-----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, CF2tGO8yqkRsKcvLVrN1AoALDvrvKCcMe4diItcp/pRmKPysMQd6lqBXk4z9qxns bkP26KM4ZRp/5/qfKi/Idg== 0001047469-97-000753.txt : 19971015 0001047469-97-000753.hdr.sgml : 19971015 ACCESSION NUMBER: 0001047469-97-000753 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971014 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA CULINARY ACADEMY INC CENTRAL INDEX KEY: 0000858915 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 943042862 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-21932 FILM NUMBER: 97695504 BUSINESS ADDRESS: STREET 1: 625 POLK ST CITY: SAN FRANCISCO STATE: CA ZIP: 94102 BUSINESS PHONE: 4157713536 MAIL ADDRESS: STREET 1: 625 POLK ST CITY: SAN FRANCISCO STATE: CA ZIP: 94102 10KSB 1 FORM 10KSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] Annual report under section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended June 30, 1997 [ ] Transition report pursuant to section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from to -------------------- COMMISSION FILE NUMBER: 0-21932 CALIFORNIA CULINARY ACADEMY, INC. (Name of small business issuer in its charter) California 94-3042862 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 625 Polk Street San Francisco, CA 94102 (Address of principal executive offices) (Zip Code) Issuer's Telephone Number: (415) 771-3536 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, no par value -------------------------- (Title of class) Check whether the issuer (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 . ----- ----- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Revenues for the most recent fiscal year were: $15,339,000 The aggregate market value of the voting stock held by non-affiliates computed by reference to the closing sale price on September 30, 1997, was $18,621,000. The number of shares outstanding of the issuer's Common Stock as of September 30, 1997, was 3,568,454. Documents incorporated by reference: None Transitional Small Business Disclosure Format. Yes No X . ------- ------- 1 This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results may differ materially from the results projected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "ITEM 1 - Business," including the section therein entitled "Risk Factors," and in "ITEM 6 - Management's Discussion and Analysis of Financial Condition and Results of Operations." PART I ITEM 1. BUSINESS The California Culinary Academy, Inc., ("Academy") is one of the largest publicly held, for-profit professional culinary arts training schools in the United States (based on the number of students enrolled in its programs) offering a variety of programs to culinary arts professionals, serious amateurs and other members of the public who may be interested in specific culinary subjects. The Academy operates at two locations: the main campus located in San Francisco, California and at an extension campus in Salinas, California. In conjunction with its educational activities, the Academy operates two public restaurants and a small retail shop at its San Francisco campus, serving a clientele that consists of students, staff and the general public. The Academy has been in operation since 1977, offering its core programs, consisting of the Associate of Occupational Studies ("AOS") Culinary Arts Degree Program ("AOS Program"), the Baking & Pastry Arts Certificate Program ("B&P Program") and weekend continuing education programs for professionals and other courses or workshops for interested non-professional students. In October 1996, the Academy introduced a new concept in culinary education when it opened its "College of Food," at its extension campus in Salinas. The strategy of the College of Food is to increase students' basic knowledge of kitchen skills, sanitation and supervisory skills, as well as offering specialized courses in baking and pastry. The College of Food concept is designed to attract students who wish to enter the culinary field, food service workers who need specialized training or individuals who simply want to expand their culinary knowledge. Because the curriculum at the Academy focuses on practical skills and techniques that the Academy believes are critical to success in the food industry, the Academy has historically enjoyed a high job placement rate among its graduates. As of September 1, 1997, the Academy has graduated approximately 4,900 students from its professional programs. In addition, thousands of individuals have attended one or more of its continuing education classes. For the year ended June 30, 1997, the Academy averaged approximately 610 full-time students in its AOS Program and B&P Program. These programs are designed to accommodate up to 25 students in each of approximately 25 enrollment periods per year for the AOS Program and nine enrollment periods for the for the B&P Program. The College of Food, which can accommodate up to approximately 140 students with new enrollments occurring approximately every three to four weeks, averaged 17 students during the year ended June 30, 1997. The predecessor to the California Culinary Academy, Inc. was incorporated in June 1977, as a Pennsylvania corporation. In October 1986, the Academy was incorporated in the State of California under the name CCA Acquisition Corporation and was the surviving corporation in a merger with the Pennsylvania corporation. Upon completion of the merger, CCA Acquisition Corporation changed its name to California Culinary Academy, Inc. EDUCATIONAL PROGRAMS The Academy's professional programs are designed to prepare students for entry-level professional positions or for individual advancement to supervisory positions in foodservice operations. The primary educational offerings of the Academy are the AOS Culinary Arts Degree Program (the "AOS Program") and the Baking & 2 Pastry Arts Certificate Program ("B&P Certificate"). The Academy has also applied for certification of its Basic Professional Culinary Skills Program at the College of Food. Completed coursework from the College of Food's Basic Professional Culinary Skills Program is transferable into the Academy's AOS Program. In addition to its degree and certificate programs, the Academy also offers a large variety of non-degree programs for professionals and other students. All professional programs emphasize "hands on" practical experience. Full-time classes at the main campus in San Francisco are offered in two seven-hour shifts, from 7 AM to 10 PM, Monday through Friday. At the College of Food, classes are offered in a choice of four hours shifts, from 9 AM to 1 PM or from 6 PM to 10 PM for part-time students. Part-time students typically have full or part-time jobs and the choice of classes accommodates their employment schedules. Continuing education courses are offered on weekends at the Academy's main campus. AOS PROGRAM The Culinary Arts Program provides an intensive 18-month course of study leading to an Associate of Occupational Studies ("AOS") degree in Culinary Arts. The program is divided into two academic terms. Enrollment periods begin every two weeks, which provides students with flexible scheduling options and most efficiently utilizes the services of the Academy's chef instructors and the Academy's facilities. The curriculum of the AOS Program, which integrates classical and modern culinary techniques with strong kitchen management skills, is designed to prepare students for professional entry into the foodservice industry. Courses include Food Science and Technology, Food History and Anthropology, Baking and Pastry, Skill Development, Garde Manger, Hospitality Management, Production Kitchens, Wine Appreciation and other related subjects. In these courses students learn how to prepare breads, pastries, desserts, appetizers, soups, sauces, vegetables, salads, sandwiches, hors d'oeuvres, cold buffets, and entrees. They also learn to identify, fabricate and portion meats, poultry and fish. The professional kitchen management courses include such topics as sanitation, hygiene, safety procedures, cost control, human resource management and styles of table service. Integral to the coursework is experience operating the Academy's two restaurants and participating in an externship. See "-Restaurants, Retail and Media." In connection with the Academy's restaurant operations, students rotate through kitchen stations in order to gain proficiency in various skills needed to perform at professional standards in a commercial kitchen, and serve the general public clientele in both sit-down and buffet-style settings. The AOS Program provides a sequential course of study culminating in a three-month off-site externship where students gain actual experience working under a highly qualified professional chef. As of September 1, 1997, tuition and fees for the AOS Program total approximately $27,000 for the full 18-month course of study. This fee includes textbooks, uniforms, knife kits, the cost of food used in the classrooms and one meal per day, in addition to the cost of course instruction. Tuition is payable in installments during the two academic terms. Financial assistance is available to eligible students. See "-Government Financial Aid Programs and Regulation." BAKING & PASTRY CERTIFICATE PROGRAM The Baking & Pastry Certificate Program (the "B&P Certificate") is designed for those students interested in professional baking. The program provides 30 weeks of comprehensive study, with an emphasis on the hands-on application of fundamental techniques and ingredients. The program is divided into four modules, including (i) breads and doughs, (ii) cakes, (iii) service pastry and desserts, and (iv) chocolate, confectionery and showpieces. In addition, the curriculum includes professional development courses on safety and sanitation, nutrition and human resource management. Although not included as a required part of the curriculum, externships are available. Enrollment periods begin approximately every five weeks and each session can accommodate up to 25 students. 3 As of September 1, 1997, tuition and fees for the B&P Certificate total approximately $11,000 for the full 30-week course of study. This fee includes textbooks, uniforms, knife kits, cost of food, one meal per day and supplies. Deferred payment plans and financial assistance are available to eligible students. See "-Government Financial Aide Programs and Regulation." BASIC PROFESSIONAL CULINARY SKILLS PROGRAM The Academy has applied to the California Council for Private Postsecondary and Vocational Education ("CPPVE") for certification of its 12-credit course of study offered at the College of Food. A decision on this certification application is expected in early 1998. The Academy believes that its College of Food Basic Skills Program will receive the certification being sought; however, there can be no assurance that the College of Food Basic Skills Program will be approved by CPPVE in its current configuration or at all. The College of Food Basic Skills Program requires completion of 352 hours of study for 12 credits as follows: 32 hours of Safety and Sanitation; 128 hours of Kitchen Skills; 64 hours of Basic Baking skills; 64 hours of Garde Manger; 32 hours in Breakfast Cookery, and 32 hours of Current Topics in Mid-Scale Dining. Credits from the College of Food Basic Skills Program can be applied toward earning an AOS degree or a B&P Certificate through the Academy's core programs at the main campus. As of September 1, 1997, tuition and fees for the Certificate of Basic Professional Culinary Skills Program is $3,465. NON-DEGREE OR CERTIFICATE PROGRAMS In addition to its educational programs leading to the AOS Degree in Culinary Arts, the B&P Certificate, and the College of Food Certificate of Basic Professional Culinary Skills (upon approval by CPPVE), the Academy offers non-degree continuing education courses for professionals and serious amateurs as well as other courses of interest to anyone who likes to cook. The professional non-degree continuing education programs address traditional kitchen skills with emphasis on palate development, cooking techniques, and sauces. The courses generally are offered on consecutive weekends, and cover a variety of subjects. Currently the Academy offers a series of eight-week culinary courses, a 14 week baking and pastry series. Fees for the non-degree professional programs range from $1,100 to $1,775. Completed coursework can be applied toward earning an AOS degree or a B&P Certificate. EDUCATIONAL SERVICES JOB PLACEMENT FOR PROFESSIONAL PROGRAM STUDENTS AND GRADUATES. The Academy's Career Services staff assists currently enrolled students and graduates in obtaining positions in the food industry in a number of ways. The Career Services Office houses reference material containing current job openings that include entry level through advanced positions throughout the United States and foreign countries. For students and graduates who are unable to access the current job openings on campus, these job openings are also recorded on the Job Hotline, a telephone announcement that is updated weekly. Twice per year during the Academy's Spring and Fall Recruitment Weekend, the Career Services staff coordinates a Career Fair featuring representatives from all areas of the food industry seeking to hire students and graduates of the Academy. The Career Services staff also coordinates interview schedules for companies recruiting students and graduates directly from the Academy during the Recruitment Weekend. In addition, individual counseling sessions, resume assistance and other career development materials are available through the Career Services Office. While the Academy does not guarantee employment or specific positions upon graduation, it believes its name, reputation, and high job placement rate are factors that attract students to its professional programs. 4 Students interested in part-time or full-time jobs while they are enrolled at the Academy can contact the Career Services Office. The Academy provides students with names of prospective employers seeking catering staff or other part-time and full-time assistance. Additionally, the Academy itself offers part-time employment. For example, the Academy's Food and Beverage Department hires students to assist with special functions and events, such as private parties and corporate events held in its restaurants. The Academy also offers federal work-study opportunities. ALUMNI RELATIONS. The California Culinary Academy alumni relations and career services personnel are available to refer graduates to other alumni, answer questions, provide programs, activities and professional opportunities. RECRUITMENT AND ADMISSIONS. Students are recruited both domestically and internationally. Statistics compiled in August 1997 show that as of June 30, 1997 approximately 80% of the full-time students enrolled in the Academy's AOS or B&P Certificate programs are from Northern California. Applications for admission to the professional programs are reviewed by the Academy's admissions staff. In considering an applicant for admission to the AOS or B&P Certificate programs, the admissions staff first determines whether an applicant meets certain minimum prerequisites, including: (I) demonstrated motivation towards a career in the culinary arts; (II) graduation from high school with at least a 2.0 grade point average or passage of an approved high school equivalency examination; and (III) for those whose native language is other than English, passage of the TOEFL test of English as a Foreign Language with a score of at least 550 out of a total of 665. Experience in the food industry is viewed favorably by the admissions staff but is not considered a prerequisite for admission to any of the Academy's programs. Applicants to the Academy's College of Food programs are required to have a high school diploma or to have passed an approved high school equivalency examination. In lieu of this requirement, an applicant must pass an entrance examination and may be required to be interviewed by the chef instructor. The Academy has articulation agreements with 18 regional junior colleges allowing certain courses to be transferred to the Academy for credit. The Academy believes this arrangement enables it to recruit more effectively from junior colleges. The Academy believes that an important recruiting tool is its media exposure. A 13-part series, COOKING AT THE ACADEMY, was developed and written by the Academy and produced by the San Francisco public television station, KQED. This series has been shown in its entirety since 1991 through the Public Broadcasting System to the over 250 major media markets in the United States. In the spring of 1995, a new 26-episode series of COOKING AT THE ACADEMY began airing on public television stations throughout the country. Additionally, the Academy is featured in a syndicated radio talk show, FOOD FOR THOUGHT, airing in the central California Monterey Bay area on KSCO radio, as well as DINING AROUND WITH GENE BURNS on KGO radio in San Francisco. The Academy believes that such widespread exposure has enhanced the Academy's name recognition, reputation and new student recruitment efforts. See "-Restaurants Retail and Media." On-site admissions representatives, who are full-time salaried employees, are responsible for recruiting students at the Academy. These admissions representatives consult with prospective students who are referred by alumni, respond to the Academy's advertising or are otherwise motivated to contact the school. EDUCATIONAL PROGRAM DEVELOPMENT. The Academy's ability to attract new students and place graduating students depends to a significant extent on its ability to offer educational and training programs that provide students with skills sought after in the food industry. Given the continual changes in professional cooking and professional baking, the Academy believes it is critical that the most current methods are taught. The Academy's Educational Program Committee (consisting of members of the Academy's faculty, administration, and focus groups from the food industry), attempts to respond quickly to both the culinary and business needs of the food industry. Recent enhancements to the AOS curriculum address profiling the culinary arts program toward the global cuisine of today's industry. Coursework in areas such as Foods of the Americas, Asian Cuisine and a 5 computer software course in food industry applications respond directly to existing and current demands placed upon the Academy's students upon graduation. EDUCATION-OPERATIONS DEPARTMENT. The Education-Operations Department is responsible for the quality and delivery of the education process, including direct responsibility for curriculum content and sequencing, chef instructor training and development and teaching and evaluation methods. The Director of Education-Operations is assisted by the heads of each educational area - Basic Skills, Culinary Production, Baking and Pastry and Related Subjects, each of whom serves as an instructor in the AOS degree or B&P Certificate programs. In addition, the Department develops, monitors, and updates the educational programs offered at the Academy. STUDENT RETENTION. The Academy continually focuses significant efforts on maintaining high retention rates for students. For the fiscal years ended June 30, 1997 and 1996, approximately 82% of the then enrolled students successfully completed the AOS Culinary Arts Degree Program on schedule. An additional 5% graduated at a later date. However, as is the case at most institutions of higher education, some of the Academy's students end their studies early for personal, financial or academic reasons. The Academy faculty maintain weekly office hours to provide academic assistance and to advise students. The Academy faculty and administration are also available to provide support and referrals to students experiencing personal difficulties. RESTAURANTS, RETAIL AND MEDIA RESTAURANTS. The Academy operates two public restaurants at its San Francisco campus: the Careme Room, a fine dining restaurant with seating for approximately 325 diners, and the mid-scale Grill, with seating for approximately 125 diners. The restaurants are open to the public seven days per week for lunch and dinner, excluding school holidays. The restaurants are staffed by students under faculty supervision and serve as an important teaching environment since they provide "hands-on" experience in restaurant food preparation, service and management. In addition, the restaurants provide an additional source of revenue. