GREAT AMERICAN COOKIE COMPANY, INC.
OCTOBER 12, 1998,
AS AMENDED NOVEMBER 24, 1998
INFORMATION FOR PROSPECTIVE FRANCHISEES
REQUIRED BY FEDERAL TRADE COMMISSION
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TO PROTECT YOU, WE'VE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS INFORMATION. WE HAVEN'T CHECKED IT, AND DON'T KNOW IF IT'S CORRECT. IT SHOULD HELP YOU MAKE - ----------------------------------------------------- UP YOUR MIND. STUDY IT CAREFULLY. WHILE IT INCLUDES SOME INFORMATION ABOUT YOUR CONTRACT, DON'T RELY ON IT ALONE TO UNDERSTAND YOUR CONTRACT. READ ALL OF YOUR CONTRACT CAREFULLY. BUYING A FRANCHISE IS A COMPLICATED INVESTMENT. TAKE YOUR TIME TO DECIDE. IF POSSIBLE, SHOW YOUR CONTRACT AND THIS INFORMATION TO AN ADVISOR, LIKE A LAWYER OR AN ACCOUNTANT. IF YOU FIND ANYTHING YOU THINK MAY BE WRONG OR ANYTHING IMPORTANT THAT'S BEEN LEFT OUT, YOU SHOULD LET US KNOW ABOUT IT. IT MAY BE AGAINST THE LAW.
THERE MAY ALSO BE LAWS ON FRANCHISING IN YOUR STATE. ASK YOUR STATE AGENCIES ABOUT THEM.
FEDERAL TRADE COMMISSION
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WASHINGTON, D.C. 20580
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FRANCHISE OFFERING CIRCULAR
Great American Cookie Company, Inc.
A Delaware corporation
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
(801) 736-5600
The license offered is to operate a Cookie System Facility, which sells cookies, brownies and beverages.
The initial fee for a Cookie System Facility ranges from $50,500 to $444,500, including the $25,000 initial license fee for a Type I Cookie System Facility and $15,000 initial license fee for a Type II Cookie System Facility. The estimated initial investment required for a Type I or Type II Cookie System Facility ranges from $120,750 to $625,500.
Risk Factors:
1. THE LICENSE AGREEMENT PERMITS THE LICENSEE TO SUE THE LICENSOR ONLY IN
GEORGIA (UNLESS FRANCHISE STATUTES OR LANDLORD-TENANT EVICTION LAWS
MANDATE ANOTHER COURT). OUT OF STATE LITIGATION MAY FORCE YOU TO
ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU
MORE TO SUE THE LICENSOR IN GEORGIA THAN IN YOUR HOME STATE.
2. THE LICENSE AGREEMENT STATES THAT GEORGIA LAW GOVERNS THE AGREEMENT,
AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTION AND BENEFITS AS LOCAL
LAW. YOU MAY WANT TO COMPARE THESE LAWS. SOME STATE FRANCHISE LAWS
PROVIDE THAT CHOICE OF LAW PROVISIONS ARE VOID OR SUPERSEDED. YOU MAY
WANT TO INVESTIGATE WHETHER YOU ARE PROTECTED BY A STATE FRANCHISE
LAW. YOU SHOULD REVIEW ANY ADDENDA OR RIDERS ATTACHED TO THIS
OFFERING CIRCULAR FOR DISCLOSURES REGARDING STATE FRANCHISE LAWS.
3. THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators listed in Exhibit L or your public library for sources of information.
Registration of this franchise by a state does not mean that the state recommends it or has verified the information in this offering circular. If you learn that anything in the offering circular is untrue, contact the Federal Trade Commission and the appropriate state authority listed in Exhibit L.
Effective Date: October 12, 1998, as amended November 24, 1998.
