue 1,800,000 -- 1,800,000
Loss for the year -- (3,165,455) (3,165,455)
Shareholders' equity 3,800,000 (3,721,254) 78,746
</TABLE>
44
<PAGE>
The Celebrated Group plc
17. Lease Obligations and Other Financial Commitments
(a) The company has an annual commitment in respect of operating leases
which expire in:
1995 1995 1996 1996
Land and Land and
Buildings Other Buildings Other
Two to five years -- 9,702 -- --
over five years 989,955 -- 254,436 --
988,955 9,702 254,416 --
Included in the above is the sum (pound)35,316 which relates to rent
payable based on the anticipated turnover of a restaurant for the
forthcoming year.
(b) The rent on the Canary Wharf restaurant has been guaranteed by letter
of credit issued in thc name of the parent company. The rent on the
Cambridge restaurant has been guaranteed by a related company.
18. Related Parties
In the opinion of the directors the immediate parent company of Restaurant
House Limited at 29 December was Red Hot Concepts, Inc., a company
incorporated in the United States of America. Ultimate control rests with
Woodland Limited Partnership, a limited partnership controlled by members
of the Halpern family.
Red Hot Concepts has undertaken not to demand repayment nt its loan until
the company's liquidity improve% and will continue to provide funding for
the foreseeable future.
The company has relied on the exemption under FRS8 from disclosing
transactions with group companies on the basis that the company is a wholly
owned subsidiary and the immediate parent company produces consolidated
accounts which are publicly available.
Transactions between the company and Domino's Pizza Group Limited, a
company also controlled by Woodland Limited Partnership, are set out below.
1995 1996
(pound) (pound)
Administration support and services 6,500 22,700
Delivery charges 900 20,214
Sale of motor vehicles 22,205 --
Rent 4,000 4,000
During the year the two companies provided short term finance to each other
as required which was repaid on a short term basis. At 29 December 1996 the
company was owed (pound)17,622 (1995- due;(pound)1,618) from/to Domino's
Pizza Group Limited.
19. Capital Commitments
At 29 December 1996 the company had the following commitments.
<TABLE>
<CAPTION>
1995 1996
Construction costs (pound)1,100,000 (pound)--
<S> <C> <C> <C> <C>
Additional licence fees due to franchisor (pound)266,667 (US$400,000) (pound)266,667 (US$400,000)
</TABLE>
45
<PAGE>
The Celebrated Group plc
20. Reconciliation of Operating Profit to Net Cash (Outflow)/Inflow from
Operating Activities
<TABLE>
<CAPTION>
1995 1996
(pound) (pound)
<S> <C> <C>
Operating loss (533,762) (2,121,385)
Depreciation charge 15,935 196,055
Amortization charge 30,395 404,934
Loss on write off of intangible fixed assets- 199,861
Loss on write off of restaurant -- 32,123
Loss on sale of tangible and intangible fixed assets - 31,369
Decrease/(increase) in stocks (87,445) 13,700
Decrease/(increase) in debtors (355,854) 24,230
Increase in creditors 624,669 1,459,628
(306,662) 226,515
</TABLE>
21. Analysis of Changes in Cash and Cash Equivalents during the Year
1995 1996
(pound) (pound)
Cash at bank and in hand at 1 January 1996 1,125 257,620
Net cash (outflow)/inflow 256,495 (155,546)
Cash at bank and in hand at 29 December 1996 257,620 102,074
46
<PAGE>
The Celebrated Group plc
F EXTRACTED FINANCIAL INFORMATION FOR THE LAST 3 FINANCIAL YEARS FOR RED HOT
CONCEPTS
The Directors Bryanston Court
Red Hot Concepts, Inc. Selden Hill
6701 Democracy Boulevard Hamel Hempstead
Bethesda Hertfordshire KP2 4TN
MD 20817 21 November 1997
The Directors
Beeson Gregory
The Registry
Royal Mint Court
London EC3N 4EY
Members of the Board
RED HOT CONCEPTS, INC. ("Red Hot Concepts")
In accordance with your instructions we have prepared an extract from the
audited accounts of Rod Hot Concepts in accordance with rule 241 of the
City Code. The financial information relating to Red Hot Concepts contained
in this report does not constitute statutory accounts within the meaning of
the Companies Act 1985. Statutory accounts for each of the three periods
ended 1 January 1995, 31 December 1995 and 29 December 1996 ("the Relevant
Periods") ran be obtained from the Company at 6701 Democracy Boulevard,
Bethesda, Maryland 20817. USA. No audited financial statements have been
prepared in respect of any period subsequent to 31 December 19%.
The auditors tor the Relevant Periods were Moore Stephens. PC who issued
unqualified audit reports. However. reference was made to a fundamental
uncertainty on the principal of going concern for The periods ended 31
December 1995 and 29 December 1996 (see note 5).
1. CONSOLIDATED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
29 weeks 52 weeks 52 weeks
to to to
1 January 31 December 29 December
1995 1995 1996
$ $ $
<S> <C> <C> <C>
Turnover -- 1,092,286 9,438,739
Cost of sales -- (1,114,548) (9,599,519)
Gross Loss -- (22,262) (150,780)
Administration expenses (92,062) (1,317.896) (3,584,265)
Operating loss (92,062) (1,340,158) (3,715,045)
Exceptional Item (2,198,452)
Minority interest in net income of subsidiary (634)
Interest receivable 63 41,624 23,627
Interest payable -- (7,793) (384,.325)
Loss on ordinary activities before taxation (91,999) (1,306,327) (6,294,829)
Taxation -- -- --
Net loss (91,999) (1,306,327) (6,294,829)
Net loss per share (0.02) (0.29) (0.91)
Weighted average number of shares outstanding 4,700,000 4,480,267 6,929,929
</TABLE>
47
<PAGE>
The Celebrated Group plc
2. CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
31 December 29 December
1995 1996
$ $
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents 1,654,969 534,145
Restricted cash 110,000 110,00
Due from related party 547,072 29,785
Account, receivable 144,035 34,545
Inventories 65,378 201,755
Prepaid expenses and accrued income -- 224,630
Advances to officers 51,000 --
Deposits -- 380,718
Total current assets 2,622,454 1,515,578
Property and equipment:
Furniture and fixtures 2,082,730 4,659,014
Less: Accumulated depreciation (70,387) (356,241)
Property and equipment - net 2,012,343 4,302,773
Officer loan receivable -- 134,162
Other assets - net 1,222,345 1,804,624
Total assets 5,857,142 7,757,137
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable and accrued expenses 2,246,679 3,553,078
Current portion ot long-term debt 100,000 937,051
Accrued interest payable -related party -- 125,065
Total current liabilities 2,346,679 4,615,194
Long term liabilities:
Long-term debt 100,000 717,180
Long-term debt-related party 25,880 1,195,302
Total long-term liabilities 125,90 1,912,482
Minority interest -- 3,121
Stockholders' Equity
Common stock, $.01 Per value,
20,000,000 Shares authorized 9,262,347 shares issued
and outstanding 47,623 92,623
Additional paid-in capital 4,749,702 8,884,040
Accumulated Deficit (1,398,326) (7,693,155)
Cumulative foreign currency transaction adjustment (14,416) (57,170)
Total stockholders' equity 3,384,583 1,226,338
Total liabilities and stockholders' equity 5,857,142 7,757,137
</TABLE>
48
<PAGE>
The Celebrated Group plc
3. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
31 December 29 December
1995 1996
$ $
<S> <C> <C>
Operating Activities
Net Loss (1,306,327) (6,294,829)
Adjustments to Reconcile Net to Net
Cash (Used for) Provided by Operating Activities:
Depreciation and Amortization 115,983 805,287
Writeoff of Leased Asset Upon Lease Cancellation -- 41,251
Writeoff of Restaurant Closure -- 2,198,452
Minority Interest in Net Income of Subsidiary -- 634
Discount on Note Payable Amortized -- 95,038
Changes in Assets and Liabilities:
(Increase)/Decrease in:
Accounts Receivable (546,749) 10,802
Inventories (196,667) (79,656)
Prepaid Expenses and Accrued Income 13,275 (464.354)
Increase/(Decrease) in:
Accounts Payable 589,925 2,258,125
Accrued Expenses 694,892 (261,418)
Other Payables and Accrued Interest 17.202 (37,139)
Total Adjustments 687,762 4,722,022
Net Cash -Operating Activities (618,565) (1,572,807)
Investing Activities
Purchase of Furniture and Fixtures (1,515,978) (4,057,257)
Purchase of Intangible Capital Assets (779,199) (664,113)
Advances to Officers (51,000) (118,162)
Payment by Officers -- 35,000
(Increase)/Decrease in Restricted Cash (110,000) --
Net Cash-Investing Activities (2,456,177) (4,804,532)
Financing Activities:
Proceeds from Sale of Common Stock 4,697,325 3,396,748
Payment of Offering Costs -- (55,000)
Advances from Related Parties 194,757 2,861,000
Payment to Related Parties (144,450) (1,608,753)
Capital Least Payments (14,921) (42.251)
Loan Proceeds -- 1,000,000
Repayment of Loan -- (262,949)
Net Cash - Financing Activities 4,732,711 5,288,795
Effect of Exchange Rate Changes on Cash (8,716) (32.280)
Net Increase (Decrease) in Cash and Cob Equivalents-Forward 1,649,15.3 (1,120,824)
</TABLE>
49
<PAGE>
The Celebrated Group plc
3. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
31 December 29 December
1995 1996
$ $
<S> <C> <C>
Net (Decrease) Increase in Cash and Cash Equivalents-Forwarded 1,649,253 (1,120,824)
Cash and Cash Equivalents-Beaning of Periods 5,716 1,654,969
Cash and Cash Equivalents-End of Periods 1,654,969 534,145
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest 3,105 64,103
Income Taxes -- --
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Note Payable Issued in Connection with Acquisition 200,000 --
Commitment to Purchase Assets 520,443 --
Transfer of Capital Leases from Related Company 72,366 --
Note Payable Issued in Connection with the UK Development Agreement -- 220,000
Deferred Lease Guarantee of Subsidiary -- 497,181
Liability for Guarantee Agreement -- (497,180)
Minority Share of Stock Issuance of Subsidiary -- (1)
</TABLE>
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -The consolidated financial statements include the
account, of Red Hot Concepts and its wholly-owned and majority-owned
subsidiaries. Significant inter-company accounts and transactions have been
eliminated.
Cash and Cash Equivalents- Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Accounts Receivable -Substantially all accounts receivable arise from credit
card sales. Red Hot Concepts experience- approximately a one week delay in the
collection of these accounts. Management considers these accounts to be fully
collectible.
Inventories -Inventories, which consist primarily of finished food products, are
stated at the lower of cost, determined by the first-in, first-out basis, or
market value.
Property and Equipment -Property and equipment are stated at cost. Depreciation
on equipment is computed primarily using the straight-line method over the
estimated useful lives of the assets, which range from 3 to 7 years. Leasehold
improvements are amortized over the lesser of the useful life of the
improvements or the lease term, which averages 20 years. The Company began to
record depreciation of its assets in October 1995. when operation., commenced.
Development and License Agreements-Development and license agreements are stated
at cost which includes the purchase price and related cogs. which are primarily
professional fees. The exclusive development rights under the development
agreements are being amortized by the straight-line method over the 10 year term
of the development agreements. The cost of the license agreement for each
restaurant will be amortized by the straight-line method over the 20 year term
of the license.
Restaurant Development and Start-lip Costs - Restaurant development cost%
relating to the design and construction of the restaurants are stated at cost.
Upon the restaurants* opening, these costs ate classified as property and
equipment and amortized over their useful life, which averages 20 years.
Start-up costs related to hiring, training and other direct costs are stated at
cost and amortized over the first twenty-four months of restaurant operations.
Deferred- Lease Guarantee.-Red Hot Concepts has entered into an agreement to
have guaranteed, under certain circumstances a minimum of 5 and up to 12 of its
operating leases for properties. These guarantees are to be amortized over 5
years under the straight-line method.
Revenue Recognition - Red Hot Concepts recognizes revenue at the point of sale
to the customer.
Advertising and Promotion Expense - In accordance with development and license
Red Hot Concepts is required to spend a minimum of 1/2 of 1 per cent of the
prior year's average annual gross receipts on advertising and promotion.
Advertising and promotion costs are expensed as incurred.
Stock Transaction of Subsidiary - Changes in Red Hot Concept's proportionate
share of subsidiary equity are accounted or as equity transactions and either
increase or decrease Red Hot Concept's investment in the subsidiary.
50
<PAGE>
The Celebrated Group plc
Loss Per Share-Loss per share of common stock is b-cd on the weighted average
number of common shares outstanding for the periods presented. Common stock
equivalents are included in the computation when their effect is considered
dilutive.
Foreign Currency Translation- Balance sheet amounts denominated in British pound
sterling and Australian dollars have been translated into US dollars using the
year end rate of exchange. Operational results determined in British pound
sterling and Australian dollars have been translated into US dollars using
average yearly rate of exchange. Equity transactions denominated in British
pound sterling and Australian dollars have been translated into US dollars using
the effective rate of exchange at date of issuance.
Impairment - Certain long-term assets of Red Hot Concepts are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in the Statement of Financial Standards ("FAS") No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
(un-discounted and without interest charges). If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. As of 31 December 1996, management expects
these assets to be fully recoverable.
Stock Options Issued to Employees-Red Hot Concepts adopted SFAS No. 123
"Accounting for Stock-Based Compensation" on 1 January 1996 for financial note
disclosure purposes and will continue to apply the intrinsic value method of the
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to Employees" for financial reporting purposes.
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 ot the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification - Certain items in the prior year's financial statements have
been reclassified to confirm to the 29 December 1996 presentation.
5. GOING CONCERN
As stated in 1996 The accompanying financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
Red Hot Concepts was organized on 14 June 1994 and was in the development stage
until October 1995 when operations commenced. To date, Red Hot Concepts has
spent significant time focusing its efforts on various organizational activities
including negotiating the development and license agreements (See Note 17),
developing a business strategy, selecting sites, hiring and training of
management personnel and undertaking various other activities necessary for
start-up operations in the UK and Australia.
Since Red Hot Concepts's operations only commenced in October 1995, revenues
have not been sufficient to cover Red Hot Concept's fixed administrative costs
resulting in net losses of $6,240,829 and $1,306,327 for the fifty-two week
periods ended 29 December 1996 and 31 December 1995, respectively, and a working
capital deficit and an accumulated deficit at 29 December 1996 of $3,099,616 and
$7,693,155, respectively. Red Hot Concepts has had to close one of its three UK
restaurants. Red Hot Concepts has been funded through 29 December 1996 through
loans from related parties and affiliated entities, as well as equity
transactions.
Red Hot Concepts has taken several significant steps to improve the overall
profitability of its restaurant operations and to reduce its administrative
costs. In June of 1996, Red Hot Concepts began a restructuring program. The
restructuring included reducing the head count from thirteen to two employees
and sharing administrative services with a related company. In December 1996,
Red Hot Concepts decided to close one of its restaurants that was not consistent
with managements expectations. In addition, Red Hot Concepts plans to enter into
a loan agreement with its franchisor which will provide interim financing and
provide working capital for Red Hot Concept's UK subsidiary. Red Hot Concepts
has been negotiating with investment group, in Australia to help finance the
purchase of land and construction Of the restaurants in Australia. Red Hot
Concepts would pay rent as a fraction of the landlord building costs Red Hot
Concepts is pursuing discussions with banks and other finance companies to
finance leasing the restaurant equipment and furniture. Red Hot Concepts is
planning to convert some of its related party debt into equity (See Note 21D).
There can be no assurances that management's plans to reduce operating losses
and obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event Red Hot
Concepts cannot continue in existence.
51
<PAGE>
The Celebrated Group plc
As Stated in 1995
Red Hot Concepts was organized on 14 June 1994 and has a limited operating
history. Red Hot Concepts was in the development stage until October when
operations commenced. To date, Red Hot Concepts has spent significant time
focusing its efforts on various organizational activities including negotiating
the Development and License Agreements [See Note 11], developing a business
strategy, selecting sites, hiring and training of management personnel and
undertaking various other preliminary activities necessary for commencing
operations in the United Kingdom and Australia.
Since Red Hot Concepts' operations only commenced in October 1995, revenues have
not been. sufficient to cover Red Hot Concepts' fixed administrative cost
resulting in net losses of $1,306,327 and $91,999 for the fifty-two week period
ended 31 December 1995 and the period 14 June 1994 to 1 January 1995,
respectively and an accumulated deficit at 31 December 1995 of $1,399,326.
Management believes that revenues will bc sufficient to cover these costs in the
future.
In March 1996, Red Hot Concepts borrowed approximately $1,700,000 to finance the
opening of its second and third Chili's Restaurants.
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. The continuation
of Red Hot Concepts as a going concern is dependent upon its ability to have a
successful operating history.
6. SIGNIFICANT RISKS AND UNCERTAINTIES
A. Concentrations of Credit Risk - Cash - At 29 December 1996, Red Hot Concepts
had approximately $499,000 (1995:$611,674) on deposit in the UK and Australia.