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations)." As a part of the AOS Program, the Academy's students are instructed in dining room service styles, as well as professional cooking and food and beverage management. RETAIL. The Academy operates a small retail shop at its San Francisco campus. The retail shop, which services students, staff and the public, is open five days per week, offering drinks and a limited deli selection. In addition, the shop offers various clothing items bearing the Academy name and logo, cookbooks, videotapes of the two COOKING AT THE ACADEMY series, knife kits bearing the Academy logo and trademark and other selected cooking tools. MEDIA. The Academy has a multi-year agreement with Simon & Schuster to author and publish four cookbooks. Presently manuscripts have been submitted and accepted for one book. Publication of the first of the series, WRAPS, is scheduled for February 1998. The agreement provides for the Academy to earn fees for the delivery of acceptable outlines and completed manuscripts to the publisher, in addition to royalties ranging from 6% to 10% on the sale of published works. The Academy developed and wrote the 13-part television series, COOKING AT THE ACADEMY, produced in 1991 by San Francisco public television station KQED, which features cooking instruction on specific topics by the Academy's chef instructors or former chef instructors. Over 135,000 copies of the accompanying cookbook, COOKING AT THE ACADEMY, have been distributed under various distribution agreements. In addition, a series entitled "California Culinary Academy Cookbooks," which includes 30 titles, has sold over two million copies since 1985. In 1995, 26 new episodes of COOKING AT THE ACADEMY began airing on public television stations throughout the country. Over 85,000 copies of the accompanying cookbook, FESTIVE FAVORITES, have been distributed under various distribution agreements. 6 The Academy hosts a radio talk show, FOOD FOR THOUGHT, airing in the Monterey Bay area on KSCO radio as well as DINING AROUND WITH GENE BURNS on KGO radio in San Francisco. The Academy maintains a home page on the Internet at "www.baychef.com" as a promotion and marketing tool to attract new students. The Academy's website provides information on the Academy's educational programs and personnel, programs costs, admissions procedures and forms and allows interested parties to communicate with the Academy via e-mail and to order selected merchandise from the Academy's retail store. ACCREDITATION OF THE ACADEMY AND ITS PROFESSIONAL PROGRAMS Accreditation is a process for evaluating educational institutions and their professional programs. Such evaluation process recognizes the quality of educational program offerings and entitles the schools to the confidence of the educational community, federal and state government agencies and the public at large. In the United States, this accreditation is given primarily through non-government, voluntary, institutional or professional associations. Those groups establish criteria for accreditation, arrange site visits and evaluate institutions and professional programs that desire accredited status, publicly designating those that meet their criteria. Accredited schools are subject to periodic review by accrediting bodies to ensure that the schools maintain the level of program performance, content and teaching and administrative quality required by the accrediting body. The Academy is recognized in its postsecondary educational programs by the U.S. Department of Education ("DOE") and by the California Council for Private Postsecondary and Vocational Education ("CPPVE"). The Academy is accredited by the American Culinary Federation Educational Institute Accrediting Commission ("ACFEI") and by the Accrediting Commission for Career Schools/Colleges of Technology ("ACCSCT"). The Academy is approved by CPPVE to grant to its students who successfully complete the full-time Culinary Arts Degree program an Associate of Occupational Studies ("AOS") degree in Culinary Arts and a Certificate in Baking and Pastry Arts for those students completing the full-time Baking & Pastry program. Approval from CPPVE is renewed periodically in accordance with the provisions of the California Education Code. The Academy has applied for a Certificate of Basic Professional Culinary Skills for those students completing the Basic Professional Culinary Skills program in the College of Food from CPPVE. The Academy's courses of instruction for the AOS and Baking & Pastry Certificate programs are approved for veterans training by the federal Department of Veterans Affairs under the GI Bill of Rights and the Veterans Education Assistance Programs ("VEAP") and for foreign students under the rules and regulations of the Immigration and Naturalization Service ("INS"). GOVERNMENT FINANCIAL AID PROGRAMS AND REGULATION The Academy's students finance their education, in whole or part, through individual resources, with approximately 64% of students receiving some form of financial aid assistance. Approximately 37% of the Academy's fiscal 1997 educational program revenues were derived from federal and/or state government-sponsored financial aid. On the basis of financial information provided by the student and/or the student's family, the Academy develops an assistance package for students who are eligible for financial aid. To maintain financial assistance eligibility, students must demonstrate satisfactory academic progress. Extensive and complex regulations govern all of the government grant and loan programs in which the Academy and its students participate. These programs are required to be administered in accordance with the standard of care and diligence of a fiduciary and are subject to annual audits. All of the Academy's financial aid counselors and the Director of Financial Aid are certified by the State of California. Any regulatory violation could be the 7 basis for suspension, limitation, or termination proceedings. No suspension, limitation, or termination proceedings have ever been instituted against the Academy. In July 1995, the Academy was recertified by the DOE that it is eligible to continue to participate in the federal financial aid programs under Title IV of the Higher Education Act ("HEA") through July 31, 1999. An institution is required to meet certain specified financial standards in order to participate in Title IV financial aid programs administered by the DOE. Failure of an institution to adhere to those standards may result in the DOE requiring that institution to post a letter of credit or other surety to ensure that the institution is able to fulfill its educational commitments to its students and pay required refunds upon withdrawal. Management believes that the Academy can demonstrate financial responsibility in accordance with the standards set forth by the DOE. The Academy devotes significant effort to properly and satisfactorily administering the financial aid programs in accordance with applicable government regulations and responsibilities. The Academy has established an internal review committee charged with ongoing compliance reviews to identify problems, to take expeditious corrective action and to implement any and all mandated changes in regulations affecting these programs on a timely basis. In addition, the Academy has: (i) developed job descriptions that the Academy believes comply with Federal Work Study ("FWS") employment at for-profit postsecondary institutions; (ii) adopted internal written procedures to ensure compliance with Title IV restrictions; and (iii) established and maintains general ledger control accounts and related subsidiary accounts to assist in the accurate and timely reporting of information to the DOE and other interested parties. The following is a list of government financial aid programs in which the Academy's students participate: Federal PELL Grant Federal Supplemental Educational Opportunity Grant ("SEOG") Federal Stafford Loan Program (subsidized) Federal Stafford Loan Program (unsubsidized) Federal Perkins Direct Student Loan Programs ("Perkins") Federal Parent Loans for Undergraduate Students ("PLUS") Federal Work Study ("FWS") California State Grants A, B and C The Academy is also approved to train veterans and, therefore, students may be eligible to receive benefits from the Veterans Administration. The Academy's continued eligibility to participate in Title IV student financial aid loan programs is dependent, in part, on maintaining an acceptable "cohort" default rate. The cohort default rate is defined as the default rate of all federal financial aid loan programs, other than the Perkins program. The Perkins program default rate is calculated separately and is the smallest of the Academy's federally funded financial aid loan programs. Any institution that has a cohort default rate of 25% or greater for three consecutive years will not be eligible to participate in certain Title IV student financial aid loan programs for approximately three years. The Academy's cohort default rate for the two-year period ending September 30, 1996 was 12.9%. Approximately 37% of educational program revenues during fiscal 1997 were provided by federal and/or state government-sponsored financial aid programs, a substantial portion of which were derived from various student loan programs. Participating students make loan application to one of several federally approved financial institutions. The ability of private financial institutions to originate loans to the Academy's students is critical to the Academy's business. 8 Grants are funds made available to eligible students by the government and do not have to be repaid. The Academy is eligible to participate in federal PELL Grant and SEOG programs. Both are federal programs for undergraduates at postsecondary schools in the United States who have demonstrated sufficient financial need. All government-subsidized financial assistance programs for students are subject to political and budgetary consideration outside the control of the Academy. No assurance can be given that governmental programs that are currently providing financial assistance and subsidies to students attending the Academy's education programs will remain available at present levels. A reduction or curtailment of funding levels, or other unanticipated changes in federal assistance program participation requirements, would result in lower enrollments and adversely impact the Academy's business. COMPETITION The Academy is one of the largest professional chef training schools in the United States, according to enrollment statistics in the 1996 SHAW GUIDE. However, the market for professional training of chefs is fragmented and regionally oriented. According to the American Culinary Federation Educational Institute, there are approximately 500 postsecondary culinary programs offered worldwide. These programs range from simple food programs offered by vocational training schools to fully accredited four-year programs. As of June 30, 1997, admissions statistics show that approximately 80% of the Academy's students reside in Northern California. However, the Academy believes that it competes in the professional chef training market with, among others, the Culinary Institute of America, with its main campus in Hyde Park, New York and Johnson & Wales University in Providence, Rhode Island with campuses in Maryland, Colorado and Florida, founded in 1946 and 1914, respectively, both of which are not-for-profit institutions. The Academy believes that both of these institutions have secured significant financial and equipment contributions to build new facilities and expand their classrooms. The Academy's business will be subject to its ability to compete effectively with the Culinary Institute of America and Johnson & Wales, as well as other competitors now in, or which subsequently enter, the professional chef training market. The Academy believes that competition in the professional chef training market is based primarily on the quality of an educational institution's faculty and educational services, the job placement of graduates and the quality of the academic facilities. The Academy believes that it competes favorably on these criteria and, in addition, that it is recognized for its quick reaction time to the industry's needs, and continued improvements in the quality of its training programs. There is no assurance, however, that the Academy will continue to be able to do so. PROPRIETARY RIGHTS The Academy has registered service marks consisting of the names "California Culinary Academy" and "College of Food" along with the CCA stylized logo, which are registered with the U.S. Patent and Trademark Office for various uses. In addition, the names "California Culinary Academy" and "College of Food" are tradenames of the Academy also registered with the U.S. Patent and Trademark Office. Although the Academy's service marks are incontestable by any party, no assurance can be given that such registrations are not cancelable on grounds other than prior use. The Academy plans to defend its marks in the event of unauthorized infringement. Such a defense would be time consuming and expensive, regardless of the outcome. Failure or inability to defend its marks could adversely impact the Academy's reputation and results of operations. Generally, a trademark is protected from infringement for a period of ten years, with renewal granted for an additional ten-year period. In 1989, the Academy renewed the registration for its "California Culinary Academy" trademark and tradename. 9 FACULTY AND EMPLOYEES The Academy employed 153 persons at September 22, 1997, of which 20 were part-time. Those employees included the Chief Executive Officer, President, and Chief Financial Officer, 92 members of the administrative and operational staff and 38 chef instructors and adjunct faculty. RISK FACTORS In addition to various risks discussed throughout this report, the following risk factors might cause the Academy's financial results to differ materially from the results projected. REGULATORY ISSUES. The Academy is subject to extensive regulation by state, federal and accrediting agencies. A substantial portion of the Academy's revenues are derived in connection with federal financial aid programs. Any failure to observe the various regulatory standards would have a material adverse effect on the business of the Academy. While the Academy believes that it can demonstrate financial responsibility in accordance with the standards set forth by the DOE, there can be no assurance that it will continue to be in compliance in the future. COMPETITION. The market for post-secondary culinary education is highly competitive and fragmented. Other schools may offer similar programs, and may do so at lower rates due to government subsidies and tax-deductible contributions not available to for-profit institutions. The Academy believes that its programs compete favorably with other institutions providing culinary arts education: however, there can be no assurance that it will continue to stay in compliance or that the regulation will not materially change making it more difficult or impossible for the Academy to comply. CHANGE OF CONTROL. The Academy would be ineligible to participate in Title IV financial aid programs in the event there were a "significant" change of ownership or control. In the event of such a change, the Academy would be required to apply for recertification, a process that could take several months. Given that most of the Academy's Common Stock is publicly traded or available for public sale, there can be no assurance that such a change of control may not occur. ITEM 2. PROPERTY The Academy leases approximately 67,000 square feet of space at 625 Polk Street in San Francisco, California, an historic building. The monthly rental obligation is approximately $98,000, with a declining payment schedule over time. The Academy is also responsible for payment of its pro rata share of all leasehold expenses including insurance, taxes, utilities and maintenance, which were approximately $12,000 per month during fiscal year 1997. The lease term extends until March 31, 2013, with three five-year renewal options thereafter. Academic facilities at the main campus at 625 Polk Street include lecture classrooms and 14 kitchens for practical training, including four baking and pastry kitchens, a confiserie, two garde manger kitchens, a seafood butchery, a meat butchery, three professional production kitchens, a demonstration kitchen and a skill development lab. Table service classroom facilities include two full service, student-run public restaurants, which seat more than 700 customers for lunch and dinner seven days a week. Other facilities include a retail shop for the sale of culinary art supplies and student prepared food products from the garde manger, pastry shop, bakery and confiserie. The Academy also has a library and offices for administrative, admissions, financial aid, educational services, faculty and consumer education. In February 1994, the Academy entered into a two-year lease for approximately 1,500 square feet at 700 Polk Street in San Francisco, which it uses for certain of its educational programs. Rental payments on this location are approximately $2,700 per month. The lease expires in February 1998. 10 In July 1996, the Academy entered into a five-year lease for approximately 4,000 square feet in the city of Salinas, California for use as a culinary arts training center, the prototype College of Food. The lessor is a partnership whose partners include the Chairman of the Board of Directors and certain shareholders in the Academy. Independent members of the Board of Directors approved the lease. Management believes that these lease terms are no less favorable than those that the Academy may have negotiated with an independent landlord. The monthly rent for the facility is the greater of approximately $3,900 or 8% of gross sales, plus a share of common area and exterior maintenance charges that approximate $1,000 per month. In August 1997, the Academy entered into a master lease of a 68-room hotel in San Francisco, approximately one block from the main campus, to provide student housing. The monthly rental obligation is approximately $28,000. The Academy is also responsible for payment of its pro rata share of insurance and real property taxes, which were approximately $1,500 per month during September 1997. The lease term extends until August 31, 2012, with three five-year renewal options thereafter. In October 1997, the Academy purchased for approximately $1,900,000 a hotel building in San Francisco, across the street from its main campus, which it intends to use for student housing. It secured long-term financing of $1,200,000 to fund this purchase. No substantial renovation is required or contemplated. Academy management estimates that its current facilities can accommodate approximately 1,230 students which the Academy believes is sufficient for its foreseeable needs. Once full enrollment in these facilities is achieved, the Academy believes additional facilities can be located. ITEM 3. LEGAL PROCEEDINGS The Academy is subject to routine claims and litigation arising out of the normal conduct of its business. While the outcomes cannot be predicted with certainty, the Academy believes that such the resolution of such matters will not have a material effect on the Academy's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Academy's Common Stock traded in the over-the-counter market and is quoted on the Nasdaq National Market under the symbol "COOK." The following table sets forth the high and low closing sale prices for the Common Stock as reported on the Nasdaq National Market for the periods indicated: HIGH LOW ---- --- Fiscal Year Ended June 30, 1996: -------------------------------- Quarter Ended September 30, 1995 $7.625 $4.375 Quarter Ended December 31, 1995 $7.625 $6.500 Quarter Ended March 31, 1996 $7.375 $6.188 Quarter Ended June 30, 1996 $7.750 $6.500 Fiscal Year Ended June 30, 1997: -------------------------------- Quarter Ended September 30, 1996 $8.500 $7.500 Quarter Ended December 31, 1996 $8.875 $8.000 Quarter Ended March 31, 1997 $8.687 $7.250 Quarter Ended June 30, 1997 $8.250 $7.000 11 On September 24, 1997, the last reported sale price for the Common Stock was $7.938 per share. As of August 29, 1997, there were approximately 73 record holders of the Academy's Common Stock. The Academy has never paid cash dividends on its Common Stock. At present, the Academy intends to retain any earnings for use in its business and does not anticipate paying cash dividends in the foreseeable future except as may be required to be paid on its Series A Preferred Stock. Beginning September 30, 1996, it was required to pay and has paid quarterly dividends on its outstanding Series A Preferred Stock at the annual rate of $.4125 per share. An aggregate of $125,313 in cash dividends was paid during the fiscal year ended June 30, 1997, in addition to a distribution in Series A Preferred Stock of 6,300 shares on such Preferred Stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto located on pages 17 through 22. The Academy's revenues are derived primarily from culinary arts education as well as restaurant, retail and media operations. Culinary arts education primarily consists of the AOS Program, the B&P Certificate program, the College of Food Basic Professional Culinary Skills Program, and weekend professional skills program offerings. The AOS Program enrolls students on a two-week cycle. The program can accommodate up to 25 students per class. The 30-week B&P Program enrolls classes on a five week cycle typically ranging in size from 15 to 20 students with five classes enrolled as of June 30, 1997. The College of Food programs commenced October 14, 1996 at the Academy's prototype