-----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, WOtZkaJdTNA0zutIaJX5CsH3jGewoanp8n/vVBJXBE1DIv4FtlcVKxuft+6IO1sX 6HA1+LUh/emZWobkiYInlg== 0000950124-99-002906.txt : 19990504 0000950124-99-002906.hdr.sgml : 19990504 ACCESSION NUMBER: 0000950124-99-002906 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990103 FILED AS OF DATE: 19990503 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: 0102 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-23243 FILM NUMBER: 99608689 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 10KSB/A 1 FROM 10KSB/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB/A NO. 2 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO 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 in its Charter) MINNESOTA 31-1487885 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 4801 W. 81ST STREET, SUITE 112 55437 BLOOMINGTON, MN 55437 (Zip Code) (Address of principal executive offices) 612-837-9917 (Issuer's telephone number, including area code) Securities Registered Under Section 12(b) of the Exchange Act: NONE Securities Registered Under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.01 CLASS A WARRANTS TO PURCHASE ONE SHARE OF COMMON STOCK UNITS, CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE CLASS A WARRANT (Title of each class) 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 [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The Issuer had total revenues of $6,932,891 for its fiscal year ended January 3, 1999. As of April 2, 1999, the aggregate market value of the voting and non-voting common equity held by non-affiliates (assuming for these purposes, but not conceding, that all executive officers and directors are "affiliates" of the Issuer) of the Issuer was $5,558,588 based upon the last reported sale price in the Nasdaq SmallCap Market on April 2, 1999 of $0.81 per share. As of January 3, 1999, the number of shares outstanding of the Issuer's Common Stock was 8,000,089. Transitional Small Business Disclosure Format: 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 1999 and 2000, 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-KSB, other factors that could cause actual results to differ materially are the following: the Company's ability to identify and secure suitable locations on acceptable terms; obtain additional capital necessary for expansion on acceptable terms; open new restaurants in a timely manner; hire and train additional restaurant personnel and integrate new restaurants into its operations; the continued implementation of the Company's strict business discipline over a growing restaurant base; the economic conditions in the new markets into which the Company expands and possible uncertainties in the customer base in these areas; changes in customer dining patterns; competitive pressures from other national and regional restaurant chains; business conditions, such as inflation or a recession, and growth in the restaurant industry and the general economy; changes in monetary and fiscal policies, laws and regulations; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. - -------------------------------------------------------------------------------- 2 3 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT EXECUTIVE OFFICERS AND DIRECTORS The following persons currently serve the Company as executive officers and/or members of its Board of Directors. Each director has consented to serve an additional term, if elected at the Company's next annual meeting of shareholders.
NAME POSITIONS WITH THE COMPANY AGE DIRECTOR SINCE - ---- -------------------------- --- -------------- Stephen D. King Chairman of the Board, Chief Executive 42 1994 Officer and Chief Financial Officer Ronald K. Fuller President, Chief Operating Officer 54 1997 and Director Michael L. Krienik Director 46 1997 Thomas W. Orr Director 54 1997 Jerry L. Ruyan Director 52 1998
Stephen D. King is the Chairman of the Board of the Company and a managing partner of BaryCenter Capital Management, a Cincinnati-based financial advisor and investment firm. Mr. King has also served as the Company's Chief Executive Officer from its inception until February 1998 and from April 2, 1999 to the present and as Chief Financial Officer from October 31, 1998 to the present. From 1982 to 1990, Mr. King served in various capacities, including Chief Executive Officer, of Pizza Hut of Cincinnati, Inc., which operates 36 Pizza Hut restaurants in the Cincinnati, Ohio area. Mr. King has also served in various capacities with Long John Silver, Two Pesos and Skyline Chili franchise operations. Mr. King also has extensive real estate and financing expertise and, from 1991 to 1994, served as managing partner of a real estate development partnership with properties valued at approximately $60 million. Ronald K. Fuller joined the Company as President and Chief Operating Officer in January 1997. He also served as Chief Executive Officer of the Company from February through April 1, 1999. Mr. Fuller had served since 1993 as President and Chief Executive Officer for Leeann Chin, Inc., Minneapolis, Minnesota. From 1985 to 1993, Mr. Fuller held several executive positions with General Mills, Inc. and General Mills Restaurants, Inc. in Minneapolis and Orlando, Florida, including Vice President - Operations, Executive Vice President - New Concept Development, and President/General Manager. Michael L. Krienik became a director of the Company