The UK and Australia do not have federal insurance on balances maintained in
banks. At 29 December 1996, Red Hot Concepts maintained deposits in financial
institutions in the United States that were approximately $147,000
(1995:$1,050,000) in excess of the maximum amounts insured by the Federal
Deposit Insurance Corporation. There is no collateral in relation to deposits.
At 29 December 1996, one letter of credit in the amount of $110,000
(1995:$110,000) had been issued on Red Hot Concepts' behalf and is secured by a
cash account, which is reflected as restricted on the balance sheet. At 29
December 1990, there have been no drawings under this letter of credit and there
is no outstanding balance due related to it.
B. Operations Its Foreign Countries-The Company is subject to numerous factors
relating To conducting business inn foreign country (including, without
limitation, economic, political and currency risks) any of which could have a
significant impact on Red Hot Concepts's operations.
C. Economic Dependency-Due to the nature of the licenses granted pursuant to the
development agreements With Brinker International. Inc. ("Brinker") (See Note
16), the success of Red Hot Concepts is in part dependent upon the overall
success of Brinker and Chili's Restaurants. including Brinker's financial
condition, management and marketing success. If Brinker becomes unable to
provide necessary support to Red Hot Concepts, such inability could have a
material adverse effect on Red Hot Concepts.
7. OTHER ASSETS
Other assets, at 29 December 1996, consists of the following:
<TABLE>
<CAPTION>
Accumulated
Amortization
29 December
Cost 1996 Writeoffs Net
$ $ $ $
<S> <C> <C> <C> <C>
Deferred Lease Guarantees 497,181 24,859 -- 472,322
Development and License Agreements 749,151 79,070 -- 670,291
Restaurant Development and Start-Up Costs 1,406,074 322,047 (422,006) 662,021
Totals 2,652,606 425,976 422,006 1,804,624
</TABLE>
Amortization expense of the deferred lease guarantees for the fifty-two week
periods ended 29 December 1996 and 31 December 1995 was $24,859 and $-0-,
respectively.
Amortization expense for development and license agreements for the fifty-two
week periods ended 29 December 1996 and 31 December 1995 was $58,198 and
$20,872, respectively.
Amortization expense of restaurant development and startup costs for the
fifty-two week periods ended 29 December 1996 and 31 December 1995 was $293,952
and $28,095, respectively.
The write-off of restaurant development and start-up costs during 1996 relate to
the closure of one of the UK restaurants (See Notes 14 and 15A).
52
<PAGE>
The Celebrated Group plc
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
31 December 20 December
1995 1996
$ $
<S> <C> <C>
Note payable to Natwest Bank, interest at base rate plus 3 per cent - 837,051
Note payable to Brinker Australia, Inc. for the Acquisition Of Chili's
Texas Grill Pty.,Ltd., noninterest bearing 200,000 100,000
Note payable to Brinker International for the UK Development and
License Agreement, noninterest bearing - 220,000
Minimum real estate lease guaranty payable to Brinker International
discounted at 15 per cent for five years - 497,180
Related party note payable to Woodland Limited Partnership due 30 June
1998 at 8 per cent interest net of fair value of a common stock
purchase warrant - 794,820
Related Party note payable to Woodland Limited Partnership due 30 June
1998 at 12 percent interest, net of fair value of common stock
purchase warrant - 400,482
Total 200,000 2,849,533
Less: Current Portion 100,000 937,051
Long-Term 100,000 1,912,482
</TABLE>
In March 1996, Red Hot Concepts obtained a loan for approximately $1,000,000 to
finance the opening of its second test restaurant (See Note 18A) in the UK. At
29 December 1996, the outstanding balance was $837,051. This loan which bears
interest at the bank's base rate (approximately 6 per cent.) plus 3 per cent.,
is payable over 7 years. The loan agreement has various covenants pertaining to
financial statement ratios. At 29 December 19%, Red Hot Concepts was in breach
of the tangible net worth and adjusted operating profit covenants. Under the
terms of the agreement, the bank may call the loan if Red Hot Concepts is in
violation of any restrictive covenant. As of 2 April 1997, the bank has not
waived the above requirements and accordingly, the entire amount of the note,
$837,051, has been included in current liabilities. The loan is secured by all
of the assets of Restaurant House.
During November 1995, in connection with a share sale agreement between Red Hot
Concepts and Brinker Australia, Inc., a wholly-owned subsidiary of Brinker (See
Note 19). Red Hot Concepts incurred a note payable obligation of $300,000, Upon
execution of the agreement. $100,000 was paid and another $100,000 was also paid
in November 1996. The remaining balance of $100,000 is due in November 1997.
As consideration for the UK Development Agreement, Red Hot Concepts agreed to
pay Brinker $320,000, of which $100,000 was paid upon execution of the UK
Development Agreement (See Note 16A). The $100,000 is nonrefundable. The
remaining $220,000 is due on 1 April 1998.
In connection with the guaranty agreement with Brinker (Set Note 18C), Red Hot
Concepts is required to buy back their subsidiary's shares of stock at the end
of the five year term of the agreement for a minimum of $1,000,000 (See Note
18C.). The liability recorded at 29 December 1996 represents Red Hot Concepts'
minimum liability for the repurchase of the stock at 30 September 2001
discounted at 15 per cent. for five years to $497,180.
At December 1996, short-term obligations of Red Hot Concepts to a related party
were converted into long-term debt (See Notes 11 and 21D). The following are
maturities of debt for each of the next five fifty-two week periods:
1995 1996
$ $
1996 100,000 --
1997 100,000 --
1998 -- 1,415,302
1999 -- --
2000 -- --
2001 -- 497,180
Thereafter -- --
Total 200,000 2,849,533
9. LEASES
In 1995, Red Hot Concepts had leased motor vehicles under capital leases
expiring in various years through 1998. These leases were transferred to Red Hot
Concepts from a related company during the fifty-two week period ended 31
December 1995. As a result of changing the entire management team in the UK, Red
Hot Concepts has returned all of the motor vehicles under lease to the leasing
company (See Note 11).
53
<PAGE>
The Celebrated Group plc
Red Hot subleases its U.S. office from a related party (See Note 11). The lease
expires June 1997. Restaurant House from it wholly-owned subsidiary of a related
company (See Note 11).
CTG leased its office facilities in Australia under a 2 year lease term,
expiring September 1998.
The Company has 5 operating leases for restaurant sites ranging from 2 to 25
years. Two of these leases, one with a 5 year term and one with a 11 year term,
have renewal options, exercisable at Red Hot Concepts's option, for successive
five year terms through 2012. These lease, which expire through 2020 provide for
aggregate annual rent of $15,276,958.
Minimum future rental payments under non-cancelable operating leases and
subleases having remaining terms in excess of one year as at the year end for
each of the next five fifty-two week periods and in the aggregate are as
follows:
1995 1996
$ $
1996 19,186 --
1997 19,186 947,068
1998 8,959 935,589
1999 -- 923,868
2000 -- 923,868
2001 -- 923,868
Subsequent to 2001 -- 10,622,697
Total Minimum Future Rentals 47,331 15,276,958
Rent expense for the fifty-two week periods ended 29 December 1996 and 31
December 1995 was $959,307 and $108,712, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. The following table
summarizes financial instruments by individual balance sheet classifications as
of 29 December 1996:
<TABLE>
<CAPTION>
1995 1996
Carrying Carrying
Amount Fair value Amount Fair value
$ $ $ $
<S> <C> <C> <C> <C>
Short-Term Debt -- -- 937,051 928,935
Long-Term Debt 100,000 83,670 1,912,482 1,813,673
</TABLE>
In assessing the fair value of financial instruments, Red Hot Concepts uses a
variety of method, and assumptions, which are based on estimates of market
conditions and risks existing at the time. For certain instruments, including
cash and cash equivalents, accounts receivable and accounts payable, it was
assumed that the carrying amount approximated fair value because of the short
maturities of these instruments. The fair value of short-term debt and long-term
debt is based on current rates at which Red Hot Concepts could borrow funds with
similar remaining maturities.
11. RELATED PARTY TRANSACTIONS
Woodland Limited Partnership ("Woodland") is a partnership controlled by members
of Mr. Colin Halpern's family. Mr. Halpern is the Chairman of the Board of Red
Hot Concepts. The balance due to Woodland for funds advanced to Red Hot Concepts
wait $89,709 at 31 December 1995. By the end of 1996, the total amount due to
Woodland was $1,940,342, consisting of short-term advances of $940,342, and a
short-term vote payable of $1,00,000.
During 1996 funds were advanced and repayments were made to Woodland. The
balance due to Woodland for these advances at 29 December 1996 was $940,342 plus
accrued interest payable of $63,911. On 28 December 1996, Woodland agreed to
convert these advances into a note payable due.30 June 1998, at 8 per cent.
interest per annum. As partial consideration for the loan, Red Hot Concepts will
issue a common stock purchase warrant entitling Woodland to purchase 300,000
shares of common stock at $1.75 per share for a term expiring 31 December 1999.
The note is recorded net of fair value of the stock warrant at $794,820 (See
Note 8).
In June 1996, Woodland accepted a note payable of $1,000,000 at 12 per cent.
interest per annurn to finance the opening of Red Hot Concepts's third test
restaurant (See Note 18A). As partial consideration for the loan, Red Hot
Concepts will issue a common stock purchase warrant entitling Woodland to
purchase 500,000 shares of Red Hot Concepts's common stock at $2.50 per share
for a period of 24 months commencing on the date of the loan. The warrants win
be redeemable at $.01 per share if the closing bid price of Red Hot Concepts
common stock exceeds $10 for
54
<PAGE>
The Celebrated Group plc
10 consecutive trading days ending within five days of the notice of redemption.
On 28 December 1996, Woodland agreed to extend the note until June 1998. In
further consideration, Rod Hot Concepts will issue a common stock purchase
warrant entitling Woodland to purchase an additional 500,000 shares of Red Hot
Concepts' stock at $1.75 per share for a term expiring 31 December 1999 on the
note. The note is recorded net of the fair value of these stock warrants at
$400,482 (See Note 9). Interest expense amortized on purchase warrants for the
52 week period ended 29 December 1996 is $95,038. Accrued interest payable of
$61,154 is outstanding at 29 December 1996.
At 29 December 1996. Woodland owns approximately 34 per cent. of Red Hot
Concepts' outstanding stock.
Mr. Halpern also is the Chairman of the Board of International Franchise
Systems. Inc. ('IFS"). At 31 December 1995, IFS had advanced funds to Red Hot
Concepts in the amount of $183.635. During 1996, the entire amount was repaid.
IFS charges a management fee to Red Hot Concepts for Administration services.
For the year ended 29 December 1996 and 31 December 1995, this management fee
was $25,000 and $36,000, respectively, and those amounts were charged to
operations. At 29 December 1996, a Company subsidiary is owed $29,785 from a
subsidiary of IFS. IFS and one of its wholly-owned subsidiaries sublease office
facilities to Red Hot Concepts in the United States and the United Kingdom,
respectively (See Note 9). During the fifty-two week period ended December 31,
1995, IFS transferred motor vehicles under capital lease at the remaining net
lease value to Red Hot Concepts. These motor vehicles were returned to the
leasing company upon cancellation of the lease and the related asset and
liability were written off during 1996 (See Note 9).
The Company has advanced funds to and paid various expenses on behalf of Mr.
Halpern. During 1996, the total amount advanced to Mr. Halpern was $15,148 with
repayments of $35,000. At 29 December 1996, the total amount due to Red Hot
Concepts is $31,148 (31 December 1995: $51,000). This amount is being offset
through reimbursements, due to Mr. Halpern.
Mr. Halpern's son is an attorney with a law firm that provides legal services to
Red Hot Concepts. Legal expense incurred with this firm for the fifty-two weeks
ended 29 December 1996 was $70,541. At 29 December 1996 there war no balance due
and owing by Red Hot Concepts to this firm.
In September 1996. Red Hot Concepts hired a new President. At that time, he
received advances from Red Hot Concepts of $3,014 and a loan of $100,000 from
Red Hot Concepts for a term of two years at 6 per cent. interest. At 29 December
1996, accrued interest receivable and interest income on this loan was $1,000.
The Chief Financial Officer of Red Hot Concepts is also the Chief Financial
Officer of IFS. The charge for his services was $120.000 and is allocated
between the two companies.
12. PROVISION FOR INCOME TAXES
Pursuant to United States tax laws, if Red Hot Concepts' subsidiaries organized
under the laws of the UK or Australia are not engaged in business in the United
States, profits of such subsidiaries will not be subject to United States
taxation, until distributed as dividends. However, Red Hot Concepts would
receive a credit against federal income tax liability that would otherwise
result from any distributions from its subsidiaries for any UK or Australian
corporate taxes paid by its UK or Australian subsidiaries on these
distributions, as well as for any UK or Australian dividend and royalty
withholding taxes imposed directly on Red Hot Concepts.
The Company has approximately $5,517,000 of net operating losses, which can be
used to offset future UK taxable income, arising in the same trade. Under UK tax
provisions, there is no time limit for the utilization of net operating losses.
No deferred tax asset has been established as the realization of any deferred
tax asset cannot be determined at 29 December 1996.
Australia tax provisions are recorded under the liability method of Australian
tax effect accounting, whereby income tax expense is based on the operating
profit before income tax adjusted for any permanent differences between
financial reporting and taxable income. At 29 December 1996, the Australian
subsidiary had recorded a deferred tax asset based an timing differences,
between financial reporting and taxable income of approximately $37,000, which
was offset by a valuation allowance of approximately $37,000.
Red Hot does not file a consolidated United States federal income tax return
with any of its related companies. There is no income tax provision as Red Hot
as a stand alone company, incurred a net loss for 1996 and 1995. Therefore, no
loss carry forward was used during 1996 and 1995. At 29 December 1996, Red Hot
had a deferred tax asset attributable to its United States net operating loss,
of approximately $634,000 (31 December 1995; $203,000), which was offset by a
valuation allowance of approximately $634,000 (31 December 1995:$203,000). The
change in the valuation allowance during the fiscal year ended 29 December 1996
was approximately $431.000.
The following summarizes the operating tax loss carry forwards by year of
expiration.
Expiration Date of
Amount Tax Loss Carry forward
$
10,699 31 December 2001
475,713 31 December 2010
1,150,199 31 December 2011
55
<PAGE>
The Celebrated Croup plc
13. STOCK TRANSACTIONS
In May 1995, in connection with the filing of a post-effective amendment to its
Registration Statement changing tile offering price for the shares in its
initial public offering from $5 to $6, Woodland. the holder of all the shares of
common stock of Red Hot Concepts, a( the time, contributed back I o Red Hot
Concepts 950,000 shares of common stock.
In August 1995. Red Hot Concepts completed its initial public offering (the
"IPO"). In connection with the IPO, the Company sold 1,012,347 Units each Unit
consisting of one share of common stock and two common stock purchase warrants.
at $6 per Unit. Each Unit holder is entitled to exercise the two stock purchase
warrants to purchase shares of common stork for an eighteen month and a five
year period commencing November 1995 at $6.00 and $12.00 per share,
respectively. As of 29 December 1996.1,012,347 warrants exercisable at $6.00 and
$12.00 per share through December 1997 and November 2000, respectively were
outstanding. Additionally, the underwriter of the IPO received options to
purchase 200,000 shares of common stock at $8.25 per share exercisable for a
four year period commencing February 1996. The net proceeds received by Red Hot
Concepts from the IPO were $4,697,325 after deducting underwriting discounts and
expense reimbursements to the underwriter tot&14 $758,158 and offering costs of
$618,599. Additional offering costs of $55,000 relating to this IPO were: paid
in 1996.
In June, August, November and December 1996, Red Hot Concepts had Regulation S
share offerings and incurred offering costs of $103,252. In these offerings, Red
Hot Concepts sold 3,000,000 shares of common stock at $.40 per share, 1,500,000
shuts of common stock at $1.00 per share, 1,000,000 shares of common stock at
$.50 per share and 600,000 shares of common stock at $.50 per share,
respectively. At 29 December 1996, 1,600,000 shares had not been issued (See
Note 21 A).
14. STOCK TRANSACTIONS OF SUBSIDIARY
In September 1996, Red Hot Pacific issued 53 shares of common stock to Brinker
in connection with a guaranty agreement valued at $1 (See Note 18C).
The above issuance reduced Red Hot ownership of Red Hot Pacific from 100 per
cent. to 95 per cent. As a result of this stock transaction and related
liability for the guaranty agreement (See Notes 8 and 18C) Red Hot reduced its
additional paid-in capital by $2,497 in consolidation.
15. STOCK OPTIONS AND WARRANTS
A. Stock Options- In order to attract, retain and motivate employees (including
officers) and directors who perform substantial services for or on behalf of Red
Hot Concepts, Red Hot Concepts adopted the 1996 Stock Option Plan and the 1995
Stock Incentive Plan (the "Director Plan" and the -1995 Stock Plan",
respectively).The 1996 Director Plan was amended 1 January 1997. The 1995 Stock
Plan was terminated effective 31 December 1996. The 1996 Stock Plan (the "Stock
Plan") was adopted effective 1 August 1996.
