As filed with the Securities and Exchange Commission on August 7, 1996
Registration No. 333-4578
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CAFETERIA OPERATORS, L.P
(Exact name of registrant as specified in its charter)
DELAWARE 5812 75-2186655
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
6901 QUAKER AVENUE
LUBBOCK, TEXAS 79413
(806) 792-7151
Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices
KEVIN E. LEWIS
CAFETERIA OPERATORS, L.P
6901 QUAKER AVENUE
LUBBOCK, TEXAS 79413
806) 792-7151
Name, address, including zip code, and telephone number
including area code, of agent for service
WITH A COPY TO
PATRICK J. FOYE, ESQ
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NY 10022
212) 735-3000
Approximate date of commencement of proposed sale of securities to the public
From time to time after this Registration Statement becomes effective
If the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. (X)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
CAFETERIA OPERATORS, L.P.
Cross reference Sheet Showing Location in Prospectus
of Information Required by Form S-1
Registration Statement Item Location in Prospectus
A. Information About the Transaction
1. Forepart of Registration Facing Page; Cross
Statement and Outside Front Reference Sheet; Front
Cover Page of Prospectus Cover Page
2. Inside Front and Outside Inside Front Cover Page
Back Cover Pages of
Prospectus
3. Summary Information, Risk Prospectus Summary; Risk
Factors and Ratio of Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering *
Price
6. Dilution *
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Description of Securities Description of Notes
to be Registered
10. Interests of Named Experts Legal Matters; Experts
and Counsel
11. Information With Respect to Outside Front Cover Page;
the Registrant Available Information;
Prospectus Summary;
Background; The
Restructuring; Business;
Risk Factors; Selected
Historical Financial
Data; Management's
Discussion and Analysis
of Results of Operations
and Financial Condition;
Management; Security
Ownership of Certain
Beneficial Owners and
Management; Financial
Statements
12. Disclosure of Commission *
Position on Indemnification
for Securities Act
Liabilities
______________________
* Omitted because the item is inapplicable or the answer is
negative.
[FLAG]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED AUGUST 7, 1996
PROSPECTUS
CAFETERIA OPERATORS, L.P.
$42,299,505.79 12% SENIOR SECURED NOTES DUE DECEMBER 31, 2001
________________________
This Prospectus relates to the public offering by the
selling security holders (the "Selling Security Holders") of
$42,299,505.79 aggregate principal amount of 12% Senior Secured
Notes due December 31, 2001 (the "Notes") of Cafeteria Operators,
L.P. (the "Company"), a Delaware limited partnership and indirect
wholly owned partnership subsidiary of Furr's/Bishop's,
Incorporated, a Delaware corporation (the "Parent"). The Notes
were originally issued by the Company pursuant to the Amended and
Restated Indenture (the "Indenture") dated as of November 15,
1995 between the Company and Fleet National Bank of Massachusetts
(f/k/a Shawmut Bank, N.A.), as trustee (the "Trustee"). The
Notes being offered hereby represent substantially all Notes issued
under the Indenture. Interest on the Notes is payable semi-
annually on March 31 and September 30 of each year, commencing
March 31, 1996. The Notes are redeemable at the option of
the Company at any time, upon not less than thirty nor more than
sixty days' notice, in whole or in part, at 103% of the principal
amount if the redemption occurs on or before September 30, 1998
and at 100% of the principal amount if the redemption occurs
after September 30, 1998, in each case together with the accrued
interest thereon to the redemption date. The Company is required
to redeem Notes from the proceeds of certain property transfers
and casualty losses which are not, within 180 days of the date of
receipt thereof, applied, in the case of transfer, to purchase
certain assets used or useful in the business of the Company, or,
in the case of casualty loss, to either repair or replace the
property that gave rise to such casualty loss. The obligations
under the Notes are secured by a security interest in
substantially all of the property and assets of the Company,
including the Company's partnership interest in Furr's/Bishop's
Specialty Group, L.P. ("Specialty"). The obligations of the
Company in respect of the Notes and the Indenture are fully and
unconditionally guaranteed by Specialty, which guarantee is
secured by a security interest in substantially all of the
property and assets of Specialty. Specialty, however, has no
material assets. The Notes rank pari passu with all existing and
future senior indebtedness of the Company. As of the date
hereof, there is no senior indebtedness outstanding. The Indenture
contains limitations with respect to the amount of additional indebt-
edness that can be incurred by the Company and its subsidiaries. The
Company, however, may obtain a revolving credit facility in the
amount of $5.0 million and, under certain circumstances, release
certain collateral, or subordinate to such facility the liens, securing
the Notes.
SEE "RISK FACTORS" ON PAGE 9 FOR A DISCUSSION OF CERTAIN
RISKS INVOLVED IN THE PURCHASE OF THE NOTES.
________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
________________
The Selling Security Holders directly or through agents
dealers or underwriters may sell the Notes from time to time on
terms to be determined at the time of sale. To the extent required,
the specific Notes to be sold, the names of the Selling
Security Holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter
and applicable commissions or discounts with respect to a
particular offering will be set forth in an accompanying
Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus
is a part. See "Plan of Distribution." Each of the Selling
Security Holders reserves the sole right to accept or to reject,
in whole or in part, any proposed purchase of the Notes.
The Company will not receive any proceeds from this
offering but, by agreement, will pay substantially all expenses
of this offering, other than the commissions or discounts of
underwriters, dealers or agents, but including the fees and
disbursements of one counsel to certain of the Selling Security
Holders. The Selling Security Holders, and any underwriters,
dealers or agents that participate with the Selling Security
Holders in the distribution of the Notes, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commissions received
by them and any profit on the resale of the Notes purchased by
them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of istribution" and
"Description of Notes" for a description of indemnification
arrangements between the Company and the Selling Security Holders
and indemnification arrangements for underwriters.
THE DATE OF THIS PROSPECTUS IS AUGUST 7, 1996
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING
MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO PURCHASE ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Parent is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements, and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Parent can be
inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048 and are available at
http://www.sec.gov on the world wide web. Copies of such material
also can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition,
material filed by the Parent can also be inspected at the offices
of the New York Stock Exchange ("NYSE"), 20 Broad Street, Seventh
Floor, New York, New York 10005.
The Company has filed with the Commission a Registration
Statement on Form S-1 (together with any amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Notes. This
Prospectus does not contain all the information set forth or
incorporated by reference in the Registration Statement and the
exhibits and schedules relating thereto, certain portions of
which have been omitted as permitted by the rules and regulations
of the Commission. For further information, reference is made to
the Registration Statement and the exhibits filed or incorporated
as a part thereof, which are on file at the offices of the
Commission and may be obtained upon payment of the fee prescribed
by the Commission, or may be examined without charge at the
offices of the Commission. Statements contained in this
Prospectus as to the contents of other documents referred to
herein are complete in all material respects, and in each
instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or
such other document, and each such statement is qualified in all
respects by such reference.
The Indenture pursuant to which the Notes were issued
requires the Company to distribute to the Trustee and holders of
the Notes copies of quarterly, annual and current reports and of
other information, documents and other reports which the Company
is required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act or the rules and regulations of
the Commission promulgated thereunder.