facility in Salinas, California. As of September 30, 1997, approximately 45 students are enrolled in the Basic Professional Culinary Skills program in Salinas. The College of Food enrolls students every three to four weeks. Weekend professional programs are currently offered every eight or fourteen weeks. As of September 30, 1997, the Academy has 44 students enrolled in various weekend professional programs. Consumer education consists of programs oriented to a part-time audience. The course length and content address the interests of food industry professionals, home cooks and career changers. These courses include single topic classes and various three or four class series current topics and basic skills. Restaurant and retail operations include two restaurants and a private dining room which is generally open to the public seven days per week, banquet services generally offered seven days per week and a small on-site retail shop offering student-prepared foods, beverages, cookbooks, video tapes, kitchen wares and selected clothing. Media operations primarily consist of the marketing of the COOKING AT THE ACADEMY television series and cookbook royalties. Certain expenses such as food costs and costs of goods sold related to both educational services and retail restaurant operations. Revenues from the Academy's AOS Program and the B&P Program rely exclusively on enrollments in those programs. Tuition is initially recorded as deferred revenue at the commencement of each enrollment period and recognized over the length of program as students complete course work required for graduation. The Academy believes that manageable growth is achievable through the addition of extension campuses offering selected courses from the AOS Program at training facilities such as its College of Food at Salinas, California and by the addition of contract training programs offered to the food industry. While management believes that this strategy will enable it to significantly increase revenues by providing additional educational and training resources to the food industry, there can be no assurance that management will be able to successfully implement such a strategy. Except for historical information contained herein, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 12 The forward-looking statements contained herein are based upon current expectations, and actual results may differ materially. Forward-looking statements contained in this Report involve numerous risks and uncertainties, including those discussed in this Report, that could cause actual results to differ materially from those projected. Investors are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Academy undertakes no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. See "Business - Risk Factors." RESULTS OF OPERATIONS The Academy earned net income of $160,000 for the 1997 fiscal year, or $0.04 per share, compared to a net loss of $999,000, or $(0.32) per share for the prior year. Total revenues increased 3.1% for the fiscal year ended June 30, 1997 ("Fiscal 1997") to $15,339,000 from $14,882,000 for the prior year. Total revenues from culinary arts education for Fiscal 1997 were $12,682,000 compared to $12,178,000 for the prior year, an increase of 4.1 Total student count as of June 30, 1997 increased 10.1% to 599 students in the AOS, B&P and College of Food programs compared to 544 for the prior year. The increase is primarily attributable to the introduction of the College of Food programs as well as changes in the frequency of class starts for the AOS program. Restaurant, retail, media and other sales were $2,657,000, or 17.3% of total revenues, during the fiscal year ended June 30, 1997, compared to $2,704,000, or 18.2% of total revenues for the prior year. Prior year's revenue reflected a one-time royalty of $150,000 for the use of the Academy's trademark, logo and certain content in computer CD-ROM software products. Operating expenses were $11,875,000 or 77.4% of revenues for the fiscal year ended June 30, 1997, compared to $12,376,000, or 83.2% of revenues, for the prior year. The decrease was primarily attributable to reduced expenditures for compensation, advertising, outside services, rent, security, business taxes, repairs and maintenance and bad debts offset partially by increased legal expenses and depreciation expenses on capital improvements. Food and beverage costs were $1,744,000, or 11.4% of revenues for the year for the fiscal year ended June 30, 1997, compared to $1,692,000, or 11.4% of revenues, for the prior year. The increase was primarily attributable to increased food and beverage sales. For Fiscal 1997, interest income, net of interest expense, was $52,000, or 0.3% of revenues, compared to interest expense, net of interest income, of $81,000, or 0.5% of revenues, for the prior year. The decrease in net expense was attributable to lower borrowing levels. LIQUIDITY AND CAPITAL RESOURCES Historically, the Academy has financed its long-term growth from the issuance of debt and equity securities in private and public transactions, borrowings from related parties, lease and debt financing obligations and through cash flow provided by operations. At June 30, 1997, the Academy's principal sources of liquidity included cash and cash equivalents of $2,308,000 and net accounts receivable of $2,847,000. At June 30, 1997, the Academy had working capital of $951,000. During Fiscal 1997, the Academy generated $448,000 in positive cash flow from operations. 13 Subsequent to year-end, the Academy purchased a building in San Francisco, which it intends to use for student housing, for approximately $1,900,000, including closing costs. It secured long-term financing of approximately $1,200,000 to fund this purchase. See "Properties." ITEM 7. FINANCIAL STATEMENTS The Balance Sheet of the Academy at June 30, 1997, and the related Statements of Operations, Shareholders' Equity and Cash Flows for the years ended June 30, 1997 and 1996, and notes to the financial statements are located on pages 15 through 29. Form 10-KSB Page ---------------- Report of Independent Public Accountants Deloitte & Touche, LLP 15 Balance Sheets at June 30, 1997 and 1996 16 Statements of Operations for the years ended June 30, 1997 and 1996 17 Statements of Shareholders' Equity for the years ended June 30, 1997 and 1996 18 Statement of Cash Flows for the years ended June 30, 1997 and 1996 19 Notes to Financial Statements 20 14 DELOITTE & TOUCHE OPINION [Letterhead] Board of Directors and Shareholders California Culinary Academy, Inc.: We have audited the accompanying balance sheets of the California Culinary Academy, Inc. (the "Academy") as of June 30, 1997 and 1996 and the related statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of Academy's management. Our responsibility is to express an opinion on these 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 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, such financial statements present fairly, in all material respects, the financial position of the Academy at June 30, 1997 and 1996, and the results of operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP September 15, 1997 (October 3, 1997 as to Note 12) 15 CALIFORNIA CULINARY ACADEMY, INC. BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
June 30, ---------------------- 1997 1996 --------- --------- Current Assets: Cash and cash equivalents $2,308 $3,283 Accounts receivable, net of allowance of $360 and $280 2,847 2,786 Inventories 341 208 Prepaid expenses and other assets 343 160 Deferred tax asset 188 145 --------- --------- Total Current Assets 6,027 6,582 --------- --------- Property and equipment, net of depreciation and amortization 4,965 4,117 Intangible assets, net 419 546 Long-term investments - restricted 646 Other assets 215 967 --------- --------- TOTAL ASSETS $11,626 $12,858 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $680 $749 Accrued liabilities 508 477 Deferred revenue 3,212 3,795 Student prepayments 356 258 Current portion of term loans 50 292 Current portion of capital lease obligations 67 76 Other current liabilities 88 --------- --------- Total Current Liabilities 4,961 5,647 --------- --------- Note payable to bank 500 Capital lease obligations 148 215 Other non-current liabilities 441 Subordinated convertible notes payable 1,400 Shareholders' Equity: Convertible Preferred stock, no par value, 5,000,000 shares authorized, 254,500 issued and outstanding; liquidation preference $5.50 per share 953 Common stock, no par value, 20,000,000 shares authorized, 3,393,900 issued and outstanding 9,649 8,741 Retained deficit (4,085) (4,086) --------- --------- Total Shareholders' Equity 6,517 4,655 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,626 $12,858 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. 16 CALIFORNIA CULINARY ACADEMY, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 (DOLLARS IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE AMOUNTS) Year Ended June 30, ---------------------- 1997 1996 ---------- ---------- Revenues: Culinary arts education $12,682 $12,178 Restaurants & catering 2,299 1,965 Retail, media and other 358 739 ---------- ---------- Total revenues 15,339 14,882 Cost of sales Food & beverage 1,744 1,692 Program supplies 791 614 Scholarships & grants 216 215 Merchandise & other 498 544 ---------- ---------- 3,249 3,065 ---------- ---------- Gross Margin 12,090 11,817 Operating expenses Occupancy 1,725 1,744 Repairs & maintenance 393 434 Telephone, security & other 388 442 Depreciation & amortization 1,157 991 Compensation & benefits 5,844 5,986 Outside services 515 784 Advertising & promotion 573 666 Legal & other 1,280 1,329 ---------- ---------- 11,875 12,376 Severance and other (359) Interest income (expense) 52 (81) ---------- ---------- Income (loss) before provision for income taxes 267 (999) Income tax provision (benefit) 107 ---------- ---------- Net income (loss) $160 $(999) ---------- ---------- ---------- ---------- Net income (loss) per share $0.04 $(0.32) ---------- ---------- ---------- ---------- Weighted average common shares and equivalents 3,656,601 3,114,732 ---------- ---------- ---------- ---------- The accompanying notes are an integral part of these financial statements. 17 CALIFORNIA CULINARY ACADEMY, INC. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
Preferred Stock Common Stock --------------------- ------------------------- Retained Shares Amount Shares Amount Deficit Total ---------- ---------- ------------- ----------- ------------ ----------- Balance at June 30, 1995 $0 3,095,600 $8,281 ($3,087) $5,194 Exercise of Stock Options 87,500 447 447 Stock issued in exchange for services 3,000 13 13 Net loss for the year (999) (999) ---------- ---------- ------------- ----------- ------------ ----------- Balance at June 30, 1996 0 0 3,186,100 8,741 (4,086) 4,655 ---------- ---------- ------------- ----------- ------------ ----------- Issuance of Preferred Stock 254,500 953 953 Exercise of Stock Options & Warrants (net of tax benefit) 325,300 1,665 1,665 Repurchase of Common Stock (117,500) (757) (757) Preferred Stock Dividend Declared (159) (159) Net income for the year 160 160 0 ---------- ---------- ------------- ----------- ------------ ----------- Balance at June 30, 1997 254,500 $953 3,393,900 $9,649 ($4,085) $6,517 ---------- ---------- ------------- ----------- ------------ ----------- ---------- ---------- ------------- ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements. 18 CALIFORNIA CULINARY ACADEMY, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996 (DOLLARS IN THOUSANDS)
Year Ended June 30, ----------------------- 1997 1996 ---------- ----------- Cash flows from operating activities: Net income (loss) $160 $(999) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,157 991 Tax provision 107 Provision for losses on accounts receivable 80 275 Accrued liabilities and accounts payable 13 Gain on disposal of property 2 Deferred rent (27) Changes in assets and liabilities: Accounts receivable (122) 522 Inventories (133) 50 Prepaid expenses and other assets (234) (244) Accounts payable (69) (52) Deferred revenues (583) (563) Accrued and other liabilities 110 44 Other non-current liabilities (19) ---------- ----------- Net cash provided by operating activities 448 18 ---------- ----------- Cash flows from investing activities: Acquisition of property and equipment (1,877) (464) (Increase) decrease in long-term investments 646 (646) ---------- ----------- Net cash used in investing activities (1,231) (1,110) ---------- ----------- Cash flows from financing activities: Borrowings under term loan agreement 500 Borrowings under Convertible Note 1,400 Principal payments on term loan agreements (742) (250) Principal payments on capital lease obligations (76) (81) Proceeds from exercise of stock options and warrants 1,480 447 Repurchase of common stock (757) Payment of Preferred Stock dividends (63) Cost of Offering - Preferred Stock (34) ---------- ----------- Net cash provided by (used in) financing activities (192) 2,016 ---------- ----------- Net increase (decrease) in cash and cash equivalents (975) 924 Cash and cash equivalents, beginning of period 3,283 2,359 ---------- ----------- Cash and cash equivalents, end of period $2,308 $3,283 ---------- ----------- ---------- -----------
The accompanying notes are an integral part of these financial statements. 19 CALIFORNIA CULINARY ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 NOTE 1 -- THE COMPANY The California Culinary Academy, Inc. (the "Academy") was founded in 1977 and operates a professional school for chef training that stresses the fundamental techniques of modern classical cooking and baking. The operations of the Academy include an Associate of Occupational Studies ("AOS") Degree Program in Culinary Arts, a Certificate Program in Baking and Pastry Arts, weekend and short-course professional and vocational cooking classes, two public restaurants and a retail shop located in San Francisco. The Academy is accredited by the Accrediting Commission of Career Schools and Colleges of Technology of the Career College Association and the American Culinary Federation Educational Institute's Accrediting Commission. Enrollment revenues from the Academy's AOS Degree Program and the Baking and Pastry Arts Certificate Program rely exclusively on enrollments in those programs. Starting in June 1996, AOS classes started every two weeks, allowing for more time slots, scheduling convenience and control over enrollment. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Academy considers all highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market and consist primarily of food and beverage. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. Leasehold improvements are amortized using the straight-line method over the remaining term of the lease or the useful life of the improvements, whichever is shorter. Property and equipment consists of the following (dollars in thousands): Year Ended June 30, ---------------------- 1997 1996 ---------- ----------- Kitchen equipment $1,817 $ 1,663 Furniture, fixtures and equipment 3,542 2,543 Construction-in-progress 20 30 Leasehold improvements 4,485 3,777 ---------- ----------- 9,864 8,013 Less accumulated depreciation and amortization (4,899) (3,896) ---------- ----------- $4,965 $ 4,117 ---------- ----------- ---------- ----------- 20 INTANGIBLE ASSETS Intangible assets are stated at cost and consist primarily of the excess of the purchase price over the net tangible assets acquired in the original purchase of the Academy. Intangible assets consist of the following (dollars in thousands): Year Ended June 30, ---------------------- 1997 1996 ---------- ----------- Favorable lease rights $1,476 $ 1,476 Goodwill 249 249 Other 4 ---------- ----------- 1,729 1,725 Less accumulated amortization (1,310) (1,179) ---------- ----------- $419 546 ---------- ----------- ---------- ----------- Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. The estimated useful lives used in computing amortization are: favorable lease rights - 15 years; goodwill - 20 years; and other -one-year. LONG-TERM INVESTMENTS Long-term investments represent certificates of deposit, which were pledged as collateral for long-term bank debt. REVENUE RECOGNITION Tuition is initially recorded as deferred revenue at the commencement of each enrollment period and is recognized as revenue over the length of program as students complete course work required for graduation. Revenue on restaurant, retail and media sales is recognized at the time services are performed or goods are sold. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NET INCOME (LOSS) PER SHARE Net income (loss) per share is based on the weighted average number of shares outstanding during each of the respective periods, including the dilutive effect of stock options, warrants and convertible preferred stock using the treasury stock method. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Academy to concentrations of credit risk consist of cash, short-term cash investments, such as money market investments, and accounts receivable. The Academy invests substantially all of its excess cash funds in money market funds through high-quality financial institutions and grants credit to its students. The Academy believes that the investment risks associated with money market funds are minimal due to the high quality of the financial institutions through which the investments are made. The Academy believes the credit risk associated with its student accounts receivable is minimal as the majority of students receive some type of financial aid paid directly to the Academy. To reduce credit risk, the Academy performs ongoing evaluations of its students' financial condition and assists qualified students in obtaining student financial aid. 21 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Supplemental disclosure of cash paid for (dollars in thousands): Year Ended June 30, ---------------------- 1997 1996 ---------- ---------- Interest $89 $66 Income taxes 17 0 Supplemental disclosure of non-cash investing and financing activities: The Academy issued 254,500 shares of Series A Preferred Stock upon conversion of $1,400,000 of Convertible Subordinated Debt during the year ended June 30, 1997. The Academy issued a promissory note of approximately $157,000 for the repurchase of Common Stock for the year ended June 30, 1997. The Academy entered into a $190,000 capital lease obligation for office equipment for the year ended June 30, 1996. NEW PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. The Academy is required to adopt SFAS No. 128 in the second quarter of fiscal 1998 and will restate earnings per share (EPS) data for prior periods to conform to SFAS No. 128 at that time. Earlier application is not permitted. SFAS No. 128 replaces current EPS reporting requirements and requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of 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 in to common stock. Pro-forma amounts for basic and diluted EPS assuming SFAS No. 128 had been in effect for the years ended June 30, 1997 and June 30, 1997, respectively are as follows: Year Ended June 30, ---------------------- 1997 1996 ---------- ---------- Basic earnings per share $0.00 ($0.33) Diluted earnings per share $0.00 ($0.33) STOCK-BASED COMPENSATION The Academy accounts for stock-based awards to employees using the intrinsic value method in accordance with ASPB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to current year presentation. NOTE 3 -- BANK DEBT As of June 30, 1997, the Academy had no outstanding loans with banks. 