TABLE OF CONTENTS
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ITEM PAGE - ---- ----
1 THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES.................... 1
2 BUSINESS EXPERIENCE................................................ 1
3 LITIGATION......................................................... 6
4 BANKRUPTCY......................................................... 7
5. INITIAL FRANCHISE FEE.............................................. 8
6 OTHER FEES......................................................... 9
7 INITIAL INVESTMENT................................................. 12
8 RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES................... 15
9 FRANCHISEE'S OBLIGATIONS........................................... 18
10 FINANCING......................................................... 20
11 FRANCHISOR'S OBLIGATIONS.......................................... 21
12 TERRITORY......................................................... 25
13 TRADEMARKS........................................................ 29
14 PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION................... 30
15 OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE
FRANCHISE BUSINESS................................................ 31
16 RESTRICTIONS ON WHAT THE FRANCHISE OWNER MAY SELL................. 32
17 RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION............. 32
18 PUBLIC FIGURES.................................................... 37
19 EARNINGS CLAIMS................................................... 37
20 LIST OF OUTLETS................................................... 38
21 FINANCIAL STATEMENTS.............................................. 44
TABLE OF CONTENTS
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ITEM PAGE - ---- ---- 22 CONTRACTS................................................................45
23 RECEIPTS.....................................................Last Two Pages
EXHIBITS
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Exhibit A Financial Statements
Exhibit B License Agreement
Exhibit C Addendum to License Agreement For Non-Baking Facilities
Exhibit D Sublease
Exhibit E Construction Activity Assistance Agreement
Exhibit F Equipment Order
Exhibit G Agreement for Purchase and Sale of Assets
Exhibit H Principal's Agreement
Exhibit I List of Licensees and Their Cookie System Facilities
Exhibit J List of Licensees Who Left System During Our Last Fiscal Year
Or Have Not Communicated With Us
Exhibit K Operations Manual Table of Contents
Exhibit L List of State Agencies/Agents for Service of Process
Exhibit M Collateral Assignment of Lease
Exhibit N Addendum to License Agreement For Delivery Services
APPLICABLE STATE LAW MAY REQUIRE ADDITIONAL DISCLOSURES RELATED TO THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR. THESE ADDITIONAL DISCLOSURES, IF ANY, APPEAR IN AN ADDENDUM.
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Item 1
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THE FRANCHISOR, ITS PREDECESSORS AND AFFILIATES
Description of the Licensor and its Affiliates. - ----------------------------------------------
"We," "us" or "our" means Great American Cookie Company, Inc., the licensor; "MFHCI" means Mrs. Fields Holding Company, Inc., a Delaware corporation; "MFOCI" means Mrs. Fields' Original Cookies, Inc., a Delaware corporation; "MFBI" means The Mrs. Fields' Brand, Inc., a Delaware corporation; "PTI" means Pretzel Time, Inc., a Pennsylvania corporation; "Pretzelmaker" means Pretzelmaker, Inc., a Utah corporation; and "Pretzelmaker-Canada" means Pretzelmaker-Canada, Inc., an Ontario corporation. "You" means the person who buys a license from us. If you are a corporation, partnership or other entity, your owners must sign our "Guaranty and Assumption of Obligations," which means that all of the provisions of our License Agreement (Exhibit B) also will apply to your owners. (See Item 15)
Our principal business address is 2855 East Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, and our telephone number is 801-736-5600. The principal business address and telephone number of MFHCI, MFOCI, MFBI, PTI, Pretzelmaker and Pretzelmaker-Canada are the same as ours. If we have an agent in your state for service of process, we disclose that agent in Exhibit L. We operate under our corporate name and the trademarks, service marks and commercial symbols described in Item 13 (the "Marks"). We have no predecessors.
We were incorporated in Delaware on June 10, 1977. We incorporated under the name "The Original Great American Chocolate Chip Cookie Company, Inc." and changed to our existing name as of December 10, 1993. Cookies USA, Inc. ("Cookies USA"), a Delaware corporation, acquired us on December 10, 1993 and we became a wholly-owned subsidiary of Cookies USA. On August 24, 1998, MFOCI acquired all of the stock of Cookies USA. Immediately thereafter, MFOCI merged Cookies USA with and into itself. As a result of the merger, we are now an indirect, wholly-owned subsidiary of MFOCI.