CONCURRENT FILING
The Parent has filed a separate Registration Statement
(File No. 333-4576) with the Commission under the Securities Act
with respect to up to 44,751,247 shares of common stock, par
value $.01 per share ("Common Stock"), which may be offered from
time to time for the accounts of the holders of the Common Stock.
Such holders of common stock include certain of the Selling
Security Holders. See "Background; The Restructuring."
_________________________________________________________
TABLE OF CONTENTS
Page Page
Prospectus Summary . . . . 4 Management . . . . . . . . 30
Risk Factors . . . . . . . 9 Security Ownership of Certain
Capitalization . . . . . . 13 Beneficial Owners and
Use of Proceeds . . . . . . 13 Management. . . . . . . . 36
Background; The
Restructuring . . . . . . 13 Selling Security Holders . 38
Selected Historical Financial Plan of Distribution . . . 40
Information . . . . . . . 15 Description of Notes . . . 41
Management's Discussion and Certain Relationships and
Analysis of Results Related Transactions . . 65
of Operations and Financial Legal Matters . . . . . . . 65
Financial Condition . . . 16 Experts . . . . . . . . . . 65
Business . . . . . . . . . 22
PROSPECTUS SUMMARY
The following is a summary of certain information contained
elsewhere in this Prospectus. It is not, and is not intended to
be complete. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained
elsewhere in this Prospectus. Unless otherwise defined,
capitalized terms used in this Summary have the meanings ascribed
to them elsewhere in this Prospectus. Prospective purchasers are
encouraged to read carefully all of the information contained in
this Prospectus in its entirety.
THE COMPANY
Cafeteria Operators, L.P., a Delaware limited partnership
(the "Company"), was formed on June 22, 1987. The Company's sole
general partner is Furr's/Bishop's, Incorporated, a Delaware
corporation (the "Parent") and its sole limited partner is
Furr's/Bishop's Cafeterias, L.P., a Delaware limited partnership
and indirect wholly owned partnership subsidiary of the Parent
("FBLP"). The principal executive offices of the Company and the
Parent are located at 6901 Quaker Avenue, Lubbock, Texas 79413,
and the telephone number is (806) 792-7151. Unless the context
otherwise requires, all references in this Prospectus to the
"Company" include the Company and its subsidiaries.
The Company is one of the largest operators of family-style
cafeteria restaurants in the United States (based on the number
of cafeterias operated). The Company believes that its
cafeterias and buffets, which are operated under the "Furr's" and
"Bishop's" names, are well recognized in their regional markets
for their value, convenience, food quality and friendly service.
The Company's 110 cafeterias and one buffet are located in
thirteen states in the Southwest, West and Midwest. The Company
also operates two specialty restaurants in Lubbock, Texas under
the name Zoo-Kini's Soups, Salads and Grill. In addition, the
Company operates Dynamic Foods, its food preparation, processing
and distribution division in Lubbock, Texas. Dynamic Foods
provides approximately 85% of the food and supply requirements of
the Company's cafeteria and buffet restaurants. Dynamic Foods
also sells pre-cut produce, bakery items, meats and seafood and
various prepared foods to the restaurant, food service and retail
markets. See "Business."
BACKGROUND; THE RESTRUCTURING
The Parent and the Company recently completed a
comprehensive restructuring of their financial obligations (the
"Restructuring"). As part of the Restructuring, the Company
executed the Amended and Restated Indenture (the "Indenture")
dated as of November 15, 1995 between the Company and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), as
trustee (the "Trustee"), pursuant to which, among other things,
the terms of $40.0 million aggregate principal amount outstanding
under the Company's 11% Senior Secured Notes due June 30, 1998
(the "11% Notes") issued pursuant to the Indenture dated as of
March 27, 1992 between the Company and Shawmut Bank, N.A., as
collateral agent (the "Old Indenture"), were amended, with the
consent of holders of the 11% Notes at such time (the "Original
11% Noteholders"), to constitute $40.0 million (subject to the
issuance of additional Notes in payment of the first interest
installment) aggregate principal amount of Notes issued pursuant
to the Indenture. In addition, the Company issued a Note in the
original principal amount of $1.7 million to the Trustees of
General Electric Pension Trust ("GEPT") in settlement of a $5.4
million (plus interest) judgment against FBLP. As part of the
Restructuring, Wells Fargo Bank, National Association ("Wells
Fargo") received an option to purchase 2.5% of the outstanding
Common Stock (the "Wells Fargo Option") in satisfaction of
approximately $6.1 million principal amount (plus approximately
$1.6 million of accrued and unpaid interest) of indebtedness of a
subsidiary of the Parent.
As a result of the Restructuring, indebtedness of the
Company in the amount of approximately $153 million aggregate
principal amount (plus approximately $46.6 million in accrued and
unpaid interest) outstanding under the Old Indenture was
exchanged by holders on January 2, 1996 of the 11% Notes (the
"Exchanging 11% Noteholders" and together with the Original 11%
Noteholders, the "former 11% Noteholders") for an aggregate of
95% of the limited partnership interests of the Company and the
right to put such limited partnership interests to the Parent in
exchange for 95% of the outstanding Common Stock (the "Put
Option"). In addition, outstanding warrants to purchase Common
Stock held by certain of the Exchanging 11% Noteholders were
cancelled.
On March 12, 1996, a majority of the Exchanging 11%
Noteholders exercised the Put Option and, accordingly, all
Exchanging 11% Noteholders put their limited partnership
interests to the Parent in exchange for 95% of the outstanding
Common Stock. On March 15, 1996, Wells Fargo exercised the Wells
Fargo Option, thereby becoming the beneficial owner of 2.5% of
the outstanding Common Stock. As of the date of this Prospectus,
the Exchanging 11% Noteholders no longer own any limited
partnership interests of the Company; however, they and their
successors and assigns own an aggregate of 95.0% of the outstanding
Common Stock of the Parent. See "Background; The Restructuring"
and "Risk Factors -- Ownership of the Parent."
RISK FACTORS
For a discussion of certain factors that should be
considered in evaluating an investment in the Notes, see "Risk
Factors" on page 9.
THE OFFERING
Securities Offered . . $42,299,505.79 aggregate principal amount
of 12% Senior Secured Notes due December
31, 2001 (the "Notes") held by selling
security holders (the "Selling Security
Holders"). Notes in the aggregate
principal amount of $40.0 million were
originally issued in a private placement
by the Company pursuant to the Amended
and Restated Indenture (the "Indenture")
dated as of November 15, 1995 between
the Company and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank,
N.A.), as trustee (the "Trustee"), in
exchange for 11% Notes of the Company.
A Note in the original principal amount
of $1.7 million was issued to GEPT in
settlement of a judgment and Notes in
the aggregate principal amount of
approximately $4.1 million were issued
in payment of the first interest
installment under the Indenture. The
Notes offered hereby are being offered
for sale by the Selling Security Holders
and the Company will not receive any
part of the proceeds from any sale
thereof. No additional Notes were
issued or may be issued pursuant to the
Indenture.
Interest Rate . . . . . 12% per annum, except that upon a default in
the payment of interest for thirty days or
principal at maturity, such interest rate
shall be increased to the lesser of 13% per
annum and the highest rate allowed by
applicable law.
Interest Payment Dates. January 24, 1996 and each March 31 and
September 30 thereafter, commencing on
March 31, 1996. Interest accrued from
April 1, 1995 through January 24, 1996
was paid on January 24, 1996 by the
issuance of additional Notes. All
future interest payments must be
made in cash.
