-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KbHyNoqYu+JD3JoZpxz8uIC51bSCXsft1L0xNMfl4WYwaKxaNXkz1vG9An+BqDj3 S8ZKxS3IhA5kyShilCrzWw== 0000950124-98-004328.txt : 19980813 0000950124-98-004328.hdr.sgml : 19980813 ACCESSION NUMBER: 0000950124-98-004328 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAFE ODYSSEY INC CENTRAL INDEX KEY: 0001044738 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 311487885 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23243 FILM NUMBER: 98683355 BUSINESS ADDRESS: STREET 1: 4801 WEST 81 STREET STREET 2: SUITE 112 CITY: BLOOMINGTON STATE: MN ZIP: 55437 BUSINESS PHONE: 6128379917 MAIL ADDRESS: STREET 1: 4801 WEST 81 STREET STREET 2: SUITE 112 CITY: BLOOMINGTON STATE: MN ZIP: 55437 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL DISCOVERY INC DATE OF NAME CHANGE: 19970821 10QSB 1 FORM 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 0-23243 ------------------------------------------------------------------------------ CAFE ODYSSEY, INC. (Name of Small Business Issuer as Specified in Its Charter) MINNESOTA 31-1487885 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Indentification No.) 4801 W. 81ST STREET, SUITE 112 BLOOMINGTON, MN 55437 (Address of Principal Executive Offices) 612-837-9917 (Issuer's Telephone Number, Including Area Code) HOTEL DISCOVERY, INC. 4801 W. 81ST STREET, SUITE 112 BLOOMINGTON, MN 55437 (Former Name, Former Address and Former Fiscal Address, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 10, 1998, the number of shares outstanding of the Issuer's Common Stock, $0.01 par value was 8,000,089. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] 1 2 FORWARD-LOOKING STATEMENTS Certain of the matters discussed in the following pages, particularly regarding estimates of the number and locations of new restaurants that the Company intends to open during fiscal 1998 and 1999, constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. Forward-looking statements involve a number of risks and uncertainties, and, in addition to the factors discussed in this Form 10-QSB, among the other factors that could cause actual results to differ materially are the following: the Company's ability to identify and secure suitable locations on acceptable terms, obtain additional capital necessary for expansion on acceptable terms, open new restaurants in a timely manner, hire and train additional restaurant personnel and integrate new restaurants into its operations; the continued implementation of the Company's strict business discipline over a growing restaurant base; the economic conditions in the new markets into which the Company expands and possible uncertainties in the customer base in these areas; changes in customer dining patterns; competitive pressures from other national and regional restaurant chains; business conditions, such as inflation or a recession, and growth in the restaurant industry and the general economy; changes in monetary and fiscal policies, laws and regulations; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. --------------------------------------------------------------------------- 2 3 CAFE ODYSSEY, INC. INDEX
PAGE PART I FINANCIAL INFORMATION 4 ITEM 1. Financial Statements Balance Sheets as of June 28, 1998 and December 28, 1997 4 Statements of Operations for the thirteen weeks ended June 28, 1998 5 and June 29, 1997 and the twenty-six weeks ended June 28, 1998 and June 29, 1997 Statements of Cash Flows for the twenty-six weeks ended June 28, 1998 6 and June 29, 1997 Condensed Notes to the Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and 9 Plan of Operations PART II OTHER INFORMATION 12 ITEM 1. Legal Proceedings 12 ITEM 4. Submission of Matters to a Vote of Security Holders 12 ITEM 5. Other Information 12 ITEM 6. Exhibits and Reports on Form 8-K 12 Signatures 14
3 4 CAFE ODYSSEY, INC. BALANCE SHEETS
June 28, December 28, 1998 1997 ---- ---- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 2,552,161 $ 9,222,174 Landlord allowance receivable 1,600,000 -- Inventories 122,381 41,766 Other current assets 444,201 250,043 ------------- ------------- Total current assets 4,718,743 9,513,983 PROPERTY AND EQUIPMENT, net 11,280,457 5,270,160 OTHER ASSETS, net 374,204 55,908 ------------- ------------- $ 16,373,404 $ 14,840,051 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term notes payable --- 200,000 Accounts payable 2,619,738 669,380 Accrued salaries and wages 310,461 366,674 Other accrued expenses 123,634 115,773 Current portion of long-term debt 999,969 69,420 ------------- ------------- Total current liabilities 4,053,802 1,421,247 DEFERRED RENT 1,615,222 --- LONG-TERM DEBT, less current portion 678,892 852,165 CONVERTIBLE PROMISSORY NOTES PAYABLE 150,000 150,000 ------------- ------------- Total liabilities 6,497,916 2,423,412 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 4) SHAREHOLDERS' EQUITY: Common stock, $0.01 par value, 100,000,000 shares authorized; 8,000,089 and 8,000,189 shares issued and outstanding 80,001 80,002 Additional paid-in capital 20,152,650 20,152,949 Less: Common stock subscribed (400,000) (400,000) Accumulated deficit (9,957,163) (7,416,312) ------------- ------------- Total shareholders' equity 9,875,488 12,416,639 ------------- ------------- $ 16,373,404 $ 14,840,051 ============= ============= The accompanying condensed notes are an integral part of these balance sheets.
