-----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, GV1oshg/7jbkYihh5dYatnMHPWPA4IhGcU3woj06amwrjecGdIZqmYMGOjTyDtLt mlXWF2uw7lkCDVrDQA5JAQ== 0000950124-98-006432.txt : 19981116 0000950124-98-006432.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950124-98-006432 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981112 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: 98745728 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 SEPTEMBER 27, 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) 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 November 6, 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 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; any impact of the Year 2000 issue, especially with regard to the Company and vendors; 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 September 27, 1998 and December 28, 1997 4 Statements of Operations for the thirteen weeks ended 5 September 27, 1998 and September 28, 1997 and the thirty-nine weeks ended September 27, 1998 and September 28, 1997 Statements of Cash Flows for the thirty-nine weeks ended 6 September 27, 1998 and September 28, 1997 Condensed Notes to the Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and 9 Results of Operations PART II OTHER INFORMATION 13 ITEM 1. Legal Proceedings 13 ITEM 4. Submission of Matters to a Vote of Security Holders 13 ITEM 6. Exhibits and Reports on Form 8-K 13 Signatures 14
3 4 CAFE ODYSSEY, INC. BALANCE SHEETS
September 27, December 28, 1998 1997 -------------- -------------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 1,287,027 $ 9,222,174 Inventories 142,898 41,766 Other current assets 622,989 250,043 -------------- -------------- Total current assets 2,052,914 9,513,983 PROPERTY AND EQUIPMENT, net 11,738,959 5,270,160 OTHER ASSETS, net 433,903 55,908 -------------- -------------- $ 14,225,776 $ 14,840,051 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term notes payable --- 200,000 Accounts payable 1,009,915 669,380 Salaries and wages payable 388,437 366,674 Other accrued expenses 133,262 115,773 Current portion of long-term debt 145,188 69,420 -------------- -------------- Total current liabilities 1,676,802 1,421,247 DEFERRED RENT 1,683,911 --- LONG-TERM DEBT, less current portion 1,826,021 852,165 CONVERTIBLE PROMISSORY NOTES PAYABLE 150,000 150,000 -------------- -------------- Total liabilities 5,336,734 2,423,412 -------------- -------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $0.01 par value, 100,000,000 shares authorized; 8,000,089 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 (10,943,609) (7,416,312) -------------- -------------- Total shareholders' equity 8,889,042 12,416,639 -------------- -------------- $ 14,225,776 $ 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 Thirty-nine weeks ended --------------------------- --------------------------- September September September September 27, 1998 28, 1997 27, 1998 28, 1997 ----------- ---------- ----------- ----------- NET SALES $ 2,522,048 $ 839,171 $ 4,522,043 $ 2,703,735 ----------- ---------- ----------- ----------- COSTS AND EXPENSES: Food, beverage and retail costs 701,781 252,820 1,263,784 864,935 Labor and benefits 883,681 332,173 1,734,625 1,368,475 Restaurant operating expenses 862,182 235,047 1,570,744 837,102 Depreciation and amortization 313,597 164,000 624,736 439,000 Selling, general and administrative 649,073 455,364 2,067,602 1,220,937 expenses Pre-opening and development costs 60,513 306,755 851,706 496,178 ----------- ---------- ----------- ----------- Total costs and expenses 3,470,827 1,746,159 8,113,197 5,226,627 LOSS FROM OPERATIONS (948,779) (906,988) (3,591,154) (2,522,892) INTEREST INCOME/(EXPENSE), net (37,667) (34,931) 63,857 (100,718) ----------- ---------- ----------- ----------- NET LOSS $ (986,446) $ (941,919) $(3,527,297) $(2,623,610) =========== ========== =========== =========== BASIC AND DILUTED NET LOSS PER SHARE $ (0.12) $ (0.18) $ (0.44) $ (0.57) =========== ========== =========== =========== BASIC AND DILUTED WEIGHTED AVERAGE 8,000,089 5,278,115 8,000,145 4,624,738 OUTSTANDING SHARES =========== ========== =========== ===========
The accompanying condensed notes are an integral part of these financial statements. 5 6 CAFE ODYSSEY, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty-nine weeks ended ----------------------------------- September 27, September 28, 1998 1997 -------------- -------------- OPERATING ACTIVITIES: Net loss $ (3,527,297) $ (2,623,610) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation and amortization 624,736 439,000 Shares issued for services --- 19,200 Changes in operating assets and liabilities: Inventories (101,132) 6,393 Other current assets (372,946) (88,011) Other assets (377,995) (38,154) Accounts payable 340,535 285,774 Salaries and wages payable 21,763 (106,720) Other accrued expenses 88,900 (489,003) -------------- -------------- Net cash used in operating activities (3,303,436) (2,595,131) -------------- -------------- INVESTING ACTIVITIES: Purchases of property and equipment (7,093,535) (1,106,958) -------------- -------------- FINANCING ACTIVITIES: Net payments on short-term notes payable (200,000) (2,100,000) Allowance from landlord 1,612,500 --- Advances from shareholder --- 77,323 Net proceeds from equipment financing 1,002,976 Proceeds from issuance of long-term debt 1,000,000 --- Principal repayments on long-term debt (953,352) (46,280) Proceeds from issuance of stock (300) 3,240,503 Collections on stock subscriptions --- 90,000 -------------- -------------- Net cash from financing activities 2,461,824 1,261,546 -------------- -------------- DECREASE IN CASH AND CASH EQUIVALENTS (7,935,147) (2,440,543) CASH AND CASH EQUIVALENTS, beginning of period 9,222,174 2,707,561 -------------- -------------- CASH AND CASH EQUIVALENTS, end of period $ 1,287,027 $ 267,018 ============== ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 82,132 $ 50,259 Cash paid for income taxes --- ---
The accompanying condensed notes are an integral part of these financial statements. 6 7 CAFE ODYSSEY, INC. CONDENSED NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 27, 1998 AND SEPTEMBER 28, 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. In conjunction with this action, the Company's Board of Directors and shareholders approved a change in its corporate name from Hotel Discovery, Inc. to Cafe Odyssey, Inc. 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 24, 1998. 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 assurances 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. 2. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed 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 thirty-nine week periods ended September 27, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ended January 3, 1999. The Company has adopted a 52-53-week accounting period ending on the Sunday nearest December 31 of each year. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income," which was adopted by the Company as of December 29, 1997, established 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 a material 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 September 28, 1997 EPS data. Statement of Position (SOP) 98-5, "Reporting of the Costs of Start-up Activities" was adopted by the Company as of December 29, 1997. 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. DEBT In September 1998, the Company entered into a $3,000,000 revolving line of credit facility with a financial institution. This credit facility is secured by an open-ended leasehold mortgage, security agreement and assignment of rents, income and proceeds ("Mortgage"), which Mortgage encumbers the leasehold improvements of the Kenwood Restaurant. In addition, certain directors of the Company entered into a joint and several limited guaranty of $1,000,000 of the Company's borrowings under this credit facility. In consideration of these guarantees, the Company issued 40,000 five-year warrants to each of these individuals at an exercise price of $0.75 per share in November 1998. Based on the guarantees existent as of September 27, 1998, $1,000,000 of the line of credit was available to the Company. Subsequent to September 27, 1998, guarantees for the other $2,000,000 were obtained. Two of the directors also each severally guaranteed another $500,000, and the other director guaranteed another $1,000,000, of such borrowings. All three individuals pledged certain collateral to the financial institution in connection with the latter guarantees. In exchange for such guarantees and pledges of collateral, the Company issued 200,000 five-year warrants each to two of the directors, and 400,000 five-year warrants to the other director, all at an exercise price of $0.75 per share in November 1998. The Board of Directors of the Company also authorized the issuance of additional warrants and the payment of cash penalties to the three directors if the borrowings are not repaid in full by September 30, 1999. This credit facility provides for monthly payments of interest accrued on the outstanding unpaid principal balance at a rate equal to the Prime Rate, or 8.25% as of September 27, 1998. As of September 27, 1998, the Company had borrowings of $1,000,000 under this credit facility. 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 Sunday nearest December 31 of each year. RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997 For the thirteen weeks ended September 27, 1998 (hereinafter, "third quarter of 1998"), the Company had net sales of $2,522,048 compared to $839,171 for the thirteen weeks ended September 28, 1997 (hereinafter, "third 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 decline in sales at the Kenwood Restaurant for the third quarter of 1998 as compared to the third quarter of 1997 during which the Kenwood Restaurant was "re-opened" as "Hotel Discovery." For the third quarter of 1998, food, beverage and retail costs were $701,781 or 27.8% of sales compared to $252,820 or 30.1% of sales for the third quarter of 1997. The improvement in food, beverage and retail costs as a percentage of sales is due primarily to improved food and beverage controls and menu management in both the Mall of America Restaurant and the Kenwood Restaurant. For the third quarter of 1998, labor, benefits and other direct restaurant operating expenses were $1,745,863 or 69.2% of sales compared to $567,220 or 67.6% of sales for the third quarter of 1997. This increase in labor, benefits and other direct restaurant operating expenses as a percentage of sales is due primarily as a result of operating inefficiencies at the Kenwood Restaurant, caused by the inability to leverage some relatively fixed operating costs against the lower sales levels experienced at the Kenwood Restaurant. This effect was partially offset by better efficiencies at the Mall of America Restaurant, which allowed better leverage of operating costs against the higher sales levels experienced at the Mall of America Restaurant. For the third quarter of 1998, the Company had a net loss of $986,446 compared to a net loss of $941,919 for the 9 10 third quarter of 1997. The net loss for the third quarter of 1998 is primarily attributable to operating losses at the Kenwood Restaurant, general and administrative expenses associated with building the senior management team to execute the Company's growth plans and the initial pre-opening costs for the Company's third restaurant in Denver. The net loss for the third quarter of 1997 was largely attributable to expenses incurred in repositioning the Company's trade name from Hotel Mexico to Hotel Discovery, general and administrative expenses associated with building a senior management team to execute the Company's growth plans and the initial pre-opening costs for the Company's Mall of America restaurant. Continued development of the Company's concept and execution of the Company's growth strategy will impact pre-opening and general and administrative expenses on an ongoing basis. RESULTS OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997 For the thirty-nine weeks ended September 27, 1998 (hereinafter, "first three quarters of 1998"), the Company had net sales of $4,522,043 compared to $2,703,735 for the thirty-nine weeks ended September 28, 1997 (hereinafter, "first three quarters 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 three quarters of 1998 as compared to its post-grand opening in the first quarter of 1997 and its re-opening as "Hotel Discovery" in the third quarter of 1997. For the first three quarters of 1998, food, beverage and retail costs were $1,263,784 or 27.9% of sales compared to $864,935 or 32.0% of sales for the first three quarters of 1997. The improvement in food, beverage and retail costs as a percentage of sales is due primarily to better efficiencies from food and beverage controls and waste management at the higher volume Mall of America Restaurant and improved food and beverage controls and menu management at the Kenwood Restaurant. For the first three quarters of 1998, labor, benefits and other direct restaurant operating expenses were $3,305,369 or 73.1% of sales compared to $2,205,577 or 81.6% of sales for the first three quarters 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 better efficiencies in leveraging operating costs against the higher sales levels experienced at the Mall of America Restaurant. For the first three quarters of 1998, the Company had a net loss of $3,527,297 compared to a net loss of $2,623,610 for the first three quarters of 1997. The net loss for the first three quarters 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, costs associated with repositioning the Company's trade name to Cafe Odyssey from Hotel Discovery and pre-opening costs for the Mall of America and Denver restaurants. The net loss for the first three quarters of 1997 was largely attributable to the start-up operations at the Kenwood Restaurant, costs associated with repositioning the trade name to Hotel Discovery from Hotel Mexico and initial pre-opening costs for the Mall of America restaurant. Continued development of the Company's concept and execution of the Company's growth strategy 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 (iii) the development and construction of the Mall of America Restaurant and the Denver Restaurant and (iv) the funding of operating cash flow deficits. 