Maturity Date . . . . . December 31, 2001.
Optional Redemption . . The Notes are redeemable at the option
of the Company at any time, upon not
less than thirty nor more than sixty
days notice, in whole or in part, at
103% of the principal amount if the
redemption occurs on or before September
30, 1998 and at 100% of the principal
amount of the Notes to be redeemed if
the redemption occurs after September
30, 1998, in each case together with the
accrued interest thereon to the
redemption date.
Required Redemption . . The Company is required to redeem Notes
from the proceeds of certain transfers
of property and casualty losses which
are not, within 180 days of the date of
receipt thereof, applied, in the case of
transfer, to purchase certain assets
used or useful in the business of the
Company or its subsidiaries, or, in the
case of casualty loss, to either repair
or replace the property that gave rise
to such casualty loss.
Ranking . . . . . . The Notes are senior obligations of the
Company. The obligations under the Notes are
secured by a security interest in
substantially all of the property and assets
of the Company. The Notes rank pari passu
with all existing and future senior
indebtedness of the Company. As of the
date hereof, there is no other senior indebted-
ness outstanding. The Indenture contains
limitations with respect to the amount of
additional indebtedness that can be incurred by
the Company and its subsidiaries. The Company
may obtain a revolving credit facility in the
amount of $5.0 million and, under certain
circumstances, release certain collateral,
or subordinate to such facility the liens,
securing the Notes. See "Description of the
Notes -- Security and Guaranty."
Security and Guaranty . Pursuant to the Collateral
Documents (as defined in the
Indenture), the Notes are secured
by a valid, perfected security
interest in certain assets and
property of the Company, including,
without limitation, certain real
property, inventory, equipment,
accounts receivable and
intellectual property of the
Company, and by a pledge of the
partnership interest of the Company
in and to Furr's/Bishop's Specialty
Group, L.P. ("Specialty"). The
obligations of the Company in
respect of the Notes and the
Indenture are fully and
unconditionally guaranteed by
Specialty, which guarantee is
secured by a security interest in
substantially all of the property
and assets of Specialty.
Specialty, however, has no material
assets. The liens and security
interests with respect to certain
property may be subject to prior
liens and encumbrances, including
liens which may be created to
secure a working capital facility
not exceeding $5.0 million. In
addition, collateral may be
released in connection with a
permitted sale of assets by the
Company. There can be no assurance
that the amount realized upon any
enforcement in respect of such
collateral would be sufficient to
satisfy the Company's payment
obligations in respect of the
Notes.
Covenants . . . . . . . In addition to certain customary affirmative
covenants, the Indenture contains covenants
that, among other things, restrict the
ability of the Company and each of its
subsidiaries, subject to certain exceptions
contained therein, to (i) create, incur,
assume or guarantee any indebtedness, (ii)
consolidate or merge with, or transfer
substantially all of its assets and
properties to any other person or entity,
(iii) make certain investments, (iv) make any
dividend or other distribution to the holders
of its partnership interests, make any
payment on account of the purchase,
redemption, retirement or acquisition of its
partnership interests or make any optional
prepayment of any subordinated indebtedness,
(v) create or permit to exist any liens
(other than liens securing the Notes and
certain purchase money liens) securing any
indebtedness upon certain of the properties
and assets owned by the Company or any of its
subsidiaries, or agree for the benefit of
certain other creditors to restrict its right
to create any such liens, (vi) transfer all
or any part of its assets (other than
transfers of inventory in the ordinary course
of business), (vii) enter into any
transaction with any affiliate of the Company
or any subsidiary thereof on terms that would
be less favorable than those obtained through
an arm's length negotiation with an
unaffiliated third party or (vii) permit any
subsidiary of the Company to enter into
certain agreements, restricting the
subsidiary's ability to pay dividends and
make distributions to, create or pay
indebtedness owing to or transfer any of its
property to, the Company.
Defaults and Remedies . If the Company or certain of its
subsidiaries shall (i) fail to pay
amounts due, or observe any other
covenant beyond certain grace
periods, in respect of the Notes,
the Indenture or the Credit
Documents relating thereto, (ii)
default in the payment of certain
other indebtedness or allow to
remain unpaid certain judgments,
(iii) become the subject of certain
events of bankruptcy or insolvency
or (iv) sustain uninsured
casualties in respect of certain of
their properties; or if certain
events rendering unenforceable the
obligations of the Company or the
liens granted for the benefit of
the holders of the Notes shall have
occurred and be continuing, then
the Trustee or the holders of a
majority in principal amount of the
Notes may accelerate the maturity
of the Notes, and the Trustee may
(and upon direction by holders of a
majority of the outstanding
principal amount of the Notes
shall) proceed against the
collateral securing the Notes and
pursue all other available legal
remedies.
SUMMARY FINANCIAL DATA
The following table presents, in summary form, historical
financial data derived from the audited and unaudited historical
consolidated financial statements of the Company and
subsidiaries. The interim unaudited financial statements have
been prepared pursuant to the rules and regulations of the
Commission. In management's opinion, all adjustments and
eliminations, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial statements,
have been made. The results of operations for such interim
period are not necessarily indicative of the results of
operations for the full year. The data should be read in
conjunction with the historical financial statements, and the
respective notes thereto, and "Management's Discussion and
Analysis of Results of Operations and Financial Condition,"
included elsewhere in this Prospectus. See "Selected Historical
Financial Information" and "Management's Discussion and Analysis
of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
SUMMARY FINANCIAL DATA
(Dollars in thousands)
THIRTEEN THIRTEEN
WEEKS WEEKS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 2, APRIL 4, JAN. 2, JAN. 3, DEC. 28, JAN. 2, DEC. 28,
1996 1995 1996 1995 1993 1993 1991
------------ ------------ -------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales............ $48,817 $52,754 $210,093 $225,186 $253,700 $268,057 $267,601
Gross Profit......... 33,651 35,907 142,330 154,998 177,910 189,568 187,560
Income (Loss)
Before Interest,
Taxes and
Extraordinary Items.. 2,148 697 (10,945)a 3,860 (141,281)b 20,936 (6,394)
Net Income
(Loss) from
Continuing
Operations........... 2,084 (5,683) (37,154)a (19,710) (163,386)b (457) (24,623)
BALANCE SHEET
DATA:
Cash................. 2,026 1,833 964 1,475 2,891 8,624 7,803
Net Working
Capital
Deficiency........... (20,623) (242,160) (20,323) (237,344) (223,931) (7,139) (36,471)
Total Assets......... 86,518 103,907 86,066 103,430 111,615 257,238 250,588
Total Debt........... 77,387 192,908 78,408 226,824c 203,808c 193,014 183,293
Partners'
Capital (DefiCit).... (32,862) (165,803) (34,946) (160,120) (144,775) 22,077 (6,158)
Ratio
(Deficit) of
Earnings to Fixed
Charges.............. 2.45:1d 0.11:1 (0.42):1 0.16:1 (6.39):1 0.98:1 (0.35):1
Amount of
Coverage
Deficiency........... n/a 5,683 37,154 19,710 163,386 457 24,623
<FN>
a) Does not include a net gain of $157,619 from financial restructuring transactions in the
fourth quarter of the fiscal year ended January 2, 1996.
b) Includes a write-off of goodwill of approximately $135,208 in the fourth quarter of the fiscal
year ended December 28, 1993.
c) Includes interest subject to restructuring of $33,903 and $10,838 at January 3, 1995 and
December 28,1993, respectively.
d) Includes $1,373 interest not expensed in accordance with SFAS 15.