in September 1997 and is President of Krienik Advertising Inc., Cincinnati, Ohio, a full-service advertising agency which he founded in 1981. Prior to founding his own advertising agency, Mr. Krienik served in various merchandising/management roles with Federated Department Stores from 1973 to 1977 and then served as the National Advertising Manager for U.S. Shoe Corporation from 1977 to 1981. Thomas W. Orr became a director of the Company in September 1997 and has been a Senior Consultant since 1995 for the Delta Consulting Group, Trumbull, Connecticut, specializing in business strategy, new business development, marketing and sales. From 1994 to 1995, Mr. Orr was President of the retail chicken group of ConAgra Broiler Company, with responsibility for strategic direction, operations of five plants, sales, marketing, international and commodity businesses. Mr. Orr had previously been associated with ConAgra Broiler Company from 1991 to 1993 as Vice President of Sales and Vice President of Marketing. From 1993 to 1994, Mr. Orr served as Senior Vice President for Jennie-O Foods, Inc., a subsidiary of Hormel Foods, with responsibility for strategy development, marketing and sales for the retail, food service and commodity divisions. Jerry L. Ruyan has been a director of the Company since October 1998. Mr. Ruyan co-founded and has been a partner of Redwood Venture Group Ltd., a venture capital company based in Cincinnati, Ohio, since January 1996. Mr. Ruyan is a director of Meridian Diagnostics, Inc., which develops diagnostic test products for the global medical industry, which company he founded in 1977 and for which he served as President and Chief Executive Officer from 1977 to January 1996. He is also a director of Frisch's Restaurants, Inc., which operates and licenses family restaurants and hotels with restaurants, and a director of Meritage Hospitality Group, Inc., a Wendy's restaurant franchisee based in Grand Rapids, Michigan. BENEFICIAL OWNERSHIP REPORTING COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership of such securities with the Securities and Exchange Commission and Nasdaq. Officers, directors and greater than ten per cent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on review of the copies of such forms furnished to the Company, or written representations that no Forms 5 were required, the Company believes that during the year ended January 3, 1999 all Section 16(a) filing requirements applicable to its officers, directors and greater than ten per cent beneficial owners were complied with. ITEM 10. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table sets forth the cash and noncash compensation for each of the last three fiscal years awarded to or earned by each executive officer of the Company whose salary and bonus during the year ended January 3, 1999 exceeded $100,000. SUMMARY COMPENSATION TABLE
Long-Term Compensation ----------------- Annual Compensation Awards -------------------------------------------- ----------------- Other Annual Common Stock Salary Bonus Compensation Underlying Options Name and Principal Position Year ($) ($) ($) (#) --------------------------- ---- ------- ------ --------------- ------------------ Stephen D. King (1) 1998 200,000 -- -- -- Chairman of the Board, 1997 83,333 70,000 -- -- Chief Executive Officer and 1996 -- -- -- -- Chief Financial Officer Ronald K. Fuller 1998 200,000 90,000 35,000(2) 308,333(3) President and Chief 1997 146,154 50,000 61,733(4) 308,333 Operating Officer 1996 -- -- -- -- Anne D. Huemme (5) 1998 125,000 -- 5,000 (6) 33,333 (3) 1997 -- -- -- 100,000
(1) Mr. King assumed the title of Chief Financial Officer on October 30, 1998 and Chief Executive Officer on April 2, 1999. (2) Includes $15,000 car allowance and $20,000 cafeteria plan benefits. (3) Reflects options which were repriced. See "Ten-Year Option/SAR Repricings" below. (4) Includes $33,333 in consulting fees paid to Mr. Fuller before he became an employee, $8,400 car allowance and $20,000 cafeteria plan benefits. (5) Ms. Huemme relinquished the titles of Vice President - Finance and Chief Financial Officer on October 30, 1998 and her employment was terminated on December 24, 1998. (6) Car allowance. OPTION GRANTS IN LAST FISCAL YEAR No stock options were granted to any of the executive officers named in the Summary Compensation Table during the fiscal year ended January 3, 1999. An option was granted to Anne Huemme to purchase 100,000 shares during fiscal 1997 at an exercise price of $3.00 per share. The market price of the shares was $3.00 on the date of grant. This grant represented 15.8% of options granted to employees during fiscal 1997. The option originally expired on January 15, 2007. The options vest ratably on the first, second and third anniversaries of the date of grant. Ms. Huemme relinquished the titles of Vice President - Finance and Chief Financial Officer on October 30, 1998 and her employment was terminated on December 24, 1998. The portion of her option which vested on January 5, 1999, to purchase 33,000 shares, was repriced to $.75 in December 1998. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table summarizes information with respect to options held by the persons named in the Summary Compensation Table, and the value of the options held by such persons at the end of fiscal 1998. No options were exercised by the executive officers named in the Summary Compensation Table during fiscal 1998.