4 5 CAFE ODYSSEY, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen weeks ended Twenty-six weeks ended -------------------- ----------------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 -------- -------- -------- -------- NET SALES $ 1,195,676 $ 816,799 $ 1,999,995 $ 1,864,564 ----------- ---------- ----------- ----------- COSTS AND EXPENSES: Food, beverage and retail costs 343,587 254,172 562,003 612,115 Labor and benefits 532,787 443,684 850,944 1,036,302 Restaurant operating expenses 345,117 311,262 708,562 602,055 Depreciation and amortization 185,299 138,000 311,139 275,000 Selling, general and administrative expenses 676,394 367,280 1,418,529 765,573 Pre-opening and development costs 663,875 189,423 791,193 189,423 ----------- ---------- ----------- ----------- Total costs and expenses 2,747,059 1,703,821 4,642,370 3,480,468 ----------- ---------- ----------- ----------- LOSS FROM OPERATIONS (1,551,383) (887,022) (2,642,375) (1,615,904) INTEREST INCOME/(EXPENSE), net 10,669 (46,149) 101,524 (65,787) ----------- ---------- ----------- ----------- NET LOSS $(1,540,714) $ (933,171) $(2,540,851) $(1,681,691) =========== ========== =========== =========== BASIC AND DILUTED NET LOSS PER SHARE $(0.19) $(0.21) $(0.32) $(0.39) ====== ====== ====== ====== BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 8,000,158 4,503,698 8,000,174 4,298,048 =========== ========== =========== ===========
The accompanying condensed notes are an integral part of these financial statements. 5 6 CAFE ODYSSEY, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-six weeks ended ---------------------- June 28, June 29, 1998 1997 ------ ------ OPERATING ACTIVITIES: Net loss $(2,540,851) $(1,681,691) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation and amortization 311,139 275,000 Shares issued for services --- 19,200 Changes in operating assets and liabilities: Inventories (80,615) 6,770 Other current assets (194,158) (114,361) Other assets (318,296) (181,183) Accounts payable 1,950,358 (52,688) Accrued salaries and wages (56,213) (138,299) Other accrued expenses 7,861 (524,171) Deferred rent 15,222 --- ----------- ----------- Net cash used in operating activities (905,553) (2,391,423) ----------- ----------- INVESTING ACTIVITIES: Purchases of property and equipment (6,321,436) (448,246) ----------- ----------- FINANCING ACTIVITIES: Net borrowings/(payments) on short-term notes payable (200,000) 300,000 Payments to shareholder --- (99,357) Proceeds from issuance of long-term debt 791,986 --- Principal repayments on long-term debt (34,710) (28,925) Proceeds from issuance of stock --- 1,868,446 Repurchase of common stock (300) --- Payments received on stock subscriptions --- 90,000 ----------- ----------- Net cash from financing activities 556,976 2,130,164 ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (6,670,013) (709,505) CASH AND CASH EQUIVALENTS, beginning of period 9,222,174 2,707,561 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 2,552,161 $ 1,998,056 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 34,342 $ 65,787 Cash paid for income taxes --- --- Non-cash items - landlord allowance receivable 1,600,000 ---
The accompanying condensed notes are an integral part of these financial statements. 6 7 CAFE ODYSSEY, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS JUNE 28, 1998 AND JUNE 29, 1997 1. DESCRIPTION OF THE BUSINESS Cafe Odyssey, Inc. (the Company) owns and operates two restaurants, one in Cincinnati, Ohio (the Kenwood Restaurant), which operates under the trade name "Hotel Discovery", and one in the Mall of America in a suburb of Minneapolis, Minnesota (the Mall of America Restaurant), which operates under the trade name "Cafe Odyssey." The Kenwood Restaurant opened under the name "Hotel Mexico" on December 19, 1996. The Mall of America Restaurant opened on June 8, 1998. Prior to the opening of the Kenwood Restaurant, the Company was in the development stage. The Company's predecessor, Hotel Mexico (HMI), was originally incorporated in January 1994 as an Ohio corporation. The Kenwood Restaurant Limited Partnership, an Ohio limited partnership (the Kenwood Partnership), was formed in June 1995 for the purpose of owning and operating the Kenwood Restaurant. HMI's operations and the net assets of the Kenwood Partnership were combined on November 14, 1996. On that date, the Kenwood Partnership contributed all of its net assets totalling $1,567,197 to a newly formed corporation in exchange for shares of such corporation. HMI, with total net assets of $631,966, then merged with and into the newly formed corporation, the name of which remained Hotel Mexico, Inc. (hereafter, Hotel Mexico). Upon consummation of the merger, all outstanding shares of Hotel Mexico were converted into an aggregate of 1,350,000 shares of Common Stock of the newly formed corporation. The shares of Hotel Mexico Common Stock received by the Kenwood Partnership in the reorganization were retained by the Kenwood Partnership until the effective date of the Company's initial public offering, at which time the shares of Common Stock and all other partnership assets were distributed to the general and limited partners in accordance with the partnership agreement and the Kenwood Partnership was dissolved. On August 22, 1997, Hotel Mexico merged with and into Hotel Discovery, Inc., a newly formed Minnesota corporation. The Company has an authorized capital stock of 100,000,000 undesignated shares, and each share of Common Stock of Hotel Mexico was converted into one share of the Company's Common Stock. On February 25, 1998, the Company changed the name of its restaurant concept from Hotel Discovery to Cafe Odyssey. The Company believes that the new name better reflects the concept's primary focus on award-winning food, served in a unique environment of adventure, imagination, exploration and innovation. The Cafe Odyssey name is being used for the Mall of America Restaurant and will be used for all subsequent restaurants. At the present time, the Company intends to retain the name "Hotel Discovery" for the Kenwood Restaurant because of its already established name. On May 21, 1998, the Company changed its corporate name from Hotel Discovery, Inc. to Cafe Odyssey, Inc. to reflect the change in the name of its restaurant concept to Cafe Odyssey. In conjunction with this change, the Company's symbols for its Units, Common Stock and Class A Warrants on the Nasdaq SmallCap market were changed from HOTDU, HOTD and HOTDW to CODYU, CODY and CODYW, respectively, effective May 26, 1998. 2. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although management believes that the 7 8 disclosures are adequate to make the information presented not misleading, it is suggested that these interim financial statements be read in conjunction with the Company's most recent 10-KSB dated December 28, 1997. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been made. Operating results for the thirteen and twenty-six week periods ended June 28, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ended December 27, 1998. The Company has adopted a 52-53-week accounting period ending on the last Sunday in December of each year. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income," effective beginning in fiscal 1998, establishes standards of disclosure and financial statement display for reporting total comprehensive income and the individual components thereof. The adoption of SFAS No. 130 did not have an impact on the Company's financial position or results of operations as comprehensive income and net income were the same for all periods presented. In fiscal 1997, the Company adopted SFAS No. 128, "Earnings per Share", which requires disclosure of basic earnings per share (EPS) and diluted EPS, which replace the existing primary EPS and fully diluted EPS, as defined by Accounting Principles Board (APB) No.15. Basic EPS is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the year. Diluted EPS is computed similarly to primary EPS as previously reported provided that, when applying the treasury stock method to common equivalent shares, the Company must use its average share price for the period rather than the more dilutive greater of the average share price or end-of-period share price required by APB No.15. The adoption of SFAS No. 128 had no effect on the Company's June 29, 1997 EPS data. During April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-5, "Reporting of the Costs of Start-up Activities." SOP 98-5 requires companies to expense as incurred all start-up and pre-opening costs that are not otherwise capitalizable as long-lived assets. The adoption of the new accounting standard had no effect on the Company, as all pre-opening costs have been expensed as incurred since inception. 