</TABLE>
RISK FACTORS
In considering the matters set forth in this Prospectus,
prospective investors should carefully consider, among other
things, the significant factors described below which are
associated with the Notes before making an investment in the
Notes.
CAPITAL EXPENDITURES
The Company currently plans to make significant capital
expenditures in each of the next three fiscal years to remodel
existing cafeterias, implement special programs to enhance
customer traffic and develop new restaurants. See "Business --
Capital Expenditure Program." The Company believes that its
planned capital expenditure program is necessary to enable the
Company to increase revenues and attain profitability in order to
service its remaining obligations under the Indenture. The
Indenture limits the Company's ability to make future capital
expenditures. There can be no assurance that the Company will be
able to complete its capital expenditure program, service its
financial obligations and meet the financial covenants contained
in the Indenture. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
LEVERAGE
As of January 2, 1996, the Company's total consolidated
indebtedness was approximately $78.4 million, consisting of an
aggregate of approximately $45.5 million principal amount (plus
approximately $32.9 million interest) outstanding under the
Indenture. Pursuant to the Indenture, the Company may obtain a
revolving credit or similar facility in an amount not to exceed
$5.0 million. See "Description of Notes -- Certain Covenants --
Limitations on Indebtedness." As of January 2, 1996, the
Company's consolidated total assets were approximately $86.1
million. For fiscal years 1995, 1994 and 1993, the Company's
earnings were insufficient to cover fixed charges by
approximately $37.2 million, $19.7 million and $163.4 million,
respectively. There can be no assurance that the Company's
earnings will be sufficient to cover its fixed charges in the
future.
In addition to certain customary affirmative covenants, the
Indenture contains covenants that, among other things, restrict
the ability of the Company and each of its subsidiaries, subject
to certain exceptions contained therein, to (i) create, incur,
assume or guarantee any indebtedness, (ii) consolidate or merge
with, or transfer substantially all of its assets and properties
to any other person or entity, (iii) make certain investments,
(iv) make any dividend or other distribution to the holders of
its partnership interests, make any payment on account of the
purchase, redemption, retirement or acquisition of its
partnership interests or make any optional prepayment of any
subordinated indebtedness, (v) create or permit to exist any
liens (other than liens securing the Notes and a revolving credit
facility and certain purchase money liens) securing any
indebtedness upon certain of the properties and assets owned by
the Company or any of its subsidiaries, or agree for the benefit
of certain other creditors to restrict its right to create any
such liens, (vi) transfer all or any part of its assets (other
than transfers of inventory in the ordinary course of business),
(vii) enter into any transaction with any affiliate of the
Company or any subsidiary thereof on terms that would be less
favorable than those obtained through an arm's length negotiation
with an unaffiliated third party, or (vii) permit any subsidiary
of the Company to enter into certain agreements, restricting the
subsidiary's ability to pay dividends and make distributions to,
create or pay indebtedness owing to or transfer any of its
property to, the Company. The restrictions may limit the ability
of the Company to expand its business and take other actions that
the Parent considers to be in the best interest of the Company.
Any failure to comply with these or other covenants in such
agreements could result in a default thereunder, which in turn
could cause such indebtedness to be declared immediately due and
payable. The Company believes that any refinancing or other
indebtedness incurred by the Company or its subsidiaries would
contain financial and restrictive covenants generally similar to
those in the Indenture. See "Description of Notes -- Certain
Covenants."
The Company and its subsidiaries presently have significant
annual interest payment obligations under the Indenture. The
ability of the Company and its subsidiaries to satisfy their
respective obligations are dependent upon their future
performances, which will be subject to financial, business and
other factors affecting the business and operations of the
Company, including factors beyond the control of the Company and
its subsidiaries, such as prevailing economic conditions. Over
the long term, the Company's performance will be dependent upon,
among other things, its ability to implement successfully its
expansion strategies and control costs. See "Business -- Capital
Expenditure Program" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and
Capital Resources." If the Company is unable to comply with the
terms of the Indenture and any future debt instruments and fails
to generate sufficient cash flow from operations in the future,
it may be required to refinance all or a portion of its existing
debt or to obtain additional financing. There can be no
assurance that any such refinancing would be possible or that any
additional financing could be obtained, particularly in view of
the Company's anticipated high levels of debt and the fact that a
significant portion of the Company's consolidated tangible assets
have been pledged as collateral to secure indebtedness. These
factors could have a material adverse effect on the marketability
and value of the Notes.
OWNERSHIP OF THE PARENT
As a result of the comprehensive Restructuring of the
Company and the Parent, the Selling Security Holders own
approximately 86.5% of the outstanding common stock of the
Parent. The Selling Security Holders, however, are comprised of
twelve separate holders (or groups of affiliated holders) who
are entitled to, and intend to, vote separately upon all matters
submitted to a vote of security holders of the Parent (including
any mergers, sales of all or substantially all of the assets of
the Parent or the Company and going private transactions). There
are no agreements, arrangements or understandings among any of
the Selling Security Holders concerning the voting or disposition
of any of such Common Stock or any other matter regarding the
Company or the Parent or which might be the subject of a vote of
the Parent's stockholders. Also, no Selling Security Holder (or
affiliated group of Selling Security Holders) is a beneficial
owner of more than 18% of the Common Stock; accordingly, no
single Selling Security Holder or affiliated group could itself
approve any matter regarding the Company or the Parent or which
might be the subject of a vote of the Parent's stockholders.
In addition, as a part of the Restructuring, Original 11%
Noteholders designated for nomination a majority of the members
of the Board of Directors of the Parent. These directors were
duly nominated and elected by holders of the former classes of
the Parent's capital stock at a meeting of the stockholders held
prior to the Exchanging 11% Noteholders having exercised the Put
Option. Such directors will generally have the power to direct
the Parent's operations. None of such directors, however, is
affiliated with any former 11% Noteholder or Selling Security
Holders, and there is no agreement, understanding or arrangement
among any former 11% Noteholders, Selling Security Holders or any
such director concerning any matter regarding the governance of
the Parent or the Company.
HISTORY OF OPERATING LOSSES
The Company has not reported net income since fiscal year
1990. The Company has reported net losses (before extraordinary
items) of approximately $37.2 million, $19.7 million and $163.4
million for the fiscal years 1995, 1994 and 1993, respectively.
ABSENCE OF PUBLIC MARKET
The Notes are not listed or admitted for trading on any
securities exchange or national market system, and the Company
does not anticipate obtaining any such listing or admission to
trading. At present, the Notes are owned by a small number of
institutional investors, and there is no public market for the
Notes. No assurance can be given as to the prices or liquidity
of, or trading markets for, the Notes. The liquidity of any
market for the Notes will depend upon the number of holders of
Notes, interest of securities dealers in making a market in the
Notes and other factors. The absence of any active market for
the Notes could adversely affect the liquidity of the Notes. The
liquidity of, and trading markets for, the Notes may also be
adversely affected by general declines in the market for similar
grade debt. Such declines may adversely affect the liquidity of,
and the trading markets for, the Notes, independent of the
financial performance of, and the prospects for, the Company.