22 As of June 30, 1996, the Academy had available a revolving line of credit and term loan with a bank. The line of credit provided for borrowings up to $500,000 with interest at the prime rate of the bank, and was were used to finance working capital requirements. The term loan provided for borrowings up to $750,000 with interest at 1% above the prime rate of the bank. The line of credit and term loan were collateralized by certain fixed assets of the Academy. The term loan was further collateralized by a certificate of deposit. As of June 30, 1996, the Academy maintained a certificate of deposit of $355,000 with the bank, of which $146,000 was collateral for the term loan. As of June 30, 1996 there were no amounts outstanding on the line of credit; and in September 1996, the Academy canceled the line of credit. The term loan agreement with the bank contained certain affirmative covenants that the Academy was required to maintain. As of June 30, 1996, the Academy was in violation of certain covenants. The loan was classified as current and was repaid on October 9, 1996. In June 1996, the Academy obtained a term loan from a bank in the amount of $500,000, the proceeds of which were used for working capital requirements and provided for interest paid monthly at 1% above the bank's index rate for 90-day certificates of deposits. The line of credit was collateralized by a certificate of deposit at the same bank in the amount of $500,000. The term loan was repaid during fiscal 1997. NOTE 4 -- CAPITAL LEASE OBLIGATIONS The Academy leases computers, photocopiers and other equipment under various capital lease agreements. Certain lease agreements include purchase options and renewal provisions at the option of the Academy. Future minimum lease payments at June 30, 1997 are as follows (dollars in thousands): Years Ending June 30, Amount --------------------- ---------- 1998 $84 1999 77 2000 56 2001 29 2002 and thereafter 0 ---------- Total minimum lease payments 246 Less amount representing interest (31) ---------- Present value of minimum lease payments 215 Less current portion of capital lease obligations (67) ---------- Long term portion of capital lease obligations $148 ---------- ---------- NOTE 5 -- RELATED-PARTY TRANSACTIONS In January 1995, the Academy entered into a month-to-month consulting agreement with a principal shareholder and Chairman of the Board of Directors to provide consulting services regarding investor relations and other strategic services. The agreement provides for fees not to exceed $6,000 per month. The Academy paid fees of $72,000 for the years ended June 30, 1996 and 1997 under this agreement. In July 1996, the Academy entered into a five-year lease for an approximately 3,800 square foot facility in Salinas, California. The lease is with a partnership whose partners include a member of the Board of Directors and another shareholder of the Academy. The facility is an extension campus, which opened in October 1996. The monthly rent for the facility is the greater of $3,900 or 8% of gross sales plus a share of common area and exterior maintenance charges. The Academy paid a lease acquisition fee of $150,000 upon execution of the lease agreement. The lease acquisition fee will be amortized over the term of the lease. The lease agreement includes a termination clause subject to revenue performance at the extension campus during the first twelve months of operations and a termination fee should the Academy invoke the termination clause. This termination clause was not invoked. In July 1992 and from time to time prior to August 1, 1991, the Chairman of the Board and two other individuals who were then members of the Board of Directors, all shareholders, made unsecured loans to the Academy. These loans were evidenced by promissory notes and subsequently repaid. The loans carried interest at then prevailing interest rates and called for warrants to be issued that entitled the holders thereof to purchase an aggregate of 94 shares of the Academy's then-existing Series A Preferred Stock. Warrants issued in conjunction with these loans were converted, concurrently with the completion of the Initial Public Offering in July 1993, into warrants to purchase 102,770 shares of common stock at an exercise price of $4.18 per share. In August 1996, all warrants were exercised to purchase 102,770 shares of common stock. In August 1992, the Academy issued warrants to a shareholder who is related to the Chairman of the Board of Directors to purchase 20 shares of its then-existing Series A preferred stock at $8,000 per share. These warrants were converted, concurrently with the completion of the Initial Public Offering in July 1993, into warrants to purchase 23,900 shares of common stock at an exercise price of $4.18. In August 1996, all warrants were exercised to purchase 23,900 shares of common stock. In June 1996, the Academy issued 25,454 warrants with an exercise price of $6.625 per share to the company serving as the selling agent of Convertible Subordinated Notes ("Notes"). The Chairman and President of the selling agent company is a member of the Academy's Board of Directors. As selling agent of the Notes, the selling agent was paid 23 $189,000 for commission and fees and was entitled to warrants to purchase Common Stock equal to 10% of the number of shares issued upon conversion of the Notes to Series A Preferred Stock. NOTE 6 -- PREFERRED STOCK During March 1996 and July 1996, the Board of Directors and shareholders, respectively, authorized the Academy to issue up to 5,000,000 shares of Preferred Stock in one or more series to be determined by the Board of Directors from time to time. An amendment to the Articles of Incorporation authorizing the issuance of Preferred Stock was filed with the California Secretary of State in August 1996. On August 23, 1996, the Academy became legally authorized to issue up to 700,000 shares of Series A Preferred Stock. On the same date, the entire issue of Convertible Subordinated Notes in the aggregate principal amount of $1,400,000 automatically converted to 254,500 shares of Series A Preferred Stock. The preferred stock was recorded net of $447,000 of issuance costs. The non-redeemable Series A Preferred Stock into which the Notes converted provides for quarterly dividends at an annual rate of 7.5% per share from the date of first issuance, when and if declared by the Board of Directors, with a liquidation preference of $5.50 per share, plus accrued dividends. Although the Series A Preferred Stock is nonvoting, in the event the Academy fails to pay a quarterly dividend, a meeting of the Board of Directors can be called at which the holders of the Series A Preferred Stock will be entitled to elect one-third of the Academy's Board of Directors. Upon payment of the missed dividend(s), the right to elect one-third of the Board will be rescinded. Each share of Series A Preferred Stock is convertible at the option of the holder into the Academy's Common Stock at the conversion price of $5.50 per share. After February 23, 1997, each share of Series A Preferred Stock will convert automatically if the closing price of the Common Stock equals or exceeds $8.00 for 20 consecutive trading days. Certain provisions for price protection are set forth in the terms of the Series A Preferred Stock, but in no event will the conversion price be less than $3.50. The Academy granted certain registration rights to the holders of the Convertible Notes (and subsequently, the Preferred shareholders). Certain penalties were payable to the holders of the Series A Preferred Stock if the Academy did not use its best efforts to file a registration statement to register for resale the Common Stock underlying the Series A Preferred Stock conversion right with an effective date not later than November 23, 1996. Such registration statement was declared effective on April 15, 1997. Penalties payable to the Series A Preferred shareholders were accrued as of June 30, 1997 and paid in July 1997. A total of 6,300 shares of Series A Preferred Stock and $35,000 in cash was distributed in connection with this penalty. In July 1997, certain Series A Preferred Stock shareholders elected to convert approximately 145,000 into Common Stock. NOTE 7 -- SHAREHOLDERS' EQUITY STOCK OPTION PLANS The Academy established the 1992 Stock Option Plan (the "Plan") during the year ended August 31, 1993 and allocated a total of 383,595 shares to be granted under the Plan. Under the Plan, incentive stock options can be granted at prices not less than 100 percent of the fair market value of the stock at the date of grant, and non- 24 qualified options can be granted at not less than 85 percent of the fair market value of the stock at the date of grant. Options are exercisable from one to five years from the date of grant. The Academy established the 1997 Stock Option Plan (the "1997 Plan") during the year ended June 30, 1997 and reserved a total of 600,000 shares of Common Stock to be granted under the Plan. Under the Plan, incentive stock options can be granted at prices not less than 100 percent of the fair market value of the stock at the date of grant, and non-qualified options can be granted at not less than 85 percent of the fair market value of the stock at the date of grant. Options are exercisable from one to ten years from the date of grant. Option activity under the 1992 and 1997 Plans are as follows:
Shares Options Option Available Outstanding Price ------------ ------------ ------------------ Balance as of June 30, 1995 172,000 591,000 $4.18 to $8.00 Shares authorized 100,000 0 Options granted (weighted average fair value of $4.68) (26,000) 26,000 $4.25 to $6.50 Options exercised 0 (88,000) $4.18 to $6.25 Options canceled 97,000 (97,000) $4.18 to $8.00 ------------ ------------ Balance as of June 30, 1996 (exercisable at a weighted average price of $4.68) 343,000 432,000 $4.18 to $8.00 Shares authorized 600,000 Options granted (weighted average fair value of $7.11) (524,000) 524,000 $6.27 to $7.75 Options exercised (198,000) $4.18 to $6.25 Options canceled 31,000 (31,000) $6.25 to $8.00 ------------ ------------ Balance as of June 30, 1997 (exercisable at a weighted average price of $6.61) 450,000 727,000 $4.18 to $8.00 ------------ ------------ ------------ ------------ Exercisable options 567,000 $4.18 to $8.00 ------------ ------------
Additional information regarding options outstanding as of June 30, 1997 is as follows:
Range of Weighted Average Weighted Weighted Exercise Number Remaining Average Number Average Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ------------ ----------- ---------------- -------------- ----------- -------------- $5.56 - 8.00 91,750 2.3 $7.24 91,750 $7.24 $4.18 118,620 1.2 $4.18 118,620 $4.18 $4.25 - 6.50 13,100 3.6 $4.68 12,267 $4.68 $7.75 43,000 4.1 $7.75 14,340 $7.75 $6.70 220,000 9.6 $6.70 90,000 $6.70 $7.375 241,000 9.9 $7.375 240,000 $7.375 - ------------ ----------- ---------------- -------------- ----------- -------------- $6.61 727,470 7.0 $6.61 566,977 $6.61
Of the options outstanding at June 30, 1997 and 1996, 495,000 and 321,000, respectively, were non-qualified stock options. ADDITIONAL STOCK PLAN INFORMATION As discussed in Note 2, the Academy continues to account for its stock-based awards using the intrinsic value method in accordance with APB No. 25, Accounting for Stock Issued to Employees, and its related interpretations. Accordingly, no compensation expense has been recognized in the financial statements for employee stock arrangements. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) requires disclosure of pro forma net income and earnings per share had the Academy adopted the fair value method as of the beginning of fiscal 1996. The Accademy's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 12 months following vesting; stock volatility, 18%; risk free interest rate of 6%; and no dividends during the expected term. The Academy's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1996 and 1997 awards had been amortized to expense over the vesting period of the awards, pro forma net income would not have changed significantly in the year ended June 30, 1996 and would have been $135,000 ($.04 per share) in the year ended June 30, 1997. However, the impact of outstanding non-vested stock options granted prior to 1996 has been excluded from the pro forma calculation; accordingly, the 1996 and 1997 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. 25 NOTE 8 -- INCOME TAXES The provision (benefit) for income taxes for the year ended June 30, 1997 and the year ended June 30, 1996 consists of the following (dollars in thousands): Year Ended June 30, ------------------------- 1997 1996 ---------- --------- Current $175 $0 Deferred (68) 0 ---------- --------- $107 $0 ---------- --------- ---------- --------- A reconciliation of the effective tax rate for income taxes by applying the Federal statutory rate to the pre-tax income (loss) is as follows: Year Ended June 30, ------------------------- 1997 1996 ---------- --------- Federal statutory rate 34.0% 34.0% State tax, net of federal income tax deferral 7.1% Other items (1.1%) Valuation allowance (34.0%) ---------- --------- Income tax provision 40.0% 0.0% ---------- --------- ---------- --------- Deferred tax assets and liabilities result from differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes. The components of the net deferred tax asset include the following deferred tax assets and liabilities (dollars in thousands): 26 Year ended June 30, ---------------------- 1997 1996 ---------- --------- Deferred tax assets (liabilities) Accrued vacation $38 $33 Allowance for doubtful accounts 154 112 Net operating loss carryforward 637 715 Depreciation (40) (195) Amortization (179) (219) Other (87) Valuation allowance (200) (200) ---------- --------- Net deferred tax asset $323 $246 ---------- --------- ---------- --------- As of June 30, 1997 the Academy has federal and California net operating loss carryforwards, for ax return purposes, of approximately $1,779,000 and $356,000, respectively, which are available to offset future taxable income, if any. The federal net operating losses begin expiring in 2005 through 2011. California net operating loss carryforwards begin expiring in 2001 through 2002. A valuation allowance has been provided for that portion of deferred tax assets where it is more likely than not that the future tax benefits of these items will not be realized. The factors affecting the realizability of the deferred asset balance at June 30, 1996 have not changed significantly from the previous year. NOTE 9 -- PROMISSORY NOTES In July 1996, a former executive officer of the Academy elected to exercise approximately 112,000 vested stock options. The Academy subsequently entered into a transaction with this former officer, wherein the Academy purchased and retired this stock in exchange for approximately $717,000, which approximated fair market value and was comprised of approximately $560,000 in cash and $157,000 in promissory notes bearing an interest rate of 8.75%. As of June 30, 1997, the outstanding balance of these notes was approximately $38,000. Interest is to be paid monthly on the notes until January 1, 1998, when the note is due. NOTE 10 -- COMMITMENTS AND CONTINGENCIES PURCHASE AGREEMENT In September 1994, the Academy entered into an agreement with a company to purchase $1,650,000 of knives, tools, gadgets and equipment over an unlimited period of time. In exchange, the company underwrote one-third of the production costs of the Academy's new television cooking series "Cooking at the Academy." As of June 30, 1997, the Academy had purchased approximately $458,000 of knives, tools, gadgets and equipment. FACILITY LEASE The Academy leases restaurant, school and office facilities under an operating lease. The lease provides for rent payments of approximately $97,000 per month adjusting downward to approximately $77,000 per month in the fifth year of the lease and requires the Academy to pay its pro rata share of common area maintenance, insurance and tax expenses of approximately $13,000 per month. The Academy leases facilities in Salinas, California for its College of Food under an operating lease. The lease payment is the greater of approximately $3,900 per month or 8% of gross sales and requires the Academy to pay its pro rata share of common area and exterior maintenance charges, which are approximately $1,000 each month. The Academy leases space in another building close to its main campus, which is used for its educational programs. The lease payment is $2,700 per month. 27 Future minimum lease payments for all operating leases are approximately as follows (dollars in thousands): Year Ending June 30, -------------------- 1998 $1,122 1999 1,173 2000 1,118 2001 1,045 2002 928 2003 and thereafter 9,974 ----------- $15,360 ----------- ----------- Rent expense for the years ended June 30, 1997 and 1996, was approximately $1,295,000 and $1,394,000, respectively. STUDENT FINANCIAL ASSISTANCE PROGRAMS Approximately 37% percent of the Academy's education program revenues are provided by students participating in student financial assistance programs administered by the Department of Education ("DOE")and the State of California. The Academy is subject to periodic audit by the DOE of its compliance with DOE funding requirements. While management believes that the Academy can demonstrate financial responsibility in accordance with the standards set forth by the DOE, the possibility of adverse DOE findings exist. The financial statement effect of potential adverse findings is unknown. LITIGATION There are various claims and lawsuits pending by and against the Academy that, in the opinion of management after consultation with legal counsel, will not result in any material adverse effect on the results of operations or financial position of the Academy. NOTE 11 -- 401(K) RETIREMENT PLAN Employees become eligible to participate in a defined 401(k) plan immediately upon hire, assuming that other eligibility requirements are also satisfied. The 401(k) plan allows for employee contributions and discretionary employer matching contributions. On January 1, 1997, the Academy amended the 401(k) plan to permit discretionary employer matching contributions in the form of the Academy's Common Stock, which matching contribution is determined quarterly and contributed at the end of the plan year. The Academy contributions to the 401(k) plan for the years ended June 30, 1997 and 1996 were approximately $35,000 and $89,000, respectively. 28 NOTE 12 -- SUBSEQUENT EVENTS In August 1997, the Academy entered into a master lease of a 68-room hotel approximately one block from the Academy's main campus in San Francisco to provide student housing. The lease becomes effective on September 2, 1997. The initial monthly rent for the facility is approximately $28,000. The Academy is also responsible for payment of its pro rata share of insurance and property taxes, which are approximately $1,000 per month. In conjunction with the lease, the Academy paid $25,000 for existing furniture and fixtures. The lease terms extend until August 2012, with three five-year renewal options thereafter. In October 1997, the Academy purchased for approximately $1,900,000 a 70 room residential hotel adjacent to the Academy's main campus in San Francisco to provide student housing and obtained long term debt financing thereon for $1,200,000. NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and equivalents, accounts receivable and payable and term loans are reasonable estimates of their fair values. Rates currently available to the Academy for debt with similar terms and remaining maturities are used to estimate fair value of debt. 29 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements on accounting and financial disclosure. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The executive officers and directors of the Academy as of September 29, 1997 are as follows: Name Age Positions Theodore G. Crocker (1) 51 Chairman of the Board and Chief Executive Officer W. Bruce C. Bailey (1,2) 43 Director James Cockman (1,2) 64 Director Frederick L. Dame 44 Director Paul Prudhomme 57 Director Grover T. Wickersham (2) 47 Director Keith H. Keogh 44 President and Chief Operating Officer Robert A. Stoffregen 48 Executive Vice President, Chief Financial Officer, Director of Corporate Development - ------------------------ (1) Member of the Compensation Committee (2) Member of the Audit Committee The bylaws of the Academy provide for a board of between seven and nine members. The board is currently fixed at seven members and has one vacancy. All directors hold office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Officers serve at the discretion of the Board of Directors. There are no family relationships between any of the Academy's directors and executive officers. Mr. Crocker has served as Chairman of the Board since March 1987. In May 1996, he was appointed Chief Executive Officer. Since 1980, Mr. Crocker has also been primarily employed as the President of Crocker & Associates, a real estate development company located in Watsonville, California. Mr. Crocker holds an Associate of Arts degree from Cabrillo Junior College. Mr. Bailey was elected to the Board in March 1996. Mr. Bailey founded the investment banking firm of Bailey & Company Inc., Toronto, Canada, in December 1988, and has been employed by such firm since that date as Chairman of the Board. Bailey & Company is currently serving as an investment banker to the Academy. Mr. Bailey hold a BA [Hons.] degree from Queen's University, Kingston, Canada, an LL.B. from Dalhousie University, Halifax, Canada, an LL.M. from Columbia University, New York, New York, and Call to the Bar, Law Society of Upper Canada, Toronto, Canada. Mr. Cockman has served as a member of the Board of Directors since January 1997. He currently serves as the Chairman and Chief Executive Officer of American Culinary Equipment, Inc., Greenville, South Carolina, a manufacturer and marketer of stainless steel professional kitchen equipment to the foodservice industry. Mr. Cockman serves on the boards of Ryans Family Steak House, Greenville, South Carolina, Clayton Homes, Inc., Knoxville Tennessee, Clemson University, College of Commerce and Industry, Clemson, South Carolina, Greenville Technical College Foundation, Greenville, South Carolina. 