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 $5.0 million, net of landlord contributions of approximately $1.6 million, minimum rent abatement of approximately $405,000 and approximately $308,000 in one-time production and mold costs that will be allocated to the Company's next two restaurants. The Company's primary sources of working capital have been proceeds from the sale of Common Stock to and 10 11 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 three quarters of 1998 and 1997, the Company used $3,303,436 and $2,595,131, respectively, in cash flow for operating activities. As of September 27, 1998, the Company had working capital of $376,112. 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 option. 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. 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. In September 1998, the Company entered into a $3,000,000 revolving line of credit facility with The Provident Bank. This credit facility is secured by an open-ended leasehold mortgage, security agreement and assignment of rents, income and proceeds ("Mortgage"), which Mortgage encumbers the leasehold improvements of the Kenwood Restaurant. In addition, Stephen D. King, the Chairman of the Company, and Jerry L. Ruyan and Greg C. Mosher, directors of the Company, entered into a joint and several guaranty of $1,000,000 of the Company's borrowings under this credit facility. In consideration of these guarantees, the Company issued 40,000 five-year warrants to each of these individuals at an exercise price of $0.75 per share in November 1998. Messrs. King and Ruyan also each severally guaranteed another $500,000, and Mr. Mosher severally guaranteed another $1,000,000, of such borrowings. All three individuals pledged certain collateral to The Provident Bank in connection with the latter guarantees. In exchange for such guarantees and pledges of collateral, the Company issued 200,000 five-year warrants to each of Messrs. King and Ruyan, and 400,000 five-year warrants to Mr. Mosher, all at an exercise price of $0.75 per share in November 1998. The Board of Directors of the Company also authorized the issuance of additional warrants and the payment of cash penalties to Messrs. King, Ruyan and Mosher if the borrowings from The Provident Bank are not repaid in full by September 30, 1999. This credit facility provides for monthly payments of interest accrued on the outstanding unpaid principal balance at a rate equal to the Prime Rate, or 8.25% as of September 27, 1998. As of September 27, 1998, the Company had borrowings of $1,000,000 under this credit facility. The Company intends to open up to two restaurants in 1999. The Company estimates that its capital expenditures (excluding any landlord contributions) will be approximately $9 to $12 million in fiscal 1998 and $3 to $10 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. IMPACT OF THE YEAR 2000 ISSUE INTRODUCTION. The term "Year 2000" is used to describe general problems that may result from improper processing of dates and date-sensitive calculations by computers or other machinery as the year 2000 is approached and reached. This problem stems from the fact that many of the world's computer hardware and software applications have historically used only the last two digits to refer to a year. As a result, many of these computer programs do not or will not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could fail or create erroneous results. The following information was prepared to comply with the guidelines for Year 2000 disclosure that the Securities and Exchange Commission issued in an Interpretative Release, effective August 4, 1998. These guidelines require significantly more detailed information than was previously required by the Commission. 11 12 THE COMPANY'S STATE OF READINESS. To operate its business, the Company relies on many third party information technology systems ("IT"), including its point of sale, table seating and reservation management, inventory management, credit card processing, payroll, accounts payable, fixed assets, banking and general ledger systems. The Company does not maintain any proprietary IT systems and has not made any modifications to any of the IT systems provided to it by its IT vendors. The Company has requested that each of the vendors providing hardware and software to run these systems ("IT vendors") complete a Year 2000 compliance questionnaire. The Company has not yet received completed questionnaires from all of its IT vendors. Of those questionnaires that have been completed, the Company has been provided software upgrades and enhancements that, when installed, will ensure that the information technology systems associated with that particular vendor will be Year 2000 compliant. The Company expects that all assurances and/or IT upgrades and enhancements from its IT vendors will be completed and installed by June 1, 1999. The Company also relies upon government agencies, utility companies, providers of telecommunications services, food, beverage and retail product suppliers and other third party product and service providers ("Material Relationships"), over which it can assert little control. The Company's ability to conduct its core business is dependent upon the ability of these Material Relationships to ensure Year 2000 compliance, to the extent they affect the Company. If the telecommunications carriers, public utilities, key food, beverage and retail product suppliers and other Material Relationships do not appropriately rectify their Year 2000 issues, the Company's ability to conduct its core business may be materially impacted, which could result in a material adverse effect on the Company's financial condition. The Company has begun an assessment of all Material Relationships to determine risk and assist in the development of contingency plans. This effort is expected to be completed by April 1, 1999. COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. The Company expenses costs associated with its Year 2000 compliance efforts as the costs are incurred. The Company has not yet incurred any expenses in connection with its Year 2000 compliance efforts to date, and estimates it will spend no more than $5,000 to complete its Year 2000 compliance efforts. The Company estimates that the only costs that it will incur in connection with its Year 2000 compliance efforts will be in the testing phase, which will not occur until it has received assurances from each of its IT vendors that their IT systems upon which the Company relies are Year 2000 compliant. All costs associated with bringing these IT systems into Year 2000 compliance are expected to be borne by the Company's IT vendors. It is expected that the Company will have received these assurances and will begin its testing phase by April 1, 1999. It should be noted, however, that the Company is unable to estimate the costs that it may incur as a result of Year 2000 problems suffered by its IT vendors and Material Relationships, and that there can be no assurance that the Company will successfully identify and rectify all its Year 2000 problems. RISKS PRESENTED BY YEAR 2000 PROBLEMS. The Company has not yet begun the testing phase of its Year 2000 compliance efforts. As a result, the Company cannot fully assess the risks from any potential Year 2000 issues. Once the testing phase is underway, which is expected to occur no later than April 1, 1999, the Company may identify areas of its core business that are at risk of Year 2000 disruption. In addition, many of the Company's critical Material Relationships may not appropriately address their Year 2000 issues, the result of which could have a material adverse effect on the Company's financial condition and results of operations. THE COMPANY'S CONTINGENCY PLANS. Because the Company has not yet begun the testing phase of its Year 2000 compliance efforts, and accordingly has not yet fully assessed its risks from any potential Year 2000 issues, the Company has not yet developed detailed contingency plans specific to Year 2000 issues for any specific areas of business. The Company expects, however, to develop detailed contingency plans specific to Year 2000 issues once the testing phase of its Year 2000 compliance efforts is complete and its key risks have been assessed. 12 13 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 None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.1 Open-End Leasehold Mortgage, Security Agreement and Assignment of Rents, Income and Proceeds made as of September 23, 1998 by the Company to The Provident Bank ("Provident") 10.2 Revolving Promissory Note Mortgage Loan dated September 23, 1998 between the Company and Provident 10.3 Security Agreement dated as of September 23, 1998 between the Company and Provident 27 Financial Data Schedule 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 Date: November 12, 1998 (Principal Financial and Accounting Officer) 14 15 EXHIBIT INDEX Exhibit Number Description - -------------- ----------- 10.1 Open-End Leasehold Mortgage, Security Agreement and Assignment of Rents, Income and Proceeds made as of September 23, 1998 by the Company to The Provident Bank ("Provident") 10.2 Revolving Promissory Note Mortgage Loan dated September 23, 1998 between the Company and Provident 10.3 Security Agreement dated as of September 23, 1998 between the Company and Provident 27 Financial Data Schedule 15 EX-10.1 2 OPEN END LEASEHOLD MORTGAGE, SECURITY AGREEMENT 1 EXHIBIT 10.1 Hamilton County, Ohio When recorded return to: Mark J. Weber, Esq. Keating, Muething & Klekamp, P.L.L. 1800 Provident Tower One East Fourth Street Cincinnati, Ohio 45202 OPEN-END LEASEHOLD MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS, INCOME AND PROCEEDS Maximum Principal Amount $2,000,000 THIS OPEN-END LEASEHOLD MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF RENTS, INCOME AND PROCEEDS ("Mortgage") made as of the 23rd day of September, 1998, by CAFE ODYSSEY, INC., a Minnesota corporation with a mailing address of 4801 West 8lst Street, Suite 112, Bloomington, Minnesota 55437 (hereinafter referred to as "Mortgagor") to THE PROVIDENT BANK, a banking corporation with a mailing address of One East Fourth Street, Cincinnati, Ohio 45202 (hereinafter, together with its successors and assigns called "Mortgagee"). WHEREAS, Mortgagor has delivered to Mortgagee (1) a certain Revolving Promissory Note in the principal amount of Three Million and 00/100 Dollars ($3,000,000.00) executed by Mortgagor ("Note"), dated of even date herewith (this Note and any renewals, extensions or modifications thereof, and all notes issued in substitution or replacement therefor which remain outstanding while the Mortgage is in effect shall hereinafter collectively be referred to as the "Note"), which Note evidences a loan (the "Loan") from Mortgagee wherein the Mortgagor promises to pay to Mortgagee so much thereof as may now or hereafter be disbursed to or for the accounts of the Mortgagor, together with interest thereon as set forth in the Note. WHEREAS, the Loan is made pursuant to the terms and in accordance with or reliance upon certain other agreements and documents, which may include, without limitation, a Security Agreement from Mortgagor to Mortgagee dated of even date herewith, certain UCC-1 Financing Statements and those certain Unconditional Guaranties from _____________, Martin J. O'Dowd, Stephen D. King and Jerry Ruyan ("Guarantors") to Mortgagee ("Guaranties"), which Guaranties shall be secured by pledges from Guarantors to Mortgagee of marketable securities or Mortgagee's time deposits ("Pledge Agreements") (hereinafter, together with the Note, collectively referred to herein as the "Loan Documents"). 