-----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, JouWgazuga/CXJ8+gz6TD7evdB7RzpzhOsFcHA+1Mj5WldjmKtrGMo81ayYlC40A IUdShVL3DP+KD1iH1S70ig== 0001001348-98-000133.txt : 19981221 0001001348-98-000133.hdr.sgml : 19981221 ACCESSION NUMBER: 0001001348-98-000133 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOOD TIMES RESTAURANTS INC CENTRAL INDEX KEY: 0000825324 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 841133368 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-18590 FILM NUMBER: 98771917 BUSINESS ADDRESS: STREET 1: 8620 WOLFF CT STE 330 CITY: WESTMINSTER STATE: CO ZIP: 80030 BUSINESS PHONE: 3034274221 MAIL ADDRESS: STREET 1: 8620 WOLFF COURT STREET 2: SUITE 330 CITY: WESTMINSTER STATE: CO ZIP: 80030 FORMER COMPANY: FORMER CONFORMED NAME: PARAMOUNT VENTURES INC DATE OF NAME CHANGE: 19900205 10KSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to ____________________ Commission File Number: 0-18590 _______ GOOD TIMES RESTAURANTS INC. _____________________________________________________________________________ (Exact name of small business issuer in its charter) Nevada 84-1133368 _____________________________________________________________________________ (State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 601 Corporate Circle, Golden, Colorado 80401 _____________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 384-1400 ______________ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ___________________ _____________________________ NONE ______ _____________________________ Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value _____________________________ (Title of class) Common Stock Purchase Warrants ______________________________ (Title of class) Indicate by check X whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check X if disclosure of delinquent filers pursuant to Item 405 of Regulation S-KSB is not contained herein, and will not be contained, to the best of registrant'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. [ ] Registrant's revenues for the most recent fiscal year were $13,065,000. As of December 1 , 1998, the aggregate market value of voting stock held by non-affiliates was $3,454,585. As of December 18, 1998, the Registrant had 1,754,991 shares of common stock outstanding. Documents Incorporated by Reference: Incorporated herein by reference are Part III, Items 9 through 12 to the Registrant's definitive proxy statement to be issued in conjunction with Registrant's Annual Meeting of Shareholders to be held on January 22, 1999. Transitional Small Business Disclosure Format Yes _____ No X PART I ITEM 1. BUSINESS Background Good Times Restaurants Inc. (the "Company") was organized under Nevada law in 1987 and is the holding company for a wholly-owned subsidiary that is engaged in the business of developing, owning, operating and franchising restaurants under the name Good Times Drive Thru Burgers SM. Good Times Drive Thru BurgersSM restaurants are owned, operated and franchised by the Company's subsidiary, Good Times Drive Thru Inc. (Good Times Drive Thru BurgersSM and Good Times Drive Thru Inc. are interchangeably referred to herein as "Good Times" or "Drive Thru"). Corporate Operations The Company currently leases approximately 3,350 square feet of space for its executive offices in Golden, Colorado for approximately $44,000 per year. The lease is for a one year period expiring in April 1999 with two one-year options to renew. The Company is a holding company and its officers are the President and Chief Executive Officer of the Company, two Vice Presidents and the Controller, Secretary and Treasurer. Officers of the Company hold the same position with Drive Thru and all personnel associated with the Company are employees of Drive Thru. For 1999 , Drive Thru plans to concentrate its efforts and capital on the growth of the Good Times restaurant chain in Colorado through additional company-owned, joint-venture and franchised restaurants. Good Times Good Times Drive Thru Inc. is engaged in the operation and development of the Good Times Drive Thru Burgers(SM) restaurants, featuring extremely fast service and a limited, high quality menu for drive-through and walk-up customers. During fiscal 1997 and 1998, five restaurants were developed featuring a lobby with interior seating. Drive Thru currently operates and franchises a total of twenty-nine Good Times restaurants of which twenty-eight are in the State of Colorado, of which twenty-six are located in the Denver greater metropolitan area, one in Grand Junction and one in Silverthorne. There is one franchised Good Times restaurant in Boise, Idaho. Six of the restaurants are company-owned, nine are owned jointly with two separate co- development partners. Fourteen Good Times restaurants are franchised restaurants with nine operating in the Denver metropolitan area, one in Silverthorne, Colorado, one in Grand Junction, Colorado, one in Greeley, Colorado, one in Longmont, Colorado and one in Boise, Idaho. Good Times is offering franchises for the development of additional Good Times restaurants. In fiscal 1997, Drive Thru developed one new franchised restaurant and two new joint-venture restaurants and began construction on the conversion of an existing double drive thru restaurant to one with a dining room and 48 seats. The franchised restaurant was developed as a part of an Amoco gas and convenience store development, comprising 2,000 sq. ft. of restaurant space and a dining room with drive thru. In fiscal 1998, Drive Thru developed two new franchised restaurants, one of which is a conversion of a 1,700 square foot fast food restaurant and one is a new prototype 2,300 square foot building with 70 seats. The hamburger fast food market remains intensely competitive with the major competitors aggressively discounting menu prices, which had an adverse impact on Drive Thru's sales and operating profits in fiscal 1996. Over the last two fiscal years, the Company has positioned the concept away from a price point focus to one based on superior taste, product quality and speed of service. The Company believes it has an advantage in providing a superior level of service, quality and overall value based upon consumer research studies, but has been limited in its ability to effectively advertise and build awareness of its brand until "critical mass" in restaurant sales are achieved in the Colorado market for consistent television and radio advertising. The Company believes it is beginning to reach critical mass. Beginning in September 1997, Drive Thru initiated a television advertising campaign focused on building its brand personality, taste superiority positioning and general awareness and continued the campaign throughout fiscal 1998. It is management's intent to continue to develop the concept based upon those attributes important to the quick service restaurant consumer other than price such as taste, speed and overall value supported by a highly differentiated brand personality in its advertising. The Company's objectives for fiscal 1999 are to continue to build additional company-owned, joint-venture and franchised restaurants in Colorado. Additionally, the Company will introduce limited new menu offerings and advertise what it believes to be competitive price points for its products. Colorado is divided into two primary television markets--Denver and Colorado Springs/Pueblo. It is the Company's intent to fully develop the Denver market and then develop the Colorado Springs market over the next three to four years, depending on availability of financing and suitable sites. Management estimates the Denver market will support 40-50 Good Times restaurants and the Colorado Springs market will support 8-12 restaurants. The Concept. Good Times was initially developed as a drive thru only, limited menu concept featuring high quality products and extremely fast service, with menu prices 30-40 percent lower than the major hamburger chains. The price advantage once held has diminished due to continued aggressive price discounting by the major chains. Management has focused the development of the concept based on developing strong differentiation in the taste of its products (with a more distinctive taste profile), the speed of service, the overall value and a differentiated brand personality built through its advertising and employee service methods. While the double drive thru format performs well in select locations, it is management's opinion that the perceived value for its products and sales producing capacity of sites may be enhanced with the addition of small, highly efficient dining rooms, accessing consumer occasions not available with drive thru only. The Company plans to develop additional double drive thru restaurants and restaurants with seating and a single drive thru lane in fiscal 1999, depending on individual site dynamics and the best format for the highest return on investment. Good Times' food preparation and service systems deliver a quality meal with a faster order-delivery response time and have the capacity to reach the same sales levels as traditional hamburger chains. Typically, a customer receives an order 30 to 45 seconds after their vehicle reaches the take-out window during peak order periods. The simplicity of the menu, the relatively low capital investment, and the efficient design of the building and equipment allow Good Times to sell its products at comparable or lower prices than the major fast food hamburger chains except during short term discount promotions by the competition. The limited menu allows maximum attention to be devoted to food quality and speed of service. Menu. The menu of a Good Times restaurant is limited to hamburgers, cheeseburgers, chicken sandwiches, french fries, onion rings, milkshakes and soft drinks. Each sandwich is made to order at the time the customer places the order and is not pre-prepared. The hamburger patty is 4.0 ounces of specially formulated 100% USDA approved beef, served on a 4 1/4-inch sesame seed bun. Hamburgers and cheeseburgers are garnished with fresh lettuce, fresh sliced sweet red onions, mayonnaise, mustard, ketchup, pickles and fresh sliced tomato. The cheese is 100% pure sharp American thickly sliced. The chicken sandwiches include a spiced, battered whole muscle breast patty and a grilled spicy breast patty, both served with mayonnaise, lettuce and tomato. Equipment has been automated and equipped with compensating computers to deliver a consistent product and minimize the skills required of employees. As of December 1, 1998, the price of the deluxe Good Times hamburger was $1.49, the deluxe cheeseburger $1.79, the deluxe double cheeseburger $2.69, the deluxe bacon-cheeseburger $2.49, the chicken sandwiches $2.69, the chicken club sandwich $3.19, french fries $.89 and $1.09, onion rings $1.59 and a 22- ounce soft drink $.99. Good Times restaurants are generally open 14 to 16 hours per day, seven days a week, for lunch, dinner and late-night snacks and meals. The Building. The existing double drive thru Good Times restaurants are less than one-third the size of the typical restaurants of the four largest hamburger chains and require approximately one-half the land area based upon management's experience in the restaurant industry and research reports. The current standard Good Times restaurant building is a double drive-through and walk-up style structure containing approximately 880 square feet built on 18,000 to 30,000 square-foot lots. Most existing restaurants utilize a double drive-thru concept that allows simultaneous service from opposite sides of the restaurant and one or two walk-up windows with a patio for outdoor eating. The Company has developed a new 2,300 square foot prototype building with a dining room and 70 seats and a 1,000 square foot, 48 seat addition for existing restaurants that may be used on select locations. Management of Drive Thru believes that the building form, design and aesthetic appeal address key issues and concerns of the consumer: speed, cleanliness, security, eye appeal and an identifiable brand image. The exterior consists of a cream-colored dry-vit system with an enclosed glass vestibule at the front for walk-up service. A brightly lit multi-colored fascia band runs the length of both sides of the building in addition to product and Good Times proprietary signage. The rest rooms and walk-in refrigerators are modular components of the building. The double drive thru buildings are transportable and therefore can be moved from an unsuccessful site to a better location. Management does extensive site evaluation and expects a minimum number of buildings will ever have to be moved, however one under-performing Good Times unit was relocated in 1996 and one in 1997. Plan of Operation. The first objective of Drive Thru has been to develop critical mass in the Denver television market (referred to as the Denver ADI which includes Boulder, Greeley, Longmont and other communities in northern Colorado.) In the past, Management believed that, in Denver, critical mass required approximately 20 restaurants to be operating. However, increased advertising by its competitors and significant increases in the cost of advertising in Denver has caused management to reevaluate critical mass as requiring 32 to 35 Good Times restaurants in the Denver ADI. As of December 18, 1998, the Company operated fifteen company-owned and joint-venture Good Times restaurants and had thirteen franchised restaurants open in Colorado and one in Boise, Idaho. December 15, 1997 December 15, 1998 Company-owned restaurants 8 6 Joint venture restaurants 9 9 Franchise operated restaurants 11 14 __ __ Total restaurants 28 29
During fiscal 1998, Drive Thru opened one company-owned restaurant and two franchised restaurants. One company-owned restaurant was closed in March of 1998 due to the condemnation of the development on which it was located. The building and equipment are currently in storage and will be moved to a new site in the Spring of 1999. One company-owned restaurant was sold to a franchisee in September 1998. Management anticipates that Drive Thru and its franchisees will develop a total of four to seven Good Times units in the Denver ADI in 1999. Drive Thru's ongoing objective is to continue to increase average restaurant sales through increased customer counts in each daypart (lunch, dinner and late-night), selective menu and price promotions and effective marketing of Good Times competitive attributes of high quality products, quick service and overall value. The Company anticipates modest price increases in 1999 in anticipation of higher hourly wages and to reduce cost of sales. Operations and Management. Good Times has defined three ingredients essential to its success: (i) consistent delivery of high quality, great tasting products; (ii) superior speed of service; and (iii) competitive value pricing. The order system at each Good Times restaurant is equipped with an internal timing device that displays and records the time each order takes to prepare and deliver. The total transaction time for the delivery of food at the window is approximately 30 to 45 seconds during peak times. Each Good Times unit employs a general manager, one to two assistant managers and approximately 25 employees, most of whom work part-time during three shifts. Operating systems and training materials are utilized to ensure consistent performance to Good Times' standards. An eight to ten week training program is utilized to train restaurant managers on all phases of the operation. Ongoing training is provided as necessary. Management of Drive Thru believes that incentive compensation of its restaurant managers is essential to the success of its business. Accordingly, in addition to a salary, managerial employees may be paid a bonus based upon proficiency in meeting financial and performance objectives. Drive Thru provides a medical and dental insurance plan to management with a portion of the cost contributed by the participating employee. Drive Thru presently purchases its products from independent food processors and distributors and does not anticipate any difficulty in continuing to obtain an adequate quantity of food products of acceptable quality and at acceptable prices. Financial and management control is maintained through the use of automated data processing and centralized accounting and management information systems which are provided by the Company. Restaurant managers forward sales reports, vendor invoices, payroll data and other operating information to Drive Thru's headquarters daily via an automated "polling" of each restaurant's point-of-sale systems. Management receives daily, weekly and monthly reports identifying food, labor and operating expenses and other significant indicators of restaurant performance. Management of Drive Thru believes that such reporting requirements enhance its ability to control and manage its operations. Drive Thru employs a full-time Director of Human Resources whose principal responsibility is to recruit and coordinate the training of management personnel required for continued expansion of Good Times units in the Denver ADI. Marketing and Advertising. Prior to fiscal 1998, marketing activities focused on radio advertising and restaurant level promotions in the immediate trade area around each location. The Company implemented a consistent television advertising campaign in fiscal 1998 and anticipates increasing its level of spending on television advertising in fiscal 1999. The marketing efforts of Good Times focus on building "brand awareness" of Good Times' attributes for the best tasting, unique products within the context of ad campaigns that are "irreverent, funny and full of surprises", combined with specific product messages. Supported by consumer research, Drive Thru believes that it has a better tasting product, delivered to the customer faster, at an equal or better value than its competitors. Signage is one of the most important elements for establishing identity at each location. The Good Times restaurant sign package that has been developed offers flexibility based on local codes, site layout and surrounding property. Franchise Program. Drive Thru has prepared prototype area rights and franchise agreements, a Uniform Franchise Offering Circular and advertising material to be utilized in soliciting prospective franchisees. Drive Thru seeks to attract franchisees having experience as restaurant operators, that are well-capitalized and have demonstrated the ability to develop multi-unit franchises. Drive Thru will carefully review sites selected for franchises and will monitor performance of franchise units. Good Times is currently working with potential franchisees only for development of units in Colorado. Drive Thru estimates that it will cost a franchisee on average approximately $475,000 to $575,000 to open a Good Times double drive thru restaurant, including pre-opening costs and working capital, assuming the land is leased. A franchisee typically will pay a royalty of 4% of net sales, an advertising fee of at least 0.5% of net sales, plus participation in regional or national advertising up to 5% of net sales, and initial development and franchise fees aggregating $20,000 per unit. Among the services and materials which Drive Thru provides to franchisees are site selection assistance, plans and specifications for construction of the Good Times drive thru restaurants, an operating manual which includes product specifications and quality control procedures, training, on-site pre-opening supervision and advice from time to time relating to operation of the franchised restaurant. Drive Thru has entered into six franchise agreements in the Denver ADI. Twelve franchise restaurants and nine joint-venture restaurants are operating under the development agreements for the Denver ADI. One franchise restaurant in Grand Junction, Colorado has been open pursuant to the development agreement for the Western Slope of Colorado. One joint-venture restaurant opened in Boise, Idaho in 1995, and effective November 1, 1996, that restaurant was sold as a franchise restaurant. Operations to Date. The first Good Times prototype unit was opened in Boulder, Colorado, in September 1987 and Drive Thru grew slowly to seven restaurants by March, 1993, two of which were franchised restaurants. Thirteen additional restaurants were developed by December 31, 1994, seven of which were joint-ventured, two were franchised, and four were company-owned. In calendar 1995, Drive Thru opened six new restaurants, including one company-owned, two joint-ventured and one franchised restaurants in the Denver ADI, one franchised unit in Grand Junction, Colorado and one joint-ventured unit in Boise, Idaho. In calendar 1996, Drive Thru opened one franchised unit, converted the Boise, Idaho unit to a franchise and closed two under- performing restaurants. In calendar 1997, Drive Thru opened one company-owned unit, two joint-ventured restaurants and one franchised restaurant. In calendar 1998, Drive Thru opened two franchised restaurants. Good Times opened two restaurants in June 1995 and two restaurants in August 1995 in Las Vegas, Nevada. These units were previously owned by a franchisee of Rally's Hamburgers, Inc. However, Drive Thru experienced unexpected difficulty in securing suitable locations on which it could develop new units at reasonable cost in the Las Vegas market and realized that critical mass could not be achieved within an acceptable period of time. Since the four units would continue to operate at a significant loss until Drive Thru could effectively advertise in the Las Vegas market, management decided to cease operations in Las Vegas and sell the stores. The four Las Vegas units were closed on October 31, 1995 and sold as of November 30, 1995. Employees. At December 1, 1998, Drive Thru employed approximately 345 persons (including approximately 287 hourly restaurant employees), of whom 21 were management and staff personnel and 37 were restaurant management. Drive Thru considers its employee relations to be good. None of its employees is covered by a collective bargaining agreement. Round The Corner On September 30, 1995, the Company completed the sale of Round The Corner Restaurants, Inc. ("RTC") to Hot Concepts in consideration for $100,000 in cash, a note in the amount of $291,394, and the assumption of all of RTC's liabilities. The sale of RTC by the Company resulted in a deferred gain of $66,000. The Company was notified in August, 1996 of financial difficulties at RTC and of its Chapter 11 bankruptcy filing in October, 1996. In addition to the write-off of the note receivable, the Company recorded a reserve of $333,000 for potential losses associated with its guarantee of two restaurant leases and a note payable, the reserve was increased by $217,000 in the period ended September 30, 1998 due to one of the lease guarantees. One of such restaurants is being operated by the Company and one has been subleased. The Company entered into a settlement agreement with RTC whereby RTC paid the Company $300,000 for the settlement of all of the Company's claims against RTC. Bailey Preferred Stock Investment On May 31, 1996, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement with The Bailey Company ("TBC") for the purchase by TBC of one million shares of Series A Convertible Preferred Stock. The aggregate purchase price for such shares was $1 million. Effective August 31, 1998, TBC converted all of the Convertible Preferred Stock into 426,667 shares of Common Stock of the Company. Additionally under a separate agreement, TBC and its controlling owner agreed to guarantee up to $6 million of future mortgage debt obligations of the Company for the development of new restaurants. Government Regulation Each of the Good Times restaurants is subject to the regulations of various health, sanitation, safety and fire agencies in the jurisdiction in which the restaurant is located. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new Good Times restaurant. Federal and state environmental regulations have not had a material effect on Good Times' operations. More stringent and varied requirements of local governmental bodies with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. The Company and Drive Thru are subject to the Fair Labor Standards Act which governs such matters as minimum wages, overtime and other working conditions. In addition, the Company and Drive Thru are subject to the Americans With Disabilities Act (the "ADA") which requires restaurants and other facilities open to the public to provide for access and use of facilities by the handicapped. Management believes that the Company and Drive Thru are in compliance with the ADA. The Company and Drive Thru are also subject to federal and state laws regulating franchise operations, which vary from registration and disclosure requirements in the offer and sale of franchises to the application of statutory standards regulating franchise relationships. Competition The restaurant industry, including the fast food segment, is highly competitive. Drive Thru competes with a large number of other hamburger oriented, fast food restaurants in the areas in which it operates. Many of these restaurants are owned and operated by regional and national restaurant chains, many of which have greater financial resources and experience than does the Company. Restaurant companies that currently compete with Good Times in the Denver market include McDonald's, Burger King, Wendy's and Carl's Jr. Double drive through restaurant chains such as Rally's Hamburgers, Inc. and Checker's Drive-In Restaurants, Inc., currently operating a total of over 800 double drive through restaurants in various markets in the United States, are not currently operating in Colorado. Management of Drive Thru believes that such double drive through restaurant chains will not expand into Colorado; however, such possibility exists and would result in significant competition for Drive Thru. Management of Drive Thru believes that it may have a competitive advantage in terms of quality of product and price-value compared to traditional fast food hamburger chains. However, price discounting by the major fast food hamburger chains in fiscal 1996 and 1997 had a detrimental effect on Good Times' sales. Early development of its double drive through concept in Colorado has given Drive Thru an advantage over other double drive through chains that may seek to expand into Colorado because of Good Times' brand awareness and present restaurant locations. In addition, management of Drive Thru believes Drive Thru has a competitive advantage in the areas of purchasing and distribution, financial systems, marketing, construction, site selection, quality assurance and training. Nevertheless, Drive Thru may be at a competitive disadvantage with other restaurant chains with greater name recognition and marketing capability. Furthermore, most of Drive Thru's competitors in the fast-food business operate more restaurants, have been established longer and have greater financial resources and name recognition than Good Times. There is also active competition for management personnel, as well as for attractive commercial real estate sites suitable for restaurants. Trademarks - Colorado Drive Thru has registered its mark "Good Times! Drive Thru Burgers"SM in the state of Colorado and will endeavor to register such mark in each state it or a franchisee intends to open a restaurant. At present, Drive Thru relies solely upon common law trademark protection and state registration. Such reliance will not protect Drive Thru against a prior user of the mark and, if prior use is established, Drive Thru may not be able to use the mark in the area of such use. While the mark is important to Drive Thru, unavailability of the mark in any particular geographic area into which it desires to expand operations may not necessarily be materially adverse. Such name non- availability may, however, preclude the economies and other advantages which may be available through nationwide or regional marketing and advertising. ITEM 2. PROPERTIES The Company currently leases approximately 3,350 square feet of space for its executive offices in Golden, Colorado for approximately $44,000 per year. The lease is for successive one year periods expiring in April, 2001. The space is leased from The Bailey Company at their corporate headquarters. As of December 18, 1998, Drive Thru has an ownership interest in 15 Good Times units, all of which are located in Colorado. Nine of these restaurants are held in limited partnerships of which Drive Thru is the general partner and has a 50% interest in eight of the partnership restaurants and a 78% interest in one partnership restaurant. There are six Good Times units wholly-owned by Drive Thru. One restaurant building and equipment package was moved from an operating site in fiscal 1998 due to condemnation of the development. It is anticipated that the restaurant and equipment will be relocated to a new site in the Spring of 1999. Each of the existing Good Times restaurants is a free-standing structure containing approximately 880 square feet (except for two conversions of other fast food restaurants that are 1,700-1,900 square feet, one conversion of a double drive thru building to one with seating of 1,900 square feet and one prototype 2,300 square foot building with seating) situated on lots of approximately 18,000 to 30,000 square feet. The land is leased at all of these locations. Drive Thru intends to enter into ground leases wherever possible. However, there is no assurance that leasing will be available for desirable sites and Drive Thru may be required to purchase such sites. In the event financing is not available for such acquisitions, Drive Thru may have to utilize cash that could otherwise be used to develop additional Good Times restaurants. In such event, Drive Thru will endeavor to enter into sale/leaseback transactions or mortgage financing for such real estate. All of the restaurants are regularly maintained by the Company's repair and maintenance staff as well as by outside contractors, when necessary. Management believes that all of its properties are in good condition and that there will not be a need for significant capital expenditures to maintain the operational and aesthetic integrity of the properties for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. The Company is subject to various lawsuits in the normal course of business. These lawsuits are not expected to have a material impact to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's outstanding shares of Common Stock (the "Common Stock") and Common Stock Purchase Warrants (the "Warrants") are traded on the over-the- counter market. The following table sets forth the quarterly high and low bid prices as reported by the National Quotation Bureau Incorporated and NASDAQ from December 31, 1996 through September 30, 1998, as adjusted for the one- for-five reverse stock split in February 1998. The quotations represent prices quoted between dealers and do not include commissions, mark-ups or mark-downs and thus may not represent actual transactions. Common Stock Series A Warrants Series B Warrants Bid Prices Bid Prices Bid Prices Quarter Ended High Low High Low High Low December 31, 1996 2.80 1.60 .30 .15 .30 .15 March 31, 1997 2.80 1.90 .30 .30 .30 .30 June 30, 1997 3.15 1.90 .30 .30 .30 .30 September 30, 1997 2.20 1.90 .30 .30 .30 .30 December 31, 1997 1.90 1.90 .16 .28 .31 .63 March 31, 1998 3.50 3.41 .16 .28 .16 .38 June 30, 1998 2.56 2.56 .22 .28 .22 .38 September 30, 1998 2.50 2.31 .22 .28 .22 .38