Accordingly, no assurance can be given that a holder of the Notes
will be able to sell its Notes in the future or that any future
sale can be consummated at a price equal to or higher than the
price at which the Notes were originally purchased.
LEVENSON LITIGATION
On August 11, 1995, a complaint was filed in the District
Court of Travis County, Texas by former chairman of the board of
the Parent, Michael J. Levenson, both individually and on behalf
of his minor son Jonathan Jacob Levenson, James Rich Levenson,
Benjamin Aaron Levenson, S.D. Levenson, General Consulting Group,
Inc. and Cerros Morado (such lawsuit being the "Levenson
Litigation"). The complaint named as defendants the Parent, the
Company, Furr's/Bishop's Cafeterias, L.P., a Delaware limited
partnership and indirect wholly owned subsidiary of the Parent
("FBLP"), Cavalcade & Co., Inc., a dissolved Delaware corporation
and former general partner of the Company ("CCI"), individual
members of the board of directors of the Parent, Houlihan, Lokey,
Howard & Zukin, KL Park, Associates, L.P., a Delaware limited
partnership controlled by Kevin E. Lewis, Chairman, President and
Chief Executive Officer of the Parent ("KL Park"), KL Group,
Inc., a Delaware corporation controlled by Mr. Lewis ("KL
Group"), Skadden, Arps, Slate, Meagher & Flom, certain Original
11% Noteholders, Deloitte & Touche LLP, Kmart Corporation
("Kmart") and certain partners and employees of the foregoing.
The complaint alleged, among other things, that the Parent
and certain defendants conspired to wrest control of the Parent
away from the Levensons by fraudulently inducing them to transfer
their working control of the Parent through a series of
transactions in which the Levensons transferred capital stock of
the Parent and stock options in the Parent to KL Park and KL
Group. Plaintiffs initially sought actual damages of
approximately $16.4 million, as well as punitive damages. In a
Third Amended Petition filed January 15, 1996, plaintiffs sought
an unspecified amount of actual damages, alleging only that their
actual damages claim is "no more than $400 million." The
Parent's management believes the allegations are completely without
merit and intends to defend the action vigorously.
On October 6, 1995, the Levensons filed a Notice of Non-Suit
as to certain of the defendants, including the Parent, the
Company, FBLP, CCI and specific individual members of the Board
of Directors (other than William E. Prather and Kevin E. Lewis).
As a result of such Notice of Non-Suit, the named entities and
individuals are no longer defendants in the Levenson Litigation.
The Parent and the Company are required under certain
circumstances to indemnify certain of the defendants originally
named in the Levensons' complaint, including the individual
members of the board of directors, former 11% Noteholders, KL
Group, KL Park and Kmart, from and against all claims, actions,
suits and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties which such
entity may sustain or incur to any person whatsoever by reason of
or arising out of the Levenson Litigation. The Company is not
required to indemnify KL Group and KL Park for any judgments and
settlements in respect of the Levenson Litigation and under no
circumstances will the Company be obligated to indemnify any
party for any liability resulting from such party's willful
misconduct or bad faith. On June 7, 1996, the Company, the
Parent and Kevin E. Lewis entered into the Consulting and
Indemnity Agreement and General Release pursuant to which the
Company and the Parent agreed to release any claims it may have
against Mr. Lewis and indemnify and hold harmless Mr.
Lewis, to the fullest extent permitted by law, from and against
all judgements, costs, interest, charges, counsel fees and other
expenses relating to or in connection with any claims, actions,
suits and other proceedings by reason of or arising out of any
action or inaction by Mr. Lewis in his capacity as an officer,
director, employee or agent of the Parent and its affiliates,
including the Company, except to the extent that such claim or
indemnification arises directly from any claim or cause of action
that the Parent or its affiliates may have that relates to or
arises from Mr. Lewis' knowingly fraudulent, dishonest or willful
misconduct, or receipt of any personal profit or advantage that
he is not legally entitled to receive.
The amount of any legal fees and other expenses paid in
respect of the Levenson Litigation decreases the amount of cash
available to the Company to pay its outstanding indebtedness,
including the Notes, and other financial obligations. As of
April 2, 1996, the Company had paid approximately $960 thousand
in legal fees and other expenses in respect of the Levenson
Litigation. In addition, claims for indemnification of fees and
expenses aggregating approximately $632,828 have been submitted
to the Company by former 11% Noteholders, which, to date, have
not been paid. An adverse judgment against the Company or any of
the other defendants which the Company is required to indemnify,
a settlement by any defendant which the Company is required to
indemnify or the continued payment of substantial legal fees and
other expenses would likely have a material adverse effect
against the Company's ability to pay the interest and principal
amount of the Notes when due and payable.
CAPITALIZATION
The following table sets forth the debt and capitalization
of the Company at April 2, 1996. The information set forth below
should be read in conjunction with the Company's financial
statements appearing elsewhere in this Prospectus.
Short-term debt and current portion of long-term debt $ 5,493
Long-term debt (excluding current portion):
12% Notes, including $32,913 interest accrued through
maturity $ 71,894
Partners' Capital (Deficit) $ (32,862)
Total Capitalization $ 44,525
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
the Notes offered pursuant to this Prospectus. The Selling
Security Holders will receive all of the net proceeds from any
sale of the Notes offered hereby.
BACKGROUND; THE RESTRUCTURING
The Parent and the Company recently completed a
comprehensive restructuring of their financial obligations (the
"Restructuring"). As part of the Restructuring, the Company
executed the Amended and Restated Indenture (the "Indenture")
dated as of November 15, 1995 between the Company and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.), as
trustee (the "Trustee"), pursuant to which, among other things,
the terms of $40.0 million aggregate principal amount outstanding
under the Company's 11% Senior Secured Notes due June 30, 1998
(the "11% Notes") issued pursuant to the Indenture dated as of
March 27, 1992 between the Company and Shawmut Bank, N.A., as
collateral agent (the "Old Indenture"), were amended, with the
consent of holders of the 11% Notes at such time (the "Original
11% Noteholders"), to constitute $40.0 million (subject to the
issuance of additional Notes in payment of the first interest
installment) aggregate principal amount of Notes issued pursuant
to the Indenture. In addition, the Company issued a Note in the
original principal amount of $1.7 million to the Trustees of
General Electric Pension Trust ("GEPT") in settlement of a $5.4
million (plus interest) judgment against FBLP and Wells Fargo
Bank, National Association ("Wells Fargo") received an option to
purchase 2.5% of the outstanding Common Stock (the "Wells Fargo
Option") in satisfaction of approximately $6.1 million principal
amount (plus approximately $1.6 million of accrued and unpaid
interest) of indebtedness of a subsidiary of the Parent.
As a result of the Restructuring, indebtedness of the
Company in the amount of approximately $153 million aggregate
principal amount (plus approximately $46.6 million in accrued and
unpaid interest) outstanding under the Old Indenture was
exchanged by holders on January 2, 1996 of the 11% Notes (the
"Exchanging 11% Noteholders" and together with the Original 11%
Noteholders, the "former 11% Noteholders") for an aggregate of
95% of the limited partnership interests of the Company and the
right to put such limited partnership interests to the Parent in
exchange for 95% of the outstanding Common Stock (the "Put
Option"). In addition, outstanding warrants to purchase Common
Stock held by certain of the Exchanging 11% Noteholders were
cancelled.