Pursuant to the Stock Plan, officers and key employees of Red Hot Concepts,
including directors, are eligible to receive awards of stock options (with or
without limited stock appreciation rights) and directors are eligible to receive
awards of non-qualified stock options (with or without limited stock
appreciation rights). Options granted under the Stock Plan may be "incentive
stock options" ("ISO") or non-qualified stock options ("NQOS"). Limited Stock
Appreciation Rights ("LSARs") may be granted simultaneously with the grant of an
option or (in the case of NQSOs) at any time during its tem.
The Company has reserved 1,000,000 shares of its common stock for issuance of
awards under the Stock Plan and 300,000 shares of common stock under the
Director Plan (subject to anti-dilution and similar adjustments). During the
duration of the plan the maximum number of shares as to which stock options may
be granted under the Stock Plan to any eligible person is 15 per cent. of the
aggregate number of shares which may be issued under the plan. There are
additional limitations as to the number of ISOs granted which became exercisable
for the first time in any one calendar year.
The Stock Plan and Director Man are administered by a committee (the
- -Committee"). established by Red Halt Concepts Board of Directors. Subject to
the provisions. of the Stock Plan, the Committee determines the type of award,
when and to whom awards will be granted and the number of shares covered by each
award, the term,%, provisions and kind of consideration payable (if any), with
respect to award in addition, the Committee has sole discretionary authority to
interpret the Stock, Plan and to adopt rules and regulations related thereto.
Under the Director Plan, a member of Red Hot Concepts' Board of Directors, shall
automatically he granted a "nonstatutory stock option" for 10,000 shares after
the annual shareholders' meeting tach year on the first day of January, April
July and October of cacti year. The Captions vest after one year.
An option May be granted under the Stock Plan on such terms and condition% as
the Committee may approve, and generally may be exercised for a period of up to
10 years from the date of grant. Generally, options will be granted with an
exercise price equal to the "Fair Market Value" (as defined in the Stock Plan)
on the date of grant. In the case of ISOS. certain limitations will apply with
respect to the aggregate value of option shares which can become exercisable for
the first time during any one calendar year, and certain additional limitations
will apply to "Ten Percent
56
<PAGE>
Thee Celebrated Group plc
Stockholders" (as defined in the Stock Plan). The options under the Stock Plan
issued as of 29 December 19%. vest one-third over each of the next three years.
The Committee may provide (or the payment resulting from the exercise of the
option in cash,. by delivery of other common stock having fair market value
equal to such option price or by a combination thereof.
An option granted under the Stock Plan shall be exercisable at such time or
times as the Committee, in its discretion, shall determine, except that no stock
option shall he exercisable after the expiration of ten years (five years in the
case of an Incentive stock option granted to it "Ten Percent Employee", as
defined in the Stock Plan) from the date of the grant. The Stock Plan contains
special rules governing the time of exercise in the case of death. disability Or
other termination of employment and also provides for acceleration of the
exercisability of options upon certain events involving change in control of Red
Hot Concepts. Options granted under the Director Plan are exercisable one year
after the grant is made for a period of nine years. The Director Plan also
contains special exercise rules in the event of death or other termination.
The Company's Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the Stock Plan; provided, however. that, unless
approved by the holders of a majority of the issued and outstanding securities
of Red Hot Concepts entitled to vote. to the extent required by the Securities
Exchange Act of 19.14, as amended. no such change may (i) materially increase
the aggregate number of shares as to which options may be granted under the Plan
(except for adjustments provided for in the Plan to reflect stock dividendi or
other capitalisations affecting the number or kind of outstanding shares), (ii)
materially increase the benefits accruing to optionees, or (iii) materially
modify the requirements as to eligibility for participation in the Plan. In
addition, no such change may adversely affect any option previously granted,
except with the written consent of the optionee.
The Company has issued 240,000 nonqualified stock options to its President
during 1996 outside of the stock Plan. with the same terms and conditions of the
Stock Plan.
Information pertaining to stock options as of 29 December 1990 and 31 December
1"S for Red Hot Concepts and for the years then ended is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Exercise Exercisable Remaining
Common Price Stock Contractual
Shares $ Options Life
<S> <C> <C> <C> <C>
Options Outstanding - 1 January 1995 -- -- - --
Options Granted -- -- - --
Options Exercised -- -- - --
Options Canceled -- -- - --
Options Outstanding - 31 December 1995 -- -- - --
Options Granted - Directors Plan 50,000 2.59 - 9.50 Years
Options Granted-Stock Plan 303,100 1.87 - 9.6 Years
Options Granted-Non-Qualified Stock Plan 240,000 1.88 - 9.6 Years
Options Exercised -- -- - --
Options Canceled -- -- - --
Options Outstanding-29 December 1996 593,100 1.94 - 9.6 Years
</TABLE>
No compensation cost was recognised in income under any of the stock option
plans.
Had compensation cost been determined on the basis of fair value pursuant to
SFAS No. 123, not income and earnings per share would have been as follows:
Years Ended 31 December
1995 1996
$ $
Net (Loss):
As Reported (1,306,327) (6,294.829)
Pro Forms (1,306,327) (6,780,179)
(Lass) per Share:
As Reported (0.29) (0.91)
Pro Forma (0.29) (0.98)
At the grant date$, the weighted average fair value of the above options under
the Director Plan, Stock Plan anti Non-Qualified Stock Plan were $1.80, $1.30
and $1.31, respectively.
57
<PAGE>
The Celebrated Group plc
The fair value used in the pro forma data was estimated by using an option
pricing model which took into account as of the grant date. the exercise. price
and the expected life of the option, the current price of the underlying stock
and its expected volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option.
The following is the weighted average of the data used for the following items.
Risk-Free Expected Expected Expected
Interest Rate Life Volatility Dividends
6.54% 5 Years 81.99% -
B. Common Stock Purchase Warrants- As of 29 December 19%, there were 1,012,347
Class A warrants and 1,012,347 Class B warrants outstanding, which were issued
in August I "S as part of a public offering. Holders of each Class A warrant art
entitled to purchase one share of common stock at $6.00 per share until 31
December 1997. Holders of each Class B warrant are entitled to purchase one
%hare of common stock at $12.00 per &hare until November 30, 2000 (See Note 13).
No warrants were exercised during the fifty-two week periods ended 29 December
1996 or December)et 31. 1995.
16. FOURTH QUARTER RESULTS OF OPERATIONS
During the fourth quarter of 1996, Red Hot Concepts decided to close one of the
three restaurants in the UK due to increasing losses. At that time, costs
relating to restaurant development and start-up costs of $422,(m were written
off, as well as additional costs relating& to closing the restaurant in the
amount of $1,776,446. The effect of this restaurant closure was to increase the
fourth quarter net loss by 59 per cent. ($.24 per share):
17. OPERATIONS BY GEOGRAPHIC AREA
The summary of financial information for Red Hot Concepts' operations by
geographic area is as follows:
For the fifty-two weeks ended 29 December 1996:
<TABLE>
<CAPTION>
United United
States Kingdom Australia Eliminations Consolidated
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Revenues -- 4,111,276 5,327,463 -- 9,438,739
Gross Margin (Loss) -- (772,127) 621,347 -- (150,780)
Net Income (Loss) (1,446,063) (4,886,761) 37,995 -- (6,294,829)
Assets 9,467,397 4,870,430 2,345,930 (8,926,620) 7,757,137
Liabilities 2,248,248 4,661,411 2,256,569 (2,638,551) 6,527,676
Company's Investment in Foreign
Subsidiaries 6,371,300 (6,371,300)
</TABLE>
<TABLE>
<CAPTION>
For the fifty-two weeks ended 31 December 1995:
United United
States Kingdom Australia Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues -- 359,493 732,793 -- 192,286
Gross Margin Loss) (318,123) 295,861 (22,262)
Net Loss (465,014) (840,729) (594) (1,306,327)
Assets 5,258,760 3,417,632 1,149,015 (3,968,265) 5,857,142
Liabilities 975,828 1,186,477 1,128,8&4 (818,629) 2,472,559
Company's Investment in Foreign
Subsidiaries 3,128,920 -- 369,523 (3,497,443) --
</TABLE>
18 COMMITMENTS
A. UK Development Agreement-The Company his the exclusive right to own and
operate Chili's. Restaurants in the I UK pursuant to an amended development mod
license agreement (the "UK Development Agreement") with Brinker.
UK Development Agreement required Red Hot Concepts to open three Chili's
Restaurants (the "test restaurants") by I August 1996.'Mis was achieved. The
Company had the option to terminate the UK Development Agreement. without
further obligation to Brinker. at any time between three month% after the
opening of the second test restaurant, and the earlier of (i) six months after
the opening of the third test restaurant and (ii) I November 1996. Since the
Company did not exercise its option to terminate the UK Development Agreement,
the test restaurants were considered successful and Red Hot Concepts was then
required to open a set number of restaurants by I November 2006. A new
development schedule was issued by Brinker on 27 January 1997 (See Note 21 R).
On 24 December 1996. one of the three restaurants were closed. On 27 January
1997, Brinker. through a letter agreement. agreed to a termination of the
license agreement on that restaurant (See Note 21 A). In consideration for
Brinker's's agreement and approval of the closure. Red Hot Concepts is obligated
to secure a replacement location for a
58
<PAGE>
The Celebrated Group pie
licensed restaurant at a location mutually agreeable to both parties an or
before the earlier to occur of either 30 November 1997 or three months after
execution of a joint venture agreement approved by Brinker. The Company shall
open the same for business on or before the earlier to occur or either 31 May
1998 ca sit months after securing such replacement location.
The UK Development Agreement also requires Red Hot Concepts to enter into a
license agreement with Brinker for each Chili'% Restaurant it opens Prior to
beginning construction of a Chili's Restaurant. Red I lot Concepts must notify
Brinker of its intention to establish a restaurant by sending Brinker a license
application. The term of each license agreement is 20 years and it is renewable
far in additional 20 years subject to certain conditions. The Company is
required to pay Brinker a one-time opening fee of $20,000 for each Chili's's
Restaurant- In addition, Red Hot Concept% must pay to Brinker a monthly royalty
[cc equal to 2 per cent. of gross receipts. The Company also has a right of
first refusal for the development of other Brinker restaurant concept-; in the I
UK.
As of 29 December 1996. Red Hot Concepts leases its 2 restaurants and intends to
lease its future restaurant sites. During the fifty-two week period ended 28
December 1997. Red Hot Concepts does not expect to open any additional Chili's
Restaurants in the UK
B. Pacific Development Agreement-The Company has the exclusive right to own and
operate Chili's Restaurants in Australia and New Zealand pursuant to a
Development and Franchise Agreement (the -Pacific Development Agreement") with
Brinker. The Pacific Development Agreement has an initial term (-Initial Term")
of 10 years and is renewable at Red Hot Concepts' discretion for an additional
10 year period it a combined minimum of 40 Chili's Restaurant% are opened
between the two countries. The Company acquired these rights. in connection with
the acquisition of Chili's Texas (Grill Pty. Ltd. and has allocated $347,807 of
the purchase prior to the Pacific Development Agreement (See Note 19).
During the initial term of the Pacific Development Agreement. Red Hot Concepts
is required to open 40 Chili's Restaurants in Australia and New Zealand in
accordance with a yearly schedule by 8 November 2005. If Red Hot Concepts falls
behind the development schedule by one restaurant in a given year, ir will not
be in default of its development obligations. However, if Red Hot Concepts falls
behind the development schedule by more than one restaurant, Red Hot Concepts
will he in default of its territorial development obligation. If such default
occurs, Red Hot Concepts' exclusive rights to establish Chili's Restaurants in
Australia and New Zealand will terminate and Red Hot Concepts will have to cease
developing Chili's Restaurants- The Company would, however. be able to continue
operating any Chili's Restaurants that had been established and operating
pursuant to the Licensing Agreement. Amy development fee obligations that are
due under the Pacific Development Agreement but unpaid at the time it is
terminated would be owed to Brinker. If Red Hot Concepts is in compliance with
the Pacific Development Agreement at the expiration of its Initial Term and is
operating at least 40 Chili's Restaurants. Red Hot Concepts may renew the
Pacific Development Agreement for an additional ten year period. The number of
Chili's restaurants to be opened during the renewal term will be subject to
mutual agreement by Red Hot Concepts and Brinker however, both parties have
agreed that in no event will the number of Chili's Restaurants to he opened
during the renewal term be less than two per yea r. If Red Hot Concepts and
Brinker are unable to reach an agreement with respect to determining an actual
number of Chili's. Restaurants to be opened under either development agreement
the Pacific Development Agreement will not be renewed.
If after expiration of the Initial Term (or any renewal term), Red Hot Concepts*
exclusive development fights are not renewed, then Red Hot Concepts would
continue to have the right to operate its then existing Chili's's Restaurants in
accordance with the License Agreement for e=h such restaurant. in such event,
Red Hot Concepts would no longer have the exclusive right to own and operate
Chili's Restaurants under the Pacific Development Agreement and Brinker would
have the right to proceed (or the right to grant a third party the right to
proceed) with further development of Chili's Restaurants in the territory,
subject to territorial rights granted under then existing License Agreements.
The Pacific Development Agreement also requires Red Hot Concepts to enter into a
license agreement with Brinker for each Chili's Restaurant it opens. Prior to
beginning construction of a Chili's Restaurant, Red Hot Concepts must notify
Brinker of its intention to establish a restaurant by sending Brinker a license
application. The term of each license agreement is 20 years and it is renewable
for an additional 20 years subject to certain conditions. 110 Company is
required to pay Brinker a one-time opening fee of $20,000 for each Chili's
Restaurant. In addition, Red Hot Concepts must pay to Brinker a monthly royalty
fee equal to 2 per cent. of gross receipts.
C. Guaranty Agreement- In %September 1996. Red Hot Concepts entered into an
agreement with Brinker pursuant to which Brinker agreed to guaranty. under
certain circumstances, a minimum of five and up in 12 leases for properties in
the Territory developed its Chili's Restaurants (the -Guaranty Agreement"). The
Company can request that Brinker guaranty up to five leases" at any time through
30 September 2(101. subject to the limits on Brinker's total liability described
below. The Company can request up to an additional seven guarantees but only if:
(i) the demographic profile for the proposed Chili's location is substantially
similar to the average demographic profile for similar Chili's in the United
States. (ii) the tenant under the lease to be guaranteed is not then in default
under that lease. and (iii) the average gross sales of all of the similar
Chili's Restaurants in the Territory is equal to or greater than 90 per cent. Of
the average gross Sales Of all similar Chili's in the United States.
59
<PAGE>
The Celebrated Group plc
Brinker's maximum liability under any one lease may not exceed $200.000 and the
term of any guaranty shall be the lesser of (i) the first three: years of the
lease and (ii) the remaining term of the Guaranty Agreement. Brinker's maximum
liability under the Guaranty Agreement in any year shall be as follows
Maximum Guaranty
Year $
1997 1,2800,000
1998 2,250,000
1999 2,100,000
2000 1,200,000
2001 50,000
Brinker was issued 53 shares of stock of Red Hot Concepts' subsidiary
(representing 5 per cent. of the outstanding shares) in connection with the
Guaranty Agreement. The Guaranty Agreement(was valued at $497.181. which is the
net present value of the obligation under the Guaranty Agreement described
below. The amortisation expense for the 52 week period ended 29 December 1996
was $24.867 (See Note 7). In the event Brinker is obligated to make any payments
under any guaranty and the company does not reimburse Winker within 20 days of
making such payment, the Company is required to issue stock to.Brinker in an
amount representing 15. 1 *cent. of the then outstanding shares of Red Hot
Concepts' stock. On 30 September 2001, Red Hot Concepts' subsidiary is required
to repurchase from Brinker the stock Red Hot Concepts issued under the Guaranty
Agreement. The shares are to be repurchased at a price determined by a formula
baud on Red Hot Concepts' operating profit and general and administrative
expenses. The purchase prim of the 5 per cent. of the stock initially issued to
Brinker shall not exceed $2,700.000 nor be less than $1,000.000 and the purchase
price of any 15.1 per cent. block of stock issued shall not exceed $1,200,000)
nor be less than $600,000. The Company may satisfy its obligations in repurchase
the stock with cash or a two year promissory note. At 29 December 1996, the
minimum obligation of this stock repurchase was recorded at its net present
value of $497,180. The Company is contingently liable for a maximum repurchase
price of up to $2,700.000, the present value of which would be approximately
$1,340,000 as of 29 December 1996.
The Guaranty Agreement imposes certain financial and operating limitations on
Red Hot Concepts including limitations on debt, payments to its Parent Company,
officers' salaries and transfers of assets. The Company is in compliance with
these limitations at 29 December 1996.
D. Employment Agreements-The Company has one formal employment agreement with
one officer. and is formalizing an agreement with another officer. The
agreements are for 2 year terms with aggregate compensation of $570,000,
including incentive stock option.%.
E. Letter of Credit-At 29 December.1.9%, a letter a credit in the amount of
$110.000 had been issued an Red Hot Concepts, behalf. and is secured by a cash
account. which is restricted on the balance sheet.