As of December 1, 1998, there were approximately 387 holders of record of Common Stock and 125 holders of Warrants. However, management estimates that there are not fewer than 1,550 beneficial owners of the Company's Common Stock. The NASDAQ symbols for the Common Stock and the outstanding Series A warrants and Series B warrants are "GTIM", "GTIMW," and "GTIMZ", respectively. In January 1997, the Company gave notice to the holders of the Series A and Series B warrants that the expiration date of such warrants had been extended from February 10, 1997 to February 10, 1999 and the exercise price of such warrants had been changed to $10.00 per share. The Company expects to extend the expiration date of these warrants. DIVIDEND POLICY The Company has never paid dividends on its Common Stock and does not anticipate paying dividends in the foreseeable future. The Company's ability to pay future dividends will necessarily depend upon its earnings and financial condition. However, since restaurant development is capital intensive, it is the intention of the Company to retain earnings, if any, for that purpose. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE COMPANY, GOOD TIMES AND RTC Year 2000 Compliance. Computer programs or other embedded technology that have been written using two digits (rather than four) to define the applicable year and that have time-sensitive logic may recognize a date using "00" as the Year 1900 rather than the Year 2000, which could result in widespread miscalculations or system failures. Both information technology ("IT") systems and non-IT systems using embedded technology may be affected by the Year 2000. The Company has initiated an enterprise-wide program to prepare the Company's IT systems and applications for the Year 2000, The Company has completed the assessment phase of its Year 2000 program and expects to incur internal staff costs as well as consulting and other expenses related to the Company's Year 2000 program. In addition, the Company has not completed the process of verification of whether vendors and suppliers with which the Company has material relationships are Year 2000 compliant, however the Company has contacted its major food supplier and has been told that such supplier has addressed the Year 2000 issue in connection with its business operations. If the Company and such third parties are unable to address Year 2000 issues in a timely manner, it could result in material financial risk to the Company, including the loss of revenue and substantial unanticipated costs. Accordingly, the Company plans to devote all resources necessary to resolve significant Year 2000 issues in a timely manner. Expenditures for Year 2000 issues are currently estimated to be $125,000 in fiscal 1999. The Company however is not able to determine the total costs for its Year 2000 program or whether the Year 2000 will have a material effect on the Company's financial condition, results of operations or cash flows. The following selected financial data is derived from the companies' historical financial statements and is qualified in its entirety by such financial statements which are included in Item 7. GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES The following presents certain historical financial information of the Company. This financial information includes the combined operations of the Company and Drive Thru for the fiscal years ended September 30, 1997 and September 30, 1998. Year Ended September 30, _____________ Operating Data: 1997 1998 ____ ____ Net Revenues $ 11,865,000 $13,065,000 Restaurant Operating Costs: Food and paper costs 4,286,000 4,537,000 Labor, occupancy and other 5,672,000 5,820,000 Depreciation and amortization 667,000 698,000 ___________ ___________ Total restaurant operating costs 10,625,000 11,055,000 Income From Restaurant Operations 1,240,000 2,010,000 Other Operating Expenses: Selling, General and Administrative Expense 1,713,000 1,839,000 Loss from operating RTC stores 94,000 31,000 Loss (Gain) on disposal of restaurants and equipment 55,000 (225,000) Loss from lease guarantees 228,000 217,000 ___________ __________ Total Other Operating Expenses 2,090,000 1,862,000 Income (Loss) from Operations (850,000) 148,000 Other Income and (Expenses) Minority income (expense), net (120,000) (266,000) Interest, net (34,000) (51,000) Other, net (97,000) (57,000) ___________ __________ Total other income and (expenses) (251,000) (374,000) Net Loss $(1,101,000 $(226,000) =========== ========== Preferred Stock Dividends in Arrears (65,000) (40,000) ___________ __________ Net Loss Attributable to Common Shareholders (1,166,000) (266,000) =========== ========== Net Loss Per Common Share $ (.91) $ (.20) =========== ========== Weighted Average Shares Outstanding 1,275,237 1,345,156 =========== ========== September 30, _____________ 1997 1998 ____ ____ Balance Sheet Data: Working Capital (deficit) $ (534,000) $ (114,000) Total assets 7,192,000 6,578,000 Minority Interest 1,619,000 1,465,000 Long-term debt and long-term capital leases 546,000 463,000 Stockholders' equity $ 2,893,000 $2,682,000
This Form 10-KSB contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Also, documents subsequently filed by the Company with the commission and incorporated herein by reference may contain forward-looking statements. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results could differ materially from those in the forward-looking statements as a result of various factors, including but not limited to the following: (I) The Company competes with numerous well established competitors who have substantially greater financial resources and longer operating histories than the Company. Competitors have increasingly offered selected food items and combination meals, including hamburgers, at discounted prices, and continued discounting by competitors may adversely affect revenues and profitability of Company restaurants. (II) The Company may be negatively impacted if the Company is unable to sustain same store sales increases that were experienced during the last two quarters of Fiscal 1998. Sales increases will be dependent, among other things, on the success of Company advertising and promotion of new and existing menu items. No assurances can be given that such advertising and promotions will in fact be successful. The Company may also be negatively impacted by other factors common to the restaurant industry such as: changes in consumer tastes away from red meat and fried foods; increases in the cost of food, paper, labor, health care, workers' compensation or energy; an inadequate number of hourly paid employees; and/or decreases in the availability of affordable capital resources. The Company cautions the reader that such risk factors are not exhaustive, particularly with respect to future filings. Results of Operations The Company sold RTC as of September 30, 1995. In October 1996, the purchaser of RTC declared bankruptcy. The following discussion and analysis includes expenses and liabilities related to the Company's guarantee of certain RTC leases. Fiscal Years 1998 and 1997 Net Revenues. Net revenues for the year ended September 30, 1998 increased $1,200,000 (10.1%) to $13,065,000 from $11,865,000 for the year ended September 30, 1997. Net revenues increased $1,144,000 due to the opening of one company-owned restaurant in November 1997 and to two restaurants that were not open for the full prior year period. Net revenues decreased $440,000 from one company-owned restaurant that was closed in March 1998 due to condemnation of the development (the restaurant will be relocated to a new site), and one company-owned restaurant that was sold to a franchisee in September 1998. Net revenues increased $465,000 or 4.8% during fiscal 1998 from same store net revenues for restaurants that have been open for the full fiscal 1997 and 1998 periods. The increase in same store net revenues is attributable to menu price increases taken since February 1997 and the initiation of a television advertising campaign in September 1997. Net revenues from Drive Thru and its franchisees were $20,560,000 for the fiscal year ended September 30, 1998 compared to $18,700,000 for the prior fiscal year. A new television advertising campaign was initiated in September 1998 featuring the introduction of a new onion ring product. Subsequent to September 30, 1998, same store net restaurant sales increased 23% and 21% for October 1998 and November 1998 respectively, from the same prior year periods. Food and Paper Costs. For the year ended September 30, 1998, Drive Thru's food and paper costs were 35.6% of net restaurant sales compared to 36.8% of net restaurant sales in fiscal 1997. The decrease in Drive Thru's food and paper costs is primarily attributable to cumulative menu price increases of 14.4% taken during the last eight months of the period ended September 30, 1997, and increases of 3.5% taken in the last 4 months of the period ended September 30, 1998, with only nominal increases in food and paper costs. Income From Restaurant Operations. For the year ended September 30, 1998 Drive Thru's income from restaurant operations was $2,010,000 compared to $1,240,000 for the year ended September 30, 1997. Drive Thru's income from restaurant operations as a percentage of net restaurant revenues was 15.8% for the year ended September 30, 1998, an increase from 10.6% for the same prior year period. The increase in income from restaurant operations is attributable to menu price increases as well as management's focus on improving restaurant labor and operating efficiencies and expenses. Cash flow from restaurant operations (income from restaurant operations plus depreciation, opening expenses and accretion of deferred rent) as a percentage of net restaurant sales was 21.8% for the year ended September 30, 1998 compared to 17.5% for the year ended September 30, 1997. Income and cash flow from restaurant operations include regional supervision, training and recruiting expenses of $354,000 for the year ended September 30, 1997 and $304,000 for the year ended September 30, 1998. Franchise development fees and royalties increased from $213,000 in fiscal 1997 to $306,000 in fiscal 1998. Income (Loss) from Operations. Drive Thru's income from operations improved to $148,000 in fiscal 1998 compared to a loss from operations of ($850,000) in fiscal 1997. Income from operations for the year ended September 30, 1998 includes a gain of $184,000 from the sale of one company- owned restaurant to a franchisee in September 1998. Income from operations was negatively impacted during fiscal 1998 by $217,000 of expenses associated with one RTC lease guarantee and $31,000 of expenses associated with the operation by Good Times of one RTC restaurant, compared to $94,000 during fiscal 1997. During fiscal 1998, the Company negotiated the termination of one RTC lease, entered into a sublease for one RTC lease and continues to operate the third RTC restaurant. Selling, general and administrative expenses increased from $1,713,000 (14.4% of net revenues) in the year ended September 30, 1997 to $1,839,000 (14.1% of net revenues) in the year ended September 30, 1998. The increase in selling, general and administrative expenses is attributable to the initiation of television advertising in September 1997, which increased advertising expense to $800,000 (6.3% of net restaurant sales) for the year ended September 30, 1998 from $649,000 (5.6%) for the year ended September 30, 1997. Net Loss. The net loss for Drive Thru was ($226,000) for the fiscal year ended September 30, 1998 compared to a net loss of ($1,101,000) for the fiscal year ended September 30, 1997. Minority interest expense increased $146,000 as a result of improved Income from Restaurant Operations in the joint-venture restaurants for the year ended September 30, 1998. Net interest expense increased $17,000 in fiscal 1998 due to a reduction in interest income from various notes receivable and a reduction in interest earning cash reserves compared to fiscal 1997. Liquidity and Capital Resources As of September 30, 1998, the Company had $768,000 of cash and cash equivalents on hand. The Company entered into a settlement agreement with RTC whereby the Company received $300,000 during fiscal 1998. Management completed the sale of one company-owned Drive Thru restaurant to a franchisee in September, 1998 for proceeds of $374,000 ($450,000 sale price less a note receivable of $76,000). The Company's cash balance and cash generated from operations will be used for increasing the Company's working capital reserves and for the development of new restaurants. Management believes this will be sufficient to cover the working capital needs of the Company for the 1999 fiscal year. During fiscal 1998, the Company executed a commitment letter with Safeco Credit Company for up to $3,000,000 in mortgage debt financing for the development of the new prototype restaurants, including the purchase of land underlying the restaurants. Management is seeking additional debt and lease financing for the development of additional company-owned double drive thru restaurants. Effective August 31, 1998, TBC converted all of the Convertible Preferred Stock into 426,667 shares of Common Stock of the Company. Additionally under a separate agreement, TBC and its controlling owner agreed to guarantee up to $6 million of future mortgage debt obligations of the Company for the development of new restaurants. The Company remains contingently liable on one Las Vegas restaurant lease that has been subleased, and two RTC restaurant leases, one of which has been subleased, so management anticipates minimal future losses from RTC or Vegas lease contingencies. Management also anticipates eliminating its net loss through improved income from restaurant operations as a result of increasing sales and improved operating profit margins. The Company had a working capital deficit of ($114,000). Because restaurant sales are collected in cash and accounts payable for food and paper products are paid two to four weeks later, restaurant companies often operate with working capital deficits. It is anticipated that working capital deficits will expand as new Drive Thru restaurants are opened. Net cash provided by operating activities of the Company was $385,000 for fiscal 1998 compared to $10,000 in fiscal 1997. For fiscal 1998, this was the result of a net loss of ($226,000) and non-cash reconciling items totaling $611,000 (comprised principally of depreciation and amortization of $707,000, minority interest of $266,000, losses associated with lease guarantees of $217,000 and decreases in operating assets and liabilities totaling $415,000). Net cash provided by investing activities by the Company in fiscal 1998 was $530,000, which includes the purchase of property and equipment of $231,000, payments received from RTC bankruptcy settlement agreement of $300,000 and proceeds from the sale of assets of $532,000. Drive Thru utilizes all cash provided by investing activities for working capital and for capital expenditures consisting primarily of expenditures for the development of new Good Times restaurants and refurbishment of existing restaurants. In fiscal 1997 Drive Thru developed two joint-venture restaurants. In fiscal 1998 Drive Thru developed one company-owned restaurant. Net cash used in investing activities by the Company in fiscal 1997 was $876,000, which included the purchase of property and equipment of $803,000. Net cash used in financing activities by the Company in fiscal 1998 was $555,000, which includes principal payments on notes payable and capital leases of $152,000, borrowings on notes payable and long-term debt of $18,000, distributions to minority interests in partnerships of $440,000 and contributions from minority interests in partnerships of $19,000. Net cash provided by financing activities by the Company in fiscal 1997 was $734,000 which includes principal payments on notes payable and capital leases of $113,000, borrowings on notes payable and long-term debt of $200,000, distributions to minority interests in partnerships of $283,000 and contributions from minority interests in partnerships of $180,000 and proceeds from the sale of Preferred Stock of $750,000. Neither the Company nor Drive Thru currently have any bank lines of credit. The Company intends to use its cash resources and cash generated from operations for working capital, and for the development of new company-owned and joint-venture restaurants in combination with additional debt financing. Management intends to continue to develop Good Times restaurants through franchising and joint development activities with existing and new franchisees. Impact of Recently Issued Accounting Standards In 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income and SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information. SFAS No. 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that displays with the same prominence as other financial statements. SFAS No. 131 supersedes SFAS No.14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards on the way that public companies report financial information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS Nos. 130 and 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. SFAS No. 130 is not expected to have a material effect on future financial statement disclosures and results of operations and financial position will be unaffected by implementation of this standard. SFAS No. 131 is not expected to have a material impact on the Company. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitizations of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" were issued in 1998 and are not expected to impact the Company regarding future financial statement disclosures, results of operations and financial position. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES: Independent Auditor's Report Consolidated Balance Sheet - September 30, 1998 Consolidated Statements of Operations - For the Years Ended September 30, 1997 and 1998 Consolidated Statement of Stockholders' Equity - For the Period from October 1, 1996 to September 30, 1998 Consolidated Statements of Cash Flows - For the Years Ended September 30, 1997 and 1998 Notes to Consolidated Financial Statements INDEX TO FINANCIAL STATEMENTS PAGE Good Times Restaurants Inc. and Subsidiaries: _____________________________________________ Independent Auditor's Report F-2 Consolidated Balance Sheet - September 30, 1998 F-3 Consolidated Statements of Operations - For the Years Ended September 30, 1997 and 1998 F-5 Consolidated Statement of Changes of Stockholders' Equity - For the Period from October 1, 1996 through September 30, 1998 F-6 Consolidated Statements of Cash Flows - For the Years Ended September 30, 1997 and 1998 F-7 Notes to Consolidated Financial Statements F-8 INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors Good Times Restaurants Inc. Golden, Colorado We have audited the accompanying consolidated balance sheet of Good Times Restaurants Inc. and subsidiaries as of September 30, 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended September 30, 1997 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Good Times Restaurants Inc. and subsidiaries as of September 30, 1998, and the results of their operations and their cash flows for the years ended September 30, 1997 and 1998, in conformity with generally accepted accounting principles. Hein + Associates LLP Denver, Colorado November 13, 1998 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 ASSETS Current Assets: Cash and cash equivalents $ 768,000 Receivables 281,000 Inventories 52,000 Prepaid expenses and other 8,000 Notes receivable 42,000 Total current assets 1,151,000 Property and Equipment, at cost: Land and building 2,511,000 Leasehold improvements 2,298,000 Fixtures and equipment 2,735,000 _________ 7,544,000 Less accumulated depreciation and amortization (2,625,000) _________ 4,919,000 Other Assets: Notes receivable 483,000 Other 25,000 508,000 Total Assets $6,578,000 ==========
See accompanying notes to these consolidated financial statements. F-3 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 LIABILITIES AND STOCKHOLDERS' EQUITY __________________________________________ Current Liabilities: Current maturities of long-term debt $96,000 Accounts payable 441,000 Accrued liabilities - Las Vegas 16,000 Accrued liabilities - RTC 148,000 Accrued other liabilities 564,000 Total current liabilities 1,265,000 Long-Term Liabilities: Debt 463,000 Las Vegas accrued liabilities 124,000 RTC accrued liabilities 291,000 Deferred liabilities 288,000 _________ Total long-term liabilities 1,166,000 Minority Interests in Partnerships 1,465,000 Commitments and Contingencies (Notes 2, 4, 5, and 8) Stockholders' Equity: Preferred stock, .01 par value, 5,000,000 shares authorized, none issued and outstanding - Common stock, $.001 par value; 50,000,000 shares authorized, 1,747,919 shares issued and outstanding 2,000 Capital contributed in excess of par value 11,851,000 Accumulated deficit (9,171,000) Total stockholders' equity 2,682,000 Total Liabilities and Stockholders' Equity $ 6,578,000 ===========
See accompanying notes to these consolidated financial statements. F-4 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended September 30, _____________ 1997 1998 ____ ____ Net Revenues: Restaurant sales $11,652,000 $12,759,000 Area development and franchise fees 20,000 65,000 Franchise royalties 193,000 241,000 Total net revenues 11,865,000 13,065,000 Restaurant Operating Costs: Food and paper costs 4,286,000 4,537,000 Restaurant labor costs 3,884,000 3,989,000 Restaurant occupancy costs 1,295,000 1,370,000 Accretion of deferred rent 47,000 46,000 Other restaurant operating costs 358,000 390,000 Opening expenses 88,000 25,000 Depreciation and amortization 667,000 698,000 __________ __________ Total restaurant operating costs 10,625,000 11,055,000 __________ __________ Income from Restaurant Operations 1,240,000 2,010,000 Other Operating Expenses (Income): General and administrative 1,064,000 1,039,000 Advertising 649,000 800,000 Loss from operating RTC stores 94,000 31,000 Loss (gain) on disposal of restaurants and equipment 55,000 (225,000) Loss from Las Vegas lease guarantees 228,000 - Loss from RTC lease guarantees - 217,000 _________ _________ Total other operating expenses 2,090,000 1,862,000 _________ _________ Income (Loss) From Operations (850,000) 148,000 Other Income (Expenses): Interest income 55,000 40,000 Interest expense (89,000) (91,000) Minority interest in income (loss) of partnerships (120,000) (266,000) Other, net (97,000) (57,000) __________ _________ Total other expenses, net (251,000) (374,000) __________ _________ Net Loss $(1,101,000) $(226,000) =========== ========= Preferred Stock Dividends $ (65,000) $ (40,000) ___________ __________ Net Loss Attributable to Common Shareholders $ (1,166,000) $(266,000) ============= ========= Basic and Diluted Earnings Per Share $ (.91) $ (.20) ============= ========== Weighted Average Common Shares Outstanding 1,275,237 1,345,156 ___________ ____________
See accompanying notes to these consolidated financial statements. F-5 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM OCTOBER 1, 1996 THROUGH SEPTEMBER 30, 1998 Preferred Stock Common Stock Capital in Issued Par Issued Par Excess of Accumulated Shares Value Shares Value Par Value Deficit Total Balances, October 1, 1996,as previously reported - $ - 6,314,820 $6,000 $10,845,000 $(7,844,000) $3,007,000 One-for- five reverse common stock split - - (5,051,856)(5,000) 5,000 - - ________________________________________________________________ Balances, October 1, 1996, as adjusted - - 1,262,964 1,000 10,850,000 (7,844,000) 3,007,000 Preferred stock issued 1,000,000 10,000 - - 990,000 - 1,000,000 Preferred stock issuance cost - - - - (52,000) - (52,000) Stock issued to employee benefit plan - - 16,592 - 39,000 - 39,000 Net loss - - - - - (1,101,000) (1,101,000) __________________________________________________________________ Balances, September 30, 1997 1,000,000 10,000 1,279,556 1,000 11,827,000 (8,945,000) 2,893,000 Stock issued to employee benefit plan - - 7,414 - 15,000 - 15,000 Common stock issued as preferred stock dividends - - 34,282 - - - - Preferred stock converted to common stock (1,000,000)(10,000)426,667 1,000 9,000 - - Net loss - - - - - (226,000) (226,000) ___________________________________________________________________ Balances, September 30, 1998 - $ - 1,747,919 2,000 $11,851,000 $(9,171,000)$2,682,000 ===================================================================
See accompanying notes to these consolidated financial statements. F-6 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended September 30, 1997 1998 Cash Flows from Operating Activities: Net loss $(1,101,000) $(226,000) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 669,000 707,000 Accretion of deferred rent 47,000 46,000 Minority interest 120,000 266,000 Loss (gain) on disposal of restaurants and equipment 55,000 (172,000) Loss on lease guarantees 228,000 217,000 Gain on sale of property, net (2,000) (53,000) Common stock issued to 401(k) Plan for Company match 39,000 15,000 Changes in operating assets and liabilities: (Increase) decrease in: Receivables 46,000 (42,000) Inventories 3,000 (1,000) Prepaid expenses and other 17,000 3,000 (Decrease) increase in: Accounts payable 61,000 (24,000) Accrued and other liabilities (172,000) (351,000) ________ ________ Net cash provided by operating activities 10,000 385,000 Cash Flows from Investing Activities: Payments for the purchase of property and equipment (803,000) (231,000) Proceeds from sale of assets 2,000 532,000 Payments made in conjunction with the sale of a store (75,000) - Loans made to franchisees - (451,000) Payments received on loans to franchisees - 380,000 Payment received for RTC bankruptcy settlement - 300,000 ________ ________ Net cash provided by (used in) investing activities (876,000) 530,000 Cash Flows from Financing Activities: Principal payments on notes payable and long-term debt (113,000) (152,000) Borrowings on notes payable and long-term debt 200,000 18,000 Distributions paid to minority interests in partnerships (283,000) (440,000) Contributions from minority interest in partnerships 180,000 19,000 Proceeds from the sale of preferred stock 750,000 - _______ ________ Net cash provided by (used in) financing activities 734,000 (555,000) _______ _________ Increase (Decrease) in Cash and Cash Equivalents (132,000) 360,000 Cash and Cash Equivalents, beginning of period 540,000 408,000 ________ ________ Cash and Cash Equivalents, end of period $ 408,000 $ 768,000 ========== ========= Supplemental Disclosures of Cash Flow Information: Cash paid for interest$ 89,000 $ 91,000 ========== ========= Cash paid for taxes $ - $ - ========== ========= Purchase of equipment through payables and capital leases $ 57,000 $ 18,000 ========== ========= Conversion of note to preferred stock $ 250,000 $ - ========== ========= Conversion of preferred stock to common stock $ - $1,000,000 ========== ==========
