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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 19, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 000-21745
CIAO CUCINA CORPORATION
(Exact name of small business issuer as specified in its charter)
OHIO 31-1357862
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 WALNUT STREET, SUITE 300, CINCINNATI, OH 45202
(Address of principal executive offices)
(513) 241-9161
(Issuer's telephone number )
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during preceding 12 months
(or for shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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The issuer had 3,246,186 shares of Common Stock outstanding as of May 1, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<TABLE>
CIAO CUCINA CORPORATION
INDEX
<CAPTION>
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
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Balance Sheets 3
April 20, 1997 and April 19, 1998
Statements of Operations 4
Sixteen weeks ended
April 20, 1997 and April 19, 1998
Statements of Cash Flows 5
Sixteen weeks ended
April 20, 1997 and April 19, 1998
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of
Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
</TABLE>
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<TABLE>
CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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April 20,1997 April 19,1998
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ASSETS (Unaudited) (Unaudited)
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CURRENT ASSETS
Cash and Cash Equivalents $ 2,045,417 $ 54,352
Accounts Recievable 46,959 60,555
Inventories 80,914 106,952
Prepayments 222,146 129,258
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Total Current Assets 2,395,436 351,117
EQUIPMENT AND IMPROVEMENTS, NET 4,737,710 6,263,848
INTANGIBLE ASSETS, NET 76,085 0
SECURITY DEPOSITS AND OTHER 323,244 386,703
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TOTAL ASSETS $ 7,532,475 $ 7,001,668
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 53,122 $ 423,848
Current Portion of Capital Lease Obligation 0 85,349
Accounts Payable 638,157 908,144
Accrued Expenses 170,067 612,158
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Total Current Liabilities 861,346 2,029,499
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LONG-TERM LIABILITIES
Notes Payable 4,856 31,327
Capital Lease Obligation 0 118,253
Accrued Rentals 528,341 259,328
Deferred Lease Incentives 2,050,020 4,150,157
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Total Long-Term Liabilities 2,583,217 4,559,065
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SHAREHOLDERS' EQUITY
Common Stock-no par value, 10,000,000 shares
authorized, 3,120,386 shares issued for 1997,
and 3,246,186 shares issued for 1998 9,229,195 9,354,995
Additional Paid-In Capital (Deficit) (1,647,372) (1,629,321)
Accumulated Deficit (3,493,911) (7,312,570)
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Total Shareholders' Equity 4,087,912 413,104
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 7,532,475 $ 7,001,668
=========== ===========
</TABLE>
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<TABLE>
CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIXTEEN WEEKS ENDED
<CAPTION>
April 20, 1997 April 19, 1998
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(Unaudited) (Unaudited)
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RESTAURANT REVENUES $ 2,208,875 $ 1,997,327
OPERATING EXPENSES
Food and Beverage Costs 665,052 605,719
Restaurant Labor Costs 739,094 775,164
Occupancy and Other Restaurant Expenses 655,149 661,944
Depreciation and Amortization 224,040 292,601
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2,283,335 2,335,428
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RESTAURANT OPERATIONS (74,460) (338,101)
Interest (Income) Expense, net (24,133) 20,156
Other (Income) Expense, net 8,491 5,823
General and Administrative Expenses 332,662 330,426
Restructuring Costs 0 11,081
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NET LOSS APPLICABLE TO ($ 391,480) $ 705,587
=========== ===========
COMMON STOCK
NET LOSS PER COMMON SHARE ($ 0.13) ($ 0.22)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 3,114,559 3,151,380
=========== ===========
</TABLE>
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<TABLE>
CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN WEEKS ENDED
<CAPTION>
April 20, 1997 April 19, 1998
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(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 391,480) ($705,587)
Depreciation 152,104 211,653
Amortization 71,936 80,948
Amortization of Lease Incentives (62,504) (92,352)
Loss on Disposal of Equipment 0 7,357
Changes in Operating Assets and Liabilities
Decrease (Increase) in-
Accounts Receivable (4,582) 56,727
Inventories 6,289 13,750
Prepayments 21,694 46,435
Increase (Decrease) in-
Accounts Payable 93,741 391,301
Accrued Expenses (305,940) 160,343
Accrued Restructuring 0 (893,629)
Accrued Rentals 19,256 78,083
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (399,486) (644,971)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment and Improvements (305,629) (158,172)
Cash Paid for Security Deposits 0 (1,082)
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NET CASH USED BY INVESTING ACTIVITIES (305,629) (159,254)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Notes Payable 0 400,000
Payments of Notes Payable (1,035) (831)
Payments on Capital Leases 0 (27,477)
Payments of Syndication Costs (122,194) 0
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NET CASH PROVIDED (USED) BY FINANCING ACITIVITIES (123,229) 371,692
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(DECREASE) IN CASH AND CASH EQUIVALENTS (828,344) (432,533)
CASH AND CASH EQUIVALENTS -
beginning of period 2,873,761 486,885
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CASH AND CASH EQUIVALENTS
end of period $ 2,045,417 $ 54,352
=========== =========
</TABLE>
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<TABLE>
CIAO CUCINA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN WEEKS ENDED
<CAPTION>
April 20, 1997 April 19, 1998
-------------- --------------
(Unaudited) (Unaudited)
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
CASH PAID FOR INTEREST $ 578 $ 10,119
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SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Conversion of Participating Debenture
to Common Stock $50,000 --
======= ==========
Issuance of Common Stock in Satisfaction of
Accounts Payable -- $ 125,800
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Equipment and Improvements Paid by Landlord -- $3,141,032
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Deferred Lease Incentives -- $ 201,664
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Security Deposits Forfeited -- $ 9,813
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</TABLE>
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CIAO CUCINA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of Ciao Cucina Corporation, the accompanying
unaudited condensed consolidated financial statements include all normal
adjustments considered necessary to present fairly the financial position as of
April 20, 1997 and April 19, 1998 and the results of operations and cash flows
for the sixteen weeks ended April 20, 1997 and April 19, 1998. Interim results
are not necessarily indicative of results for a full year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-QSB, and do not contain certain information included in the
Company's audited financial statements and notes for the fiscal year ended
December 28, 1997. See the Company's Annual Report on Form 10-KSB, File No.
000-21745.
2. COMMITMENTS
As was previously announced, on December 10, 1997, the Company engaged
Parentis Corporation ("Parentis") as a financial consultant to assist with
various efforts to reduce overhead and restructure liabilities associated with
non-performing restaurant units. Pursuant to that agreement, Parentis was to
receive certain fees for its services, including a "success fee" which would be
determined by applying a percentage to the aggregate amount of liabilities it
assisted the Company in eliminating. By negotiating the settlement and
termination of certain lease agreements, according to the engagement agreement,
Parentis was eligible to receive in excess of $240,000. In recognition of the
Company's cash condition, on March 16, 1998, Parentis agreed to a success fee
of: (a)$40,000 in cash; (b) 85,000 common shares of the Company; and (c)
warrants to purchase 80,000 common shares of the Company at $1.25 per share.
On December 15, 1997, the Company entered into a settlement agreement with
Roger Taylor, pursuant to which he resigned as an officer and director of the
Company and his employment agreement was terminated. Under the settlement
agreement, he received three months severance.
On January 16, 1998, Blue Chip Capital Fund Limited Partnership ("Blue
Chip") loaned the Company $500,000. The loan bears interest at the rate of 14%
per annum, and is due on December 31, 1998. The loan is secured by a security
interest in all of the Company's assets. In connection with this loan, Blue Chip
received warrants to purchase 200,000 shares of the Company's common stock at a
price of $1.35 a share.
On January 19, 1998, the Company closed its Ft. Lauderdale store and
entered into a settlement agreement with the landlord. Under the Settlement
Agreement, the Company conveyed all of its assets and licenses located at the
location to the landlord, except a 51,662.50 Letter of Credit furnished to the
landlord when the lease was signed, which was returned to the Company in June.
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On February 11, 1998, the Company entered into a settlement agreement
terminating its lease in The Oviedo Marketplace in Orlando, Florida. The project
was then in a design phase. Under the settlement agreement, the Company agreed
to pay the landlord a total of $88,142.75, $14,698.46 of which was paid upon
execution of the agreement, with the balance payable in five equal monthly
installments beginning March, 1998.
On February 11, 1998, the Company entered into a settlement agreement
terminating its lease at the Riverside Square shopping center in Hackensack, New
Jersey. The Company had previously closed this location. Under the settlement
agreement, the Company agreed to pay the landlord: (1) upon execution of the
agreement, $20,000 in cash and the $100,000 letter of credit furnished to the
landlord when the lease was signed; (2) $12,500 per month from February 1, 1998
through April 21, 1998; (3) $25,000 per month from May 1, 1998 through December
1, 1998; (4) and $162,500 on December 15, 1998. The company's obligations under
the settlement agreement are secured by a security interest in net cash flow
after operating expenses derived from the Company's downtown Cincinnati, Ohio
location, through a lockbox arrangement.
On or about March 17, 1998, the Company agreed to pay Michael Schuster
Associates ("MSA"), an architectural and design firm engaged by the Company for
new locations, $40,800 in cash and to issue MSA 40,800 common shares, as payment
in full for services previously rendered by MSA. The Company agreed to pay the
cash amount in eight equal monthly installments of $5,100, commencing April 1,
1998.
On April 1, 1998, the Company entered into a Settlement and Consulting
Agreement, as amended on April 13, 1998, (the "Consulting Agreement") with Carl
A. Bruggemeier, pursuant to which Mr. Bruggemeier resigned as an officer and
director of the Company and his Employment Agreement with the Company was
terminated. Under the Consulting Agreement, Mr. Bruggemeier agreed to provide
consulting services to the Company for ten months beginning April 1, 1998, and
the Company agreed to pay him a consulting fee of $10,000 per month. The Company
paid Mr. Bruggemeier his consulting fee for April, 1998. On May 27, 1998, the
Consulting Agreement was further amended to replace the ongoing monthly
consulting fee with: (a) a one-time payment of $10,000; and (b) 50,000 shares of
the Company's common stock, of which 40,000 shares have been issued to Mr.
Bruggemeier and 10,000 shares are being held in escrow to secure the performance
by Mr. Bruggemeier of his obligations under the Consulting Agreement.
In connection with the Consulting Agreement, Mr. Bruggemeier executed a
Nonrecourse Promissory Note (the "Note") in favor of Glaser Capital Partners
(the "Payee") in the principal amount of $60,000. The Note bears interest at the
rate of 8% per annum and is due upon the earlier: (1) any sale by the Company of
all or substantially all of its assets; (2) any merger involving the Company in
which the Company is not the surviving entity; or (3) any bankruptcy or similar
action brought by or against the Company. Payee's sole recourse under the Note
against Mr. Bruggemeier is to receive his shares of the Company's common stock
held in escrow by the Ohio Secretary of State under the Escrow Agreement dated
November 20, 1996, if and when the shares are released from such escrow. The
Company has guaranteed full payment of the Note.
On May 20, 1998, the Company entered into a letter of intent (the "LOI")
with The Glazier Group, Inc., a New York corporation ("Glazier Group"), pursuant
to which a to-be-formed wholly owned subsidiary of the Company shall merge with
and into Glazier Group (the
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"Merger"). Upon the closing of the Merger, the shareholders of Glazier
Group shall receive such number of common shares of the Company that equal 81%
of the aggregate outstanding shares of the Company. The LOI contemplates that
upon, or as soon as possible after, the closing of the Merger, the Company will
conduct a secondary public offering of its common stock to raise a minimum of
$12 Million (the "Secondary Offering"). Upon the closing of the Merger: (1) the
Company shareholders shall receive the right to purchase a share of common stock
for each share held at the price per share in the Secondary Offering; and (2)
the shareholders of Glazier Group shall receive warrants to purchase up to 8% of
the Company, for an exercise price of $1.25 per share, conditioned upon the
achievement of certain performance milestones by a new Glazier Group restaurant.
The Merger is conditioned upon: (a) execution of definitive agreements by June
30, 1998, and a closing by December 31, 1998; (b) completion of due diligence
which is currently underway; (c) approval by the respective Boards of Directors;
(d) the receipt of all required approvals and consents; and (e) receipt, by July
1, 1998, of a highly confident letter from an underwriter acceptable to Glazier
Group regarding the Secondary Offering. The Company may not solicit other
prospective purchasers or merger partners while the LOI is in effect, but may
respond to solicitations received by it, provided the Company shall reimburse
Glazier Group for all legal and accounting expenses incurred by it as a result
of the merger up to a maximum of $50,000 if the Company enters into any sale or
merger agreement with any other party on or before June 30, 1998.
On May 21, 1998, the Company entered into a Management Agreement with
Glazier Group delegating all responsibility and authority for management of the
Company's restaurant operation to the Glazier Group. The Agreement will
terminate on the earlier of: (a) the closing of the Merger; (b) the termination
of the LOI or any merger agreement executed in connection therewith; or (c)
December 31, 1999. Under the Agreement, the Company shall pay Glazier Group a
management fee equal to 4% of food and beverage revenues generated by the
Company's restaurants. The management fee is payable monthly within 15 days
after the end of each 4-week period to the extent cash flow allows. To the
extent cash flow is insufficient to pay the fee, the fee will accrue with
interest at the rate of 8.5% per annum and be payable on the earlier of (1) the
closing of the Secondary Offering, or (2) one year from the termination of the
LOI or any merger agreement executed in connection therewith.