F. Rental Guaranty-The National Australian Bank has a bank guarantee covering
the lease on one restaurant in the amount of approximately $105,000. This is in
turn covered by a stand-by letter of credit from Brinker. If the bank calls in
payment for this guaranty, the bank would call upon the Australian subsidiary
first, and then the Brinker letter of credit.
19. ACQUISITIONS
On 9 November 1995, Red Hot Concepts purchased from Brinker Australia, Inc. all
of the stock of Chili's Texas Grill Pry Ltd. ("C`1*G") an Australian company. In
addition. Red Hot Concepts acquired the exclusive right to own and operate
Chili's restaurants in Australia and New Zealand (See Note 18B). The acquisition
was accounted for using the purchase method. The purchase price of $300,000 is
payable in three equal instalments, in November 1995. 1996 and 1997. In
addition, the total cost of the acquisition includes costs related to the
acquisition, which are primarily professional fees, of $$68,523, which have been
paid by Red Hot Concepts. The agreement also required CTG to pay a management
fee of $57,000 to Brinker by 30 November 1995. The first installment of $100,000
and the management fee were paid in November 1995. The second instalment payment
of $100,000 was paid in November 1996 (See Note R).
The total cost of the acquisition of $368,523 was $$347,807 in excess of the
fair value of tangible assets acquired. This $347.807 excess has been allocated
W the acquired license and development rights and is being amortised using& The
straight-line method over the 10 year term of the development agreement.
CTG. which owns two operating rights to two Chili's Restaurants has also agreed
to purchase, from the current owners. all of the assets used in connection with
the operation of the two restaurants, excluding real estate. for in approximate
cost of $520.000. The - accompanying financial statements reflect the acquired
assets in property and equipment. The results of operations of (7113 Arc
included in these consolidated financial statements from 9 November 1995. The
following summarised pro forma (unaudited) financial information assumes the
acquisition had occurred at the beginning of the periods presented.
Fifty-Two Week
Period ended
31 December
1995
$
Revenues 4,089.483
Net (Loss) (1,434,385)
Net (Loss) Per Share (0.32)
60
<PAGE>
The Celebrated Group plc
20. NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (-FASB") has issued Statement of
Financial Accounting Standards& ("SPAS") No.125. "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities".." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after 31 December 19%. Earlier application is not
allowed. Thu provisions of SFAS No. 125 must be applied prospectively.
retroactive application is prohibited Adoption on I January 1997 is not expected
to have a material impact on Red Hot Concepts. The FASB deferred some provisions
of SFAS No. 125, which are not expected to be relevant to Red Hot concepts.
The FASB issued SPAS No. 128, -Earnings Per Share," and SPAS No.129. "Disclosure
of Information about Capital Structure" in February 1997. SFAS No. 128
simplifies the earnings per share ("EM. ") calculations required by Accounting
Principles Board ("APB") Opinion No. 15. and related interpretations, by
replacing the presentation of primary EPS with a presentation of basic EPS SFAS
No. 129 requires dual presentation of basic and diluted EPS by entities with
complex capital structures. Basic EPS includes no dilution and is computed by
dividing income available to common stockholders by the* weighted-average number
of common shares outstanding for the period. Diluted FM reflects the potential
dilution of securities that could share in the earning., of an entity. similar
to the fully diluted EPS-of APB Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after 15 December 1997, including
interim periods: earlier application is not permitted. When adopted. SFAS No.
128 will require restatement of all prior-period EPS data presented; however,
Red Hot Concepts his not sufficiently anaylsed SFAS No. 128 to determine what
effect SFAS~ No. 128 will have on it% historically reported EPS amounts.
SFAS No. 129 does not change any previous disclosure requirement.,,, but rather
consolidate$ existing disclosure requirements for case of retrieval.
21. SUBSEQUENT EVENTS
A. Stock Issuance-On 23 January 1997, Red Hot Concepts issued 1,000,000 shares
of the 1.6 million unissued shares of stock as of 29 December 1996 sold in the
Regulation S share offering (See Note 13).
B. Amended UK Development Agreement-On 27 January 1997. Red Hot Concepts and
Brinker entered into a letter agreement extending the payment of [be initial
license fee until 30 April 1998, and Red Hot Concepts waived its right to
terminate the Development and License Agreement effective 31 October 1996.
Blinker also agreed to the closure of one of three of the restaurants and set
terms on opening a replacement restaurant (See Note IRA). This letter agreement
also amended the development schedule. whereas Red Hot Concepts will have open
and operating 32 restaurants by 31 October 2006.
C. Line of Credit- On 27 January 1997. Brinker agreed to provide Red Hot
Concepts' UK subsidiary with a line of credit with a maximum, commitment of
1,600,000 evidenced by a Loan Agreement. As partial consideration for Brinker's
agreement, Mr. Halpern and the parent company &hall execute a guaranty
agreement. As further partial consideration for Brinker's agreement. Red Hot
Concepts will pledge to Brinker 448 shares of the outstanding stock in Red Hot
Concepts Pacific as security for Red Hot Concepts' performance under the Loan
Agreement.
D. On 25 March 1997, Woodland agreed to convert 750,000 of the amount due from
Red Hot Concepts into convertible preferred shares, with interest payable
quarterly of 8 per cent., 10 per cent. and 12 per cent. during the next three
years and interest payable at prime plus 3 per cent for each year after 1999
(See Note 11).
The following summarised pro forma (unaudited) financial information assumes the
conversion to equity took place at 29 December 1996:
Historical Pro Forma
$ $
Long-Term Debt Related Party 1,195,302 445,302
Convertible Preferred Stock 1.00 Pat Value - 750,000
Total Stockholders' Equity 1,226,338 1,976,338
61
<PAGE>
Celebrated Group plc
PART M
STATUTORY AND GENERAL INFORMATION
1. Share Capital
The following table sets out the authoriscd. issued and fully paid share
capital at Celebrated at the date of this document and as it will be
following completion of the Acquisition and before exercise of the Red Hot
Concepts Option.
Issued and
Authorised fully paid
(pound) (pound)
Present-Shares 5,000,000 3,339,400
Proposed-Shares 8,850,000 6,139,400
(b) Interests in share capital
The interests of the Directors and their immediate families (including persons
connected with the Directors within the meaning of Section 346 of the Act) in
the share capital of the Company as shown in the register maintained under the
provisions of Section 37-5 of the Act as at 20 November 1997 arc as follows":
Shares held Options over Shares
R W Littledale - -
P G K Tucker 10,030,250 600,000
P R Moody 55,000 350,000
N J Michell 760,500 --
The interests of the Directors of Celebrated and the Proposed Directors of
Celebrated and their immediate families (as aforesaid) in the share capital of
the Company following the Acquisition will be as follows:
Shares held Options over Shares
R W Littledale - -
P G K Tucker 10,030,250 600,000
P R Moody 55,000 350,000
N J Mitchell 760,500 -
G B McGowan - 1,000,000
Barry McGowan has been granted an option, subject to the completion of the
Acquisition, to subscribe for 1,000,000 new Ordinary Sham at 13.5p per share at
any time prior to 17 November 2000 pursuant to the terms of a subscription
option agreement dated 17 November 1997.
(c) Based on the information available at the date of this document, the
following persons will hold more than a 3 per cent of the issued share capital
of the Company as enlarged following the. Acquisition.
Per cent. of issued
No. of shares share capital
Red Hot Concepts 28,000,000 45.6
Peter Geoffrey Kenneth Tucker Esq. 9,580,250 15.6
Direct Nominees Limited 3,170,000 5.1
3i Group plc 3,054,610 4.9
NatWest Corporate Nominees Limited 2,400,000 3.9
Midland Bank Trust Company Limited 2,200,000 3.5
(d) Save as described above, the Directors are not aware of any person who,
immediately following the Acquisition. will be interested directly or
indirectly (within the meaning of Part VI of the Act) in 3 per cent. or
more of the issued share capital of the Company or could, directly or
indirectly, jointly or severally, exercise control over the Company.
(c) Save as disclosed herein. none of the Directors has any direct or indirect
interest in any contract or art arrangement subsisting at the date hereof
which is significant I o the business of the Company.
62
<PAGE>
The Celebrated Group plc
Contracts with Directors
The executive Directors have each entered into a service agreement with the
Company dated 24 November 1995, details of which am set out below-
Director Annual Salary
P G K Tucker (pound)70,000
P R Moody (Pound)42,000
Geoffrey Tucker's service agreement is terminable an two years' notice. Pat
Moody's service agreement is for an initial period of 12 months terminable then
or thereafter on six months' notice. Salaries arc to be reviewed by the
Remuneration Committee of the Board. Each of the executive Directors is entitled
to a company car. The executive Directors are entitled to a contribution to a
personal pension scheme. medical insurance, life insurance and, at the
discretion of the Remuneration Committee, an annual performance related bonus.
(h) Barry McGowan has entered into a service agreement with the Company dated 17
November 1997 whereby he has agreed, subject to completion of the Acquisition,
to act as Operations Director at An annual salary of 153,(W. The agreement is
terminable on six months notice and Harry McGowan is entitled to the same
benefits As referred to in paragraph (a) above.
(c) Under a letter of appointment with the Company dated 17 November 1997
Englewood Consulting Group Inc. has agreed to provide the services of Colin
Halpern to the Company for a fee of V-500 per annum. The agreement is terminable
on six months' notice to expire no earlier than the first anniversary of the
agreement.
(d) Save as disclosed above, there axe no existing or proposed service
Agreements between any Director Or Proposed Director and any member of the
(.*.roup which do not expire or cannot be terminated without payment of
compensation (other than statutory compensation) within one year and no such
contract% are proposed.
(e) The Proposed Directors have held the following directorships or partnerships
within the five years to the date of this document:
Colin Halpern
Current: Red Hot Concepts, Crescent Capital Inc International
Franchise Systems Inc.. NPS Technologies Group Inc., Courter &
Company Inc., General Industrial Technology Inc.. Alinbube Inc.,
Park Chester, Lincoln Mercury, TDH, Lafayette Inc., Restaurant
How-House Limited, Domino's Pizza Group Limited, DP Realty
Limited. DPGS Limited. Red Hot Concepts Pacific Inc.. Chili*s
Texas Grill I Limited Past- Universal Service CA"., DRC-
Industries Inc- Kona Restaurant Group Inc.
Barry McGowan Current: None
Past. None
(f) No Proposed Director
(i) has any unspent convictions in relation to indictable offenses; or
(ii) has; been bankrupt or the subject of an individual voluntarily arrangement.
or has had a receiver appointed to any asset of such Proposed Director; or
(iii) has been a director of any company which, while he was a director or
within 12 months after his ceasing to be a director, had a receiver appointed or
went into compulsory liquidation. creditors; voluntary liquidation,
administration or company voluntary arrangement, or made any composition Or
arrangement with its creditors generally or with any class of its creditors; or
(iv) has been a partner of any partnership which, while be was a partner or
within 12 months after his ceasing. to be a partner, went into compulsory
liquidation, administration or partnership voluntary arrangement. or had a
receiver appointed to any partnership asset; or
(v) has had any public criticism by statutory of regulatory authorities
(including recognised professional bodies. or
(vi) has ever been disqualified by a court (Yom acting as 3 director of a
company or from acting in the management or conduct of the affairs of any
company.
63
<PAGE>
The Celebrated Group p1c
3. Material CatiLmeu
(a) Save as set out below. no contract has been entered intA hy the Company
during the two years immediately preceding the date of this document other than
in the ordinary course of business which is, or may be, maierial: (i) the
material contracts referred to in paragraph 4 of Pan 5 of the Circular to
Shareholders dated 21 April 1996;
(ii) the "*=I %pk agreement dated 12 November 1997 between the: Company and
Forte (UK) Limited whereby the Company agreed to sell the business, assets and
gmulwill of the ATz Restaurants for a consideration of f3,0M,000. The agreement
contains warranties by the Company in relation to such business, assets and
goodwill together with post completion restrictive covcnants in respect of non
competition by the Company in relation to the business of the AJ's Restaurants.
Complefit'sn, of the disposal of the leaschold propertie-q issubject to
obtaining landlords' consents which havc been obtained in principle. If any such
consents are not obtained within 12 months there is a right for eiiher party to
rescind in respect of the particular property in question;
(iii) the acquisition agreement dated 19 November 1997 whereby the Company
agreed to acquire the entire issued share capital of Restaurant House for a
consideration satisfied by the issue of the New Ordinary Shares and the grant of
the Red Hot Concepts Option. Ile agreement is conditionaL inter alia, on the
passing of the Resolution by the Shareholders and the admission of the New
Ordinary Shares to trading on the Alternative Investment Market of the London
Stock Exchange. The agreement contains representations and warranties by both
the Company and Red Hot Concepts in relation to the businesses, assets and
affairs of the Company and Restaurant House and Red Hot Concepts have given a
tax covenant in favour of Celebrated. The agreement also contains restrictions
on the running of the businesses of Celebrated and Restaurant House between
signing the agreement and completion of the Acquisition. In the event that the
Resolution is not pused or the New Ordinary Shares are not admitted to trading
Celebrated has agreed to pay Red Not Concepts'reasonsb1c costs of MSMf~
(iv) the subscription option agreement referred to in paragraph I(b) above; and
(v) the Irrevocable Undertakings.
(b) Save as set nut below. no contract has been entered into by Restaurant House
during the two years immediately preceding the date of this document other than
in the ordinary course of business which is, or may be. material;
(I) the development and licence agreement dated 15 July 1994 between Brinker and
Restaurant House. as amended by subsequent amending letter agreements.
Restaurant House is granted the exclusive rights in the UK to develop and market
for ChW's Grill & Bar Restaurants using Brinker's system and certain tradc marks
in consideration for a licence fee and royalties on gross sales. Restaurant
House is required to open restaurants in accordance with a development schedule
set out in the agreement (as amended by subsequent letter agreements). All
Chili's Grill & Bar Restaurants are to he operated in accordance with licence
agreement terms detailed in a schedule. to this agreement. The initial term of
the agreement is stated to be for a period of ten years with provision for the
agreement to M reviewed automatically subject to specified conditions.
Restaurant Housc is also granted a right of first refusal to develop Brinker's
other full service restaurant concepts in the UK. The subsequent amending letter
agreements in general vary terms relating to the dcvc)opment schedule and
payment oblisa lions.
(c) Save as set out below, no contract has been entered into by Red Hot Concepts
during the two years immediately preceding the date of this document other than
in the ordinary course of business which is. or may be, material:
(I) on 9 November 1995 Red Hot Concepts. through a wholly-owned subsidiary,
entered into a development and franchise agreement with Brinker which grant% Red
Hot Concepts th * exclusive right to own and operate Chili's Restaurants in
Australia and New Zealand ("the Pacific Development Agreement"). The Pacific
Development Agreement has an initial term of ten years and is renewable at the
compiany*z discretion for an additional ten year period if a combined minimum of
40 Chili'.% Restaurants am opened between the two countries;
(ii) on 9 November 1995. Red Hot Concepts acquired f riorn Brinker all of the
stock of Chili'%Texas Grill My Limited an Australian company ("Chili's Texas
Grill"). Chili's Texas Grill operates two Chili's Restaurants near Sydney,
Australia. Ile purchase price for the acquisition of Chili's Texax Grill is
payable in three cqU31 instaimcats on 9 November 1995.19% and 1997.'Mc purchase
agreement Also required Chili's Texas Grill to pay a management fee to Brinkcz
by 30 November 1995;
(iii) in October M. Red Hot Concepts reached an agreement with Brinker to sell
to Brinker its Australian operations for $2.69 million before the payment of
liabibLicb of the Australian operation which arc estimated to be approximately
$7M.NX). Red Hot Concepts has agreed to use the remaining proceeds to repay the
Brinker short terni loan.
4. Working Caplital
Ile Directors and the Proposed Directors are of. the opinion that. having made
due and careful enquiry, the Enlatged Group hat, sufficient working capital Lot
ih. present rcquizement&.
64
<PAGE>
The Celebrated Group plc
(a) There are no legal 4.--r arbitration proceedings pending or, %cs far as the
Dirertors are aware, threatened against any member of the Group. which may have
or h3vc had during the twelve months preceding the date of this document a
significant effect on the Group'- financial position.
(b) There are no legal orarbitration proc"ding% pending or. so far as the
Proposed Directors are aware, threatened against Restaurant Homw which may have
or have had during the twelve months preceding the date of this document a
sii&nificant effect on Restaurant How's financial position.
Mat*rW Changes
(a) Save as disclosed herein there have been no material changer. in the
financial or trading position of the Ciroup since 30 March 1997, the date to
which the last audited report and accounts of the Group were prepared star of
Restaurant House since 29 December 1996. the date to which the last audited
report and accounts of Restaurant House were prepared.
(b) Save for the proposed transaction with Celebrated, there have been no
material changes in the financial or trading position of Red Hot Concepts sincc
28 September 1997, the date to which the last quarterly report pursuant to
Section 13 or 15(d) of the Securities Exchange Act 1934 was prepared.