See accompanying notes to these consolidated financial statements. F-7 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies: Organization - Good Times Restaurants Inc. (Good Times or the Company) is a Nevada corporation. In July 1992, Good Times merged with Round the Corner Restaurants, Inc. (RTC). The Company operates through its subsidiary Good Times Drive Thru Inc. (Drive Thru). All of the stock of RTC was sold as of September 30, 1995. Drive Thru commenced operations in 1986 and, as of September 30, 1998, operates 15 company-owned and joint venture drive-thru fast food hamburger restaurants. The Company's restaurants are primarily in Colorado. In addition, Drive Thru has 13 franchises operating in Colorado and one in Boise, Idaho, and is offering franchises for development of additional Drive Thru restaurants. Principles of Consolidation - The consolidated financial statements include the accounts of Good Times and its subsidiaries, including certain 50% (approximately) owned limited partnerships in which the Company exercises control as general partner. All intercompany accounts and transactions are eliminated. The unrelated limited partners' equity of each partnership has been recorded as minority interest in the accompanying consolidated financial statements. Opening Costs - Opening costs are expensed as incurred. Inventories - Inventories are stated at the lower of cost or market, determined by the first-in, first-out method, and consist of restaurant food items and related paper supplies. Property and Equipment - Depreciation is recognized on the straight-line method over the estimated useful lives of the assets or the lives of the related leases, if shorter, as follows: Building 15 years Leasehold improvements 7-15 years Fixtures and equipment 3-8 years
Maintenance and repairs are charged to expense as incurred, and expenditures for major improvements are capitalized. When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation with any resulting gain or loss credited or charged to income. Sales of Restaurants and Restaurant Equity Interests - Sales of restaurants or non-controlling equity interests in restaurants developed by the Company are accounted for under the full accrual method or the installment method. Under the full accrual method, gain is not recognized until the collectibility of the sales price is reasonably assured and the earnings process is virtually complete without further contingencies. When a sale does not meet the requirements for income recognition, gain is deferred until those requirements are met. Under the installment method, gain is recognized as principal payments on the related notes receivable are collected. F-8 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred Liabilities - Rent expense is reflected on a straight-line basis over the term of the lease for all leases containing step-ups in base rent. An obligation representing future payments (which totaled $236,000 as of September 30, 1998) has been reflected in the accompanying consolidated balance sheet as a deferred liability. The remaining balance includes a deferred gain of $52,000 on the sale of a restaurant. Advertising - The Company incurs advertising expense in connection with marketing of its restaurant operations. Advertising costs are expensed the first time the advertising takes place. Franchise and Area Development Fees - Individual franchise fee revenue is deferred when received and is recognized as income when the Company has substantially performed all of its obligations under the franchise agreement and the franchisee has commenced operations. Area development fees and related direct expenses are recognized ratably upon opening of the applicable restaurants. Continuing royalties from franchisees, which are a percentage of the gross sales of franchised operations, are recognized as income when earned. Franchise development expenses, which consist primarily of legal costs associated with developing and executing master franchise agreements, are expensed as incurred. Statement of Cash Flows - For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Income Taxes - Income taxes are provided for in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires an asset and liability approach in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the Company's assets and liabilities. Net Loss Per Common Share - The income (loss) per share is presented in accordance with the provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced the presentation of primary and fully diluted earnings (loss) per share (EPS) with a presentation of basic EPS and diluted EPS. Basic EPS is calculated by dividing the income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Basic and diluted EPS were the same for fiscal 1998 and 1997 as the Company had losses from continuing operations and therefore, the effect of all potential common stocks was antidilutive. Financial Instruments and Concentrations of Credit Risk - Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have F-9 similar economic characteristics that would cause their ability to meet contractual obligations to be similarly effected by changes in economic or other conditions. Financial instruments with off-balance-sheet risk to the Company include lease liabilities whereby the Company is contingently liable as the primary leasee of certain leases that were assigned to third parties in connection with various store closures (see Note 5). Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and receivables. At September 30, 1998, the Company maintained cash balances with a commercial bank, which were approximately $593,000 in excess of FDIC limits and maintained a government fund balance of $33,000. At September 30, 1998, notes receivable totaled $525,000 and were from four entities. The notes receivables are generally collateralized by buildings and equipment and guaranteed by certain individuals. Additionally, the Company has receivables of $281,000, which consists principally of current franchise receivables and a condemnation proceeding receivable of approximately $165,000 (see Note 2). The Company purchases 100% of its restaurant food and paper from one vendor. The Company believes that there are a sufficient number of other suppliers from which food and paper could be purchased to prevent any long- term adverse consequences. The Company operates in one industry segment, restaurants. A geographic concentration exists because the Company's customers are generally located in the State of Colorado. The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of cash, receivables, notes receivables, long-term debt, capital lease obligations, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities or interest rates that approximate the Company's current expected borrowing and lending rates. Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and the accompanying notes. The actual results could differ from those estimates. Impact of Recently Issued Accounting Standards - In 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that displays with the same prominence as other financial statements. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards on the way that public companies report financial information about operating segments F-10 in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS Nos. 130 and 131 are effective for financial statements for periods beginning after December 15, 1997 and require comparative information for earlier years to be restated. SFAS No. 130 is not expected to have a material effect on future financial statement disclosures and results of operations and financial position will be unaffected by implementation of this standard. SFAS No. 131 is not expected to have a material impact on the Company. SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" were issued in 1998 and are not expected to impact the Company regarding future financial statement disclosures, results of operations and financial position. 2. Sale of Restaurants: On September 30, 1995, the Company sold all its stock in RTC, a 100% owned subsidiary, for $100,000 cash and a $291,000 note. The note had an interest rate of prime minus 2% and is payable quarterly based on an amortization period of 20 years, with a balloon payment at the end of 5 years. The Company elected to report the gain on sale under the installment method and originally deferred the unrealized gain of $66,000 on the $291,000 note. In 1996, the purchaser of RTC declared bankruptcy. In connection with the bankruptcy of RTC in 1996, the Company recorded $231,000 associated with the write-off of the RTC note receivable (net of deferred gain) and accrued a $333,000 loss associated with RTC lease guarantees and a note payable (net of estimated recoveries) guaranteed by the Company. The Company has subleased one RTC restaurant and is currently managing one RTC restaurant in order to minimize future losses associated with its lease guarantees. In 1998, the Company accrued an additional $217,000 related to the lease guarantees. Operating RTC stores resulted in a loss of $31,000 during fiscal 1998, which is recorded in other operating expenses. During the year ended September 30, 1996, the Company approved the sale of its interest in one of its managed limited partnerships to the limited partner. The Company remains a guarantor on $296,000 of notes payable assumed by the purchaser. However, the purchaser and an additional guarantor have personally agreed to indemnify the Company for any payments made on the note by the Company. In 1998, the Company closed a store because a local government body condemned the development on which it was located. The Company was able to move the building and equipment to a storage facility. The Company expects to be reimbursed from the condemnation proceeds for certain costs, including abandoned site improvements and moving costs, which is included as a receivable at F-11 September 30, 1998. During the year ended September 30, 1998, the Company sold a restaurant to a franchisee for $374,000 cash and a $76,000 note. The Company recognized a gain on the sale in the amount of approximately $184,000, which is included in loss (gain) on disposal of restaurants and equipment. 3. Notes Receivable: Notes receivable consist of the following as of September 30, 1998: Note receivable, 8%, monthly payments of principal and interest are due in the amount of $3,410, with the final payment due in June 2010. Collateralized by a building and equipment and guaranteed by an individual. $311,000 Note receivable, 8%, monthly payments of principal and interest are due in the amount of $940, with the final payment due in June 2008. This receivable may be due earlier if sales generated by the collateralized restaurant exceed a certain dollar amount. Collateralized by a second interest in a building and guaranteed by an individual. 76,000 Note receivable, 9%, monthly payments of principal and interest in the amount of $1,245, with final payment on September 1, 2000 collateralized by building and equipment. The note is personally guaranteed by an individual. The borrower of this note has not made payments in over one year, and the note is under lawsuit to collect. The Company's management intends to pursue full collection, and believes that the collateral is adequate to cover the note balance. 42,000 Note receivable, 12%, monthly payments of interest only are due until September 1, 1999. Starting in September 1999, equal monthly payments of principal and interest are due, with the final payment on September 1, 2001. Collateralized by a second interest in building and equipment. 76,000 Other notes, various terms. 20,000 ______ 525,000 Less current portion. (42,000) _______ 483,000 =======
F-12 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Notes Payable and Long-Term Debt: Promissory note, payable by a limited partnership, of which the Company is the general partner, interest and principal payable monthly, with the final payment due August 1, 2004. The interest rate on the note is variable based on the 30-day commercial paper plus 3%, with a floor of 6%. At the option of the Company, the interest rate may be converted to a fixed rate equal to the 7-year treasury bill rate plus 3%, with a floor of 8%. This note is guaranteed by the Company, and the limited partner who is also a significant stockholder (see Note 9). $175,000 Note payable to an individual and his pension plan with interest at 12%, payable quarterly, principal due in May 2000. 300,000 Other notes payable, various terms. 84,000 _______ $559,000 Less current portion. (96,000) _______ $463,000 ========
As of September 30, 1998, debt payments over the next five years are as follows: 1999 $96,000 2000 331,000 2001 33,000 2002 35,000 2003 34,000 Thereafter 30,000 ________ $559,000 ________
During the year, the Company entered into a commitment letter with a financial institution. Under the terms of the commitment, the Company can borrow up to $3,000,000. Borrowings under the commitment can be made only for the development of new Good Times Restaurants. The loan is to be partially guaranteed by a significant stockholder (or entities related to the significant stockholder) (see Note 8). The Company has agreed to pay the guarantors an annual fee in the amount of 2% of the average outstanding principal in cash or 3% of the average outstanding principal in common stock and also agreed to issue a warrant to purchase 426,667 shares at $.0001 per share which is only exercisable in the event of the bankruptcy of the Company. Furthermore, the Company agreed to certain covenants to remain in effect so long as the guarantee is in place. F-13 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Commitments and Contingencies: The Company's office space, and the land underlying the Drive Thru restaurant facilities, are leased under operating leases. Certain leases include provisions for additional contingent rental payments if sales volumes exceed specified levels. The Company paid no material amounts as a result of these provisions. Following is a summary of operating lease activities: Operating Leases 1998 Minimum rentals $1,294,000 Less sublease rentals (355,000) ____________ Net rent expense $ 939,000 ============ As of September 30, 1998, future minimum rental commitments required under Good Times and Drive Thru capital and operating leases that have initial or remaining noncancellable lease terms in excess of one year are as follows: Operating Leases 1999 $1,322,000 2000 1,332,000 2001 1,214,000 2002 1,193,000 2003 1,082,000 Thereafter 8,042,000 __________ 14,185,000 Less sublease rentals (4,686,000) __________ $9,499,000 ==========
The Company remains contingently liable on several leases of restaurants that were previously sold, which have been included in the future minimum rental commitment schedule above. The Company is also a guarantor on a Small Business Administration loan to a franchisee for approximately $368,000. The Company is subject to litigation in the normal course of business. The litigation is not expected to have a material impact to the Company. F-14 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Managed Limited Partnerships: Drive Thru is the general partner of certain limited partnerships that were formed to develop Drive Thru restaurants. Limited partner contributions have been used to construct new restaurants. Drive Thru, as a general partner, generally receives an allocation of approximately 50% of the profit and losses and a fee for its management services. The limited partners' equity has been recorded as a minority interest in the accompanying consolidated financial statements. 7. Income Taxes: Deferred tax assets (liabilities) are comprised of the following at September 30, 1998: Current Long-Term Deferred assets (liabilities): Partnership basis difference $ - $633,000 Net operating loss carryforward - 2,001,000 Property and equipment basis differences - (1,139,000) Other accrued liability difference 167,000 52,000 _______ _________ Net deferred tax assets 167,000 1,547,000 Less valuation allowance* (167,000) (1,547,000) Net deferred tax assets $ - $ - ======== =========
* The valuation allowance increased by $343,000 during the year ended September 30, 1998 due mainly to an increase in accrued settlement not deductible currently for tax. The Company has no taxable income under Federal and state tax laws. Therefore, no provision for income taxes was included. The Company has net operating loss carry forwards of approximately $5,400,000 for income tax purposes which expire from 2002 through 2012. The use of these losses may be restricted in the future due to changes in ownership. 8. Related Parties: In fiscal 1998, the Bailey Company (the "Bailey's"), a significant common stock shareholder, converted all of the outstanding Convertible Preferred Stock to common stock. F-15 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Bailey's have entered into a co-development agreement with the Company as well as two franchise agreements and an attendant management agreement. The Company also leases office space from the Bailey's. Rent paid to the Bailey's in 1998 was $22,000 and future rent payments due to the Bailey's total $22,000 in 1999. The Bailey's and the Company have guaranteed a loan made to the co-development partnership in the amount of $175,000. Two of the Company's Board members are principals of the Bailey's. As described in Note 4, the Bailey's have also agreed to guarantee certain future loan arrangements and the Company has agreed to pay the Bailey's a fee for this guarantee. 9.Stockholders' Equity: On February 12, 1998, the shareholders approved a one-for-five reverse stock split of the Company's common stock. All references to number of shares, except shares authorized, and to per share information in the consolidated financial statements have been adjusted to reflect the reverse stock split on a retroactive basis. The Company has the authority to issue 5,000,000 shares of preferred stock. The Board of Directors has the authority to issue such preferred shares in series and determine the rights and preferences of the shares as may be determined by the Board of Directors. On October 1, 1996, the Company closed the sale of $1 million of preferred stock, $250,000 of which was the conversion of a note payable. The remaining $750,000 of preferred stock was purchased in three equal installments of $250,000 on October 1,1996, January 1, 1997, and April 1, 1997. In connection with the sale, the Company paid stock issuance costs in the amount of $52,000. In August 1998, the preferred stockholder exercised its right to convert the preferred stock to common stock at a rate of $2.34375. All such preferred stock was converted and none is outstanding at September 30, 1998. As of September 30, 1998, there were $25,000 of dividends in arrears. 10. Stock-Based Compensation: The Company has an incentive stock option plan (the ISO) and a non- statutory stock option plan (the NSO) whereby 150,000 shares and 60,000 shares, respectively, are reserved for issuance. As of September 30, 1998, options for the purchase of 106,180 and 26,000 shares of common stock are outstanding under these plans, respectively, and no options have been exercised. All prior year shares, options and warrants, and their related prices have been restated to reflect the one-for-five reverse stock split. The following is a summary of activity under these stock option plans for the years ended September 30, 1997 and 1998. F-16 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Incentive Stock Options - Activity for incentive stock options is summarized below. 1997 1998 Weighted Weighted Average Average Number Exercise Number Exercise Of Shares Price Of Shares Price Outstanding, beginning of year 74,260 $11.40 71,500 $2.50 Canceled (74,660) $11.25 (1,200) $2.50 Granted 71,900 $ 2.50 35,880 $2.50 ______ ______ Outstanding, end of year 71,500 $ 2.50 106,180 $2.50 ====== =======
For all options granted during 1997 and 1998, the weighted average fair value per option was approximately $1.99 and $1.64, respectively. All the outstanding options at September 30, 1998 had an exercise price of $2.50. At September 30, 1998, options for 62,890 shares were exercisable. An additional 5,308, 9,726, 14,144, and the remaining 14,112 shares will be exercisable on September 30, 1999, 2000, 2001, and 2002, respectively, all at a $2.50 weighted average exercise price. If not previously exercised, options outstanding at September 30, 1998 will expire as follows: Weighted Average Number Exercise Year Ending September 30, of Shares Price 2007 70,900 $2.50 2008 35,280 $2.50 _______ Total 106,180 =======
F-17 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Non-Qualified Stock Options - The Company has also granted non-qualified options which are summarized as follows for the years ended September 30, 1997 and 1998: 1997 1998 Weighted Weighted Average Average Number Exercise Number Exercise Of Shares Price Of Shares Price Outstanding, beginning of year 21,121 $11.70 21,121 $11.70 Granted - $ - 14,000 $ 2.50 Canceled/expired - $ - (9,121) $15.60 Exercised - $ - - $ - ______ ______ Outstanding, end of year 21,121 $11.70 26,000 $ 5.38 ====== ======
All outstanding non-qualified options were exercisable at September 30, 1998. If not previously exercised, non-qualified options outstanding at September 30, 1998 will expire as follows: Year Ending September 30, Weighed Average Number Exercise of Shares Price 1999 12,000 $8.75 2002 14,000 $2.50 ______ Total 26,000 ======
Stock Purchase Warrants - The Company has granted warrants which are summarized as follows for the years ended September 30, 1997 and 1998: 1997 1998 Weighted Weighted Average Average Number Exercise Number Exercise Of Shares Price Of Shares Price Outstanding, beginning of year 689,710 $ 9.25 571,073 $ 9.85 Granted 536,603 $10.00 - $ - Repriced (536,603) $14.50 - $ - Expired (118,637) $15.20 (24,470) $ 6.75 _______ ______ Outstanding, end of year 571,073 $ 9.85 546,603 $ 9.95 ======= =======
F-18 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All outstanding warrants were exercisable at September 30, 1998. If not previously exercised, warrants outstanding at September 30, 1998 will expire as follows: Weighted Average Number Exercise Year Ending September 30, Of Shares Price 1999 536,603 $10.00 2000 10,000 $ 7.00 _______ Total 546,603 =======
The Company expects to extend the expiration date of these warrants. Pro Forma Stock-Based Compensation Disclosures - The Company applies APB Opinion 25 and related interpretations in accounting for stock options and warrants which are granted to employees. Accordingly, no compensation cost has been recognized for grants of options and warrants to employees since the exercise prices were not less than the fair value of the Company's common stock on the grant dates. Had compensation cost been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FAS 123, the Company's net loss and loss per share would have been changed to the pro forma amounts indicated below. Year Ended September 30, 1997 1998 Net loss applicable to common stockholders: As reported $1,166,000 $266,000 Pro forma 1,278,000 297,000 Net loss per common share: As reported $ (.18) $ (.20) Pro forma (.20) (.22)
The fair value of each employee option granted in 1997 and 1998 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: Year Ended September 30, 1997 1998 Expected volatility 130% 105% Risk-free interest rate 6.5% 5.5% Expected dividends - - Expected terms (in years) 3 4