30 Mr. Dame has served as a member of the Board of Directors since January 1997. He has served in various senior level management capacities in the Seagram organization since 1988, and is currently the Vice President of National Accounts for Seagram Chateau Estate Wine Company, San Mateo, California. Mr. Dame is a columnist for the "Wine Trader" as well as for a number of gourmet and hotel-restaurant publications in Japan. He received his degree in Journalism and Communications from Washington & Lee University. Chef Prudhomme has served as a member of the Board of Directors since June 1997. Chef Paul Prudhomme is the proprietor of K-Paul's Louisiana Kitchen, located in the French Quarter of New Orleans. Chef Prudhomme also has developed and distributes a line of natural herbs and spices, "Chef Paul Prudhomme's Magic Seasoning Blends," nationally and in more than thirty other countries. Chef Prudhomme is the author of several cookbooks: CHEF PAUL PRUDHOMME'S LOUISIANA KITCHEN; THE PRUDHOMME FAMILY COOKBOOK; SEASONED AMERICA, FORK IN THE ROAD, PURE MAGIC; FIERY FOODS THAT I LOVE and KITCHEN EXPEDITION. Mr. Wickersham was elected to the Board in March 1996. Mr. Wickersham has practiced corporate and securities law since 1976. The law firm of Grover T. Wickersham, P.C., Palo Alto, California, which he co-founded in July 1986, serves as securities law counsel to the Academy. Mr. Wickersham manages Glenbrook Capital, LP, an investment fund established in December 1996, and is the co-manager of Oxcal Venture Fund, LLP, a venture capital fund. Mr. Wickersham also serves on the Board of Directors of Telepartner A/S, a Danish telecommunications company. Mr. Wickersham holds a BA degree in American Studies from University of California at Berkeley, a JD degree from Hastings College of the Law, and an MBA degree from Harvard Business School. Mr. Keogh joined the Academy as Executive Vice President and Chief Operating Officer in July 1995 and was promoted to President in May 1996. From 1971 until joining the Academy, Mr. Keogh was employed at Walt Disney World in Florida and held various positions, most recently as Executive Chef, Research and Development-Theme Parks. Mr. Keogh was the Manager of the Culinary Team USA (the US Culinary Olympic Team) from 1988-96 and past President of the World Association of Cooks Societies and The American Culinary Federation. Mr. Stoffregen joined the Academy in June 1996. Prior to his appointment as Executive Vice president, Chief Financial Officer and Director of Corporate Development, Mr. Stoffregen was a member of the public accounting firm of Jones, Henley & Schunck. From August 1991 to September 1994, Mr. Stoffregen was Chief Financial Officer of Sharper Image Corporation. Prior to 1991, Mr. Stoffregen was a partner in the public accounting firm of Deloitte & Touche. Mr. Stoffregen holds a BA degree in accounting from the University of Minnesota -Duluth and a JD from William Mitchell College of Law, Saint Paul, Minnesota. During the fiscal year ended June 30, 1997, the Board of Directors held five meetings. No member of the Board attended fewer than 75% of the meetings in the last fiscal year. COMMITTEES OF THE BOARD The Academy's Board of Directors has established a Compensation Committee and an Audit Committee. Each Committee has at least one outside director. The Compensation Committee establishes salaries, incentives and other forms of compensation for directors, officers and other employees of the Academy. The Audit Committee oversees actions taken by the Academy's independent auditors and reviews the Academy's internal financial controls. The Compensation and Audit Committees each held one meeting during the fiscal year ended June 30, 1997. The Board has delegated certain advisory authority to each committee, but the decision making and management responsibilities of the Academy remain with the full Board. No committee member attended fewer than 75% of the meetings of the committees of which he was a member in the last fiscal year. 31 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Academy's executive officers and directors are required under the Securities Exchange Act of 1934 to file with the Securities and Exchange Commission reports of ownership and changes in ownership in their holdings of the Academy's Common Stock. Based on an examination of these reports and on written representations provided to the Academy, all such reports required to be filed for the fiscal year ended June 30, 1997 have been timely filed except that Theodore G. Crocker, a director and executive officer of the Academy, inadvertently did not timely file a statement of changes in beneficial ownership with respect to four sales, aggregating 5,482 shares in April 1997. These transactions have been reflected in a subsequent filing by Mr. Crocker. INDEMNIFICATION OF DIRECTORS AND OFFICERS As permitted by the General Corporation Law of California (the "Corporations Code"), the Academy's Articles of Incorporation eliminate, to the fullest extent permitted under California law, the personal liability of a director to the Academy for monetary damages in an action brought by or in the right of the Academy for breach of a director's duties to the Academy and its shareholders. Under current California law, liability is not eliminated for (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) acts or omissions that a director believed to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director; (iii) any transaction from which a director derived an improper personal benefit; (iv) acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders; (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders; (vi) contracts or other transactions between corporations and directors having interrelated directors in violation of Section 310 of the Corporations Code; and (vii) distributions, loans or guarantees made in violation of Section 316 of the Corporations Code. In addition, the Academy's Articles of Incorporation and bylaws provide for indemnification, to the fullest extent permitted under the Corporations Code, of directors, officers and agents of the Academy and persons who serve at the request of the Academy as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. The Academy has also entered into indemnification agreements with its directors and executive officers, as permitted under the bylaws. The indemnification agreements provide that the directors and executive officers will be indemnified to the fullest extent permitted by applicable law against all expenses (including attorneys' fees), judgments, fines and amounts reasonably paid or incurred by them for settlement in any threatened, pending or completed action, suit or proceeding, including any derivative action, on account of their services as a director or executive officer of the Academy or of any subsidiary of the Academy or of any other company or enterprise in which they are serving at the request of the Academy. No indemnification will be provided under the indemnification agreements, however, to any director or executive officer in certain limited circumstances, including on account of knowingly fraudulent, deliberately dishonest or willful misconduct. To the extent the provisions of the indemnification agreements exceed the indemnification permitted by applicable law, such provisions may be unenforceable or may be limited to the extent they are found by a court of competent jurisdiction to be contrary to public policy. In addition, in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), is against public policy and, therefore, unenforceable. Accordingly, these indemnification provisions may not limit the liability of directors and executive officers under the Act. ITEM 10. Executive Compensation The following table sets forth certain information regarding compensation paid by the Academy for services rendered during each of the Academy's last two completed fiscal years for the Academy's Chief Executive 32 Officer and all other executive officers whose total annual salary and bonus exceeded $100,000 for the fiscal year ended June 30, 1997 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Long Term Compensation All Other Name and Principal Position Year Salary Awards Compensation ($$) Options/SAR's (#) ($$) - --------------------------------------------------------------------------------------------------- Theodore G. Crocker 1997 72,000(1) CEO and Chairman of the Board 1996 72,000(1) Keith H. Keogh 1997 184,769 10,010(2) President and Chief Operating Officer 1996 153,846 120,000 564(3) 1995 73,846 60,000 Robert A. Stoffregen 1997 181,328 75,000 9,066(4) Executive Vice President, Chief Financial Officer, Director of Corporate development 1996 3,365 25,000
- ------------------------ (1) Represents $72,000 reimbursement for office space and costs. (2) Includes $772 in payments on life insurance policies and $9,238 in employer contributions to the 401(k) Plan. (3) Represents payments on life insurance policies. (4) Represents employer contributions to the 401(k) Plan. Directors who are employees of the Academy are not separately compensated for their services as directors or as members of committees of the Board of Directors. During fiscal 1997, directors who were not employees of the Academy and who resided in Northern California received $9,000 per annum as an annual retainer for serving on the Board. During fiscal 1997, directors who were not employees of the Academy and who resided in outside Northern California received $12,000 per annum as an annual retainer for serving on the Board. Other than the 401(k) Plan described below, the Academy has no retirement, pension or profit sharing program for the benefit of its directors, officers or other employees, but the Board of Directors may recommend one or more such programs for adoption in the future. STOCK OPTIONS The Academy's 1992 Stock Option Plan (the "1992 Plan") permits the granting of incentive stock options ("ISO's"), or non-qualified stock options ("NQSO's") at the discretion of the Board or a committee designated by the Board to administer the Plan (the "Administrator"). Subject to the terms of the 1992 Plan, the Administrator determines the terms and conditions of options granted under the 1992 Plan, including the exercise price and option term. The 1992 Plan provides that the Administrator must establish an exercise price for ISO's that is not less than the fair market value per share at the date of grant. The exercise price of NQSO's may not be less than 85% of the fair market value per share on the date of grant. Each ISO must expire within ten years of the date of grant. However, if ISO's are granted to persons owning more than 10% of the voting stock of the Academy, the 1992 Plan provides that the exercise price must be not less than 110% of the fair market value per share at the date of grant and that the term of the option may not exceed five years. No ISO may be granted to an employee who, when aggregated with all other ISO's granted to such employee by the Academy or any parent, subsidiary or affiliate (as defined by the 1992 Plan) would result in the vesting of shares having an aggregate fair market 33 value (determined for each share as of the date of grant of the ISO covering such share) in excess of $l00,000 in any calendar year. No such limit applies to the grant of NQSO's. As of April 1994, the number of shares authorized for issuance under the 1992 Plan was 450,000 shares. In March 1996, the Board of Directors voted to increase the number of shares reserved for issuance under the plan by 100,000 shares. Such increase was approved by an affirmative vote of the shareholders at the annual shareholders meeting in March 1996. Unless sooner terminated by the Board of Directors, the 1992 Plan terminates in December 2002. In June 1997, the Directors adopted California Culinary Academy 1997 Stock Option Plan (the "1997 Plan"). The adoption of 1997 Plan will be submitted to a shareholder vote at the next annual meeting. Subject to the terms of the 1997 Plan, the Administrator determines the terms and conditions of options granted under the 1997 Plan, including the exercise price and option term. The 1997 Plan provides that the Administrator must establish an exercise price not be less than 85% of the fair market value per share on the date of grant. The number of options available for grant under the 1997 Plan is 600,000. In the event of a merger in which at the Academy is not the surviving corporation the sale of substantially all of the assets of the Academy, all outstanding options under each of the Academy's Plans shall, notwithstanding any contrary terms of the grant, accelerate and become exercisable in full prior to the consummation of such merger at such times and on such conditions as the Administrator shall determine, unless the successor corporation assumes the outstanding options or substitutes substantially equivalent options. Shares subject to options granted under each of the Plans that have lapsed or terminated are returned to the Plan. The following table sets forth information regarding exercises of stock options during the fiscal year ended June 30, 1997 by the executive officers named in the Summary Compensation Table: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE
Number of Unexercised Value of in-the-Money Shares Options/SAR's at Fiscal Year-end Options/SAR's at Fiscal Year-end Acquired on Value end Year-end Name Exercise Realized Exercisable / Unexercisable Exercisable / Unexercisable - ------------------------------------------------------------------------------------------------------------------------------ Theodore G. Crocker 0 $0 97,990 0 $362,073 (1) 0 10,000 0 $23,150 (2) 0 40,000 0 $64,200 (3) 0 Keith H. Keogh 0 $0 60,000 0 $0 (4) 0 40,000 80,000 $47,000 (5) $94,000(5) Robert A. Stoffregen 0 $0 25,000 0 $29,375 (6) 0 25,000 50,000 $29,375 (7) $58,750(7)
- ----------------- (1) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $4.18 per share. (2) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $5.56 per share. (3) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $6.27 per share. 34 (4) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $8.00 per share. (5) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $6.70 per share. (6) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $6.70 per share. (7) Calculated as the difference between the fair market value of the Common Stock at June 30, 1997 of $7.875 and the option exercise price of $6.70 per share. 401(K) RETIREMENT PLAN The Academy maintains an employee benefit plan qualified under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Employees become eligible to participate in the 401(k) Plan after one year of service, assuming other eligibility requirements are also satisfied. Under the 401(k) Plan, there is no fixed dollar amount of retirement benefits, and actual benefits received by employees will depend on the amount of each employee's account balance at the time of retirement. The account balance will reflect annual allocations, the period of time an employee participates in the 401(k) Plan and the success of the 401(k) Plan in investing and reinvesting the assets of the trust fund. A participant's vested benefit is distributed upon death, disability or termination of employment, however, terminated employees may elect to keep vested benefits in the plan if such vested benefits are greater than an amount stipulated on the Plan. The Plan is not insured by the Pension Benefit Guaranty Corporation. The 401(k) Plan includes an arrangement under which employees may elect to have the Academy contribute a portion of their compensation to the 401(k) Plan. The Plan does not allow an employee to make direct contributions to the trust fund. Such contributions are elective deferrals, and the amount may not exceed certain dollar limitations established by the Internal Revenue Service. The Academy has the option of matching employee contributions to the 401(k) plan with cash or Academy Common Stock. ITEM 11. SECURITY OWNERSHIP OR CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of September 1, 1997, with respect to the beneficial ownership of Common Stock by each shareholder owning 5% or more of the Academy's Common Stock, by each director, the Named Executive Officers, and by all executive officers and directors as a group. SHARES BENEFICIALLY OWNED (1) DIRECTORS AND 5% SHAREHOLDERS NUMBER PERCENT ------------------------------------------------------------------------- Theodore G. Crocker 1,330,117 (2) 30.6% 625 Polk Street San Francisco, CA 94102 Grover T. Wickersham 56,350 (3) 1.3% 625 Polk Street San Francisco, CA 94102 W. Bruce Bailey 40,000 (4) 1.5% 625 Polk Street San Francisco, CA 94102 James D. Cockman 40,000 (5) * 625 Polk Street San Francisco, CA 94102 35 Frederick L. Dame 40,500 (6) * 625 Polk Street San Francisco, CA 94102 Paul H. Prudhomme 40,000 (7) * 625 Polk Street San Francisco, CA 94102 All Executive Officers and Directors as a Group (8 persons) 1,723,456 39.7% - ------------------ * Indicates less than 1%. (1) Beneficial ownership of shares by directors, officers and 5% or more shareholders includes both outstanding Common Stock and shares issuable upon exercise of warrants or options that are currently exercisable or will be exercisable within 60 days after the date of this table. Except as indicated in the footnotes to this table and pursuant to applicable community property laws the persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (2) Includes 147,990 shares of Common Stock issuable upon exercise of currently exercisable options. (3) Includes 54,850 shares of Common Stock issuable upon exercise of currently exercisable options. (4) Includes 65,454 shares of Common Stock issuable upon exercise of currently exercisable options and warrants. (5) Includes 40,000 shares of Common Stock issuable upon exercise of currently exercisable options. (6) Includes 40,000 shares of Common Stock issuable upon exercise of currently exercisable options. (7) Includes 40,000 shares of Common Stock issuable upon exercise of currently exercisable options. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In July 1992, and from time to time prior to August 1, 1991, the Mr. Crocker, along with Robert J. Marani and William G. DeMar, then members of the Board of Directors, and all principal shareholders, made unsecured loans to the Academy. These loans were evidenced by promissory notes and subsequently repaid. The loans carried interest at then prevailing interest rates and called for warrants to be issued that entitled the holders thereof to purchase an aggregate of 82 shares of the Academy's then Series A Preferred Stock. Warrants issued in conjunction with these loans were converted, concurrently with the completion of the Initial Public Offering in July 1993, into warrants to purchase 97,990 shares of Common Stock at an exercise price of $4.18 per share. During 1994, the original expiration date of the warrants was extended for an additional two years to August 31, 1996. On August 31, 1996, such warrants were exercised. In January 1995, the Academy entered into a month-to-month consulting agreement whereby Mr. Crocker provides investor relations and other strategic services in return for a fixed monthly payment for office rent and costs. The agreement provides for fees not to exceed $6,000 per month. The Academy paid $72,000 in fees in both the years ended June 30, 1997 and 1996 to Mr. Crocker. In January 1996, the Academy entered into an agreement with Bailey & Company Inc. to serve as the selling agents for the placement of up to $5,000,000 in Convertible Subordinated Notes ("Notes"). Bruce bailey, the Chairman and President of Bailey & Company Inc. is a member of on the Academy's Board of Directors. The agent was entitled to receive a commission of 7% of the gross proceeds sold, a non-accountable expense allowance of 3% and warrants to purchase 10% of the number of shares sold in the offering. In April 1996, the Academy issued $1,400,000 of Notes and the selling agent received the warrants and $189,000 commissions and fees. During the year ended June 30, 1997, the Academy paid Grover T. Wickersham, P.C. approximately $22,000 for legal services. Grover T. Wickersham, the principal member of such firm, is a member of the Academy's Board of Directors. 36 In July 1996, the Academy entered into a five-year lease for approximately a 3,800 square foot facility in Salinas, California. The lessor is a partnership controlled by Mr. Crocker and Robert J. Marani, a shareholder and then member of the Academy's Board of Directors. Independent members of the Board of Directors have approved the lease. Management believes that these lease terms are no less favorable than those which it may have negotiated with an independent landlord. The new facility is an extension campus, which opened in October 1996. The monthly rent for the facility is the greater of approximately $3,900 or 8% of gross sales plus a share of common area and exterior maintenance charges. The Academy paid a lease acquisition fee of $150,000 upon execution of the lease agreement. (7) ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits in the accompanying Index to Exhibits on page 44 of this report are filed or incorporated by reference as part of this report. (b) The Academy filed no Current reports on Form 8-K during the quarter ended June 30, 1997. 37 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized; Dated: October 13, 1997 California Culinary Academy, Inc. By: /s/ Theodore G. Crocker ---------------------------- Theodore G. Crocker Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated below.