7. Indebledup-
At the close of business on 7 November 1997. the Company and Restaurant House
together had outstanding borrowings or indebtedness in the nature of borrowings
of J4,990.767. comprising secured loans of L4,661,061,%ecured bank overdrafts of
L299,364 and obligations under finance leases and hire purchase contracts of
M,342-
Save as aforesaid. and apart from intra-group indebtedness and guarantees,
neither the Company nor Restaurant House not any of their respeclive subsidL-try
undertakings had outmanding at the close of bminess on 7 November 1"7 any
mortgages. charges, debentures, loan capital (either outstanding or created but
unissued), term loans or other borrowings or in&-btcdncss in the nature of
borrowings, including bank overdrafts, liabilities under acceplan s (other than
normal trade bills), acceptance credits, hire purchase or finance lease
commitments, guarantees or other contingent liabilities.
At the same date, the Company and Restaurant House together had cash bala ne" of
L50,419 (excluding cash floats at the units) plus L225.000 held as security by
the bank against a bank guarantee.
8. Shareholdisip and DeOngs
For the purpose of this paragraph 9 the "disclosure period" means the period
commencing on 19 November 19% (beft the date twelve months prior to the
announcement of the Acquisition) and ending on 20 November 1997 (being the
latest practicable date prior to the posting of this document).
(a) Shareholdings and Dealings in Celebrated Ordinary Shares
(i) Save as disclosed in I(b) above, neither Ctlebrated nor any of the
directors: of Celebrated. their spouses or minor children nor any person acting
in concert with Celebrated, owns, controls or is interested. directly or
indirectly, or has dealt for valise duriikg the disclos;ure period, and neither
any subsidiary of Uebratcd or pension fimd of Celebrated or may of its
subsidiaries or bank, rtockbriocer. financial or other professional adviser
(atherthan an exempt market maker or exempt fund manager) to Celcbrittcd. to any
subsidiary of Calehrated. or to any associated company of Celebrated nor any
person controlling, controlled by or under the same control as such bank.
stockbroker, financial or other professional adviser, owns. controls or is
interested, directly or indirectly or has dealt for value during the disclosure
period in any Ordinary Sharcs, Or any AeCUrilj66 convertible into, rights to
subscribe for. or options (incluftg traded options) in respect of such shares or
derivatives with reference to such shares.
(ii) Save as disclosed in 8(b)(i) below, neither Red Not Concepts. nor any
director of Red Hot Concepts nor their spouses or rninor children. nor any
personactisig in concert with any such person. owns controls or ist interebiod,
directly or indirectly, or has dealt for value during the disclasure period and
neither any subsidiary of Red Hot Concepts or pension fund of Red Hot Concepts
at any of its, subsidiaries or hank. stockbroker. financial or other
professional adviscr (other than an exempt market maker or exempt fund manager)
to Red Hot Concepts, to any outKidiary of Red Hot Concepts, or to any associated
company of Red Hot Concepts nor any persons controlling, controlled by or under
the same control as such bank, atockhroker. finaDcial orother professional
adviser, owns, conlruh. or is interested, directly or indirectly, or his dealt
for value during the disclosure period in any Ordinary Sharch. or any securities
cusivurtiblu into, right% to subscribe for. or options (includes traded optiong)
in respect of such shares or derivatives with reference to such shares. No.,
person with whom Red Hot Concepts or any person acting in concert with it has an
arrangement of the kind referred to in Note 6(h) to Rule 8 of *Me City Code
owns. controls or is interested in. directly or indirectly, any Ordinary Shares.
65
<PAGE>
The Celebrated Group pic
(b) Shareholdingt and dealing% in Red 11(a Canceptv shares
(i) The inicrests in the sharp capital of Red hot Concepts of directors of Red
Hot concepts and their spouses or minor children are as follows:
Colin Halpen's interest in the ordinary share capital (if Rod Hot Concepts is by
virtue of the interest of his spouse, Crail Hal pem.
Woodland Limited Partnership holds3.737,910 ordinary rthares in Red Ilot
Concepts. Woodland Group, Inc. is the general partner of Woodland Limited
Partnership and has a twenty four percent. intermtin it. Woodland Group. Inc. is
owned one-third by Mr lay Halpern. one-third by Ms Nancy Gillon the adult
children of Colin Halpern, and one-third by Mrs 6ail Halpern. 'Me remaining
interest in Woodland Limited Partnership is held by the limited partners. Gad
k1alpern in her capacity as a limited partner owns fifty one per cent. of the
interest in the partnership and Jay I lalpem holds fifteen per cent. of the
interest in the Woodland Limited Partnership. No other limited partner has an
interest in excess of 5 per cent. in Woodland Limited Partnership.
Woodland Limited Pamcrship also own 100 per cent. of the voting rights of the
71-5.000 preferred shares in the share capital in Red Hot Concepts.
(ii) Neither Celebrated nor any of the directors of Celebrated, nor their
spouses nor minor children. or any person acting in concert with Celebrated owns
or controls or is interested, directly or indirectly, in any shares in Red Hot
Concepts, or any securities convertible into, rights to subscribe for, or
options (including traded options) io respect of such shares nor has any such
person dealt for value therein during the disclosure period.
(iii) Neither Red hot Concepts nor any of the directors of Red Hot Concept-, nor
their spouses Or minor children. not any person acting in concert with any such
person, owns, controls or is interested, directly or indiroctly. or has dealt
for value during the disclosure period and neither any subsidiary of Red Hot
Concepts or pension fund of Red Hot Concepts or any of its subsidiaries or bank,
stockbroker, financial or other professional adviser (other than an exempt
market maker or exempt fund nunger) to Red Hot Concepts, to any subsidiary of
Red Hot Concepts, Or to any associated company of Red Hot Concepts nor any
persons controlling. controlled by or under the same control as such bank.,
stockbroker, financial or other profcssional adv6cr, owns controls at is
interested, directly or indirectly. or has dealt for value during the disclosure
period in any shares in Red Hot Concepts nor any securities convertible into,
rights to subbLribc for, or options (including traded options) in respect. of
such shares or derivatives with reference to such shares.
(iv) In this paragtaph 9 references to a "bank- do not apply to a hank whose
sole relationship with Celebrated or Red Hot Concepts or any of their respective
subsidiaries is the provwou of normal commercial banking scrurices and other
registration work; owners. hip or control of 20 per cent. or more of the equity
share capital is regarded 2% the test of associated company status and "control"
means a holding, or aggregate holding, of shares carrying.10 per cent. or more
of the voting rights Attributable to the share capital of a company which we
currently c=dubk at a general meeting, irrespective of whether the holding or
aggregate holdinS gives defacro control.
hosmomwous
(a) Beeson Gregory has given and has not withdrawn its written consent to the
- -issue of this document with the inclusionolitsuarn irk the form and context in
which it appears. (b) Beeson Gregory, which is regulated byllie Securities and
Futures Authority Limited, his its registered office at Thc Registry, Royal Mint
Court, London P.0N 4EY. (c) Robson Rhodes have given au4 have not withdrawn
their written consent to the issue of this document with the inclusion of their
reports. and the rcfercnccb to their name in the form and conteyt in which they
appear.
(d) Moore Stephens have given and no( withdrawn their written content to the
issue of this document with the inclusion of their repM and the references to
their narne in the form and context in which they appear.
(c)S ave as disc"cd herein, there are no agreements, arrangements or
understandings (including any compensation arrangement) between Red Hot Con"pis
or any person acting in concert with it and any dimaurs. shareholders or recent
sharchniders nf Celebrated having any connection with or dependence upon The
Acquisition of Restaurant House.
(f) Them are no agreements, arrangement, or understakhrip. pursuant to which any
of the New Ordinary Shares TO be Issued pursuant to the Acquisition will be
transferred to any other person immediately following cumplction of the
Acquisition.
66
<PAGE>
The Celebrated Group plc
(S) Set out below arc the closing middle-market qU013tions for an Ordinary Share
on Lht first dealing day in each of The preceding six montbs and an 20 November
1997 (the latest practickl date prior to the publication of this document) as
derived from the London Stock Exchange Daily Official List:
2 June 1997 14.5p
I July 1997 14.25p
I August 1997 13.75p
I September 1997 13.0p
I October 1997 12.0p
3 November 1997 11.0p
20 November 1997 11-5p
10. Doctustents availahle for inspection
Copies of the following documents may be inspected at the offices of Hobson
Audlcy Hopkins & Wood, 7 Pilgrim Street, London F-C4V 6DR durin usual businem
hours on weekdays (except Saturdays and public 9 bolidays) for the period from
the date of this document up to and including 15 Decemher 1997.
(a) the Memorandum and Articles of Association of the Company;
(b) the audited financial statements of Celebrated for the two years ended 30
Much 1997;
(c) the service agreements referred to in paragraph 2 above.
(d) the Interim Results for the (Troup and Restaurant House contained in Part I
I of this document;
(c) the material contracts referred to in paragraph 3 ahave;
(f) the letters of consent referred to in paragraph 9 above.
(j) the Circular to Shareholders dated 25 April 1996;
(h) the Certificate of Incorporation and Byelaw& of Red Hot Concepts.
(I) the audited financial statements of Red Hot Concepts for each of the three
periods ended I January 1995, 31 December 1995 and 31 December 1996 ; and 71%e
Quarterly Report for Red Hot Concepts referred to in paragraph 6 above.
67
<PAGE>
The Celebrated Group plc
THE CELEBRATED GROUP pic
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE is hereby given that an Extraordinary General Meeting of the Company will
be held at the offices of Robson Rhodes, 186 City Road, London EClV 2NIJ at
11.00 am on 15 December 19(7 for the purpose of considering and, if thought fit,
passing the following resolution, which will be proposed as a Special
Resolution:
SPECIAL RESOUMON
THAT:-
(1) the acquisition by The Cr-lebrated Group plc of Restaurant House Limited
upon the terms and subject to the conditions contained in the acquisition
agreement dated 18 November 1997 made between Red Hot Concepts, Inc. ("Red
Hot Concepts") (1) and The Celebrated Group plc ("Celebrated") (2) (a copy
of which has been produced to the meeting and initialled for the purpose of
identification by the Chairman) and the waiver by the Panel on Takeovers
and Mergers of any requirement for Red Hot Concepts to make a general offer
under Rule 9 of the City Code on Takeovers and Mergers which would
otherwise arise by reason of the acquisition including (i) the issue of
28,000,000 new Ordinary Shares giving 45.6 per cent. of the enlarged issued
share capital of Celebrated to Red Hot Concepts and (ii) the grant of an
option over a further 6,000,000 new Ordinary Shares which, if exercised in
full, and none of the pre-existing options in Cxlebrated are exercised,
would give Red Hot Concepts 50.4 per cent. of the enlarged issued capital
of Celchrated, be and are hereby approved and that the Directors be
authorised to take all such steps that they consider to be necessary or
desirable to carry the acquisition agreement into effect including agreeing
amendment.& of a non-material nature thereto;
(2) subject to and conditional upon the agreement for the acquisition of
Restaurant House Limited referred to in paragraph (1) above becoming
unconditional in all respezts. other than as to the condition relating to
the admission of the new Ordinary Shares of the Company to trading on the
Alternative Investment Market of the London Stock Exchange:
(a) the authorised share capital of the Company be hereby increased from
B,000,000 to L8,850,000 by the creation of 39,500,000 new Ordinary
Shares of 10p each;
(b) the directors be and they are hereby authorised pursuant to Section 80
of the Companies Act 1995 to allot relevant securities (as defined in
the said Section) up to an aggregate nominal amount of L5,510,600
provided that this authority shall expire 5 years from the date of the
passing of this Resolution save that the Company may make an Offer Or
agreement before the expiry of this authority which would or might
require relevant securities to be allotted after such expiry and the
directors may allot relevant securfties pursuant thereto as if the
authority conferred hereby had not expired, such authority to be in
substitution for any existing authorities conferred on the directors
pursuant to Section 80 of the Companies Act 1985;and
(c) the directors he and they are hereby generally empowered pursuant to
Section 95 of the Companies Act 1985 to allot equity securities (a%
defined in Section ')4(2) of the said Act) pursuant to the authority
confeff ed by paragraph (2)(b) above as if Section
68
<PAGE>
The Celebrated Group pie
gg(l) of the said Act did not apply to any such allotment, provided
that this power %hall be in substitution for any previous powers
conferred on the directors pursuant to the said Section 95 and shall
be limited to:
(i) the allotment of cquity securities in connection with an issue in
favour of shareholders where the equity securities respectively
attributable to the interests of all such shareholders are
proportionate (as nearly as may be practicable) to the respective
numbers of Ordinary Shares held by them on the record date for
such allotment, but subject to such exclusions or other
arrangements as the directors may deem necessary or expediesit in
relation to fractional entitlements or legal or practical
problems under the laws of, or the requirements of, any
recognised regulatory body or any stock exchange in, any
territory-, and
(ii) the allotment (otherwise than pursuant to sub-paragraph (i)
above) of further equity securities up to an aggregate nominal
amount of flOffi,970.
Provided that the lvwer in this sub-paragraph (c) shall expire at the
conclusion of the Annual General k4ecting of the Company to be held in
1998 save that the Company may make an offer or agreement before the
expiry of this power which would or might require equity securities to
be allotted otherwise than in accordance witli Section 89 of the said
Act after such expiry and the directors may allot equity securities
pursuant thereto as if the power conferredhereby had not expired.
Dated 21 November 1997 BYORDEROFTHF-BOARD
P Moody
Secretary
Registered office:
12 Kingfisher Court
Farnham Road
Slough
Berkshire SL2 1117
Note. A member whn u unshic to be present at the Meeting is cntiticd to appoint
a proxy tn attend And. on a poll, vote ina"d of him or her. To he effccOve proxy
foinu must be received by I RU pie, Balfour House, 3W.199 High Road, nf ord,
Ehwx 1011 DR not ISM thIU 11.00 30L on 13 Dectmber 1997. A Twoxy for a Member
entidtd to arwnd need not be a Member of the Company.
69
[OBJECT OMITTED]
DATED 18 December 1997
BETWEEN
RED HOT CONCEPTS, INC
AND
RED HOT CONCEPTS-PACIFIC, INC.
AND
CHILI'S TEXAS GRILL PTY LIMITED
ACN 070 163 754
AND
BRINKER INTERNATIONAL, INC.
AND
BRINKER AUSTRALIA PTY LTD
ACN 080 946 201
-----------------------------------------------
ASSET SALE AGREEMENT
-----------------------------------------------
Ebsworth & Ebsworth
Solicitors
135 King Street
SYDNEY NSW 2000
DX 103 SYDNEY
Tel: 9234 2366
Fax: 9235 3606
Ref: MJC:MLP:SDC
<PAGE>
ASSET SALE AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION 1
2. SALE AND PURCHASE OF ASSETS 4
3. COMPUTATION, ALLOCATION AND PAYMENT OF PURCHASE PRICE 5
4. COMPLETION 6
5. ACTION AT COMPLETION 6
6. WARRANTIES 9
7. INDEMNITIES 10
8. ACCESS TO INFORMATION AND CONFIDENTIALITY 10
9. GUARANTEE AND INDEMNITY 11
10. LIMITATION ON CLAIMS 12
11. EMPLOYEES 12
12. LIQUOR LICENCES 12
13. MISCELLANEOUS 13
Schedule 1 Warranties
Schedule 2 Employees
Schedule 3 Equipment Leases
Schedule 4 Intellectual Property Rights
Schedule 5 Leases
Schedule 6 Licences
Schedule 7 Plant and Equipment
Schedule 8 CTG Balance Sheet as at 26 October 1997
Schedule 9 Restaurants
Schedule 10 Employment and Related issues
Schedule 11 Purchase Price
Schedule 12 Franchise Agreements
Schedule 13 Operation of Escrow
Schedule 14 Trade Marks
Schedule 15 Prepayments and Security Deposits
<PAGE>
ASSET SALE AGREEMENT dated 18 December 1997, Sydney, Australia, Eastern Standard
Summer Time
BETWEEN: RED HOT CONCEPTS, INC. of c/- Prentice Hall, 32 Loockerman Square,
Suite L-100, Dover, Delaware 10094, USA, a Delaware corporation ("RHC")
AND: RED HOT CONCEPTS - PACIFIC, INC. c/- Prentice Hall, 32 Loockerman Square,
Suite L-100, Dover, Delaware 10094, USA, a Delaware corporation ("RHC-P")
AND: CHILI'S TEXAS GRILL PTY LIMITED ACN 070 163 754 having its registered
office at Unit 26/3-9 Terminus Street, Castle Hill, New South Wales ("CTG")
AND: BRINKER INTERNATIONAL, INC. of 6820 LBJ Freeway, Dallas, Texas, USA 75240,
a Delaware corporation ("Brinker")
AND: BRINKER AUSTRALIA PTY LTD ACN 080 946 201 of the KPMG Centre, 45 Clarence
Street. Sydney, NSW, 2000 ("Brinker Aust.")
RECITALS
A. Brinker developed a distinctive system for presenting and operating
restaurants known in Australia as `Chili's Texas Grill'.
B. CTG conducts the Business, and is the beneficial owner of the Assets.
C. CTG has agreed to sell and Brinker Aust. has agreed to purchase the Assets
on the terms and conditions of this Agreement.