F-19 GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Subsequent to year-end, the Company issued 42,420 incentive stock options at a exercise price of $2.31. These options expire in the fiscal year 2009. The Company also issued 34,000 non-statutory options at an exercise price of $2.31, which expire in the year 2003. Subsequent to year-end, the Company has also agreed to increase the authorized number of shares reserved for incentive stock option issuance to 525,000 upon shareholder approval, and issue an additional 89,980 incentive stock options and no non-statutory stock options upon shareholder approval. The exercise price on these options will not be determined until the Company obtains approval from its shareholders. 11. Retirement Plan: The Company has a 401(k) profit sharing plan (the Plan). Eligible employees may make voluntary contributions to the Plan, which are matched by the Company, using the Company's common stock in an amount equal to 25% of the employees contribution up to 6% of their compensation. The amount of employee contributions is limited as specified in the Plan. The Company may, at its discretion, make additional contributions to the Plan or change the matching percentage. The Company has accrued for contributions of $20,000 at September 30, 1998. F-20 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 9-12. Incorporated herein by reference are Part III, Items 9 through 12 to the Registrant's definitive proxy statement for its Annual Meeting of Shareholders to be held on February 12, 1998. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit Number Description Location 1.1 Underwriting Agreement between Registrant and Cohig & Associates, Inc. dated June 15, 1992 (6) - Exhibit 1.1 3.1 Articles of Incorporation of the Registrant (1) - Exhibit 3.1 3.2 Amendment to Articles of Incorporation of the Registrant dated January 23, 1990 (2) - Exhibit 3.1 3.4 Restated Bylaws of Registrant dated June 10, 1996 (11) - Exhibit 3.4 3.5 Certificate of Amendment of Articles of Incorporation (11) - Exhibit 3.5 3.6 Restated Bylaws of Registrant dated November 7, 1997 (12) - Exhibit 3.6 4.1 Form of Warrant Certificate for the purchase of an aggregate of 920,000 shares of Registrant's Common Stock issued in 1990 public offering (3) - Exhibit 4.2 4.2 Form of Underwriters' Warrant for the purchase of 80,000 shares issued in connection with 1990 public offering (3) - Exhibit 1.4 4.3 Form of Underwriters' Warrant for the purchase of 69,000 units issued in connection with 1992 public offering (6) - Exhibit 1.4 4.4 Form of Warrant Certificate for the purchase of an aggregate of 720,000 shares of Registrant's common stock issued in 1992 public offering (6) - Exhibit 4.4 4.5 Amended and Restated Warrant Agreement (6) - Exhibit 4.3 4.6 Form of Warrant Certificate to purchase an aggregate of 105,000 shares of Registrant's common stock issued in November 1991 Private Offering (5) - Exhibit 4.2 4.7 Form of registration rights agreement relating to 105,000 shares of the Registrant's common stock issuable upon exercise of warrants issued in November 1991 Private Offering (5) - Exhibit 4.3 4.8 Form of Warrant Certificate for the purchase of an aggregate 50,000 shares of Registrant's Common Stock issued to limited partners of Good Times Limited Partnership I (6) - Exhibit 4.14 4.9 1992 Incentive Stock Option Plan of Registrant, as amended * 4.10 1992 Non-Statutory Stock Option Plan of Registrant, as amended * 4.11 Form of warrant dated June 1, 1995 for the purchase of 50,000 shares of Registrant's Common Stock at an exercise price of $1.40 per share issued to Boulder Radiologists Inc., Defined Benefit Plan - Dubach, of indebtedness by Registrant to Dr. Kenneth Dubach (9) - Exhibit 4.15 4.12 First Amended and Restated Series B Warrant Agreement (11) - Exhibit 4.16 4.13 Third Amended and Restated Warrant Agreement (11) - Exhibit 4.17 10.1 Form of Promissory Note dated June 1, 1995 by and between Good Times Restaurants Inc. and Boulder Radiologist Inc. Pension Plan FBO Dubach in the amount of $300,000 due and payable on May 31, 2000 (9) - Exhibit 10.28 10.2 Master Lease Agreement in the aggregate amount of $2,000,000 between Capital Associates International, Inc., as Lessor, and Good Times Drive Thru Inc. as Lessee (9) - Exhibit 10.30 10.3 Form of Promissory Note dated November 3, 1995 by and between AT&T Commercial Finance Corporation, Boise Co-Development Limited Partnership, Good Times Drive Thru Inc. as general partner, and Good Times Restaurants Inc. as guarantor in the amount of $254,625 (9) - Exhibit 10.34 10.4 Form of Promissory Note dated November 3, 1995 by and between AT&T Commercial Finance Corporation, Boise Co-Development Limited Partnership, Good Times Drive Thru Inc. as general partner, and Good Times Restaurants Inc. as guarantor in the amount of $104,055 (9) - Exhibit 10.35 10.5 Series A Convertible Preferred Stock Purchase Agreement dated as of May 31, 1996 by and among Good Times Restaurants Inc. and The Bailey Company (11) - Exhibit 10.13 10.6 First Amendment to Series A Convertible Preferred Stock Purchase Agreement effective as of May 31, 1996 by and between Good Times Restaurants Inc. and The Bailey Company (11) - Exhibit 10.14 10.7 Registration Rights Agreement dated May 31, 1996 regarding registration rights of the common stock issuable upon conversion of the Series A Convertible Preferred Stock (11) - Exhibit 10.15 10.8 Employment Agreement dated May 3, 1996 between Registrant and Boyd E. Hoback (11) - Exhibit 10.17 10.9 Amendment and Agreement Regarding Series A Convertible Preferred Stock by & between Good Times Restaurants Inc. and The Bailey Company dated December 3, 1997, effective as of October 31, 1997 (12) - Exhibit 10.13 10.10 Indemnification by Dr. Kenneth Dubach to Good Times Drive Thru Inc. dated December 10, 1996 with respect to the promissory note of the Boise Co-Development Limited Parntership dated November 3, 1995 in the original amount of $254,625 and the promissory note dated November 3, 1995 in the original amount of $104,055. (12) - Exhibit 10.14 10.11 Settlement Agreement between Good Times Restaurants Inc. and Round The Corner Restaurants, Inc. dated August 29, 1997 (12) - Exhibit 10.14 10.12 Office lease. * 10.13 The Bailey Company guaranty agreement. * 10.14 Safeco commitment letter. * 10.15 Poison pill. * 21.1 Subsidiaries of Registrant * 23.1 Consent of HEIN + ASSOCIATES LLP * (1) Incorporated by reference from Registrant's Registration Statement on Form S-18 as filed with the Commission on November 30, 1988 (File No. 33-25810-LA). (2) Incorporated by reference from Registrant's current report on Form 8-K dated January 18, 1990 (File No. 33-25810-LA). (3) Incorporated by reference from Registrant's Registration Statement on Form S-1 as filed with the Commission on March 26, 1990 (File No. 33- 33972). (4) Incorporated by reference from Registrant's Form 10-K for the fiscal year ended September 30, 1990. (5) Incorporated by reference from Registrant's Form 10-K for the fiscal year ended September 30, 1991. (6) Incorporated by reference from Registrant's Registration Statement on Form S-1 as filed with the Commission on March 27, 1992 (File No. 33- 46813). (7) Incorporated by reference from Registrant's Form 10-K for the fiscal year ended September 30, 1993. (8) Incorporated by reference from Registrant's Form 10-KSB for the fiscal year ended September 30, 1994. (9) Incorporated by reference from Registrant's Form 10-KSB/A for the fiscal year ended September 30, 1995. (10) Incorporated by reference from Registrant's Form 10-QSB for the quarter ended March 31, 1996. (b) Current Reports on Form 8-K. None. (11) Incorporated by reference from Registrant's Form 10-KSB for the fiscal year ended September 30, 1996. (12) Incorporated by reference from Registrant's Form 10-KSB for the fiscal year ended September 30, 1997. * Filed herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 18, 1998 GOOD TIMES RESTAURANTS INC. /s/ Boyd E. Hoback By:_________________________ Boyd E. Hoback, President Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/Geoffrey R. Bailey __________________ Chairman December 18, 1998 Geoffrey R. Bailey /s/Dan W. James II __________________ Director December 18, 1998 Dan W. James II /s/Boyd E. Hoback __________________ President, Chief December 18, 1998 Boyd E. Hoback Executive Officer and Director /s/David E. Bailey ___________________ Director December 18, 1998 David E. Bailey /s/Thomas P. McCarty ___________________ Director December 18, 1998 Thomas P. McCarty /s/Alan A. Teran ___________________ Director December 18, 1998 Alan A. Teran /s/Richard J. Stark ___________________ Director December 18, 1998 Richard J. Stark EX-27 2
5 YEAR SEP-30-1998 SEP-30-1998 768,000 0 281,000 0 52,000 1,151,000 7,544,000 (2,625,000) 6,578,000 1,265,000 0 2,000 0 0 2,680,000 6,578,000 12,759,000 13,065,000 4,537,000 11,055,000 2,236,000 0 (91,000) (226,000) 0 (226,000) 0 0 0 (266,000) (.20) (.20)
EX-1 3 Exhibit 4.9 GOOD TIMES RESTAURANTS INC. 1992 INCENTIVE STOCK OPTION PLAN (as revised 10-13-98) 1. Purpose. The purpose of this 1992 Incentive Stock Option Plan (the "Plan") is to grant to employees of Good Times Restaurants Inc., a Nevada corporation (the "Company"), options to purchase its stock so that they may have an increased incentive to promote the interests of the Company. 2. Eligible Employees. Key employees of the Company who, in the opinion of the Board of Directors of the Company, are primarily responsible for the management, promotion and protection of the interests of the Company shall be eligible to be granted options under the Plan. A key employee shall not be ineligible because such person is also a director of the Company. One or more additional options may be granted to persons who at that time hold an option or options. 3. Option Shares and Option Price. The aggregate number of shares of the common stock, $.001 par value ("Common Stock"), of the Company with respect to which such options may be granted under the Plan shall be 525,000. The purchase price for each share of Common Stock purchased by exercise of an option granted under the Plan shall be at least 100% of the fair market value of such share at the time such option is granted, and shall not be exercisable after the expiration of ten years from the date such option is granted; provided, however, that any options granted to any eligible employee who is, at the time of grant of such option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation shall have a purchase price equal to at least 110% of the fair market value of the stock subject to the option and shall not be exercisable after the expiration of five years from the date such option is granted. In the event of any change in the Company's corporate structure through merger, consolidation, reorganization, recapitalization, stock dividend or other change, appropriate proportionate adjustment shall be made in the number and purchase price of the shares subject to options granted under the Plan. To the extent the aggregate fair market value (determined at the grant date) of the stock which is exercisable for the first time by an employee in any calendar year under any stock option granted to such employee under this Plan and any other incentive stock option plan of the Company, its parent or subsidiaries, exceeds $100,000, such options shall be treated as options which are not incentive stock options. 4. Effective Date and Term of Plan. The Effective Date of the Plan is April 23, 1992, which is the date of adoption of the Plan by the Board of Directors (and which precedes the date of approval of the Plan by shareholders). Unless this Plan is sooner terminated, any option granted pursuant to this Plan shall be granted within ten years from the Effective Date. 5. Exercise of Option. Any option granted under the Plan may be exercised in accordance with the specific terms and conditions relating thereto set forth in such option, consistent with the Plan, provided, however, that such option shall be exercisable at the rate of no less than 20% per year over a five year period beginning with the date on which such option is granted. Exercise shall be accompanied by delivery to the Company of written notice specifying the number of shares with respect to which such option is exercised and full payment of the purchase price for such shares. Options may be exercised only with respect to full shares. No fractional share of stock will be issued. 6. Acceleration of the Option. Any option granted under the Plan shall become fully exercisable (i) immediately prior to the completion of the merger or sale of substantially all of the stock or assets of the Company in a transaction in which the Company is not the survivor (see paragraph 11), except for the merger of the Company into a wholly-owned subsidiary; or (ii) upon termination of the employee's employment because of his death or disability or for any other reason, except termination for cause by the Company or its subsidiaries or termination by the employee for any reason. 7. Expiration of Option. (a) Subject to specific provisions of each option agreement, each option granted under the Plan shall expire upon the earliest to occur of (i) five or ten years from the date such option is granted; or (ii) upon completion of the merger or sale of substantially all of the stock or assets of the Company with or to another company in a transaction in which the Company is not the survivor (see paragraph 11), except for the merger of the Company into a wholly-owned subsidiary, provided that the Company shall have given the employee at least 60 days' prior written notice of its intent to enter into such merger or sale; or (iii) three months immediately following the termination of the employment of the employee to whom such option is granted for any reason, except for termination for cause by the Company or termination because of such employee's death or disability. (b) If an employee to whom an option was granted under the Plan shall cease to be employed by the Company for any reason, except for termination for cause by the Company or termination because of such employee's death or disability, such employee may, but only within the period of three months immediately following such termination of employment and in no event after the expiration date of such option, exercise such option to the extent that he was entitled to exercise such option at the date of his termination of employment. If the employment of an employee to whom an option was granted by the Company is terminated for cause, all rights under any option of such employee shall expire immediately upon notice to the employee of such termination. (c) In the event of the death or disability of an employee while in the employ of the Company or within the three-month period referred to in subparagraph (a)(iii) above, the person to whom the option held by such employee at the time of his death is transferred by will or the laws of descent and distribution in the case of death (including the decedent's personal representative), or the employee or his guardian in the case of disability of the employee, may, but only to the extent such employee was entitled to exercise such option immediately prior to his death or disability exercise such option at any time within a period of one year succeeding the date of death or disability of such employee, but in no event after the expiration date of such option. (d) The term "disability" as used herein shall be as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. 8. Employment Obligation. In consideration for the granting of an option under the Plan, the employee to whom such option is granted shall agree to remain in the employment of the Company for a period and under terms and conditions determined and approved by the Board of Directors of the Company and such employee. 9. Investment Intent. Each option granted under the Plan shall be granted only to an employee who agrees to purchase any shares acquired by his exercise of the option for investment purposes only and agrees not to resell any of such shares in any manner violating the Securities Act of 1933 or any applicable state statute. 10. Transferability. Options granted under the Plan shall not be transferable other than by will or the laws of descent and distribution and may be exercised during the lifetime of the employee to whom such option is granted only by such employee. 11. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company or a committee of two or more directors, as determined by the Board of Directors. The interpretation and construction of any provision of the Plan by the Board of Directors shall be final, unless otherwise determined by the Board of Directors. The term "survivor," however, as used in subsection (i) of paragraph 6 and subsection (a) (ii) of paragraph 7 shall not apply to the Company in a reverse triangular merger where the Company has become a wholly owned subsidiary of another corporation. No member of the Board of Directors shall be liable for any action or determination made by him in good faith. 12. Intent and Construction. It is the intention of the Company that all options granted under the Plan shall constitute incentive stock options within the meaning of the Code, and the Plan shall be construed and administered in order to effect such intention. EX-2 4 Exhibit 4.10 GOOD TIMES RESTAURANTS INC. 1992 NON-STATUTORY STOCK OPTION PLAN (as revised 10-13-98) 1. Purpose. The purpose of this 1992 Non-Statutory Stock Option Plan (the "Plan") is to grant to employees and directors of Good Times Restaurants Inc., a Nevada corporation (the "Company"), and such other persons as may be determined by the Board of Directors, options to purchase stock so that they may have an increased incentive to promote the interests of the Company. 2. Eligible Participants. Key employees, directors of the Company and such other persons who, in the opinion of the Board of Directors of the Company, are primarily responsible for the promotion and protection of the interests of the Company shall be eligible to be granted options under the Plan. One or more additional options may be given to persons who at that time hold an option or options. Persons granted options under the Plan who are not key employees of the Company shall annually receive financial statements of the Company. 3. Option Shares and Option Price. The aggregate number of shares of the common stock, $.001 par value ("Common Stock"), of the Company with respect to which options may be granted under the Plan shall be 125,000. The purchase price for each share of Common Stock purchased by exercise of an option granted under the Plan shall be atleast 100% of the fair market value of such share at the time such option is granted, and shall not be exercisable after the expiration of five years from the date such option is granted; provided, however, that any options granted to any eligible employee who is, at the time of grant of such option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation shall have a purchase price equal to at least 110% of the fair market value of the stock subject to the option. 4. Effective Date and Term of Plan. The Effective Date of the Plan is April 23, 1992, which is the date of adoption of the Plan by the Board of Directors. Unless sooner terminated, the Plan shall remain in effect for a period of ten years from the Effective Date. 5. Exercise of Option. Any option granted under the Plan may be exercised in accordance with the specific terms and conditions relating thereto set forth in such option, consistent with the Plan, provided, however, that such option shall be exercisable at the rate of no less than 20% per year over a five year period beginning with the date on which such option is granted. Exercise shall be accomplished by delivery to the Company of written notice specifying the number of shares with respect to which such option is exercised and full payment of the purchase price for such shares. Options may be exercised only with respect to full shares. No fractional share of stock will be issued. 6. Adjustment of Option. In the event of any change in the Company's corporate structure through merger, consolidation, reorganization, recapitalization, stock dividend or other change, appropriate proportionate adjustment shall be made in the number and purchase price of shares subject to options granted under the Plan. 7. Expiration of Option. Each option granted under the Plan shall expire upon the earliest to occur of (i) five years from the date such option is granted; or (ii) the date of completion of the merger or sale of substantially all of the stock or assets of the Company with or to another company in a transaction in which the Company is not the survivor (see paragraph 10), except for the merger of the Company into a wholly-owned subsidiary, provided that the Company shall have given the optionee at least 60 days' prior written notice of its intent to enter into such merger or sale; (iii) if the optionee is an employee of the Company, 180 days following the optionee's death or termination of the optionee's employment because of disability; or (iv) if the optionee is an employee of the Company, 60 days following the termination of the optionee's employment by the Company for any reason other than death or disability or termination for cause; provided, however, that this subsection (iv) shall not be operative if the optionee, upon termination of employment, remains on, or becomes a member of, the Board of Directors of the Company. The term "disability" as used herein shall be as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. If the employment of an employee to whom an option was granted by the Company under the Plan is terminated for cause, all rights under any option of such employee shall expire immediately upon notice to the employee of such termination. 8. Investment Intent. Each option granted under the Plan shall be granted only to a participant who agrees to purchase any shares acquired by his exercise of the option for investment purposes only and agrees not to resell any of such shares in any manner violating the Securities Act of 1933 or any applicable state statute. 9. Transferability. Options granted under the Plan shall not be transferable other than by will or the laws of descent and distribution and may be exercised during the lifetime of the participant to whom such option is granted only by such participant. 10. Administration of the Plan. The Plan shall be administered by the Board of Directors of the Company or a committee of two or more directors, as determined by the Board of Directors. The interpretation and construction of any provision of the Plan by the Board of Directors shall be final, unless otherwise determined by the Board of Directors. The term "survivor," however, as used in subsection (ii) of paragraph 7 shall not apply to the Company in a reverse triangular merger where the Company has become a wholly owned subsidiary of another corporation. No member of the Board of Directors shall be liable for any action or determination made by him in good faith. 11. Intent and Construction. It is the intention of the Company that all options granted under the Plan shall constitute non-statutory stock options, and the Plan shall be construed and administered in order to effect such intention. EX-3 5 Exhibit 10.12 OFFICE LEASE THE BAILEY COMPANY, A COLORADO LIMITED PARTNERSHIP as Landlord AND GOOD TIMES RESTAURANTS, INC A NEVADA CORPORATION as Tenant INDEX TO OFFICE LEASE Section Page No. DEFINITIONS 3 TERM 5 RENT 6 INSURANCE 7 OPERATING EXPENSES 8 REPAIRS AND MAINTENANCE 9 FIXTURES, PERSONAL PROPERTY AND ALTERATIONS, PAYMENT OF TAXES 10 USE OF PREMISES 11 DAMAGE AND DESTRUCTION 13 EMINENT DOMAIN 14 DEFAULT 15 ASSIGNMENT AND SUBLETTING 16 ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION 18 NOTICES 19 SUCCESSORS BOUND 19 TENANT FINISH/ MOVING ALLOWANCE REIMBURSEMENT 19 MISCELLANEOUS 20 OFFICE LEASE THIS OFFICE LEASE ("Lease"), dated January 1, 1998, is made by and between THE BAILEY COMPANY, a Colorado limited partnership ("Landlord") and GOOD TIMES RESTAURANTS, INC., a Nevada corporation ("Tenant") for office space in 601 Corporate Circle, Golden, Colorado, 80401 ("Building") located in the City of Golden, County of Jefferson, State of Colorado, described more particularly on the legal description attached hereto as Exhibit "A" and incorporated herein by this reference. In consideration of the mutual covenants contained in this Lease, Landlord and Tenant agree as follows: 1. DEFINED TERMS, EXHIBITS, PREMISES, COMMON AREAS, LANDLORD'S RESERVED RIGHTS AND RENTABLE AREA 1.01 Defined Terms. (a) Annual Base Rent (which includes ordinary common area maintenance costs : Years 1 through 3: $43,628.00 per year ($13.00 x 3356 square feet = $43,628.00) (b) Building: The improvements located on the property described on Exhibit "A". (c) Common Areas: Areas within and without the Building used by Landlord, Tenant and other tenants, including without limitation, ingress, egress, parking areas, lobbies, hallways, restrooms, breakrooms, fitness room, conference room, meeting rooms, and work spaces; provided, however certain areas of the Building shall be excluded from Tenant's use during the term hereof, including, without limitation the Board of Directors meeting room (except for Tenant's use for Board of Directors meetings at times approved in advance by Landlord) and other areas as directed from time-to-time by Landlord. Tenant's use of Common Areas shall be subject to the rules, regulations and requirements promulgated by Landlord, including without limitation, use of the fitness room. (d) Commencement Date: April 1, 1998. (e) Landlord: The Bailey Company, a Colorado limited partnership. (f) Lease Year: Each twelve (12) month period commencing on April 1, 1998 and ending March 31 of the following year. (g) Monthly Base Rent: Month 1 through 36: $3,636.00. (h) Permitted Uses: Office and administrative uses. (i) Premises: The usable space shown on the plans attached hereto as Exhibit "B". (j) Premises Address: Suite: 100 Street Address: 601 Corporate Circle City and State: Golden, Colorado 80401 County: Jefferson (k) Prepaid Rent: First Month's Rent: N/A (l) Rentable Square Feet of the Building: N/A (m) Rentable Square Feet of Premises: 3,356 (n) Scheduled Term Commencement Date: April 1, 1998. (o) Initial Security Deposit: N/A (p) Tenant's Address prior to Term Commencement Date: 8620 Wolff Court, Ste. 330 Westminster, Colorado, 80030 (q) Term: Twelve(12)months commencing on the Commencement Date, with options to extend the Term for two additional 12 month periods pursuant to Article 2.02 hereinbelow. The foregoing provisions constitute the defined terms ("Defined Terms"). Each reference in this Lease to Article 1.0 I or the Defined Terms shall be construed to incorporate the applicable Defined Terms. Other terms may be defined hereinbelow. 1.02. Exhibits. The Exhibits hereinbelow are or will be attached to this Lease after the signature and by reference thereto are incorporated herein: Exhibit A Building Legal Description Exhibit B Premises Floor Plan 1.03. Premises. Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, subject to the provisions of this Lease ("Option"). If the Tenant fails to exercise either option, Tenant must vacate the Premises at the expiration of the then current Term. In the event the Tenant falls to exercise the first option to extend the Term, the second option -ranted to Tenant hereunder shall immediately terminate and be null and void. 2.03 Early Termination. Notwithstanding, any other provision of this Lease, in the event Tenant shall sell substantially all of its assets or merge with a third party entity, which sale and merger occurs during extended Term of this Lease, Tenant may early terminate this Lease upon ninety (90) days prior written notice to Landlord. 3. RENT 3.01. Base Rent. The annual base rent shall be the Annual Base Rent set forth in Article 1.01(a), payable in equal monthly installment equal to the Monthly Base Rent set forth in Article 1.01 Tenant shall pay the monthly Base Rent to Landlord in advance upon the first day of each calendar month of the Term, starting on the Commencement Date at Landlord's address or at such other place designated by Landlord in a notice to Tenant, without any prior demand therefore and without any deduction, abatement, or set off whatsoever. If the Term shall commence or end on a day other than the first day of a calendar month, then Tenant shall pay, upon the commencement date of the Term and first day of the last calendar month, a pro rata portion of the Monthly Base Rent, prorated on a per them basis, with respect to the portions of the fractional calendar month included in the Term. Upon executing this Lease, Tenant shall pay the first full Monthly Base Rent owing hereunder along with Tenant's Security Deposit as provided in Article 3.03 below. 3.02. Late Payment. If any installment of Monthly Base Rent is not paid within ten (10) days after the same is due hereunder, Tenant shall pay to Landlord a late payment charge equal to five percent (5%) of the amount of such delinquent payment of Monthly Base Rent in addition to the installment of Monthly Base Rent then owing regardless of whether or not a notice of default or notice or termination has been given by Landlord. This provision shall not relieve Tenant from payment of Monthly Base Rent at the time and in the manner herein specified. 3.03. Security Deposit. Upon executing this Lease, Tenant shall not be required to deposit any Security Deposit with Landlord. However, at any time during the Lease if Tenant shall be in default of any monetary or non-monetary obligation hereunder, Landlord may require the Tenant to pay to the Landlord a Security Deposit equal to two (2) months of Monthly Base Rent. The Security Deposit shall secure Tenant's obligations under this Lease to pay Monthly Base Rent and other monetary amounts owed, to maintain the Premises and repair damages thereto, to insure surrender of the Premises to Landlord in clean condition and repair upon termination of this Lease, and to discharge Tenant's other obligations hereunder. Landlord may use and commingle the Security Deposit with other funds of Landlord. No interest shall accrue nor be payable by Landlord to 'I'enant for the Security Deposit. If Tenant fails to perform Tenant's obligations hereunder, Landlord may, but without any obligation to do so, apply all or any portion of the Security Deposit toward the Tenant's unfulfilled obligations. If Landlord does so apply any portion of the Security Deposit, Tenant, upon dei-nand by Landlord, shall immediately pay Landlord a sufficient amount in cash to restore the Security Deposit to the full original amount. Tenant's failure to forthwith remit to Landlord a sufficient amount in cash to restore the Security Deposit to the original sum deposited within five (5) days after receipt of such demand, shall constitute an Event of Default. Upon termination of this Lease. if Tenant has then performed all of Tenant's obligations hereunder, Landlord shall return Security Deposit to Tenant. If Landlord sells or otherwise transfers Landlord's rights or interest Linder this Lease, Landlord may deliver the Security Deposit to the transferee, whereupon Landlord shall be released from any further liability toTenant with respect to the Security Deposit. 4. INSURANCE 4.01. All Risk Coverage. DLirina the Term, Landlord shall procure and maintain in full force and effect with respect to the Premises a policy or policies of all risk insurance with deductible in an amount as Landlord may unilaterally determine, (including sprinkler, vandalism and malicious mischief coverage, and any other endorsements required by the holder of any fee or leasehold mortgage) in an amount equal to one hundred percent (100%) of the full insurance replacement value (replacement cost new, including debris removal, and demolition) thereof. 4.02. Public Liability. Tenant shall, at its own cost and expense, keep and maintain in full force during the Term a policy or policies of comprehensive public liability insurance, written by an insurance company approved by Landlord in the form customary to the locality, insuring Tenant's activities with respect to the Premises and/or Building against loss, damage, or liability for personal injury or death of any person or loss or damage toproperty occurring in, upon or about the Premises covering bodily injury in the amounts of Three Million and No/100 Dollars $3,000,000.00) per person and Three Million and No/100 Dollars ($3,000,000.00) per occurrence and covering property damage in the amount of One Million and No/100 ($1,000,000.00); provided, however, that if at any time during the Term, Tenant shall have in full force and effect a blanket policy of public liability insurance with the same coverage for the Premises as described above, as well as coverage of other premises and properties of Tenant, or in which Tenant has some interest, such blanket insurance shall satisfy the requirement hereof. 