4. COMMITMENTS & CONTINGENCIES In May 1998, the Company entered into an operating lease for a future restaurant located in downtown Denver, Colorado. The lease is for a term of 15 years and contains provisions for contingent rentals based on a percentage of gross revenues, as defined, and contains provisions for payments of real estate taxes, insurance and common area costs. In addition, the Company will receive various tenant inducements and rent abatement. 5. STOCK OPTIONS In May 1998, the Company adopted the 1998 Directors' Stock Option Plan, whereby stock options to acquire an aggregate of 250,000 shares of the Company's common stock can be granted to the Company's outside directors. The Company has granted options on 20,000 shares through June 28, 1998. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in connection with the Company's financial statements and related notes thereto included elsewhere in this report. OVERVIEW The Company was formed in January 1994 as an Ohio corporation to develop, own and operate upscale, casual themed restaurants under the name "Hotel Mexico". The Company opened its first restaurant in the Kenwood Shopping Center in Cincinnati, Ohio (the "Kenwood Restaurant") in December 1996 under the trade name "Hotel Mexico." The Company subsequently renamed its Kenwood Restaurant "Hotel Discovery", under which name this restaurant continues to operate. Prior to opening the Kenwood Restaurant, the Company had no revenues and its activities were devoted solely to development. The Company opened its second restaurant under the trade name "Cafe Odyssey" in the Mall of America (the "Mall of America Restaurant") in Bloomington, Minnesota, a suburb of Minneapolis, on June 8, 1998. During the second quarter of 1998, the Company entered into a lease agreement for approximately 18,000 square feet of space in the Denver Pavilions, an urban retail/entertainment complex currently under construction in downtown Denver, Colorado. The Company expects to open a Cafe Odyssey restaurant in the Denver Pavilions leased space in the first quarter of 1999. Future revenue and profits, if any, will depend upon various factors, including market acceptance of the Hotel Discovery/Cafe Odyssey concept, the quality of the restaurant operations, the ability to expand to multi-unit locations and general economic conditions. The Company's present source of revenue is limited to its existing restaurants. There can be no assurance the Company will successfully implement its expansion plans, in which case it will continue to be dependent on the revenues from the existing restaurants. The Company also faces all of the risks, expenses and difficulties frequently encountered in connection with the expansion and development of a new and expanding business. Furthermore, to the extent the Company's expansion strategy is successful, it must manage the transition to multiple-site operations, higher volume operations, the control of overhead expenses and the addition of necessary personnel. The Company uses a 52- or 53-week fiscal year ending on the last Sunday in December of each year. RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997 For the thirteen weeks ended June 28, 1998 (hereinafter, "second quarter of 1998"), the Company had net sales of $1,195,676 compared to $816,799 for the thirteen weeks ended June 29, 1997 (hereinafter, "second quarter of 1997"). The increase in sales is attributable to the opening of the Mall of America Restaurant in the second quarter of 1998, offset by a continued decline in sales at the Kenwood Restaurant for the second quarter of 1998 as compared to the second quarter of 1997. For the second quarter of 1998, food, beverage and retail costs were $343,587 or 28.7% of sales compared to $254,172 or 31.1% of sales for the second quarter of 1997. The improvement in food, beverage and retail costs as a percentage of sales is due primarily to improved operating efficiencies at the Kenwood Restaurant. For the second quarter of 1998, labor, benefits and other direct restaurant operating expenses were $877,904 or 73.4% of sales compared to $754,946 or 92.4% of sales for the second quarter of 1997. This improvement in labor, benefits and other direct restaurant operating expenses as a percentage of sales is due primarily as a result of improved operating efficiencies at the Kenwood Restaurant and the higher sales levels experienced at the Mall of America Restaurant. For the second quarter of 1998, the Company had a net loss of $1,540,714 compared to a net loss of $933,171 for the second quarter of 1997. The net loss for the second quarter of 1998 is primarily attributable to operating losses at the Kenwood Restaurant, start-up operations at the Mall of America Restaurant, general and administrative expenses associated with building a senior management team to execute the Company's growth plans and the remaining pre-opening costs for the Mall of America Restaurant. The net loss for the second quarter 9 10 of 1997 was largely attributable to the continued start-up operations at the Kenwood Restaurant, as well as its repositioning to the trade name Hotel Discovery from Hotel Mexico. Continued development of the Company's concept will impact pre-opening and general and administrative expenses on an ongoing basis. RESULTS OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997 For the twenty-six weeks ended June 28, 1998 (hereinafter, "first half of 1998"), the Company had net sales of $1,999,995 compared to $1,864,564 for the twenty-six weeks ended June 29, 1997 (hereinafter, "first half of 1997"). The increase in sales is attributable to the opening of the Mall of America Restaurant in the second quarter of 1998, offset by a decline in sales at the Kenwood Restaurant for the first half of 1998 as compared to its post-grand opening period during the first half of 1997. For the first half of 1998, food, beverage and retail costs were $562,003 or 28.1% of sales compared to $612,115 or 32.8% of sales for the first half of 1997. The improvement in food, beverage and retail costs as a percentage of sales is due primarily to improved operating efficiencies at the Kenwood Restaurant in the first half of 1998 as compared to its start-up operations in the first half of 1997. For the first half of 1998, labor, benefits and other direct restaurant operating expenses were $1,559,506 or 78.0% of sales compared to $1,638,357 or 87.9% of sales for the first half of 1997. This improvement in labor, benefits and other direct restaurant operating expenses as a percentage of sales is due primarily as a result of improved operating efficiencies at the Kenwood Restaurant in the first half of 1998 as compared to its start-up operations in the first half of 1997, as well as the higher sales levels experienced at the Mall of America Restaurant. For the first half of 1998, the Company had a net loss of $2,540,851 compared to a net loss of $1,681,691 for the first half of 1997. The net loss for the first half of 1998 is primarily attributable to operating losses at the Kenwood Restaurant, start-up operations at the Mall of America Restaurant, general and administrative expenses associated with building a senior management team to execute the Company's growth plans and the remaining pre-opening costs for the Mall of America. The net loss for the first half of 1997 was largely attributable to the start-up operations at the Kenwood Restaurant, as well as its repositioning to the trade name Hotel Discovery from Hotel Mexico. Continued development of the Company's concept will impact pre-opening and general and administrative expenses on an ongoing basis. LIQUIDITY AND CAPITAL RESOURCES Since Inception, the Company's principal capital requirements have been (i) the development of the Company and the Hotel Discovery/Cafe Odyssey concept, (ii) the construction of the Kenwood Restaurant and the acquisition of furniture, fixtures and equipment therein and (iii) the development and construction of the Mall of America Restaurant. Total capital expenditures for the Kenwood Restaurant were approximately $5.1 million, net of landlord contributions. Total capital expenditures for the Mall of America Restaurant were approximately $5.1 million, net of landlord contributions of approximately $1.6 million and minimum rent abatement of approximately $405,000. The Company's primary sources of working capital have been proceeds from the sale of Common Stock to and borrowings from its principal shareholder, chairman and founder, Stephen D. King, the private placement of Common Stock and debt, equipment lease financing, as well as the proceeds from the Company's initial public offering of Units in November 1997. For the first halves of 1998 and 1997, the Company used $905,553 and $2,391,423, respectively, in cash flow for operating activities. As of June 28, 1998 and June 29, 1997, the Company had working capital of $664,941 and a working capital deficit of $1,684,117, respectively. In November 1997, the Company completed an initial public offering of 2,500,000 Units, each Unit consisting of one share of Common Stock and one redeemable Class A Warrant at an initial public offering price of $5.00 per Unit. In December 1997, the Company issued an additional 100,000 Units to its principal underwriter, R.J. Steichen & Company, pursuant to the underwriter's decision to exercise a portion of its over-allotment. The Company received net proceeds of approximately $11.2 million in conjunction with the initial public offering and the partial exercise of the underwriter's over-allotment. 