On March 12, 1996, a majority of the Exchanging 11%
Noteholders exercised the Put Option and, accordingly, all
Exchanging 11% Noteholders put their limited partnership
interests to the Parent in exchange for 95% of the outstanding
Common Stock. On March 15, 1996, Wells Fargo exercised the Wells
Fargo Option, thereby becoming the beneficial owner of 2.5% of
the outstanding Common Stock. As of the date of this Prospectus,
the Exchanging 11% Noteholders no longer own any limited
partnership interests of the Company, however, they and their
successors and assigns own an aggregate of 95.0% of the outstanding
Common Stock of the Parent. See "Risk Factors -- Ownership of
the Company."
The Company and the Parent have agreed to indemnify and hold
harmless certain parties in the Restructuring against certain
potential claims, actions and liabilities (and related costs and
expenses, including counsel fees) in connection with the
Restructuring. The Company and the Parent are not aware of any
such claim, action or liability. In addition, the Company and
the Parent have agreed to pay, and have paid, certain expenses
(including legal fees and expenses) of the former 11% Noteholders
in connection with the Restructuring.
Certain Income Tax Ramifications of the Restructuring
As described above, the Restructuring was a complex series
of transactions which had a variety of federal income tax
implications for the Parent. The Recapitalization likely
resulted in an ownership change (within the meaning of Section
382 of the Internal Revenue Code), which is likely to
substantially restrict the ability of the Parent to utilize
existing net operating loss carryovers to offset future income.
In addition, although the Parent believes that such possibility
is unlikely, no assurance can be given that the Internal Revenue
Service might not successfully recharacterize the
Recapitalization in a manner which would reduce certain tax
attributes of the Parent and the other partners of the Company
(all of which are subsidiaries of the Parent) in an amount equal
to the excess of the outstanding amount of 11% Notes outstanding
prior to the Recapitalization over the fair market value of the
11% Notes at such time.
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents summary historical financial
data derived from the audited and unaudited historical financial
statements of the Company and subsidiaries. The interim
unaudited financial statements have been prepared pursuant to the
rules and regulations of the Commission. In management's
opinion, all adjustments and eliminations, consisting only of
normal recurring adjustments, necessary for a fair presentation
of the financial statements, have been made. The results of
operations for such interim period are not necessarily indicative
of the results of operations for the full year. The data should
be read in conjunction with the historical financial statements
of the Company and the respective notes thereto, and
"Management's Discussion and Analysis of Results of Operations
and Financial Condition," included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
SUMMARY FINANCIAL DATA
(Dollars in thousands)
THIRTEEN THIRTEEN
WEEKS WEEKS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 2, APRIL 4, JAN. 2, JAN. 3, DEC. 28, JAN. 2, DEC. 28,
1996 1995 1996 1995 1993 1993 1991
----------- ------------ ------------- -------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales................ $48,817 $52,754 $210,093 $225,186 $253,700 $268,057 $267,601
Gross Profit............. 33,651 35,907 142,330 154,998 177,910 189,568 187,560
Income (Loss)
Before Inter- est,
Taxes and Extraordi-
nary Items............... 2,148 697 (10,945)a 3,860 (141,281)b 20,936 (6,394)
Net Income (Loss)
from Continuing
Operations............... 2,084 (5,683) (37,154)a (19,710) (163,386)b (457) (24,623)
BALANCE SHEET
DATA:
Cash..................... 2,026 1,833 964 1,475 2,891 8,624 7,803
Net Working
Capital
Deficiency............... (20,623) (242,160) (20,323) (237,344) (223,931) (7,139) (36,471)
Total Assets............. 86,518 103,907 86,066 103,430 111,615 257,238 250,588
Total Debt............... 77,387 192,908 78,408 226,824c 203,808c 193,014 183,293
Partners'
Capital (Deficit)........ (32,862) (165,803) (34,946) (160,120) (144,775) 22,077 (6,158)
Ratio (Deficit)
of Earnings to Fixed
Charges.................. 2.45:1d 0.11:1 (0.42):1 0.16:1 (6.39):1 0.98:1 (0.35):1
Amount of Coverage
Defi- ciency............. n/a 5,683 37,154 19,710 163,386 457 24,623
<FN>
a) Does not include a net gain of $157,619 from financial restructuring transactions in the
fourth quarter of the fiscal year ended January 2, 1996.
b) Includes a write-off of goodwill of approximately $135,208 in the fourth quarter of the fiscal
year ended December 28, 1993.
c) Includes interest subject to restructuring of $33,903 and $10,838 at January 3, 1995 and
December 28,1993, respectively.
d) Includes $1,373 interest not expensed in accordance with SFAS 15.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The Company's fiscal year is a 52-53 week year. Fiscal 1995
included 52 weeks and fiscal 1994 included 53 weeks. During
1993, the Company changed its fiscal year to end on the Tuesday
nearest December 31. Prior years ended on the Saturday nearest
December 31. This change resulted in fiscal 1993 ending on
December 28, 1993 and including 51 weeks and 3 days.
The following table sets forth certain statement of
operations data and restaurant data for the periods indicated
(dollars in thousands, except sales per unit):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 2, 1996 APRIL 4, 1995 1995 1994 1993
------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales $ 48,817 $ 52,754 $210,093 $225,186 $253,700
Costs and expenses
Cost of sales (excluding deprecia-
tion) 15,161 16,847 67,763 70,188 75,790
As a percent of sales 31.1% 31.9% 32.3% 31.2% 29.9%
Selling, general and administrative 29,154 31,870 127,000 137,604 158,190
As a percent of sales 59.7% 60.4% 60.4% 61.1% 62.4%
Depreciation and amortization 2,349 3,340 14,002 11,320 13,926
Special charges - - 12,273 2,214 11,867
Goodwill write-off - - - - 135,208
------------- ------------ ------------ ------------ ---------
Total costs and expenses 46,669 52,057 221,038 221,326 394,981
-------- -------- --------- --------- --------
Operating income (loss) 2,148 697 (10,945) 3,860 (141,281)
Interest expense 64 6,380 26,209 23,570 22,105
----------- --------- ---------- ---------- ----------
Loss before extraordinary credit $ 2,084 $ (5,683) $ (37,154) $(19,710) $(163,386)
======== ========= =========== ========= ==========
Restaurant Units in Operation:
Beginning of period 129 142 147
Opened - 1 -
Closed (14) (14) (5)
----------- ------------ ------------
End of Period 115 129 142
=========== =========== ============
Restaurant units reserved to be closed
at the end of period 2 4 13
============ ============ ============
Average weekly sales per restaurant unit
(for units open at year end and which
operated the full year) $ 32,916 $ 32,533 $ 33,970
======== ========= =========
</TABLE>
On January 2, 1996, at a special meeting of the Parent,
stockholders approved the Restructuring. A series of financial
restructuring transactions resulted in the recognition of a
$157,619 extraordinary credit in the fiscal year ended January 2,
1996.