On May 22, 1998, Blue Chip loaned the Company $100,000. The loan bears
interest at the rate of 14% per annum, and is due on December 31, 1998. In
connection with this loan, Blue Chip received warrants to purchase 100,000
shares of the Company's common stock at a price of $1.35 a share.
On May 22, 1998, Catherine C. Jetter resigned as an officer and director of
the Company and its subsidiary.
On May 22, 1998, the Company agreed to pay Parentis for services rendered:
(1) $2,850 in cash; and (2) 36,803 shares of the Company's authorized but
unissued common stock; and to pay Parentis for services rendered after May 19,
1998, a fee equal to $1,500 per week.
On June 10, 1998, the Company entered into an agreement ("the Engagement
Agreement") with Glaser Capital Corporation ("Glaser") to serve as its advisor
in connection with the possible merger with Glazier Group. Pursuant to the
Engagement Agreement, as a result of the signing of the LOI with Glazier Group,
Glaser was issued 25,000 shares of the Company's common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company owns and operates five restaurants serving authentic Mediterranean
cuisine under the name "Ciao Cucina"and "Ciao Baby Cucina". Four of the
Company's five restaurants have been in operation for more than one year. Its
newest restaurant opened in January, 1998. Additionally, the Company closed one
mature restaurant in late 1997 and opened a restaurant in late 1997 that was
closed in early 1998.
The Company has a limited operating history and the results achieved to date
by the Company's restaurants may not be indicative of future results.
The Company uses a 52/53 week year which is generally comprised of 13
four-week periods. The Company's fiscal 1997 and 1998 first quarters (sixteen
weeks) ended on April 20, 1997 and April 19, 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth, for the sixteen weeks ended April 20, 1997
and April 19, 1998, certain items from the Company's condensed consolidated
Statement of Operations expressed as a percentage of net revenues.
<TABLE>
<CAPTION>
Sixteen Weeks Ended Sixteen Weeks Ended
STATEMENT OF OPERATIONS DATA: April 19, 1998 April 20, 1997
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RESTAURANT REVENUES (1) 100.0% 100.0%
OPERATING EXPENSES
Food and Beverage Costs 30.3% 30.1%
Restaurant Labor Costs (2) 38.8% 33.5%
Occupancy and Other Restaurant Expenses (3) 36.9% 29.7%
Depreciation and Amortization 10.9% 10.1%
RESTAURANT OPERATIONS (16.9)% (3.4)%
Interest Income (Expense), net (1.0)% 1.1%
Other Income (Expense) (0.0)% (0.3)%
General and Administrative Expenses (4) (16.5)% (15.1)%
NET LOSS (34.4)% (17.7)%
</TABLE>
(1) Revenues consist of restaurant food and beverage sales.
(2) Restaurant labor consists of hourly and management payroll, benefits and
taxes.
(3) Occupancy and other restaurant expenses include rent, utilities,
advertising, repairs and maintenance and operating supplies.
(4) General and administrative expenses include corporate salaries, benefits and
taxes, rent, insurance, professional services, travel and other expenses.
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RESTAURANT REVENUES
Restaurant revenues for the first quarter of fiscal 1998 decreased versus the
first quarter of fiscal 1997 by $211,548 a decrease of 9.6%. Same store revenues
for the first quarter of fiscal 1998 decreased by $285,952, a decrease of 14.7%.
The decline is largely attributable to performance of the Cincinnati and Memphis
restaurants, both units are heavily dependent on theater schedules in their
respective areas.
FOOD AND BEVERAGE COSTS
Food and beverage costs for the first quarter of 1997 decreased by $59,333 or
8.9%. As a percentage of sales, food and beverage costs increased from 30.1% to
30.3%, a percentage increase of .2%.
RESTAURANT LABOR
Restaurant labor for the first quarter of 1998 increased $36,070 or 4.9%
compared to the first quarter of 1997. As a percentage of revenues, restaurant
labor costs for the first quarter 1998 versus 1997 increased from 33.5% to 38.8%
an increase of 5.3%. The increase in restaurant labor is attributable to the
Cleveland unit, where the additional cost of banquet facility management
exceeded the costs which had been associated with the Hackensack, New Jersey
restaurant included in fiscal 1997 results but closed prior to fiscal 1998.
OCCUPANCY AND OTHER RESTAURANT EXPENSES
Occupancy and other restaurant expenses for the first quarter of 1998
exceeded occupancy and other restaurant expenses for the first quarter of 1997
by $81,467 or 12.4%. As a percentage of sales, occupancy and other restaurant
expenses increased to 36.9% for the first quarter of 1998 from 29.7% for the
first quarter of 1997 or an increase of 7.2%. The increase in occupancy costs is
attributable to the Cleveland unit, where the Corporation has additional costs
associated with the banquet facility.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses for the first quarter of 1998 decreased
over the first quarter of 1997 by $2,236. As a percentage of revenues, general
and administrative expenses increased from 15.1% in 1997 to 16.5% in 1998, an
increase of 1.4%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $6,111 for the first quarter of 1998
over the first quarter of 1997 or 2.7%.
As a percentage of sales, depreciation and amortization increased for the
first quarter of 1998 to 10.9% from 10.1% for the first quarter of 1997.
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RESTAURANT OPERATIONS
The Company's loss from restaurant operations of $74,460 in the first
quarter of 1997 increased to a loss of $338,101 in the first quarter of 1998, or
a change of $263,641. The increased loss from operations is largely attributable
to the changes in results at two of the same store units, Cincinnati and
Memphis, and results from the Cleveland restaurant unit which opened during
January, 1998. On a combined basis, caused by decreases in revenues at
Cincinnati and Memphis, net income from these same store units for the first
quarter of fiscal 1998 decreased by $161,892 versus the first quarter of 1997.
The Cleveland unit registered a loss of $240,804 for the first quarter of fiscal
1998, of which pre-opening expenses represented $130,256.
INTEREST EXPENSE
Interest expense increased $44,289 for the first quarter 1998 compared to
1997.
NET LOSS
The net loss for the first quarter of 1998 increased by $314,107 over 1997 or
80.2%.
LIQUIDITY AND CAPITAL RESOURCES
As of April 19, 1998, the Company's current liabilities of $2,029,499
exceeded current assets of $351,117, resulting in negative working capital of
$1,678,382.
Net cash used by operating activities increased $245,485 for the first
quarter of 1998 as compared to the first quarter of 1997. This was due primarily
to decreases in accrued restructuring expenses.
Cash used in investing activities decreased from $305,629 for the first
quarter of 1997 to $159,254, a decrease of $146375.
Cash flows from financing activities increased for the first quarter of 1998
as compared to 1997 from negative $123,229 to $371,692, a increase of $494,921.
OUTLOOK
THE STATEMENTS CONTAINED IN THIS OUTLOOK ARE BASED ON CURRENT EXPECTATIONS.
THESE STATEMENTS ARE FORWARD LOOKING AND ACTUAL RESULTS MAY DIFFER MATERIALLY
DUE TO VARIOUS FACTORS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THE
EFFECT OF UNANTICIPATED DELAYS IN THE DEVELOPMENT OF NEW RESTAURANTS AND COSTS
OF EXPANSION, ADVERSE EFFECTS IF GROWTH IS NOT MANAGED PROPERLY, EXPOSURE TO
COST FLUCTUATIONS, AVAILABILITY OF LABOR, COMPETITION FROM OTHER RESTAURANTS,
CHANGING TRENDS, GOVERNMENT REGULATION, AVAILABILITY OF LOCATIONS WITH FAVORABLE
LANDLORD INCENTIVES AND ABILITY TO SECURE REQUIRED PERMITS AND LICENSING.
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The Company has agreed in principal to enter into a settlement agreement
with Huntley Financial Group ("Huntley"), a consultant hired by the Company to
assist it in negotiating a termination of its New Jersey lease. Under the
settlement, the Company would pay Huntley a total of $35,000, $4,375 of which
would be payable upon execution of a definitive settlement agreement, and the
balance payable in seven equal monthly installments. A definitive agreement has
been prepared and submitted to Huntley, but has not yet been executed.
The Company has agreed in principal to enter into a settlement agreement
terminating its lease in Ballston Commons Mall in Arlington, Virginia. The
project was then in the design phase. Under the settlement, the Company would
pay the landlord a total of $30,000, $5,000 of which would be payable upon
execution of a definitive settlement agreement, and the balance payable in five
equal monthly installments. A definitive agreement has been prepared and
submitted to the landlord, but has not yet been executed.
The Company has previously stated that it is executing a stabilization plan
which was developed to reduce the cash losses associated with operations. This
plan has involved the closing of units which failed to cover their direct
operating expenses and the implementation of certain reductions in corporate
overhead. It is not possible to forecast with certainty the effects of these
changes. From a timing standpoint, these changes should have impact during the
second quarter of fiscal 1998.
The Company has previously announced that it has entered into an LOI to
merge with Glazier Group. There are numerous conditions to the merger, and it is
not possible to forecast with certainty whether it will occur. Glazier Group has
been engaged to manage restaurant operations for the Company while the merger is
pending.
The Company has previously stated that it expected that cash generated by
operations and proceeds received from recent financing would be sufficient to
meet obligations until December 1998. Based on results for the first quarter of
fiscal 1998, the Company is not confident that this is any longer the case. The
Company believes that its possible merger with Glazier Group will provide needed
liquidity through the financing which is contemplated by Glazier Group and which
is a condition to the merger as described in the LOI. In the event that the
merger is not consummated as planned, the Company has discussed additional
financing with other sources of capital but does not have any commitments at
this time.
The Company has previously stated that it was notified by Nasdaq that it
would be delisted due to the Company's failure to meet continuing listing
requirements as established by Nasdaq. The Company requested an oral hearing
with Nasdaq to explain plans the Company has to cure its deficiency. These plans
are largely dependent on the possible merger with Glazier Group. On June 11,
1998, an oral hearing with Nasdaq was held and the Company discussed its plans.
It is not yet clear whether Nasdaq will continue the Company's listing pending
the merger. Nasdaq has requested that the Corporation's deficiency in tangible
net worth versus Nasdaq requirements be cured prior to the merger, and the
Company is doubtful that it will be able to do so.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 26, 1998, a lawsuit was filed against the Company in Washington,
D.C. captioned Mary Erickson v. Ciao Cucina Corporation, Case No. 98 CA003231,
in which the plaintiff, a kitchen employee, alleged sexual harassment by the
chef. The plaintiff seeks $300,000 in damages. Discovery has not yet been
completed, and it is thus too early to assess the outcome of the case, but the
Company believes the plaintiff's claims are without merit.
ITEM 2. CHANGES IN SECURITIES
On March 16, 1998, the Company issued 85,000 common shares to Parentis.
See discussion contained under "Commitments" on Page 7.
On March 23, 1998, the Company issued 40,800 common shares to Michael
Schuster Associates ("MSA"), an architectural and design firm engaged by the
Company for new locations. See discussion contained under "Commitments" on Page
8.
On June 9, 1998, the Company issued 50,000 common shares to Carl A.
Bruggemeier. See discussion contained under "Commitments" on Page 8.
On June 9, 1998, the Company issued 36,803 common shares to Parentis
Corporation. See discussion contained under "Commitments" on Page 9.
On June 15, 1998, the Company issued 25,000 common shares to Glaser
Capital Corp. Se discussion contained under "Commitments" on Page 9.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
1. Settlement and Consulting Agreement between the Company and Carl A.
Bruggemeier dated April 1, 1998, with Amendment No. 1 dated April 13, 1998, and
Amendment No. 2 dated May 27, 1998.
14
<PAGE> 15
2. Nonrecourse Note of Carl A. Bruggemeier as guaranteed by the Company.
3. Letter of Intent dated May 20, 1998, between the Company and The
Glazier Group, Inc.
4. Management Agreement dated May 21, 1998, between the Company and The
Glazier Group, Inc.
5. Promissory Note dated May 22, 1998, between the Company and Blue Chip
Capital Fund Limited Partnership.
6. Warrant dated May 22, 1998, between the Company and Blue Chip Capital
Fund Limited Partnership.
7. Note Purchase Agreement dated May 22, 1998, between the Company and
Blue Chip Capital Fund Limited Partnership.
8. Amended and Restated Registration Rights Agreement dated May 22, 1998,
between the Company and Blue Chip Capital Fund Limited Partnership.
b) Reports on form 8-K:
1. Current Report (January 20, 1998), attaching the Company's press
release dated January 20, 1998.
2. Current Report (April 1, 1998), attaching the Company's press release
dated April 16, 1998.
3. Current Report (May 21, 1998), attaching the Company's press release
dated May 21, 1998.
Each of the above reports on Form 8-K reported information described herein. No
financial statements were required or filed.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CIAO CUCINA CORPORATION
Date: June 16, 1998 By: /s/ Stephen J. Kent
-------------------------
Stephen J. Kent
President
16
<PAGE> 1
Exhibit 1
SETTLEMENT AND CONSULTING AGREEMENT
This SETTLEMENT AND CONSULTING AGREEMENT (the "Settlement Agreement"),
dated as of April 1, 1998, is between CIAO CUCINA CORPORATION ("CIAO") and CARL
A. BRUGGEMEIER ("Bruggemeier").
RECITALS:
WHEREAS, CIAO, as employer, and Bruggemeier, as employee, entered into
an Employment Agreement dated August 1, 1996, as amended by an Amendment dated
February 9, 1998(as so amended, the "Agreement"); and
WHEREAS, CIAO and Bruggemeier wish to terminate the Agreement without
further liability to either party, and modify their relationship on the terms
set forth hereinafter;
NOW, THEREFORE, the parties hereto agree as follows:
1. Mutual Releases.
(A) The Agreement is hereby terminated without further
liability or obligation thereunder to any party thereto.
