Creditors Put Bite on Mrs. Fields Cookies : Heavy Debt and Slumping Sales Led to Restructuring; Founder Steps Down as CEO

Burdened by heavy debt and hobbled by the recession-related sales declines of recent years, Mrs. Fields Cookies--a sweet-tooth superstar of the 1980s--on Tuesday said it has agreed to give its lenders nearly 80% of the company in exchange for $46 million in loan relief.

Debra Fields, who started the company in Palo Alto in 1977, will continue to chair the firm’s board but will give up her posts as president and chief executive under this new agreement--effectively relinquishing the daily management of the high-profile cookie store operation.

Mrs. Fields Cookies became popular in the 1980s as the company--now headquartered in Park City, Utah--expanded rapidly across the United States and into many foreign markets.

That expansion continued in the 1990s despite the economic slowdown.

About two years ago, Mrs. Fields began franchising its operations. There are now about 400 company-owned stores and 380 franchises and licensed stores selling the cookies, including more than 100 in California and 45 abroad.

Expansion financing in 1991 alone bloated the company with debt.

The company had a pretax loss of $3.4 million in 1991, but costs largely attributable to the expansion created a total loss of $87.2 million that year.

After a series of negotiations, a four-member lending group led by the Prudential Life Insurance Co. of America restructured debts totaling $96 million.

In return for writing off $46 million in debt, the lenders get 79.1% of the cookie company. The company will still owe $50 million to Newark, N.J.-based Prudential, Des Moines-based Principal Insurance, the Minneapolis IDS Certificate Co. and Zions First-National, a Utah-based bank.

Under the agreement, investors who bought shares in Mrs. Fields on the London Stock Exchange--the only place where its stock has ever been traded--will get one share for each eight shares they hold.

Mrs. Fields stock will no longer be sold on the London stock market if the agreement is finalized. The agreement will not become effective until shareholders approve the deal, which they are expected to do at a March 3 meeting in Britain.

Debra Fields’ stake in the company will drop from about 18% to 8.4%. However, she will continue to be the largest single shareholder.

A spokeswoman, Rivian Bell, said Tuesday that Mrs. Fields was vulnerable to sales declines in the 1990s because most of the firm’s outlets are located at malls--shopping areas that bore much of the brunt of the economic slowdown.

Bell said the financial restructuring would enable the company to establish stores, kiosks or counters at supermarkets, airports and university campuses--areas that are less affected by business cycles.