2 -2- ARTICLE 1 The Grant NOW THEREFORE, in consideration of the making of the Loan, Mortgagor does hereby agree that the Mortgage shall secure the following: (a) the prompt payment of the indebtedness evidenced by the Note, with interest thereon and any late or other charges imposed in accordance with the terms thereof; (b) the full performance of Mortgagor's obligations under this Mortgage; (c) the payment, performance and observance by Mortgagor of all of the covenants and conditions contained in this Mortgage; and (d) the repayment of any and all debts, obligations or liabilities of every kind and description of Mortgagor to Mortgagee, now due or to become due, direct or indirect, absolute or contingent, presently existing or hereafter arising, joint or several, secured or unsecured, whether for payment or performance, regardless of how the same arise or by what instrument, if any, (items (a), (b), (c) and (d) shall hereinafter collectively be referred to as the "Indebtedness Hereby Secured"), and in order to charge the properties, interests and rights hereinafter described with such payment, performance and observance, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mortgagor does hereby mortgage, warrant, grant, bargain, sell, assign, encumber, convey and grant a security interest to Mortgagee forever in all of the estate, title and interest of Mortgagor in the leasehold and easement estates, if any, in that certain real property situated in the County of Hamilton, State of Ohio and more particularly described on Exhibit "A" attached hereto and by reference made a part hereof ("Real Property"); TOGETHER WITH, all and singular, the Mortgagor's interest in the tenements, hereditaments, and appurtenances thereto belonging, all present and future buildings, structures, annexations, access rights, rights-of-way or use, servitudes, licenses and improvements thereon, all of the rights, privileges, licenses, easements and appurtenances belonging to such Real Property, together with all of the estates and rights in and to lands lying in streets, alleys and roads adjoining the said Real Property (collectively, the "Improvements") and all Mortgagor's right, title, interest, estate, claim and demand, either at law or in equity, in and to all goods, chattels, fixtures, building materials, machinery, apparatus, equipment or articles now or hereafter erected or placed in or upon said Real Property or now or hereafter attached to or used or usable in connection with said Real Property or any business conducted thereon whether or not the same have or would become a part of said Real Property by attachment thereto (collectively, the "Personal Property") including, without limiting the generality of the foregoing, all lighting, heating, cooling, ventilating, air conditioning, incinerating, sprinkling, gas, plumbing, waste removal and refrigeration systems, engines, furnaces, boilers, pumps, tanks, heaters, generators, motors, maintenance equipment, fire prevention apparatus, dryers and laundry equipment, office equipment and all pipes, wires, fixtures and apparatus forming a part of or used in connection therewith; elevators and motors, refrigeration plants or units, cooking appliances, furniture, furnishings, television, tables, chairs, bars, lamps, telephones, cabinets, storm windows and doors, window and door screens, awnings and window and door shades, all drapes and curtains and related hardware and mounting devices, wall-to-wall carpeting; all equipment, 3 -3- machinery, furnishings, fixtures and inventory situated on the Real Property and used or usable in operation thereof as well as all additions, improvements and replacements thereto, and proceeds thereof; all water, sanitary and storm sewer systems including all water mains, service laterals and mineral rights, hydrants, valves and appurtenances, all sanitary sewer lines, including mains, laterals, manholes and appurtenances, all paving for streets, roads, walkways or entrance ways, all minerals, soil, flowers, shrubs, crops, trees, timber and other emblements now or hereafter on the Real Property or under or above the same or any part or parcel thereof, all of the records and books of account now or hereafter maintained by Mortgagor in connection with the Real Property, all names as may be used for the Real Property and the goodwill associated therewith, all proceeds, or sums payable in lieu of or as compensation for the loss or damage to Improvements or Personal Property or to the Real Property upon which the said property covered hereby is or may be located including without limitation the buildings or improvements now or hereafter located thereon, and all Mortgagor's rights in and to all pertinent present and future fire, hazard, business interruption, rental interruption and other insurance policies maintained by Mortgagor on the Improvements, Personal Property and Real Property, all payment and performance bonds received in connection with any construction or other matter and all rights thereunder, all plans, specifications, drawings, studies, surveys, appraisals and other similar work product, all contracts for design, architectural, engineering or construction services and all rights and claims thereunder; all other contract rights and agreements for the protection of property or services to or in connection with, or otherwise benefiting the Real Property, including, without limitation, all management agreements and cable television agreements; all permits, licenses, variances, approvals and/or consents issued by any governmental entity, utility or other entity; all awards made by any public body or created by any competent jurisdiction for the taking or the degradation of value in any eminent domain proceedings, or purchase in lieu thereof; all of Mortgagor's interest and rights as lessor or lessee in and to all leases now or hereafter affecting the said Real Property or part thereof; all contracts for the sale of all or any portion of said Real Property and all contract rights relating to the purchase and maintenance of any equipment; all of which together with Mortgagor's interest in said Real Property, Improvements and Personal Property are hereinafter referred to as the "Premises". Mortgagee is hereby subrogated to the rights of all mortgagees, lien holders and owners paid off by the proceeds of the Loan secured hereby. TO HAVE AND TO HOLD, the Premises unto the Mortgagee, its successors and assigns forever, for the use and purposes hereinafter set forth. ARTICLE 2 Representations and Warranties 2.1 Title. Mortgagor does hereby represent and warrant to Mortgagee that it is lawfully seized of an indefeasible leasehold estate in and has good absolute leasehold title to the Premises under the following lease ("Lease") and Mortgagor has full power to convey the same and 4 -4- to execute this Mortgage; that the Premises are free, clear and unencumbered of all easements, restrictions and liens whatsoever, except those easements, restrictions and matters of record set forth in the title evidence delivered to Mortgagee in connection herewith ("Permitted Encumbrances"); that Mortgagor does warrant and will defend the title to the Premises against the claims and demands of all persons whomsoever; that there are no suits or proceedings pending or threatened against or affecting Mortgagor and/or the Premises; that Mortgagor will keep and observe all of the terms of this Mortgage on Mortgagor's part to be performed; that Mortgagor will make any further assurances of title that Mortgagee may reasonably require; that the Lease is in full force and effect in accordance with its terms and has not been amended or modified in any manner, nor has any provision thereof been waived by either party thereto; and that no event of default has occurred under the Lease and no event has occurred and is continuing which with notice or the passage of time, or both, would constitute an event of default under any of the provisions thereof. 2.2 Mechanics Lien Matters. Mortgagor represents and warrants that no notice of commencement (as identified in Ohio Revised Code Section 1311.04) as to the Premises has been filed or will be filed, pertaining to construction work which has not been fully paid, prior to the filing for record of this Mortgage and that Mortgagor shall promptly provide Mortgagee with a copy of all notices of furnishing (as identified in Ohio Revised Code Section 1311.05) received by Mortgagor. ARTICLE 3 Covenants Mortgagor further covenants and agrees with Mortgagee as follows: 3.1 Payments. To pay to Mortgagee, when due, the principal balance of the Note with interest thereon and all other late charges, penalties and/or prepayment penalties, all in accordance with the terms of the Note and to pay all other Indebtedness Hereby Secured at the times and in the manner herein and therein provided, including without limitation any indebtedness at any time owing by Mortgagor to Mortgagee, whether separately secured or otherwise, now owing or to be owed by Mortgagor, together with interest thereon. 3.2 Taxes and Other Impositions. To pay when due according to law, or to cause to be paid when due according to law, all taxes, assessments and other charges which are now due or may hereafter be imposed or assessed upon the Premises, or any part thereof, or that may be imposed or assessed against the holder of this Mortgage and the Note by reason of ownership thereof, by any authority, be it federal, state, county or city, including but not limited to charges imposed upon the Premises under any applicable declaration of condominium. Upon the failure of Mortgagor promptly to pay such taxes, assessments and other charges, Mortgagee shall have the option to pay and discharge the same without notice to Mortgagor, and any sum so expended by Mortgagee shall at once become indebtedness owing from Mortgagor to Mortgagee, shall be immediately due and payable by Mortgagor with interest thereon to the extent legally enforceable at the rate of interest 5 -5- provided in the Note in the event of default and shall together be added to the Indebtedness Hereby Secured. Upon the request of Mortgagee, Mortgagor will promptly provide Mortgagee with evidence of payment of the above taxes, assessments and other charges imposed or assessed upon the Premises. 3.3 Insurance. For the term of this Mortgage, to obtain and keep in full force and effect at the sole cost and expense of Mortgagor or cause to be obtained and kept policies of insurance to: (a) maintain comprehensive general public liability insurance covering the legal liability of Mortgagor against claims for bodily injury, and/or property damage arising out of the use, maintenance and/or operation of the Premises and all areas appurtenant thereto and/or the conduct of Mortgagor's business in such amounts as Mortgagee may require but in no event less than $1,000,000 for personal injury or death to one person, $1,000,000 for personal injury or deaths in one accident and $1,000,000 for property damage; (b) maintain "broad form/special perils" insurance on any and all Improvements and Personal Property located on the Premises against loss by fire or other hazards in an amount not less than the full insurable value of the Improvements located on the Premises as Mortgagee may require, but in no event less than the principal balance of the Note; (c)in the event any of the Premises is located within a hundred year flood plain or area designated as subject to flood by the Federal Emergency Management Agency or other government agency, or when required by any federal, state or local law, statute, regulation or ordinance, maintain flood insurance in an amount Mortgagee deems appropriate; (d) satisfy all applicable workers' compensation insurance requirements; (e) maintain business interruption insurance in such amounts, and with such coverages, as may be reasonably satisfactory to Mortgagee, such insurance to be provided at such time as Mortgagee may specify but in no event later than the commencement of occupancy by any tenant; (f) if there are pressure-fired vessels on the Premises, maintain broad form boiler and machinery insurance on all equipment and objects customarily covered by such insurance providing for full repair and replacement cost coverage; (g) during the course of any construction or repair of the Improvements on the Premises, maintain completed value builder's risk insurance against "all risks of physical loss", including collapse and transit coverage, in nonreporting form, covering the total value of work performed and equipment, supplies and materials furnished; (h) obtain and maintain any other insurance concerning the Premises or operation of business thereon as Mortgagee may reasonably require. All such policies of insurance shall be written by a company or companies acceptable to Mortgagee; shall have attached thereto the standard form of Mortgagee clause; shall name Mortgagee as an additional insured on all liability policies, lender loss payee and as mortgagee, without contribution; shall be delivered to and held by Mortgagee; shall provide for thirty (30) days prior written notice of cancellation or non-renewal to Mortgagee; shall have attached thereto an agreed amount endorsement; shall include a provision stating that the waiver of subrogation rights of the insured does not void the coverage; shall contain endorsements that no act or negligence of the insured or any occupant and no occupancy or use of the Premises for purposes more hazardous than permitted by the terms of the policy, nor any breach of any warranty, declaration or condition by the insured, will affect the validity or enforceability of such insurance as against Mortgagee; shall 6 -6- contain the agreement of the insurer waiving all rights of set off, counterclaim or deductions against Mortgagor. Mortgagor shall furnish or shall cause to be furnished to Mortgagee certificates of all required policies of insurance along with proof of premiums paid for the current policy year and each subsequent year for the term of this Mortgage. This Mortgage shall operate as an assignment to Mortgagee of said policies of insurance, whether delivered or not. At the option of Mortgagee the proceeds of loss under any policy of insurance, whether endorsed payable to Mortgagee or not, may be applied in payment of the Note or any other sum secured by this Mortgage, whether or not such sums are then due, or to the restoration or replacement of any buildings on the Premises without in any way affecting the lien of this Mortgage or the obligation of Mortgagor or any other person for payment of the Indebtedness Hereby Secured. If the Premises are sold following foreclosure or if Mortgagee acquires title to the Premises, Mortgagee shall have all the right, title and interest of Mortgagor in and to any insurance policies and unearned premiums thereon and in and to the proceeds resulting from any damage to the Premises prior to such sale or acquisition. Upon the failure of Mortgagor to provide or cause to be provided the aforesaid insurance, Mortgagee shall have the option to procure and maintain such insurance without notice to Mortgagor. Any sum so expended by Mortgagee shall at once become indebtedness owing from Mortgagor to Mortgagee and shall immediately become due and payable by Mortgagor with interest thereon to the extent legally enforceable, at the rate of interest provided in the Note in the event of a default, and shall together be added to the Indebtedness Hereby Secured. 