(B) CIAO hereby: (i) releases and forever discharges
Bruggemeier from any and all claims, causes of action, demands, debts, suits,
duties, costs, liabilities, damages and/or expenses (collectively, "Damages")
arising under the Agreement and arising prior to the date hereof, including
without limitation such Damages as may be known or unknown, contingent or
otherwise, and as may now or hereafter exist; and (ii) cancels and forgives the
remaining $32,000 balance on the loan from CIAO to Bruggemeier and any interest
accrued thereon. CIAO acknowledges that the foregoing provision constitutes a
general release which is not subject to any condition or future event.
(C) Bruggemeier hereby releases and forever discharges CIAO,
and its shareholders, officers, directors, employees, agents, successors and
assigns, from any and all Damages arising under the Agreement and arising prior
to the date hereof, including without limitation such Damages as may be known or
unknown, contingent or otherwise, and as may now or hereafter exist. Bruggemeier
acknowledges that the foregoing provision constitutes a general release which is
not subject to any condition or future event.
(D) Each party hereto expressly warrants and represents to
each other that before executing this Settlement Agreement, said party has fully
informed itself of the terms, contents, conditions, and facts of this Settlement
Agreement, that it has relied solely and completely upon its own judgment in
executing this Settlement Agreement, that said party has had the opportunity to
seek the advice of its own independent counsel before executing this
<PAGE> 2
Settlement Agreement and has acted voluntarily and of its own free will in
executing this Settlement Agreement.
2. Consulting Services.
(A) Bruggemeier is hereby engaged by CIAO to consult with CIAO
and advise CIAO with respect to its ongoing business operations, when and to the
extent reasonably requested by CIAO.
(B) The engagement described in (A) above (the "Engagement")
shall commence on the date hereof, and shall terminate on February 28, 1999,
unless sooner terminated in accordance with the terms hereof.
(C) The Engagement may be terminated by CIAO prior to the date
on which it would otherwise expire for "cause" upon delivery by CIAO of written
notice of termination to Bruggemeier. As used herein, the term "cause" means:
(i) the breach by Bruggemeier of any material provision in this Agreement; (ii)
willful misconduct; (iii) failure to be reasonably available to provide
consulting services hereunder; (iii) habitual intoxication; (iv) drug addiction;
(v) conviction of a felony; or (vi) misappropriation of Company funds or assets.
(D) If CIAO terminates the Engagement for "cause", or if
Bruggemeier terminates the Engagement for any reason other than "good reason",
the Engagement shall automatically terminate without any further obligation on
the part of CIAO other than to pay any consulting fee accrued but unpaid through
the date of termination.
(E) If a "good reason" exists for Bruggemeier to terminate the
Engagement, Bruggemeier may terminate the Engagement by providing written notice
to the Company. If Bruggemeier terminates the Engagement for "good reason", CIAO
shall pay Bruggemeier within 10 days after notice of termination is received by
CIAO an amount equal to sum of the consulting fees to which he would otherwise
have been entitled for the remainder of the Engagement had it not been
terminated. As used herein, "good reason" means the failure or inability of CIAO
to pay Bruggemeier the consulting fee required hereunder.
(F) CIAO shall pay Bruggemeier a consulting fee during the
term of the Engagement in the aggregate amount of $115,000, payable as follows:
$15,000 shall be payable on or before April 10, 1998, and the balance shall be
payable in 10 equal monthly installments equal to $10,000, payable on or before
the 10th day of each month beginning May, 1998. Upon delivery of receipts or
other reasonable evidence, CIAO shall reimburse Bruggemeier for all reasonable
travel and other expenses incurred by him in the performance of his obligations
under this Agreement.
(G) The parties agree that Bruggemeier is an independent
contractor and shall provide the consulting services required hereunder at such
times as may be mutually convenient to both parties.
2
<PAGE> 3
3. Restrictive Covenants.
(A) Bruggemeier agrees that from and after the date hereof and
through December 31, 1999, he will not, directly or indirectly, engage in
(whether as an employee, consultant, proprietor, partner, director or
otherwise), or have any ownership interest in, or participate in the financing,
operation, management or control of, any person, firm, corporation or business
that engages in a "Restricted Business" anywhere within the "Restricted
Territory" (as such terms are defined below). It is agreed that passive
ownership of no more than five percent (5%) of the outstanding voting or profits
interest of any publicly held entity or business shall not in and of itself
constitute a violation of this provision.
(B) Bruggemeier agrees that from and after the date hereof and
through December 31, 1999, he will not: (i) solicit, recruit, hire, encourage or
take any other action which is intended to induce any employee or customer of
CIAO to terminate its, his or her employment or business relationship with CIAO;
and (ii) interfere in any manner with the business, contractual or employment
relationship between CIAO and any such employee or customer of CIAO.
(C) The term "Restricted Business" shall mean any full service
restaurant serving Italian or Mediterranean cuisine.
(D) The term "Restricted Territory" shall mean any area within
a 30 mile radius of any location or store now or hereafter owned, operated or
managed by CIAO.
(E) If, in any judicial proceeding, a court shall refuse to
enforce any of the covenants contained herein (or any part thereof), then with
respect to such unenforceable covenant (or such part) such court is hereby
authorized and directed to reform such provision to the maximum, time, scope or
geographic limitation, as the case may be, permitted by applicable laws.
(F) Bruggemeier represents that he is familiar with the
covenants not to compete and not to solicit contained herein and is fully aware
of his obligations hereunder and agrees that the length of time, scope and
geographic coverage of these covenants is reasonable given the benefits received
by him hereunder.
4. This Settlement Agreement, together with the documents and
agreements executed in connection herewith, represents the entire agreement
among the parties related to the subject matter hereof and supersedes all prior
or contemporaneous agreements.
5. This Settlement Agreement may not be changed, modified, discharged
or abandoned, in whole or in part, except pursuant to the expressed written
consents of all parties hereto.
3
<PAGE> 4
6. Neither this Settlement Agreement, nor the subject matter, terms or
any part hereof, nor the negotiations leading hereto nor discussions or
communications, written or oral relating hereto or any part thereof, shall: (a)
at any time for any reason be considered as an admission by any party that any
other party has any valid claim, right, cause of action or demand against such
party or had any loss, damage or injury as a result of any act of or omission by
such party of any kind or nature, or that any of the subsequent claims or
allegations of any party at any time had any validity or that any party at any
time had any liability to any other party of any kind whatsoever; (b) be
admissible as evidence in any arbitration, lawsuit or other proceeding involving
any of the parties hereto; or (c) be disclosed to any other party except to
comply with applicable legal requirements or the terms hereof, and then only
after securing the agreement of such other party to keep such matters strictly
confidential.
7. This Settlement Agreement shall be construed under and in accordance
with the laws of the State of Ohio applicable to contracts entered into in Ohio
by Ohio residents to be performed wholly within Ohio.
8. Each party, and each person executing this Settlement Agreement on
behalf of a party, represents that the person signing this Settlement Agreement
on behalf of the party has been duly authorized to do so by all necessary
corporate action so that this Settlement Agreement represents the valid and
binding agreement of the party.
9. This Settlement Agreement may be executed in counterparts which
taken together shall constitute one binding agreement, not withstanding the fact
that all parties have not signed the same copy.
10. This Settlement Agreement shall be binding upon and shall inure to
the benefit of each of the parties hereto and their respective heirs, successors
and assigns.
IN WITNESS WHEREOF, the parties have caused this Settlement Agreement
to be executed and witnessed as of the date and year first set forth above.
Witnessed by: CIAO CUCINA CORPORATION
By: /s/ John Wyant
- ------------------------- --------------------------
Title:
- ------------------------- -----------------------
/s/ Catherine C. Jetter /s/ Carl A. Bruggemeier
- ------------------------- -----------------------------
/s/ Laura K. Robinson CARL A. BRUGGEMEIER
- -------------------------
4
<PAGE> 5
AMENDMENT TO SETTLEMENT AND CONSULTING AGREEMENT
This AMENDMENT TO SETTLEMENT AND CONSULTING AGREEMENT (the
"Amendment"), dated as of April 13, 1998, is between CIAO CUCINA CORPORATION
("CIAO") and CARL A. BRUGGEMEIER ("Bruggemeier").
RECITALS:
WHEREAS, CIAO and Bruggemeier entered into a Settlement and Consulting
Agreement dated April 1, 1998 (the "Agreement"); and
WHEREAS, the parties wish to clarify and confirm certain
provisions of the Agreement as set forth hereinafter;;
NOW, THEREFORE, the parties hereto agree as follows:
1. Notwithstanding anything contained in the Agreement, the term of the
consulting services to be provided by Bruggemeier thereunder is 10 months
beginning April 1, 1998, and the consulting fee payable by CIAO for such
services equals a total of $100,000, payable in ten monthly installments of
$10,000 beginning April 1, 1998.
2. Effective on the date hereof, Bruggemeier resigns as a Director of
CIAO.
3. Except as amended hereby, the Agreement remains in full force and
effect. In the event of any ambiguity or inconsistence between the terms hereof
and the Agreement, the terms hereof shall control.
IN WITNESS WHEREOF, the parties have caused this Settlement Agreement
to be executed and witnessed as of the date and year first set forth above.
Witnessed by: CIAO CUCINA CORPORATION
By: /s/ John Wyant
- ------------------------- -----------------------------
Title:
- ------------------------- -----------------------------
/s/ Carl A. Bruggemeier
- ------------------------- -----------------------------
CARL A. BRUGGEMEIER
- -------------------------
<PAGE> 6
SECOND AMENDMENT TO SETTLEMENT AND CONSULTING AGREEMENT
This SECOND AMENDMENT TO SETTLEMENT AND CONSULTING AGREEMENT
(the "Amendment"), dated as of May 27, 1998, is between CIAO CUCINA CORPORATION
("CIAO") and CARL A. BRUGGEMEIER ("Bruggemeier").
RECITALS:
WHEREAS, CIAO and Bruggemeier entered into a Settlement and Consulting
Agreement dated April 1, 1998, and amended on April 13, 1998 (as amended, the
"Agreement"); and
WHEREAS, the parties wish to clarify and confirm certain provisions of the
Agreement as set forth hereinafter;
NOW, THEREFORE, the parties hereto agree as follows:
1. As payment in full for the Consulting Services to be provided by
Bruggemeier under the Agreement, the Corporation shall: (a) pay Bruggemeier
$10,000 in cash within 10 days after the date hereof; and (b) issue Bruggemeier
50,000 shares of common stock (the "Shares") on the terms set forth herein.
2. The Corporation shall cause 40,000 of the Shares to be issued to
Bruggemeier as soon as reasonably possible after the execution hereof. The
remaining 10,000 Shares (the "escrow Shares") shall be held in escrow by the
Corporation until the earlier of: (a) the closing of a merger involving the
Corporation; and (2) March 1, 1999; provided, that if the Engagement is
terminated by Ciao for "cause" (as defined in the Agreement) before the Escrow
Shares are issued to Bruggemeier, any obligation of the Corporation to issue the
Shares to Bruggemeier shall, in addition to any other available remedy,
thereupon be canceled, and any right, title or interest of Bruggemeier in, to
and under the Escrow Shares shall thereupon be terminated.
3. Except as amended hereby, the Agreement remains in full force and
effect. In the event of any ambiguity or inconsistence between the terms hereof
and the Agreement, the terms hereof shall control. Terms capitalized but not
defined herein shall be given the respective meanings ascribed thereto in the
Agreement.
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Second Amendment to be
executed as of the date and year first set forth above.
Witnesses by: CIAO CUCINA CORPORATION
By: /s/ Stephen J. Kent
- -------------------------- -------------------------------
Title:
- -------------------------- ----------------------------
/s/ Carl A. Bruggemeier
- -------------------------- ----------------------------------
CARL A. BRUGGEMEIER
- --------------------------
<PAGE> 1
Exhibit 2
NONRECOURSE PROMISSORY NOTE
For value received, CARL A. BRUGGEMEIER ("Debtor"), promises to pay to
the order of GLASER CAPITAL PARTNERS ("Payee"), at such place as Payee may from
time to time designate in writing, the principal sum of $60,000. (Payee has
advanced $50,000 on the date hereof which Debtor acknowledges. Payee shall
advance an additional $10,000 to Debtor within 30 days of the date hereof. If
and to the extent Payee does not advance the additional $10,000, the outstanding
principal for interest calculations shall reduced and the number of Shares to be
assigned to Payee as set forth below shall be proportionately reduced.) Interest
in the amount of 8% per annum shall accrue on the outstanding principal.
Debtor hereby represents and warrants that he owns 201,757 shares of
common stock (the "Shares") of CIAO CUCINA CORPORATION ("CIAO") free and clear
of any and all claims, interests and encumbrances, save and except the escrow of
the Shares under that certain Escrow Agreement dated November 20, 1996 (the
"Escrow Agreement"). Debtor hereby assigns, conveys, transfers and sells the
Shares to Payee if and when the Shares are released from escrow under the Escrow
Agreement. Upon the release of the Shares from such escrow, Debtor shall execute
such additional assignments and other documents as Payee may reasonably request
to evidence, confirm, perfect, consummate or further the sale of the Shares to
Payee. Until the Shares are released from such escrow, Debtor shall execute such
powers of attorney and/or proxies in favor of Payee as Payee may reasonably
request to vest in Payee all voting rights applicable to the Shares. If and to
the extent the Shares are released from escrow under the Escrow Agreement, the
amount due hereunder shall be reduced by the then fair market value of the
Shares, applied first to all accrued but unpaid interest and then to the
outstanding principal. Any then fair market value in excess of the amount due
hereunder shall belong exclusively to Payee.