10 11 The Class A Warrants are subject to redemption by the Company at any time, on not less than 30 days' written notice, at a price of $0.01 per Warrant at any time following a period of 14 consecutive trading days where the per share average closing bid price of the Company's Common Stock exceeds $7.00 (subject to adjustment), provided that a current prospectus covering the shares issuable upon the exercise of the Class A Warrants is then effective under federal securities laws. For these purposes, the closing bid price of the Common Stock shall be determined by the last reported sale price on the primary exchange on which the Common Stock is traded. The Company intends to open one to three restaurants in 1999. The Company estimates that its capital expenditures (excluding any landlord contributions) will be approximately $10 to $15 million in fiscal 1998 and $10 to $20 million in fiscal 1999. The Company expects to finance its concept development and expansion through cash flow from operations, the exercise of its Class A Warrants and other forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities. There are no assurances that such financing will be available on terms acceptable or favorable to the Company. 11 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in routine legal actions in the ordinary course of its business. Although outcomes of any such legal actions cannot be predicted, in the opinion of management there is no legal proceeding pending against or involving the Company for which the outcome is likely to have a material adverse effect upon the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (A) On May 21, 1998, the Annual Meeting of Shareholders of the Company (the "Annual Meeting") was held. (B) At the Annual Meeting, all of management's nominees for directors as listed in the proxy statement were elected with the following votes: Shares Voted "For" Shares "Withheld" ------------------ ----------------- Ronald K. Fuller 5,950,631 12,700 Stephen D. King 5,950,731 12,600 Michael L. Krienik 5,950,731 12,600 Martin J. O'Dowd 5,947,665 15,666 Thomas W. Orr 5,950,631 12,700 (C) At the Annual Meeting, the Shareholders also approved an amendment to the Company's Articles of Incorporation to change the name of the Company from Hotel Discovery, Inc. to Cafe Odyssey, Inc. 5,919,631 votes were cast in favor of the amendment; 23,550 votes opposed; and 20,150 votes abstained. (D) At the Annual Meeting, the Shareholders also approved an amendment to the Company's 1997 Stock Option and Compensation Plan to increase the number of shares of Common Stock reserved for issuance thereunder from 750,000 shares to 1,250,000 shares. 4,336,168 votes were cast in favor of the amendment; 327,162 votes opposed; and 46,750 votes abstained. (E) At the Annual Meeting, the Shareholders also approved adoption of the 1998 Director Stock Option Plan. 4,208,236 votes were cast in favor of the adoption; 359,567 votes opposed; and 182,571 votes abstained. ITEM 5. OTHER INFORMATION On May 21, 1998, the Securities and Exchange Commission adopted an amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of 1934. The amendment to 14a-4(c)(1) governs the Company's use of its discretionary proxy voting authority with respect to a shareholder proposal which the shareholder has not sought to include in the Company's proxy statement. The new amendment provides that if a proponent of a proposal fails to notify the Company at least 45 days prior to the month and day of mailing of the prior year's proxy statement, then the management proxies will be allowed to use their discretionary voting authority when the proposal is raised at the meeting, without any discussion of the matter in the proxy statement. With respect to the Company's 1999 Annual Meeting of Shareholders, if the Company is not provided notice of a shareholder proposal which the shareholder has not previously sought to include in the Company's proxy statement by April 7, 1999, the management proxies will be allowed to use their discretionary authority as outlined above. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 3 Articles of Incorporation, as amended 12 13 10.1 Third Amendment dated February 25, 1998 to the 1997 Stock Option and Compensation Plan 10.2 1998 Director Stock Option Plan 10.3 Amendment to Loan Documents dated as of June 28, 1998 by and among PNC Bank, National Association, Stephen D. King and Cafe Odyssey, Inc. 27 Financial Data Schedule (B) REPORTS ON FORM 8-K On May 27, 1998, the Company filed a report on Form 8-K relating to its execution on May 12, 1998 of a lease agreement with Denver Pavilions L.P. to lease approximately 18,000 square feet of space for a Cafe Odyssey restaurant in the Denver Pavilions, an urban retail/entertainment complex currently under construction in downtown Denver, Colorado. 13 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAFE ODYSSEY, INC. By: /s/ Anne D. Huemme ---------------------------------- Anne D. Huemme Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Date: August 12, 1998 14 15 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 3 Articles of Incorporation, as amended 10.1 Third Amendment dated February 25, 1998 to the 1997 Stock Option and Compensation Plan 10.2 1998 Director Stock Option Plan 10.3 Amendment to Loan Documents dated as of June 28, 1998 by and among PNC Bank, National Association, Stephen D. King and Cafe Odyssey, Inc. 27 Financial Data Schedule 15 EX-3 2 EXHIBIT 3 1 EXHIBIT 3 ARTICLES OF INCORPORATION OF HOTEL DISCOVERY, INC. The undersigned hereby creates a corporation under Chapter 302A of the Minnesota Statutes and adopts the following Articles of Incorporation. ARTICLE 1 NAME The name of the Corporation is HOTEL DISCOVERY, INC. ARTICLE 2 REGISTERED OFFICE The address of the registered office of the Corporation is 3300 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402. ARTICLE 3 CAPITAL A. The Corporation is authorized to issue one hundred million (100,000,000) shares of capital stock, having a par value of one cent ($.01) per share in the case of common stock, and having a par value as determined by the Board of Directors in the case of preferred stock, to be held, sold and paid for at such times and in such manner as the Board of Directors may from time to time determine in accordance with the laws of the State of Minnesota. B. In addition to any and all powers conferred upon the Board of Directors by the laws of the State of Minnesota, the Board of Directors shall have the authority to establish by resolution more than one class or series of shares, either preferred or common, and to fix the relative rights, restrictions and preferences of any such different classes or series, and the authority to issue shares of a class or series to another class or series to effectuate share dividends, splits or conversion of the Corporation's outstanding shares. C. The Board of Directors shall also have the authority to issue rights to convert any of the Corporation's securities into shares of stock of any class or classes, the authority to issue options to purchase or subscribe for shares of stock of any class or classes, and the authority to issue share purchase or subscription warrants or any other evidence of such option rights which set forth the terms, provisions and conditions thereof, including the price or prices at which such shares may be 2 subscribed for or purchased. Such options, warrants and rights, may be transferable or nontransferable and separable or inseparable from other securities of the Corporation. The Board of Directors is authorized to fix the terms, provisions and conditions of such options, warrants and rights, including the conversion basis or bases and the option price or prices at which shares may be subscribed for or purchased. ARTICLE 4 SHAREHOLDER RIGHTS A. No shareholder of the Corporation shall have any preemptive rights. B. No shareholder of the Corporation shall have any cumulative voting rights. ARTICLE 5 INCORPORATOR The name and address of the incorporator, who is a natural person of full age, is: William M. Mower 3300 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402-4140 ARTICLE 6 WRITTEN ACTION BY LESS THAN ALL OF THE DIRECTORS Any action required or permitted to be taken at a Board meeting, other than an action requiring shareholder