SIGNATURE TITLE DATE (Principal executive officer) /s/ Theodore G. Crocker - ---------------------------------------------- Theodore G. Crocker Chief Executive Officer and October 13, 1997 Chairman of the Board (Principal financial and accounting officer) /s/ Robert A. Stoffregen - ---------------------------------------------- Robert A. Stoffregen Chief Financial Officer October 13, 1997 /s/ Grover T. Wickersham - ---------------------------------------------- Grover T. Wickersham Director October 13, 1997 /s/ W. Bruce Bailey - ---------------------------------------------- W. Bruce Bailey Director October 13, 1997 /s/ James D. Cockman - ---------------------------------------------- James D. Cockman Director October 13, 1997 /s/ Frederick L. Dame - ---------------------------------------------- Frederick L. Dame Director October 13, 1997 /s/ Paul H. Prudhomme - ---------------------------------------------- Paul H. Prudhomme Director October 13, 1997
38 INDEX TO EXHIBITS SEQUENTIAL EXHIBIT NUMBER EXHIBIT 3.1 1 Amended and Restated Articles of Incorporation 3.2 1 Bylaws, as currently in effect 4.1 1 Specimen of Common Stock Certificate 4.2 2 Form of Representative's Warrant 10.1 1 1992 Stock Option Plan, form of Incentive Stock Option Agreement, form of Nonqualified Stock Option Agreement 10.2 1 Form of Indemnification Agreement with Directors and Officers of the Registrant and Schedule of Indemnities 10.3 1 Lease for Premises at 625 Polk Street, San Francisco, as amended 10.5 1 U.S. Department of Education Program Letter of Agreement dated March 1993 10.6 1 Form of Enrollment Agreement 10.18 5 Consulting Agreement between Registrant and Theodore G. Crocker dated January 1, 1994 10.21 5 Agreement between Registrant and Trident Trading Company, Inc. (Wusthof (w)--Trident) dated August 5, 1994 10.25 7 Lease Agreement between Registrant and Toshiba America Information Systems, Inc. dated November 2, 1995 10.25 8 Amended Financing Agreement between Registrant and Wells Fargo Bank dated February 1, 1996 10.26 8 Agreement between Registrant and Simon & Schuster, Inc. dated February 22, 1996 10.27 Loan Agreement between Registrant and Mid-Peninsula Bank dated June 14, 1996 10.29 10 Lease for premises at Natividad Plaza, Salinas, CA 10.30 10 Agreement between Registrant and Noel-Levitz, Inc. dated July 1, 1996 10.31 Lease Agreement between Registrant and 625 Polk Investment Company, a limited partnership, dated as of May 1, 1997 10.32 1997 Stock Option Plan 10.33 Executive Employment Agreement between Registrant and Keith H. Keogh, Dated May 31, 1995 11.0 Statement re: Computation of Earnings per Share 27.0 Financial Data Schedule - ------------ (1) Previously filed as an exhibit to the original filing of the Registration Statement on Form SB-2 filed May 14, 1993 (2) Previously filed as an exhibit to Amendment No. 1 of the Registration Statement filed June 7, 1993 (3) Previously filed as an exhibit to Form 10-KSB/A for the fiscal year ended August 31, 1994 (4) Previously filed as an exhibit to Form 10-QSB for the quarter ended May 31, 1994 (5) Previously filed as an exhibit to Form 10-QSB for the fiscal year ended June 30 1994 (6) Previously filed as an exhibit to Form 10-QSB for the fiscal year ended June 30 1995 (7) Previously filed as an exhibit to Form 10-QSB for the quarter ended December 31, 1995 (8) Previously filed as an exhibit to Form 10-QSB for the quarter ended March 31, 1996 (9) Previously filed as an exhibit to Form 10-QSB for the quarter ended June 30, 1996 (10) Previously filed as an exhibit to Form 10-QSB for the quarter ended September 30, 1996 39 EX-10.31 2 EXHIBIT 10-31 EXHIBIT 10.31 EIGHTH AMENDMENT TO LEASE This instrument (the "Amendment") is dated as of May 1, 1997 and is effective as of that date. RECITALS A. By a lease dated July 31, 1984 (the "Original Lease"), 625 Polk Investment Company, a California limited partnership ("Landlord"), leased to the predecessor in interest of California Culinary Academy, Inc., a California corporation ("Tenant") certain premises (the "Premises") located in the building whose address is 625 Polk Street, San Francisco, California. B. The Original Lease has previously been amended seven times by that certain Amendment to Lease dated June 2, 1987, Second Amendment to Lease dated December 29, 1989, Third Amendment to Lease dated December 19, 1990, Fourth Amendment to Lease dated April 13, 1992, Fifth Amendment to Lease dated November 17, 1992, Sixth Amendment to Lease dated May 11, 1993 and Seventh Amendment to Lease dated May 14, 1997. The Original Lease was also modified by that certain letter agreement dated December 19, 1990. The Original Lease and all amendments and modifications are collectively referred to as the "Lease". C. Since commencement of the Original Lease, the portions of the Building included within the Premises has increased. On some occasions when the Premises has been expanded, Tenant has performed alterations that were required by its new uses for the added space, including the performance of work required by local building code requirements. In executing this Amendment, Landlord and Tenant anticipate further expansion by Tenant in the Building and that Tenant will assume more control over the operation and management of the Building. Among other purposes, this Amendment is intended to reflect an appropriate allocation of certain rights and obligations based on Tenant's expanded occupancy in the Building. D. The parties now wish to amend the Lease so as to redefine the Premises, extend the term, modify the rental obligations of Tenant and amend various other provisions of the Lease. NOW THEREFORE, the parties hereto in consideration of the mutual covenants set forth herein and intending to be legally bound hereby agree as follows: 1.1 DEFINITIONS. Unless otherwise specified in this Amendment, the terms as used herein have the meanings given them by the Lease. In the event of any conflict or inconsistency between the provisions of this Amendment and provisions of the balance of the Lease, the provisions of this Amendment control. However, in the event any term or condition is held invalid or unenforceable, the remainder of this Amendment and the Lease will not be affected thereby, and each of the other terms and conditions of this Amendment and the Lease will be valid and enforceable. 1.2 PREMISES. Effective as of the date of this Amendment, the Premises includes space located in the Basement and on the Ground Floor, Mezzanine, Second Floor, Third Floor and Fourth Floor of the Building all as shown on Exhibit A attached hereto and by this reference incorporated herein. Landlord and Tenant agree and stipulate that the Premises are deemed to contain 66,992 rentable square feet and that the total rentable square footage of the Building, including the Premises, is 78,116. Tenant's 1 Proportionate Share is 85.76%. All portions of the Premises as depicted on Exhibit A are leased by Landlord to Tenant for the entire Term, as extended by this Amendment including any options hereunder that are exercised by Tenant. 1.3 RIGHT OF FIRST REFUSAL. (a) If, at any time during the Term including any extensions thereof, the fifth floor of the Building (containing 7,200 rentable square feet) ("Expansion Space "A") or the south side of the fourth floor of the Building (that portion containing 3,924 rentable square feet not already part of the Premises) ("Expansion Space "B") becomes available for lease, then Landlord must offer Tenant in writing the opportunity to lease the space prior to making any other efforts to lease the space to any other party, including any other tenants of the Building. The locations of Expansion Space A and Expansion Space B are shown on Exhibit A. Landlord represents and warrants that as of the date of this Amendment, Expansion Space A and Expansion Space B are each leased under a single lease agreement. When a space becomes available, Landlord must notify Tenant which space is available and the date on which Landlord is able to deliver possession to Tenant. Tenant has thirty days after receipt of Landlord's notice to accept or reject the available space by written notice to Landlord. If Tenant accepts the additional space, then on the date Landlord delivers the space to Tenant it will be deemed part of the Premises leased under this Lease in its "as is" condition, subject to all the terms and conditions of this Lease, including that "Base Rent", as defined in Section 1.7, will be increased by an amount equal to the number of rentable square feet in the expansion space multiplied by the applicable rate per square foot then applicable under Section 1.7 of this Amendment and Tenant's Proportionate Share will increase accordingly. If Tenant fails to timely exercise its right to lease expansion space under this Section 1.3(a), then for a period of one year (the "Window Period"), Landlord has the right to lease the expansion space that Tenant did not accept to any third party on economic terms and conditions that are less favorable than those applicable under this Lease. If, after the expiration of the Window Period, the space has not been leased, then Landlord must offer the space to Tenant again under this Section 1.3(a). Without limitation on the foregoing, Landlord agrees that it will not execute a new lease with any existing tenant in the Building or amend the lease of an existing tenant to extend its term without first offering the existing tenant's space to Tenant under this section upon the expiration of the existing tenant's lease agreement. (b) If, at any time during the Term including any extensions thereof, Landlord makes or receives an offer to lease Expansion Space A or Expansion Space B on economic terms and conditions that are more favorable than those that apply under this Lease, or if, at any time during the Term, including any extensions thereof, outside of a Window Period, Landlord makes or receives an offer to lease Expansion Space A or Expansion Space B regardless of the economic terms and conditions, then in either such event Landlord must give Tenant a copy of the offer and Tenant has the right, by written notice to Landlord within 30 days after Tenant's receipt of the offer, to lease the space on the same terms and conditions as set forth in the offer, provided that any terms of the offer that are impractical or impossible for Tenant to perform will be modified to permit performance by Tenant, if reasonably possible, or otherwise be deemed waived. Any additional space leased by Tenant under this Section 1.3(b) will be added to the Premises leased under this Lease as of the date Landlord delivers possession of the space to Tenant. Tenant's lease of any additional space pursuant to this Section 1.3(b) will be on all the terms and conditions set forth in this Lease except for those terms set forth in the offer and not waived under the terms of this section. (c) If Tenant leases additional space in the Building under either Section 1.3(a) or Section 1.3(b), then Landlord shall prepare an amendment that correctly sets forth the addition of the new space to the Premises, the adjustment to Tenant's rental obligations and all other terms and conditions as appropriate in accordance with the provisions of Section 1.3(a) or Section 1.3(b) as applicable. Landlord and Tenant each agree to promptly execute such an amendment prepared by Landlord. If there is a dispute regarding the drafting of the amendment that Landlord prepares and the parties do not agree upon language for the amendment within sixty days of Landlord's submission of its 2 initial draft, then either party can submit the dispute to arbitration under the provisions of Article 17, provided that the failure of either party to promptly execute an amendment will not limit or impair the rights and obligations of the parties with respect to additional space leased by Tenant under Section 1.3(a) or Section 1.3(b). 1.4 LANDLORD'S RESERVED RIGHTS. Section 1.3 of the Lease is hereby amended by the addition of the following provision at the end thereof: "Notwithstanding anything to the contrary in the Lease, from June 1, 1997 through the expiration of the Term, as extended, Landlord may not make any alterations, improvements, additions or changes (collectively "Alterations") to the Premises or the Building without Tenant's consent unless Landlord is obligated to perform the Alterations under the terms of this Lease or under applicable legal requirements. If Landlord is obligated to perform Alterations under the terms of this Lease, then Landlord may perform them without Tenant's consent, but subject to all other terms and conditions of this Lease. With respect to proposed Alterations to the Premises or common areas located on floors that include portions of the Premises that require Tenant's consent, Tenant may withhold its consent in its sole discretion. With respect to other proposed Alterations that require Tenant consent, Tenant may not unreasonably withhold its consent. If Landlord performs Alterations, then Landlord must use its best efforts to minimize the effect of the performance of the Alterations on Tenant's business. If the performance of Alterations by Landlord materially interferes with Tenant's business, then Tenant's payment obligations under the lease will equitably abate." 1.5 TERM. The Term of the Lease is extended to March 31, 2013. 1.6 OPTIONS. Tenant may extend the Term of the Lease for three, consecutive additional periods of five years each on the terms and conditions set forth in the Lease as amended by this Amendment, except that the number of option periods remaining to be exercised will, in each case, be reduced by one, by notifying the Landlord, in writing, not less than 360 days prior to the expiration of the Term, or each option period, as the case may be. If Tenant neglects to exercise any option by the required date specified above, then Tenant will have no further options to extend the term of this Lease 1.7 BASE RENT. From the date of this Amendment through March 31, 1998, Base Rent for the entire Premises is $96,956 per month. Thereafter Base Rent for the Premises is as follows:
STIPULATED ANNUAL RATE ---------------------- PAYMENT PERIOD MONTHLY RENT PER RENTABLE SQUARE --------------- ------------ ------------------- FOOT ---- April 1, 1998 through March 31, 1999 $94,905 per month $17.00 April 1, 1999 through March 31, 2000 $90,718 per month $16.25 April 1, 2000 through March 31, 2001 $85,136 per month $15.25 April 1, 2001 through March 31, 2003 $77,320 per month $13.85
From April 1, 2003 through March 31, 2013 and during the options periods, if any, Base Rent will be $77,320 per month ($13.85 per Rentable Square Foot), but subject to the following adjustments: On April 1, 2003, April 1, 2008 and on the first day of each option period (each date being a "CPI Adjustment Date"), Base Rent will adjusted to an amount equal to the lesser of (a) the Base Rent in effect during the period immediately prior to the CPI Adjustment Date multiplied by a fraction the numerator of which is the Extension Index, as defined below and the denominator of which is the Beginning Index, as defined below, and (b) the Base Rent in effect during the period immediately prior to the CPI Adjustment Date multiplied by 1.15, provided that Base Rent after a CPI Adjustment Date will not be less than the 4 Base Rent in effect immediately prior to the CPI Adjustment Date. The base for computing the adjustment is the Consumer Price Index, all urban consumers, all items, San Francisco-Oakland-San Jose, CA, published by the United States Department of Labor, Bureau of Labor Statistics, in which 1982-1984 equals one hundred (100) ("Index"). The Index most recently published as of an CPI Adjustment Date is the "Extension Index". The Index which was most recently published as of the date sixty months prior to the date the Extension Index was published is the "Beginning Index". If the Index is changed so that the base year is altered, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index has not been discontinued or revised. From and after the date of this Amendment, Sections 3.2(c) and 3.2(d) of the Lease are null and void and without further effect. From and after the date of this Amendment, "Base Rent" as provided in this Section 1.7 is Tenant's sole fixed rent obligation for the entire Premises. Tenant's only other regularly scheduled payment obligations to Landlord are Tenant's Proportionate Share of Real Property Taxes under Article 4 of the Lease and Tenant's Proportionate Share of Operating Expenses under Article 5 of the Lease. 1.8 Intentionally omitted. 1.9 REAL ESTATE TAXES. The following provision is added to the end of Section 4.2(a): "Notwithstanding anything to the contrary in this Section 4.2(a), except as specified below, if there is a change of ownership of the Building or the Property or any portion thereof that results in an increase in Real Property Taxes, then for purposes of calculating Tenant's payment obligations under Section 4.2, the increase in Real Property Taxes subsequent to and caused by a change of ownership in the Building or Property or any portion thereof will be deemed to include only the portion of the increase in Real Property Taxes caused by the change in ownership as set forth in the table below: PERIOD First 12 Months following change 14% of increase Second 12 Months following change 28% of increase Third 12 Months following change 42% of increase Fourth 12 Months following change 56% of increase Fifth 12 Months following change 70% of increase Sixth 12 Months following change 84% of increase Seventh 12 Months following change 100% of increase 4 The foregoing limitation on the increase in Real Property Taxes resulting from a change in ownership does not apply to changes of ownership that result from foreclosure proceedings, exercises of a power of sale under a deed of trust and transfers by deed in lieu of foreclosure." 1.10 OPERATING EXPENSES. Section 5.3(i) is hereby amended by (i) deleting the phrase "or which may be required by applicable laws, ordinances, rules or regulations in force with respect to the Premises from and after the Rent Commencement Date" and (ii) adding the following provisions at the end thereof: "For purposes of this Lease, capital improvements that are included in Operating Expenses, if any, must be amortized in accordance with generally accepted accounting principles and Tenant's Proportionate Share of Operating Expenses each year will only include the portion of the cost of such capital improvements that are amortized that year. Tenant has no responsibility for portions of the cost of capital improvements that are amortized after the expiration or earlier termination of the Lease. Notwithstanding anything to the contrary in this Lease, Operating Expenses do not include the cost to repair damage to the Building or any portion thereof caused by a casualty." 1.11 OPERATING EXPENSE BUDGET. Section 5.4 is hereby amended by substituting "five percent (5%)" in place of "ten percent (10%)" in both sentences where such phrase appears. 1.12 TENANT AUDIT. Section 5.6 is hereby amended by the addition of the following provisions at the end thereof: "Tenant may once per calendar year audit all of Landlord's (or Landlord's agents') records pertaining to Operating Expenses and Real Property Taxes. Any net overbilling discovered in the course of an audit must be refunded to Tenant within thirty days of Landlord's receipt of a full and complete copy of the auditor's report including all supporting documentation, data and calculations related to the amounts overbilled. If Landlord has issued its annual reconciliation for a particular year and an audit of that year determines that Tenant was overbilled by five percent or more of the total sum which properly should have been billed by Landlord to Tenant in respect of Operating Expenses and Real Property Taxes, then Landlord must reimburse Tenant for all expenses of its audit. Landlord must retain its records regarding Operating Expenses and Real Property Taxes for a period of at least three years following the final billing for the calendar year, tax or fiscal year in question. At any time during that three year period upon notice to Landlord, Tenant may conduct its audit. Tenant's audit is binding upon Landlord unless within 30 days following notification to Landlord of audit result, Landlord gives Tenant notice ("dispute notice") specifying reasonable grounds for disputing such result. In the event of such a dispute, the dispute shall be resolved by a second audit accomplished by an neutral, experienced, qualified and independent auditor (who may not have performed work for either Landlord or Tenant during the preceding five year period), named by Tenant and approved by Landlord which approval may not be unreasonably withheld. Notwithstanding the foregoing, if Landlord does not estimate any portion of Operating Expenses for a calendar year and instead bills Tenant for Operating Expenses by submitting copies of paid invoices and other reasonable documentation of the amounts actually expended by Landlord, then with respect to such year Tenant will not be entitled to audit Landlord's records." 1.13 ALTERATIONS. (a) Section 7.2(a) is hereby amended and restated in its entirety as follows: "(a) "Minor Work" means repairs, reconstruction, alterations or additions to the Premises and the placement of HVAC equipment and communication facilities on the 5 roof of the Building so long as such work does not affect the structural integrity of the Building or the integrity of the roof and does not materially alter demising or structural walls, the exterior appearance of the Building or any significant architectural feature of the Building." (b) The last three sentences of Section 7.3(a)(1) are hereby deleted. (c) Section 7.3(a)(7) is hereby amended by inserting the following phrase at the beginning of the Section: "For any work costing in excess of $500,000.00,". (d) Section 7.3(b)is amended by substituting "ten (10)" for "twenty-one (21) in the first sentence of the section. (e) Section 7.4 is hereby amended and restated in its entirety as follows: "7.4 PERFORMANCE OF MINOR WORK. Tenant may without Landlord's consent perform Minor Work. The provisions of Section 7.3(b) apply to all Minor Work. Tenant will supply Landlord with "as built" plans and specifications for all Minor Work." 1.14 LEASED FIXTURES. Section 7.6 is hereby amended and restated in its entirety as follows: "7.6 LEASED FIXTURES. Except as provided in the last sentence of this Section 7.6, Landlord waives all liens, if any, to which it may have a right with respect to the merchandise, furniture, Trade Fixtures and other personal property of Tenant located on or about the Premises and will from time to time within 15 days following Tenant's request execute and deliver to Tenant those documents as Tenant may reasonably request (i) to acknowledge that waiver and/or (ii) to subordinate, the liens, if any, which Landlord may have in that personal property to the interest of any lender of Tenant or Tenant's parent corporation (if any) which has taken or (is taking) a security interest in that personal property as security for loan. At Tenant option those instruments may provide that if the lender undertakes to enforce its security interest in the personal property, Landlord must cooperate with the Lender, or its designated representative, in its efforts to assemble the personal property located at the Premises and may not hinder the lender's actions in enforcing its liens on the personal property. In the event that the Premises is abandoned, or Landlord recovers possession by any means, lender may remove the personal property from the Premises within thirty (30) days after written notice by Landlord. Landlord does not waive or agree to subordinate any lien to which it becomes entitled as a result of a judgment entered against Tenant in connection with a default of Tenant under this Lease." 