The outstanding principal and all accrued but unpaid interest shall be
due and payable upon the first to occur of: (1) the sale by CIAO of all or
substantially all of its assets; (2) any merger or consolidation involving CIAO
in which CIAO is not the surviving entity; (3) any voluntary or involuntary
filing of a petition in bankruptcy by or against CIAO; or (4) any appointment by
or against CIAO of a receiver or trustee. Notwithstanding anything contained
herein, Payee's sole and exclusive recourse against Debtor with respect to the
repayment of this Note is to attach, execute and/or proceed to take title to the
Shares; Debtor shall have no liability or obligation to make any monetary
payment to Payee, except to the extent of any damages or costs incurred by Payee
as a result of any breach by Debtor of his agreements herein.
<PAGE> 2
This Note may be prepaid at any time without penalty or charge. Debtor
hereby waives presentment, demand, protest, notice of protest and notice of
dishonor in all other notices or demands in connection with this Note.
This Note shall be governed by the laws of the State of Ohio, and may
not be changed or terminated orally.
As used herein, "Payee" means the Payee identified herein, and any
assignee of such Payee.
DEBTOR:
/s/ Carl A. Bruggemeier
- --------------------------
CARL A. BRUGGEMEIER
Date: 4/6/98
----------------------
GUARANTEE
CIAO CUCINA CORPORATION (the "Guarantor")hereby guarantees, absolutely
and without limitation, the timely payment of all amounts due under this
Promissory Note when and as the same become due under the terms hereof.
Guarantor acknowledges and agrees that Guarantor is liable for the full amount
due under the Note and that Payee shall have all available rights and remedies
against Guarantor to collect the full amount Payee is entitled to under the
Note.
CIAO CUCINA CORPORATION
By: /s/ Scott P. Kadish
----------------------
Title: Secretary
--------------------
Date: April 6, 1998
--------------------
- 2 -
<PAGE> 1
Exhibit 3
CIAO CUCINA CORPORATION
700 Walnut Street
Suite 300
Cincinnati, Ohio 45202
(513) 241-9161
- ------------------------------------------------------------------------------
May 20, 1998
Mr. Peter H. Glazier
The Glazier Group, Inc.
116 John Street
Suite 1102
New York, New York 10038
Re: Merger
Dear Peter:
This letter sets forth our understanding of the principal terms and
conditions under which The Glazier Group, Inc. ("Group") will merge with Ciao
Cucina Corporation ("Ciao"). The purpose of this letter is to confirm, before
proceeding to prepare and negotiate definitive contracts, that the parties have
the same understanding of the material terms of the proposed transactions.
1. Merger. A to-be-formed wholly owned subsidiary of Ciao ("Merger
Sub") shall merge with and into Group such that as of the closing of such merger
(the "Merger") the separate corporate existence of Merger Sub shall terminate
and Group shall be the "Surviving Corporation" and a wholly-owned subsidiary of
Ciao. Upon the closing of the Merger, Ciao shall change its name to The Glazier
Group, Inc. The Merger shall be structured so as to qualify as a tax-free
reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code.
2. Stock Conversion. Upon the closing of the Merger, each share of
Group common stock then issued and outstanding shall be converted into the right
to receive such number of Ciao shares that will equal 81% of the aggregate
outstanding shares of Ciao and the warrants described below. In connection with
the Merger, Ciao shall consummate a reverse 10 for 1 stock split.
3. Group Reorganization. Prior to the closing of the Merger, Group
shall acquire (by way of merger, acquisition or otherwise) all or substantially
all assets of Delta Dallas Alpha
<PAGE> 2
May 20, 1998
Page 2
Corp., Tapika, Inc., Monkey Bar Limited Partnership, Penny Port LLC and any
other restaurants, catering businesses and management contracts owned or
controlled by Peter Glazier. At the closing of the Merger, Group will own all
such assets free and clear of any security interests.
4. Ciao Rights Offering. Upon the closing of the Merger and after
consummation of the reverse stock split, the shareholders of Ciao who were
shareholders of Ciao immediately prior to the closing of the Merger shall
receive the right to purchase one common share of Ciao for every one share then
held at the net price per share in the Secondary Offering received after
deduction of all underwriting fees and expenses, legal, accounting and printing
fees and commissions. The rights shall be non-transferrable, and shall expire if
not exercised within two years of the effective date of the Secondary Offering.
5. Group Warrants. Upon the closing of the Merger and after
consummation of the reverse stock split, the shareholders of Group shall receive
warrants to purchase up to 8% of Ciao if: (a) the Michael Jordan's The Steak
House achieves during its first 12 months of operations sales equal to or
greater than $5,461,087; and (b) the Steakhouse is profitable during such
12-month period. The warrants shall be non-transferrable, and shall expire if
not exercised within two years of issuance. The exercise price of the warrants
shall equal $1.25 per share.
6. Secondary Offering. It is the intention of the parties that upon, or
as soon as possible after, the closing of the Merger, Ciao shall conduct a
secondary public offering of its common stock to raise a minimum of $12 Million.
7. Management Agreement. Pending the closing of the Merger, Group shall
be engaged to manage the business operations of Ciao. The parties shall
negotiate in good faith and execute a management agreement as soon as reasonably
possible incorporating the following terms:
(a) Term. The management agreement shall continue until the
first to occur of: (i) the closing of the Merger; (ii) the termination (without
fault) of this Letter of Intent or any Merger Agreement executed in connection
herewith; or (iii) December 31, 1999. Notwithstanding the foregoing, either
party may cancel the management agreement upon 30 days written notice to the
other.
<PAGE> 3
May 20, 1998
Page 3
(b) Duties and Authority of Group. Group shall manage and
operate the Ciao restaurants in a prudent and businesslike manner and shall
devote such part of its time and attention to the management and operation of
such restaurants as it shall deem necessary or appropriate to manage and operate
them as clean, well managed, first class restaurants. Group shall manage and
operate the restaurants in accordance with all applicable laws, rules,
regulations and requirements of all governmental authorities having jurisdiction
over the restaurants. The duties of Group shall include: (i) hiring, firing and
training all employees of the restaurants; (ii) purchasing; (iii) menu designs
and selections; (iv) insurance; (v) advertising and promotions; and (vi)
maintenance and repairs. Group shall not sell or encumber any asset of Ciao
except in the ordinary course of business, nor shall Group incur any material
liability for Ciao outside the ordinary course of business, without the prior
consent of Ciao.
(c) Compensation. Group shall be paid during the term of the
management agreement an amount equal to 4% of food and beverage revenues
generated by the Ciao restaurants, less any consulting fees paid or payable to
Carl Bruggemeier. The management fee shall be paid monthly to the extent of Net
Cash Flow current and/or accumulated. If and to the extent that Net Cash Flow is
insufficient to pay the management fee for any 4-week period, the fee shall be
paid pursuant to a note bearing interest at the rate of 8.5% per annum.
Subsequent management fees shall be applied first to the outstanding balance on
the oldest note(s). "Net Cash Flow" means revenue from the sale of food and
beverage, without deduction for depreciation, but after all other expenses other
than the management fee. The management agreement shall contain customary
indemnification of Group by Ciao, and to the extent possible, Group shall be
covered by Ciao's Director's & Officers' Errors and Omissions Insurance.
(d) Reporting. Group shall provide Ciao with a written
management report within 14 days after the end of each 4- week period, and
within 30 days after the end of each calendar quarter. This report shall include
an income statement, reconciled bank statements, aged accounts payable and a
management assessment. Group shall further be available to consult with Ciao
regarding business expansion, consolidation issues and financing.
8. Transaction Documents. The transactions shall be contingent upon the
parties executing the following mutually acceptable agreements and documents
(the "Transaction Documents"):
(a) An Agreement and Plan of Merger which shall contain normal
and customary representations, warranties, covenants and conditions.
<PAGE> 4
May 20, 1998
Page 4
(b) The Management Agreement as described above.
(c) Warrants and options necessary to consummate the Ciao
Rights Offering and Group Warrants described above.
(d) Agreements of the principal shareholders of Ciao and Group
to vote in favor of the Merger and transactions contemplated hereby.
(e) Registration rights agreements among Ciao and its
principal shareholders.
(f) Such other agreements, assignments and documents as any
party may reasonably request to confirm, evidence, consummate or
perfect the transactions contemplated hereby.
Execution of the definitive agreements and consummation of the Merger
will be conditioned on: (i) the satisfactory completion by Group and Ciao of due
diligence on the other; (ii) the agreement on a pro-forma balance sheet for Ciao
and Group as of the Merger; (iii) the approval of the Merger by the respective
Boards of Directors and shareholders of the parties; (iv) the effectiveness
under Federal securities laws of all documents relating to the Merger; and (v)
the receipt of all necessary governmental approvals and third party consents,
including those related to liquor licenses and leases.
In addition, promptly after execution of a definitive Merger Agreement,
each party shall cause all accounting statements and filings to be made with the
Securities and Exchange Commission ("SEC") and mailings and statements to
shareholders necessary or appropriate to consummate the transactions
contemplated hereby (including the Secondary Offering) to be prepared as
expeditiously as possible.
7. Agreements Pending Closing. Between the date of the execution of
this letter by all parties and the earlier of the termination of this Letter in
accordance with the terms hereof and the execution of a definitive Merger
Agreement both Ciao and Group shall operate their respective business only in
the ordinary course of business, and in particular shall not sell, or encumber,
or agree to sell or encumber, any material asset, incur any extraordinary
liability, enter into any extraordinary contract or assign, terminate or amend
any material contract or sell or issue
<PAGE> 5
May 20, 1998
Page 5
any equity interest or option (except for the exercise of existing options),
except as contemplated hereby or with the prior consent of the other.
8. No Shop Agreement. Ciao will not, nor will it permit any of its
officers, directors, employees, financial advisers, brokers, stockholder or any
person acting on Ciao's behalf, to solicit or cause to be solicited on behalf of
Ciao or its shareholders, or provide or cause to be provided information to any
third party in connection with, any proposal or offer from a third party with
respect to the proposed merger, or sale of all or substantially all of its
assets, until the date , if any, that this letter and/or the transactions
contemplated by this letter have been terminated or abandoned by parties in
accordance with the terms of this letter. Nothing herein shall prevent Ciao or
any such persons on behalf of Ciao from doing any of the foregoing in response
to an unsolicited expression of interest from an unrelated party if Ciao's Board
of Directors determines such action to be in the best interests of Ciao's
shareholders.
9. Termination. If: (a) the parties have not entered into a definitive
Management Agreement by May 22, 1998; (b) the parties have not entered into a
definitive Merger Agreement by June 30, 1998; (c) the parties have not received
a highly confident letter from an underwriter acceptable to it regarding the
Secondary Offering (including the use of the proceeds thereof and the ability of
shareholders to participate therein) by July 1, 1998; or (d) the Merger does not
close by December 31, 1998 (the foregoing events being referred to herein as
"Milestones"), either party may terminate this letter without further liability
at any time after the date on which the particular Milestone was supposed to be
reached but prior to the occurrence of the Milestone. In the event Ciao enters
into an agreement to merge with, or sell all or substantially all of its assets
to, any other party prior to the earlier of June 30, 1998 or the execution of a
definitive Merger Agreement, Ciao shall thereupon reimburse Group for all legal
and accounting expenses incurred by it as a result of the transactions
contemplated hereby up to a maximum of $50,000.
10. Disclosure. The parties confirm the continuing validity of any
confidentiality agreement signed prior to the date of this letter, and its
application to this Letter and all due diligence materials provided in
connection herewith. In addition, the parties agree that there shall be no
public announcement regarding this Letter or the transactions contemplated
hereby without the mutual consent of all parties, except as required by law.
<PAGE> 6
May 20, 1998
Page 6
We shall commence negotiation and preparation of all Transaction
Documents and preparation of all required accounting statements and SEC filings
immediately upon the execution of this letter by you. We agree to negotiate the
substance of the Transaction Documents in good faith and to complete such
negotiations as soon as is reasonably possible. Except for paragraph 7, our
mutual obligation to negotiate and proceed in good faith in accordance with the
terms set forth herein, this is a letter of intent only and does not bind us in
any other way.
If the foregoing is an accurate recitation of our mutual understanding,
please execute this letter in each space provided below for that purpose and
return it to me.
Sincerely,
Ciao Cucina Corporation
By: /s/ John H. Wyant
-------------------------
Agreed to by:
The Glazier Group, Inc.
By: /s/ Peter H. Glazier
-----------------------------
Title: President
--------------------------
Date: 5-20-98
---------------------------
<PAGE> 1
Exhibit 4
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement"), dated as of May 21, 1998,
is between CIAO CUCINA CORPORATION, an Ohio corporation (the "Owner"), and THE
GLAZIER GROUP, INC., a New York corporation (the "Manager").
RECITALS:
WHEREAS, Owner operates five restaurants known as "Ciao Cucina" in the
locations listed on Exhibit A hereto (the "Restaurants"); and
WHEREAS, Owner and an affiliate of Manager have entered into a Letter
of Intent dated May 20, 1998 (the "Letter of Intent") which contemplates that
Manager would merge with Owner (the "Merger"); and
WHEREAS, Owner desires to engage Manager to manage and operate the
Restaurants pending closing of the Merger on the terms set forth hereinafter,
and Manager desires to accept such engagement;
NOW, THEREFORE, the parties agree as follows:
1. Retention of Manager. Upon the terms and subject to the conditions
hereinafter set forth, Owner hereby retains Manager to manage and operate
Restaurants, and Manager hereby accepts such position.