approval, may be taken by written action of the Board of Directors if signed by the number of directors that would be required to take the same action at a meeting at which all directors were present. ARTICLE 7 LIMITED LIABILITY OF DIRECTORS To the fullest extent permitted by law, a director shall have no personal liability to the Corporation or its shareholders for breach of fiduciary duty as a director. Any amendment to or repeal of this Article 7 shall not adversely affect any right or protection of a director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 3 IN WITNESS WHEREOF, I have signed my name this 31st day of July, 1997. /s/ William M. Mower -------------------------------------- William M. Mower, Incorporator 4 ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION OF HOTEL DISCOVERY, INC. The undersigned President of Hotel Discovery, Inc., a Minnesota corporation (the "Corporation"), hereby certifies that at a meeting of the shareholders on May 21, 1998, the following resolution to amend its Articles of Incorporation were adopted by the shareholders of the Corporation in accordance with the applicable provisions of the Minnesota Business Corporation Act: 1. Article 1 of its Articles of Incorporation is amended to read in its entirety as follows: The name of the Corporation is Cafe Odyssey, Inc. IN WITNESS WHEREOF the undersigned has hereunto set his hand this 22nd day of May, 1998. /s/ Ronald K. Fuller ----------------------------- Ronald K. Fuller President EX-10.1 3 EXHIBIT 10.1 1 EXHIBIT 10.1 CAFE ODYSSEY, INC. AMENDMENT TO 1997 STOCK OPTION AND COMPENSATION PLAN 1. Increase in Number of Shares Subject to the Plan. Section 5.1 of the 1997 Stock Option and Compensation Plan is hereby amended to read in its entirety as follows: 5.1 Number of Shares. Subject to adjustment as provided in Section 11.6, the number of shares of Common Stock which may be issued under the Plan shall not exceed 1,250,000 shares of Common Stock. 2. Effective Date. This Amendment became effective as of February 25, 1998. EX-10.2 4 EXHIBIT 10.2 1 EXHIBIT 10.2 HOTEL DISCOVERY, INC. 1998 DIRECTOR STOCK OPTION PLAN 1. PURPOSE. The purpose of the Hotel Discovery, Inc. 1998 Director Stock Option Plan (the "Plan") is to advance the interests of Hotel Discovery, Inc. (the "Company") and its shareholders by encouraging share ownership by members of the Board of Directors of the Company (the "Board") who are not employees of the Company or any of its subsidiaries, in order to promote long-term shareholder value through continuing ownership of the Company's common stock. 2. ADMINISTRATION. The plan shall be administered by the Board. The Board shall have all the powers vested in it by the terms of the Plan, such powers to include authority (within the limitations described herein) to prescribe the form of the agreement embodying awards of nonqualified stock options made under the Plan ("Options"). The Board shall, subject to the provisions of the Plan, grant Options under the Plan and shall have the power to construe the Plan, to determine all questions arising thereunder and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. Any decisions of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that the members thereof may authorize any one or more of their number or any other officer of the Company to execute and deliver documents on behalf of the Board. No member of the Board shall be liable for anything done or omitted to be done by him or by any other member of the Board in connection with the Plan, except for his own willful misconduct or as expressly provided by statute. 3. PARTICIPATION. Each member of the Board who is not an employee of the Company or any of its subsidiaries (a "Non-Employee Director") shall be eligible to receive an Option in accordance with Paragraph 5 below. 4. AWARDS UNDER THE PLAN. (a) Awards under the Plan shall include only Options, which are rights to purchase common stock of the Company, having $.01 par value (the "Common Stock"). Such Options are subject to the terms, conditions and restrictions specified in Paragraph 5 below. (b) There may be issued under the Plan pursuant to the exercise of Options an aggregate of not more than 250,000 shares of Common Stock, subject to adjustment as provided in Paragraph 6 below. If any Option is canceled, terminates or expires unexercised, in whole or in part, any shares of Common Stock that would otherwise have been issuable pursuant thereto will be available for issuance under new Options. (c) A Non-Employee Director to whom an Option is granted (and any person succeeding to such a Non-Employee Director's rights pursuant to the Plan) shall have no rights as a shareholder with respect to any Common Stock issuable pursuant to any such Option until the date of the issuance of a stock certificate to him for such shares. Except as provided in Paragraph 6 below, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities or other property) for which the record date is prior to the date such stock certificate is issued. 2 5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall be evidenced by an agreement in such form as the Board shall prescribe from time to time in accordance with the Plan and shall comply with the following terms and conditions: (a) The Option exercise price shall be the "Fair Market Value" (as herein defined) of the Common Stock subject to such Option on the date the Option is granted. Fair Market Value shall be the closing sales price of a share of Common Stock on the date of grant as reported on the Nasdaq Market or, if the Nasdaq Market is closed on that date, on the last preceding date on which the Nasdaq Market was open for trading, but in no event will such Option exercise price be less than the par value of the Common Stock. (b) The Board shall determine the number of shares of Common Stock subject to each Option granted to Non-Employee Directors and, subject to Section 5(d) hereof, the vesting schedule of each such Option. Notwithstanding the foregoing, once such Options become outstanding, a Non-Employee Director will still be entitled to the anti-dilution adjustments provided for in Section 6 hereof. (c) The Option shall not be transferable by the optionee otherwise than by will or the laws of descent and distribution, and shall be exercisable during his lifetime only by him. (d) Options shall not be exercisable: (i) except pursuant to the vesting schedule established by the Board of Directors and after the expiration of ten years from the date it is granted. Notwithstanding anything to the contrary herein, an Option shall automatically become immediately exercisable in full: (i) upon the removal of the Non-Employee Director from the Board without cause; or (ii) in the event of a "change in control" of the Company, as defined in any existing agreements between the Company and its senior officers. (ii) unless payment in full is made for the shares of Common Stock being acquired thereunder at the time of exercise, such payment shall be made in United States dollars by cash or check, or in lieu thereof, by tendering to the Company Common Stock owned by the person exercising the Option and having a Fair Market Value equal to the cash exercise price applicable to such Option, or by a combination of United States dollars and Common Stock as aforesaid; and (iii) unless the person exercising the Option has been at all times during the period beginning with the date of grant of the Option and ending on the date of such exercise, a Non-Employee Director of the Company, except that (A) if such person shall cease to be such a Non-Employee Director for reasons other than death, while holding an Option that has not expired and has not been fully exercised, such person may, at any time within three years of the date he ceased to be a Non-Employee Director (but in no event after the Option 2 3 has expired under the provisions of subparagraph 5(d)(i) above), exercise the Option with respect to any Common Stock as to which he could have exercised on the date he ceased to be such a Non-Employee Director; or (B) if any person to whom an Option has been granted shall die holding an Option that has not expired and has not been fully exercised, his executors, administrators, heirs or distributees, as the case may be, may, at any time within one year after the date of such death (but in no event after the Option has expired under the provisions of subparagraph 5(d)(i) above), exercise the Option with respect to any shares subject to the Option. 