D. RHC is the holding company of, and RHC-P is the parent of, CTG. In
consideration of Brinker and Brinker Aust. entering into this Agreement,
RHC and RHC-P have agreed to enter into this Agreement for the purposes of
giving restraints, guaranteeing the Warranties and all other obligations of
CTG and terminating certain agreements and certain liabilities under
certain agreements that relate to the Assets.
IT IS AGREED
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement the following terms have the following meanings:
"Agreement" means this agreement including the recitals, clauses 1-13, schedules
1-14.
"Apportionable Outgoings" means all periodical outgoings and expenses in
respect of the Restaurants and the Assets including rent, rates,
electricity, gas, telephone, lease payments.
"Assets" means the following assets:
(a) the Equipment Leases;
(b) Goodwill;
(c) Intellectual Property Rights;
(d) the Leases;
(e) the Plant and Equipment;
(f) other assets specified in Schedule 8; and (g) the Inventory.
<PAGE>
"Business" means the business of operating the Restaurants in the
Territory.
"Completion" means the completion of the sale and purchase of the Assets
pursuant to this Agreement, which shall take place on the Completion Date.
"Completion Date" means 18 December 1997.
"Development and Franchise Agreement" means the agreement dated 9 November
1995 between Brinker and RHC-P (as assigned by RHC-P to CTG on or before
Completion).
"Employees" means:
(a) all the employees of CTG engaged at the Restaurants and at the CTG
office at Castle Hill, Sydney who are listed in Schedule 2; and
(b) all other employees who become employed by CTG prior to the
Completion Date in the ordinary course of CTG's business,
but excludes employees who leave the employ of CTG before the Completion
Date.
"Encumbrance" means any mortgage, charge (whether fixed or floating),
pledge, lien, hypothecation, hire or hire purchase agreement, option,
restriction as to transfer, use or possession, easement, subordination to
any right of any other person and any other encumbrance or security
interest.
"Equipment Leases" means the equipment leases and hire purchase contracts
listed in Schedule 3.
"Franchise Agreements" means the franchise agreements between Brinker and
CTG for the Restaurants set out in Schedule 12.
"Goodwill" means the goodwill of the Business.
"Intellectual Property Rights" means all intellectual property rights,
including without limitation:
(a) copyright, patents, registered designs and rights in circuit layouts
and the right to have confidential information kept confidential; and
(b) any application or right to apply for registration of any of those
rights,
used in connection with the Restaurants as set out in Schedule 4.
<PAGE>
"Inventory" means the inventory of CTG at Completion.
"Lease Guaranty Agreement" means the agreement entered into on 6 September
1996 between Brinker, RHC, RHC-P and CTG.
"Leases" means those leases and agreements to lease listed in Schedule 5.
"Leave Entitlement Provision" means an amount equal to all Leave
Entitlements.
"Leave Entitlements" means all amounts accrued but unpaid in respect of
sick leave (for all Employees except the managers), annual leave (including
loadings) and long service leave owing and due to or in respect of all the
Employees, arising under contract, statute or otherwise, calculated up to
the last shift prior to the Completion Date. The accrual for long service
leave for each Victorian Employee will be calculated on the basis that the
Employee is entitled to an amount calculated by multiplying the amount of
the long service leave to which he or she is entitled on completing 5475
days of service by the number of completed days of service with CTG divided
by 5475. The accrual of long service leave for each NSW Employee will be
calculated on the basis that the Employee is entitled to an amount
calculated by multiplying the amount of long service leave to which he or
she is entitled on completing 3,650 days of service by the number of
completed days of service with CTG divided by 3,650.
"Liabilities" means all liabilities, losses, damages, outgoings, costs,
claims, demands and expenses of whatever description.
"Licences" means those licences listed in Schedule 6.
"Party" means a party to this Agreement and "parties" means all of the
relevant parties to this Agreement.
"Plant and Equipment" means the plant, equipment and other chattels owned
by CTG and being purchased by Brinker Aust. listed in Schedule 7.
"Purchase Price" means the purchase price set out in Schedule 11.
"Restaurants" means restaurants listed in Schedule 9 operated by CTG under
Brinker's distinctive system for establishing, operating and maintaining
restaurants and doing business either as `Chili's Texas Grill' or `Chili's
Grill and Bar Restaurants' pursuant to the Franchise Agreements and the
Development and Franchise Agreement.
"Territory" means Australia and New Zealand.
"Warranties" means the representations and warranties of CTG set out in
Schedule 1.
<PAGE>
1.2 Construction
In the interpretation of this Agreement:
(a) words importing the singular shall be deemed to include the plural and
vice versa.
(b) words importing any gender shall be deemed to include all other
genders.
(c) words importing persons shall be deemed to include all bodies and
associations, corporate or unincorporate, and vice versa.
(d) any reference to a statute or statutory provision shall be deemed to
include any statutory provision which amends, extends, consolidates or
replaces the same or which has been amended, extended, consolidated or
replaced by the same and any orders, regulations, instruments or other
subordinate legislation made thereunder.
(e) headings are included for convenience only and shall not affect the
interpretation of this Agreement or any Schedule.
(f) all references to clauses, recitals and schedules are to clauses of
and recitals and schedules to this Agreement.
(g) expressions cognate with expressions defined in section 1.1 shall be
construed accordingly.
(h) all references to "AUD$" and "dollars" are to the lawful currency of
Australia and "USD$" to the lawful currency of the United States of
America.
2. SALE AND PURCHASE OF ASSETS
Agreement to Purchase
Subject to clause 12.6, CTG as beneficial owner of the Assets agrees to
sell and assign the Assets to Brinker Aust. and Brinker Aust. agrees to buy
the Assets free of any Encumbrance as at and with the effect from the
Completion Date for the Purchase Price.
3. COMPUTATION, ALLOCATION AND PAYMENT OF PURCHASE PRICE
3.1 Method of Payment
Brinker Aust. shall appoint Brinker as its attorney in the USA to act on
its behalf in relation to this Agreement.
CTG shall appoint Jay Halpern as its attorney in the USA to act on its
behalf in relation to this Agreement.
The Parties agree that payment of the Purchase Price shall be made in the
USA on such terms as are agreed in writing between the parties.
<PAGE>
3.2 Apportionment of Outgoings
(a) CTG is entitled to the benefit of the income of the Business up to the
day of Completion and is responsible for all Liabilities and the
payment of all Apportionable Outgoings in respect of the Business
attributable to the period up to the day of Completion. Subject to
clause 11.4, Brinker Aust. is entitled to the benefit of the income of
the Business and is responsible for all Liabilities and the payment of
all Apportionable Outgoings in respect of the Business attributable to
the period from the day of Completion.
(b) Subject to the express provisions of this Agreement, all Apportionable
Outgoings in respect of the Restaurants or the Assets which are
apportionable shall be apportioned between CTG and Brinker Aust. as at
the Completion Date.
(c) Subject to the express provisions of this Agreement, any payment due
as a consequence of apportionment of the Apportionable Outgoings shall
be paid on the Completion Date.
3.3 Closing expenses payable by Brinker Aust.
Brinker Aust. must reimburse CTG on the Completion Date the following
expenses ("Brinker Reimbursements"):
(a) the actual expenses incurred by CTG for two current
managers-in-training from October 1, 1997 until but not including 18
December 1997, not to exceed $5,000.00 per month per
manager-in-training;
(b) one-half the actual expenses incurred by CTG for Ken Pryor from 1
October 1997 until but not including 1 November 1997, but not
exceeding $7,500.00; and
(c) all of the actual expenses incurred by CTG for Ken Pryor from 1
November 1997 until 30 November 1997 but not to exceed $15,000.00 per
month. Brinker will pay Ken Pryor for the period from 1 December 1997
until, but not including, 18 December 1997, on receipt of Ken Pryor's
invoice for December.
3.4 The parties agree that the Brinker Reimbursements shall be pro-rated on
a 365 day basis for the month of December.
3.5 The parties agree, if a manager-in-training or Ken Pryor referred to in
clause 3.3 terminate or otherwise cease their employment with CTG on or
before 18 December 1997, Brinker shall have no liability for any expenses
attributable to that person accruing after their last day of employment.
3.6 On Completion, Brinker Aust will pay into escrow with Minter Ellison the
sum of USD$100,000 from the Purchase Price (Escrow Amount) to be dealt
with in accordance with Schedule 13.
<PAGE>
3.7 CTG shall promptly, after Completion, pay and discharge all amounts owed
at Completion or becoming payable after Completion to trade creditors on
receipt of the relevant invoice from the trade creditor. CTG shall
provide Brinker Aust with evidence of such payments.
4. COMPLETION
Completion Date
Completion shall take place at 4.00 pm Dallas Central Standard Time at
the offices of Brinker International, Inc. of 6820 LBJ Freeway in Dallas,
Texas, USA 75240, on 18 December 1997 and 9.00 am Eastern Standard Time
at the offices of Ebsworth & Ebsworth of 135 King Street, Sydney,
Australia, 2000, on the Completion Date.
5. ACTION AT COMPLETION
5.1 Action Required
Subject to the terms and conditions of this Agreement, on the Completion
Date:
(a) CTG shall cause to be delivered to Brinker Aust. or its nominee:
(i) any instrument of transfer, assignment, conveyance and any other
documents (in a form reasonably satisfactory to Brinker Aust.)
duly executed by CTG and any other necessary person required to
transfer, assign or convey any of the Assets to Brinker Aust..
(ii) title, possession and control of all Assets.
(iii) all books, records and other data pertaining to the Assets and
the Business (and copies of records which CTG is required to
retain by law) and the executed and, where appropriate, duly
stamped originals of all Leases and Equipment Leases included
among the Assets.
(iv) evidence of the change of name of CTG.
(v) evidence of release of the NAB charge.
(vi) consent in the prescribed form by CTG to the relinquishment of
the New South Wales liquor licences.
(vii) any other document agreed by the parties.
(b) CTG shall cause a calculation of an estimate of the value of the
Inventory at each of the Restaurants on the Completion Date to be
provided to Brinker Aust. on the Completion Date.
<PAGE>
5.2 The parties agree that including clauses 14 and 20 of the Development and
Franchise Agreement referred to in clause 1.3 of each of the Franchise
Agreements which are said to continue notwithstanding termination:
(a) Brinker and CTG agree that the agreement dated 9 November 1995
entitled Franchise Agreement for the Restaurant at Campbelltown is
terminated effective as of the Completion Date. Brinker and CTG
hereby fully discharge and release each other from all their
respective obligations, and Liabilities arising out of or under
the Franchise Agreement referred to in this clause 5.2(a) from the
Completion Date.
(b) Brinker and CTG agree that the agreement dated 12 February 1996
entitled Franchise Agreement for the Restaurant at Ringwood is
terminated effective as of the Completion Date. Brinker and CTG
hereby fully discharge and release each other from all their
respective obligations, and Liabilities arising out of or under
the Franchise Agreement referred to in this clause 5.2(b)
effective from the Completion Date.
(c) Brinker and CTG agree that the agreement dated 22 November 1995
entitled Franchise Agreement for the Restaurant at Wentworthville
is terminated effective as of the Completion Date. Brinker and CTG
hereby fully discharge and release each other from all their
respective obligations and Liabilities arising out of or under the
Franchise Agreement referred to in this clause 5.2(c) effective
from the Completion Date.
5.3 Brinker and CTG agree that the Development and Franchise Agreement is
terminated, including clauses 14 and 20 which are said to continue
notwithstanding termination, effective as of the Completion Date. Brinker
and CTG hereby full discharge and release each other from all their
respective obligations, and Liabilities arising out of or under the
Development and Franchise Agreement referred to in this clause 5.3
effective from the Completion Date.
5.4 Including clause 14 and clause 20 and notwithstanding clause 28.6 of the
Development and Franchise Agreement Brinker and RHC-P hereby fully
discharge and release each other from all of their respective
obligations, and Liabilities arising out of or under the Development and
Franchise Agreement effective from the Completion Date.
<PAGE>
5.5 The parties to the Lease Guaranty Agreement agree that the Lease Guaranty
Agreement is terminated effective from the Completion Date. Brinker must
endorse and redeliver to RHC all shares of stock it owns in RHC-P. The
parties hereby fully discharge and release each other from all of their
respective obligations, and Liabilities arising out of or under the Lease
Guaranty Agreement effective from the Completion Date.
5.6 Restraint
In this clause 5.6 to have an "Interest" in any restaurant includes to
own, maintain, develop, operate, advise, help or lend money to that
restaurant, whether directly or indirectly (including, but not limited
to, through another person).
For two (2) years after the Completion Date RHC, RHC-P and CTG (jointly
and each of them severally) must not, without Brinker's approval, have
any Interest in any restaurant ("Competing Restaurant") in the Territory
that:
(a) is in the casual dining market segment of the restaurant industry;
and
(b) has an image identical or deceptively similar to the Image.
In this clause 5.6 the following terms have the following meanings:
`Chili's Grill & Bar Restaurants' means restaurants operated under the
System and doing business as either `Chili's Texas Grill' or `Chili's
Grill & Bar' Restaurants.
`Image' means the Trade Marks and the distinctive appearance and ambience
of Chili's Grill & Bar Restaurants comprising its distinctive trade
dress, including but not limited to, the general menu layout, the core
menu items, restaurant design, fit-out, awnings, tile table tops, lamps
over table tops, photo package, floor tiles, booth seating, colour
schemes and signs, as implemented and modified by Brinker from time to
time.
`Operations Manual' means the operations manual for the System from time
to time prepared by or on behalf of Brinker.
`System' means the system implemented by Brinker to establish, operate
and maintain restaurants using the Image and the Operations Manual.
`Trade Marks' means:
(a) the marks described in Schedule 14; and
(b) each other name consistent with the Image and used by CTG in
operating Chili's Grill & Bar Restaurants.
5.7 Interdependence of Obligations
The obligations of the parties in respect of Completion shall be
interdependent. All actions at Completion shall be deemed to take place
simultaneously and no delivery or payment will be deemed to have been
made until all deliveries and payments have been made.
<PAGE>
6. WARRANTIES
6.1 Warranties by CTG
Subjectto clause 10, CTG represents and warrants to Brinker Aust. that
each of the Warranties is true and accurate and not misleading at the
Completion Date.
6.2 Warranties of Brinker
Subject to clause 10:
(a) Brinker and Brinker Aust. warrant and represent to CTG that:
(i) Brinker and Brinker Aust. have authority to enter into and
to perform this Agreement and entering into and performance
of this Agreement does not and shall not on or after
Completion contravene any contractual, legal or other
obligations of Brinker and Brinker Aust. of any nature
whatsoever.
(ii) this Agreement constitutes a legal, valid and binding
obligation on Brinker and Brinker Aust. enforceable in
accordance with its terms.
(iii) Brinker Aust. is respectable, responsible and solvent.
(iv) no authorisation, consent, approval, licence or exemption
of, and no registration, qualification, designation,
declaration or filing with any court or government
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or was necessary
for execution of this Agreement.
(b) RHC and RHC-P warrant and represent to Brinker and Brinker Aust. that:
(i) RHC and RHC-P have authority to enter into and to perform
this Agreement and entering into and performance of this
Agreement does not and shall not on or after Completion
contravene any contractual, legal or other obligations of
RHC and RHC-P of any nature whatsoever.
(ii) this Agreement constitutes a legal, valid and binding
obligation on RHC and RHC-P enforceable in accordance with
its terms.
(iii) no authorisation, consent, approval, licence or exemption
of, and no registration, qualification, designation,
declaration or filing with any court or governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or was necessary
for execution of this Agreement.
<PAGE>
7. INDEMNITIES
7.1 Indemnity by CTG
Subject to clause 10, CTG shall and does hereby indemnify Brinker Aust.
and holds Brinker Aust. harmless from and against all Liabilities which
may be asserted against or suffered by Brinker Aust. in respect of the
Restaurants, the Business or the Assets arising or incurred prior to the
Completion Date, including but not limited to such Liabilities arising
out of, resulting from or relating to:
(a) the ownership or operation of the Restaurants, the Business or
any of the Assets prior to the Completion Date;
(b) the employment or termination of employment of any officers,
directors or other Employees of CTG prior to the Completion Date;
or
(c) Encumbrances created or incurred on or in relation to any of the
Assets prior to the Completion Date.
7.2 Indemnity by Brinker Aust.
Subject to clause 10, [Brinker and] Brinker Aust. shall and do indemnify
CTG and hold CTG harmless from all Liabilities where such Liabilities
arise out of, result from or relate to the ownership or operation of the
Restaurants, the Business or any of the Assets after the Completion Date.
8. ACCESS TO INFORMATION AND CONFIDENTIALITY
8.1 Confidentiality Obligations
The parties including their respective agents, employees or advisers,
shall treat all information relating to this Agreement as confidential
and proprietary information and shall not permit the release of this
information to third persons except in accordance with the terms hereof,
and shall not make any public announcement or issue any publicity release
without the other parties' prior written consent. The parties shall also
require their agents, employees, officers and directors to comply with
this requirement.
8.2 For a period of 7 years following Completion, upon giving reasonable
notice to Brinker Aust. and during normal business hours, CTG shall be
entitled at its own cost to inspect and take copies of the books, records
and other data related to the Business, the Restaurants and the Assets in
respect of the period up to Completion in order for CTG to comply with
its legal obligations.