3.4 Tax and Insurance Escrow Deposits. In the event of either (1) Mortgagor's failure to pay all taxes and assessments pursuant to Section 3.2 herein or failure to maintain insurance in accordance with the terms of Section 3.3 herein, or (2) an Event of Default occurs under this Mortgage, Mortgagor shall, at Mortgagee's request, pay to Mortgagee monthly on or before the first day of each month, an amount equal to 1/12th of the annual premiums for the insurance policies referred to hereinabove and the annual real estate taxes, assessments, charges or claims, and any other items which at any time may be or become a lien upon the Premises prior to the lien of this Mortgage. The amounts so paid shall be security for the insurance premiums, real estate taxes and other items and shall be used in payment thereof, if Mortgagor is not otherwise in default hereunder. However, if pursuant to any provision of this Mortgage, the whole amount of the unpaid principal debt becomes due and payable, Mortgagee shall have the right, at its election, to apply any amount so held against the entire Indebtedness Hereby Secured. At Mortgagee's option, Mortgagee from time to time may waive, and after any such waiver, may reinstate the provisions of this section requiring the monthly payments prescribed herein. 3.5 Condition of Property; Compliance with Law; Waste. To keep the Premises in good condition and repair and to make all structural and nonstructural repairs and maintenance 7 -7- necessary and to cause all repairs and maintenance to be done in a good and workmanlike manner; to comply in all respects with all statutes, laws, ordinances and governmental rules, regulations and orders which are applicable to Mortgagor's business or properties; not to commit or permit waste on the Premises or remove or permit the removal of any building, improvement or fixture from the Premises; not to perform or permit any act which may in any way impair the value of the Premises or allow changes in the use for which the Premises was intended at the time this Mortgage was executed. 3.6 No Further Encumbrances; No Disposition; Management Changes. Not to make, create or suffer to be made or created any sale, transfer, conveyance, assignment or further encumbrance of the Premises, or any part thereof, or any interest therein or any contract or agreement to do any of the same without Mortgagee's prior written consent, which consent shall not be unreasonably withheld. A sale, transfer, conveyance or assignment means the conveyance by Mortgagor of any legal or equitable right, title or interest in the Premises, or any part thereof, whether such conveyance is voluntary or involuntary, by outright sale, deed, installment sale contract, land contract, lease option contract or any other method of transferring any interest in real property. Any encumbrance means a lien, mortgage or any other encumbrance subordinate to Mortgagee's Mortgage. Any change in the management of Mortgagor wherein Stephen D. King shall no longer be Chairman of the Board of Directors of Mortgagor and shall no longer hold a voting seat on the Board of Directors of Mortgagor, shall not be made without the written consent of Mortgagee. Further, in the event of default under any of the provisions of this Section 3.6, Mortgagee may, without notice to Mortgagor, deal with such successor or successors in interest with reference to this Mortgage in the same manner as with Mortgagor and may forbear to sue or may extend time for payment without discharging or in anyway affecting the liability of Mortgagor hereunder. 3.7 Condemnation. To promptly notify Mortgagee of any action or proceeding relating to any condemnation or other taking, whether direct or indirect of the Premises, or part thereof, and Mortgagor shall appear in and prosecute any such action or proceedings unless otherwise directed by Mortgagee in writing. Mortgagor authorizes Mortgagee, at Mortgagee's option, as attorney in fact for Mortgagor (which authorization shall be irrevocable) to commence, appear in and prosecute, in Mortgagee's or Mortgagor's name, any action or proceeding relating to any condemnation or other taking of the Premises, whether direct or indirect and to settle or compromise any claim in connection with such condemnation or other taking. Subject to the terms and conditions of the Lease, the proceeds of any award, payment or claim for damages, direct or consequential, in connection with any condemnation or other taking, whether direct or indirect, of the Premises or any part thereof, or for conveyance in lieu of condemnation, are hereby assigned to and shall be paid to Mortgagee; and all condemnation money so received shall be forthwith applied by Mortgagee, at its option in payment of the Note, or any other sum secured by this Mortgage whether or not such sums are then due, or to the restoration or replacement of any part of the Premises without in any way affecting the lien of this Mortgage or the obligation of Mortgagor or any other person for payment of Indebtedness Hereby Secured; provided however that any excess 8 -8- over the balance due under the Note and any other indebtedness secured by this Mortgage shall be delivered to Mortgagor. 3.8 Subleases. Mortgagor covenants that it shall not make or suffer to be made any sublease of the Premises or any part thereof without the prior written consent of Mortgagee. In addition, in the event that Mortgagee has consented to a sublease, Mortgagor covenants not to cancel any such sublease or reduce the amounts of the rents or other payments thereunder or release the tenants under any sublease from the obligations to be performed by such tenants without Mortgagee's prior written consent. Mortgagor further covenants to fully and timely perform Mortgagor's obligations under all such subleases and not to accept any prepayment of rent for more than thirty (30) days in advance without Mortgagee's prior written consent, which would not be unreasonably withheld or delayed. Upon Mortgagee's request from time to time, Mortgagor shall furnish Mortgagee a statement, in affidavit form and in such reasonable detail as Mortgagee may require, of all subleases on the Premises and, on demand, to furnish Mortgagee executed counterparts of any and all such subleases. 3.9 Books and Records; Financial Information. With respect to the Premises and the operation thereof, Mortgagor will keep or cause to be kept proper books of record in accordance with generally accepted accounting principles consistently applied. Mortgagee shall have the right to inspect the books and records of the operation of the Premises and make copies thereof at all reasonable times and upon reasonable notice to Mortgagor. Mortgagor shall furnish to Mortgagee such financial statements and information as is required by the terms of the Loan Agreement. 3.10 Liability For All Loan Administration and Enforcement Expenses. Mortgagor shall pay all sums out of pocket, including costs and reasonable attorney fees which Mortgagee may incur in the making of the Loan and the administration thereof including title examination and title insurance premiums and expenses, appraisal fees, survey fees, inspection fees incurred by Mortgagee to establish or preserve the lien of this Mortgage or its priority, or in connection with any suit to enforce this Mortgage to recover the Indebtedness Hereby Secured, or to protect the security of this Mortgage. All such sums shall be immediately due and payable, shall bear interest at the highest rate of interest provided in the Note in the event of default, and shall, together with such interest, be added to the Indebtedness Hereby Secured. 3.11 Application of Funds. Unless applicable law provides otherwise, all payments received by Mortgagee from Mortgagor under this Mortgage shall be applied by Mortgagee in the following order of priority: (a) Amounts advanced by Mortgagee in accordance with the terms of this Mortgage or the Note, together with interest thereon; (b) All past due and current amounts due Mortgagee from Mortgagor for deposits established pursuant to Section 3.4; 9 -9- (c) All late charges, penalties and/or prepayment penalties due Mortgagee from Borrower and Mortgagor pursuant to the provisions of the Note and this Mortgage; (d) Interest payable on the Note; (e) Principal balance of the Note; and (f) All other Indebtedness Hereby Secured. 3.12 Construction. To notify and obtain the written approval of Mortgagee which will not be unreasonably withheld or delayed prior to undertaking any construction or renovation on the Premises if the cost to complete such construction or renovation will exceed One Hundred Thousand and 00/100 Dollars ($100,000.00); to comply with all applicable lien laws and all requirements of Mortgagee in connection therewith; and to diligently undertake, perform and complete on a timely basis and in a good and workmanlike manner any such construction approved by Mortgagee in accordance with the schedules and plans and specifications provided to Mortgagee and any other representations made to Mortgagee. 3.13 Environmental Conditions. Mortgagor represents and warrants to Mortgagee (a) that Mortgagor has no knowledge or information which would put a reasonable person on notice or cause such person to make inquiry concerning the likelihood or presence of any hazardous waste condition or any factor contributing to a risk to the environment located on or emanating from the Premises; (b) that no environmental enforcement action(s) against or concerning the Premises are pending or threatened and Mortgagor will notify Mortgagee if any such action is commenced; (c) that Mortgagor will maintain and operate the Premises during the term of the Mortgage in compliance with all applicable environmental laws of the state where the Premises are located and of the United States of America; (d) that Mortgagor will remedy any contamination that may be discovered on the Premises; and (e) that Mortgagor will indemnify and hold Mortgagee harmless from and against all losses or damages arising from hazardous waste conditions or risks to the environment which will result in claims against or liability of Mortgagee as holder of this Mortgage or subsequent owner of the Premises. 3.14 Indemnification of Mortgagee. To indemnify Mortgagee for and hold Mortgagee harmless from and against any loss suffered or any liability, cost or expense, including without limitation, reasonable attorneys' fees, incurred by Mortgagee on account of any damage to the person or property of the parties hereto or of any third parties by reason of or in connection with the use, operation, maintenance, repair or management of the Premises, unless such damage is due to the negligence of Mortgagee, or its employees or agents. Mortgagor shall undertake, at its sole expense and through counsel satisfactory to Mortgagee, the defense of Mortgagee in any lawsuit commenced as the result, or alleged to be the result, of injury or damage occurring by reason of or in connection with the use, operation, maintenance, repair or management of the Premises. 10 -10- ARTICLE 4 Events of Default Each of the following shall be deemed to be an "Event of Default": 4.1 Default in the payment of principal, interest or any other amounts due under the Note after the expiration of any applicable grace or cure period; 4.2 Default in the payment of any other Indebtedness Hereby Secured after the expiration of any applicable grace or cure period; 4.3 The failure to obtain and keep in force at all times all insurance on the Premises and contents thereof and other insurance coverages in accordance with the terms of this Mortgage; 4.4 An encumbrance on or sale of the Premises, or any part thereof, in violation of Section 3.6 herein; 4.5 The filing of any lien or charge against the Premises or any part thereof which is not removed or bonded to the satisfaction of Mortgagee within a period of thirty (30) days thereafter; 4.6 The failure to observe or perform any one or more of the other terms, covenants or other obligations on the part of Mortgagor set forth in this Mortgage and such default is not fully cured within thirty (30) days after Mortgagee has given written notice thereof to Mortgagor; provided, however, that if such default is curable, and if and so long as Mortgagor is proceeding with due diligence to cure the default, such period will be extended to whatever reasonable period is required to permit Mortgagor to cure the default; provided that such additional curing period does not, in Mortgagee's sole opinion, jeopardize its vital interest in the Premises; 4.7 The abandonment by Mortgagor of all or a part of the Premises; 4.8 In the case where mortgagor is a corporation, partnership or trust entity, the dissolution or cessation of existence as a legal entity of mortgagor; 4.9 Any certification, representation or warranty of Mortgagor under this Mortgage or any of the Loan Documents or any other information provided to Mortgagee by Mortgagor or its representatives in connection with the Premises is determined to have been untrue and/or misleading in any material effect when made; 4.10 Upon the filing of any bankruptcy proceeding by Mortgagor or upon the filing of any bankruptcy proceeding against Mortgagor which is not dismissed within thirty (30) days; any assignment by Mortgagor of any of its property for the benefit of creditors or the placing of any