Number of Unexercised Value of Unexercised in-the- Options at FY-End(#) Money Options at FY-End ($)(1) --------------------- ------------------------------ Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- Stephen D. King 0 0 -- -- Ronald K. Fuller 108,333 200,000 0 0 Anne D. Huemme 0 100,000 0 0
(1) The option exercise price in each case is $.75 and the last sale price of the common stock on December 31, 1998 was $.656. TEN-YEAR OPTION/SAR REPRICINGS
Number of Securities Market Price Exercise Length of Underlying of Stock at Price at New Original Option Options Time of Time of Exercise Term Remaining Repriced Repricing Repricing Price at Date of Name Date (#) ($) ($) ($) Repricing - ---- ---- ---------- -------------- ---------- --------- ---------------- Stephen D. King ............ -- -- -- -- -- -- Ronald K. Fuller ........... 12/10/98 300,000 .75 3.00 .75 8 years 12/10/98 8,333 .75 3.00 .75 9 years Anne D. Huemme ............. 12/10/98 33,333 .75 3.00 .75 9 years
The Compensation Committee of the Board of Directors decided to reprice the options enumerated above in response to a decrease in the market price of the Company's common stock to a level which, in the opinion of the Board, had the effect of eliminating substantially all the incentive value of such options. The Compensation Committee concluded that short-term financial performance considerations should not unduly influence long-term compensation strategies. The Board believes that stock options play an extremely important role in attracting talented executives and motivating them to perform up to their full potential, particularly where stock options are an important component of an executive's compensation package. Accordingly, the Board determined that a repricing of options to current market value was both necessary and consistent with its strategy of providing executives with tangible long-term performance incentives. BY THE COMPENSATION COMMITTEE Thomas W. Orr Michael L. Krienik EMPLOYMENT AGREEMENTS Ronald K. Fuller, President and Chief Operating Officer, has an employment agreement which was renewed for another year on January 6, 1999. It is subject to early termination for variety of reasons, including voluntary termination by Mr. Fuller. Mr. Fuller's base salary was $200,000 for fiscal 1998 and will be $200,000 for fiscal 1999. Such base salary may be adjusted annually as determined by the Company's Board of Directors. Such agreement also provides that Mr. Fuller will receive one year's severance if terminated by the Company for a reason other than "cause," as defined therein. Mr. Fuller receives medical, dental and other customary benefits. The employment agreement provides that Mr. Fuller will not compete with the Company for one year if he resigns or is terminated for cause. Mr. Fuller has an option agreement with the Company dated January 15, 1997 pursuant to which he was granted an option to purchase 300,000 shares of common stock at an exercise price of $3.00 per share. The option agreement provides that if Mr. Fuller is terminated without cause, all parts of the option scheduled to vest thereafter shall immediately vest as of the date of termination. Immediate vesting shall also occur in the event of (i) the sale in one or more private transactions of 50% or more of the Company or (ii) a majority of the members of the Board of Directors of the Company is replaced within a period of less than six (6) months by directors not nominated and approved by the Board. The option is currently unvested as to 200,000 shares. Anne D. Huemme, who served as Vice President - Finance and Chief Financial Officer from January 5, 1998 through October 30, 1998, had a three-year employment agreement which expired on January 5, 2001, subject to early termination for a variety of reasons. Ms. Huemme's employment with the Company has been terminated as of December 24, 1998. Ms. Huemme received a base salary of $130,000 during her first year of employment. The agreement also provided that Ms. Huemme would receive six months' severance if terminated by the Company for a reason other than cause. The agreement provided that Ms. Huemme would not compete with the Company for one year if she resigned or were terminated for cause. In addition to the options referred to above, the Company granted an option to purchase 8,333 shares to Mr. Fuller and an option to purchase 100,000 shares to Ms. Huemme in fiscal 1997 pursuant to the Company's 1997 Stock Option and Compensation Plan (the "1997 Plan"). The 1997 Plan provides that such options will become immediately exercisable if any of the following events occur unless otherwise determined by the Board and a majority of the Continuing Directors (as defined below): (1) any person or group of persons becomes the beneficial owner of 30% or more of any equity security of the Company entitled to vote for the election of directors; (2) a majority of the members of the Board is replaced within a period of less than two years by directors not nominated and approved by the Board; or (3) the stockholders approve an agreement to merge or consolidate with or into another corporation or an agreement to sell or otherwise dispose of all or substantially all of the Company's assets. "Continuing Directors" are directors: (a) who were in office prior to the time any of (1), (2) or (3) above occurred or any person publicly announced an intention to acquire 20% or more of any equity security of the Company, (b) directors in office for a period of more than two years, or (c) directors nominated and approved by the Continuing Directors. The Company intends to retain other management employees or consultants pursuant to employment or consulting agreements. The Company intends to offer stock options to such employees or consultants. DIRECTOR COMPENSATION Non-management directors each receive