1.15 LANDLORD REPAIRS. Section 9.1 is hereby amended by adding the following provision at the end thereof: "Tenant may give Landlord notice of maintenance, repairs or other work as may be required under the terms of this section, and Landlord must proceed forthwith to perform that work with reasonable diligence, but in no event later than 60 days after receipt of Tenant's notice. In the event of an emergency Tenant may immediately perform work that is Landlord's responsibility, and notify the Landlord promptly after the work has been undertaken. If Landlord fails to repair or perform its obligations within the 60 day period stated above, or in case of emergency, Tenant may perform the Landlord work and Landlord must reimburse Tenant for the reasonable cost of the work performed by Tenant within thirty days after the date Tenant requests such reimbursement and supplies reasonable supporting documentation for those costs. With respect to repairs performed due to an emergency, Tenant may only perform those 6 repairs that are necessary, in Tenant's reasonable, good faith judgment, to minimize damage to Tenant's property and its business operations." 1.16 CONDITION UPON SURRENDER. Section 9.2(c) is hereby amended and restated in its entirety as follows: "(c) CONDITION UPON SURRENDER. At the expiration or earlier termination of this Lease, Tenant will surrender the Premises, including any leasehold improvements constructed by Tenant, in good condition, ordinary wear and tear and casualty damage excepted. If Tenant is not in default under this Lease after notice and expiration of applicable cure period, then Tenant may remove all property that belongs to Tenant, including Tenant's Trade Fixtures so long as Tenant repairs any damage caused by that removal." 1.17 USE. Section 10.1 is hereby amended and restated in its entirety as follows: "PERMITTED USE. The Premises may be used for any lawful use. Tenant may occupy the Premises under any name and trade names as Tenant, in its sole discretion, elects." 1.18 USES PROHIBITED. Section 10.3(a) is hereby amended by deleting the phrase "in any way increase the premiums on any insurance or". 1.19 COMPLIANCE WITH LAWS. Section 10.4 is hereby amended by the addition of the following provision at the end thereof: "Tenant's continuing remodeling, reconfiguring and growing will be based on business decisions as to cost/benefit, including the costs of meeting code compliance in each instance. Landlord cannot be responsible for compliance costs in any way triggered by Tenant's new uses or cumulative uses, or by Tenant's improvements or modifications. Landlord's sole responsibility for compliance with code and other legal requirements is related to generic enforcement of matters not triggered by any use or action of Tenant." 1.20 SIGNS. Section 10.6 is hereby amended and restated in its entirety as follows: "10.6 SIGNS. Tenant may erect and maintain within the Premises, upon the exterior of the Building (including each elevation of the Building if there is more than one) and in the building common areas such signs as Tenant deems appropriate to the conduct of its business subject only to any applicable legal requirements. Tenant may attach its signs to the Building exterior and common areas in a commercially reasonable fashion. Except for signs, if any, that are legally required, and as otherwise expressly permitted in this Section, no signs may be placed on the exterior of the Building or in common areas without Tenant's consent, which consent Tenant may withhold in its sole discretion. If signs are placed without Tenant's consent, then, within three days after notice to Landlord, Landlord must remove such signs and if Landlord fails to do so, then Tenant may remove such signs and deduct all reasonable costs and expenses incurred in connection with such removal from rent. If during the Term there are third party tenants in the Building, then Landlord may maintain directory signage for those tenants, and those tenants will be permitted to place reasonable identity signage on the entrance to their premises. During the last nine months of the Term, Landlord may place "For Rent" or "For Lease" signs on the exterior of the Building in reasonable locations that do not in any manner affect the visibility of Tenant's signs." 1.21 CASUALTY INSURANCE. Section 11.1 is hereby amended and restated in its entirety as follows: 7 "11.1 CASUALTY INSURANCE. Landlord must maintain at all times during the Term an all risk property insurance policy insuring against damage to any portion of the Building, except any leasehold improvements installed by tenants in their premises or to personal property, including Trade Fixtures, placed by tenant in their premises. That insurance must be Replacement Cost Coverage. The term all risk policy as used in this lease means a policy of fire and other property insurance in the form commonly referred to in the insurance industry as "Special Form". Landlord's property policies required under this Section 11.1 may not provide for any deductible or self insured retention in excess of $25,000, unless approved by Tenant. Landlord may maintain any of its required insurance under blanket policies of insurance covering the Building and any other properties owned by Landlord or companies affiliated with the Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policy of insurance. In addition, Landlord may from time to time carry earthquake insurance, based upon price, availability and common practice. Tenant must at all times during the Term maintain in full force and effect a policy(s) of all risk property insurance covering all of Tenant's alterations, improvements and betterments to the Premises now existing or to be added, to the extent of their full replacement costs as updated from time to time during the Term of this lease. Tenant must maintain in full force and effect at all times during the Term a policy(s) of boiler and machinery breakdown insurance covering all of its boilers, fired or unfired pressure vessels, heating, ventilating and air-conditioning units or any other mechanical equipment which may malfunction or cause damage to property or injury to persons that may be caused by or results from any equipment which equipment is used exclusively by the Tenant, and if said coverage is not included within the policy(s) providing coverage for the Tenant's alterations, improvements and betterments required under this Lease, then said insurance shall be by separate policy in an amount not less than $100,000.00." 1.22 LIABILITY INSURANCE. Section 11.2 is hereby amended by the addition of the following provision at the end thereof: "Landlord must at all times during the Term keep in force a policy or policies of lessor liability insurance or an endorsement on a blanket liability insurance policy or policies against any and all damages and liability on account of, or arising out of injuries to persons or property or the death of any person or for property damage resulting from acts or omissions of Landlord, its agents or representatives in the minimum amount of $5,000,000.00 combined single limit in any one accident. That policy or policies must include Contractual Liability Insurance recognizing the liability assumed by Landlord under Section 11.7. Tenant's liability insurance will be deemed primary to the liability insurance that Landlord carries." 1.23 WAIVER OF SUBROGATION. Section 11.5 is hereby amended by the insertion of the phrase "or required to be carried" in the tenth line of the section between the words "carried" and "by" 1.24 INDEMNIFICATION. Section 11.7 is hereby amended and restated in its entirety as follows: "11.7 INDEMNIFICATION. (a) BY TENANT. Except for Landlord's gross negligence or wilful misconduct, Tenant hereby agrees to and shall indemnify, defend, protect and hold Landlord and its general and limited partners, employees, agents and representatives free and harmless from and against all injury, loss, damage, liability and costs or expenses (including, without limitation, reasonable attorneys' fees, costs of suit, expert witness fees, investigative fees and discovery costs) of whatever nature, to any person or property 8 resulting from Tenant's use and occupancy of the Building or any negligent act or omission of Tenant or its officers, directors, shareholders, employees, agents, guests, invitees and representatives. (b) BY LANDLORD. Landlord hereby agrees to and shall indemnify, defend, protect and hold Tenant and its officers, directors, shareholders, employees, agents and representatives free and harmless from and against all injury, loss, damage, liability and costs or expenses (including, without limitation, reasonable attorneys' fees, costs of suit, expert witness fees, investigative fees and discovery costs) of whatever nature, to any person or property resulting from any grossly negligent act or wilful omission of Landlord. The provisions of this Section 11.7 are subject and subordinate to the provisions of Section 11.5." 1.25 ASSIGNMENT AND SUBLETTING. (a) Section 12.1 is hereby amended and restated in its entirety as follows: "12.1 ASSIGNMENT AND SUBLEASE OF PREMISES. Except as expressly provided below, Tenant may not assign this Lease or sublet the Premises, or any part thereof, without Landlord's consent, which consent Landlord may not unreasonably withhold. Any assignment or sublease that requires Landlord consent that is made without such consent will be void. Tenant may without Landlord's consent assign this Lease or sublet the Premises to a corporation with which it may merge or consolidate or in connection with the sale of at least a majority of its assets, or an operating division, or to any parent or subsidiary of Tenant or a subsidiary of Tenant's parent. For purposes of this Section 12.1, a parent-subsidiary relationship is deemed to exist between two corporations if one corporation owns a majority of the voting stock of the other corporation. No assignment of this Lease or sublease of the Premises will serve to release Tenant from liability under this Lease unless Landlord expressly does so at the time of such assignment or sublease." (b) Section 12.2 is hereby amended by inserting the phrase "Except as expressly provided in Section 12.1," at the beginning of the second sentence of the section. (c) Section 12.3 is hereby amended and restated in its entirety as follows: "12.3 ASSIGNMENT DEFINED. As used in this Article 12, the term "assignment" includes any sale, transfer or other disposition of all or any portion of Tenant's estate under this Lease (including any transfer for security), whether voluntary or involuntary, and whether by operation of law of otherwise." 1.26 RIGHTS OF ENTRY. Section 13.1 is hereby amended and restated in its entirety as follows: "13.1 RIGHTS OF ENTRY. Upon 24 hours prior notice, Landlord and its authorized representatives may enter the Premises during regular business hours for the purpose of showing the Premises to prospective lenders and purchasers, and inspecting and determining the condition of the Premises, provided that in the event of emergency Landlord may immediately enter the Premises without notice. In addition, upon notice to Tenant during hours reasonably designated by Tenant, Landlord may enter the Premises to perform repairs, reconstruction, alterations and improvements that Landlord is obligated or entitled to perform under the other provisions of this Lease. During the last nine months of the Term, as extended, upon 24 hours prior notice, Landlord and its authorized representatives may enter the Premises during regular business hours for the 9 purpose of showing the Premises to prospective tenants. Landlord must use best efforts when exercising its rights of Premises entry not to interfere with the access to or visibility of the Premises, or the conduct of business within. Landlord must reimburse Tenant for costs in good faith incurred to protect Tenant property and improvements from theft or damage in respect of Landlord entry; and must repair, to Tenant's satisfaction all damage caused by its work within the Premises. If Landlord entry continues for 24 hours or more and has an adverse effect upon Tenant business operations, then Tenant rent will abate proportionate to the percentage of the Premises usable floor area adversely affected by Landlord entry unless basis for Landlord entry was cure of Tenant default after notice and expiration of applicable cure period." 1.27 CASUALTY AND TAKING. Article 14 is hereby amended and restated in its entirety as follows: "14.1 After any casualty event, Landlord must, within 30 days after the casualty, notify Tenant of Landlord's reasonable, good faith estimate of how long from the date of the casualty it will take Landlord to repair and restore the damaged portions of the Premises. If the Premises or its appurtenances are damaged or destroyed by a casualty to the extent that Landlord cannot reasonably complete its restoration and repair obligations within twelve months from the date of the casualty, then Tenant may terminate this Lease as of the date of the casualty by notice to Landlord within 45 days after the date that Landlord notifies Tenant of the time period required to repair and restore the damaged portions of the Premises. If neither party elects to terminate the Lease under the terms of this Article, then Landlord must commence its repair and restoration of the damage caused by the casualty as soon as possible after the date of the casualty. Landlord must repair and restore the all portions of the Premises and its appurtenances that are damaged by the casualty to substantially their condition immediately prior to the casualty except for the leasehold improvements constructed by Tenant. Landlord must diligently pursue its repairs and restoration to completion. If Landlord does not complete its repairs and restoration within eighteen months from the date of the casualty (subject to extension for force majeure events), Tenant may terminate this Lease by written notice to Landlord at any time prior to completion. Once Landlord has completed its repair and restoration obligations, Tenant must commence the repair and restoration of the leasehold improvements constructed by Tenant that were damaged by the casualty. All rent payable under this Lease will abate from the date of the casualty to the earlier of (i) 180 days following the date Landlord completes its repair and restoration obligations and (ii) the date on which Tenant completes its repairs and restoration, provided that if Tenant continues to conduct business in the Premises during the period that Landlord and Tenant are repairing and restoring the Premises, then Tenant's rent obligations during the period of repairs and restoration will abate in proportion to the percentage of the Premises usable floor area damaged by the casualty. If the Premises are substantially damaged by a casualty that is covered by neither (i) the insurance actually carried by Landlord nor (ii) the insurance Landlord is required to carry under the terms of this Lease, then Landlord may elect to terminate this Lease by giving notice of its election to terminate within ninety days after the casualty event. If Landlord elects to terminate the Lease, then the rights and obligations of the parties will cease as of the date of Landlord's notice, and rent and additional charges will be adjusted as of the date of such termination. Damage to the Premises is substantial if the cost to repair the damage is equal to or greater than 15% of the full replacement cost of the Premises. 14.2 Intentionally omitted. 10 14.3 Tenant is not entitled to any compensation or damages, other than stated in this Lease, from Landlord for the loss of the use of the whole or any part of the Premises or damage to tenant's personal property or any inconvenience or annoyance occasioned by the casualty event. 14.4 If Landlord is obligated to repair and restore under the terms of this Article, but does not commence those repairs and restoration within 90 days of the casualty, and continue its repairs and restoration thereafter with reasonable dispatch, then Tenant may, upon notice to Landlord, perform Landlord's repair and restoration obligations at Landlord's sole cost and expense. If Tenant elects to do so, then Landlord must promptly pay to Tenant any insurance proceeds received by Landlord in connection with the casualty. Landlord must pay Tenant on demand for any cost or expense incurred by Tenant in connection with its performance of Landlord's repair and restoration obligations (not including any amount by which the cost and expense of restoration is increased by any change or changes made by Tenant). 14.5 The parties waive those rights of Lease termination as are granted to them under the laws of the state where the Premises are located, it being their agreement that the rights of termination in the event of casualty, as set forth in this Article, are exclusive. 14.6 EFFECT OF TAKING. (a) In the event the whole or any part of the Premises is taken for public or quasi-public use or condemnation under eminent domain, this Lease will terminate as to the part so taken on the date possession is yielded to the condemning authority. (b) In the event a portion of the Premises, Building or Property is taken and such taking substantially impairs the usefulness of the Premises for the purposes hereinbefore granted to the Tenant, then Tenant may terminate the Lease by written notice within thirty days after to the actual physical taking. (c) For the purposes of this Article, a sale or conveyance in lieu of condemnation that is made because of the threat of condemnation will be deemed an appropriation or taking under the power of eminent domain. (d) If this Lease is not terminated as above provided following a taking, then Landlord must, at its expense, make all necessary repairs or alterations to the basic building and exterior work so as to constitute the remaining Premises a complete architectural unit and a proportionate reduction will be made in the Base Rent and additional charges based on the proportion of the Premises taken. 14.7 COMPENSATION AND AWARDS. All compensation awarded for any taking of the fee and the leasehold, or any part thereof, will belong to and be the property of Landlord. Tenant hereby assigns to the Landlord all right, title and interest of Tenant in and to any award made for leasehold damages and/or diminution in the value of Tenant's leasehold estate. Tenant may claim all compensation as may be separately awarded or allocated including without limitation relocation costs and the value of Tenant's leasehold improvements. Compensation as used in this section means any award given to the Landlord for such taking in excess of, and free and clear of, all prior claims of the holders of any mortgages or other security interests. 1.28 LATE PAYMENTS. Section 15.4 is hereby amended and restated in its entirety as follows: 11 "15.4 LATE CHARGES. If Tenant fails for any reason to pay Base Rent, Tenant's Proportionate Share of Real Property Taxes or Operating Expenses, additional Rent or any other amount fee, or charge due hereunder within five (5) days of the date when due, then Landlord may impose a late charge equal to 10% of the amount overdue. If Landlord fails for any reason to pay any amount payable to Tenant under this Lease within five (5) days of the date when due, then Tenant may impose a late charge equal to 10% of the amount overdue. In addition, any sum accruing to Landlord or Tenant under the provisions of this Lease that is not paid within 10 days following written notice that it is overdue ("Notice Period") bears interest from the expiration of the Notice Period, at the rate of the lesser of (i) the maximum rate legally permitted and (ii) 12% per annum, until paid." 1.29 LANDLORD DEFAULT. The following Section 15.6 is hereby added to the Lease: "15.6 LANDLORD DEFAULT. If Landlord fails to perform any of its obligations under this Lease and that failure continues for a period of more than 30 days after receipt of written notice from Tenant specifying that failure, or if the failure is of a nature to require more than 30 days for remedy and continues beyond the time reasonably necessary to cure (provided Landlord must have undertaken procedures to cure the default within 30 days of Tenant's notice and diligently pursue such efforts to cure to completion), then Tenant may, upon written notice, incur any reasonable expense necessary to perform the obligation of Landlord specified in such notice and Landlord must reimburse Tenant for the reasonable expense incurred by Tenant within thirty days after the date Tenant requests such reimbursement and supplies reasonable supporting documentation for those expenses." 1.30 NON-DISTURBANCE. Section 16.1 is hereby amended and restated in its entirety as follows: "16.1 NONDISTURBANCE AND SUBORDINATION TO MORTGAGE. (a) Landlord must obtain from every lender, ground lessor or other party whose interest is superior to Tenant's leasehold interest, a fully executed nondisturbance agreement assuring Tenant that notwithstanding any default by Landlord, or any foreclosure or deed in lieu thereof or lease termination proceedings, or the exercise of any other right or remedy, Tenant's rights under the Lease will continue in full force and effect and its possession of the Premises will remain undisturbed except in accordance with the provisions of this Lease so long as Tenant is not in default hereunder after notice and expiration of applicable cure period. Those agreements must be in a form reasonably satisfactory to Tenant. (b) Upon Landlord's request, Tenant's interest under this lease will be subordinated to any mortgage, deed of trust, sale/leaseback transaction or any other hypothecation for security hereafter placed upon the Building, the Property or both by the execution, delivery and recordation of a subordination, non-disturbance and attornment agreement that is reasonably acceptable to Tenant." 1.31 ARBITRATION. Section 5.10 of the Lease is hereby deleted in its entirety. The first sentence of Article 17 is hereby deleted and the following provisions substituted in its place: "Either Landlord or Tenant may at any time require that any non-monetary dispute regarding a matter that cannot result in Lease termination be submitted to arbitration. Upon the mutual agreement of the parties, monetary disputes and disputes that could result in Lease termination may also be submitted to arbitration." 1.32 Lease Status. Landlord and Tenant each represent that to its best, current knowledge as of the date of this Amendment (i) neither Landlord nor Tenant is in default under the terms of the Lease, (ii) 12 no event exists that with the passage of time or the giving of notice or both would constitute a default by either party to the Lease, and (iii) each party has fully performed its obligations under the Lease that have accrued under the Lease through the date of this Amendment and no claims are outstanding for any unperformed obligations except as to the items listed on an attached Exhibit B containing obligations of Landlord and Tenant. 1.34 FORCE MAJEURE. The following Section 18.14 is hereby added to the Lease: "18.14 Force Majeure. As used herein the term force majeure event means any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor, materials, or merchandise, governmental restrictions, governmental regulations, governmental controls, judicial orders, enemy or hostile governmental actions, civil commotion, fire, or other casualty, and other causes beyond a party's reasonable control (but not financial inability). If a party's performance of a non-monetary obligation is delayed by a force majeure event, then the period for performing that non-monetary obligation will be extended for a period equal to the period of delay caused by the force majeure event. A party whose performance of a non-monetary obligation is delayed by a force majeure event must give prompt notice of that delay to the other party." 1.35 AUTHORITY. The individuals executing this Amendment on behalf of each party hereto warrant that they have been duly authorized to execute and deliver this instrument on behalf of and by the party for whom they are signing, and by delivery hereof each individual warrants that execution by no other signatory is necessary to bind the part for whom they sign. A certified copy of the board of directors' resolution authorizing the execution of this Amendment by Tenant is attached hereto as Exhibit C. 1.36 RATIFICATION. The parties ratify and affirm the Lease as amended hereby. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first recited above. TENANT LANDLORD CALIFORNIA CULINARY ACADEMY, INC. 625 POLK INVESTMENT COMPANY A CALIFORNIA CORPORATION A CALIFORNIA LIMITED PARTNERSHIP By: By: ------------------------------ ---------------------------- Its: Its: General Partner ------------------------------ 13 EXHIBIT B TO EIGHTH AMENDMENT TO LEASE REPAIR OBLIGATIONS OF LANDLORD: 1. Roof on flat section of third floor to be replaced within the next five years 2. Cosmetic restoration of ceiling plaster molds in Careme utilizing lightweight materials reasonably replicating the same architectural style 3. Elevator safety edge sensors to be completed 4. Sump backup pump to be repaired or replaced if not already completed and Landlord to provide periodic training to maintenance staff of Tenant in proper sump pump maintenance procedures 5. Building exterior painting of lower casements 6. Restoration and repair of exterior terra cotta element near front entrance REPAIR OBLIGATIONS OF TENANT: 1. Perform project work as necessary to finalize Permit #9318061 (currently being bid for Tenant by Brayer Electric, Fine Line and PAFA), and finalize any other open permits or related code "correction" items currently cited in the Premises by the City of San Francisco. 14 EX-10.32 3 EXHIBIT 10-32 EXHIBIT 10.32 CALIFORNIA CULINARY ACADEMY, INC. 1997 STOCK OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees and Consultants, and - to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. (g) "Company" means California Culinary Academy, Inc., a California corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulation promulgated thereunder. (p) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option. The Notice of Grant is part of the Option Agreement. 2 (q) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option granted pursuant to the Plan. (s) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "Option Exchange Program" means a program whereby outstanding options are surrendered in exchange for options with a lower exercise price. (u) "Optioned Stock" means the Common Stock subject to an Option. (v) "Optionee" means the holder of an outstanding Option granted under the Plan. (w) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 1997 Stock Option Plan. (y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (z) "Section 16(b)" means Section 16(b) of the Exchange Act. (aa) "Service Provider" means an Employee or Consultant. (bb) "Share" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. (cc) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is Six Hundred Thousand (600,000) Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option, shall not be returned to the Plan and shall not become available for future distribution under the Plan. 3 4. FORM OF OPTION. (a) INCENTIVE OR NONSTATUTORY STOCK OPTIONS. Options issued under the Plan may be either Nonstatutory Stock Options or Incentive Stock Options or a combination of both. Whether an Option or a portion thereof is a Nonstatutory Stock Option or an Incentive Stock Option shall be clearly stated in the Option Agreement. (b) RECLASSIFICATION OF OPTIONS. Any Incentive Stock Option may be reclassified into a Nonstatutory Stock Option upon the written request of the Optionee and the consent of the Company (which consent may be withheld in the sole discretion of the Administrator) by the amendment of its designation and the deletion or modification of any provision which, under the terms of the Plan, is applicable only to Incentive Stock Options. The number of shares which may be purchased pursuant to an Incentive Stock Option which is so reclassified into a Nonstatutory Stock Option may be increased by amendment but not in excess of the number of additional shares necessary to provide the Optionee with the same economic benefit after federal income taxes upon the exercise of the Option as a Nonstatutory Stock Option as the Optionee would have obtained upon the exercise of the Option as an Incentive Stock Option. In no event shall (i) the provisions of this subsection be interpreted or construed to grant any rights, powers or privileges to reclassify or otherwise amend an Incentive Stock Option to any person or body other than the Administrator; or (ii) any Option Agreement contain any provision which purports to grant any such rights, powers or privileges. (c) CANCELLATION OF OPTIONS. With the Optionee's consent, the Administrator may cancel any Option issued under the Plan and issue a new Option to such Optionee. 5. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. (i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) SECTION 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) RULE 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. 4 (iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to grant Incentive Stock Options, in accordance with Section 422 of the Code or Nonstatutory Stock Options; (ii) to determine the Fair Market Value; (iii) to select the Service Providers to whom Options may be granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted; (viii) to institute an Option Exchange Program; (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (x) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (xi) to modify or amend each Option (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; 5 (xii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xiii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; (xiv) to make all other determinations deemed necessary or advisable for administering the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 5. ELIGIBILITY. (a) INCENTIVE AND NONSTATUTORY STOCK OPTIONS. Options may be granted only to Employees and Consultants. Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted to Employees and Consultants. An Employee or Consultant who has been granted an Option may, if he is otherwise eligible, be granted additional Options. (b) INCENTIVE STOCK OPTIONS TO PROSPECTIVE EMPLOYEES. No Incentive Stock Option shall be granted to any prospective employee prior to the date upon which such person becomes an Employee; provided, however, that the Administrator may grant an Incentive Stock Option to a prospective employee prior to such person's employment, subject to the condition that such person become an Employee, in which case, the date of grant shall be the date upon which such person becomes an Employee (unless a later date shall be specified in the Notice of Grant). 6. LIMITATIONS. (a) INCENTIVE STOCK OPTIONS. Each Option shall be designated in the Notice of Grant as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value: (i) of Shares subject to an Optionee's incentive stock options granted by the Company, any Parent or Subsidiary, which (ii) become exercisable for the first time during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 7(a), incentive stock options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time of grant. 6 (b) NO RIGHT TO CONTINUED STATUS AS A SERVICE PROVIDER. Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) NUMERICAL LIMITATIONS. The following limitations shall apply to grants of all Options under the Plan: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 100,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 100,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. TERM OF PLAN. Subject to Section 20 of the Plan, the Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. TERM OF OPTION. The term of each Option shall be stated in the Notice of Grant; provided, however, that in the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Notice of Grant. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Notice of Grant. 9. OPTION EXERCISE PRICE AND CONSIDERATION. (a) EXERCISE PRICE. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as determined by the Administrator, but shall be subject to the following: (i) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option: 7 (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than One Hundred Ten Percent (110%) of the Fair Market Value per Share on the date of grant. (B) granted to any Employee, the per Share exercise price shall be no less than One Hundred Percent (100%) of the Fair Market Value per Share on the date of grant. (ii) NONSTATUTORY STOCK OPTIONS. In the case of a Nonstatutory Stock Option granted to any person, the per Share exercise price shall be no less than Eighty-five Percent (85%) of the Fair Market Value per Share on the date of Grant. (iii) PERFORMANCE-BASED COMPENSATION. In the case of an Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iv) MERGER OR OTHER CORPORATE TRANSACTION. Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per on the date of grant pursuant to a merger or other corporate transaction. (b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) FORM OF CONSIDERATION. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; 8 (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 9 (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. (i) WHILE A SERVICE PROVIDER. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option would have vested had the Optionee remained a Service Provider for six (6) months after the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested (or is not deemed vested by this Section 10(d)(i)) as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (ii) WITHIN THREE MONTHS OF TERMINATION AS A SERVICE PROVIDER. If an Optionee dies within three (3) months of ceasing to be a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 10 (e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 12. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor 11 corporation refuses to assume or substitute for the Option, the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. DATE OF GRANT. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to options granted under the Plan prior to the date of such termination. 16. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. 12 (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. GRANTS EXCEEDING ALLOTTED SHARES. If the Shares covered by an Option exceeds, as of the date of grant, the number of Shares that may be issued under the Plan without additional shareholder approval, such Option shall be void with respect to such excess Shares, unless shareholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 15(b) of the Plan. 20. SHAREHOLDER APPROVAL. Shareholder approval of the Plan shall be obtained in the manner and to the degree required under Applicable Laws. 21. INFORMATION TO OPTIONEES. The Company shall provide each Optionee, while such Optionee has one or more Options outstanding, with copies of all annual reports and other information that are provided to all shareholders of the Company. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. 22. OTHER PROVISIONS. Notwithstanding the express provisions of the Plan, any Option may be granted on such additional or more restrictive terms as the Administrator shall deem advisable consistent with the Plan. 23. REGISTRATION AND RESALE. The Plan, the shares of Common Stock subject thereto, and the Options granted thereunder may, in the discretion of the Board, be registered under the Securities Act of 1933, as amended, or qualified for sale under the securities laws of any state. As a condition to the grant of any Option under the Plan or the issuance of Shares upon the exercise thereof, the Board may require that the Optionee agree to comply with such provisions of federal and state securities laws as may be applicable to such grant or issuance or to the sale of Shares acquired thereby and deliver to the Company a written agreement in form and substance satisfactory to the Company and its counsel implementing such agreement. 13 24. EFFECTIVE DATE AND TERM OF PLAN. (a) EFFECTIVE DATE. The Plan is effective as of March 15, 1997, subject to receipt of shareholder approval, to the extent required by Applicable Laws. (b) TERM. The Administrator may terminate the Plan at any time. The Plan will, in all events, terminate on the earlier of (i) March 15, 2007 or (ii) the date all shares available for issuance are issued or cancelled. Each Option outstanding at the time of such termination will remain in force in accordance with the provisions of the instruments evidencing such grant. 14 EX-10.33 4 EXHIBIT 10-33 [LETTERHEAD] May 31, 1995 Mr. Keith Keogh 1166 Crescent Bay Boulevard Clermont, Florida 34711 Dear Keith: As we discussed, this letter will set forth the terms of your employment as an officer of California Culinary Academy, Inc. ("CCA"). 1) You will be a corporate officer with the title of Executive Vice President and Chief Operating Officer. You will be a key member of senior management and will help formulate and execute corporate policies and overall strategic direction for CCA. Your duties will also include: (1) overall supervision and management of the faculty including all full-time and adjunct chef and related subject instructors; (2) developing and revising educational curricula in conjunction with the action team assigned to the task; (3) educational matters, including assisting in developing continuing education and consumer education and professional courses; (4) overall management and profit center responsibility for all of CCA's restaurant and food and beverage operations; (5) purchasing of all food, beverages and smallwares; 6) as time permits, you may teach at the CCA; 7) active assistance in the CCA's retail and product licensing program as requested, including giving and organizing chef demonstrations, meeting with manufacturers, distributors and retailers and having the faculty assist in product evaluations and selections; 8) active participation in the CCA's media and publishing program as requested, including organizing the faculty to work with you to create books, tapes and CD-ROM's to be commercially published in both the text book and trade markets; 9) actively assisting in developing new businesses such as commercial catering and baking; 10) assisting, as appropriate, in alumni events, recruiting new students, and retention of existing students; 11) actively assisting with industry organizations including ACF matters, such as being approved for certification programs including the Certified Master Chef examination. You will also undertake other duties that may be assigned to you from time to time by the President and the Board of Directors of CCA. 2) You will report directly to the President and Chief Executive Officer who will be responsible for your performance and compensation reviews. Mr. Keith Keogh May 31, 1995 Page Two 3) You agree, as reasonably requested, and as part of your duties, to act as a spokesperson for the CCA, including making live personal appearances and performances for video taping, photography for books, television, video, CD-ROM programs and all other media and derivative products. As part of your duties, your name, likeness, image, biography, quotes and narrative statements attributed to (and reasonably approved by) you may be used in books, tapes, CD-ROM, TV and video programs and ancillary and derivative products. Also, CCA and its authorized agents can use, reproduce, print, publish and broadcast your picture, likeness, voice, signature and biographical material for sale, promotion, advertising and trade purposes in connection with, and in endorsement for, books, television and video programs, CD-ROM and all other media, including ancillary and derivative products. Those rights can be exercised by CCA for the entire period of the copyright of any product utilizing such rights, regardless of your employment status with CCA. 4) Your employment will commence on the date you select, but no later than June 30, 1995. Your office will be in the corporate headquarters of CCA in San Francisco. While you are employed by CCA, you agree to devote your full productive time, energies and abilities to its affairs. Your employment is "at will" and thus is for no definite term. Employment may be terminated either by CCA or by you at any time, with or without cause. However if your termination is without cause, you will receive three months base salary and medical insurance benefits as severance pay. Grounds for termination "for cause" include but are not limited to one of the following: a willful material breach of duty, habitual neglect of duty, or action or inaction which places CCA in circumstances of financial peril. Notwithstanding the above, if CCA is sold or if neither the present Chairman or President are in those positions at CCA and you are terminated without cause, then you will receive two years of base salary plus continuing medical insurance benefits as severance pay. 5) For all of the services to be rendered by you and all the rights granted to CCA by you, your base salary will be $160,000 per annum, paid biweekly as are salaries of other employees of CCA. Within ten days of your commencing full time employment, the Board of Directors will grant you stock options under the CCA's stock option plan to purchase shares at their fair market value on the date of grant. The options will be for 60,000 (sixty thousand) shares of stock. Mr. Keith Keogh May 31, 1995 Page Three Vesting will be 30,000 (thirty thousand) on the grant date and 30,000 (thirty thousand) one year from the grant date (assuming you are still employed by the CCA). The options will expire five years from the date of grant. You will have the opportunity to receive additional options on the following basis: on June 19, 1996 and on June 19, 1997 the total Stock Market Value of the Company will be calculated. Stock Market Value is the number of CCA common shares issued and outstanding times the reported market value of the common stock on NASDAQ as of the market close on that day (or if that day is a holiday or weekend the value of the last previous day the market was open). That Stock Market Value shall be subtracted from the Stock Market Value on the same day the previous year. If the Stock Market Value for the current year is higher, you will receive additional stock options, at the then current fair market value, expiring in five years and vesting fifty percent on date of grant and fifty percent one year later. The number of options will be calculated by multiplying the percentage difference between the Stock Market Values, times 60,000. (In other words, if the Stock Market Value were 100% higher, you would receive options to purchase 60,000 shares of stock.) 6) You and your wife and dependent children will be eligible, subject to any qualifications required under CCA's insurance plans, to be covered under the employee health insurance plan and group life insurance plan of CCA. Terms and conditions of your participation will be the same as those for other management employees. Under its current policy CCA will pay all of the premiums. Provided you qualify for coverage as a non-smoker in excellent health, the CCA will pay the entire premium on a $400,000 term life policy where you designate the beneficiary. You can pay for additional coverage if you wish. You will be eligible for four weeks vacation per annum, under the terms and conditions of CCA's vacation policies. The Company will also pay for your monthly parking at the Opera Plaza Garage. 7) In addition, subject to policies established from time to time and approved by the President or Chairman of the Board, you will be reimbursed for pre-approved out of pocket expenses such as travel and entertainment, participation in educational events, and professional seminars. Mr. Keith Keogh May 31, 1995 Page Four 8) The CCA will assist you and your family in the following ways in relocating to the San Francisco Bay Area, which they will do within six months of commencement of your employment: 1) CCA will pay for one round trip, economy class tickets for your wife and two daughters, plus $1,000.00 to help cover other expenses to visit the Bay Area, plus one way economy class tickets when they relocate; 2) CCA will pay for three round trip, economy class tickets for you to visit Florida during the first seven months of employment; 3) CCA will pay your out of pocket expenses (up to a maximum of $15,000) to pack, move and unpack your household effects to move them to San Francisco from Florida. 9) The above and all other benefits will be administered as described in the Personnel Policy Manual which you have received. 10) You can participate as Captain or Manager of the U.S. Culinary Olympic Team during the rest of 1995 and during 1996, (and thereafter on terms approved by the Board of Directors). Training is done once a month from late Friday through noon Monday. CCA (without having any obligation to contribute money) will work with you to attempt to facilitate the relocation of the Culinary Olympics headquarters to the San Francisco Bay Area. The CCA will make its facilities available to the Team on a reasonable basis. You can also participate in the Cook's World Tour event organized by WACF from July 9-19, 1996. 11) In the course of your employment you will have access to records and data pertaining to CCA. Such information is considered confidential and proprietary. Therefore, during your employment and thereafter, you will not disclose any such information to any third party except as required in the course of your employment with CCA. 12) This letter contains our entire agreement and supersedes all prior oral and written agreements, understandings and commitments. No amendments to this agreement may be made except in writing sign by both parties. Mr. Keith Keogh May 31, 1995 Page Five 13) Formation, construction and performance of this agreement shall be construed in accordance with the laws of the State of California. If this letter is agreeable to you, would you please sign the enclosed copy and return it to me. I and the others at our company are confident that you will make a substantial and meaningful contribution to CCA. We all look forward to working with you. Sincerely, CALIFORNIA CULINARY ACADEMY, INC. By: /s/ Alexander M. Hehmeyer ------------------------- Alexander M. Hehmeyer President and Chief Executive Officer AGREED: /s/ Keith Keogh Date: June 7, 1995 -------------------------- --- Keith Keogh EX-11 5 EXHIBIT 11 Exhibit 11 CALIFORNIA CULINARY ACADEMY, INC. STATEMENT RE: EARNINGS PER SHARE
Year Ended June 30, ------------------- 1997 1996 ---- ---- Primary Fully Diluted Primary Fully Diluted --------- ------------- --------- ------------- Net earnings (loss) $160,000 $160,000 $(999,000) $(999,000) --------- ------------- --------- ------------- Weighted average common shares outstanding: Common shares 3,308,394 3,308,394 3,114,732 3,114,732 Common equivalent shares: Stock options and warrants* 93,666 93,666 Convertible Preferred shares 254,541 254,541 --------- ------------- --------- ------------- Weighted average common and common equivalent shares outstanding 3,656,601 3,656,601 3,114,732 3,114,732 --------- ------------- --------- ------------- --------- ------------- --------- ------------- Earnings (loss) per share $0.04 $0.04 $(0.32) $(0.32) --------- ------------- --------- ------------- --------- ------------- --------- -------------
* For the year ended June 30, 1996 all common stock equivalents were anti-dilutive. 5 EX-23.1 6 EXHIBIT 23.1 [LETTERHEAD] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-93266 on Form S-8 and Registration Statement No. 33-17205 on Form S-3 of our report dated September 15, 1997 (October 3 with respect to Note 12) appearing in this Annual Report on Form 10-KSB of the California Culinary Academy, Inc. for the years ended June 30, 1997 and 1996. /s/ Deloitte and Touche LLP San Francisco, California October 13, 1997 [LOGO] EX-27 7 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 2308 0 3207 360 341 6027 9864 4899 11626 4961 0 0 953 9649 (4085) 11626 212 15339 160 3249 11766 109 (52) 267 107 160 0 0 0 160 0.04 0.04
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