of 11 -11- Mortgagor's property in receivership, trusteeship or conservatorship with or without action or suit in any court; 4.11 The occurrence and continuation of any event of default under the Lease, after the expiration of any applicable grace or cure period, or the termination, cancellation, modification or amendment of the Lease without the prior written consent of Mortgagee; 4.12 The death of any of Stephen D. King, Jerry Ruyan, Martin J. O'Dowd, or ________________; provided that in the event that Mortgagor or the executors or administrators of the estates ("Estates") of any of Stephen D. King ("King"), Jerry Ruyan ("Ruyan"), Martin J. O'Dowd ("O'Dowd"), ______________ ("_______") can within ninety (90) days of the date of death of any of King, Ruyan, O'Dowd or __________ (i) find an acceptable substitute Co-maker or guarantor who shall have comparable net worth and liquidity to that of King, Ruyan, O'Dowd or ________ just prior to his or their deaths, as reasonably determined by Mortgagee in its discretion, or (ii) provide acceptable additional collateral to replace the credit of King, Ruyan, O'Dowd, ___________, as applicable, as reasonably determined by Mortgagee in its discretion, or (iii) shall cause the King, Ruyan, O'Dowd or __________ Estates to co-make the payment of the Note or guaranty the Note and the performance of Mortgagor's obligations under the Loan Documents under the same terms as are set forth in the Note delivered to Mortgagee in connection herewith, then Mortgagor shall not be in default under the terms hereof; and 4.13 The occurrence of any Event of Default under any of the other Loan Documents. ARTICLE 5 Remedies 5.1 Mortgagee's Remedies. Upon the occurrence of an Event of Default, Mortgagee shall have the right to exercise all rights and remedies provided by law or in equity to which Mortgagee is entitled, including without limitation, (a) the right to proceed to protect and enforce its rights by any action at law, in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or for an injunction against a violation of any of the terms, conditions, or provisions hereof or in the aid of the exercise of any power granted hereby or by law; (b) the right to declare the entire amount of the Note and all interest thereon, or, at its option, any part of the foregoing, to be immediately due and payable without further demand or notice; (c) the right to, at any time or from time to time, proceed at law or in equity or otherwise to foreclose the lien on this Mortgage as against all or any part of the Premises; (d) upon the filing of a suit or other commencement of judicial proceeding to enforce the rights of Mortgagee under this Mortgage, Mortgagee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Premises and to receive all receipts therefrom pending such proceedings, with such power as the court making such appointment shall confer; and (e) the right to demand that Mortgagor surrender the possession of the Premises subject to the rights of any lessee, to take possession of all or any part 12 -12- of the Premises together with all books, papers and accounts of Mortgagor pertaining thereto and to operate and manage the same and from time to time to make all needful repairs and improvements as Mortgagee may deem reasonable; and to sublease the Premises or any part thereof in the name of and for the account of Mortgagor and to collect and receive and sequester the rents, revenues and other income after deducting all proper costs and expenses of so taking, holding and managing the same including reasonable compensation to Mortgagee. 5.2 Rights and Remedies Cumulative; No Waiver or Release of Obligation. The rights and remedies of Mortgagee as provided in this Mortgage, and in the warranties contained herein and therein shall be cumulative and concurrent, may be pursued separately, successively or together against Mortgagor or against the Premises, or both, in the sole discretion of Mortgagee, and may be exercised as often as occasion therefor shall arise. Any failure by Mortgagee to insist upon strict performance by Mortgagor of any of the terms and provisions of this Mortgage shall not be deemed a waiver of any of the terms or provisions of this Mortgage. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any default or Event of Default hereunder by Mortgagee shall extend to or shall affect any subsequent Event of Default or shall impair any rights or remedies consequent thereon. Mortgagee may release, regardless of consideration, any part of the security held for the indebtedness secured by this Mortgage without, as to the remainder of the security, in any way impairing or affecting the lien of this Mortgage or its priority over any subordinate lien. 5.3 Expenses. Upon an Event of Default hereunder, Mortgagor shall pay to Mortgagee such further amount as shall be sufficient to reimburse it fully for all costs and expenses, including without limitation, Mortgagee's fees and expenses for enforcing this Mortgage or any rights hereunder, reasonable attorneys', accountants' and appraisers' fees and expenses, court costs and any taxes and fees or governmental charges incident to such enforcement of rights and collection. ARTICLE 6 Mortgage as Security Agreement 6.1 Uniform Commercial Code Security Interest. In addition to being a mortgage, this Mortgage constitutes a security agreement under the Uniform Commercial Code as adopted in the State of Ohio and creates a security interest in favor of Mortgagee in and to all that property (and the proceeds, successions and replacements thereof, and the proceeds of any insurance on such property) included in the Premises which might otherwise be deemed "personal property". Mortgagor hereby grants Mortgagee a security interest in said items and all substitutions, replacement parts, additions, 13 -13- repairs, repair parts, accessions and accessories incorporated therein or affixed thereto in which Mortgagor acquires an interest and the proceeds thereof (sometimes referred to herein collectively as the "Collateral"). Mortgagor agrees that Mortgagee may file this Mortgage or a reproduction thereof in the real estate records or other appropriate index as a financing statement for any of the items specified above as part of the Premises. In addition, Mortgagor agrees to execute and deliver to Mortgagee, upon Mortgagee's request any financing statements as well as extensions, renewals and amendments thereof and reproductions of this Mortgage in such form as Mortgagee may require, to perfect or protect the security interest hereby created with respect to the Collateral, or to more fully describe the Collateral. Notwithstanding any release of any or all of the property included in the Premises which is deemed "real property," any proceedings to foreclose this Mortgage, or its satisfaction of record, the terms hereof shall survive as the security agreement with respect to the security interest created hereby and referred to above until the repayment or satisfaction in full of the Indebtedness Hereby Secured. 6.2 Restriction Against Granting Further Security Interest. Mortgagor shall not, without the prior written consent of Mortgagee, create or suffer to be created pursuant to the Uniform Commercial Code any other security interest in the Premises and/or Collateral (or any portion thereof) including replacements and additions thereto. 6.3 Remedies. Upon Mortgagor's breach of any covenant or agreement of Mortgagor contained in this Mortgage, including the covenant to pay when due all sums secured by this Mortgage, Mortgagee shall have the remedies of a secured party under the Uniform Commercial Code and, at Mortgagee's option may also invoke all other remedies as provided herein. In exercising any of said remedies, Mortgagee may proceed against the items of Real Property and any items of Personal Property specified herein as part of the Premises separately or together and in any order whatsoever, without in any way affecting the availability of Mortgagee's remedies under the Uniform Commercial Code or any of the other remedies provided herein. ARTICLE 7 Miscellaneous 7.1 Binding Effect. All of the terms, covenants and conditions of this Mortgage shall bind Mortgagor and its respective heirs, devisees, administrators, executors, successors and assigns and shall inure to the benefit of and be available to Mortgagee, and its successors and assigns. 7.2 Interpretation; Time of the Essence. All references to Mortgagor and Mortgagee shall be read in the singular or plural and in the masculine, feminine or neuter gender, as the sentence may require. Time is of the essence with respect to each and every obligation of Mortgagor under this Mortgage. 14 -14- 7.3 Governing Law. This Mortgage shall be governed by the laws of the State of Ohio. In the event that any provision of this Mortgage conflicts with applicable law, such conflict shall not affect other provisions of this Mortgage or the Note which can be given affect without the conflicting provisions, and to this end the provisions of this Mortgage are declared to be severable. 7.4 Covenants Run With Land. All of the covenants of this Mortgage shall run with the land constituting the Premises. 7.5 Headings. The headings to the articles and sections hereof are for reference only and do not limit in any way the content thereof. 7.6 Additional Assurances. Mortgagor hereby agrees to promptly execute and deliver such further instruments and assurances and will do such further acts as Mortgagee may reasonably request to perfect the security interest of Mortgagee in all or any portion of the Premises and/or to more effectively carry out the purposes of this Mortgage. 7.7 Open-End Mortgage. In accordance with the provisions of Ohio Revised Code Sections 5301.232 and 5301.233, this Mortgage is given to, and the parties intend that it shall secure, among other items, indebtedness in a maximum amount of Two Million and 00/100 Dollars ($2,000,000) evidenced by the Note, which indebtedness may include advances made by Mortgagee, after this Mortgage is filed of record. The making of such advances is obligatory on the part of Mortgagee subject to the terms and conditions provided for in the Note and Loan Documents. The maximum amount of the unpaid balance of such indebtedness, in the aggregate and exclusive of interest thereon, which is or will be outstanding at any time, is that set forth above, provided that this Mortgage shall also secure unpaid balances of advances made for the payment of taxes, assessments, insurance premiums, or costs incurred for the protection of the Premises. 7.8 Ohio Revised Code Section 1311.14. Mortgagor covenants and agrees with Mortgagee that Mortgagee may, at its option, do all things provided to be done by a Mortgagee under Section 1311.14 of the Ohio Revised Code, and any amendments or supplements thereto, for the protection of Mortgagee's interest in the Premises. 7.9 Waiver of Jury Trial. In consideration for the extension of the Loan to Borrower by Mortgagee, Mortgagor hereby expressly waives the right to trial by jury in any lawsuit or proceeding related to this Mortgage or arising in any way from the Indebtedness Hereby Secured or the transactions between Mortgagor and Mortgagee. 7.10 Compliance with Lease. Mortgagor shall (i) pay all rents, additional rents and other sums required to be paid by Mortgagor as tenant under and pursuant to the provisions of the Lease, (ii) diligently perform and observe all the terms, covenants and conditions of the Lease on the part of Mortgagor, as tenant thereunder, to be performed and observed, unless such performance or observance shall be waived in writing by the Lessor, to the end that all things shall be done which 15 -15- are necessary to keep unimpaired the rights of Mortgagor, as tenant under the Lease, and (iii) promptly notify Mortgagee of the giving of any notice by the Lessor under the Lease to Mortgagor of any default by Mortgagor in the performance or observance of any of the terms, covenants or conditions of the Lease on the part of Mortgagor, as tenant thereunder, to be performed or observed and deliver to Mortgagee a true copy of each such notice. Mortgagor shall not without the prior written consent of Mortgagee, surrender the Lease or terminate or cancel the Lease or modify, change, supplement, alter or amend the Lease, in any respect, either orally or in writing, and Mortgagor hereby assigns to Mortgagee, as further security for the payment of the Indebtedness Hereby Secured and for the performance and observance of the terms, covenants and conditions of this Mortgage, all of the rights, privileges and prerogatives of Mortgagor, as tenant under the Lease to surrender the leasehold estate created by the Lease or to terminate, cancel, modify, change, supplement, alter or amend the Lease, and any such surrender of the Lease, or termination, cancella tion, modification, change, supplement, alteration or amendment of the Lease without the prior written consent of Mortgagee, shall be void and of no force and effect. If Mortgagor shall default in the performance or observance of any term, covenant or condition of the Lease on the part of Mortgagor, as tenant thereunder, to be performed or observed, then, without limiting the generality of the other provisions of this Mortgage, and without waiving or releasing Mortgagor from any of its obligations hereunder, Mortgagee shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of the Lease on the part of Mortgagor, as tenant thereunder, to be performed or observed on behalf of Mortgagor, to the end that the rights of Mortgagee in, to and under the Lease shall be kept unimpaired and free from default. If Mortgagee shall make any payment or perform any act or take action in accordance with the preceding sentence, then all sums expended and costs or expenses incurred by Mortgagee in connection therewith shall be paid by Mortgagor to Mortgagee upon demand, and all such sums, costs or expenses shall be deemed to be secured by the lien of this Mortgage and shall be repaid with interest. In any such event, Mortgagee and any person designated by it shall have, and are hereby granted, the right to enter upon the Premises at any time and from time to time for the purpose of taking any such action. Mortgagor shall, from time to time, use its best efforts to obtain from the Lessor under the Lease such certifi cates of estoppel with respect to compliance by Mortgagor with the terms of the Lease as may be requested by Mortgagee. NOW, THEREFORE, if Mortgagor shall well and truly pay and discharge the Indebtedness Hereby Secured as the same shall become due and payable and Mortgagor shall perform and observe all of the terms, covenants and conditions to be performed and observed by Mortgagor hereunder, then this conveyance shall be null and void and shall be released by Mortgagee at the expense of Mortgagor; otherwise this Mortgage is to remain in full force and effect. 