a ten-year option to purchase 25,000 shares of common stock when they became members of the Board. One-third of each option vests on each of the first, second and third anniversaries of the date of grant. Members of the Board who are also employees of the Company receive no options for their services as directors. A ten-year option to purchase 25,000 shares at an exercise price of $1.438 was granted to Greg Mosher when he became a member of the Board on September 18, 1998. Mr. Mosher resigned from the Board on October 30, 1998. A ten-year option to purchase 25,000 shares at an exercise price of $.75 was granted to Jerry Ruyan when he became a member of the Board on October 30, 1998. On May 22, 1998, ten-year options to purchase 5,000 shares were granted to each of Thomas Orr and Michael Krienik in lieu of compensation for their service on the Audit Committee, and ten-year options to purchase 5,000 shares were granted to each of Mr. Orr and Martin O'Dowd for service on the Compensation Committee. All of the options had exercise prices of $4.50 per share. On December 10, 1998, the options were repriced to $.75 per share. Messrs. Krienik, O'Dowd and Orr each received ten-year options to purchase 25,000 shares when they became members of the Board in 1997. The options granted to Messrs. Orr and Krienik had an exercise price of $3.34 a share and the options granted to Mr. O'Dowd had an exercise price of $3.75 a share. On December 10, 1998, all of the options were repriced to $.75 per share. Mr. O'Dowd resigned from the Board on February 15, 1999. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company has outstanding one class of voting securities, common stock, $.01 par value, of which 8,280,102 shares were outstanding as of the close of business on April 9, 1999. Each share of common stock is entitled to one vote on all matters put to a vote of shareholders. The following table sets forth certain information regarding beneficial ownership of the Company's common stock, by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding common stock, (ii) each director, (iii) each executive officer named in the Summary Compensation Table, and (iv) all executive officers and directors as a group. Unless otherwise indicated, each of the following persons has sole voting and investment power with respect to the shares of common stock set forth opposite their respective names.
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT OF CLASS ------------------------------------------------- -------- ---------------- Stephen D. King.................................. 1,543,243 (2) 17.3% Ronald K. Fuller................................. 253,878 (3) 3.0% Mark D. Dacko.................................... 0 -- Michael L. Krienik............................... 19,999 (4) * 115 W. 9th Street Cincinnati, OH 45202 Thomas W. Orr.................................... 21,666 (5) * 3440 W. Pepperwood Loop Tucson, AZ 85742 Jerry L. Ruyan................................... 511,750 (6) 6.0% 10260 Alliance Road, Suite 350 Cincinnati, OH 45242 Perkins Capital Management, Inc.................. 464,100 (7) 5.6% 730 East Lake Street Wayzata, MN 55391 All executive officers and directors as a group (six persons)....................... 2,350,536 (8) 25.2%
- --------------- * Less than 1%. (1) Unless otherwise indicated, the address of each person is 4801 West 81st Street, Suite 112, Bloomington, MN 55437. (2) Includes 165,743 shares as to which Mr. King holds options to purchase from various individuals which are currently exercisable and 477,500 shares issuable upon exercise of warrants which are currently exercisable. (3) Includes 108,333 shares issuable upon exercise of options exercisable currently or within 60 days of the Record Date. Also includes 1,000 shares owned and 1,000 shares issuable upon exercise of warrants owned by Mr. Fuller's wife, and 2,000 shares owned and 2,000 shares issuable upon exercise of warrants owned by his children. Mr. Fuller disclaims beneficial ownership of such shares. (4) Represents shares issuable upon exercise of options exercisable currently or within 60 days of the Record Date. (5) Includes 11,666 shares issuable upon exercise of options exercisable currently or within 60 days of the Record Date. (6) Includes 276,000 shares issuable upon exercise of options and warrants exercisable currently or within 60 days of the Record Date. (7) Figures based on a Schedule 13G filed with the SEC on February 4, 1999. (8) Includes 1,062,241 shares issuable upon exercise of options and warrants exercisable currently or within 60 days of the Record Date. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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 the leasehold improvements of the Company's Hotel Discovery restaurant in Cincinnati, Ohio (the "Kenwood Restaurant"). In addition, Stephen King, Jerry Ruyan and Greg Mosher, directors of the Company (Mr. Mosher has since resigned as a director), entered into a joint and several guaranty of the first $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 in January 1999 a stockholder of the Company severally guaranteed another $1,000,000, of such borrowings. All three guarantors pledged certain collateral to the 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 in November 1998, and 400,000 five-year warrants to the other third party in January 1999, all at an exercise price of $0.75 per share. The Board of Directors of the Company also authorized the issuance of additional warrants and the payment of cash penalties to the three guarantors 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 7.75% as of January 3, 1999. As of April 2, 1999, the Company has borrowed $3,000,000 under this credit facility. Mr. King personally guaranteed a $1,000,000 leasehold mortgage term loan from PNC Bank, Ohio to the Company which