8.3 Confidentiality Obligations of RHC and RHC-P, CTG
None of RHC, RHC-P and CTG shall at any time disclose or make public any
secret or confidential professional or trade information which it has
learnt by reason of its ownership of or involvement in the Business, the
Restaurants or the Assets and will not use to the detriment of the
operation of the Business, the Restaurants or the Assets any information
which it has obtained in confidence in the course of or as a result of
such ownership. Without limiting the foregoing, each of RHC, RHC-P and
CTG shall comply with each of the provisions in clause 14 of the
Development and Franchise Agreement prior to its termination under this
Agreement.
<PAGE>
9. GUARANTEE AND INDEMNITY
Subject to clause 10:
(a) in consideration of Brinker Aust. entering into this Agreement,
each of RHC and RHC-P, jointly and severally:
(i) unconditionally and irrevocably guarantee to Brinker and Brinker
Aust. on demand the due and punctual performance by CTG of all of
its obligations under, or arising out of, this Agreement; and
(ii) as a separate and independent covenant, unconditionally and
irrevocably indemnifies Brinker and Brinker Aust. from and
against any Liabilities which may be incurred or sustained by
Brinker or Brinker Aust. in connection with any default or delay
by CTG in the due and punctual performance of any of its
obligations under this Agreement.
(b) without derogating from clause 5, the liability of RHC or RHC-P
under this clause 9 is not affected by any act, omission or
thing which, but for this provision, might in any way operate to
release or otherwise exonerate or discharge RHC or RHC-P from
any of their obligations under this Agreement including (without
limitation) the grant to CTG or any other person of any time,
waiver or other indulgence, or discharge or release of CTG or
any other person from any obligation.
(c) the obligations of RHC and RHC-P under paragraphs (a) and (b) of
clause 9 are given independently of each other and are primary
obligations, on the part of each of RHC and RHC-P, enforceable
without Brinker or Brinker Aust first proceeding against CTG or
any other of RHC and RHC-P..
(d) this clause 9 shall:
(i) extend to cover this Agreement as amended, varied or
replaced, whether with or without the consent of RHC or
RHC-P; and
(ii) be a continuing guarantee and indemnity and shall,
notwithstanding Completion, remain in full force and effect
for so long as CTG has any Liability or obligation to
Brinker or Brinker Aust under this Agreement, and until all
of those Liabilities or obligations have been fully
discharged.
10. LIMITATION ON CLAIMS
No claim for any Liability can be brought under clauses 6,7 or 9 by any
party (`first party') against another party unless the total of all
Liabilities of the first party is over USD$30,000 (it being the intention
of the parties that if the total of all Liabilities of the first party
exceeds USD$30,000 only the excess over USD$30,000 is payable). No claim
for any Liability can be brought under clauses 6, 7 or 9 after 2 years
after the Completion Date.
11. EMPLOYEES
11.1 Employment
CTG shall terminate the services of all of the Employees as and from the
last shift at each of the Restaurants before the Completion Date and
shall use its reasonable endeavours to induce any of the Employees sought
by Brinker Aust. to accept employment with Brinker Aust.. Nothing
contained in this Clause 11 shall require Brinker Aust. to employ any of
the Employees.
11.2 Employees Not Employed by Brinker Aust.
CTG shall pay to or for the benefit of each of the Employees who shall
not become employed by Brinker Aust. all and any other amounts to which
any of them may be then entitled in relation to their employment by CTG,
whether due to them by law or under any award, agreement or arrangement
and whether in relation to either wages, salaries, allowances, , accrued
annual leave, superannuation entitlements, sick leave or otherwise and
including any other amount to which they are entitled as a result of the
termination of their employment with CTG.
<PAGE>
11.3 Employees Employed by Brinker Aust.
The parties will comply with Schedule 10 in relation to all Employees
employed by Brinker Aust..
11.4 Indemnity
Brinker and Brinker Aust. shall and do indemnify CTG and hold CTG
harmless from and against (on a full indemnity basis) all Liabilities by
or on behalf of Employees employed by Brinker Aust. to the extent that
such Liabilities arise out of, result from or relate to Leave
Entitlements or employment or termination of employment by Brinker Aust.
of the re-employed Employees.
12. LIQUOR LICENCES
12.1 CTG shall cause documents to be signed and provided, applications to be
made and generally take such steps as may be necessary and sufficient to
procure the transfer of Licences to such person or persons as Brinker
Aust. shall direct at the cost of Brinker Aust. including providing
Brinker Aust. or its solicitors with authority to obtain documents from
relevant liquor licensing authorities.
12.2 Brinker Aust. shall, as soon as practicable following Completion, take
all steps necessary to obtain liquor licences for the Restaurants and
notify CTG as soon as it has obtained such liquor licences.
12.3 Ringwood Liquor Licence
CTG estimates that the value of the liquor held at the Ringwood
Restaurant at Completion is AUD$10,800 and will ensure that the same
value of liquor is held at the Ringwood Restaurant when Brinker Aust.
notifies CTG it has obtained the liquor licence for the Ringwood
Restaurant.
12.4 Until Brinker Aust. obtains the liquor licence for the Ringwood
Restaurant, CTG shall pursuant to the management agreement of even date
between CTG and Brinker Aust. ("Management Agreement").be responsible for
the liquor purchases and sales at the Ringwood Restaurant, maintain
records of purchases and sales and be entitled to the proceeds of all
liquor sales. CTG shall sell liquor to the customers of Brinker Aust. in
the ordinary course of business of the Ringwood Restaurant.
12.5 The CTG shall provide Brinker Aust. with details of the gross profit from
liquor sales at the Ringwood Restaurant in respect of the period from the
Completion Date until the date of termination of the Management Agreement
and as soon as practicable following termination of the Management
Agreement pay Brinker Aust. an amount equivalent to the gross profit from
such liquor sales during such period. Brinker Aust. shall be entitled to
inspect the records of CTG in relation to the liquor sales at the
Ringwood Restaurant during that period in respect of that period.
12.6 The parties agree that the sale and purchase of the Ringwood Lease shall
take place on termination of the Management Agreement.
<PAGE>
13. MISCELLANEOUS
13.1 Entire Agreement
This Agreement constitutes the entire agreement between the parties with
respect to the sale of the Assets from CTG to Brinker Aust. and
supersedes and extinguishes all prior agreements and understandings
between the parties with respect to the matters covered hereby and all
representations or warranties previously given.
13.2 Amendments
This Agreement may not be amended, modified or supplemented except by a
written instrument executed by persons duly authorised on behalf of the
parties.
13.3 Waiver
No waiver by any party of any default in the strict and literal
performance of or compliance with any provision condition or requirement
herein shall be deemed to be a waiver of strict and literal performance
of and compliance with any other provision, condition or requirement
herein nor to be a waiver of or in any manner release any party from
strict compliance with any provision condition or requirement in the
future nor shall any delay or omission of any party to exercise any right
hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
<PAGE>
13.4 Notices
All notices and other communications provided for or permitted hereunder
shall be sent by certified or registered mail with postage prepaid, by
hand delivery, or by facsimile transmission as follows:
(a) if to CTG, to it at:
Ebsworth & Ebsworth, Solicitors, Level 24, 135 King Street, Sydney, NSW,
2000 (Attention: Margaret Calvert).
(b) if to Brinker, to it at:
Attention: Mr Roger Thomson
Address: 6820 LBJ Freeway, Dallas, Texas, USA 75240.
Tel: (0011) . 972 770 9394
Fax: (0011) . 972 770 1256
with a copy to:
Attention: Mr Garry Beath
Address: c/- Minter Ellison Solicitors, 44 Martin Place, 2000.
Tel: (61.2) . 9210 4444
Fax: (61.2) . 9235 2711
(c) if to Brinker Aust., to it at:
Attention: Mr Ross Doherty
Address: The KPMG Centre, 45 Clarence Street. Sydney, NSW, 2000
Tel: (0) 9335 7773
Fax: (0) 9299 7077
with a copy to:
Attention: Mr Garry Beath
Address: c/- Minter Ellison Solicitors, 44 Martin Place, 2000.
Tel: (61.2) . 9210 4444
Fax: (61.2) . 9235 2711
(d) if to RHC, to it at:
Attention: H Michael Bush
Address: Prentice Hall, 32 Loockerman Square, Suite L-100, Dover,
Delaware, 10094, USA
Tel: (0011) 1.301.897 4870
Fax: (0011) 1.301.897 8350
with a copy to:
Ebsworth & Ebsworth, Solicitors, Level 24, 135 King Street, Sydney, NSW,
2000 (Attention: Margaret Calvert).
(e) if to RHC-P, to it at:
Attention: H Michael Bush
Address: Prentice Hall, 32 Loockerman Square, Suite L-100, Dover,
Delaware, 10094, USA
Tel: (0011) 1.301.897 4870
Fax: (0011) 1.301.897 8350
with a copy to:
Ebsworth & Ebsworth, Solicitors, Level 24, 135 King Street, Sydney, NSW,
2000 (Attention: Margaret Calvert).
or to such other address or person as a party may specify by notice in
writing to the others. All such notices or communications shall be deemed
to have been duly given or made:
(a) fifteen (15) days from USA to Australia or vice versa and (3)
three days within Australia after being deposited in the mail
with postage prepaid;
(b) when delivered by hand;
(c) if sent by facsimile transmission, when transmission report or
acknowledgment received.
<PAGE>
13.5 Further Assurances
Each of the parties agree that at any time after Completion they will
execute, sign or initial any document and do any act, matter or thing
reasonably required by any of the other parties to comply with the
provisions of this Agreement.
13.6 Agreement binding on successors and assigns
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
13.7 Costs and Stamp Duty
Whetheror not any of the transactions contemplated by this Agreement are
consummated, each party shall pay its own fees and expenses incidental to
the negotiation, preparation and execution of this Agreement, including
the fees and disbursements of its lawyers and accountants. Brinker Aust.
shall pay any stamp duty due on this Agreement and any document executed
to give effect to this Agreement.
13.8 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13.9 Governing Law
This Agreement shall be governed by and construed in accordance with the
law of New South Wales and each of the parties hereby agrees to submit to
the non exclusive jurisdiction of the New South Wales Courts.
13.10 No Merger
None of the provisions of this Agreement will merge in or upon the
execution of this or any other agreement, document, act, matter or thing
and will continue to remain in full force and effect for so long as is
necessary to give effect to the provisions of this Agreement.
13.11 No Assignment
A party shall not assign any of its rights under this Agreement without
the consent of the other parties in writing.
<PAGE>
SCHEDULE 1
Warranties
Agreement
1. CTG warrants and represents to Brinker Aust that:
(a) CTG has full authority to enter into and to perform this Agreement
and entering into and performance of this Agreement does not and
shall not on or after Completion contravene any contractual, legal
or other obligations of CTG of any nature whatsoever.
(b) this Agreement constitutes a legal, valid and binding obligation
on CTG enforceable in accordance with its terms.
2. The books, records and registers of the Restaurants have been kept in a
normal business like manner and in accordance with all statutory
requirements.
CTG Solvency
3. CTG has not:
(a) gone into liquidation (provisional or otherwise);
(b) passed any resolution that it be wound up;
(c) entered into any scheme or arrangement with creditors;
(d) received any demand under Section 459E of the Corporations Law
that has not been satisfied in full;
(e) passed any resolution in general meeting pursuant to Section 188
of the Corporations Law;
(f) no summons for the winding up of CTG has been presented;
(g) there are no writs of execution against CTG; or
(h) no receiver, receiver/manager, official manager, trustee,
administrator or similar official has been appointed to CTG or of
the undertaking of CTG or the assets or any part thereof; or
(i) received any notice from any mortgagee to take or attempt to take
possession of any of the Assets.
<PAGE>
4. CTG warrants it is able to pay its debts as and when they fall due for
payment.
Licences
5. To the best knowledge and belief of CTG there is no circumstance or fact
involving CTG or its affairs except as expressly disclosed in this
Agreement which is likely to result in the revocation of or material
variation in any respect of any Licence and there is no subsisting breach
of the Licences.
CTG'S Assets
6. CTG owns legally and beneficially the Assets (other than the leased
equipment (of which CTG is the legal and beneficial owner of the
leasehold interest)) free of any Encumbrance and the Assets are not
subject to any leasing or hire purchase arrangement or other financing
arrangement.
7. CTG has not acquired or agreed to acquire any Assets on terms that
property therein does not pass until full payment is made, other than
Inventory the subject of retention of title provisions as part of the
supplier's standard terms of trade, the details of which have been fully
disclosed to Brinker in writing.
Premises
8. The Ringwood premises, Campbelltown premises, Castle Hill premises and
the Wentworthville premises are the only premises leased and occupied by
CTG ("Premises"). The Wollongong premises are leased by CTG. The Premises
are leased by CTG under the Leases.
9. CTG has exclusive possession of the Ringwood Premises, the Campbelltown
Premises, the Castle Hill Premises and the Wentworthville Premises and
CTG's interest in such Premises is free of any Encumbrance or third party
right.
10. No notice has been received by CTG from any statutory, legal or public
authority requiring any work to be done or money expended on any of the
Premises nor has CTG received any notice (or is aware of any pending
notice) of proposed resumption, compulsory acquisition or any other
matter affecting any of the Premises.
Employees And Contractors
11. Except as otherwise provided in this Agreement, CTG has paid and will pay
or satisfy, satisfied or otherwise provided for all of the remuneration,
emoluments and other benefits and entitlements of its Employees and
contractors up to and including the last shift at each of the Restaurants
before the Completion Date.
12. There is no labour dispute, strike, work stoppage, ban, limitation of
work or arbitration proceedings which will prevent the continued
operation of the Restaurants in the ordinary course.
<PAGE>
Additional Warranties
13. The sale of the Assets pursuant to this Agreement does not result in a
breach of any obligation or constitute a default under or result in the
imposition of any Encumbrance under any agreement or undertaking, by
which CTG is bound.
Accounts and Records
14. CTG warrants that the balance sheet of 26 October 1996 is true and
accurate. Since the balance sheet date of 26 October 1997 as set out in
schedule 8:
(a) the Business and Restaurants have been carried on in the ordinary
and usual course and no contracts or commitments differing from
those ordinarily made in the conduct of the Business or the
Restaurants have been entered into or incurred;
(b) there has been no material adverse change in the Business,
Restaurants or Assets.
Compliance with Statutory Requirements
15. To the best of the knowledge and belief of CTG, CTG holds all statutory
licences, consents, approvals and authorisations necessary for the
carrying on of the Business and has complied with the terms of those
licences, consents, approvals and authorisations.
16. To the best of the knowledge and belief of CTG, conduct of the Business
and use of the Restaurants and Assets does not in any way breach or
contravene any law, statute, ordinance, rule, regulation, by-law, scheme
or permit.
Premises
17. To the best knowledge and belief of CTG, the use of the Premises for the
Restaurants for the carrying on of the Business:
(a) does not breach any applicable law, statute, ordinance, rule,
regulation, by-law, planning scheme, development consent, order,
permit or determination of any governmental authority; and
(b) is in conformity with all local government building, health, fire
and public utility laws and regulations.
18. The use of the Premises for the Restaurants for the carrying on of the
Business is permitted under the terms of the Leases.
Property Leases
19. With respect to the Leases for the Premises:
(a) there are no subsisting material breaches and CTG has received no
notice of any breach of the Leases; [see paragraph 48 of Share
Sale Agreement]
(b) they are valid and subsisting; and
(c) they have not been amended or modified other than as notified to
Brinker.
Equipment Leases
20. With respect to each Equipment Lease:
(a) there are no subsisting breaches and CTG has received no notice
of any breach of the Equipment Leases;
(b) it is valid and subsisting; and
(c) it has not been amended or modified .
<PAGE>
Environment
21. The Premises are:
(a) not subject to any order or notice issued under any environmental
law;
(b) not polluted and their condition would not entitle any person or
governmental authority to require any occupier to undertake a
clean up of them or expend money or perform work in that regard;
(c) not the subject of any charge in favour of any relevant
environmental protection authority as security for the clean-up or
other costs under any relevant environmental law.
Employees
22. In respect of each Employee:
(a) the details in relation to that Employee listed in schedule 2 are
true and correct in all respects; and
(b) CTG has properly calculated and paid where due and otherwise
provided for and will duly pay all Group Tax and Fringe Benefits
Tax due before and on the Completion Date, and has not been
subject to an audit by the Australian Taxation Office in respect
of such payments ; and
(c) CTG has made where due all payments in respect of and otherwise
provided for and will duly pay superannuation required under any
statute or award or employment contract.
23. There is no agreement, arrangement or understanding between CTG and a
union or body of employees or any representative thereof in respect of
the Employees, except for those the details of which have been fully
disclosed to Brinker in writing on 11 December 1997.
Litigation
24. There is no claim against CTG in respect of the Business or the Assets of
which CTG has notice nor to the best knowledge and belief of CTG, does
there exist or has there occurred any fact, matter or circumstance likely
to give rise to any claim which could affect the ability of the Business
to continue operating or which may materially adversely affect the
Goodwill.