Concurrent with MFOCI's acquisition of Cookies USA, MFOCI acquired 29 Cookie System Facilities (as defined below) through the acquisition of all of the stock of 2 corporate Cookie System Facility licensees (Deblan Corporation and Chocolate Chip Cookies of Texas, Inc.). Immediately thereafter, MFOCI merged the 2 Cookie System Facility licensees with and into us. As further described in Item 20 and Exhibit I of this offering circular, we now operate these 29 Cookie System Facilities for our own account. Concurrent with MFOCI's acquisition of Cookies USA, MFOCI also acquired 8 additional Cookie System Facilities through the acquisition of all of the assets of 6 corporate Cookie System Facility licensees all owned by the same entity. As further described in Item 20 and Exhibit I of this offering circular, since the acquisition, MFOCI has operated these 8 Cookie System Facilities as our licensee. Unless noted otherwise, for the purpose of the Great American Cookie Company System, the terms "license" and "franchise" both refer to the Cookie System Facilities we offer to franchisees under this offering circular.
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MFOCI intends to continue to operate both the Mrs. Fields System and the Great American Cookie Company System as separate franchise systems.
MFBI is a Delaware corporation incorporated in August 1996. MFBI is also a wholly-owned subsidiary of MFHCI and an affiliate of ours. MFBI has granted MFOCI a perpetual, fully paid license to use the Mrs. Fields trademarks in connection with all Mrs. Fields Cookie Stores.
PTI is a Pennsylvania corporation incorporated in May 1991. PTI originally incorporated under the name Mr. Pretzel, Inc., but shortly thereafter changed its name to Pretzel Time, Inc. In September 1997, MFHCI, acquired 56% of the outstanding shares of PTI. At the same time, MFHCI and PTI entered into a Management Agreement under which MFHCI agreed to provide, either by itself or through one of its affiliates, management services to PTI. In November 1997, MFHCI assigned all of its interest in the outstanding shares of PTI to MFOCI. In January 1998, MFOCI acquired an additional 4% of the outstanding shares of PTI. Similarly, in June 1998, MFOCI acquired an additional 10% of the outstanding shares of PTI. Consequently, as of the date of this offering circular, MFOCI owns 70% of the outstanding shares of PTI. PTI is an affiliate of ours.
Pretzelmaker is a Utah corporation incorporated on August 31, 1992 under the name Four Pretzels, Inc. Pretzelmaker changed its name to Pretzelvania, Inc. on September 23, 1992 and to its current name on December 17, 1992. Pretzelmaker- Canada is an Ontario corporation incorporated on September 26, 1996, and a wholly-owned subsidiary of Pretzelmaker. On November 19, 1998, MFOCI acquired all of the stock of Pretzelmaker Holdings, Inc. ("PHI"), a Colorado corporation incorporated on February 24, 1995 and the parent corporation of Pretzelmaker. As a result of the merger, Pretzelmaker-Canada remains a wholly-owned subsidiary of Pretzelmaker, Pretzelmaker remains a wholly-owned subsidiary of PHI, and PHI is now a wholly-owned subsidiary of MFOCI. PHI, Pretzelmaker and Pretzelmaker- Canada are affiliates of ours.
MFOCI intends to continue to operate both the Pretzel Time System and the Pretzelmaker System as separate franchise systems.
MFHCI, MFOCI, MFBI, PTI, Pretzelmaker and Pretzelmaker-Canada are separate corporations and are not liable to you for any actions taken or obligations incurred by us.
The Business of the Licensor and its Affiliates. - -----------------------------------------------
We have offered licenses for Cookie System Facilities since September 1977 and have operated at least one since June 1977. Following MFOCI's acquisition of Cookies USA and the 10 Great American Cookie Company franchisees, as described above, there were approximately 218 Great American Cookie Company Store licenses, and 106 Great American Cookie Company Stores owned and operated by us. (See Item 20) We produce proprietary batter, dough and other ingredients for making cookies ("Cookie Ingredients") that you must buy from us in operating your Facility. (See Item 8)
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We or one of our affiliates may establish a new business or franchise system or acquire an existing business or franchise system (which may be one of your competitors) operating under trademarks, service marks and tradenames other than the Marks. The new or existing business or franchise system may compete with you.