was used for the Kenwood Restaurant. Principal and interest were due monthly through February 1999, the final maturity of the loan. The loan was repaid in full in September 1998 with proceeds from the line of credit facility with The Provident Bank discussed in the preceding paragraph. On March 10, 1999, the Company entered into a promissory note for $825,000 with BankWindsor. The note is an unsecured revolving line of credit facility which requires interest payments only. The note is due March 10, 2000. The note is secured by personal guarantees, including a guarantee by Stephen King of $175,000 of the indebtedness, and the Company issued five-year warrants to purchase a total of 500,000 shares at $.75 a share to the guarantors in consideration of the guarantees. Of these warrants, Mr. King received a warrant to purchase 87,500 shares. In March 1999, The Provident Bank loaned $962,500 to Mr. King, which funds were pledged by Mr. King to Cuningham Group Construction Services, LLC to secure a portion of the Company's indebtedness to Cuningham in connection with the construction of the Company's restaurant in Denver, Colorado. The loan bears interest at Provident's prime rate and matures on June 30, 1999. The Company guaranteed Mr. King's indebtedness to Provident and also pledged to Provident its leasehold interest in the Denver restaurant and its right to receive the $962,500 balance of the tenant improvement allowance from the landlord of the Denver restaurant. The loan will be repaid in connection with the landlord's release of the tenant improvement allowance. In consideration of his borrowing such funds and pledging the cash collateral, the Company issued a five-year warrant to Mr. King to purchase 150,000 shares of common stock at an exercise price of $1.00 per share. Mr. King provided essentially all of the Company's working capital in the development stage. At January 3, 1999, the maximum and outstanding amount of the Company's indebtedness to Mr. King was $100,000. On April 21, 1999, Mr. King made a $200,000 unsecured loan to the Company which is due on demand. The loan bears interest at an annual rate of 18%. During 1998, Krienik Advertising, Inc., an Ohio corporation whose President, Chief Executive Officer and sole shareholder is Michael Krienik, a director of the Company, provided marketing and advertising services to the Company. Fees paid for these services, including payments for subcontracted media, printing, production and research services, were $741,077 during 1998. ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K (A) EXHIBITS 1.1 Form of Underwriting Agreement (with form of Underwriter's Warrant) (incorporated herein by reference to Exhibit 1.1 to the Company's Registration Statement on Form SB-2 as filed on August 22, 1997, as amended (File No. 333-34235)) (the "1997 SB-2") 3.1 Articles of Incorporation, as amended (incorporated herein by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 28, 1998 (the "2Q98 10-QSB")). 3.2 By-laws (incorporated herein by reference to Exhibit 3.2 to the 1997 SB-2) 4 Form of Warrant Agreement (incorporated herein by reference to Exhibit 4 to the 1997 SB-2) 10.1 Indenture of Lease dated November 9, 1994 between Phillip E. Stephens, Trustee and Kenwood Restaurant, Inc.; First Amendment to Lease dated May 3, 1995 by and between Phillip E. Stephens, Trustee and Kenwood Restaurant, Inc.; by Second Amendment to Lease dated , 1996 between Phillip E. Stephens, Trustee and Kenwood Restaurant Limited Partnership; Second Amendment to Agreement dated October 18, 1996 between Phillip E. Stephens, Trustee and Kenwood Restaurant Limited Partnership; and Addendum to Second Amendment to Lease dated October 18, 1996 between Phillip E. Stephens, Trustee and Kenwood Restaurant Limited Partnership (Kenwood Restaurant) (incorporated herein by reference to Exhibit 10.1 to the 1997 SB-2) 10.2 Lease dated August 4, 1997 between Mall of America Company and Hotel Mexico, Inc. (Mall of America Restaurant) (incorporated herein by reference to Exhibit 10.2 to the 1997 SB-2) 10.3 Loan Agreement dated October 9, 1996 by and among Kenwood Restaurant Limited Partnership and PNC Bank, Ohio, National Association (incorporated herein by reference to Exhibit 10.3 to the 1997 SB-2) 10.4 1997 Stock Option and Compensation Plan (incorporated herein by reference to Exhibit 10.4 to the 1997 SB-2) 10.5 Employment Agreement between the Company and Ronald K. Fuller dated March 17, 1997 (incorporated herein by reference to Exhibit 10.5 to the 1997 SB-2) 10.6 Amendment to 1997 Stock Option and Compensation Plan (incorporated herein by reference to Exhibit 10.6 to the 1997 SB-2) 10.7 Second Amendment to 1997 Stock Option and Compensation Plan (incorporated herein by reference to Exhibit 10.7 to the 1997 SB-2) 10.8 Third Amendment dated February 25, 1998 to the Company's 1997 Stock Option and Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the 2Q98 10-QSB) 10.9 First Loan Assumption Agreement dated December 31, 1996 by and among PNC Bank, Ohio, National Association, Kenwood Restaurant Limited Partnership, Stephen D. King, Kenwood Restaurant, Inc. and Hotel Mexico, Inc. (incorporated herein by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for the fiscal year ended December 28, 1997 (the "1997 10-KSB")) 10.10 Second Loan Assumption Agreement dated October 16, 1997 by and among PNC Bank, Ohio, National Association, Stephen D. King and the Company (incorporated herein by reference to Exhibit 10.9 to the 1997 10-KSB) 10.11 Amendment to Loan Documents dated as of June 28, 1998 by and among PNC Bank, Ohio, National Association, Stephen D. King and the Company (incorporated herein by reference to Exhibit 10.3 to the 2Q98 10-QSB) 10.12 Employment Agreement between the Company and Anne D. Huemme dated December 15, 1997 Company (incorporated herein by reference to Exhibit 10.10 to the 1997 10-KSB) 10.13 1998 Director Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to the 2Q98 10-QSB) 10.14 Shopping Center Lease dated May 12, 1998 between Denver Pavilions, L.P. and the Company (incorporated herein by reference to Exhibit 10 to the Company's Current Report on Form 8-K filed on May 27, 1998) 10.15 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") (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 27, 1998 (the "3Q98 10-QSB")). 