2. Term and Early Termination. This Agreement shall commence as of the
date hereof, and shall continue until the first to occur of: (a) the closing of
the Merger; (b) the termination (without fault) of the Letter of Intent or any
Merger Agreement executed in connection therewith; or (c) December 31, 1999.
Notwithstanding the foregoing, either party may cancel this Agreement upon 30
days written notice to the other party at any time during the term of this
Agreement.
3. Duties and Authority of Manager as Manager. Manager shall manage and
operate Restaurants in a prudent and business like manner and shall devote such
part of its time and attention to the management and operation of Restaurants as
it shall deem necessary or appropriate to manage and operate Restaurants as
clean, well managed, first class restaurants. Manager shall manage and operate
the Restaurants in accordance with all applicable laws, rules, regulations and
requirements of all governmental authorities having jurisdiction over the
Restaurants. The duties of Manager hereunder shall include, without limitation,
those specific duties set forth below.
(a) Personnel. On behalf of, at the sole expense of Owner, Manager
shall hire, train, fix the compensation of, supervise and discharge all such
suitable employees, agents, independent contractors and custodians as Manager
shall deem necessary or
<PAGE> 2
appropriate to properly manage and operate the Restaurants as clean, well
managed, first class restaurants. All such persons shall be the employees or
independent contractors of Owner. Owner shall be responsible for withholding all
required taxes and other deductions from and paying before due all employer
taxes and contributions which respect to all such employees and independent
contractors of Manager in connection with Manager's operation of the
Restaurants.
(b) Advertising. In conjunction with the Owner, Manager shall
participate in the development of and placing of all advertising and promotional
materials for the Restaurants. Such advertising and promotional materials shall
be placed with such frequency and shall be in such form and content as Manager
and Owner shall deem necessary or appropriate to properly manage and operate the
Restaurants as clean, well managed, first class restaurants. Owner shall be
solely responsible for all such advertising and promotional costs and expenses.
(c) Financial Performance. Manager shall from time to time review
financial records of the Restaurants and take such measures which Manager
reasonably believes shall enhance the overall financial performance of the
Restaurants. Such measures shall be undertaken on behalf of and at the sole
expense of Owner. Manager shall provide Owner with a written management report
within 14 days after the end of each 4-week period, and within 30 days after the
end of each calendar quarter. This report shall include an income statement,
reconciled bank statements, aged accounts payable and a management assessment.
Manager shall further be available to consult with Owner regarding business
expansion, consolidation issues and financing.
(d) Maintenance of Restaurants. In conjunction with the Owner, Manager
shall maintain the Restaurants and make such ordinary repairs and capital
improvements to the Restaurants as Manager and Owner shall deem necessary or
appropriate to properly manage and operate the Restaurants as clean, well
managed, first class restaurants, including without limitation, those ordinary
repairs and capital improvements customarily done in the restaurant industry to
provide a well managed, first-class operation. Owner and not Manager shall be
responsible for the cost of any maintenance, repairs and/or improvements
performed or made hereunder.
(e) Contracts. With the approval of Owner, Manager is hereby granted
authority to administer and supervise existing contracts in the name and on
behalf of Owner and to make new contracts or additional contracts in the name
and on behalf of Owner for electricity, gas, water, sewer, telephone, cleaning,
trash disposal, and any other utilities or services which Manager shall deem
necessary or appropriate to properly manage and operate the Restaurants as
clean, well managed, first class restaurants. Any
- 2 -
<PAGE> 3
undertaking with respect to contracts under this Subsection 3(e) shall be on
behalf of and at the sole expense of Owner.
(f) Purchases. On behalf of and at the sole expense of Owner, Manager
shall purchase such inventory, foodstuffs, supplies and equipment in the name of
Owner as Manager shall deem necessary or appropriate to properly maintain and
operate the Restaurants as clean, well managed, first-class Restaurants.
(g) Menus. Manager shall implement and change the menus and offerings
for the Restaurants, and the menu design and lay-out, as it deems appropriate,
provided such menus and offerings are consistent with the theme and style of the
Restaurants. The cost of any menu changes shall be paid for by Owner.
(h) Insurance. Subject to Manager's review during the next 30 days,
Manager shall maintain, obtain and/or keep in effect such insurance policies for
the Restaurants as Manager deems to be prudent for the Restaurants under the
circumstances. All such policies shall be paid for by Owner.
(j) Management. Any salary or other amount due Peter H. Glazier for
management services rendered to Owner shall be at Manager's sole cost and
expense.
(k) Other Acts. Manager shall take all such other steps as Manager
shall deem necessary or appropriate to properly manage and operate the
Restaurants as clean, well managed, first class restaurants. Any such acts of
Manager under this subsection (k) shall be undertaken on behalf of and at the
sole expense of Owner.
(l) Limitation of Authority. Notwithstanding anything herein contained,
Manager shall not, without the consent of Owner being first obtained, do,
perform or commit any of the following acts:
(i) Sell or encumber the Restaurants, or any of the
assets or liquor licenses used therein, except in the ordinary
course of business;
(ii) Amend or terminate any lease for the Restaurants in
any fashion whatsoever; or
(iii) Make any capital expenditure or financial commitment in
excess of $5,000.00, except in the case of emergency repair.
4. Compensation of Manager. Manager shall be paid during the term of
this Agreement a management fee (the "Management Fee") equal to: (a) 4% of food
and beverage revenues generated by the Restaurants; less (b) any consulting fees
paid or payable to Carl Bruggemeier by Owner. The Management Fee shall be paid
monthly within 15 days after the end of each 4-week period to the extent of Net
Cash Flow current and/or accumulated. If and to the extent
- 3 -
<PAGE> 4
that Net Cash Flow is insufficient to pay the Management Fee for any 4-week
period, the unpaid Management Fee shall be paid pursuant to a note bearing
interest at the rate of 8.5% per annum. Subsequent Management Fees shall be
applied first to the outstanding balance on the oldest note(s). All notes shall
be due in full upon the earlier of (i) the closing of the Secondary Offering,
and (b) one year from the termination of the Letter of Intent or any Merger
Agreement executed in connection therewith. "Net Cash Flow" means revenue from
the sale of food and beverage, without deduction for depreciation, but after all
other expenses other than the Management Fee.
5. Outside Ventures. Owner expressly acknowledges and agrees that
Manager may engage in or possess an interest in any other business venture of
any type and description, independently or with others, including without
limitation, ventures involving the development of concepts for and/or management
and operation of restaurants (whether or not the same may be competitive with
the Restaurants) and that its engagement in any possession of such interests in
any such venture are expressly permitted under this Agreement.
6. Indemnification. Owner shall indemnify and save harmless Manager
against and from any personal loss, liability or damage incurred by it as a
result of any act or omission in connection with the performance of obligations
hereunder, except to the extent caused by the negligence or misconduct of
Manager.
7. Independent Contractor. The parties agree and acknowledge that
Manager's relationship with Owner in the performance of obligations hereunder is
that of an independent contractor, and not that of an employee of Owner.
Accordingly, Owner shall neither exercise control over the activities of Manager
nor be obligated to make any payments, withhold any portion of fees payable to
Manager or take any other action pursuant to any federal, state or local law
dealing with income or social security tax withholding, or employment of
worker's compensation insurance, or any other law dealing with the obligations
of an employer to its employees. Manager shall report its income for tax
purposes and generally conduct itself in the performance of its obligations
hereunder in a manner consistent with such independent contractor status.
8. Disclaimer of Partnership Status. Nothing in this Agreement shall be
deemed in any way to create between the parties hereto any relationship of
partnership, joint venture or association, and the parties hereby disclaim the
existence thereof.
9. Notices. Any notice or other communication required or desired to be
given hereunder shall be in writing and shall be deemed sufficiently given when
personally delivered or when mailed by first class, certified mail, return
receipt requested and postage prepaid, addressed to the parties at their last
known
- 4 -
<PAGE> 5
addresses. Stephen Kent is hereby appointed as the representative of Owner, and
Manager shall be entitled to rely on any consent or authorization by him as
fully binding Owner, provided Owner may replace Kent as such representative with
any other person appointed by its Board of Directors and acceptable to Manager
upon prior notice to Manager.
10. Assignment. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against the successors and assigns of
Owner and Manager. Neither this Agreement nor any rights or obligations
hereunder shall be assignable by Owner or Manager and any purported assignment
by either of them without the prior written consent of the other shall be void
and of no force of effect.
11. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio. Any note issued hereunder
shall be governed by and construed in accordance with the laws of New York.
12. Entire Agreement. This Agreement constitutes the entire Agreement
between Owner and Manager concerning the subject matter hereof and supersedes
any and all previous agreements between the parties concerning the subject
matter hereof. This Agreement cannot be amended or modified in any respect,
unless such amendment or modification is evidenced by a written instrument
executed by Owner and Manager.
IN WITNESS WHEREOF, the parties hereto, each by a duly authorized
officer, have executed this Agreement as of the date first set forth at the
beginning hereof.
Manager:
THE GLAZIER GROUP, INC.
By: /s/ Peter H. Glazier
---------------------------
President
Its:
---------------------------
Owner:
CIAO CUCINA CORPORATION
By: /s/ John H. Wyant
---------------------------
Its:
---------------------------
- 5 -
<PAGE> 1
Exhibit 5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT").
BY THE ACCEPTANCE HEREOF, THE PURCHASER OF THIS NOTE REPRESENTS THAT THIS NOTE
IS BEING ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION AND THAT
THIS NOTE MAY NOT BE OFFERED, SOLD OR OTHERWISE PLEDGED, HYPOTHECATED OR
TRANSFERRED UNLESS SUCH TRANSACTION IS REGISTERED UNDER THE ACT, AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE OR AN
OPINION OF LEGAL COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED IS RECEIVED.
CIAO CUCINA CORPORATION
PROMISSORY NOTE
U.S. $100,000 Cincinnati, Ohio
May 22, 1998
1. FOR VALUE RECEIVED, the undersigned CIAO CUCINA CORPORATION, an Ohio
corporation (the "Company"), hereby promises to pay to the order of Blue Chip
Capital Fund Limited Partnership, a Delaware limited partnership (including any
successor holder hereof, the "Purchaser"), the principal sum of One Hundred
Thousand Dollars (U.S. $100,000) or, if less, the principal amount outstanding
under this Note. Interest on the principal amount hereof shall accrue from the
date advanced to the date paid at the rate of 14% per annum (provided that upon
and during the continuance of an Event of Default (as defined below), interest
shall accrue at the rate of 18% per annum or, if less, at the highest rate
permitted by law). The outstanding principal amount hereof, together with all
interest accrued thereon, shall be payable on December 31, 1998 or earlier as
provided herein. Upon and during the continuance of an Event of Default and at
and after maturity, interest shall be payable on demand. Principal and interest
shall be paid in lawful money of the United States at the principal office of
the Purchaser or at such other address of which the Purchaser shall have
notified the Company in writing. This Note is issued pursuant to the terms of
the Note Purchase Agreement of even date herewith (the "Note Purchase
Agreement") between the Company and the Purchaser and is entitled to the benefit
thereof and of the security documents referred to therein.
2. The Company agrees that until this Note is paid in full:
(a) Corporate Existence and Compliance with Laws. The Company shall
preserve and maintain its corporate existence in good standing under the laws of
the State of Ohio and comply in all material respects with all laws,
regulations, governmental orders and authorizations, and court orders material
to the continuing conduct of the Company's business or to the Company's
performance of its obligations under this Note. The Company shall not amend its
Articles of Incorporation or Code of Regulations.
<PAGE> 2
(b) Merger or Transfer of Assets. The Company shall not be a party
to any merger or consolidation or sell, transfer, lease or convey all or
substantially all of its property.
(c) Financial Reporting. The Company shall supply to the Purchaser
such financial and operating information as the Purchaser may reasonably
request.
(d) Dividends and Redemptions. The Company shall not pay any
dividend or make any distribution with respect to its stock or redeem or
purchase any shares of its stock or make any loan to a shareholder, other than
customary expense advances.
(e) Change in Business. The Company shall not engage in any business
other than the business being conducted by it on the date hereof.
(f) Transactions with Affiliates. The Company shall not enter into
any transaction with any shareholder, director, officer, employee, agent or
affiliate other than in the ordinary course of business and on terms no less
favorable to the Company than a similar transaction with an unaffiliated third
party.
(g) Use of Proceeds. The Company shall use the proceeds of the loan
made hereunder for working capital.
(h) Liens and Encumbrances. The Company shall not create or permit
any lien or encumbrance upon any of its assets to secure any indebtedness for
borrowed money or any deferred payment obligation for goods or services.
3. Limited Transferability. This Note has not been registered under the
Securities Act of 1933 and may be transferred only pursuant to an effective
registration thereunder or an exemption from registration thereunder and in
compliance with applicable state securities laws. This Note may not be
transferred if such transfer would require any registration or qualification
under, or cause the loss of exemption from registration or qualification under,
such Act or any applicable state securities law with respect to the Note. This
Note shall bear an appropriate legend with respect to such restrictions on
transfer. This Note is transferable only upon the books which the Company shall
cause to be maintained for such purpose. Any assignment or transfer may be made
by surrendering this Note to the Company together with the attached assignment
form properly executed by the assignor or transferor. Upon such surrender the
Company will execute and deliver, in the case of an assignment or transfer in
whole, a new Note in the name of the assignee or transferee or, in the case of
an assignment or transfer in part, a new Note in the name of the assignee or
transferee named in such instrument of assignment or transfer and a new Note in
the name of the assignor or transferor covering the portion of this Note not
assigned or transferred to the assignee or transferee.