16 -16- IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the year and date first above written. Signed and Acknowledged MORTGAGOR: in the Presence of: CAFE ODYSSEY, INC., a Minnesota corporation /s/ Mark J. Weber By: /s/ Stephen D. King Printed: Mark J. Weber Stephen D. King, Chairman /s/ Keven Ward Printed: Keven Ward STATE OF OHIO ) )SS: COUNTY OF HAMILTON) The foregoing instrument was acknowledged before me this 23rd day of September, 1998, by Stephen D. King, Chairman of Cafe Odyssey, Inc., a Minnesota corporation, on behalf of the corporation. /s/ Mark J. Weber Notary Public This Instrument Prepared By: Mark J. Weber, Esq. Keating, Muething & Klekamp, P.L.L. One East Fourth Street Cincinnati, Ohio 45202 (513) 579-6400 EX-10.2 3 REVOLVING PROMISSORY NOTE 1 EXHIBIT 10.2 REVOLVING PROMISSORY NOTE MORTGAGE LOAN September 23, 1998 Loan No. ________ U.S. $3,000,000.00 FOR VALUE RECEIVED, the undersigned, CAFE ODYSSEY, INC., a Minnesota corporation ("Borrower"), hereby promises to pay to the order of THE PROVIDENT BANK ("Bank") the principal sum of Three Million and 00/100 Dollars ($3,000,000.00) ("Credit Limit") or so much thereof as is loaned by the Bank pursuant to the provisions hereof ("Note") together with interest on the unpaid balance thereof at the rate per annum set forth below computed daily on the basis of a three hundred sixty (360) day year for the actual number of days elapsed in a three hundred sixty-five (365) day year. This Note shall bear interest on the unpaid principal balance from time to time outstanding from the date hereof until final maturity at a rate per annum equal to the Prime Rate, as defined herein, charged by the Bank from time to time (the "Interest Rate"), or at such lesser rate per annum as shall be the maximum rate legally enforceable. In the event of a change in such Prime Rate, the new rate shall become effective on the date such Prime Rate changes. "Prime Rate" is that annual percentage of interest which is announced by the Bank from time to time, which is in effect until a new rate is announced and which provides a base to which loan rates may be referenced, it is not necessarily the Bank's lowest loan rate. Bank shall notify Borrower in writing of any change in the Prime Rate, through its normal billing process. This Note is given in connection with and secured by a certain Open-End Leasehold Mortgage, Security Agreement and Assignment of Rents, Income and Proceeds("Mortgage") made of even date herewith granted by the Borrower to the Bank, which Mortgage encumbers certain property consisting of that leasehold estate more particularly described in the Mortgage located in Hamilton County, Ohio (the "Property"). This Note, the Mortgage, that certain Security Agreement granted by Borrower to Bank dated of even date herewith and any other security documents shall be referred to as the "Loan Documents." 2 - 2 - So long as this Note shall remain outstanding, interest accrued on the unpaid principal balance shall be paid monthly in arrears on the first day of each month commencing on October 1, 1998. At least ten (10) days prior to the due date of any monthly interest payment due hereunder the Bank will deposit in the U.S. Mail written notice to Borrower of the amount of such payment at the notice address of Borrower. Principal shall be due and payable, while Borrower is not in default under this Note or Borrower is not in default under the other Loan Documents, pursuant to the provisions set forth below. The unpaid principal balance hereof plus accrued interest and other charges shall be due and payable in full on January 1, 2000 ("Maturity Date") unless demand for repayment of the entire indebted ness is made by Bank prior to such Maturity Date pursuant to the provisions set forth below or the provisions of the other Loan Documents. Principal and interest payments shall be made in lawful money of the United States of America to the Bank at One East Fourth Street, Cincinnati, Ohio, or such other address as the Bank may give to Borrower, in immediately available funds to the Bank. REVOLVING CREDIT AND REPAYMENT Subject to the conditions hereof and until the Maturity Date (or such earlier date in the event the Bank shall have declared this Note to be due and payable), Borrower shall be entitled to borrow and reborrow from Bank and Bank hereby agrees to lend and relend to Borrower such amounts not to exceed the Maximum Amount of Available Credit, as defined below, as the Borrower may at any time and from time to time request in accordance with the procedures for loan advances set forth below (the "Revolving Credit"), the proceeds of which shall be disbursed and applied for working capital needs of Borrower. The "Maximum Amount of Available Credit" on any date shall equal the Credit Limit less the then outstanding unpaid principal balance of this Note on such date. Borrower covenants that it will apply the proceeds of all loans made pursuant to the Revolving Credit only for the purposes described above and in particular, will not use the proceeds for the purpose of 3 - 3 - purchasing or carrying any "margin stock" so as to cause the Bank to be in violation of Regulation U of the Board of Governors of the Federal Reserve System ("Regulation U"). The Borrower may, upon satisfactory notice to the Bank, voluntarily prepay this Note in whole at any time or in part from time to time, without penalty or premium. LATE CHARGES In the event any of the payments of interest called for hereunder, is not paid within ten (10) days after the due date, a late charge for default of payment of any installment equal to five percent (5%) of the amount of the installment that is late shall be assessed to cover the Bank's extra expense incident to handling delinquent accounts. EVENTS OF DEFAULT This Note is secured by the Mortgage, Security Agreement and the other Loan Documents which Mortgage, Security Agreement and other Loan Documents specify various events of default (each, an "Event of Default") upon the happening of which, the Bank may, (i) declare this Note to be forthwith due and payable, whereupon the principal amount of this Note, together with accrued interest thereon, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and (ii) proceed to protect and enforce its rights under this Note by suit in equity, action at law or any other appropriate proceeding and the Bank shall have, without limitation, all of the rights and remedies of a secured party with respect to the collateral provided by applicable law. DEFAULT RATE It is expressly agreed that during the continuance of an Event of Default, the unpaid balance of principal, accrued interest and all other amounts due hereunder shall, at the option of the Bank and without notice, bear interest, during the continuance of such Event of Default, at a rate per annum equal to four percent (4.00%) in 4 - 4 - excess of the Prime Rate, or at such lesser rate per annum as shall be the maximum rate legally enforceable ("Default Rate"). CONDITIONS Bank's obligation to lend to Borrower pursuant to the Revolving Credit shall be subject to the satisfaction of Bank, at or before the making of each such loan, of the following condition: (a) No Event of Default shall have occurred and be continuing after the expiration of any cure or grace period. No failure or delay on the part of the Bank or any holder of this Note in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. The Bank, at its option, shall have the right to pay on behalf of the Borrower, fire and extended coverage insurance premiums, if necessary, real estate taxes, assessments and such other sums attributable to the Property which are provided in the Mortgage or Security Agreement, and the Borrower agrees promptly to repay the Bank for any sums so expended, together with interest thereon, to the extent legally enforceable, at a rate equal to the Default Rate. NO AMENDMENTS No amendment, modification, termination or waiver of any provision of this Note or consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. NOTICES 5 - 5 - All notices, requests, demands and other communications provided for hereunder shall be in writing, and if addressed to the Borrower, mailed to or delivered to it, addressed to it at the address shown below or such other address furnished Bank in writing at least five (5) business days prior to the action which is the subject of the notice; and if to the Bank, mailed or delivered to it, addressed to it at One East Fourth Street, Cincinnati, Ohio 45202, to the attention of the Senior Commercial Lending Officer. All notices, requests, demands and other communications provided for hereunder shall be deemed given or delivered when received by the party to whom such notice, request, demand or other communication has been addressed. MISCELLANEOUS The Borrower shall pay on demand all costs and expenses of the Bank (i) in connection with the enforcement or collection of this Note, the Mortgage, Security Agreement or other documents securing this Note; and (ii) any and all stamp, other taxes and license fees, if any, payable or determined to be payable by Bank in connection with the execution and delivery of this Note, the Mortgage, Security Agreement and other Loan Documents, and the Borrower shall indemnify and save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. Any provision of this Note which is prohibited and unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidat ing the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. This Note is made and delivered in the City of Cincinnati, Ohio and shall be governed by and construed in accordance with the laws of the State of Ohio. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR BANK TO EXTEND CREDIT TO BORROWER, THE BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY FROM THE INDEBTEDNESS OR TRANSACTIONS INVOLVING THE BANK AND THE BORROWER. 6 - 6 - The Borrower and all endorsers authorize any attorney-at-law, including an attorney engaged by Lender or any holder of this Note, to appear in any court of record in Hamilton County, Ohio, or in any court of record in the jurisdiction in which the Borrower or any endorser against which or whom a judgment is then sought may then reside, or in any court of record in the jurisdiction in which the property described in the Mortgage is located, after the indebtedness evidenced hereby, or any part thereof, becomes due, and waive the issuance and service of process and confess judgment against the Borrower or any endorser in favor of the Lender for the amount then appearing due, together with costs of suit and thereupon to release all errors and waive all rights of appeal and stay of execution, but no such judgment or judgments against any one of the undersigned shall be a bar to a subsequent judgment or judgments against any one or more than one of such persons or entities against whom judgment has not been obtained thereon. This warrant of attorney to confess judgment is a joint and several warrant of attorney. The foregoing warrant of attorney shall survive any judgment; and if any judgment be vacated for any reason, the Lender or any holder hereof neverthe less may hereafter use the foregoing warrant of attorney to obtain an additional judgment or judgments against the Borrower and all endorsers or any one or more of them. The Borrower hereby expressly waives any conflict of interest that the holder's attorney may have in confessing such judgment against Borrower and expressly consents to the confessing attorney receiving a legal fee (at his/her normal hourly rate) from the holder for confessing such judgment against Borrower. - -------------------------------------------------------------------------------- "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." - -------------------------------------------------------------------------------- 7 - 7 - IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by their officers thereunto duly authorized on the date, month and year first above written. BORROWER: CAFE ODYSSEY, INC., a Minnesota corporation By: /s/ Stephen D. King Stephen D. King, Chairman This is to certify that this Note was executed in my presence on the date hereof by the party whose signature appears above in the capacity indicated. /s/ Mark J. Weber NOTARY PUBLIC EX-10.3 4 SECURITY AGREEMENT 1 EXHIBIT 10.3 SECURITY AGREEMENT THIS SECURITY AGREEMENT entered into this 23rd day of September, 1998, by and between CAFE ODYSSEY, INC., a Minnesota corporation, having its principal office at 4801 West 81st Street, Suite 112, Bloomington, Minnesota 55437 ("Debtor") and THE PROVIDENT BANK, an Ohio banking corporation, having its principal office at One East Fourth Street, Cincinnati, Ohio 45202 ("Secured Party"). 