10.16 Revolving Promissory Note Mortgage Loan dated September 23, 1998 between the Company and Provident (incorporated herein by reference to Exhibit 10.2 to the 3Q98 10-QSB) 10.17 Security Agreement dated as of September 23, 1998 between the Company and Provident (incorporated herein by reference to Exhibit 10.3 to the 3Q98 10-QSB) 10.18 Agreement Among Guarantors dated November 16, 1998 among Stephen D. King, Jerry L. Ruyan, Greg C. Mosher and the Company* 10.19 Agreement Among Guarantors dated January 22, 1999 among Stephen D. King, Jerry L. Ruyan, Andrew Green and the Company* 10.20 Warrant No. PL-1 dated November 16, 1998 to purchase 40,000 shares of common stock of the Company issued to Stephen D. King* 10.21 Schedule identifying material details of other warrants issued by the Company substantially identical to the warrant filed as Exhibit 10.20* 10.22 Indemnification and Contribution Agreement dated March 3, 1999 among Michael A. Bird, John E. Feltl, Stephen D. King, Timothy I. Maudlin, Wayne W. Mills and the Company* 10.23 Promissory Note dated March 10, 1999 of the Company to BankWindsor* 10.24 Warrant No. BWL-1 dated March 3, 1999 to purchase 25,000 shares of common stock of the Company issued to Michael A. Bird* 10.25 Schedule identifying material details of other warrants issued by the Company substantially identical to the warrant filed as Exhibit 10.24* 10.26 Warrant No. PL2-1 dated March 18, 1999 to purchase 150,000 shares of common stock of the Company issued to Stephen D. King. 23.1 Consent of Arthur Andersen LLP* 27 Financial Data Schedule* * Previously filed. (B) REPORTS ON FORM 8-K On December 8, 1998, the Company filed a report on Form 8-K relating to its execution on November 23, 1998 of a lease agreement with Irvine Retail Properties Company to lease approximately 18,000 square feet of space for a Cafe Odyssey restaurant in the Irvine Spectrum Center, a dining and entertainment destination in Irvine, California. 4 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAFE ODYSSEY , INC. By: /s/ Stephen D. King ---------------------- Stephen D. King Chief Executive Officer and Chief Financial Officer Date: May 3, 1999 EX-10.26 2 WARRANT 1 EXHIBIT 10.26 The Warrant and the securities issuable upon exercise of this Warrant (the "Securities") have not been registered under the Securities Act of 1933 (the "Securities Act") or under any state securities or Blue Sky laws ("Blue Sky Laws"). No transfer, sale, assignment, pledge, hypothecation or other disposition of this Warrant or the Securities or any interest therein may be made except (a) pursuant to an effective registration statement under the Securities Act and any applicable Blue Sky Laws or (b) if the Company has been furnished with both an opinion of counsel for the holder, which opinion and counsel shall be reasonably satisfactory to the Company, to the effect that no registration is required because of the availability of an exemption from registration under the Securities Act and applicable Blue Sky Laws, and assurances that the transfer, sale, assignment, pledge, hypothecation or other disposition will be made only in compliance with the conditions of any such registration or exemption. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF CAFE ODYSSEY, INC. WARRANT NO. PL2-1 Bloomington, Minnesota March 18, 1999 This certifies that, for value received, STEPHEN D. KING, or his successors or assigns ("Holder") is entitled to purchase from Cafe Odyssey, Inc. (the "Company") One Hundred Fifty Thousand (150,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at any time and from time to time from the date hereof until March 18, 2004, at an exercise price of $1.00 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise of Warrant. a. Exercise for Cash. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), by the surrender of this Warrant (properly endorsed, if required, at the Company's principal office in Bloomington, Minnesota, or such other office or agency of the Company as the Company may designate by notice in writing to the Holder at the address of such Holder appearing on the books of the Company at any time within the period above named), and upon payment to it by certified check, bank draft or cash of the purchase price for such Shares. The Company agrees that the Shares so purchased shall have and are deemed to be issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid. Certificates for the Shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. The Company may require that any such new Warrant or any certificate for Shares purchased upon the exercise hereof bear a legend substantially similar to that which is contained on the face of this Warrant. b. Cashless Exercise. Upon receipt of a notice of cashless exercise, the Company shall deliver to the Holder (without payment by the Holder of any exercise price) that number of Shares 2 that is equal to the quotient obtained by dividing (x) the value of the Warrant on the date that the Warrant shall have been surrendered (determined by subtracting the aggregate exercise price for the Shares in effect on the Exercise Date from the aggregate Fair Market Value (hereinafter defined) for the Shares by (y) the Fair Market Value of one share of Common Stock. A notice of "cashless exercise" shall state the number of Shares as to which the Warrant