6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the outstanding Common Stock of the Company by reason of any stock split, stock dividend, split-up, split-off, spin-off, recapitalization, merger, consolidation, rights offering, reorganization, combination or exchange of shares, a sale by the Company of substantially all of its assets, any distribution to shareholders other than a normal cash dividend, or other extraordinary or unusual event, the number or kind of shares that may be issued under the Plan pursuant to subparagraph 4(b) above, and the number or kind of shares subject to, and the Option price per share under, all outstanding Options shall be automatically adjusted so that the proportionate interest of the participant shall be maintained as before the occurrence of such event; such adjustment in outstanding Options shall be made without change in the total Option exercise price applicable to the unexercised portion of such Options and with a corresponding adjustment in the Option exercise price per share, and such adjustment shall be conclusive and binding for all purposes of the Plan. 7. MISCELLANEOUS PROVISIONS. (a) Except as expressly provided for in the Plan, no Non-Employee Director or other person shall have any claim or right to be granted an Option under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any Non-Employee Director any right to be retained in the service of the Company. (b) A participant's rights and interest under the Plan may not be assigned or transferred, hypothecated or encumbered in whole or in part either directly or by operation of law or otherwise (except in the event of a participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any participant in the Plan shall be subject to any obligation or liability of such participant. (c) Common Stock shall not be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign securities, securities exchange and other applicable laws and requirements. (d) It shall be a condition to the obligation of the Company to issue Common Stock upon exercise of an Option, that the participant (or any beneficiary or person entitled to act under subparagraph 5(d)(iii)(B) above) pay to the Company, upon its demand, such amount as may be 3 4 requested by the Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. If the amount requested is not paid, the Company may refuse to issue such Common Stock. (e) The expenses of the Plan shall be borne by the Company. (f) By accepting any Option or other benefit under the Plan, each participant and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company or the Board. (g) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Options hereunder or any Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or any other applicable statute, rule or regulation. 8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time and from time to time by the Board as the Board shall deem advisable; provided, however, that no amendment shall become effective without shareholder approval if such shareholder approval is required by law, rule or regulation, and in no event shall the Plan be amended more than once every six months, other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act or the rules thereunder. No amendment of the Plan shall materially and adversely affect any right of any participant with respect to any Option theretofore granted without such participant's written consent. 9. TERMINATION. This Plan shall terminate upon the earlier of the following dates or events to occur upon the adoption of a resolution of the Board terminating the Plan or ten years from the date the Plan is initially approved and adopted by the shareholders of the Company. No termination of the Plan shall materially and adversely affect any of the rights or obligations of any person, without his consent, under any Option theretofore granted under the Plan. 10. EFFECTIVE DATE OF PLAN. The Plan will become effective on the date that it is approved by the affirmative vote of the holders of the greater of (a) a majority of the outstanding shares of Common Stock of the Company present and entitled to vote or (b) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum for transaction of business at the Company's Special Meeting of Shareholders. 4 EX-10.3 5 EXHIBIT 10.3 1 EXHIBIT 10.3 AMENDMENT TO LOAN DOCUMENTS THIS AGREEMENT made effective as of June 28, 1998, by and among PNC BANK, NATIONAL ASSOCIATION, successor by merger to PNC BANK, OHIO, NATIONAL ASSOCIATION ("Lender"), STEPHEN D. KING, an individual and resident of the State of Ohio (the "Guarantor"), and CAFE ODYSSEY, INC., formerly known as HOTEL DISCOVERY, INC., a Minnesota corporation, as successor by merger to HOTEL MEXICO, INC., an Ohio corporation formerly known as "KRLP ACQUISITION CORP." (the "New Borrower"). RECITALS A. Lender extended a secured loan in the amount of $1,000,000.00 (the "Loan") to the Kenwood Restaurant Limited Partnership, an Ohio corporation (the "Original New Borrower") with respect to certain premises, more particularly described in Schedule "A" hereto and made a part hereof (the "Property"), the obligations of which were guaranteed by the Guarantor and which loan is described herein as the "Loan." B. The Loan is now evidenced and/or secured by the documents listed in Schedule B hereto (collectively, the "Loan Documents"), of which Stephen D. King is the Guarantor pursuant to a Guarantee dated October 9, 1996 and identified in Schedule B hereto. All terms used herein, but not defined, shall have the same definitions as used in the Loan Agreement identified in Schedule "B" hereto. C. The Original New Borrower transferred all of its right, title and interest in the Property to Hotel Mexico, Inc. ("HMI"). D. Pursuant to certain Assignment and Assumption of Lease dated December 15, 1996 by and between Original New Borrower and HMI, and filed of record in Official Record Volume 7268, Page 1034, in the Hamilton County, Ohio Recorder's Office, HMI assumed all of the obligations of the Original New Borrower under the Loan. E. On or about August 1, 1997, HMI merged into the New Borrower, with New Borrower being the surviving corporation under such merger. F. Lender, New Borrower and Guarantor entered into a certain Second Loan Assumption dated as of October 16, 1997, under which Lender approved of said merger between HMI and New Borrower, New Borrower assumed HMI's obligations under the Loan Documents, and the Loan Documents were amended as provided therein. G. New Borrower recently changed its name and is in the process of making a name change filing with the Ohio Secretary of State. H. New Borrower is in default under the Loan Documents and has requested Lender to forebear its rights and remedies against New Borrower and Guarantor as a result of such default, and to modify certain of its obligations contained therein, and Lender has agreed to give such 2 forbearance and to approve such modifications in accordance with, but subject to, the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Acknowledgement of Loan Terms New Borrower acknowledges the following: 1.1 As of the effective date of this Agreement, New Borrower is currently indebted to Lender in the outstanding principal amount of $883,411.58 under the Loan. 1.2 The current annual rate of interest payable under the Loan is 9.06% per annum and shall remain at such rate until maturity. 1.3 The monthly installment payment of principal currently in effect under the Loan is acknowledged to be $5,785.00, plus accrued interest. 1.4 The Loan Documents are valid and binding obligations of the New Borrower and Guarantor, as applicable, and are enforceable in accordance with their terms. 2. Acknowledgement of Loan Defaults New Borrower acknowledges that New Borrower and Guarantor are currently in default of the Loan Documents as follows: 2.1 The incurrence of indebtedness pursuant to that certain financing identified in the loan documentation contained in Schedule 2.1 attached hereto and made a part hereof with respect to its restaurant located at the Mall of America in Minneapolis, Minnesota (the "Mall of America Financing") in contravention of Section 7.1 contained in the Loan Agreement. 2.2 The repayment of certain indebtedness owed by New Borrower to Guarantor in the amount of approximately $525,110.00 and Guarantor's failure to pay such sum to Lender, in contravention of Section 6 contained in the Guarantee and the other Loan Documents. 3. Amendment to Loan Agreement The Loan Documents are hereby amend as follows: 2 3 3.1 Section 6.8.1 of the Loan Agreement is hereby revised to read as follows: Monthly statements. Furnish Lender within twenty days (20) after the end of each fiscal thirty (30) day period with internally prepared financial statements of New Borrower with respect to such thirty (30) day period, which shall be in Proper Form and shall contain such information as Lender may request, including without limitation, operating statements of the Project, cash flow statements, balance sheet, profit and loss statements. 