1. Granting Clause. To secure the Obligations (as defined in Section 2 hereof), Debtor hereby grants to Secured Party a security interest in all of the property described in Exhibit A attached hereto and incorporated herein by reference, including all increases, substitutions, replacements, additions and accessions thereto and therefor and all cash and noncash proceeds from the sale, exchange, collection or other disposition thereof (such property is hereinafter referred to as the "Collateral"). 2. Obligations Secured Hereby. The security interest in the Collateral granted hereby secures and covers (a)the payment of Debtor's revolving promissory note to Secured Party in the principal amount of Three Million and 00/100 Dollars ($3,000,000.00) dated of even date herewith (the "Note"), (b) the performance by Debtor of its agreements, obligations, liabilities and duties under that certain Open-End Leasehold Mortgage, Security Agreement and Assignment of Leases, Rents, Income and Proceeds dated of even date herewith ("Mortgage") and this Agreement, (c) all of Debtor's other debts, obligations or liabilities of whatever nature to Secured party, due or to become due, direct or indirect, absolute or contingent, whether now existing or hereafter arising and (d) all costs incurred by Secured Party to obtain, perfect, preserve and enforce the security interest granted by this Agreement, to collect the obligations secured hereby and to maintain and preserve the Collateral, with such costs including but not limited to expenditures made by Secured Party for taxes, assessments, insurance premiums, repairs, reasonable attorneys' fees and other legal expenses, storage costs, rents and expenses of collection, possession and sale of the Collateral, together with interest on all such costs at the highest rate of interest provided for in the Note (the foregoing items in subsections (a), (b), (c) and (d) are collectively referred to herein as the "Obligations"). 3. Debtor's Representations, Warranties and Covenants. (a) Collateral. Debtor hereby represents and warrants that (i) except for the security interest granted hereby, Debtor is, or to the extent that this Agreement provides that the Collateral is to be acquired after the date hereof will be, the owner of the Collateral free and clear of all liens, pledges, security interests or other encumbrances of any nature whatsoever; and (ii) upon execution of this Security Agreement and recording of applicable 2 - 2 - financing statements, the security interest granted hereby will be the first, best and only security interest in the Collateral. (b) Enforceability. Debtor represents and warrants that the execution and performance of this Security Agreement has been duly authorized by all appropriate action of Debtor and this Security Agreement has been duly executed by Debtor, delivered to Secured Party and constitute legal, valid and binding obligations of Debtor, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy laws. Neither the execution or delivery by Debtor of this Security Agreement nor the consummation by Debtor of the transactions contemplated hereby nor compliance by Debtor with the provisions hereof, conflicts with or results in a breach of any of the provisions of the Articles of Incorporation or Code of Regulations of Debtor or of the provisions of any other agreement, instrument or understanding to which it is a party or by which it or any of its assets or properties are bound. (c) Protection of Collateral. (i) Debtor will keep the Collateral free from any lien, security interest or other encumbrance adverse to the security interest granted hereby and in good order and repair and will not waste or destroy the Collateral or any part thereof; (ii) Debtor will not use the Collateral in violation of any statute, ordinance or regulation; (iii) Secured Party may examine and inspect the Collateral at any time, wherever located; (iv) Debtor will at any time and from time to time execute and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments and will take such other action, as the Secured Party reasonably requests and reasonably deems necessary or advisable to (a) grant Secured Party a security interest in all or any portion of the Collateral, (b) maintain or preserve the lien of this Agreement to carry out more effectively the purpose hereof, (c) perfect, publish notice of or protect the validity of or of any grant made or to be made by this Agreement, (d) enforce this Agreement, or (e) preserve and defend the Collateral and the rights of the Secured Party therein against the claims and demands of all persons and entities claiming the same or any interest therein. (d) Performance of Obligations. Debtor will punctually perform and observe all of the Obligations. (e) Maintenance and Inspection of Records. Debtor will maintain accurate and complete records in respect of the Collateral and shall at all reasonable times allow Secured Party by any officer, employee or agent to examine, audit or inspect (including making extracts from) such records and to arrange for verification of the Collateral. Debtor also agrees to furnish such information or reports relating to the Collateral as Secured Party may from time to time reasonably request. 3 - 3 - (f) Insurance and Taxes. (i) Insurance of Collateral. Debtor agrees to maintain insurance at all times with respect to the Collateral against such risks and in such amounts as are reasonably satisfactory to Secured Party and to deliver to Secured Party, upon Secured Party's request, all such policies of insurance. Such insurance policies shall comply with the requirements of the Mortgage and contain such terms, be in such form, for such periods and be written by such companies as are reasonably satisfactory to Secured Party and shall be payable to Secured Party and Debtor as their interests may appear. All policies of insurance shall provide for not less than Thirty (30) days written notice to Secured Party prior to any cancellation of such policies. Debtor hereby makes, constitutes and appoints Secured Party as its true and lawful attorney-in-fact for it and in its name and place for the purpose of obtaining, adjusting, settling and canceling such policies of insurance and endorsing any drafts in respect thereof. The rights, powers and authority of Secured Party herein granted shall commence and be in effect on the date of this Agreement and shall remain in full force and effect thereafter until the Obligations have been paid and performed in full. If Debtor fails to maintain such insurance, Secured Party may, at its option, maintain such insurance and all premiums so paid by Secured Party will be payable upon Secured Party's demand and until paid by Debtor will accrue interest at the highest rate of interest provided for in the Note. (ii) Payment of Taxes and Assessments. Debtor agrees to promptly pay when due all taxes and assessments imposed on or with respect to all the Collateral. If such taxes and assessments are not paid when due, the Secured Party may do so for Debtor's account and all expenditures so paid by Secured Party will be added to the principal balance of the Note, will be payable upon Secured Party's demand and until paid by Debtor will accrue interest at the highest rate of interest provided for in the Note. (g) Location of Collateral. Debtor covenants that the Collateral will be kept at all times at Debtor's location set forth on the first page hereof (the "Premises") and that the Collateral will not be removed, in whole or in part, from such premises without the prior written consent of Secured Party or unless a UCC Financing Statement has been filed in the appropriate jurisdiction for the location of such Collateral; provided, however, as contemplated by and provided for in Section 1 hereof, Secured Party agrees that Debtor may, at any time and from time to time, substitute or replace the Collateral ("Substituted or Replaced Collateral") with Collateral of equal or greater value and that Debtor may, in connection with each such substitution or replacement, remove the Substituted or Replaced Collateral from such premises. 4 - 4 - (h) Survival of Representations and Warranties. All representations and warranties made by Debtor in this Security Agreement shall survive the execution and delivery of this instrument until such time as the Note and all other Obligations shall have been paid or otherwise satisfied in full. 4. Debtor's Rights with Respect to Collateral. Unless and until the occurrence of an Event of Default, Debtor shall have the right to utilize the Collateral in the ordinary course of its business and to substitute or replace the Collateral in accord with Section 3(g) hereof, but shall not have the right to sell, lease or otherwise dispose of or transfer the Collateral or any interest therein without the prior written consent of Secured Party; provided, however, so long as an Event of Default shall not have occurred and be continuing, any portion of the Collateral which constitutes inventory or accounts receivable may be sold or transferred in the ordinary course of business consistent with the past business practices of Debtor. 5. Events of Default and Remedies. (a) Events of Default. The occurrence of any one or more of the following events (herein sometimes called a "default") shall constitute an "Event of Default," provided that there has been satisfied any requirement in connection with such event for the giving of notice or the lapse of time, or the happening of any further condition, event or act, it being agreed that time is of the essence hereof: (i) if any payment of principal, interest or other sum on the Note or any sum under this Security Agreement is not paid within Ten (10) days after the same shall be due and payable; (ii) if there shall be a default in the due and punctual observance or performance of any other agreement or covenant of the Note or this Security Agreement and said default shall continue for a period of Thirty (30) days after written notice specifying such default shall have been given to Debtor by Secured Party; (iii) if any representation or warranty of Debtor made in this Security Agreement or in any certificate or other writing delivered pursuant hereto shall prove to be incorrect in any material respect as of the time when the same shall have been made; (iv) if the validity or enforceability of this Security Agreement or the security interest in the Collateral granted hereby shall be impaired in any respect and 5 - 5 - to any degree, or if any lien, charge, security interest, mortgage, pledge or other encumbrance shall be created or imposed upon the Collateral or any part thereof and said default shall continue for a period of Thirty (30) days after written notice specifying such default shall have been given to Debtor by Secured Party; (v) if any default shall continue, after the expiration of any applicable cure period, in the due and punctual performance or observance of any of the terms, provisions, conditions, duties or obligations contained in (a) the Mortgage of even date between Debtor and Secured Party covering the real property upon which the Collateral is situated, or (b) any other note, deed of trust, security agreement, collateral assignment of lease or leases or similar instrument to which Debtor is a party or by which it or any of its properties are bound such that the indebtedness evidenced or secured due and payable prior to the date otherwise become due and payable; (vi) if the Collateral or any material portion of it shall be abandoned by Debtor; (vii) if Debtor shall file a petition in voluntary bankruptcy under any chapter of the Federal Bankruptcy Act or any similar law, state or federal, now or hereafter in effect; (viii) if Debtor shall file an answer admitting insolvency or inability to pay its debts; (ix) if within Ninety (90) days after the filing against Debtor of any involuntary proceedings under such Bankruptcy Act or similar law, such proceedings shall not have been vacated or stayed; (x) if Debtor shall be adjudicated a bankrupt, or a trustee or receiver shall be appointed for the Debtor or for all or the major part of Debtor's property or the Collateral, in any involuntary proceeding, or any court shall have taken jurisdiction of all of the major part of the Debtor's property of the Collateral in any involuntary proceeding for the reorganization, dissolution, liquidation or winding up of the Debtor, and such trustee or receiver shall not be discharged or such jurisdiction relinquished or vacated or stayed on appeal or otherwise stayed within Ninety (90) days; or (xi) if Debtor shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due or shall 6 - 6 - consent to the appointment of a receiver or trustee or liquidator of all of the major part of its property, or the Collateral. (b) Rights and Remedies upon Default. If any Event of Default under the Mortgage or herein shall have occurred and be continuing, Secured Party may, by notice of default given to Debtor, (i) declare the Note to be forthwith due and payable, whereupon the principal amount of the Note, together with accrued interest thereon, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Note contrary notwithstanding; and/or (ii) proceed to protect and enforce its rights under this Agreement by suit in equity, action at law or any other appropriate proceeding and Secured Party shall have, without limitation, all of the rights and remedies provided by applicable law, including, without limitation, the rights and remedies of a secured party under the Uniform Commercial Code of the state governing