25. There are no unsatisfied or outstanding judgments, orders or awards
affecting CTG, the Business or any of the Assets.
Material Disclosure
26. (a) All information concerning the Business, the Restaurants and
the Assets which CTG or any of its representatives has furnished
to Brinker Aust. or its representatives prior to the execution of
this agreement is true, complete and accurate in every respect and
is not misleading or deceptive whether by inclusion or omission.
(b) [All information concerning the Business, the Restaurants and the
Assets which might reasonably be expected to be material to the
purchase of the Assets, the Restaurants and the Business by
Brinker Aust. has been disclosed.]
[The provisions in square brackets in paragraph 26(b) are only agreed if
this sentence in brackets is deleted.]
Stamp Duties
27. All documents which are necessary to establish the title of CTG to the
Assets that are to be stamped have been duly stamped.
<PAGE>
Plant and Equipment
28. Except for the dishwasher at the Campbelltown Restaurant seen by Brinker,
and taking into account the age of the Plant & Equipment as set out in
the fixed asset register copied to Brinker on 17 and 18 November 1997 the
Plant and Equipment:
(a) is in a good and safe state of repair and condition;
(b) is in good working order;
(c) is, so far as CTG is aware, capable and will be capable, over the
period of time during which it will be written down to a nil value
in the accounts of the Business, of doing the work for which it
was designed or purchased;
(d) is used in and not surplus to the requirements of the Business;
(e) is capable of being insured for an amount equal to or greater than
the amount apportioned to in under Schedule 7.
29. The Assets are:
(a) all located at the Premises;
(b) the only assets used by CTG in the Business; and
(c) the only assets required for the successful conduct of the
Business;
<PAGE>
SCHEDULE 2
Employees
List attached (6 pages)
<PAGE>
SCHEDULE 3
Equipment Leases
<TABLE>
<CAPTION>
Periodic Payment
Lessor Lessee Guarantor Description Location Commencement Termination Amount Frequency
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NAB CTG RHC;RHC-P Equipment Ringwood 01/10/96 30/08/2001 $11,352.00 Monthly
NAB CTG N/A 3 Pager System Wentworthville 24/06/97 23/06/2000 $457.59 Monthly
Campbelltown and Ringwood
Remington CTG N/A Copier/fax machine Castle Hill 10/03/96 10/03/98 $453.00 Quarterly
Pty Ltd t/as
Pitney Bowes
</TABLE>
<PAGE>
SCHEDULE 4
Intellectual Property Rights
Copyright in business records of the Restaurants
<PAGE>
SCHEDULE 5
Leases
4 Rennie Road, Campbelltown NSW Folio Identifier 34/842054 dated 6/6/97
293-307 Maroondah Highway, Ringwood VIC dated 14 October 1997
315-323 Great Western Highway, Wentworthville NSW Folio Identifier
652/853681
Wollongong- Agreement to Lease part of folio identifier 1/849523.
Castle Hill - Unit 26/3-9 Terminus Street, Castle Hill, NSW, 2154,
26/SP37657
<PAGE>
SCHEDULE 6
Licences
Campbelltown - Licence no. 24005047 Nominee -Mr Jason O'Brien-Ross
Wentworthville - Licence no. 24004791 Nominee - Mr Jay Murray
Ringwood - Licence no. 32242187 Nominee - James Best
<PAGE>
SCHEDULE 7
Plant & Equipment
List attached (7pages)
Other assets
Architectural drawings and similar documents related to the sites or potential
sites
Campbelltown NSW
Ringwood VIC
Wentworthville NSW
Folio Identifier 652/853681
Doncaster VIC
Lot 1, Volume 10334 Folio 606
Wollongong NSW
Part of folio identifier 1/849523
Miranda NSW
Shop no. G109/113 Westfield Shopping Centre, Miranda
St George NSW
Part 110-116 Princes Highway, Kogarah
Belconnen ACT
Block 76 Section 65 Division of Belconnen.
Petty Cash AUD$8,500.00
Deposits AUD$84,480
Total AUD$92,980.00
<PAGE>
SCHEDULE 8
CTG Balance Sheet as at 26 October and 28 September 1997
Unaudited
ASSETS
Current Period Previous Period
26 October 1997 28 September 1997
Current assets:
Merchandise Print & Stationery 3,244.68 5,856.23
Cash Hand/Bank Bank NAB (184,447.77) (74,231.36)
Cash/Bank Cash 64,630.67 64,618.26
Cash/Bank Credit 17,522.55 19,243.64
833.65 833.65
Cash/Bank Change Floats 8,500.00 8,500.00
Cash Deposits 302.00 302.00
Security 22,800.00 22,800.00
Receivables Related Costs 17,472.20 17,472.20
Inventories Meat 8,553.23 10,359.37
Inventories Poultry 4,658.76 4,739.91
Inventories Produce 3,579.00 3,330.12
Inventories Dairy 2,639.21 4,162.71
Inventories Bakery 934.76 1,244.75
Inventories Other 12,378.87 13,267.11
Inventories Beer 4,941.39 4,883.80
Inventories Wine 3,951.41 4,829.67
Inventories Liquor 20,924.01 20,141.35
Inventories Merchandise 4,224.72 4,528.88
Inventories NA Bev 4,472.95 4,744.61
Inventories Uniform 1,025.98 1,025.98
Prepayments General (2,250.00) (2,250.00)
Prepayments Rent 22,270.76 22,270.76
Prepayments Insurance 28,273.34 38,774.96
Prepayments Cleaning 4,265.00 4,740.00
Prepayments R&M 2,176.04 3,263.78
Prepayments Rates & Taxes 2,966.82 4,450.23
Prepayments Consulting 2,250.00 2,250.00
------------ ------------
Total Current Assets 83,094.23 216,152.61
Fixed Assets:
Fix and fittings at Cost 263,939.94 263,939.94
Fix and Fittings Dirs' val 1995 1,200,929.28 1,200,929.28
Dep'n F&F at Cost (52,743.00) (48,642.00)
Dep'n F&F Dirs' val 1995 (245,529.00) (234,816.00)
<PAGE>
Current Period Previous Period
Leased Assets 565,041.53 565,041.53
Amort Leased Assets (58,970.40) (53,073.36)
Land and Build at Cost 3,793.50 3,793.50
Set-up 2 yrs Advertising 13,752.25 13,752.25
Set-up 2 yrs Travel 11,154.56 11,154.56
Set-up 2 yrs Communications 4,074.22 4,074.22
Set-up Consulting 10,440.00 10,440.00
Set-up 2 yrs Prop Rent 26,190.57 26,190.57
Set-up 2 yrs Rates & Taxes 332.50 332.50
Set-up 2 yrs Refund Costs 15,972.00 15,972.00
Set-up 2 yrs Stationery 17,920.24 17,624.24
Set-up 2 yrs Funk 10,961.10 10,961.10
Set-up 2 yrs Relocation 3,576.54 3,576.54
Set-up 2 yrs Freight 2,685.51 2,685.51
Set-up 2 yrs Merchandising 1,663.63 1,663.63
Set-up 2 yrs Uniforms 4,791.55 4,791.55
Set-up 2 yrs Incidentals 6,731.49 6,731.49
Set-up 2 yrs Legal 88,726.37 88,256.12
Set-up 2 yrs Rest. Supplies 3,892.06 3,892.06
Set-up 2 yrs Expendable 2,141.63 2,141.63
Set-up 2 yrs Pre-open Food/Liq 11,656.00 11,656.00
Set-up 2 yrs Recruitment 11,631.96 11,631.96
Set-up 2 yrs Wages 69,126.67 69,126.67
Set-up 2 yrs Salaries/MITs 322,137.27 313,340.23
Set-up 2 yrs Superan 15,064.88 14,549.88
Set-up 2 yrs Payroll tax 10,263.14 10,263.14
Set-up 2 yrs A Leave 11,739.79 10,136.63
Set-up 2 yrs Trainer Team 52,154.05 52,154.05
Set-up 12 yrs Recruitment 5,831.33 5,831.33
Set-up 12 yrs KP Consult 207,500.00 197,500.00
Set-up Trav/Accom 8,609.10 8,609.10
Set-up 12 yrs Stamp Duty 36,187.75 36,187.75
Set-up 12 yrs Bank Fees 5,004.90 5,004.90
Set-up 12 yrs Legal Fees 2,582.10 2,582.10
Set-up 12 yrs Consulting 23,236.92 23,236.92
Set-up 12 yrs Sundry 315.60 315.60
Architects 49,627.10 46,249.10
Set-up 12 yrs Plan'g Fees 18,630.55 18,630.55
Set-up 20 yrs Rest Lic 25,840.24 25,840.24
Amort Set-up Prov'n 2 yrs (176,032.56) (162,076.56)
Amort Set-up Prov'n 12 yrs (7,253.98) (6,964.57)
Amort Set-up Prov'n 20 yrs (1,506.70) (1,399.03)
<PAGE>
Current Period Previous Period
Other Non Curr Franch Rights 608,108.00 608,108.00
Amort Prov'n Fr Rights (60,143.16) (60,143.16)
Other Non Curr FITB 22,802.00 22,802.00
------------ ------------
Total Fixed Assets 3,174,581.02 3,184,585.69
Other Assets:
Other Debtors 89,480.00 89,480.00
------------ ------------
Total Other Assets 89,480.00 89,480.00
------------ ------------
3,347,155.25 3,390,218.30
============ ============
Liability And Shareholder's Equity
Current Period Previous Period
Current Liabilities:
Trade Creditors Control A/c 476,703.44 610,228.94
Trade Creditors Opening Bal 0.08 0.08
Trade Creditors Liquorland 27,136.09 21,030.01
Current Lease Liability 90,046.74 89,723.16
Accruals Electricity 0.00 3,035.55
Accruals Rates 3,970.70 2,185.35
Accruals Excess Water 1,500.00 1,500.00
Accruals Cleaning 1,850.00 0.00
Accruals Advertising 10,000.00 10,000.00
Accruals Waste 1,799.00 1,010.00
Accruals Royalties 12,500.38 15,676.04
Accruals Audit Fees 16,000.00 16,000.00
Accruals Conf Exp 7,502.00 7,052.00
Accruals Legal 9,648.86 9,648.86
Accruals Wages/Bonus 5,352.72 38,812.31
Emp Leave 159,956.32 158,216.79
Suspense Wages 32,276.06 395.67
Suspense National Mutual 3,762.20 0.00
Suspense Salaries 24,007.59 0.00
Suspense Gift Cert Sale 25,852.00 25,322.00
Suspense Gift Cert Redeemed (19,329.00) (18,544.00)
Suspense AP Susp 8,732.34 17,092.34
Acc Pay/Cashbook SUSPENSE (87.62) 0.00
------------ ------------
Total Current Liabilities 902,179.90 1,008,835.10
<PAGE>
Long Term Liabilities:
Non Curr Liab Related Costs 1,539,888.00 1,539,888.00
Non Curr Liab Non Related Costs 87,908.49 89,683.85
Non Lease Liability 421,308.18 429,179.59
Non Curr Liab DITL 23,905.00 23,905.00
------------- -------------
Total Long Term Liabilities 2,073,009.67 2,082,656.44
Shareholder's Equity:
Issued Capital Authorised 10,000,000.00 10,000,000.00
Issued Capital Unissued (9,999,988.00) (9,999,988.00)
Reserves Revaluation 499,942.00 499,942.00
Reserves Share Premium 499,990.00 499,990.00
Retained Earnings Current Yr 13,108.02 13,108.02
Profit (Loss) for Period (641,086.34) (614,325.26)
------------- -------------
Total Shareholder's Equity 371,965.68 398,726.76
============= =============
3,347,155.25 3,490,218.30
============= =============
<PAGE>
SCHEDULE 9
Restaurants
Campbelltown - Cnr Campbelltown and Harboard Roads, Campbelltown
Wentworthville - 315-323 Western Road, Wentworthville
Ringwood - 393-307 Maroondah Highway, Ringwood, Victoria
<PAGE>
SCHEDULE 10
Employment and Related Issues for Re-Employed Employees
(a) Brinker Aust. shall notify CTG in writing:
(i) as soon as practicable following Completion, of the names of the
Employees it has employed in the Business; and
(ii) within 30 Business Days after Completion, of the amount equal to
the total monetary value of the Leave Entitlements for those
Employees who do not become re-employed by Brinker Aust..
(b) Brinker Aust. shall, within 14 days after receipt of the notice referred
to in paragraph (a)(ii) of this Schedule 10, pay or allow CTG an amount
from the Escrow Amount equal to the monetary value of the Leave
Entitlements for the Employees who have not become re-employed by Brinker
Aust. Brinker Aust. agrees that each of the re-employed Employees will be
treated by Brinker Aust. in relation to Leave Entitlements as if they
have been employed by Brinker Aust. for the period they were employed by
CTG.
<PAGE>
SCHEDULE 11
Purchase Price
- -------------------------------------------------------------------------------
Assets Price $AUD Price $USD
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- -------------------------------------------------------------------------------
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Equipment Leases $1
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Goodwill (AUD$ (US dollar equivalent)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Intellectual Property Rights $1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Leases & Sites $1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Plant & Equipment (AUD$1,046,134) (US dollar equivalent)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Other assets set out in Schedule 7 (AUD$92,980) (US dollar equivalent)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTAL USD$2,680,000
<PAGE>
SCHEDULE 12
Franchise Agreements
Franchise Agreement dated 9 November 1995 between CTG and Brinker for Restaurant
at Campbelltown.
Franchise Agreement dated 12 February 1996 between CTG and Brinker for the
Restaurant at Ringwood.
Franchise Agreement dated 22 November 1995 between CTG and Brinker for the
Restaurant at Wentworthville.
<PAGE>
SCHEDULE 13
1. The Escrow Amount will:
(a) be paid by Brinker Aust into the trust account of Minter Ellison,
Sydney;
(b) be available to, and applied towards, payment and discharge of
the following items in the following order:
(i) payment to Brinker Aust of an amount equal to the gross
profit attributable to liquor sales at the Ringwood Premises
during the period from Completion to the date Brinker Aust
acquires a liquor licence in respect of the Ringwood
Premises (inclusive) or earlier termination of the
Management Agreement;
(ii) payment of any Apportionable Outgoings which have not been
adjusted at Completion;
(iii) reimbursement to CTG of an amount equal to the monetary
value of the Leave Entitlements for the Employees who have
not become re-employed by Brinker Aust.
(iv) any other amounts agreed between the parties.
2. Minter Ellison will apply the Escrow Amount as set out in this Schedule on
receipt of:
(a) invoices or other documentary evidence acceptable to Brinker Aust and
CTG;
(b) the written authority of Brinker Aust; and
(c) the written authority of CTG.
3. The operation of this Schedule shall continue until all the amounts
referred to in paragraph 1(b) of this Schedule are paid, or the Escrow
Amount is fully exhausted but no later than 120 days from Completion Date.
If there is a balance remaining after payment of all of the amounts
referred to in paragraph 1(b) of this Schedule, the balance shall be paid
to CTG's NAB Account.
4. ***The [parties] [Brinker and Brinker Aust.] jointly and each of them
severally indemnify and will keep indemnified Minter Ellison and each of
the partners thereof from all Liabilities arising in any way in respect of
the Escrow Amount and the arrangements contemplated by or the operation of
this Schedule. [The provisions in square brackets in paragraph 4 of
Schedule 13 are only agreed if this sentence in brackets is deleted and a
choice is made of the alternative.]
<PAGE>
SCHEDULE 14
Trade Marks
<PAGE>
SCHEDULE 15
Prepayments and Deposits
1. Brinker Aust. agrees to pay CTG the following amounts as set out in the
attached analysis of prepayments and other Brinker Reimbursements:
(a) Prepayments; and
(b) Security Deposits.
2. Brinker Aust. will be entitled to the benefit of such Prepayments and
Security Deposits paid by CTG on payment of the amounts referred to in paragraph
1 of this Schedule 15.
<PAGE>
Signed by the attorney of RED HOT CONCEPTS INC. )
in the presence of: )
)
)
Signature of Witness Signature of Authorised Person
Office held
(Print) Name of Witness (Print) Name of Authorised Person
Signed by the attorney of RED HOT CONCEPTS - PACIFIC INC )
in the presence of: )
)
)
)
Signature of Witness Signature of Authorised Person
Office held
(Print) Name of Witness (Print) Name of Authorised Person
Signed by the Attorney of CHILI'S TEXAS GRILL PTY LTD )
ACN 070 163 754 pursuant to the Power of Attorney )
provided by CTG in the presence of: )
)
)
Signature of Witness Signature of Authorised Person
Office held
(Print) Name of Witness (Print) Name of Authorised Person
Signed by Roger Thomson for BRINKER INTERNATIONAL INC. )
in the presence of: )
)
)
Signature of Witness Signature of Authorised Person
Office held
(Print) Name of Witness (Print) Name of Authorised Person
<PAGE>
Signed by Roger Thomson for BRINKER AUSTRALIA PTY LTD )
(ACN 080 946 201) )
in the presence of: )
)
Signature of Witness Signature of Authorised Person
Office held
(Print) Name of Witness (Print) Name of Authorised Person