Since September 1996, MFOCI has been in the business of granting licenses and franchises for the operation of Mrs. Fields Cookie Stores and operating and owning Mrs. Fields Cookie Stores for its own account. A Mrs. Fields Cookie Store offers a variety of specially prepared food items, such as cookies, brownies, muffins and beverages. As of December 31, 1997, there were 165 Mrs. Fields Cookie Store franchises and 144 Mrs. Fields Cookie Stores owned and operated by MFOCI.
Between September 1996 and November 1997, MFOCI was in the business of granting licenses and franchises for the operation of Hot Sam Pretzel and Bakery Stores. Currently, MFOCI is no longer granting Hot Sam Pretzel and Bakery Store licenses and franchises. Since September 1996, MFOCI has also been in the business of owning and operating Hot Sam Pretzel and Bakery Stores. A Hot Sam Pretzel and Bakery Store offers a variety of freshly prepared soft pretzels and pretzel products (including Bavarian and sweet dough pretzel sticks), various toppings and sauces, freshly squeezed lemonade and other food items and beverages which are similar to those offered at a Pretzel Time Store. As of December 31, 1997, there were no Hot Sam Pretzel and Bakery Store licenses or franchises, and 102 Hot Sam Pretzel and Bakery Stores owned and operated by MFOCI.
Since September 1996, MFOCI has been in the business of operating and owning Original Cookie Company Stores for its own account. An Original Cookie Company Store offers a variety of specially prepared food items, such as cookies, brownies, muffins and beverages. As of December 31, 1997, there were 155 Original Cookie Company Stores owned and operated by MFOCI and no Original Cookie Company Store franchises.
Since January 1992, PTI has been in the business of granting licenses and franchises for the operation of Pretzel Time Stores. Since October 1991, PTI has also been in the business of owning and operating Pretzel Time Stores. Pursuant to a national sales agreement between PTI and TCBY Systems, Inc., since February 1995, PTI has offered Pretzel Time Stores that may include the sale of TCBY frozen yogurt products. A Pretzel Time Store offers a variety of freshly baked soft pretzels, complimentary toppings, soft drinks and other food products and, if a franchisee or licensee qualifies, TCBY frozen yogurt products. In certain situations, a prospective Pretzel Time franchisee may be able to purchase an existing Hot Sam Pretzel and Bakery Store location and its physical assets from MFOCI and convert the location to a Pretzel Time Store. As of December 31, 1997, there were 221 Pretzel Time Store licenses or franchises, and 75 Pretzel Time Stores owned and operated by PTI.
Between January 1992 and March 1998, PTI was in the business of granting area developer rights to certain qualified persons ("Area Developers") pursuant to a Pretzel Time Area Development Agreement (the "Development Agreement"). Under the Development
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Agreement, Area Developers were granted the right to develop, own and operate a specified number of Pretzel Time Stores at approved shopping mall locations within a defined geographic area. Area Developers were also granted the right to market and service the Pretzel Time System at shopping mall locations within their geographic area, for which they receive a fee. Finally, under the Development Agreement, Area Developers were granted the right to receive compensation from PTI for finding Pretzel Time franchisees for shopping mall locations within their geographic area. Area Developers, however, were not given the authority to grant the rights to license or operate a Pretzel Time franchise or enter into a Pretzel Time franchise agreement with a potential franchisee. Currently, PTI is no longer entering into Development Agreements with new Area Developers. As of June 12, 1998, there were 10 Area Developers with whom PTI has entered into Development Agreements.