disposition of the Collateral. Debtor shall be liable for any deficiency remaining after the collection of the Collateral and application of the proceeds to the Obligations to the fullest extent permitted by applicable law. (c) Power of Attorney with Respect to the Collateral. Secured Party shall have the right upon the occurrence of an Event of Default with respect to the payment of the Obligations, whether as scheduled, by acceleration, or otherwise, to notify account debtors of its security interest in the Accounts and to require payments to be made directly to Secured Party at such address or in such manner as Secured Party may deem appropriate. Upon request of Secured Party at any time, Borrowers will so notify the account debtors and will indicate on all billings to the account debtors that the Accounts are payable to Secured Party. To facilitate direct collection, Debtor hereby appoints Secured Party and any officer or employee of Secured Party, as the agent to (i) receive, open and dispose of all mail addressed to Debtor and take therefrom any payments on or proceeds of other arrangements, in which Debtor shall cooperate, to receive Debtor's mail, including notifying the post office authorities to change the address for delivery of mail addressed to Debtor to such address as Secured Party shall designate, (ii) endorse the name of Debtor in favor of Secured Party upon any and all checks, drafts, money orders, notes, acceptances or other evidences or payment or Collateral that may come into Secured Party's possession, (iii) sign and endorse the name of Debtor on any invoice or bill of lading relating to any of the Accounts, on verifications of Accounts sent to any Debtor, to drafts against account debtors, to assignments of Accounts and to notices to account debtors, and (iv) do all acts and things necessary to carry out this Agreement, including signing the name of Debtor on any instruments required by law in connection with the transactions contemplated hereby and on financing statements as permitted by the Uniform Commercial Code. Debtor hereby ratifies and approves all acts of such attorneys-in-fact, and neither Secured Party nor any other such attorney-in-fact shall be liable for any acts of commission or omission, or for any error of judgment or mistake of 7 - 7 - fact or law. This power, being coupled with an interest, is irrevocable so long as any of the Obligations remain unsatisfied. Secured Party shall not, under any circumstances, be liable for any error or omission or delay of any kind occurring in the settlement, collection or payment of any Accounts or any instrument received in payment thereof or for any damage resulting therefrom except for such acts or omissions resulting from Secured Party's gross negligence or willful misconduct. Upon the occurrence of an Event of Default, Secured Party may, without notice to or consent from Debtor, sue upon or otherwise collect, extend the time of payment of, or compromise or settle for cash, credit or otherwise upon any terms, any of the Accounts or any securities, instruments or insurance applicable thereto and/or release the obligor thereon. Secured Party is authorized to accept the return of the goods represented by any of the Accounts without notice to or consent by Debtor, or without discharging or any way affecting the Obligations hereunder. Secured Party shall not be liable for or prejudiced by any loss, depreciation or other damage to Accounts or other Collateral unless caused by Secured Party's gross negligence or willful misconduct, and Secured Party shall have no duty to take any action to preserve or collect any Account or other Collateral. (d) Distribution of Collateral. Upon enforcement of this Agreement following the occurrence of an Event of Default, the proceeds of the Collateral shall be applied as received from time to time by the Secured Party as follows: First: To the payment of all costs and expenses incurred or accrued by the Secured Party (including the fees and expenses of its attorneys, appraisers and agents) in connection with any proceeding commenced to enforce this Security Agreement or in connection with the taking, holding, maintaining, preparing for sale, selling and the like of the Collateral. Second: To the payment of all amounts then due and payable on the Note (first to the payment of delinquency charges, then to the payment of default charges, then to the payment of accrued interest and then to the payment of unpaid principal). Third: To the payment of any surplus to Debtor or any other person or entity legally entitled thereto. (e) Costs and Expenses. Borrower absolutely and unconditionally agrees to pay to Secured Party upon demand by Secured Party all reasonable out-of-pocket costs and expenses which shall be incurred or sustained by Secured Party or any of its directors, 8 - 8 - officers, employees or agents as a consequence of, on account of, in relation to or any way in connection with the exercise, protection or enforcement (whether or not suit is instituted) any of its rights, remedies, powers or privileges under this Agreement or the Mortgage or Note or in, to or under all or any part of the Collateral or in connection with any litigation, proceeding or dispute in any respect related to this Agreement or the Mortgage or Note (including, but not limited to, all of the reasonable fees and disbursements of consultants, legal advisers, accountants, experts and agents for Secured Party, the reasonable travel and living expenses away from home of employees, consultants, experts or agents of Secured Party, and the reasonable fees of agents, consultants and experts not in the full-time employ of Secured Party for services rendered on behalf of Secured Party). (f) Debtor hereby confirms to Secured Party the continuing and immediate right of set-off of Secured Party with respect to all deposits, balances and other sums credited by or due from Secured Party or any of the offices or branches of Secured Party to Debtor, which right is in addition to any other rights which Secured Party may have under applicable law. Regardless of the adequacy of any Collateral, if any principal, interest or other sum payable by Debtor to Secured Party under the Note or Mortgage is not paid to Secured Party punctually when the same shall first become due and payable (after giving effect to any applicable grace period), or if any Event of Default shall at any time occur, any deposits, balances or other sums credited by or due from Secured Party or any of the offices or branches of Secured Party to Debtor may, without any prior notice of any kind to Debtor or compliance with any other conditions precedent now or hereafter imposed by statute, rule or law or otherwise (all of which are hereby expressly and irrevocably waived by Debtors to the extent permitted by law), be immediately set off, appropriated and applied by Secured Party toward the payment and satisfaction of the Obligations (but not to any other obligations of such Debtor to Secured Party until all of the Obligations have been paid in full) in such order and manner as Secured Party (in its sole and complete discretion) may determine. 6. No Waiver; Cumulative Remedies. Secured Party shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder and no waiver shall be valid unless in writing, signed by the Secured Party, and then only to the extent therein set forth. A waiver by Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Secured Party would otherwise have had on any future occasion. No failure to exercise or any delay in exercising on the part of Secured Party any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights and remedies provided by law. 9 - 9 - 7. Severability of Provisions. The provisions of this Security Agreement are severable, and if any clause or provision hereof shall be held invalid or unenforceable in whole or in part, then such invalidity or unenforceability shall attach only to such clause or provision, or part thereof and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision in this Security Agreement in any jurisdiction. 8. Amendments; Choice of Law; Binding Effect. (a) None of the terms or provisions of this Security Agreement may be altered, modified or amended except by an instrument in writing, duly executed by each of the parties hereto. (b) This Security Agreement shall be governed by and be construed and interpreted in accordance with the laws of the State of Ohio. (c) This Security Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9. Notices. All notices and demands hereunder shall be deemed to have been delivered if in writing addressed and provided below and if either (a) actually delivered at said address or (b) in the case of a letter, three (3) business days shall have elapsed after the same shall have been deposited in the United States mail, postage prepaid and registered or certified and addressed in each case as follows: if to Secured Party, to it at its address first above written, Attention: Kevin Ward; or if to Debtor, to it at its address first above written, Attention: Stephen D. King. Either of the foregoing parties may change its address for notices hereunder by giving notice of such change to the other party in accordance with the provisions of this Section 9. 10. Headings. The descriptive headings herein used are for convenience only and shall not be deemed to limit or otherwise effect the construction of any provisions hereof. 11. Counterpart Execution. Security Agreement may be executed in several counterparts each of which together shall constitute one and the same agreement. 10 - 10 - 12. Defeasance Clause. If the Debtor shall pay the Note secured by this Agreement and perform the other Obligations, then this Agreement and the security interest in the Collateral granted hereby shall be void and terminated and Secured Party agrees to execute such documents and do such acts as are necessary to release and terminate such liens. IN WITNESS WHEREOF, the undersigned have caused this Security Agreement to be duly executed and delivered by their respective officers thereunto duly authorized, at Cincinnati, Ohio on the day and year first above written. WITNESSES: CAFE ODYSSEY, INC., a Minnesota corporation Debtor /s/ Mark J. Weber By: /s/ Stephen D. King Stephen D. King, Chairman /s/ Sharon K. Spencer THE PROVIDENT BANK Secured Party /s/ Mark J. Weber By: /s/ Kevin Ward Kevin Ward, Vice President /s/ Sharon K. Spencer 11 EXHIBIT "A" COLLATERAL All of the following property, but only to the extent that the same is situated on the real property more particularly described in Exhibit B. (i) all of the accounts, accounts receivable, chattel paper, contract rights, documents, equipment, fixtures, general intangibles, instruments, inventory, property, franchise rights, trademarks, tradenames, patents, copyrights, licenses and permits, license agreements, intellectual property rights and all other assets, goods and personal property of the Debtor, whether tangible or intangible, or whether now owned or hereafter acquired by the Debtor; (ii) all proceeds and products of any of the foregoing in whatever form, including cash, negotiable instruments and other evidences of indebtedness, chattel paper, security agreements or other documents and all rights of the Debtor in, to and under all leases and rental agreements relating to the foregoing; (iii) all of the right, title and interest of the Debtor in and to all goods or other property represented by or securing any of the accounts receivable, including all goods that may be reclaimed or repossessed from or returned by an account debtor; (iv) all of the rights of the Debtor as an unpaid seller, including stoppage in transit, detinue and reclamation; (v) all additional amounts due to Debtor from any account debtor, irrespective of whether such additional amounts have been specifically assigned to Secured Party; (vi) all guaranties, or other agreements or property securing or relating to any of the items referred to in (i) above, or acquired for the purpose of securing and enforcing any of such items; (vii) all instruments, documents, securities, cash, property, deposit accounts (including but not limited to deposits made to any cash collateral account), and the proceeds of any of the foregoing, owned by the Debtor or in which Debtor has an interest, which are now or may hereafter be in the possession or control of Secured Party or in transit by mail or carrier to or from Secured Party, or in possession of any third party acting on behalf of Secured Party, without regard to whether Secured Party received same in pledge, for safekeeping, as agent for collection or transmission or otherwise or whether Secured Party had conditionally released the same; (viii) all ledger sheets, files, records, documents, blueprints, drawings and instruments (including, without limitation, computer programs, tapes and related electronic data processing software) evidencing an interest in or relating to the Debtor; (ix) all proceeds and products of the collateral described above, including without limitation, all claims against third parties for damage to or loss or destruction of any of the foregoing, including proceeds, accounts, contract rights, chattel paper and general intangibles arising out of any sale, lease or other disposition of any of the foregoing; and (x) any other collateral security granted to Secured Party from time to time. EX-27 5 FINANCIAL DATA SCHEDULE
5 3-MOS JAN-03-1999 JUN-29-1998 SEP-27-1998 1,287,027 0 0 0 142,898 2,052,914 12,999,100 (1,260,141) 14,225,776 1,676,802 1,826,021 0 0 80,001 8,809,041 14,225,776 2,522,048 2,522,048 701,781 3,470,827 0 0 (37,667) (986,446) 0 (986,446) 0 0 0 (986,446) (0.12) (0.12)
-----END PRIVACY-ENHANCED MESSAGE-----