4.03. Rental Abatement Insurance. Tenant shall keep and maintain in full force and effect during the Term, rental abatement insurance against abatement or loss of rent in case of fire or other casualty, in an amount at least equal to the amount of the Monthly Base Rent payable by Tenant during one year next ensuing, as reasonably determined by Landlord. 4.04. Insurance Certificates. Landlord shall be named as an additional insured on all such policies set forth in Article 4. Tenant shall furnish to Landlord, upon the date of commencement of this Lease and thereafter as requested by Landlord, a certificate of insurance issued by the insurance carrier of each policy of insurance carried by Tenant pursuant hereto. Said certificates shall expressly provide that such policies shall not be cancelable or subject to reduction of coverage or otherwise be subject to modification except after thirty (30) days from prior written notice to all the parties names as insured. Landlord, its Successors and assigns, and any nominee of Landlord holding any interest in the Premises and BLIlidin(y. including, without limitation, any ground lessor and the holder of any fee or leasehold mort-age shall be names as insureds under each such policy or insurance maintained by Tenant pursuant to this Lease. 4.05. Tenant's Failure. If Tenant fails to maintain any insurance required in this lease, Tenant shall be liable for any loss or cost resulting from said failure. This Article 4.05 shall not be deemed to be a waiver of any Landlord's rights and remedies under any other section of this Lease. 4.06. Waiver of Subrogation. Any policy or policies of fire, extended coverage or similar casualty insurance, which either party obtains in connection with the Premises, or Tenant's personal property therein, shall, to the extent the same can be obtained without undue expense, include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered by insurance containing such a waiver of subrogation clause or endorsement to the extent of the injury or loss covered thereby. 4.07. Tenant's Property and Fixtures. Tenant shall assume the risk of damage to any furniture, equipment, machinery goods, supplies, or fixtures which are to remain the property of Tenant or as to which Tenant retains the right of removal from the Premises. 4.08. Indemnification of Landlord. Tenant shall indemnify and hold Landlord harmless from and against (i) any and all liability, penalties, losses, damages, costs and expenses, demands, causes of action, claims, or judgments arising from or growing out of any injury to any person or persons or any damace to any property as a result of any accident or other occurrence during the Term occasioned in any way as a result of Tenant's or Tenant's officers, employees, agents, servants, subtenants, concessionaires, licensees, contractors or invitees use, maintenance, occupation or operation of the Premises during the Term, and (ii) from and against all legal costs and charges, including attorneys' fees, incurred in or about any of such matters and the defense of any action arising out of the same or in discharging the Building, the Premises and Common Areas or any part thereof from any and all liens, charges or judgments which may accrue or be placed thereof by reason of any act or omission of the Tenant; provided, however, that Tenant shall not be required to indemnify Landlord for any damage or injury of any kind arising as the result of Landlord'swillful misconduct. 5. OPERATING EXPENSES 5.01. Services and Utilities. So long as Tenant is not in default under this Lease, Landlord shall provide:(i) to the Premises during normal business hours, as defined from time-to-time by Landlord, electricity, gas, water, lighting, janitorial services, elevator services, heating, ventilating, and air conditioning and other Building, services required in Landlord's reasonable judgment for the comfortable use and occupancy of the Premises; and, (ii) to the Common Areas durin- the normal business hours, utilities and maintenance as required in Landlord's reasonable judgement for the comfortable use and occupancy thereof. Landlord shall not be liable for, and Tenant shall not be entitled to, any reduction or abatement of Monthly Base Rent on account of any failure on the part of Landlord to delivery the services and utilities provided in this Lease unless the same results from the willful misconduct of Landlord, nor shall Landlord be liable under any circumstances for any and all loss or injury to property, however occurring, incidental to any failure to furnish any utilities or services. 5.02. Special Services. (a) Additional Services. In the event Landlord provides utilities, elevator, heating, air conditioning, and/or janitorial services to Tenant beyond the current services related to the operation and management of the Building or at times other than during the business hours, Tenant shall pay to Landlord for such special services as Additional Rent (i) the cost of such services, plus (ii) a reasonable fee to Landlord for providing such services in the amount of ten percent (I 0%) of such costs. Any non-routine or additional janitorial services of Building areas such as lunchrooms, test kitchen, conference rooms, etc. which result solely from Tenant's extraordinary use thereof, shall be on a special basis (except with respectto the removal of trash from trash receptacles or cleaning incidental to normal cleaning). (b) Utility Consumption. If Tenant is likely to or does consume quantities of electricity, water, or gas in excess of the amount customarily consumed by users of office space, Landlord shall have the right, at Tenant's sole cost and expense, to install separate metering for such utilities or to separately charge Tenant for any quantity of such utilities consumed by Tenant beyond the amounts cutomarily consumed by office users. Any such charges made by Landlord to Tenant shall be reasonably deten-nined by Landlord and shall promptly be paid by Tenant to Landlord as Additional Rent. Notwithstanding anything to the contrary contained herein, Tenant shall not consume quantities of such utilities in excess of the amounts customarily consumed by users of office space without obtaining Landlord's prior written consent thereto. 6. REPAIRS AND MAINTENANCE 6.01. Repairs and Maintenance. Tenant shall, at Tenant's own expense, maintain the Premises in a clean and safe condition. Ordinary repairs shall be performed by Tenant at its own expense, except that Landlord shall keep and maintain all walls, ceilings, and subfloors of the Premises in good repair. Notwithstandina the provisions hereof, however, Tenant shall be responsible for directly reimbursing Landlord for the cost of any repairs performed by Landlord to the extent that such repairs are necessitated by damage caused by Tenant's negligence or willful misconduct. 6.02. Inspection of Premises. Landlord, governmental agencies and appropriate authorities, as applicable, at reasonable times, may enter the Premises to complete construction undertaken by Landlord on the Premises or Building; to inspect, clean or repair the same; to inspect the performance by Tenant of the terms and conditions hereof and to affix reasonable signs and displays; to show the Premises to prospective purchasers, tenants and lenders, and for all other purposes as Landlord shall reasonably deem necessary. 6.03. Liens. Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered at the request of Landlord, and shall keep the Premises and Building free and clear of all mechanic's and materialmen's liens in connection therewith. Landlord shall have the right to post or keep posted on the Premises, or in the immediate vicinity thereof, any notices of non responsibility for any construction, alteration, or repair of the Premises by Tenant. If any such lien is filed, Landlord may, but shall not be required to, take such action or pay such amount as may be necessary to remove such lien; and, Tenant shall pay to Landlord as Additional Rent any such amounts expended by Landlord within five (5) days after notice is received from Landlord of the amount expended by Landlord. 7. FIXTURES, PERSONAL PROPERTY AND ALTERATIONS, PAYMENT OF TAXES 7.01. Fixtures and Personal Property. Tenant, at Tenant's expense, may install any necessary trade fixtures, equipment, and furniture in the Premises, provided that such items are installed and are removable without damage to the structure of the Building. Landlord reserves the unilateral right to approve or disapprove of curtains, draperies, shades, paint, or other interior improvements. Such improvements must be submitted for Landlord's written approval prior to installation, or Landlord may remove or replace such items at Tenant's sole expense. Said trade fixtures, equipment and furniture shall remain Tenant's property and shall be removed by Tenant upon expiration of the Term or earlier termination of this Lease. Tenant shall repair, at Tenant's sole expense, all damage caused by the installation or removal of trade fixtures, equipment, furniture, or temporary improvements. If Tenant falls to remove the foregoing items on termination of this Lease, Landlord may keep and use them or remove any or all of them and cause them to be stored or sold in accordance with applicable law. 7.02. Alterations, Tenant shall not make or allow to be made any alterations, additions or improvements to the Premises, either at the inception of this Lease or subsequently during the Term, without obtaining the prior written consent of Landlord which consent shall not be unreasonably withheld. Tenant shall deliver to Landlord full and complete plans and specifications of all such alterations, additions or improvements, and no such work shall be commenced by Tenant until Landlord has given its written approval thereof. Landlord does not expressly or implicitly covenant or warrant that any plans or specifications submitted by Tenant are safe or that the same comply with any applicable laws, lawful ordinances, etc. Further, Tenant shall indemnify and hold Landlord harmless from any loss, cost, or expense, including attorneys' fees and costs, incurred by Landlord as a result of any defects in design, materials, or workmanship resulting from Tenant's alterations, additions, or improvements to the Premises. All alterations, additions and improvements shall remain the property of Tenant until termination of this Lease, at which time they shall be and become the property of Landlord. All repairs, alterations, additions, and restoration by Tenant hereinafter required or permitted shall be done in a good and workmanlike manner and in compliance with all applicable laws and lawful ordinances, bylaws, regulations and orders of any federal, state, county, municipal or other public authority and of the insurers of the Building. Tenant shall not permit liens of any kind to be imposed upon the Premises or Building and Tenant shall discharge of record of such liens within five (5) days after written notice thereof. Tenant shall reimburse Landlord for Landlord's reasonable claims for reviewing and approving or disapproving plans and specifications for any alterations proposed by Tenant. Tenant shall require that any contractors used by Tenant carry a comprehensive liability policy covering bodily injury in the amounts of Three Million and No/ 100 Dollars ($3,000,000.00) per person and Three Million and No/ 100 Dollars ($3,000,000.00) per occurrence and covering, property damage in the amount of One Million and No/100 Dollars ($I,000,000.00). Landlord may require proof on such insurance prior to commencement of any work on the Premises. 8. USE OF PREMISES. 8.01. General. The Premises shall be used for the Permitted Uses consistent with any limitation imposed upon Landlord by any governmental authority, covenants, conditions and restrictions of record affecting the Building or lender. By commencing occupancy of the Premises, Tenant accepts the Premises in the condition existing as of the date of such entry, subject to all applicable municipal, county, state, and federal statutes, laws, and ordinances, including ordinances and regulations governing and relating to the use, occupancy, and possession of the Premises (collectively "Regulations"). Except for pre-existing violations, Tenant shall, at Tenant's sole expense, comply with all Regulations now in force or which may hereafter be in force relating to the Premises and the use of the Premises, and Tenant shall secure any permits. Furthermore, Tenant agrees, by Tenant's entry, that Tenant has conducted an investigation of the Premises and the acceptability of the Premises for Tenant's use, to the extent that such investigation might affect or influence Tenant's execution of this Lease. Tenant acknowledges that Landlord has made no representations or warranties in connection with the physical condition of the Premises or Tenant's use of the same upon which Tenant has relied directly or indirectly for any purpose, except as may be set forth herein. Tenant shall not commit waste, interfere with any other tenants in the Building, over load the floors or structure of the Building subject the Premises to any use which would damage the Premises, or raise or violate any insurance coverage required by this Lease or take any action that would impair parking or alter parking spaces. Tenant shall strictly comply with all statutes, laws, ordinances, rules, regulations, and precautions now or hereafter mandated or advised by any federal, state, local, or other governmental agency with respect to the use, generation, storage, or disposal of hazardous, toxic, or radioactive materials (collectively "Hazardous Materials"). Landlord shall have the right at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provision, the costs of all such inspections, tests, and investigations to be borne by Tenant. As herein used, Hazardous Materials shall include, but not be limited to, those substances defined as "hazardous substances," "hazardous materials......hazardous wastes," "toxic substances," or other similar designations in the comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended 42 U. S. C. Section 9601 et seq.; the Resource Conversation and Recovery Act, 42 U. S. C. Section 690 1, et seq.; the Hazardous Tenant shall pay to Landlord a sum equal to the reasonable cost of performing any obligations required of Tenant by this Lease ,with respect to the surrender of the Premises, including, without limitation, repairs and maintenance, and upon such payment Tenant shall be excused from any such obligations. If a temporary condemnation is for an established period which extends beyond the Term, the Lease shall terminate as of the date of occupancy by the condemning authority, and the damages shall be as provided In Articles 10.03 and 10.04 hereinabove and Rent shall be adjusted to the date of occupancy. 11. DEFAULT 11.01 Events of Default. In addition to other provisions of this Lease, the occurrence of any of the following events shall constitute an "Event of Default" on the part of the Tenant upon notice from Landlord: (a) Vacation or Abandonment. Vacation or abandonment of the Premises; provided, that Tenant shall be deemed to have vacated or abandoned the Premises if Tenant fails for any reason to use the Premises for a Permitted Use for a period of ten (10) consecutive days without Landlord's prior written consent; (b) Payment. Failure to pay any installment of Monthly Base Rent, Additional Rent, or other monies due and payable hereunder upon the date when said payment is due, the failure continuing for a period of ten (10) days; (c) Performance. Default in the performance of any of Tenant's covenants, agreements or obligations hereunder (except default in the payment of Monthly Base Rent, Additional Rent or other monetary obligation), the default continuing for thirty (30) days after written notice thereof from Landlord; (d) Assignment. A general assignment by Tenant for the benefit of creditors; (e) Bankruptcy. The filing of a voluntary petition by Tenant, or the filing of an involuntary petition by any of Tenant's creditors seeking the rehabilitation, liquidation or reorganization of Tenant under any law relating, to bankruptcy, insolvency or other relief of debtors; (f) Receivership . The appointment or a receiver or other custodian to take possession of substantially all of Tenant's assets or of the Tenant's leasehold interest; (g) Insolvency, Dissolution, Etc. Tenant shall become insolvent or unable to pay its debts, or shall fail generally to pay its debt as they become due; or any court shall enter a decree or order directing the winding up or liquidation of tenant or of substantially all of its assets or Tenant shall take an action toward the dissolution or winding up of its affairs or the cessation or suspension of its use of the Premises; or, (h) Attachment. Attachment, execution, or other judicial seizure of substantially all of Tenant's assets or the Tenant's leasehold interest. 11.02 Landlord's Remedies. Upon the occurrence of any of the Events of Default of this Lease, Landlord shall have the option to pursue any one or more of the following, remedies without any notice or demand whatsoever: (a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to so surrender the Premises, Landlord may, without prejudice to any other remedy which it may have for possession of the Premises or arrearages in Monthly Base Rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying such Premises or any part thereof, without being liable for prosecution or any claim for damages therefore. Tenant shall pay to Landlord on demand the amount of all loss and damages which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise. (b) Enter upon and take possession of the Premises, without termination of this Lease and without being liable for prosecution or for any claim for damages therefore, and expel or remove Tenant and any other person who may be occupying the Premises or any party thereof Landlord may relet the Premises and receive the Monthly Base Rent therefore. Tenant agrees to pay to Landlord the monthly or on demand from time-to-time any deficiency that may arise by reason of any such relenting. In determining the amount of such deficiency, the brokerage commission, attorneys' fees, remodeling expenses, and other costs of relenting shall be subtracted from the amount of rent received under such reletting. (c) Enter upon the Premises without terminating this Lease and without being liable for any prosecution or for any claim for damages therefore, and do whatever Tenant is obligated to do under the terms of this Lease. Tenant agrees to pay Landlord on demand for expenses which Landlord may incur in this effecting compliance with Tenant's obligations under this Lease, together with interest thereon at the highest legal rate per annum from the date expended until paid. Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by negligence of Landlord or otherwise. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided by any other remedies provided in law or equity, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any Monthly Base Rent due to Landlord or of any damages accruing to Landlord by reason of violation of any of the terms, conditions, and covenants herein contained. 12. ASSIGNMENT AND SUBLETTING 12.01. Assignment and Subletting: Prohibition. Tenant shall not assign, mortgage, pledge, or otherwise transfer this Lease. in whole or in part, nor sublet or permit occupancy by any party other than Tenant of all or any part of the Premises, without the prior written consent of Landlord in each instance. Tenant shall submit each proposed assignment or sublease agreement to Landlord for Landlord's approval. No assignment or subletting by Tenant shall relieve Tenant of any obligation under this Lease, including Tenant's obligations to pay Monthly Base Rent hereunder. Any purported assignment or subletting contrary to the provisions hereof without consent shall be void. The consent of Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. As Additional Rent hereunder, Tenant shall reimburse Landlord for reasonable attorneys' fees and other expenses incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting. 12.02. Bonus Rental. If for any assignment or sublease, Tenant receives rent or other consideration, either initially or over the term of the assignment or sublease, in excess of the Monthly Base Rent called for hereunder, or in any case of the sublease or a portion of the Premises, in excess of such Monthly Base Rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are appropriately taken into account, Tenant shall pay to Landlord, as Additional Rent hereunder, one hundred percent (100%) of the excess of each such payment of rent or other consideration received by Tenant promptly after its receipt. 12.03. Scope. The prohibition against assigning or subletting contained in this Article shall be construed to include a prohibition against any assignment or subletting by operation of law. If this Lease shall be assigned, or if the underlying beneficial interest of Tenant is transferred, or if the Premises or any part thereof shall be sublet or occupied by anybody other than Tenant, Landlord may collect rent from the assignee, subtenant, or occupant and apply the net amount collected to the Monthly Base Rent herein reserved and apportion any excess rent so collected in accordance with the terms of the immediately preceding paragraph, but no such assignment, subletting, occupancy, or collection shall be deemed a waiver of this covenant, of the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. No assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with the assignee), and Tenant shall not be released from performing any of the terms, covenants, and conditions of this Lease. 12.04. Waiver. Notwithstanding any assignment or sublease, or any indulgences, waivers, or extensions of time granted by Landlord to any assignee or sublesses, or failure by Landlord to take action against any assignee or sublessee, Tenant waives notice of any default of any assignee or sublessee and agrees that Landlord may, at its option, proceed against Tenant without having taken action against or joined such assignee or sublessee, except that Tenant shall have the benefit of any indulgences, waivers, and extensions of time granted to any such assignee or sublessee. 12.05. Release. Landlord shall have the right at any time to convey all or any portion of or interest in the Building. Whenever Landlord conveys any interest in the Building, Landlord shall be automatically released form the further performance of covenants on the part of Landlord herein contained, and from any and all further liability, obligations, costs and expense, demands, causes of action, claims or judgments arising from or growing out of, or connected with this Lease after the effective date of said release. The effective date of said release shall be the date the assignee executes an assumption of such an assignment whereby the assignee expressly agrees to assume all of Landlord's obligations, duties, responsibilities, and liabilities with respect to this Lease. If requested, Tenant shall execute a form of release and any such other documentation as may be required to further effect the provisions of this Article 12. 13. ESTOPPEL CERTIFICATE, ATTORNMENT AND SUBORDINATION 13.01. Estoppel Certificate. Within ten (10) days after being required therefor by Landlord, or if on any sale, assignment or hypothecation by Landlord of Landlord's interest in the Building, or any part thereof, an estoppel letter shall be required from Tenant, Tenant shall deliver, in recordable form, a certificate to any proposed mortgages or purchasers, and toLandlord, certifying (or stating any contrary statements with specificity) as follows: (i) that to Tenant's best knowledge, there is no outstanding and uncured Event of Default under this Lease, and that this Lease is in full force and effect; (ii) that no modifications have been made in this Lease since the original execution of the same, if there have been modifications, stating the modifications; (iii) the expiration date of this Lease; (iv) the date through which Monthly Base Rent has been paid; (v) that Tenant has noclaims, defenses, or offsets to any action for collection of rents thereafter accruing under this Lease; and (vi) no more than one month's Monthly Base Rent has been paid in advance. In addition, such certificate shall contain such other information as Landlord may reasonably require. Tenant's failure to deliver said statement in a timely manner shall be conclusive upon Tenant that the above-referenced matters are true with respect to this Lease. 13.02. Attornment. Tenant shall (i) in the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by the Landlord, its successors or assigns, encumbering the Premises, or any part thereof, or (ii) in the event of termination of a ground lease, if any, or (iii) in the event of a sale or conveyance by Landlord of all or any party of the Building, and if so requested, attorn to the purchaser upon such foreclosure, sale or conveyance, or upon any grant of a deed in lieu of a foreclosure, and recognize such purchaser as the Landlord under this Lease. 13.03. Subordination. The rights of Tenant hereunder are and shall be, at the election of the mortgagee, subject and subordinate to the lien of such mortgage, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the Building, and to all advances made or hereafter to be made upon the security thereof; provided, however, that notwithstanding such subordination, so long as Tenant is not in default under any of the terms, covenants, and conditions of this Lease, neither this Lease nor any of the rights of Tenant hereunder upon Tenant's covenanting that Tenant is not in default hereunder shall be terminated or subject to termination by any trustee's sale, any action to enforce the security, or by any proceeding or action in foreclosure. If requested, Tenant agrees to execute whatever documentation may be required to further effect the provisions of this Article. (a) During the original Term of this Lease, Landlord shall have no right to relocate Tenant within the Building. However, in the event Landlord desires to relocate Tenant within the Building, Landlord shall provide Tenant with written notice thereof no less than sixty (60) days prior to the expiration of the then current Tern of this Lease. It is the intention that this notification be provided to Tenant in connection with Tenant's decision to extend the Term of this Lease pursuant to Article 2.02 hereinabove. In the event the Landlord relocates the Tenant within the Building, Landlord shall provide Tenant with reasonably similar space (which shall be contiguous in nature) elsewhere within the Building and of approximately the same size and condition as the Premises. (b) In the event Landlord requires the Tenant to relocate within the Building during any extended Term of the Lease, Landlord shall pay all Tenant's reasonable costs associated in connection therewith including, without limitation, interoffice moving expenses and computer or telephone rewiring costs. (c) In the event Landlord moves Tenant to such new space, then this Lease and each and all of the terms and conditions hereof shall remain in full force and effect and thereupon be deemed applicable to such new space except that a revised floor plan shall become part of this Lease and shall reflect the location of the new space. 17.03. No Light, Air, or View Easement. Any diminution or shutting off of light, air, or view by any structure which may be erected on lands adjacent to or in the vicinity of light, air, or view by any structure which may be erected the Building shall in no way affect this Lease: or impose any liability on Landlord. 17.04. Limitation of Landlord's Liability. The obligations of Landlord under this Lease shall not constitute personal ablations of the individual partners, directors, officers, or shareholders of Landlord, and Tenant shall took solely to the real estate that is the subject of this Lease and to no other assets of Landlord for satisfaction of any liability in respect of this Lease and shall not seek recourse against the individual partners, directors, officers, or shareholders of Landlord or any of their personal assets for such satisfaction. 17.05. Time. Time is of the. essence of every provision hereof. 