In July 1997, Mrs. Fields' Pretzel Concepts, Inc. ("MFPCI"), a wholly-owned subsidiary of MFHCI, purchased 84 Pretzel Time Stores from one of PTI's Area Developers, H&M Concepts Ltd. Co. At the time of the purchase, MFPCI entered into an Area Development Agreement and a franchise agreement with PTI. MFPCI operated the 84 Pretzel Time Stores as a franchisee of PTI until MFPCI merged into MFOCI on November 26, 1997. Since the merger, MFOCI has operated the 84 Pretzel Time Stores as a franchisee of PTI.
In June 1998, MFOCI purchased a total of 5 Pretzel Time Stores from one of PTI's Area Developers, Virginia Concepts, Inc. At the time of the purchase, Virginia Concepts, Inc. transferred to MFOCI the respective Area Development Agreement and 5 franchise agreements it had entered into with PTI. Since the purchase, MFOCI has operated the 5 Pretzel Time Stores a franchisee of PTI.
Since September 1992, Pretzelmaker has been in the business of granting franchises for the operation of Pretzelmaker Stores in the United States. Since August 1995, Pretzelmaker has also been in the business of owning and operating Pretzelmaker Stores. In addition, since September 1996, Pretzelmaker-Canada has been in the business of granting franchises for the operation of Pretzelmaker Stores in Canada. A Pretzelmaker Store offers soft pretzels, pretzel products and other complementary food and beverages. In some circumstances, a Pretzelmaker Store may also offer branded frozen desserts and coffee products. Following our acquisition of PHI, there were approximately 215 Pretzelmaker Store franchises and licenses, 9 Pretzelmaker Store locations owned and operated by Pretzelmaker and no Pretzelmaker Stores owned and operated by Pretzelmaker- Canada.
These are the only franchised businesses that have been offered by us and our affiliates.
Description of the Licenses Offered. - -----------------------------------
We operate and allow others to operate retail stores under the "Great American Cookie Company" name and other Marks. (We call these stores "Cookie System Facilities"; we call your Cookie System Facility the "Facility.") Cookie System Facilities sell different types of cookies, other baked products and beverages. Most Cookie System Facilities also feature "Cookie Cakes," which are large plate or pan-sized cookies with the customized personal messages of customers.
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Cookie Cakes are ideal for parties or special occasions. Cookie System Facilities operate from leased premises normally located in enclosed shopping malls. You may sell authorized products and services only over-the-counter at the Facility's premises and may not conduct any mail order, delivery or other activities away from the premises. (See Item 12) If you own a Cookie System Facility license and want to buy another one, you must sign our then current license documents.
We offer 2 types of Cookie System Facility licenses. A "Type I" Cookie System Facility has baking facilities and is in a major shopping mall generally having at least 300,000 square feet of space with at least 2 major department stores. A "Type II" Cookie System Facility has the same characteristics as a Type I Cookie System Facility but generally is not in a major shopping mall having at least 300,000 square feet of space with at least 2 major department stores. We also might let you operate a "Non-Baking Facility" in your shopping mall or center. A Non-Baking Facility is a stationary or mobile cart, wagon or similar unit that you would operate within your shopping mall or center but away from the Facility's actual premises. It would sell products that you actually produce at the Facility. We also might let you offer delivery services from your Facility. If you offer delivery services, you would sell and deliver products produced at your Facility away from the Facility's physical premises and within a limited geographic area. (See Item 12) We currently offer for sale as franchises Cookie System Facilities that we own and operate throughout the country. If you buy one of these Facilities, you will buy its assets, including goodwill. This offering circular discloses the payments you will make for these items. Whether you buy an operating Cookie System Facility from us or a newly-constructed Facility depends on where you want to operate and site availability. Unless noted otherwise, the disclosures in this offering circular apply to both.
The Market. - ----------
You will compete with other stores selling cookies and competitive food products like baked goods, ice cream, frozen yogurt and other dessert items. Some of these other stores are part of national or regional franchised and non- franchised chains. In addition, some of these other stores (including Mrs. Fields Cookie Stores and Original Cookie Company Stores) are or may be owned or licensed by us or our affiliates. You will offer your products and services to the general public. The market for your products and services generally is developed in most parts of the country, although we believe that our product quality distinguishes us from the competition.