- 2 -
<PAGE> 3
The Holder may not assign or transfer this Note, other than to an affiliate or
one of its partners, without the consent of the Company, which shall not be
unreasonably withheld.
4. Loss, etc. of Note. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note, and of
indemnity in form and amount reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Note, if
mutilated, and upon reimbursement of the Company's reasonable incidental
expenses, the Company shall execute and deliver to the Holder a new Note of like
date, tenor and denomination.
5. Events of Default. (a) The unpaid principal and interest hereof may
be accelerated and immediate payment hereof may be demanded by the Purchaser
upon the occurrence of an Event of Default as defined below (provided, in the
case of an Event of Default described in clause (ii) below, such acceleration
shall be automatic without any action by the Purchaser). The following are the
Events of Default:
(i) The Company fails to pay the principal of this Note when due.
(ii) The Company or any guarantor of this Note is the debtor in a
bankruptcy, receivership, Chapter XI or other insolvency proceeding,
is generally unable to pay its debts when due, or makes an assignment
for the benefit of creditors.
(iii) The Company violates in any material respect any other
covenant, agreement or condition contained in this Note or in the Note
Purchase Agreement or any document executed pursuant thereto.
(iv) The Company does not pay any principal or interest on any
borrowed money obligation or capitalized lease with an aggregate
unpaid principal amount of $10,000 or more when due and any applicable
grace period expires or the holder of such other obligation is
entitled to declare such obligation due prior to its stated maturity
because of the occurrence of an event of default by the Company with
respect thereto.
(v) Any representation or warranty made by the Company in the
Note Purchase Agreement or any document executed pursuant thereto was
incorrect in any material respect when made.
(vi) The Company is liquidated, dissolved or ceases to operate
its business.
- 3 -
<PAGE> 4
(vii) The Company is in default under the terms of any other
agreement to which it is a party, which default is reasonably likely
to have a material adverse effect on the Company's assets, business,
results of operations, financial condition or prospects.
(viii) Any final judgment of a court in excess of $25,000 is
rendered against the Company and is not stayed or discharged within 30
days.
(ix) Any person or group of persons other than the shareholders
of the Company on the date hereof acquires more than 25% of the voting
power of the Company.
(x) Neither Stephen J. Kent nor a representative of The Glazier
Group shall be serving as chief executive officer of the Company.
(xi) In the good faith opinion of the Purchaser, there shall
occur any material adverse change in the earnings, assets, financial
condition, business or prospects of the Company or the Purchaser shall
deem itself to be insecure.
(b) The Company shall immediately give notice to the Purchaser
in writing upon the occurrence of an Event of Default or any event which, with
notice or lapse of time or both, would become an Event of Default.
6. Miscellaneous. (a) This Note shall be governed by and construed in
accordance with the laws of the State of Ohio applicable to agreements made and
to be performed therein.
(b) The Company waives presentment, protest and notice of
dishonor of this Note.
(c) If the Purchaser commences any action to enforce its rights
under this Note, the Company shall pay to the Purchaser all reasonable
attorneys' fees and expenses incurred by the Purchaser in connection with such
action.
(d) The Company may at any time prepay this Note in full or in
part, on not less than five business days' prior notice. Any such prepayment
shall be accompanied by accrued interest on the principal so repaid to the date
of payment. Any amount so prepaid may not be reborrowed.
(e) If from any circumstances whatsoever the fulfillment of any
provision of this Note involves transcending the limit of validity prescribed by
any applicable usury statute or any other applicable law, with regard to
obligations of like character and amount, then the obligation to be fulfilled
will be reduced to the limit of such validity as provided in such statute or
law, so that in no event shall any exaction of interest be
- 4 -
<PAGE> 5
possible under this Note in excess of the limit of such validity. In no event
shall the Company be bound to pay interest of more than the legal limit for the
use, forbearance or detention of money and the right to demand any such excess
is hereby expressly waived by the holder.
(f) No delay or omission of the Purchaser to exercise any right
or power arising from any default shall impair any such right or power or be
considered to be a waiver of any such default or any acquiescence therein nor
shall the action or non-action of the holder in case of default on the part of
the Company impair any right or power resulting therefrom.
(g) Wherever possible each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Note.
(h) THE COMPANY AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN
RESPECT OF OR ARISING OUT OF THIS NOTE, ITS VALIDITY OR PERFORMANCE, AT THE SOLE
OPTION OF THE PURCHASER, ITS SUCCESSORS AND ASSIGNS, SHALL BE INITIATED AND
PROSECUTED AS TO ALL PARTIES AND THEIR HEIRS, SUCCESSORS AND ASSIGNS AT
CINCINNATI, OHIO. THE PURCHASER AND THE COMPANY EACH CONSENTS TO AND SUBMITS TO
THE EXERCISE OF JURISDICTION OVER HIS OR ITS PERSON BY ANY COURT SITUATED AT
CINCINNATI, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON HIM OR IT AND CONSENTS THAT ALL SUCH SERVICE
OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO THE COMPANY AND THE PURCHASER
AT THEIR RESPECTIVE ADDRESSES AS SET FORTH ABOVE (OR SUCH OTHER ADDRESS AS A
PARTY MAY FROM TIME TO TIME DESIGNATE FOR ITSELF BY NOTICE TO THE OTHER PARTY)
OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. THE COMPANY AND
THE PURCHASER EACH WAIVES TRIAL BY JURY, ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER, AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT.
IN WITNESS WHEREOF, this Note has been duly executed by the Company as of
the 22nd day of May, 1998.
CIAO CUCINA CORPORATION
By: /s/ Stephen J. Kent
-------------------------
President
- 5 -
<PAGE> 6
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and
transfers unto ______________________ the foregoing Note and all rights
evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer said Note on the books of CIAO
CUCINA CORPORATION _________ hereby agrees to be bound by the terms of the Note
as defined therein.
--------------- o ---------------
- 6 -
<PAGE> 7
<TABLE>
SCHEDULE A
<CAPTION>
Principal
Balance
Date Amount Advanced Amount Repaid Outstanding
- ---- --------------- ------------- -----------
<S> <C> <C>
May 22, 1998 $100,000 $100,000
</TABLE>
<PAGE> 1
Exhibit 6
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND ANY SHARES
THAT MAY BE ISSUED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW. NEITHER THIS
SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF
THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE
COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY).
CIAO CUCINA CORPORATION
Warrant for the Purchase of Shares of Common Stock
Dated as of May 22, 1998
FOR VALUE RECEIVED, CIAO CUCINA CORPORATION (the
"Corporation"), an Ohio corporation, hereby certifies that Blue Chip Capital
Fund Limited Partnership or its assignee (the "Holder") is entitled to purchase
from the Corporation from and after the date hereof and on or before the fifth
anniversary of the date hereof (the "Termination Date"), 100,000 fully paid and
non-assessable shares of the Common Stock, no par value ("Common Stock") of the
Corporation at a price of $1.35 per share. Hereinafter, (i) said Common Stock,
together with any other equity securities which may be issued by the Corporation
in addition thereto or in substitution therefor, is referred to as "Common
Stock", (ii) the shares of Common Stock purchasable hereunder are referred to as
the "Warrant Shares", (iii) the aggregate purchase price payable hereunder for
the Warrant Shares is referred to as the "Aggregate Warrant Price" and (iv) the
price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Warrant Price". The Per Share Warrant Price is subject to adjustment
as hereinafter provided.
1. Exercise of Warrant. From and after the date hereof and on
or before the Termination Date this Warrant may be exercised in whole or in part
by the Holder by the surrender of this Warrant (with the subscription form at
the end hereof duly executed) at the principal office of the Corporation,
together with proper payment of the Aggregate Warrant Price. Payment for Warrant
Shares shall be made by check payable to the order of the Corporation. Upon such
surrender of this Warrant the Corporation will issue a certificate or
certificates in the name of the Holder for the largest number of whole shares of
Common Stock to which the Holder shall be entitled and, in lieu of any
fractional share of Common Stock to which the Holder shall be entitled, cash
equal to the fair value of such fractional share (determined in
<PAGE> 2
such manner as the Board of Directors of the Corporation shall
reasonably determine).
2. Reservation of Warrant Shares. The Corporation will at all
times reserve and keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of Common Stock and Other Securities (as
defined below) receivable upon the exercise of this Warrant, free and clear of
all restrictions on sale or transfer and free and clear of all pre-emptive
rights.
3. Fully Paid Stock; Taxes. The Corporation agrees that the
shares of Common Stock represented by each and every certificate for Warrant
Shares or Other Securities delivered on the exercise of this Warrant and payment
of the Aggregate Warrant Price shall, at the time of such delivery, be validly
issued and outstanding, fully paid and non-assessable. The Corporation further
covenants and agrees that it will pay, when due and payable, all federal and
state stamp, original issue or similar taxes, if any, which are payable in
respect of the issue of this Warrant and/or any Warrant Share or certificates
therefor but excluding any federal, state or local taxes based on the income of
the Holder.
4. Adjustments of Per Share Warrant Price. (a) If after the
date hereof shares of the Common Stock are issued as a dividend or other
distribution on Common Stock, the Per Share Warrant Price in effect at the
opening of business on the business day next succeeding the date fixed for the
determination of the shareholders entitled to receive such dividend or other
distribution shall be decreased to the Per Share Warrant Price determined by
multiplying said Per Share Warrant Price so in effect by a fraction, the
numerator of which shall be the number of shares of Common Stock issued and
outstanding at the close of business on the date fixed for such determination
and the denominator of which shall be the sum of said number of shares issued
and outstanding at the close of business on the date fixed for such
determination and the number of shares constituting such dividend or other
distribution, such decrease becoming effective immediately after the opening of
business on the business day next succeeding the date fixed for such
determination.
(b) If after the date hereof outstanding shares of Common
Stock shall be subdivided into a greater number of shares or outstanding shares
shall be combined into a smaller number of shares, the Per Share Warrant Price
in effect at the opening of business on the business day next succeeding the day
upon which such subdivision or combination becomes effective shall be decreased
or increased, as the case may be, to the Per Share Warrant Price determined by
multiplying said Per Share Warrant Price so in effect by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately
- 2 -
<PAGE> 3
before such subdivision or combination becomes effective and the denominator of
which shall be the number of such shares outstanding at the opening of business
on the business day next succeeding the day upon which such subdivision or
combination becomes effective.
(c) If at any time after the date hereof the Corporation shall
issue shares of Common Stock (other than pursuant to any employee stock option
plan in effect on the date hereof) or securities convertible into Common Stock
or rights, options or warrants containing the right to subscribe for or purchase
shares of Common Stock for a price per share of Common Stock, in the case of
issuance of Common Stock, or for a price per share of Common Stock initially
deliverable upon conversion, exchange or exercise of such convertible securities
or rights, options or warrants (other than pursuant to any employee stock option
plan in effect on the date hereof) (including all consideration paid to acquire
such convertible securities or rights, options or warrants) (the "Issue Price")
less than the then current Per Share Warrant Price on the date (the "Record
Date") the Corporation fixed the offering, conversion, exchange or exercise
price of such shares, then the Per Share Warrant Price shall be adjusted by
multiplying it by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the Record Date plus the number
derived by dividing (x) the product of the number of shares of Common Stock to
be issued upon such offering, conversion, exchange or exercise and the Issue
Price by (y) the then current Per Share Warrant Price and the denominator of
which is the number of shares of Common Stock outstanding immediately prior to
the Record Date plus the number of shares of Common Stock to be issued upon such
offering, conversion, exchange or exercise. Such adjustment shall be made
whenever such shares, convertible securities, rights, options or warrants are
issued, and shall become effective immediately after the effective date of such
event, retroactive to the Record Date, if any, for such event.
(d) If after the date hereof the Corporation shall distribute
to all or substantially all holders of Common Stock either (i) evidences of
indebtedness or assets (excluding cash dividends or distributions) or (ii) any
other securities of the Corporation or any rights, warrants, options to
subscribe for, purchase or otherwise acquire securities of the Corporation (any
of which are referred to herein as "Other Securities"), then and in any such
case the Corporation shall either distribute such Other Securities to the Holder
of this Warrant or reserve for the benefit of the Holder of this Warrant such
amount of such Other Securities as the Holder of this Warrant would have owned
or been entitled to receive immediately following such action had this Warrant
been exercised for shares of Common Stock immediately prior thereto. In
addition, the Corporation shall either distribute to, or reserve for the benefit
of, the Holder of this
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<PAGE> 4
Warrant any principal, interest, dividends or other property payable with
respect to such Other Securities as and when such interest, dividends or other
property is distributed to the holders of Common Stock. If such a reserve is
made, as and when this Warrant is exercised, the Holder shall be entitled to
receive from the Corporation such Holder's share of such Other Securities
together with the principal, interest, dividends or other property payable with
respect thereto.
(e) Upon each adjustment of the Per Share Conversion Price
pursuant to this Section 4, the Holder shall thereafter (until another such
adjustment) be entitled to receive upon conversion hereof, at the adjusted Per
Share Warrant Price applicable at the date conversion rights hereunder are
exercised, the number of Warrant Shares, calculated to the nearest full share,
obtained by:
(A) multiplying (1) the number of
Warrant Shares deliverable upon exercise of
this Warrant at the close of business on the
business day next preceding the business day
on which the Per Share Warrant Price is so
adjusted by (2) the Per Share Warrant Price
in effect at the close of business on such
next preceding business day; and
(B) by dividing (3) the Per Share
Warrant Price as adjusted into (4) the
amount determined pursuant to the foregoing
clause
(e)(A).