17.06.Attorney's Fees. In any action or proceeding which the Landlord or the Tenant may be required to prosecute to enforce its respective rights hereunder, the unsuccessful party therein agrees to pay all costs incurred by the prevailing party therein, including reasonable attorneys' fees to be fixed by the court, and said costs and attorneys' fees shall be made a part of the judgment in said action. 17.07. Binding Arbitration. The parties hereto agree to settle all disputes hereunder with binding arbitration. Should there ever be a dispute of the terms and conditions of this Lease, such dispute shall be settled by binding arbitration with the Judicial Arbitrators Group, or such similar organization in the Denver metropolitan area. Any such dispute must be submitted to arbitration on or before thirty (30) days of the date of which the dispute began and such arbitration must be concluded within sixty (60) days from the date of submission unless otherwise mutually agreed by the parties hereto. The arbitration shall be conducted by a sole arbitrator and the cost and expense thereof shall be borne equally by the parties; provided, however, the associated cost and expenses, including, without limitation, reasonable attorneys fees, shall be borne solely by the parties thereto, except to the extent as otherwise set forth in this Lease, 17.08. Captions and Article Numbers. The captions, article numbers, and table of contents appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent or such sections or articles of this Lease nor in any way affect this Lease. 17.09. Severability. if any term, covenant, condition, or provision of this Lease, or the application thereof to any person or Circumstance, shall to any extent be held by a court or competent jurisdiction to be invalid, void,,3r unenforceable, the remainder of the terms, covenants, conditions, or provisions of this Lease, or the application thereof to any person or circumstance, shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 17.10. Applicable Law. This Lease, and the rights and obligations of the parties hereto, shall be construed and enforced in accordance with the laws of the State of Colorado. 17.11. Holding Over. Should Tenant, or any of its successors in interest, hold over the Premises, or any part thereof, after the expiration of the term of this Lease, unless otherwise agreed to in writing, such holding over shall constitute and be construed as tenancy from month-to-month only, at a monthly rent eqlal to one hundred ten percent (I I 0%) of the Monthly Base Rent owed during the final year of the Term of this Lease as the same may be extended from time-to-time. This inclusion of the preceding sentence shall not be construed as Landiord's permission for Tenant to hold over. 17.12. Surrender. Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord in good order, condition, and repair, except for reasonable wear and tear or as otherwise provided herein. Tenant shall not commit or allow any waste or damage to be committed on any portion of the Premises or Building. All property that Tenant is required to surrender shall become Landlord's property upon the termination of this Lease. Landlord may cause any of said personal property that is not removed from the Premises within thirty (30) days after the date of any termination of this Lease to be removed from the Premises and stored at Tenant's expense, or4 at Landlord's election, said personal property thereafter shall belong to Landlord without the payment of any consideration, subject to the rights of any person holding a perfected security interest therein. 17.13. Rules and Regulations. At all times during the Term, Tenant shall comply with rules and regulations ("Rules and Regulations") as promulgated by Landlord which shall, by this reference, become part of the provisions of this Lease for the Buildinc, and the Common Areas. 17.14. No Nuisance. Tenant shall conduct its business and control its agents, employees, invitees and visitors in such a manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Landlord in its operation of the Building. 17.15. Landlord's Right to Perform. Upon Tenant's failure to perform any obligation of Tenant hereunder, including, without limitation, payment of Tenant's insurance premiums, charges of contractors who have supplied materials or labor to the Premises, etc., Landlord shall have the right to perform such obligation of Tenant on behalf of Tenant and/or to make payment on behalf of Tenant to such parties. Tenant shall reimburse Landlord the reasonable cost of Landlord's perfon-ning such obligation on Tenant's behalf, including reimbursement of any amounts that may be expended by Landlord plus interest at the maximum rate permitted by law, as Additional Rent. 17.16. Mortgage Protection. No act or failure to act on the part of the Landlord which would entitle Tenant under the terms,of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release of such obligations or a termination of this Lease unless (a) Tenant has given notice by certified mail to any beneficiary of a deed of trust or mortgage covering the Premises whose address shall have been furnished to Tenant, and (b) Tenant offers such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession :)f the Premises by power of sale or of judicial foreclosure, if such should prove necessary to effect a cure. 17.17. Notification of Mortgaizee, Landlord hereby advises and notifies Tenant that Landlord's current lender/mortgagee is;set forth hereinbelow, Pursuant to the loan documents between Landlord and the lender/mortoragee, lender/mortgagee has certain rights and interests in the Building and this Lease pursuant to such loan documents. Landlord's performance hereunder may be subject to the requirements of the lender/mortgagee. The name and address of the lender/mortgagee is as follows: Standard Life & Accident Insurance Company 1 Moody Plaza Galveston, Texas 77550-7999 Attn: Mortgage and Real Estate Investment Department 17.18. Nonliability. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from nor shall the Monthly Base Rent herein reserved be abated by reason of (i) the interruption of use of the Premises as a result of the installation of any equipment in connection with the Premises or Building or (ii) any failure to furnish or delay in furnishing any services required to be provided by Landlord when such failure or delay is caused by accident or any condition beyond the reasonable control of Landlord or by the making of necessary repairs or improvements to the Premises or to the Building, or the limitation, curtailment, rationing, or restriction on use of water or electricity, gas, or any other form of energy of any other service or utility whatsoever serving the Premises or the Building. Landlord shall use reasonable efforts to remedy any interruption in the furnishing of such services. Construction, interim, permanent financing or refinancing for the Building, any lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay, or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 17.19. Modification Required by Lender. If, in connection with obtaining construction, interim, permanent financing or refinancing for the Building, any lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay, or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. 17.20. Recording. Neither Landlord nor Tenant shall record this Lease nor a short form memorandum thereof without the. prior written consent of the other. 17.21. Entire Agreement. This Lease, including all Exhibits attached hereto, sets forth all covenants, promises, agreements, conditions, and understandings between Landlord and Tenant concerning the Premises, Building and Common Areas, and there are no covenants, promises, agreements, conditions, or understandings, either oral or written, between Landlord and Tenant other than as are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change, or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant. IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD THE BAILEY COMPANY, a Colorado limited partnership By: THE ERIE COUNTY INVESTMENT CO., An Ohio corporation General Partner By: /s/ David E. Bailey ___________________ David E. Bailey, President TENANT GOOD TIMES RESTAURANTS INC. A Nevada corporation By: /s/Boyd E. Hoback _________________ Boyd E. Hoback, President 1.04. Common Areas. Time-to-time made by Landlord, Tenant shall Subject to reasonable rules and regulations from tenants to use the Common Area. 1.05. Landlords Reserved Rights in Common Areas. Landlord reserves the right from time-to-time: (a) To install, use, maintain, repair, and replace pipes, ducts, conduits, wires, and appurtenant meters and equipment for service to other parts of the Building above the ceiling services, below), the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires, and appurtenant meters and equipment included in the Premises which are so located'or located elsewhere outside the Premises; (b) To change the lines of the lot on which the Building stands ("Lot") and to redesign and re-stripe the parking facilities around theBuilding and make other reasonable changes and grant other rights thereto including, without limitation, the granting of easements, rights of way and right.- of ingress and egress, and similar rights to users of parcels adjacent to the Lot; (c) Facility. To alter, relocate, and eliminate any other Common Areas or facility; and (d) Parking. Landlord reserves the right to grant exclusive use to portions of the parking areas to Landlord or to I enants and any other parties with whom Landlord may contract. 1.06. Rentable Area. The total rentable floor space in the Building shall be the Rentable Square Feet of the Building. The total rentable floor space in the Premises shall be the Rentable Square Feet of the Premises as set forth on Exhibit B. 2. TERM 2.01 Commencement of Term. This Lease shall commence on April 1, 1998, and continue through March 31, 1999, unless earlier terminated as set forth hereinbelow; provided, however, Tenant may take possession of the Premises anytime prior to April 1, 1998 free of any Monthly Base Rent during such early occupancy. 2.02 0ptions to Extend. Landlord hereby grants to Tenant, two separate options to extend the term of this Lease. Each option shall allow the Tenant to extend the Term of the Lease for an additional twelve (12) months f@om the date of the expiration of the then current Term. If Tenant desires to exercise either or both options, Tenant must provide written notice thereof to Landlord on or before the thirtieth (30th) day prior to expiration of the then current Term Materials Transportation Act, 49 U. S. C. Section I 1801 , et. seq.; and any other governmental statutes, laws, ordinances, rules, regulations, and precautions. Tenant shall not cause, or allow anyone else under the control of Tenant to cause, any Hazardous Materials to be used, generated, stored, or disposed of on or about the Premises, Lot, or Building without the prior written consent of Landlord, which consent may be withheld: in the sole discretion of Landlord, and which consent may be revoked at anytime. Tenant's indemnification of Landlord pursuant to Article 4.08, above, shall extend to all liability, including all foreseeable and unforeseeable consequential damages, directly or indirectly arising out of the use, generation, storage, or disposal of Hazardous Materials by Tenant including, without limitation, the ciost of any required or necessary repair, cleanup, or detoxification and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the termination of this Lease, to the full extent that such action is attributable, directly or indirectly, to: the use, generation, storage, or disposal of Hazardous Materials by Tenant. Neither the written consent by Landlord to the use, generation, storage, or disposal of Hazardous Materials nor the strict compliance by Tenant with all statutes, laws, ordinances, rules, regulations, and precautions pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemniflcation pursuant to this subsection. Tenant's obligations pursuant to the foregoing indemnity shall survive the termination of this Lease. 8.02 Signs. Tenant shall not install any sign on the Premises or Building; provided, however, that Landlord shall installlfor Tenant an identifying sign in the lobby of the Buildings in conformance with the current Building signage. Any sign placed by Landlord for the benefit of Tenant on the Premises or Building!shall be installed at the Tenant's sole cost and expense, and shall contain only Tenant's name, or the name of any affiliate Tenant actually occupying the Premises, and no advertising matter. Tenant shall remove any such sign upon termination of this Lease and shall return the Premises to their condition prior to the placement or erection of said sign. 8.03. Parking Access. In addition to the general obligation of Tenant to comply with laws and without limitation there:)f, Landlord shall not be liable to Tenant nor shall this Lease be affected if any parking privileges appurtenant to the Premises are impaired by reason for any moratorium, initiative, referendum, statute, regulation, or other governmental decree or action which could in any manner prevent or limit the parking rights of Tenant hereunder. 8.04. Floor Plan . Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor is designed to carry and which is then allowed by law. 8.05. Deliveries. All deliveries to and from the Premises shall be made at the location(s) designated by Landlord during the time periods specified by Landlord and so as to cause the minimum amount of interference with the business of other tenants. 9.0 DAMAGE AND DESTRUCTION 9.01. Reconstruction. If the Premises are damaged or destroyed during the Term, Landlord shall, to the extent that insurance proceeds are available therefor and are not applied by any lender against payment of an existing loan on the Building or lot, except as hereinafter provided, diligently repair or rebuild them to substantially the condition in which they existed immediately prior to such damage or destruction; provided, however, that any damage which is estimated in good faith by Landlord to be under Two Thousand and No/I 00 Dollars ($2,000.00), regardless of how such damage occurred, shall be deemed to constitute "ordinary repairs and maintenance" and shall be repaired by Tenant at its own expense, regardless of the availability of any insurance proceeds relating thereto. In the event that any damage or destruction occurs that is to be repaired by Landlord hereunder, and the insurance proceeds available to Landlord therefore under the insurance policies required in Article 4 hereof are insufficient to cover the costs of such repair, Landlord shall notify Tenant in writing that such proceeds are insufficient, whereupon Tenant may elect to pay the difference between the cost of such repairs and the available insurance proceeds by giving written notice of such election to Landlord within ten (10) days after Tenant's receipt of Landlord's notice. If Tenant does not deliver such notice to Landlord within the ten (10) day period, Tenant shall be deemed to have elected not to pay such difference, and Landlord shall have the right, in its sole discretion, either to proceed to repair the Premises, or to terminate this Lease by delivering written notice of such termination to Tenant. Nothing contained in this Article 9 shall be construed in any event to obligate Landlord to make ordinary repairs and maintenance that are to be performed by Tenant at its own expense pursuant to this Article 9.0 1, except to the extent that such repairs relate to the walls, ceilings, and subfloors of the Premises that are to be maintained and repaired by Landlord at Tenant's expense pursuant to Article 6.01 of this Lease. 9.02 Rent Abatement. Rent due and payable hereunder shall be abated proportionately, but only to the extent of any proceeds received by Landlord from rental abatement insurance described in Article 4.03 hereinabove, during any period in which, by reason of any such damage or destruction, Landlord reasonably determines that there is substantial interference with the operation of Tenant's business in the Premises, having regard to the extent to which Tenant may be required to discontinue its business in the Premises. Such abatement shall continue for the period commencing with such damage or destruction and ending with a substantial completion by Landlord of the work of repair or reconstruction which Landlord is obligated or undertakes to do. If it shall be deten-nined that continuation of business is not practical pending reconstruction, Monthly Base Rent due and payable hereunder shall abate to the extent of proceeds from rental abatement insurance until reconstruction is substantially completed or until business is totally or partially resumed, whichever is the earlier. 9.03. Excessive Damage or Destruction. If the Building is destroyed to the extent that the Landlord determines that it cannot, with reasonable diligence, be fully repaired or restored by Landlord within ninety (90) days after the date of the dama-e or destruction, Landlord may terminate this Lease. Notwithstanding the fact that the Premises have been damaged or destroyed, Landlord shall determine whether the Building can be fully repaired or restored within the ninety (90) day period, and Landlord's determination shall be binding upon Tenant. Landlord shall notify Tenant of its determination, in writing, within fortv five (45) days after the date of the damage or destruction. 10. EMINENT DOMAIN 10.01 Total Condemnation. If the whole of the Premises is acquired or condemned by eminent domain, inversely condemned or sold in lieu of condemnation for any public or quasi public use or purpose ("Condemned"), then the Term shall terminate as of the date of title vesting in such proceeding, and Monthly Base Rent shall be adjusted as of the date of such termination. Landlord and Tenant shall immediately notify the other party of any such occurrence. 10.02. If any part of the Premises is partially Condemned, and such partial condemnation renders the Premises unusable for the business of the Tenant, as reasonably determined by Landlord and Tenant, or in the event a substantial portion of the Building is Condemned, as reasonably determined by Landlord, then the Term shall terminate as of the date of title vesting in such proceeding and Monthly Base Rent shall be adjusted to the date of termination. If such condemnation is not sufficiently extensive to render the Premises unusable for the business of Tenant as reasonably determined by Landlord and Tenant, or less than a substantial portion of the Building is Condemned, then Landlord shall promptly restore the Premises to a condition comparable to its condition immediately prior to such condemnation less the portion thereof listed in such condemnation, and this Lease shall continue in full force and effect except that after the date of such title vesting the Monthly Base Rent shall be appropriately reduced as reasonably determined by Landlord on a pro rata basis. Landlord's obligation to restore the Premises to their original condition shall be subject to the limitation that Landlord shall not be required to spend an unreasonable amount of money to do so, as exclusively determined by Landlord. 10.03. Landlord's Award. If the Premises are wholly or partially Condemned, then, subject to the provision of Article 10.04 below, Landlord shall be entitled to the entire award paid for such condemnation, and Tenant waives any right or claim to any part thereof from Landlord or the condemning authority. 10.04. Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any and all costs or loss to which Tenant might incur removing Tenant's merchandise, furniture, fixtures, leasehold improvements, equipment and business interruption to a new location. 10.05. Term. If the whole or any part of the Premises shall be Condemned for any temporary public or quasi public use or purpose, this Lease shall remain in full force and effect and Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term. If a temporary condemnation remains in force at the expiration or earlier termination of the Lease, EX-4 6 Exhibit 10.13 September 25, 1998 The Bailey Company 601 Corporate Circle Golden, CO 80401 Attention: Mr. William D. Whitehurst Chief Financial Officer and Vice President The Erie County Investment Company 601 Corporate Circle Golden, CO 80401 Attention: Mr. David E. Bailey President Re: FFCA and Safeco Loan Guaranties Gentlemen: This letter will set forth the agreement between Good Times Restaurants Inc. ("Good Times"), The Bailey Company ("Bailey") and The Erie County Investment Co. ("Erie") with respect to the guaranties by Bailey of loans to be obtained by Good Times from Franchise Finance Corporation of America ("FFCA") and the guaranties by Bailey and Erie of loans to be obtained by Good Times from Safeco Credit Company, Inc. ("Safeco"). Bailey and Erie are hereinafter together referred to as "Bailey/Erie." 1. Good Times intends to obtain a series of loans from FFCA and Safeco with each loan constituting a separate borrowing for the development of a separate Good Times restaurant, with such loans from FFCA to be guaranteed by Bailey and with such loans from Safeco to be guaranteed by Bailey/Erie, and with all such guaranties being pursuant to the terms and conditions of this letter agreement and pursuant to the terms and conditions of agreements with FFCA and Safeco. The aggregate amount of such guaranteed loans from FFCA shall not exceed $5,700,000 and the aggregate amount of such guaranteed loans from Safeco shall not exceed $3,000,000. Such guaranteed loans from FFCA and Safeco are hereinafter referred to as the "FFCA Loans" and the "Safeco Loans" and together are referred to as the "Loans." Notwithstanding anything to the contrary contained in the foregoing, the aggregate principal amount of the Loans guaranteed by Bailey/Erie shall not at any one time exceed $6,000,000. Good Times may in its sole discretion determine whether a borrowing for the development of a particular restaurant shall be a FFCA Loan or a Safeco Loan. 2. Subject to the terms and conditions of this letter agreement and of agreements with FFCA and Safeco, Bailey shall guarantee the repayment of the FFCA Loans and Bailey/Erie shall guarantee the repayment of the Safeco Loans (the "Guaranties"). The terms and conditions of the FFCA Loans, and of the Guaranties thereof, shall be subject to the mutual approval of Good Times and Bailey and the terms and conditions of the Safeco Loans, and of the Guaranties thereof, shall be subject to the mutual approval of Good Times and Bailey/Erie. The location and development plans for each Good Times restaurant to be financed by one of the FFCA Loans shall also be subject to the approval of Bailey and of each Restaurant to be financed by one of the Safeco Loans shall be subject to the approval of Bailey/Erie. The required approvals of Good Times and Bailey/Erie set forth in this paragraph 2 shall not be unreasonably withheld. Notwithstanding anything to the contrary contained in the foregoing, Bailey/Erie may withhold any of the Guaranties on account of the financial condition of Good Times or for any other reason in the sole discretion of Bailey/Erie. 3. (a) Good Times shall pay to Bailey and to Bailey/Erie quarterly percentage fees for the Guaranties based upon the average outstanding principal and interest of the Loans guaranteed by them during each calendar quarter. Good Times may elect to pay each such fee in cash or in shares of common stock of Good Times ("Guarantee Stock") or partly in each. To the extent that such quarterly fees are paid in cash, the fees shall be .5 percent of the average outstanding principal and interest of the Loans guaranteed during such quarter and to the extent that such quarterly fees are paid in Guarantee Stock, the fees shall be .75 percent of such average outstanding principal and interest guaranteed during such quarter. All such fees shall be paid within five business days after the end of each calendar quarter. (b) To the extent that Good Times elects to pay any of the fees described in subparagraph (a) above in Guarantee Stock, such shares shall be valued for such purpose at the average published closing price of Good Times common stock during the twenty trading days immediately preceding the end of such calendar quarter. The Guarantee Stock and any common stock issued to Bailey pursuant to exercise of the warrant provided for by paragraph 8 below (the "Warrant Stock") shall be deemed to constitute additional shares of "Restricted Stock" under the May 31, 1996 Registration Rights Agreement (the "Registration Rights Agreement") between Good Times and Bailey and be entitled to the registration rights accorded Restricted Stock under the Registration Rights Agreement. Clause (ii) of Section 13(f) of the Registration Rights Agreement is hereby amended to read "the date Bailey/Erie is permitted pursuant to Rule 144 to sell all of its Restricted Stock." Bailey/Erie understand that any shares of Good Times common stock issued to them pursuant to this paragraph 3 will not have been registered under the Securities Act of 1933, as amended, pursuant to an exemption thereunder; that such shares must be held indefinitely unless a subsequent disposition thereof is so registered or is exempt from such registration; that certificates representing such shares shall be endorsed with an appropriate legend; and that such shares shall constitute restricted stock under Rule 144 of such Act. 4. The documents for the Loans and for the Guaranties shall include the following provisions: (a) Upon any required performance by Bailey of the Guaranties of the FFCA Loans, Bailey shall thereafter be subrogated to and otherwise entitled to all, or if applicable to share with FFCA, the rights and remedies of FFCA with respect to such FFCA Loans as to Good Times and as to the assets of Good Times securing such Loans. In the event of any required performance by Bailey/Erie of the Guaranties of the Safeco Loans, Bailey/Erie shall be entitled to share with Safeco all the rights and remedies of Safeco with respect to such Safeco Loans and as to Good Times and as to the assets of Good Times securing such Safeco Loans. (b) Good Times shall indemnify and hold harmless Bailey/Erie with respect to any loss, liability or cost and expense incurred by Bailey/Erie with respect to the Guaranties. The foregoing indemnification liability of Good Times shall be secured by a pledge in favor of Bailey/Erie of all of the properties and assets of Good Times securing the Loans, which pledge shall be secondary and subordinate to the pledge of such properties and assets to FFCA or Safeco. Bailey/Erie shall have rights as an unsecured creditor as to the remaining properties and assets of Good times with respect to the foregoing indemnification liability. (c) Good Times shall have reasonable and customary grace and cure periods under the documents for the Loans and the Guaranties. 5. Good Times shall not incur any indebtedness for borrowed money other than the Loans unless during the 12 calendar months preceding such additional borrowing Good Times' total debt coverage ratio exceeds 125 percent. In that event, Good Times may incur additional borrowing, and pledge its properties and assets to secure such additional borrowing, subject to the pledges of properties and assets for the Loans and for the indemnification liability of Good Times with respect to the Guaranties, to the extent that such additional borrowings and the net profits to be realized from any properties and assets to be acquired with the proceeds of such additional borrowings will not, in the reasonable judgment of Good Times and Bailey/Erie, result in its debt coverage ratio becoming less than 125 percent. For purposes of this paragraph 5, debt coverage ratio shall be defined as net profits (exclusive of extraordinary profits and losses not realized or incurred in the ordinary course of business) before interest, taxes, depreciation and amortization divided by total principal and interest payments. In the event of any disagreement between Good Times and Bailey/Erie with respectto the debt coverage ratio of Good Times, such debt coverage ratio shall be determined by the regular independent certified public accountants of Good Times. 