There are no regulations specific to the industry in which Cookie System Facilities operate, although you must comply with all local, state and federal health and sanitation laws that
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apply to food operations and laws that apply generally to all businesses. You should investigate these laws.
Item 2
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BUSINESS EXPERIENCE
Director, President and Chief Executive Officer: Larry Hodges - --------------------------------------------------------------
Mr. Hodges has been a member of our Board of Directors and our President and Chief Executive Officer since August 1998. Mr. Hodges also has been President and Chief Executive Officer and one of the directors of MFOCI since September 1996. Between April 1993 and September 1996, he had been President and Chief Executive Officer and a director of both Mrs. Fields, Inc. ("MFI") and Mrs. Fields Development Corporation ("MFDC"). From October 1991 to February 1994, Mr. Hodges was President and Chief Executive Officer of Food Bond Stores, Inc. in Kansas City, Missouri.
Director, Chief Financial Officer and Secretary: L. Tim Pierce - --------------------------------------------------------------
Mr. Pierce has been a member of our Board of Directors and our Chief Financial Officer and Secretary since August 1998. Mr. Pierce also has been Senior Vice President, Chief Financial Officer, and Corporate Secretary of MFOCI since September 1996. Prior to that, he held the same position at MFDC. He became Vice President, Finance at the time MFDC was incorporated, Senior Vice President in December 1991, Chief Financial Officer in August 1993 and Corporate Secretary in April 1995. Since December 1991, Mr. Pierce has also served as Senior Vice President of MFI.
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Director and Vice President/Assistant Secretary: Michael R. Ward - -----------------------------------------------------------------
Mr. Ward has been a member of our Board of Directors and our Vice President/Assistant Secretary since August 1998. Mr. Ward has been Vice President of Administration for MFOCI since September 1996. Between 1991 and 1996, Mr. Ward oversaw the Legal Department and Human Resources Department for MFI. He is admitted to practice law in the State of Utah.
Senior Vice President: Pat Knotts - ----------------------------------
Mr. Knotts has been our Senior Vice President since August 1998. Mr. Knotts also has been Senior Vice President of MFI since October 1996. Between January 1992 and October 1996, Mr. Knotts served as Executive Vice President of Operations for MFI's affiliates Original Cookie Company and Hot Sam Franchise Development Corporation.
Senior Vice President of Real Estate: Garry Remington - ------------------------------------------------------
Mr. Remington has been our Senior Vice President of Real Estate since August 1998. Between October 1996 and July 1997, Mr. Remington served as Vice President of Real Estate for Sbarro, Inc. in Commack, New York. From 1994 to 1996, Mr. Remington held the position of Senior Vice President of Leasing for the Woolworth Corporation in Manhattan, New York, with responsibilities for Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director of Leasing for the Woolworth Corporation, which he joined in 1972.
Item 3
LITIGATION
1. Robert and Sheila Goldberg et al. v. Great American Cookie Company, Inc.,
------------------------------------------------------------------------- The Jordan Company, Mrs. Fields' Original Cookies, Inc. and Capricorn Investors, - -------------------------------------------------------------------------------- IV, LP (Superior Court of New Jersey, Law Division, Mercer County, Case No. - ------ L3502-97). On September 12, 1997, 9 of our current franchisees filed this lawsuit against us and the other defendants because of the possibility at that time that MFOCI would elect to acquire the stock of our parent company, Cookies USA, and, as a result, take over as the licensor of our system and operator of our company-owned Cookie System Facilities. The plaintiffs' primary allegations at that time were that MFOCI and the other defendants would fail to honor the existing contracts between us and our franchisees. Plaintiffs also alleged fraud, unlawful sale of Cookie System Facility licenses, tortious interference with contracts, violation of state unfair trade practices acts, and similar claims against various of the defendants, including MFOCI. The plaintiffs' pleadings in 1997 generally sought an injunction to stop the acquisition and the anticipated future violations, plus anticipated damages and costs. The action was later stayed by ...
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