THIRTEEN WEEKS ENDED APRIL 2, 1996
Results of operations. Sales for the first fiscal quarter
of 1996 were $48.8 million, a decrease of $3.9 million from the
same quarter of 1995. Operating income for the first quarter of
1996 was $2.1 million compared to $697 thousand in the prior
year. Net income for the first quarter of 1996 was $2.1 million
compared to a net loss of $5.7 million in the first quarter of
1995. During the first quarter of 1996, sales were negatively
impacted primarily by including fewer units in the operating
results.
Sales. Restaurant sales in comparable units were 0.3% lower
in the first quarter of 1996 than the same quarter of 1995.
Sales for the first fiscal quarter were $3.3 million lower than
the prior year due to there being 12 fewer units included in
operating results. Sales in the first quarter included $837
thousand of Dynamic Foods sales to third parties.
Cost of sales. Excluding depreciation, cost of sales was
31.1% of sales for the first quarter of 1996 as compared to 31.9%
for the same quarter of 1995. The decrease in the percentage of
revenues was the result of changes in the menu mix and lower
product costs.
Selling, general and administrative. Selling, general and
administrative ("SG&A") expense was lower in the aggregate by
$2.7 million in the first quarter of 1996 due primarily to there
being fewer units included in the operating results. SG&A
expense was $2.4 million lower than the prior year due to there
being 12 fewer units included in operating results. The change
in SG&A expense included increases of $409 thousand in salaries,
wages and related benefits, and decreases of $1.1 million in
marketing expense.
Depreciation and amortization. Depreciation and
amortization expense was lower by $991 thousand in the first
quarter of 1996 due to the reduction of certain depreciable
assets in 1995 in accordance with Statement of Financial
Accounting Standard No. 121 and the reduction in the useful lives
of certain depreciable assets in the prior year.
Interest expense. Interest expense was lower than the prior
year by $6.3 million as a result of the Restructuring. In
accordance with Statement of Financial Accounting Standard No.
15, the restructured debt was recorded at the sum of all future
principal and interest payments and there is no recognition of
interest expense thereon.
FIFTY-TWO WEEKS ENDED JANUARY 2, 1996
Results of operations. Sales for the fifty-two week fiscal
year ended January 2, 1996 were $210.1 million, a decrease of
$15.1 million from the fifty-three week fiscal year ended January
3, 1995. The operating loss for the fiscal year ended 1995 was
$10.9 million compared to income of $3.9 million in fiscal year
1994. The operating results of fiscal 1995 included special
charges of $12.3 million compared to $2.2 million in the prior
year. Net loss before extraordinary items for fiscal 1995 was
$37.2 million, compared to $19.7 million for fiscal 1994.
Sales. Restaurant sales in comparable units were 2.2% lower
in fiscal 1995 than 1994. For the units that were open for the
entire year, average weekly sales were $32,916 in fiscal 1995.
Sales in 1995 were lower than the prior year by $6.8 million as a
result of sixteen fewer units being included in the results of
operations in the current year and were lower by $2.7 million as
a result of three fewer specialty restaurants being included in
the results of operations in the current year. Sales were lower
in fiscal 1995 by approximately $3.7 million due to there being
one less week than the prior fiscal year. Sales in fiscal year
1995 included $4.6 million of Dynamic Foods sales to third
parties and $1.9 million from the two Zoo-Kini's Soups, Salads
and Grill restaurants.
Cost of sales. Excluding depreciation, cost of sales was
32.1% of sales for fiscal year 1995 compared to 31.0% for fiscal
year 1994. The increase in the percentage of sales was the
result of continued changes in the menu mix designed to improve
food quality and variety and to create a better value for the
guest.
Selling, general and administrative. SG&A expense was lower
in the aggregate by $10.6 million in fiscal year 1995 than in
fiscal year 1994. Of the decrease, $6.3 million was due to
operating results including sixteen fewer units and $2.0 million
due to operating three fewer specialty restaurants. SG&A expense
includes decreases of $2.8 million in salaries, wages and related
benefits, $3.5 million in marketing expense, including discounts,
$902 thousand in taxes, and $442 thousand in travel and related
expenses. SG&A expense includes increases of $878 thousand in
professional service expenses and $417 thousand in repair and
maintenance expenses. Corporate overhead expense in fiscal 1995
(included in the variances above) was $1.0 million lower than the
prior year.
Special charges. The loss from operations for the fiscal
year ended January 2, 1996 includes special charges of $12.3
million, which includes charges to reserves of $4.5 million
related to the closing of fourteen units, including two units to
be closed in future periods, and adjustments to the units
previously reserved. Also included is $7.8 million to recognize
the write-down of certain assets to estimated fair values in
accordance with the adoption of SFAS 121. The loss from
operations for the fiscal year ended January 3, 1995 includes
special charges of $2.7 million resulting primarily from the
closing of one buffet restaurant and one specialty restaurant and
a credit of $442 thousand related to the settlement of a lawsuit.
Depreciation and amortization. Depreciation and
amortization expense was $2.7 million higher than the prior year,
due primarily to the reduction in the estimated useful lives of
certain depreciable assets.
Interest expense. Interest expense was $2.6 million higher
than the prior year as a result of the deferral of the interest
payments that were due on dates from December 31, 1993, through
and including December 31, 1995 and the related interest thereon.
Extraordinary credit. The results of fiscal year 1995
include an extraordinary credit of $157.6 million relating to the
reduction of debt in a series of financial restructuring
transactions.
FIFTY-THREE WEEKS ENDED JANUARY 3, 1995
Results of operations. Sales for the fifty-three week
fiscal year ended January 3, 1995 were $225.2 million, a decrease
of $28.5 million from the fifty-one and one half week fiscal year
ended December 28, 1993. Operating income for fiscal year 1994
was $3.9 million compared to an operating loss of $141.3 million
in fiscal year 1993. The net loss for fiscal year 1994 was $19.7
million compared to a net loss of $163.4 million in fiscal year
1993. The losses in fiscal 1993 include the effect of the
Company's decision to write off $135.2 million of goodwill. (See
discussion below.) During fiscal year 1994, revenues were
negatively impacted by several factors including fewer units
included in the operating results, extreme winter weather early
in the year, and increased competition in the Company's major
markets and a reduced price, value oriented marketing campaign.
Fiscal 1994 revenues were positively impacted by the inclusion of
one and one half additional weeks of operating results.
Sales. The average guest count in comparable units was 5.4%
lower in fiscal year 1994 than fiscal year 1993 due, in part, to
extreme winter weather early in the year, while the average guest
ticket was 1.7% lower reflecting price reductions and value
oriented marketing. For the units that were open for the entire
year, average weekly sales were $32,533 in fiscal 1994. Sales in
1994 were lower than the prior year by $16.1 million as a result
of eighteen fewer units being included in the results of
operations in the current year. Sales were also lower by $2.8
million due to the sale of one unit and the loss of another unit
in a fire in February of 1994. Sales were lower by $2.3 million
due to the closing of one specialty restaurant and the
disposition of two others. Sales were higher in fiscal 1994 by
approximately $5.9 million due to an additional one and one half
week of operating results. Sales in fiscal year 1994 included
$3.9 million of Dynamic Foods sales to third parties, $2.7
million from the three El Paso Bar-B-Que restaurants (for the
first two quarters only) and $2.1 million from the two Zoo-Kini's
Soups, Salads and Grill restaurants.