(f) Upon any adjustment of the Per Share Warrant Price the
Corporation shall promptly obtain a certificate of a firm of independent public
accountants of recognized standing selected by its Board of Directors (who may
be the regular auditors of the Corporation) setting forth the adjusted Per Share
Warrant Price and a brief statement of the facts accounting for such adjustment
and shall cause a brief summary thereof to be mailed to the Holder of this
Warrant.
(g) In case of any reclassification of Common Stock of the
Corporation, other than a subdivision or combination of the outstanding Common
Stock, or of any consolidation or merger to which the Corporation or any
subsidiary of the Corporation is a party and for which approval of shareholders
of the Corporation is required or of the sale or transfer of all or
substantially all of the assets of the Corporation or of the voluntary or
involuntary dissolution, liquidation or winding up of the
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<PAGE> 5
Corporation, the Corporation shall cause to be mailed to the Holder of this
Warrant, at least 20 days prior to the applicable date hereinafter specified, a
notice stating the date on which such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
(h) If, on or prior to the Termination Date, the Corporation
shall consolidate with or merge into another corporation, or another corporation
shall merge into the Corporation in a merger in which shares of Common Stock are
converted into a right to receive cash, property or other securities, or the
Corporation shall sell or transfer all or substantially all of the assets of the
Corporation, the Corporation shall take such action so that the Holder will
thereafter receive upon the exercise hereof the securities or property to which
a holder of the number of shares of Common Stock then deliverable upon the
exercise of such Warrant would have been entitled to receive upon such
consolidation, merger, sale or transfer if such Warrant had been exercised in
full immediately prior to such transaction.
(i) All calculations under this Section 4 shall be made to the
nearest one-hundredth of a cent or to the nearest one thousandth of a share, as
the case may be. No adjustment shall be required unless such adjustment would
result in an increase or decrease of at least one (1%) percent of the Per Share
Warrant Price; provided, however, that any adjustments which by reason of this
paragraph (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(j) If at any time, as a result of an adjustment made pursuant
to paragraph (d) above, the Holder shall become entitled to purchase any Other
Securities, thereafter the number of such Other Securities purchasable upon
exercise of this Warrant and the price of the Other Securities shall be subject
to adjustment from time to time and in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to this Warrant
contained in paragraphs (a) through (i), inclusive above.
(k) Upon the expiration of any rights, options, warrants or
conversion of exchange privileges which caused an adjustment to the Per Share
Warrant Price to be made, if any thereof shall not have been exercised, the Per
Share Warrant Price shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been originally adjusted (or had
the original adjustment not been required, as the case may be) as if (i) the
only shares of Common Stock so
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<PAGE> 6
issued were the shares of Common Stock, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange privileges
and (ii) such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise plus the
aggregate consideration, if any, actually received by the Corporation for the
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange privileges, whether or not exercised; provided further, that no such
readjustment shall have the effect of decreasing the Per Share Warrant Price by
an amount in excess of the amount of the adjustment initially made in respect to
the issuance, sale or grant of such rights, options, warrants or conversion or
exchange privileges.
(l) Upon any exercise of this Warrant at a time when there are
dividends or distributions declared but unpaid (whether as to Common Stock or
Other Securities or other property payable with respect hereto) and as to which
the dividend date or other date fixed for payment has passed, then, (i) to the
fullest extent permitted by law, such unpaid dividends or distributions shall be
paid by the Corporation contemporaneously with the exercise of this Warrant, and
(ii) to the extent payment of such unpaid dividends or distributions is not
legally permitted, then the Per Share Warrant Price shall be further adjusted by
increasing the number of shares of Common Stock or Other Securities or property
issuable upon conversion to take into account the value of such unpaid dividends
or other distributions in determining the amount of Common Stock or Other
Securities to be issued upon exercise of this Warrant.
5. Limited Transferability. (a) This Warrant and the Warrant
Shares have not been registered under the Securities Act of 1933 and may be
transferred only pursuant to an effective registration thereunder or an
exemption from registration thereunder and in compliance with applicable state
securities laws. This Warrant may not be transferred if such transfer would
require any registration or qualification under, or cause the loss of exemption
from registration or qualification under, such Act or any applicable state
securities law with respect to the Warrants or the Warrant Shares. This Warrant
and any Warrant Shares shall bear an appropriate legend with respect to such
restrictions on transfer. This Warrant is transferable only upon the books which
the Corporation shall cause to be maintained for such purpose. Any assignment or
transfer may be made by surrendering this Warrant to the Corporation together
with the attached assignment form properly executed by the assignor or
transferor. Upon such surrender the Corporation will execute and deliver, in the
case of an assignment or transfer in whole, a new Warrant in the name of the
assignee or transferee or, in the case of an assignment or transfer in part, a
new Warrant in the name of the assignee or transferee named in such instrument
of assignment or transfer and a new Warrant in the name of the
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<PAGE> 7
assignor or transferor covering the number of Warrant Shares in respect of which
this Warrant shall not be assigned or transferred to the assignee or transferee.
(b) The Corporation may treat the registered holder of this
Warrant as it appears on its books at any time as the Holder and the owner of
this Warrant for all purposes. The Corporation shall permit the Holder of this
Warrant or his duly authorized attorney, upon written request during ordinary
business hours, to inspect and copy or make extracts from its books showing the
Holders of Warrants. All Warrants will be dated the same date as this Warrant.
6. Loss, etc. of Warrant. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity in form and amount reasonably satisfactory to the
Corporation, if lost, stolen or destroyed, and upon surrender and cancellation
of this Warrant, if mutilated, and upon reimbursement of the Corporation's
reasonable incidental expenses, the Corporation shall execute and deliver to the
Holder a new Warrant of like date, tenor and denomination.
7. Warrant Holder Not A Shareholder. This Warrant does not
confer upon the Holder any right to vote or to consent or to receive notice as a
shareholder of the Corporation, as such, in respect of any matters whatsoever,
or any other rights or liabilities as a shareholder, prior to the exercise
hereof.
8. Communication. No notice or other communication under this
Warrant shall be effective unless, but any notice or other communication shall
be effective and shall be deemed to have been given if, the same is in writing
and is mailed by first-class mail, postage prepaid, addressed to
(a) the Corporation at 700 Walnut Street, Suite 300,
Cincinnati, Ohio 45202, or such other address as the
Corporation has designated in writing to the Holder, or
(b) the Holder at the address shown on the
Corporation's books as described above.
9. Headings. The headings of this Warrant have been
inserted as a matter of convenience, and shall not affect the
construction hereof.
10. Amendments. This Warrant may be amended only by written
agreement of the Corporation and the Holder.
11. Applicable Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of
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<PAGE> 8
Delaware applicable to agreements made and to be performed therein.
IN WITNESS WHEREOF, CIAO CUCINA CORPORATION has executed this
Warrant as of the date set forth on the first page hereof.
CIAO CUCINA CORPORATION
By /s/ Stephen J. Kent
---------------------
President
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<PAGE> 9
SUBSCRIPTION
The undersigned, ____________________, pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
______ shares of Common Stock, no par value, of CIAO CUCINA CORPORATION covered
by said Warrant, and makes payment therefor in full at the price per share
provided by said Warrant.
Dated: Signature
------------------- ----------------------------
Address
------------------------------
--------------- o ---------------
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns
and transfers unto ______________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer said Warrant on the books of CIAO
CUCINA CORPORATION _________ hereby agrees to be bound by the terms of the
Warrant as defined therein.
--------------- o ---------------
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<PAGE> 1
Exhibit 7
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (the "Agreement") is made between CIAO
CUCINA CORPORATION, an Ohio corporation (the "Company"), and BLUE CHIP CAPITAL
FUND LIMITED PARTNERSHIP, a Delaware limited partnership ("Purchaser") effective
as of May 22, 1998. The parties hereby agree as follows:
1. General. This Agreement sets forth the terms upon which the
Purchaser will purchase a promissory note in the form attached hereto as Exhibit
A (the "Note") from the Company providing for a loan (the "Loan") of $100,000
principal amount to the Company. The obligations of the Company under the Note
and the Loan have been secured by a security agreement dated as of January 16,
1998 (the "Security Agreement") executed by the Company in favor of the
Purchaser. As partial consideration for the Loans and to induce Purchaser to
enter into this Agreement, Company is delivering to Purchaser a common stock
purchase warrant of even date herewith (the "Warrant") executed by the Company
in favor of Purchaser. As soon as practicable after the date hereof, the Company
and Purchaser shall enter into an amended and restated registration rights
agreement (the "Registration Rights Agreement") with respect to any shares
issuable upon exercise of the Warrant and the Warrant dated as of January 16,
1998 (the "Warrant Shares") providing for one "demand" and unlimited "piggyback"
rights and otherwise on such terms or conditions as Purchaser may specify. The
Note, the Security Agreement, the Warrant, and the Registration Rights Agreement
are collectively referred to herein as the "Loan Documents". Simultaneously with
the execution of this Agreement, counsel to the Company is delivering its
opinion to Purchaser with respect to certain of the matters set forth in
Sections 3.1, 3.2, 3.3, 3.4 and 3.5 hereof, and the Company is delivering to
Purchaser certified resolutions of the Company's Board of Directors with respect
to the transactions contemplated hereby.
2. The Loan. Upon the terms set forth in this Agreement and the Loan
Documents, Purchaser is making a loan to the Company in a principal amount of
$100,000.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser that, except as set forth in Exhibit 3
hereto.
3.1 Incorporation of the Company. The Company is a corporation
duly organized and validly existing under the laws of the State of Ohio with
full corporate power and authority to execute, deliver and perform this
Agreement and the Loan Documents to which the Company is a party, to conduct its
business and to own its properties. This Agreement and the Loan Documents to
which the Company is a party have been duly
<PAGE> 2
authorized by all necessary corporate action of the Company and constitute
legal, valid and binding obligations of the Company enforceable against it in
accordance with their terms.
3.2 No Conflict. Neither the execution and delivery of this
Agreement and the Note nor the completion of the transactions contemplated
hereby or thereby will contravene or violate (a) any provision of the Articles
of Incorporation or the Code of Regulations of the Company or any of its
affiliates, (b) any agreement or commitment to which the Company or any of its
affiliates is a party or (c) any law or order of any court or governmental
agency applicable to the Company or any of its affiliates.
3.3 Capitalization. The authorized stock of the Company
consists of 10,000,000 shares of Common Stock, of which approximately 3,250,000
shares are duly issued and outstanding, and 100,000 shares of preferred stock,
none of which are outstanding. None of the outstanding shares of Common Stock of
the Company has been issued in violation of any federal or state securities
laws. There are no outstanding commitments of any kind (including options,
warrants and rights) relating to the issuance or transfer of any capital stock
of the Company. The shares of Common Stock to be issued upon exercise of the
Warrant will be validly authorized, duly issued and outstanding, fully paid and
non-assessable and issued free and clear of all encumbrances and have been
received for issuance. None of the outstanding capital stock of the Company was
issued in violation of applicable law, preemptive right or agreement.
3.4 Organization of the Company. The Company has no
subsidiaries and does not own, or have any agreement or commitment to acquire,
any stock of any person or any direct or indirect equity or ownership interest
in any other business. The Company is duly qualified as a foreign corporation
and in good standing in each jurisdiction where the nature of its activities or
ownership of property requires it to be so qualified.
3.5 Approvals. No approval or authorization of, or filing
with, any governmental agency, and no consent or approval of any person, is
required to be obtained or made by the Company in connection with the execution,
delivery or performance of this Agreement or any Loan Document or any
transactions contemplated hereby or thereby.
3.6 Financial Statements. The Company has delivered to
Purchaser true and correct copies of the financial statements of the Company as
at December 31, 1997 and for the year then ended (the balance sheet of the
Company as of December 31, 1997 is hereinafter referred to as the "Balance
Sheet") and for the period then ended. Such financial statements fairly present
the assets, liabilities, financial condition and results of operations of the
Company at such date and for such period, all
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<PAGE> 3
in accordance with generally accepted United States accounting principles
consistently applied throughout the periods involved.
3.7 No Undisclosed Liabilities. The Company does not have any
liabilities or obligations of any nature that were not fully reflected or
reserved against in the Balance Sheet, of a nature required to be so reflected
or reserved in accordance with the United States generally accepted accounting
principles consistently applied, except for immaterial liabilities and
obligations incurred in the ordinary course of business and consistent with past
practice since the respective dates thereof. All reserves reflected in the
Balance Sheet are adequate.
3.8 Compliance with Law. The operations of the Company have
been conducted in accordance with all applicable laws and regulations. The
Company has not received any notification of any asserted present or past
failure to comply with any such law or regulation. The Company has all licenses,
permits and approvals from governmental agencies required for the conduct of its
businesses and is not in violation of any of them. Each is in full force and
effect, and no suspension or cancellation has been threatened. All required
filings by the Company with the Securities and Exchange Commission or any state
securities agency have been made. All of such filings comply in all material
respects with the rules and regulations relating thereto, and none of such
filings contains any misstatement of material fact or omits any material fact
required to be stated therein or necessary to make the statements therein not
materially misleading.
3.9 Brokerage Fees, Etc. No person has any claim for brokerage
fees, commissions or similar payments with respect to the transactions
contemplated hereby based upon any agreement or understanding made by the
Company or any of its shareholders.