is being exercised. "Fair Market Value" for purposes of this Section (b) shall mean the average of the Common Stock closing prices reported by the principal exchange on which the Common Stock is traded, or the last sale prices as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq") National Market or SmallCap Market, as the case may be, for the ten (10) business days immediately preceding the Exercise Date or, in the event no public market shall exist for the Common Stock at the time of such cashless exercise, Fair Market Value shall mean the fair market value of the Common Stock as the same shall be determined in the good faith discretion of the Board of Directors, after full consideration of all factors then deemed relevant by such Board in establishing such value, including by way of illustration and not limitation, the per share purchase price of Common Stock or per security convertible into one share of Common Stock of the most recent sale of shares of Common Stock or securities convertible into Common Stock by the Company after the date hereof all as evidenced by the vote of a majority of the directors then in office. 2. Transferability of this Warrant. This Warrant is issued upon the following terms, to which each Holder consents and agrees: a. Until this Warrant is transferred on the books of the Company, the Company will treat the Holder of this Warrant registered as such on the books of the Company as the absolute owner hereof for all purposes without being affected by any notice to the contrary. b. This Warrant may not be exercised, and this Warrant and the Shares underlying this Warrant shall not be transferable, except in compliance with all applicable state and federal securities laws, regulations and orders, and with all other applicable laws, regulations and orders. c. The Warrant may not be transferred, and the Shares underlying this Warrant may not be transferred, without the Holder obtaining an opinion of counsel satisfactory in form and substance to the Company's counsel stating that the proposed transaction will not result in a prohibited transaction under the Securities Act of 1933, as amended ("Securities Act"), and applicable Blue Sky laws. By accepting this Warrant, the Holder agrees to act in accordance with any conditions reasonably imposed on such transfer by such opinion of counsel. d. Neither this issuance of this Warrant nor the issuance of the Shares underlying this Warrant have been registered under the Securities Act. 3. Certain Covenants of the Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and full payment for the Shares so purchased, will be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue hereof, except those that may be created by or imposed upon the Holder or its property, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such actions as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The 2 3 Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and number of Shares are subject to the following adjustments: a. Adjustment of Exercise Price for Stock Dividend, Stock Split or Stock Combination. In the event that (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, or (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, then, in any such event, the Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Exercise Price, by (b) the total number of shares of Common Stock outstanding immediately after such event, and the resulting quotient shall be the adjusted Exercise Price per share. No adjustment of the Exercise Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. b. Adjustment of Exercise Price for Dilutive Common Stock Issuances. If at any time prior to the exercise of this Warrant in full but following the date on which no Guarantees by the original Holder of indebtedness of the Company to BankWindsor are still outstanding, the Company shall (i) issue or sell any Common Stock Equivalents without consideration or for consideration per share (in cash, property or other assets) less than the Exercise Price per share on the date of such issuance or sale or (ii) fix a record date for the issuance of subscription rights, options or warrants to all holders of Common Stock entitling them to subscribe for or purchase Common Stock (or Common Stock Equivalents) at a price (or having an exercise or conversion price per share) less than the Exercise Price on the record date described below, the Exercise Price shall be adjusted so that the Exercise Price shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such sale or issuance (which date in the event of distribution to shareholders shall be deemed to be the record date set by the Company to determine shareholders entitled to participate in such distribution) by a fraction, the numerator of which shall be (i) the number of shares of Common Stock outstanding on the date of such sale or issuance, plus (ii) the number of additional shares of Common Stock which the aggregate consideration received by the Company upon such issuance or sale (plus the aggregate of any additional amount to be received by the Company upon the exercise of such subscription rights, options or warrants) would purchase at such current market price per share of the Common Stock; and the denominator of which shall be (i) the number of shares of Common Stock outstanding on the date of such issuance or sale, plus (ii) the number of additional shares of Common Stock offered for subscription or purchase (or into which the 3 4 Common Stock Equivalents so offered are exercisable or convertible). Any adjustments required by this paragraph shall be made immediately after such issuance or sale or record date, as the case may be. Such adjustments shall be made successively whenever such event shall occur. c. Adjustment of Number of Shares Purchasable on Exercise of Warrants. Upon each adjustment of the