3.2 Section 6.28 of the Loan Agreement is hereby revised to read as follows: Maintenance of cash. Shall maintain at all times cash under its exclusive control, not subject to any pledge, security or similar arrangement, of $1,000,000.00, or more. 3.3 The following section is hereby incorporated as Section 6.29 into the Loan Agreement: Tenant Finish for Mall of America Lease. Shall furnish to Lender, in Proper Form, documentation which evidences receipt of payment of the sum of $1,600,000.00 (the "Tenant Finish"), from the Lessor pursuant to Section 24.20 of that certain Lease dated by and between New Borrower, as Lessee, and Mall of America Company, a Minnesota General Partnership, as Lessor, affecting its restaurant in Mall of America, Minneapolis, Minnesota (the "Mall of America Lease") no later than fourteen (14) days after its receipt of such sum. 3.4 The maturity date of the Term Note is hereby revised from "February 1, 1999" to "November 1, 1998. 4. Forbearance 4.1 Except as otherwise provided in this Agreement, PNC shall not commence any adversarial legal proceeding against the New Borrower or the Guarantor or against any of the Property or other assets of New Borrower as a result of the occurrence of any of the defaults provided in Section 2 hereof, and PNC shall conditionally waive such defaults, except that this forbearance and conditional waiver shall automatically terminate, and shall be of no further force and effect as a result of any of the following: 4.1.1 An Event of Default under any of the Loan Documents, including without limitation, any additional defaults under the provisions of the Loan Documents specified in Section 2 hereof; 3 4 4.1.2 If Lender reasonably deems itself insecure as a result of facts or circumstances not known to Lender as of the date of this Agreement or if any other event, matter or condition shall occur, arise or exist creating in Lender a reasonable cause for concern that any of its rights or interests may be materially and adversely affected by any delay in enforcing its remedies for any Event of Default, including without limitation, any transfer by the New Borrower or Guarantor that (i) its trustee in bankruptcy could challenge under 11 U.S.C. Sections 544, 547 or 548 if the New Borrower or Guarantor were insolvent and a petition were filed by or against either such party in bankruptcy, (ii) constituted a distribution to its shareholders or (iii) compensated or benefited any insider (as defined in Section 101 of the United States Bankruptcy Code) in excess of a reasonable salary for services actually performed or was more favorable than or in consistent with past practices; 4.1.3 Lender determines that there are facts or circumstances not directly known to Lender as to the date of this Agreement which constitute a material adverse change in the financial condition of New Borrower; or 4.1.4 November 1, 1998. 4.2 This forbearance and conditional waiver by Lender are expressly limited to the purposes specified in Section 4.1 hereof, and do not constitute a forbearance or waiver of any additional defaults by New Borrower under the Loan Documents specified in Section 2 hereof, or a forbearance or waiver of any other Event of Default under the Loan Documents. Furthermore, this forbearance and conditional waiver by Lender shall not be deemed to amend, modify or extend any of the obligations of either New Borrower or Guarantor under the Loan Documents. 4.3 New Borrower and Guarantor covenant and agree that if any petition in bankruptcy is filed (voluntary or involuntary) with respect to the New Borrower and/or the Guarantor, Lender shall be entitled, and the New Borrower shall consent, to immediate and complete relief from any automatic stay or moratorium arising out of or related to the bankruptcy petition and Lender shall be permitted to proceed to protect and enforce its rights or remedies either by suit in equity or by action at law, or both. New Borrower and Guarantor covenant and agree to join with Lender in filing the appropriate petitions or requests for relief required to obtain the relief referred to herein. In addition, in the event of any such bankruptcy, New Borrower waives its exclusive rights under 11 U.S.C. Section 1121 to file a plan of reorganization during the 120 day period after the date of entry of an order for relief under chapter 11 of the United States Bankruptcy Code and further waives any exclusive right it may have under the United States Bankruptcy Code to secure acceptance of any plan filed by it. New Borrower and Guarantor hereby stipulate, acknowledge and agree that, irrespective of the waiver herein, in any proceeding filed by or against the New 4 5 Borrower, "cause" within the meaning of 11 U.S.C. Section 1121(d) exists for reducing to zero, on the request of Lender, the 120 day and 180 day exclusivity periods prescribed for under 11 U.S.C. Section 1121 with respect to the filing by the New Borrower of a plan and securing acceptance thereof and the New Borrower shall consent and hereby does consent to a request by Lender if it shall so elect, of the court to a reduction of such exclusivity periods such that in a Chapter 11 case brought by or against the New Borrower, Lender shall have the right to file and seek to secure acceptance of a plan of reorganization at any time after the date of the order for relief under such chapter, whether or not the New Borrower at any time files a plan in such proceeding. No provision hereof shall preclude the New Borrower from filing a plan of reorganization under chapter 11 of the United States Bankruptcy Code. 4.4 New Borrower and Guarantor acknowledge that Lender has been induced to enter into this Agreement because New Borrower and Guarantor have represented to Lender, and Lender agrees, that the interests of all parties hereto and the other creditors of New Borrower shall be best served without Bankruptcy Court proceedings. Accordingly, the parties hereto have bargained in good faith for the terms of the forbearance and conditional waiver contained herein and New Borrower and Guarantor agree that the filing of any Chapter 11 Bankruptcy Petition with respect to New Borrower would be in bad faith, and in abrogation of this Agreement and should be deemed to have been so filed by the Bankruptcy Court, justifying dismissal of such bankruptcy case or proceeding, or enforcement of the relief from stay and waiver of exclusivity provisions set forth above, and further, justifying enforcement of the bankruptcy guarantee executed and delivered concurrently with this Agreement by Guarantor. Nothing in this Agreement shall be deemed in any way to limit or restrict any of Lender's rights to seek in Bankruptcy Court or any other court of competent jurisdiction, any relief Lender may deem appropriate in the event that a voluntary or involuntary petition under any title of the United States Bankruptcy Code is filed by or against New Borrower. 5. Release New Borrower and Guarantor hereby release Lender and its employees, agents and counsel from all claims, losses, damages and expenses, including but without limitation reasonable attorneys fees, arising out of or relating to the Loan, Lender's administration of the Loan and negotiation of this Agreement. 6. Inducements As an inducement for Lender to enter into this Agreement, New Borrower has paid to Lender the sum of $300,000.00 to be used to reduce the outstanding principal under the Loan, and has agreed to reimburse Lender for all of its reasonable attorneys fees and other costs associated with the Loan through this date, both of which sums have been paid to Lender concurrent with the execution of this 5 6 Agreement. As a further inducement for Lender to enter into this Agreement, New Borrower and Guarantor represent, warrant and state to Lender the following: 6.1 The Loan Documents constitute the valid, legal and binding obligations of the New Borrower and Guarantor, as applicable, which are enforceable in accordance with their terms; and the liens and security interests of the security documents comprising the Loan Documents are valid and substituting liens and interests against the collateral described therein, first in priority of title, except for matters disclosed in that certain Loan Policy of Title Insurance No. 36 0138 010 00004177 issued by Chicago Title Insurance Company to Lender. 6.2 There are no claims, causes of action, defenses or rights of setoff against Lender with respect to the Loan Documents by either of them. 6.3 Except for the defaults acknowledged in Section 2 hereof, the New Borrower and Guarantor are currently not in default under the Loan Documents and have fully performed all of their respective duties and obligations thereunder through and including the effective date of this Agreement. Furthermore, Lender currently is entitled to enforce all of its rights and remedies against New Borrower and Guarantor under the Loan Documents as a result of the defaults acknowledged in Section 2 hereof. 6.4 This Agreement and the consummation of the transaction contemplated hereby constitute the valid, enforceable and binding obligation of the New Borrower and Guarantor, respectively. 