4. Representations and Warranties of Purchaser. Purchaser represents
and warrants to, and agrees with, the Company as follows:
(a) This Agreement constitutes its legal, valid and binding obligation
enforceable against it in accordance with its terms.
(b) The Note, the Warrant and the Warrant Shares will be acquired for
investment for its own account, not as a nominee or agent, and not with a view
to the distribution thereof.
(c) Purchaser acknowledges that the Note, the Warrant and the Warrant
Shares have not been registered under the Securities Act of 1933, as amended
(the "Act"), and, therefore, cannot be resold unless subsequently registered
under such Act or unless an exemption from such registration is available.
- 3 -
<PAGE> 4
(d) Purchaser or its representatives have been provided the opportunity
to ask questions of and receive answers from one or more officers of the Company
concerning the terms and conditions of this transaction and to obtain
information concerning the Company.
5. Miscellaneous.
(a) The representations, warranties and covenants of the Company and
Purchaser contained herein or made pursuant to this Agreement shall survive the
execution and delivery hereof and delivery of the Note.
(b) The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors, heirs and assigns of
the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
(c) This Agreement shall be governed by and construed under the
internal laws of the State of Ohio as applied to agreements entered into and to
be performed entirely within the State of Ohio.
(d) This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
(e) The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(f) This Agreement, together with the Loan Documents, constitutes the
entire agreement of the parties with respect to its subject matter.
(g) Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Purchaser.
(h) The Company shall reimburse Purchaser for all legal fees and
expenses incurred by it in connection with the preparation and registration of
this Agreement and the Loan
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<PAGE> 5
Documents. Purchaser may offset such fees and expenses against
any of the Loans.
BLUE CHIP CAPITAL FUND
LIMITED PARTNERSHIP
By: Blue Chip Venture
Company, its General
Partner
By: /s/ John H. Wyant
--------------------------
Name: John H. Wyant
Title: President
CIAO CUCINA CORPORATION
By: /s/ Stephen J. Kent
--------------------------
Name: Stephen J. Kent
Title: President
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<PAGE> 1
Exhibit 8
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Amended and Restated Registration Rights Agreement dated as of May 22,
1998 between Blue Chip Capital Fund Limited Partnership, a Delaware limited
partnership ("Blue Chip"), and Ciao Cucina Corporation, an Ohio corporation
("Ciao").
Blue Chip and Ciao are parties to Note Purchase Agreements dated as of
January 16, 1998 and of even date herewith, pursuant to which Blue Chip has made
certain loans to Ciao, and Ciao has issued common stock purchase warrants to
Blue Chip. Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in such Note Purchase Agreements. Pursuant
to Section 1 of such Note Purchase Agreements, Blue Chip and Ciao have agreed to
enter into this Agreement. This Agreement amends and restates in its entirety
the Registration Rights Agreement dated as of January 16, 1998. Accordingly, the
parties hereby agree as follows:
1. REGISTRATION.
(a)(i) PROPOSED REGISTRATION. If Ciao should propose to register any
of its shares of Common Stock ("Common Stock") or other equity securities of
Ciao or any successor thereto for sale under the Securities Act of 1933 (the
"Act"), including any registration made pursuant to the "small business issuer"
registration forms available under the Act, or to carry out an offer of any such
Common Stock or other equity securities pursuant to Regulation A of the Act,
Ciao shall give written notice to Blue Chip of such intention and, upon the
written request of Blue Chip given within thirty (30) calendar days after such
notice is given, Ciao shall use its best efforts to cause the Common Stock held
by Blue Chip or any other equity securities issued by Ciao or any successor
thereto which are owned by Blue Chip ("Registrable Shares") and of which Blue
Chip has requested registration to be included under the proposed registration
in accordance with the proposed method thereof stated in Blue Chip's request;
provided, however, that Ciao may, in lieu of including any or all of such shares
or such other securities under the proposed registration, elect to effect a
separate registration thereof if its proposed registration relates to an
underwritten public offering and the underwriters thereof object to the
inclusion of any or all of such shares or such other securities under such
registration. If Ciao shall elect to effect a separate registration in
accordance with the provisions of the preceding sentence, Ciao shall use its
best efforts to cause such separate registration to become effective not later
than ninety (90) days after the effectiveness of the originally proposed
registration. If Ciao determines, prior to the effectiveness of its originally
proposed registration, not to proceed with such registration, Ciao shall have no
further obligation under this Section 1(a) to register any such shares or other
equity securities under that registration statement.
<PAGE> 2
(ii) DEMAND REGISTRATION. At any time when Ciao has a class of
equity securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934 or is subject to the reporting requirements of Section 15 of such
Act, Blue Chip may give notice to Ciao requesting the registration under the Act
of any or all of the Common Stock held or to be held upon exercise of the
Warrants by Blue Chip. Upon receipt of such notice, Ciao shall use its best
efforts to effect as promptly as possible the registration under the Act of the
shares of Common Stock that Ciao has been requested to register pursuant to this
Section 1(a)(ii). Ciao shall not be obligated to file more than one registration
statement under this Section 1(a)(ii) or to keep such registration statement
effective for more than one hundred twenty (120) days. Ciao shall not be
obligated to effect any registration pursuant to this Section 1(a)(ii) if such
registration would require an audit of Ciao as of a date other than its fiscal
year end. Ciao may defer once in any twelve (12) month period the filing of a
registration statement under this Section 1(a)(ii) for a period of up to ninety
(90) days based on the good faith judgment of the Board of Directors that such
delay is needed (x) to avoid premature disclosure of a matter if the Board has
determined that such disclosure would not be in the best interests of Ciao or
(y) to avoid conflict with another public offering by Ciao. Any registration
statement prepared pursuant to this Section 1 shall be subject to such
restrictions or limitations as may be applicable by law to the sales price or
sales method of the Common Stock.
(iii) OTHER REGISTRATION RIGHTS. If Ciao grants any rights of the
nature contained in this Section 1(a) to any other Person, this Section 1 shall
be deemed amended, at the option of Blue Chip, to grant to Blue Chip rights
equivalent to the most favorable rights granted to any other Person.
(b) REGISTRATION PROCEDURES. If and whenever Ciao is required by the
provisions of this Section 1 to effect the registration of any of Blue Chip's
shares of Common Stock or other securities under the Act, Ciao shall, as
expeditiously as possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such shares or other
securities and use all reasonable efforts to cause such registration statement
to become effective as promptly as possible;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement as may be necessary to keep such
registration statement effective for one hundred twenty (120) days from the date
of its effectiveness;
(iii) Furnish to Blue Chip such number of copies of the prospectus
forming a part of such registration statement
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<PAGE> 3
(including each preliminary prospectus) as the Blue Chip may
reasonably request;
(iv) Use its best efforts to register or qualify such shares or
other securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions as Blue Chip shall reasonably request, and
do any and all other acts and things which may reasonably be necessary or
advisable to enable Blue Chip to consummate the disposition of such shares or
such other securities during the period provided in Section 1(b)(ii) above; and
(v) Notify Blue Chip during the period when a prospectus relating
thereto is required to be delivered under the Act, of the happening of any event
which causes the prospectus forming a part of such registration statement to
include an untrue statement of a material fact or to omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made, and at
the request of Blue Chip prepare and furnish Blue Chip a reasonable number of
copies of the supplement to or any amendment of such prospectus necessary so as
to render such prospectus, as amended or supplemented, in compliance with the
provisions of the Act.
(c) EXPENSES. All expenses incurred by Ciao in complying with this
Section 1, including without limitation all registration and filing fees,
printing expenses, expenses of complying with securities or blue sky laws, fees
and disbursements of counsel for Ciao and Blue Chip and counsel for any
underwriters of the offering and any accountants' fees and expenses incident to
or required by any such registration, shall be borne by Ciao to the maximum
extent permitted by law. All underwriting fees and commissions incurred by Blue
Chip shall be borne by Blue Chip.
(d) INDEMNIFICATION.
(i) In the event of any registration of Blue Chip's shares of Common
Stock or other securities under this Section 1, Ciao shall defend, indemnify and
hold harmless Blue Chip, its officers, directors, partners, affiliates, each
underwriter thereof and each person which controls Blue Chip or such underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities and any action in respect thereof, joint or several, to which Blue
Chip or any such officer, director, underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus or final prospectus contained
- 3 -
<PAGE> 4
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, other than that which
is based upon information supplied by Blue Chip in writing, and Ciao shall
reimburse each of Blue Chip and such officers, directors, underwriters and
controlling persons for any legal or other expenses reasonably incurred by any
of them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that Ciao shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon information provided in writing to Ciao by
Blue Chip or any such officer, director, underwriter or controlling person. This
indemnity shall be in addition to any liability which Ciao may otherwise have.
(ii) In the event of any registration of such shares or other
securities under this Section 1, Blue Chip shall indemnify Ciao against any
losses, claims, damages or liabilities and any action in respect thereof, joint
or several, to which Ciao may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
is based upon information supplied by Blue Chip in writing, and Blue Chip shall
reimburse Ciao for any legal or other expenses reasonably incurred by Ciao in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Blue Chip shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon information provided to Ciao by Ciao. This
indemnity shall be in addition to any liability which Blue Chip may otherwise
have.
(iii) If for any reason any indemnification described in Section
1(d)(i) or 1(d)(ii) above may not be provided by the party or parties required
therein to provide such indemnification (the "Indemnifying Parties"), in lieu of
providing such indemnification, the Indemnifying Parties shall contribute to the
amount paid or payable by the party or parties to be provided such
indemnification (the "Indemnified Parties") as a result of such losses, claims,
damages, liabilities or actions, in such proportion as is appropriate to reflect
the relative fault of the parties in connection with any statement or omission
which resulted in such losses, claims, damages, liabilities or actions, as well
as any other relevant equitable considerations. The relative fault of the
Indemnifying Parties
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<PAGE> 5
and the Indemnified Parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by one of the
Indemnifying Parties or by one of the Indemnified Parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim.
The parties agree that it would not be just and equitable if contribution
pursuant hereto were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to herein. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(iv) Promptly after receipt by an indemnified party under Section
1(d)(i) or 1(d)(ii) of notice of the commencement of any action, such
indemnified party shall notify the indemnifying party of the commencement
thereof. If any such action shall be brought against an indemnified party and it
shall give notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and to assume the
defense thereof with counsel satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such Section for any fees of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party in
connection with the defense thereof. If an indemnifying party assumes the
defense of such an action, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's consent and
(b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its consent. If notice is
given to an indemnifying party of the commencement of any action and it does
not, within ten days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense thereof, the
indemnifying party shall be bound by any determination made in such action or
any compromise or settlement thereof effected by the indemnified party.
2. NOTICES.
All notices, consents and other communications under this agreement
shall be in writing and shall be deemed to have been duly given when (a)
delivered by hand or (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by
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<PAGE> 6
Federal Express or other express delivery service, in each case to the
appropriate addresses and telecopier numbers set forth below (or to such other
addresses, and telecopier numbers as a party may designate as to itself by
notice to the other parties).
(a) If to Blue Chip:
c/o Blue Chip Venture Company
2000 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Telecopy No.: 513-723-2306
Attention: John H. Wyant
with a copy to:
Taft, Stettinius & Hollister LLP
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
Telecopier No.: 513-381-0205
Attention: Gerald S. Greenberg, Esq.
(b) If to Ciao:
Ciao Cucina Corporation
700 Walnut Street
Suite 300
Cincinnati, Ohio 45242
Telecopier No.: 513-241-7700
with a copy to:
Katz, Greenberger & Norton LLP
105 East Fourth Street
Suite 400
Cincinnati, Ohio 45202
Attention: Scott P. Kadish, Esq.
Telecopier No.: 513-621-9285
3. MISCELLANEOUS.
3.1 EXPENSES. Each party shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder; except that Ciao shall reimburse Blue
Chip for legal, accounting and other out-of-pocket expenses incurred by it in
connection with the preparation and negotiation of this Agreement.
3.2 CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
agreement.
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<PAGE> 7
3.3 NO WAIVER. The failure of a party to insist upon strict
adherence to any obligation of this Agreement shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
3.4 COUNTERPARTS. This Agreement will be executed in two (2) or more
counterparts each of which shall be considered an original.
3.5 GOVERNING LAW. This Agreement shall be governed by the internal
law of the State of Ohio, without regard to the conflicts of law principles
thereof.
3.6 ATTORNEY'S FEES. In any action or proceeding brought by a party
to enforce any provision of this Agreement, the prevailing party shall be
entitled to recover the reasonable costs and expenses incurred by it in
connection with that action or proceeding (including, but not limited to,
attorney's fees).
3.7 DESIGNATION OF FORUM AND CONSENT TO JURISDICTION. The parties
hereto (a) designate the United States District Court for the Southern District
of Ohio, Western Division, or the Court of Common Pleas, Hamilton County, Ohio,
as the forum where all matters pertaining to this Agreement may be adjudicated,
and (b) by the foregoing designation, consent to the exclusive jurisdiction and
venue of such Court for the purpose of adjudicating all matters pertaining to
this Agreement. The parties hereby waive trial by jury in any such action.
BLUE CHIP:
BLUE CHIP CAPITAL FUND LIMITED PARTNERSHIP
By: BLUE CHIP VENTURE COMPANY
its General Partner
By: /s/ John H. Wyant
---------------------------------------
Its: President
---------------------------------------
CIAO:
CIAO CUCINA CORPORATION
By: /s/ Stephen J. Kent
---------------------------------------
Its: President
---------------------------------------
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