Exercise Price pursuant to this Section, the Holder shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Exercise Price in effect prior to such adjustment) by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. d. Notice as to Adjustment. Upon any adjustment of the Exercise Price and any increase or decrease in the number of shares of Common Stock purchasable upon the exercise of the Warrant, then, and in each such case, the Company within thirty (30) days thereafter shall give written notice thereof, by first class mail, postage prepaid, addressed to each Holder as shown on the books of the Company, which notice shall state the adjusted Exercise Price and the increased or decreased number of shares purchasable upon the exercise of the Warrants, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. e. Effect of Reorganization, Reclassification, Merger, etc. If at any time while any Warrant is outstanding there should be any capital reorganization of the capital stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in Section 4(a) hereof), or any consolidation or merger of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive cash, stock, securities, or assets with respect to or in exchange for Common Stock, then, as a part of such transaction, lawful provision shall be made so that each Holder shall have the right thereafter to receive, upon the exercise hereof, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, or of the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred, as the case may be, which the Holder would have been entitled to receive upon such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer, if such Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer. In any such case, appropriate adjustments (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant (including the adjustment of the Exercise Price and the number of Shares issuable upon the exercise of the Warrants) to the end that the provisions set forth herein shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise of the Warrants as if the Warrants had been exercised immediately prior to such capital reorganization, reclassification of capital stock, such consolidation, merger, sale, conveyance, lease or other transfer and the Warrant Holders had carried out the terms of 4 5 the exchange as provided for by such capital reorganization, consolidation or merger. The Company shall not effect any such capital reorganization, consolidation, merger or transfer unless, upon or prior to the consummation thereof, the successor corporation or the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred shall assume by written instrument the obligation to deliver to each Holder such shares of stock, securities, cash or property as in accordance with the foregoing provisions such Holder shall be entitled to purchase. 5. No Rights as Stockholders. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a stockholder of the Company. 6. Registration Rights. The Company undertakes to file as soon as practicable a registration statement on Form S-3 (the "Registration Statement") to register the Shares under the Securities Act and such Blue Sky Laws of those states as are reasonably selected by the Holder. The Company shall use its best efforts to have the Registration Statement declared effective by the Securities and Exchange Commission (the "Commission") as soon as practicable. The Company shall keep the Registration Statement effective and current until the earlier to occur of (i) the date all the Shares are sold, (ii) the date all of the Shares may be sold under Rule 144(k) under the Securities Act or (iii) the expiration date of this Warrant. Except as set forth in the following sentence, the Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission. The Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. 7. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 8. Amendments and Waivers. The provisions of this Warrant may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given, unless the Company agrees in writing and has obtained the written consent of the Holders. 9. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Holder shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or her address set forth on the records of the Company; or if sent to the Company shall be mailed, delivered, or telefaxed and confirmed to Cafe Odyssey, Inc., 4801 West 81st Street, Suite 112, Bloomington, MN 55437 or to such other address as the Company or the Holder shall notify the other as provided in this Section. IN WITNESS WHEREOF, Cafe Odyssey, Inc. has caused this Warrant to be signed by its duly authorized officer in the date set forth above. CAFE ODYSSEY, INC. /s/ Ronald K. Fuller Ronald K. Fuller President 5 6 SUBSCRIPTION FORM To be signed only upon exercise of Warrant. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, of the shares of Common Stock of Cafe Odyssey, Inc. (the "Shares") to which such Warrant relates and herewith makes payment of $ therefor in cash, certified check or bank draft and requests that a certificate evidencing the Shares be delivered to, , the address for whom is set forth below the signature of the undersigned: Dated: ------------------ ----------------------------------- (Signature) ----------------------------------- ----------------------------------- (Address) * * * ASSIGNMENT FORM To be signed only upon authorized transfer of Warrant. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of Common Stock of Cafe Odyssey, Inc. to which the within Warrant relates and appoints attorney, to transfer said right on the books of with full power of substitution in the premises. Dated: -------------------- ----------------------------------- (Signature) ----------------------------------- ----------------------------------- (Address) 6 -----END PRIVACY-ENHANCED MESSAGE-----