6. So long as the Guaranties are outstanding or for so long as Good times may be indebted to Bailey or Erie as a result of the Guaranties, Good Times shall: (a) Comply with the covenants of Article VI of the Series A Convertible Preferred Stock Purchase Agreement between Good Times and Bailey dated May 31, 1996, as amended, whether or not such preferred stock is outstanding, except the covenants in Sections 6.02 and 6.03 of Article VI with respect to the preemptive rights of the preferred stock and the reservation of common stock for the conversion of preferred stock which Sections shall apply only for so long as the preferred stock is outstanding. Without limiting the generality of the foregoing, a representative of Bailey shall be entitled to attend meetings of the Board of Directors and of the Compensation Committee of the Company pursuant to the provisions of Sections 6.10 and 6.11 of Article VI for so long as any of the Guaranties are outstanding and with respect to Section 6.10 for so long as any of the Guarantee Stock or the Warrant Stock is held by Bailey; (b) Not liquidate, dissolve or wind up and not consolidate or merge into or with any other entity or entities or sell, lease, abandon, transfer or otherwise dispose of in excess of 51 percent of Good Times' total assets (including intellectual property rights); (c) Not pay any dividend on any shares of its capital stock, except for dividends payable solely in the form of additional shares of common stock, and not redeem or otherwise acquire any shares of its capital stock except for the purchase of shares of common stock from former employees pursuant to contractual rights relating to the termination of their employment; and (d) Not acquire the stock or assets of any person or entity except in the ordinary course of its business. 7. Effective as of August 31, 1998, Bailey has converted the shares of Good Times Series A Convertible Preferred Stock owned by Bailey into shares of Good Times common stock pursuant to the terms of the May 31, 1996 Series Convertible Preferred Stock Purchase Agreement between Good Times and Bailey, as amended. So long as Bailey/Erie owns not less than two-thirds of the aggregate of the Good Times common stock acquired pursuant to this paragraph 7, the Guarantee Stock and the Warrant Stock: (a) Good Times shall not increase the number of Directors constituting its Board of Directors to a number in excess of seven; (b) Bailey/Erie shall have the right to elect two Directors to the Board of Directors of Good Times one of whom shall have the right, in the discretion of Bailey/Erie, to serve as the Chairman of the Board; and (c) Good Times shall not amend, alter or repeal its Certificate of Incorporation or Bylaws. 8. In consideration for the Guaranties, upon the closing of the first of the Loans, Good Times shall issue to Bailey a warrant to purchase at $.0001 per share 426,667 shares of Good Times common stock which shall be exercisable by Bailey in the event of the initiation by Good Times of any bankruptcy petition or upon the initiation of any other comparable insolvency or liquidation proceeding by Good Times or in the event of any involuntary bankruptcy adjudication of Good Times. Such warrant shall contain standard and customary provisions approved by Bailey, which approval shall not be unreasonably withheld, including without limitation anti-dilution provisions. 9. In the event of any breach of this letter agreement by Good Times, in addition to all rights and remedies under law and equity available as a result thereof to Bailey/Erie, Bailey/Erie shall not be required thereafter to provide any Guaranties. 10. Good Times and Bailey/Erie shall from time to time execute such additional documents as may reasonably be required in order to carry out the intention and provisions of this letter agreement. 11. The terms and conditions of this letter agreement shall bind and inure to the benefit of Good Times and Bailey/Erie and their respective successors and assigns. 12. Good Times and Bailey/Erie acknowledge that the provisions of this letter agreement have been unanimously approved by the Board of Directors of Good Times at a meeting in which Directors representing Bailey/Erie did not participate. If this letter correctly sets forth our agreement, please sign and return the attached copy hereof. Very truly yours, GOOD TIMES RESTAURANTS INC. By: /s/ Boyd E. Hoback ___________________ President and Chief Executive Officer Agreed to this 5th day of October, 1998 THE BAILEY COMPANY By: /s/ Geoffrey Bailey ___________________ General Manager THE ERIE COUNTY INVESTMENT COMPANY By: /s/ David E. Bailey ___________________ President EX-5 7 Exhibit 10.14 SAFECO CREDIT COMPANY 165 S. Union Blvd. STE 610 Lakewood, Colorado 80228-2212 June 19, 1998 Mr. Boyd Hoback Good Times Restaurants Inc. 601 Corporate Circle Golden, CO 80401 Dear Boyd: This will confirm that we will submit the financing proposal set forth below to the Executive Credit Committee of SAFECO Credit Company, Inc. This proposal is subject to final approval by the Executive Credit Committee and is not intended as a commitment by SAFECO Credit Company, Inc. to enter into a financing transaction with proposed Borrower. Such approval may only be made by our Executive Credit Committee and communicated via formal loan commitment letter upon loan approval. The following summarizes the major terms and conditions to which our proposal is subject. BORROWER: Good Times Restaurants Inc. (Real Estate and Equipment Loan) GUARANTORS: The Erie County Investment Co. The Bailey Company (Both Loans) Initially, the guaranties will be provided for 50% of the outstanding loan balance. Starting with the 5th anniversary of the notes, and after the restaurant property has sustained a fixed charged coverage ratio of 1.5 to 1 for 12 trailing months, the guaranties will be reduced to 25% of the outstanding loan balance. After 7 years, the guaranties will be fully released when the following conditions are met: - Loan to value ratio of less than 50% - SAFECO Credit Company, Inc. review of Good Times Restaurants Inc. financial condition is satisfactory. COLLATERAL: SAFECO will receive a first security interest in the land, building and equipment of three (3) Good Times restaurant located in the Denver Metropolitan Area. AMOUNT: Land and Building: SAFECO will finance 80% of cost of 80% MAI appraisal value, whichever is less up to a maximum of $2,400,000.00 TERM: Land and Building 180 months based on a 180 month amortization. Equipment Term: 84 months PREPAYMENT: Loan Year Prepayment Premium 1 3.0% of outstanding principal balance 2 2.5% of outstanding principal balance 3 2.5% of outstanding principal balance 4 2.0% of outstanding principal balance 5 1.0% of outstanding principal balance INTEREST RATE: The interest rate will be a floating rate of 30 day commercial paper plus 3.00. On the real estate loan, the borrower will have the option during the first 60 months of the loan to fix the rate at the 10 year treasury rate plus 3.00. FEES: A proposal fee in the amount of $10,000.00 is due and payable to SAFECO Credit Company, Inc. upon acceptance of the proposal. In the event SAFECO Credit Company, Inc. does not issue a commitment within 20 days from the acceptance date of this proposal letter of if a commitment is issued but it is not accepted by the Borrower due to it differing from the structure outlined in this proposal, the previously paid proposal fee will be refunded to the Borrower. In the event a commitment is issued by SAFECO Credit Company, Inc. conforming in all respect to this proposal letter and the commitment is not acceptable by the Borrower, the previously paid proposal fee will be deemed earned by SAFECO Credit Company, Inc. If the transaction is consummated, the proposal fee will be applied to the loan origination fee due at closing. COSTS: Borrower shall be responsible for all reasonable costs and expenses relating to the preparation, execution and recording of all documents regardless of whether or not the loan is ultimately funded. Documentation will be prepared by SAFECO's in-house attorneys for a charge of $750.00 per location. LOAN ORIGINATION FEE: Upon commencement of the financing, Borrower will pay to SAFECO Credit Company, Inc. a loan origination fee equal to one (1) percent of the loan amount. CONSTRUCTION FINANCING: Construction financing will be available. Payment of interest will be due monthly, payable in arrears. The interest rate charged will be the same as that of the permanent loan. DOCUMENTATION: Final loan security documention must be satisfactory in form and content to SAFECO Credit Company, Inc. It is expected that such documentation will contain representations and covenants which are customary for loans of this type. All items to be submitted by Borrower including but not limited to all insurance certificated and policies, appraisals, surveys and financial statements must be satisfactory in form and content to SAFECO Credit Company, Inc. in its sole discretion. The loan documents will provide The Bailey Company ("Bailey") as Guarantor under the loans the option, in the event Good Times Restaurants, Inc. defaults under the loan documents, to (i) fully assume the loans (after all defaults, reasonably possible for Bailey to cure, have been cured within a reasonable time period) without paying any additional fees and at the existing terms, (ii) reasonably cure and continue to make all required principal and interest payments to SAFECO Credit Company, Inc. with Good Times Restaurants, Inc. remaining as the primary borrower, or (iii) allow the guaranty to be fully exercised by SAFECO Credit Company, Inc. Financial Covenants: Good Times Restaurants, Inc. will maintain a net worth of not less than $2,000,000.00 and a fixed charged coverage of 1.25 to 1. CONDITION PRECEDENT: This letter should not be construed as a commitment by SAFECO Credit Company, Inc., but as a proposal or financing subject to (1) satisfactory review of Borrower's and, if applicable, Guarantor(s) financial statements and supporting data, (2) background investigations of the principals and related parties to this transaction, (3) receipt of all other information acceptable in form and substance to SAFECO Credit Company, Inc. and that SAFECO Credit Company., at it sole discretion, deems necessary to perform due diligence in evaluating this proposal, and (4) approval by SAFECO Credit Company, Inc.'s Executive Credit Committee and issuance and acceptance of a formal commitment letter. If approved, SAFECO will issue a loan commitment that will be available for one year from the approval date. If there has been no material change in the financial condition of the borrower, the commitment can be extended beyond the first year. ENVIRONMENTAL CONCERNS: SAFECO will require that a Phase I Environmental Audit be performed on the location to insure that is it free of environmental concerns. The Phase I Environmental Audit must be in accordance with ASTM guidelines. ACCEPTANCE: An accepted copy of this letter together with the proposal fee must be returned to SAFECO Credit Company, Inc. at 165 S. Union Blvd., Suite #610, Lakewood, CO 80228, on or before 4:30 p.m. on June 30, 1998, after which time SAFECO Credit Company, Inc.'s committee shall automatically terminate. By acceptance of this letter, you acknowledge that this is issued at a time when we have not yet undertaken a full business, credit and legal analysis of the Borrower and transaction contemplated hereby. As a result of a detailed investigation and analysis, it may be necessary that we restructure or otherwise modify this proposal prior to our issuance of a commitment. Our efforts will be directed towards approval of the transaction as proposed. We welcome the opportunity to submit this proposal for financing services, and urge you to contact us immediately should you have any questions. Sincerely, SAFECO Credit Company, Inc. Agreed to and Accepted by: /s/John Black /s/Boyd E. Hoback ___________________ ________________________ Franchise Specialist President and CEO Date: 6/22/98 Date: 6/22/98 EX-6 8 Exhibit 10.15 GOOD TIMES RESTAURANTS INC. SHAREHOLDER RIGHTS PLAN Dated as of February 24, 1998 TABLE OF CONTENTS Page RECITALS 1 Section 1. Certain Definitions 1 Section 2. Rights 3 Section 3. Exercise of Rights; Purchase Price; Expiration Date of Rights 4 Section 4. Company Covenants Concerning Shares and Rights 4 Section 5. Record Date 5 Section 6. Adjustment of Purchase Price, Number and Type of Shares or Number of Rights 5 Section 7. Certificate of Adjusted Purchase Price or Number of Shares 11 Section 8. Consolidation, Merger or Sale or Transfer of Assets or Earning Power 11 Section 9. Fractional Rights and Fractional Shares 13 Section 10. Agreement of Rights Holders 14 Section 11. Redemption 14 Section 12. Notice of Certain Events 15 Section 13. Notices 16 Section 14. Supplements and Amendments 16 Section 15. Successors; Certain Covenants 16 Section 16. Severability 16 Section 17. Governing Law 16 Section 18. Descriptive Headings 16 Exhibit A. Form of Right Certificate SHAREHOLDER RIGHTS PLAN This Shareholder Rights Plan (the "Plan") of Good Times Restaurants Inc., a Nevada corporation (the "Company"), is made effective as of the 24th day of February, 1998. RECITALS On February 24, 1998 the Board of Directors of the Company authorized and declared a dividend distribution of one right ("Right") for each share of Common Stock, $.001 par value, of the Company (a "Common Share") outstanding as of the close of business on February 24, 1998 (the "Record Date"), with each Right initially representing the right to purchase one Common Share, upon the terms and subject to the conditions hereinafter set forth, and further authorized the issuance of one Right with respect to each Common Share issued or delivered by the Company after the Record Date but prior to the Distribution Date (as hereinafter defined); Section 1. Certain Definitions. For purposes of this Plan, the following terms shall have the meanings indicated: (a) "Acquiring Person" shall mean any Person (other than the Company or any Related Person) who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of twenty percent or more of the Common Shares then outstanding; provided however that (i) any Person who or which, together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of twenty percent or more of the Common Shares then outstanding in connection with a transaction or series of transactions approved prior to such transaction or transactions by the Board of Directors of the Company shall not be deemed an Acquiring Person by virtue of such transactions or series of transactions, and (ii) a Person shall not be deemed to have become an Acquiring Person solely as a result of a reduction in the number of Common Shares outstanding, unless subsequent to such reduction such Person or any Affiliate or Associate of such Person shall become the Beneficial Owner of any additional Common Shares other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all shareholders are treated equally. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date of this Plan. (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided however that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of, including pursuant to any agreement, arrangement or understanding (whether or not in writing); or (iii) of which any other Person is the Beneficial Owner if such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (whether or not in writing) with such other Person (or any of such other Person's Affiliates or Associates) with respect to acquiring, holding, voting or disposing of any securities of the Company other than pursuant to a revocable proxy or a securities underwriting arrangement. (d) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of Colorado are authorized or obligated by law or executive order to close. (e) "Close of Business" on any given date shall mean 5:00 p.m., Mountain Time, on such date; provide however, that if such date is not a Business Day it shall mean 5:00 p.m., Mountain Time, on the next succeeding Business Day. (f) "Common Shares" when used with reference to the Company shall mean the Common Stock, $.001 par value, of the Company; provided, however, that, if the Company is the continuing or surviving corporation in a transaction described in Section 6(a)(ii) or Section 8(a)(ii) hereof, "Common Shares" when used with reference to the Company shall mean the capital stock or equity security with the greatest aggregate voting power of the Company. "Common Shares" when used with reference to any corporation or other legal entity, other than the Company, including an Issuer (as defined in Section 8(b) hereof), shall mean the capital stock or equity security with the greatest aggregate voting power of such corporation or other legal entity. (g) "Company" shall mean Good Times Restaurants Inc., a Nevada corporation. (h) "Distribution Date" shall mean the earlier of: (i) the Close of Business on the twentieth calendar day (or if the Share Acquisition Date results from the consummation of a Permitted Offer, such later date as may be determined by the Company's Board of Directors before the Distribution Date) after the Share Acquisition Date; or (ii) the Close of Business on the twentieth calendar day (or such later date as may be specified by the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement of a tender or exchange offer (as determined by reference to Rule 14d-2(a) under the Exchange Act) by any Person (other than the Company or any Related Person), the consummation of which could result in beneficial ownership by such Person of twenty percent or more of the outstanding Common Shares (including any such date which is after the date of this Plan and prior to the issuance of the Rights). (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (j) "Expiration Date" shall mean the earlier of (i) the Close of Business on the Final Expiration Date and (ii) the time at which the Rights are redeemed as provided in Section 11 hereof. (k) "Final Expiration Date" shall mean December 31, 1999. (1) "Flip-in Event" shall mean any event described in clauses (A), (B) or (C) of Section 6(a)(ii) hereof. (m) "Flip-over Event" shall mean any event described in subsections (i), (ii) or (iii) of Section 8(a) hereof. (n) "Issuer" shall have the meaning set forth in Section 8(b) of this Plan. (o) "NASDAQ" shall mean the National Association of Securities Dealers, Inc. Automated Quotation System. (p) "Permitted Offer" shall mean a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms for all outstanding shares of Common Stock determined by at least a majority of the members of the Board of Directors who are not officers or employees of the Company and who are not representatives, nominees, Affiliates or Associates of an Acquiring Person to be (a) that are fair to stockholders (taking into account all factors that such members of the Board deem relevant including, without limitation, prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders. (q) "Person" shall mean any individual, firm, corporation, partnership or other legal entity, and shall include any successor (by merger or otherwise) of such entity. (r) "Purchase Price" shall mean initially $20.00 per share of Common Stock and shall be subject to adjustment from time to time as provided in this Plan. (s) "Redemption Price" shall mean $.001 per Right, subject to adjustment by resolution of the Board of Directors of the Company to reflect any stock split, stock dividend or similar transaction occurring after the date hereof. (t) "Related Person" shall mean (i) any Subsidiary of the Company or (ii) any employee benefit or stock ownership plan of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan. (u) "Right" shall have the meaning set forth in the Recitals to this Plan. (v) "Right Certificates" shall mean certificates evidencing the Rights, in substantially the form of Exhibit A attached hereto. (w) "Securities Act" shall mean the Securities Act of 1933, as amended. (x) "Share Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person (by press release, filing made with the Securities and Exchange Commission or otherwise) that an Acquiring Person has become such. (y) "Subsidiary" of any Person shall mean any corporation or other legal entity of which a majority of the voting power of the voting equity securities or equity interests is owned, directly or indirectly, by such Person. (z) "Trading Day" shall mean any day on which the principal national securities exchange or other transaction reporting system on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Business Day. (aa) "Triggering Event" shall mean any Flip-in Event or Flip-over Event. Section 2. Rights. (i) The Rights will be evidenced by the certificates representing Common Shares registered in the names of the record holders thereof (which certificates representing Common Shares shall also be deemed to be Right Certificates) and not by separate Right Certificates, (ii) the Rights will be transferable only in connection with the transfer of the underlying Common Shares, and (iii) the transfer of any certificates evidencing Common Shares shall also constitute the transfer of the Rights associated with the Common Shares evidenced by such certificates. Section 3. Exercise of Rights; Purchase Price; Expiration Date Of Rights. (a) Until the Distribution Date, the registered holder of any Right may exercise such Right by written notice to the Company of such exercise together with payment of the Purchase Price for the Common Share as to which such Right is exercised. The Purchase Price shall be payable in lawful money of the United States of America by certified check or bank draft payable to the order of the Company. (b) Subject to Section 6(a)(ii) hereof, upon the exercise of a Right and payment as described above, the Company shall promptly (i) requisition from any transfer agent of the Common Shares certificates representing the number of Common Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) after receipt of such certificates cause the same to be delivered to or upon the order of the registered holder of such Right, registered in such name or names as may be designated by such holder, (iii) if appropriate, deliver to or upon the order of the registered holder of such Right the amount of cash to be paid in lieu of the issuance of fractional shares in accordance with Section 9 hereof or in lieu of the issuance of Common Shares in accordance with Section 6(a)(iii) hereof, and (iv) deliver any due bill or other instrument to the registered holder of such Right as provided by Section 6(l) hereof. (c) Notwithstanding anything in this Plan to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification or registration in such jurisdiction shall not have been effected or the exercise of the Rights shall not be permitted under applicable laws, including but not limited to the Securities Act and applicable state securities laws. Section 4. Company Covenants Concerning Shares and Rights. The Company covenants and agrees that: (a) It will cause to be reserved and kept available out of its authorized and unissued Common Shares the number of Common Shares that will be sufficient to permit the exercise pursuant to Section 3 hereof of all outstanding Rights. (b) So long as the Common Shares (and, following the occurrence of a Triggering Event, Common Shares and/or other securities) issuable and deliverable upon the exercise of the Rights may be listed on a national securities exchange or other transaction reporting system, it will endeavor to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange or system upon official notice of issuance. (c) It will take all such action as may be necessary to ensure that all Common Shares (and, following the occurrence of a Triggering Event, Common Shares and/or other securities) delivered upon exercise of Rights, at the time of delivery of the certificates for such shares, shall be (subject to payment of the Purchase Price) duly and validly authorized and issued, fully paid and nonassessable shares, free and clear of any liens, encumbrances or other adverse claims and not subject to any rights of call or first refusal. (d) It will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Rights or of any Common Shares (or other securities, as the case may be) upon the exercise of Rights; provided however that it will not be required to pay any transfer tax or charge which may be payable in respect of any transfer, issuance or delivery of certificates representing Common Shares (or other securities, as the case may be). (e) It will use its best efforts to (i) file on an appropriate form, as soon as practicable following the later to occur of a Triggering Event or the Distribution Date, a registration statement under the Securities Act with respect to the securities purchasable upon exercise of the Rights, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, or (B) the Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights; provided however that the Company may temporarily suspend the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective and upon any such suspension, the Company will issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. (f) Notwithstanding anything in this Plan to the contrary, the Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 11 or Section 14 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish or otherwise eliminate the benefits intended to be afforded by the Rights. (g) In the event that the Company is obligated to issue other securities of the Company, pay cash and/or distribute other property pursuant to Sections 6 and 8 hereof, it will make all arrangements necessary so that such other securities, cash and/or property are available for distribution, if and when appropriate. Section 5. Record Date. Each Person in whose name any certificate representing Common Shares (or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares (or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights were duly exercised hereunder and payment of the Purchase Price (and all applicable transfer taxes) was made. Prior to the exercise of a Right, the holder of such Right shall not be entitled by virtue thereof to any rights of a shareholder of the Company with respect to securities for which the Right shall be exercisable, including without limitation the right to vote, receive dividends or other distributions or exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company except as provided herein. Section 6. Adjustment of Purchase Price, Number and Type of Shares or Number of Rights. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 6. (a) (i) In the event that the Company shall at any time after the date of this Plan (A) declare a dividend on the Common Shares payable in Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding Common Shares into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and/or the number and/or kind of shares of capital stock issuable on such date upon exercise of a Right, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive upon payment of the Purchase Price then in effect the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Common Shares transfer books of the Company were open, he or she would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both this Section 6(a)(i) and Section 6(a)(ii) hereof or Section 8 hereof, the adjustment provided for in this Section 6(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 6(a)(ii) or Section 8 hereof. (ii) In the event that: (A) any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at any time after the date of this Plan, directly or indirectly, shall (1) merge into the Company or otherwise combine with the Company and the Company shall be the continuing or surviving corporation of such merger or combination (other than in a transaction subject to Section 8 hereof), (2) merge or otherwise combine with any Subsidiary of the Company, (3) in one or more transactions (other than in connection with the exercise of Rights or the exercise or conversion of securities exercisable or convertible into capital stock of the Company or any of its Subsidiaries) transfer any assets to the Company or any of its Subsidiaries in exchange (in whole or in part) for shares of any class of capital stock of the Company or any of its Subsidiaries or for securities exercisable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries, or otherwise obtain from the Company or any of its Subsidiaries, with or without consideration, any additional shares of any class of capital stock of the Company or any of its Subsidiaries or securities exercisable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries (other than as part of a pro rata distribution to all holders of such shares of any class of capital stock of the Company, or any of its Subsidiaries), (4) sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise dispose (in one or more transactions) of any assets (including securities), to, from, with or of, as the case may be, the Company or any of its Subsidiaries (other than in a transaction subject to Section 8 hereof), (5) receive any compensation from the Company or any of its Subsidiaries other than compensation as a director or for full-time employment as a regular employee, in either case, at rates in accordance with the Company's (or its Subsidiaries') past practices, or (6) receive the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantage provided by the Company or any of its Subsidiaries; or (B) during such time as there is an Acquiring Person, there shall be any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction or series of transactions involving the Company or any of its Subsidiaries (whether or not with or into or otherwise involving an Acquiring Person), other than a transaction subject to Section 8 of this Plan, which has the effect, directly or indirectly, of increasing by more than one percent the proportionate share of the outstanding shares of any class of equity securities or of securities exercisable for or convertible into equity securities of the Company or any of its Subsidiaries of which an Acquiring Person or any Associate or Affiliate of any Acquiring Person, is the Beneficial Owner; or (C) any Person (other than the Company or any Related Person) who or which, together with all Affiliates and Associates of such Person, shall at any time after the date of this Plan, become an Acquiring Person other than through a purchase of Common Shares pursuant to a tender offer made in the manner prescribed by Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder and which is a Permitted Offer; then in each such case proper provision shall be made so that each holder of a Right, except as provided below, shall thereafter have a right to receive, upon exercise thereof in accordance with the term of this Plan at an exercise price per Right equal to the product of the then-current Purchase Price multiplied by the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of such Flip-in Event (but assuming the rights were then exercisable), such number of Common Shares as shall equal the result obtained by multiplying the then-current Purchase Price by the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of such Flip-in Event (assuming exercisability), and dividing that product by fifty percent of the current per share market price of a Common Share (determined pursuant to Section 6(d) hereof) on the date of the first occurrence of any such Flip-in Event. Notwithstanding anything in this Plan to the contrary, from and after the first occurrence of any such Flip-in Event, any Rights of which any Acquiring Person or any Associate or Affiliate of such Acquiring Person involved in such Flip-in Event is or was at any time the Beneficial Owner after the date upon which such Acquiring Person became such shall become void and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Plan. (iii) In the event that there shall not be sufficient author- ized but unissued Common Shares or authorized and issued Common Shares held in treasury to permit the exercise in full of the Rights in accordance with the foregoing subsection (ii), and the Company is unable to obtain the authorization of the necessary additional Common Shares within ninety calendar days after the occurrence of the Flip-in Event, then, notwithstanding anything in this Plan to the contrary, the Company shall determine the excess of the value of the Common Shares issuable upon the exercise of a Right over the Purchase Price (such excess being hereinafter referred to as the "Spread") and shall be obligated to deliver, upon the surrender of such Right and without requiring payment of the Purchase Price, Common Shares (to the extent available) and cash (to the extent permitted by applicable law and any agreements or instruments to which the Company is a party in effect immediately prior to the first occurrence of any Flip-in Event) in an amount equal to the Spread. To the extent that any legal or contractual restrictions prevent the Company from paying the full amount of cash payable in accordance with the foregoing sentence, the Company shall pay to holders of the Rights as to which such payments are payable all amounts which are not then restricted on a pro rata basis and shall continue to make payments on a pro rata basis as funds become available until the full amount due to each such Right holder has been paid. (b) In the event that the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or securities having equivalent rights, privileges and preferences as the Common Shares ("equivalent common shares")) or securities convertible into Common Shares or equivalent common shares at a price per Common Share or equivalent common share (or having a conversion price per share, if a security convertible into Common or equivalent common shares) less than the current per share market price of the Common Shares (as determined pursuant to Section 6(d) hereof) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date plus the number of Common Shares which the aggregate offering price of the total number of Common Shares and/or equivalent common shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current per share market price and the denominator of which shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares and/or equivalent common shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a written statement which shall be conclusive for all purposes. Common Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In the event that the Company shall fix a record date for the making of a distribution to all holders of Common Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness, cash (other than a regular periodic cash dividend at a rate not in excess of 125 percent of the rate of the highest regular periodic cash dividend paid during the immediately preceding two years), assets, stock (other than a dividend payable in Common Shares) or subscription rights, options or warrants (excluding those referred to in Section 6(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current per share market price of the Common Shares (as determined pursuant to Section 6(d) hereof) on such record date or, if earlier, the date on which Common Shares begin to trade on an ex-dividend or when-issued basis with respect to such distribution, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a written statement which shall be conclusive for all purposes) of the portion of the cash, assets, stock or evidences of indebtedness so to be distributed (in the case of periodic cash dividends, only that portion in excess of 125 percent of the rate of the highest regular periodic cash dividend paid during the immediately preceding two years) or of such subscription rights, options or warrants applicable to Common Shares, and the denominator of which shall be such current per share market price of the Common Shares. Such adjustments shall be made successively whenever such a record date is fixed; in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation hereunder, the "current per share market price" of Common Shares on any date shall be deemed to be the average of the daily closing prices per share of such Common Shares for the thirty consecutive Trading Days immediately prior to such date; provided however that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of (A) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights) or (B) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of thirty Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to take into account ex-dividend trading or to reflect the current per share market price per Common Share equivalent. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board of Directors of the Company. If the Common Shares are not publicly held or not so listed or traded, or not the subject of available bid and asked quotes, "current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a written statement which shall be conclusive for all purposes. (e) Except as set forth below, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent in such price; provided, however, that any adjustments which by reason of this Section 6(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under Section 6 shall be made to the nearest cent or to the nearest whole Common Share or other share, as the case may be. Notwithstanding the first sentence of this Section 6(e), any adjustment required by Section 6 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 8(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Shares contained in this Section 6 and the provisions of Sections 3, 4, 5, 8 and 9 hereof with respect to the Common Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of Common Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided in this Plan. (h) Upon each adjustment of the Purchase Price as a result of the calculations made in Section 6(b) hereof and Section 6(c) hereof made with respect to a distribution of subscription rights, options or warrants applicable to Common Shares, each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of Common Shares (calculated to the nearest whole Common Share) obtained by (i) multiplying the number of Common Shares covered by a Right immediately prior to this adjustment by the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) Before taking any action that would cause an adjustment reducing the Purchase Price below the par value of the Common Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Shares at such adjusted Purchase Price. (j) In any case in which this Section 6 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of Common Shares or other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of Common Shares or other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided however that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares, capital stock or securities upon the occurrence of the event requiring such adjustment. (k) Notwithstanding anything in this Plan to the contrary, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 6, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Common Shares, (ii) issuance wholly for cash of Common Shares at less than the current per share market price therefor, (iii) issuance wholly for cash of securities which by their term are convertible into or exchangeable for Common Shares, (iv) stock dividends, or (v) issuance of rights, options or warrants referred to in this Section 6, hereafter made by the Company to holders of its Common Shares shall not be taxable to such shareholders. (l) Notwithstanding anything in this Plan to the contrary, in the event that the Company shall at any time after the date of this Plan and prior to the Distribution Date (i) declare a dividend on the outstanding Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares, (iii) combine the outstanding Common Shares into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of the outstanding Common Shares, the number of Rights associated with each Common share then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each Common Share following any such event shall equal the result obtained by multiplying the number of Rights associated with each Common Share immediately prior to such event by a fraction the numerator of which shall be the total number of Common Shares outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of Common Shares outstanding immediately following the occurrence of such event, provided that any resulting fractional amount shall be rounded to the nearest whole number. Section 7. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 6 or Section 8(a) hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the transfer agent for the Common Shares, a copy of such certificate, and (c) if such adjustment is made after the Distribution Date, mail a brief summary of such adjustment to each holder of a Right Certificate in accordance with Section 13 hereof. Section 8. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) Except as provided in Section 8(c) of this Plan, in the event that, following the Share Acquisition Date, directly or indirectly, (i) the Company shall consolidate with, or merge with or into, any other Person (other than a Related Person in a transaction which complies with Section 4(f) hereof) and the Company shall not be the continuing or surviving corporation of such consolidation or merger; (ii) any Person (other than a Related Person in a transaction which complies with Section 4(f) hereof) shall consolidate with the Company, or merge with or into the Company and the Company shall be the continuing or surviving corporation of such merger or consolidation and, in connection with such merger or consolidation, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of such other Person or cash or any other property; or (iii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power (including without limitation securities creating any obligation on the part of the Company and/or any of its Subsidiaries) representing in the aggregate more than fifty percent of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Acquiring Person or Persons (other than the Company or any Related Person in one or more transactions each of which complies with Section 4(f) hereof), then, and in each such case, proper provision shall be made so that (A) except as provided below, each holder of a Right shall thereafter have the right to receive, upon the exercise of it in accordance with the terms of this Plan at an exercise price per Right equal to the product of the then-current Purchase Price multiplied by the number of Common Shares for which a Right is then exercisable, in lieu of Common Shares, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable Common Shares of the Issuer (as such term is hereinafter defined), free and clear of any liens, encumbrances and other adverse claims and not subject to any rights of call or first refusal, as shall be equal to the result obtained by multiplying the then-current Purchase Price by the number of Common Shares for which a Right is exercisable immediately prior to the first occurrence of any Flip-over Event (or, if a Flip-in Event has occurred prior to the first occurrence of a Flip-over Event, multiplying the number of Common Shares for which a Right was exercisable immediately prior to the first occurrence of a Flip-in Event, assuming the Rights were then exercisable by the Purchase Price in effect immediately prior to such first occurrence), and dividing that product by fifty percent of the current per share market price of the Common Shares of the Issuer (determined pursuant to Section 6(d) hereof), on the date of consummation of such Flip-over Event; (B) the Issuer shall thereafter be liable for, and shall assume, by virtue of such Flip-over Event, all the obli- gations and duties of the Company pursuant to this Plan; (C) the term "Company" shall thereafter be deemed to refer to the Issuer; and (D) the Issuer shall take such steps (including without limitation the reservation of a sufficient number of its Common Shares to permit the exercise of all outstanding Rights) in connection with such consummation as may be necessary to ensure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be possible, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights. (b) For purposes of this Section 8, "Issuer" shall mean (i) in the case of any Flip-over Event described in Sections 8(a)(i) or (ii) above, the Person that is the continuing, surviving, resulting or acquiring Person (including the Company as the continuing or surviving corporation of a transaction described in Section 8(a)(ii) above), and (ii) in the case of any Flip-over Event described in Section 8(a)(iii) above, the Person that is the party receiving the greatest portion of the assets or earning power (including without limitation securities creating any obligation on the part of the Company and/or any of its Subsidiaries) transferred pursuant to such transaction or transactions; provided however that in any such case, (A) if (1) no class of equity security of such Person is, at the time of such merger, consolidation or transaction and has been continuously over the preceding twelve-month period, registered pursuant to Section 12 of the Exchange Act, and (2) such Person is a Subsidiary, directly or indirectly, of another Person, a class of equity security of which is and has been so registered, the term "Issuer" shall mean such other Person; and (B) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, a class of equity security of two or more of which are and have been so registered, the term "Issuer" shall mean whichever of such Persons is the issuer of the equity security having the greatest aggregate market value. Notwithstanding the foregoing, if the Issuer in any of the Flip-over Events listed above is not a corporation or other legal entity having outstanding equity securities, then, and in each such case, (i) if the Issuer is directly or indirectly wholly owned by a corporation or other legal entity having outstanding equity securities, then all references to Common Shares of the Issuer shall be deemed to be references to the Common Shares of the corporation or other legal entity having outstanding equity securities which ultimately controls the Issuer, and (ii) if there is no such corporation or other legal entity having outstanding equity securities, (Y) proper provision shall be made so that the Issuer shall create or otherwise make available for purposes of the exercise of the Rights in accordance with the terms of this Plan, a type or types of security or securities having a fair market value at least equal to the economic value of the Common Shares which each holder of a Right would have been entitled to receive if the Issuer had been a corporation or other legal entity having outstanding equity securities; and (Z) all other provisions of this Plan shall apply to the issuer of such securities as if such securities were Common Shares. (c) Notwithstanding anything contained in this Plan to the contrary, the adjustments described in Section 8(a) of this Plan shall not be made upon the occurrence of an event described in Section 8(a)(i) or Section 8(a)(ii) if all of the following are met: (i) the Company shall merge or consolidate with an Acquiring Person (or a wholly owned subsidiary of such Acquiring Person) who became an Acquiring Person pursuant to a Permitted Offer; (ii) the per share consideration offered in such merger or consolidation is equal to or greater than the price per Common Share paid to all holders of Common Stock whose shares were purchased pursuant to such Permitted Offer; and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such Permitted Offer. (d) The Company shall not consummate any Flip-over Event unless the Issuer shall have a sufficient number of authorized Common Shares (or other securities as contemplated in Section 8(b) above) which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 8 and unless prior to such consummation the Company and the Issuer shall have both executed an agreement providing for the terms set forth in subsections (a) and (b) of this Section 8 and further providing that as soon as practicable after the consummation of any Flip-over Event, the Issuer will (i) prepare and file a registration statement under the Securities Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date; and (ii) deliver to holders of the Rights historical financial statements of the Issuer and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. (e) The provisions of this Section 8 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Flip-over Event occurs at any time after the occurrence of a Flip-in Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in this Section 8. Section 9. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights. In lieu of any fractional Rights which would otherwise result from this Plan, the number of Rights to be issued to a shareholder of the Company shall be rounded to the nearest whole Right. (b) The Company shall not be required to issue fractions of Common Shares upon exercise of the Rights or to distribute certificates which evidence fractional Common Shares. In lieu of any fractional Common Shares which would otherwise result from this Plan, the number of Common Shares to be issued by the Company under the Plan shall be rounded to the nearest whole Common Share. Section 10. Agreement of Rights Holders. Every holder of a Right by accepting the same consents and agrees with the Company and with every other holder of a Right that, notwithstanding anything in this Plan to the contrary, the Company shall not have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Plan by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided however that the Company shall use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as reasonably possible. Section 11. Redemption. (a) The Board of Directors of the Company may at its option redeem all but not less than all of the then-outstanding Rights at the Redemption Price at any time prior to the Close of Business on the earlier of (i) the Final Expiration Date or (ii) the tenth business day following the Share Acquisition Date. (b) If after the occurrence of a Share Acquisition Date and following the expiration of the right of redemption hereunder but prior to the occurrence of a Triggering Event, each of the following shall have occurred and remain in effect: (i) a Person who is an Acquiring Person shall have transferred or otherwise disposed of a number of Common Shares in a transaction, or series of transactions, which did not result in the occurrence of any Triggering Event such that such Person is thereafter a Beneficial Owner of ten percent or less of the outstanding Common Shares, (ii) there are no other Persons, immediately following the occurrence of the event described in clause (i), who are Acquiring Persons, and (iii) the transfer or other disposition described in clause (i) above was other than pursuant to a transaction, or series of transactions, which directly or indirectly involved the Company or any of its Subsidiaries, then the right of redemption set forth in Section 11(a) shall be reinstated and thereafter be subject to the provisions of this Section 11. (c) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall publicly announce such action and within ten calendar days thereafter the Company shall give notice of such redemption to the holders of the then-outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Company or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The Company may at its option pay the Redemption Price in cash, Common Shares (based upon the current per share market price of the Common Shares (determined pursuant to Section 6(d) hereof), at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors. (d) The Board of Directors of the Company may at any time relinquish any or all of the rights to redeem the Rights under Sections 11(a) or 11(b) hereof by duly adopting a resolution to that effect. Promptly after adoption of such a resolution, the Company shall publicly announce such action. Immediately upon adoption of such resolution, the rights of the Board of Directors under the portions of this Section 18 specified in such resolution shall terminate without further action and without any notice. Section 12. Notice of Certain Events. (a) In case after the Distribution Date the Company shall propose (i) to pay any dividend payable in stock of any class to the holders of Common Shares or to make any other distribution to the holders of Common Shares (other than a regular periodic cash dividend at a rate not in excess of 125 percent of the rate of the highest regular periodic cash dividend paid during the immediately preceding two years), (ii) to offer to the holders of Common Shares rights, options or warrants to subscribe for or to purchase any additional Common Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Common Shares (other than a reclassification involving only the subdivision of outstanding Common Shares), or (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of assets or earning power (including without limitation securities creating any obligation on the part of the Company and/or any of its Subsidiaries) representing more than fifty percent of the assets and earning power of the Company and its Subsidiaries, taken as a whole, to any other Person or Persons, then in each such case the Company shall give to each holder of a Right Certificate notice in accordance with Section 13 hereof of such proposed action which shall specify the record date for the purposes of such stock dividend, distribution or offering of rights, options or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty calendar days prior to the record date for determining holders of the Common Shares for purposes of such action, and in the case of any such other action at least twenty calendar days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares, whichever shall be the earlier. (b) In case any Triggering Event shall occur, then in each such case the Company shall as soon as practicable thereafter give to each holder of a Right Certificate notice in accordance with Section 13 hereof of the occurrence of such event which shall specify the event and the consequences of the event to holders of Rights. Section 13. Notices. (a) Notices or demands authorized by this Plan to be given or made by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by (i) confirmed telefax or (ii) first-class mail with postage prepaid, addressed (until written notice of another address is given to the holders of Right Certificates) as follows: Good Times Restaurants Inc. 601 Corporate Circle Golden, CO 80401 Telefax: (303) 273-0177 Attn: Mr. Boyd E. Hoback, President (b) Notices or demands authorized by this Plan to be given or made by the Company to or on the holder of any Right shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 14. Supplements and Amendments. Prior to the Share Acquisition Date, the Company shall supplement or amend any provision of this Plan in any manner which the Company may deem desirable without the approval of any holders of Rights or certificates representing Common Shares. Notwithstanding anything in this Plan to the contrary, no supplement or amendment shall be made which decreases the stated Redemption Price or the period of time remaining until the Final Expiration Date. Section 15. Successors; Certain Covenants. All the covenants and provisions of this Plan by or for the benefit of the Company shall bind and inure to the benefit of its successors and assigns hereunder. Section 16. Severability. If any term, provision, covenant or restriction of this Plan is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 17. Governing Law. This Plan and each Right Certificate issued hereunder shall be deemed to be a contract made under the internal substantive laws of the State of Nevada and for all purposes shall be governed by and construed in accordance with the internal substantive laws of such State applicable to contracts to be made and performed entirely within such State. Section 18. Descriptive Headings. Descriptive headings of the several sections of this Plan are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the Company has caused this Shareholder Rights Plan to be duly executed on its behalf as of the date first above written. GOOD TIMES RESTAURANTS INC., a Nevada corporation By: /s/ Boyd E. Hoback Boyd E. Hoback, President and Chief Executive Officer EX-7 9 Exhibit 21.1 December 22, 1997 Good Times Drive Thru Inc., a Colorado Corporation, is the only current subsidiary of Registrant. EX-8 10 Exhibit 23.1 December 18, 1998 Hein + Associates LLP 717 17th Street, Suite 1600 Denver, Colorado 80202 Gentlemen: In connection with your consent for the Form S-8 Registration Statement, we confirm to the best of our knowledge and belief the following representations made to you. 1. We are responsible for the fair presentation in the financial statements of financial position, results of operations, and cash flows, in conformity with generally accepted accounting principles. 2. We have reviewed our representation letter to you dated November 13, 1998 with respect to the audited financial statements for the period ended September 30, 1998. We now repeat those representations 1 through 22 and incorporate them herein. 3. There have been no Board of Directors meeting subsequent to October 13, 1998 other than December 10, 1998. 4. No events have occurred subsequent to September 30, 1998 that would require adjustment in the financial statements. Very truly yours, /s/Boyd E. Hoback __________________ Boyd E. Hoback President & Chief Executive Officer /s/Sue Knutson __________________ Sue Knutson Controller -----END PRIVACY-ENHANCED MESSAGE-----