6.5 Neither the execution of this Agreement nor the consummation of any of the transactions contemplated hereby will constitute a violation of, be in conflict with, or constitute a default under (or with the passage of time or delivery of notice, or both), or will constitute a default under any term or provision of any Agreement which the New Borrower or Guarantor is a party to or bound by. 6.6 Concurrent with the signature and delivery of this Agreement by the parties hereto, the New Borrower owns full, absolute and complete title to the Property, subject to the lien of the security documents comprising the Loan Documents and the fee simple or reversionary interest of Phillip E. Stephens, Trustee, under the Restaurant Lease. 6.7 Lender has acted at all times in a fair, reasonable, good faith manner in connection with its administration and enforcement of the Loan Documents, its dealings with the parties hereto with respect to the Loan, and all other transactions related to this Agreement or the Loan. 6 7 6.8 New Borrower has adopted the necessary resolution to enter into this Agreement and its signatory to this Agreement is authorized to execute the same and is in good standing with New Borrower. 6.9 A true, correct and complete copy of the loan documentation evidencing the Mall of America Financing is attached as Schedule 6.9 hereto, and there are no modifications or amendments thereto. 6.10 A true, correct and complete copy of the Mall of America Lease is attached as Schedule 6.10 hereto, and there are no amendments or modifications thereto. 6.11 The Mall of America Financing is in full force and effect, New Borrower has received all loan proceeds therefrom and has used the same in the ordinary course of New Borrower's business. 6.12 The Mall of America Lease is in full force and effect and there is no default thereunder by New Borrower. 6.13 The Tenant Finish shall be used in New Borrower's ordinary course of business. 6.14 A true, correct and complete copy of the lease transaction of New Borrower with respect to its restaurant to be located in Denver, Colorado is attached hereto as Schedule 6.14, and there are no amendments or modifications thereto. 6.15 New Borrower promptly shall file all documentation with the Ohio Secretary of State necessary to reflect New Borrowers' current name in its conduct of business in the State of Ohio, and shall furnish Lender with a certified copy of a name change certificate therefrom. Borrower further shall promptly reimburse Lender for all fees and expenses incurred in the filing of a U.C.C. Financing Statement with the Ohio Secretary to reflect said name change. 6.16 All of the representations, warranties and other undertakings of New Borrower and Guarantor, respectively, contained in the Loan Documents, except as expressly modified herein, are restated and made effective as of the date of this Agreement. 7. Notices Notices to the parties hereto under the Loan Documents shall be sent in the manner set forth in the Loan Agreement at the following addresses: 7 8 If to Lender: PNC Bank, National Association 201 East 5th Street Cincinnati, Ohio 45201-1198 Attn: Katherine Herke Nickel with copy to: Frost & Jacobs LLP 2500 PNC Center 201 East Fifth Street Cincinnati, Ohio 45201 Attn: Frederick W. Kindel If to New Borrower: Cafe Odyssey, Inc. 4801 West 81st Street Suite 112 Bloomington, Minnesota 55437 Attn: Ronald K. Fuller with copy to: Maslon Edelman Borman & Brand 3300 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402-4140 Attn: William M. Mower, P.A. If to Guarantor: Stephen D. King 8260 North Creek Drive, Suite 140 Cincinnati, Ohio 43235 with copy to: Maslon Edelman Borman & Brand 3300 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402-4140 Attn: William M. Mower, P.A. 8. Consent to Jurisdiction; Waiver of Jury Trial This Agreement has been executed, delivered and accepted at and will be deemed to be made at Cincinnati, Ohio and will be interpreted and the rights and liabilities of the party hereto determined in accordance with the laws of the State of Ohio, and the New Borrower and Guarantor hereby agree that the exclusive jurisdiction of any state or federal court located within Hamilton County, Ohio and consents that all service of process to New Borrower and Guarantor shall be sent in the manner set forth in the Loan Agreement to the addresses set forth in Section 7 hereof. Nothing contained herein will prevent the Lender from bringing any action or exercising any right against any property of the New Borrower within any other 8 9 state or nation to enforce any award of judgment obtained in the federal or state court located within Hamilton County, Ohio. The New Borrower and Guarantor waive any objection based on forum non-conveniens and any objection to venue or any other action instituted hereunder. The New Borrower and Guarantor and the Lender each waive any right to trial by jury in any action or proceeding related to this Agreement, the Loan Documents or any transaction contemplated in any such documents. 9. Miscellaneous This Agreement may be executed in counterparts. This Agreement, together with the Loan Documents, contain the entire agreement among the parties hereto and supersedes all discussions, communications, documents and other matters furnished among the parties hereto or their counsel. The Agreement shall be included in the definition of "Loan Documents" as used herein. Notwithstanding anything contained herein to the contrary, the liens and security interest of the Security Documents comprised in the Loan Documents shall retain their original priority of title. In the event one or more provisions contained in this Agreement shall for any reason be held invalid, legal or unenforceable, in any respect, such invalidity, legality or unenforceability shall not affect any other provision of this Agreement. 10. Confession of Judgment. Any attorney-at-law may appear in any court of record situated in the county where either New Borrower or Guarantor then resides or conducts business, or in the county where New Borrower signed this warrant, or in any other court in the State of Ohio or in any other state or territory of the United States, at any time after the debt hereby evidenced shall become due, either at its stated maturity or by acceleration or otherwise, and may waive the issuing and service of process and confess judgment against New Borrower, jointly and severally, in favor of Lender, for the amount then owing herein, together with the costs of suit, and thereupon release all errors and waive all rights of appeal and stays of execution. No such judgment or judgments against less than all of the undersigned shall be a bar to a subsequent judgment or judgments against any one or more or the undersigned against whom judgment has not been obtained hereon, this being a joint and several warrant of attorney to confess judgment. 9 10 Executed as of July 23, 1998. ================================================================================ WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. ================================================================================ NEW BORROWER: CAFE ODYSSEY, INC. F/K/A HOTEL DISCOVERY, INC. By: /s/ Stephen D. King Print Name: Stephen D. King Title: Chairman 10 11 ================================================================================ WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. ================================================================================ GUARANTOR: By: /s/ Stephen D. King Print Name: STEPHEN D. KING APPROVED AND AGREED: LENDER: PNC BANK, NATIONAL ASSOCIATION By: /s/ Lawrence Reynolds Title: Vice President STATE OF MINNESOTA ) ) SS: COUNTY OF HENNEPIN ) The foregoing instrument was acknowledged before me, a notary public, this 23rd day of July, 1998 by Stephen D. King, the Chairman of CAFE ODYSSEY, INC. F/K/A HOTEL DISCOVERY, INC., a Minnesota corporation. /s/ William M. Mower Notary Public 11 12 STATE OF MINNESOTA ) ) SS: COUNTY OF HENNEPIN ) The foregoing instrument was acknowledged before me, a notary public, this 23rd day of July, 1998 by STEPHEN D. KING, a resident of Ohio. /s/ William M. Mower Notary Public STATE OF OHIO ) ) SS: COUNTY OF HAMILTON ) The foregoing instrument was acknowledged before me, a notary public, this 24th day of July, 1998 by Lawrence Reynolds, a Vice President of PNC BANK, NATIONAL ASSOCIATION, a national banking association, on behalf of such association. /s/ Frederick W. Kindel Notary Public 12 EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-27-1998 MAR-30-1998 JUN-28-1998 2,552,161 0 1,600,000 0 122,381 4,718,743 12,228,598 (948,141) 16,373,404 4,053,802 678,892 0 0 80,001 9,795,487 16,373,404 1,195,676 1,195,676 343,587 2,747,059 0 0 (10,669) (1,540,714) 0 (1,540,714) 0 0 0 (1,540,714) (0.19) (0.19)
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