Cost of sales. Excluding depreciation, cost of sales was
31.0% of sales for fiscal year 1994 compared to 29.7% for fiscal
year 1993. The increase in the percentage of revenues was the
result of changes in the menu mix designed to improve food
quality and variety and to create a better value for the guest.
Selling, general and administrative. Selling, general and
administrative expense was lower in the aggregate by $20.6
million in fiscal year 1994 than in fiscal year 1993. SG&A
expense in 1994 was $13.2 million lower than the prior year due
to operating results including eighteen fewer units and was lower
by $1.8 million due to operating results including three fewer
specialty restaurants during the year. SG&A was also lower than
in fiscal year 1993 by $1.6 million due to the sale of one unit
and the loss of another unit in a fire in 1994. The change in
SG&A expense also included increases of $688 thousand from one
additional Zoo-Kini unit and $1.6 million in salaries, wages and
related benefits, and supplies and taxes were higher in the
aggregate by $495 thousand. Marketing expense was $3.0 million
lower than the prior year, professional fees were lower by $2.0
million and moving, travel, public relations, insurance and
utility expenses were lower by an aggregate of $1.4 million.
Corporate overhead expense in fiscal year 1994 (included in the
variances above) was $2.3 million lower than the prior year.
SG&A expense in fiscal 1993 was offset in part by a gain of $1.3
million related to the termination of a lease agreement.
Special Charges. The loss from operations for the fiscal
year ended January 3, 1995 includes special charges of $2.7
million resulting primarily from the decision to close one buffet
restaurant and one specialty restaurant and adjustments to units
previously reserved to be closed. Also included is a credit of
$442 thousand related to the settlement of a lawsuit previously
filed against the Company by the Internal Revenue Service.
The operating results of fiscal 1993 include special charges
aggregating $11.9 million. These charges include approximately
$8.0 million related to store closings, $1.5 million of estimated
operating and financial restructuring costs, $385 thousand for
writing down the values of certain non-operating assets, $741
thousand of estimated costs related to certain lawsuits, $761
thousand for writing down the values of certain operating assets
and $515 thousand for severance amounts payable to the former
Chairman of the Board.
Goodwill. After a careful analysis of the Company's
financial condition, as part of management's periodic review of
the carrying amount of goodwill, the Company determined at the
end of fiscal 1993, based upon historical operating trends, and
without anticipating the effects of any potential restructuring
of its debts and other obligations, that its projected results
would not support the future recovery of the Company's goodwill
balance of $135.2 million. Accordingly, the Company wrote off
its goodwill balance in the fourth quarter of 1993.
Depreciation and amortization. Depreciation and
amortization expense was lower by $2.6 million in fiscal year
1994 due primarily to the elimination of goodwill amortization at
the end of fiscal 1993.
Interest expense. Interest expense was higher than the
prior year by $1.5 million primarily as a result of the deferral
of the interest payments that were due on December 31, 1993,
March 31, 1994, June 30, 1994, September 30, 1994 and December
31, 1994 and the related interest thereon.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which
requires companies to adopt a method of accounting for valuing
compensation attributable to stock options. SFAS 123 is
effective for fiscal years beginning after December 15, 1995. As
allowed under the provisions of SFAS 123, the Company has elected
to continue accounting for such compensation as provided by
Accounting Principles Board Opinion No. 25, which will not have
any effect on the Company's consolidated financial statements,
except for additional disclosure.
Effective January 2, 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121") and recorded a
special charge of $7.8 million to recognize the write-down of
certain assets in property, plant and equipment to estimated fair
value, based on expected future cash flows. SFAS 121 requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, cash provided from operating activities
of the Company was $9.9 million compared to $7.0 million in 1994.
Cash used for the payment of interest was approximately $36
thousand in 1995 compared to $242 thousand during 1994. On
December 30, 1993, $10.6 million of interest that was due
December 31, 1993, was deferred until January 15, 1995 and
remained unpaid until such interest was forgiven in partial
exchange for limited partnership interests issued to Exchanging
11% Noteholders in the Restructuring on January 2, 1996. Also,
$10.6 million of interest payments due on June 30, 1994, December
31, 1994, June 30, 1995 and December 31, 1995 were unpaid or
deferred until the Restructuring on January 2, 1996. The Company
made capital expenditures of $8.0 million during 1995 compared to
$5.7 million during 1994. Cash, temporary investments and
marketable securities were $964 thousand at January 2, 1996
compared to $1.5 million at January 3, 1995. The cash balance at
both dates included $800 thousand which was restricted pursuant
to collateral requirements in a letter of credit agreement. The
current ratio of the Company was .30:1 at January 2, 1996
compared to .049:1 at January 3, 1995. The Company's total
assets at January 2, 1996 aggregated $86.1 million compared to
$103.4 million at January 3, 1995.
The Company's restaurants are a cash business. Funds
available from cash sales are not needed to finance receivables
and are not generally needed immediately to pay for food,
supplies and certain other expenses of the restaurants.
Therefore, the business and operations of the Company have not
historically required proportionately large amounts of working
capital, which is generally common among similar restaurant
companies. Should Dynamic Foods continue to expand its sales to
third parties, the accounts receivable and inventory related to
such sales could require the Company to maintain additional
working capital.
The Company has outstanding $78.4 million of 12% Notes due
December 31, 2001, including $32.9 million of accrued interest.
Under the terms of the 12% Notes, a semi-annual cash interest
payment of approximately $2.7 million is due on each March 31 and
September 30. The obligations of the Company under the 12% Notes
are secured by a security interest in and a lien on substantially
all of the personal property of the Company and mortgages on all
fee (but not leasehold) real properties of the Company. See
"Description of Notes." Such liens and security interests may be
subject to prior liens and encumbrances, including liens which
may be created to secure a working capital facility not exceeding
$5.0 million. The Indenture limits the Company's ability to
incur debt for working capital requirements and to finance
capital expenditures. The restrictions may limit the ability of
the Company to expand its business and take other actions that
the Parent considers to be in the best interest of the Company.
The Company intends to pursue a program of remodeling
existing cafeterias, opening new restaurants, and possibly
acquiring existing restaurants or food service companies. The
Company anticipates expending approximately $9 million in fiscal
1996 to remodel existing cafeterias and open new restaurants and
to make other capital expenditures. No assurance can be given
that the Company will generate sufficient funds from operations
or obtain alternative financing sources to enable it to make the
anticipated capital expenditures.
The Company, the sponsor of the Cavalcade Pension Plan, has
agreed to provide for funding at least two-thirds of the $4.6
million of the unfunded current liability which existed at the
end of fiscal 1992 by the end of 1998. If the agreed upon
funding is not satisfied by the minimum required annual
contributions, as adjusted for the deficit reduction contribution
and determined under Section 412 of the Internal Revenue Code,
the Company will make contributions in excess of the minimum
annual requirement.
On November 15, 1993, the Company entered into the Amendment
to Master Sublease Agreement, dated as of December 1, 1986, with
Kmart pursuant to which, among other things, the aggregate
monthly rent for the period August 1, 1993 through and including
December 31, 1996 was reduced by 25%, or approximately $1.6
million annually, and the aggregate monthly rent for the period
January 1, 1997 through and including December 31, 1999 was
reduced by 20%, or approximately 1.2 million annually; provided
that, during such period, among other things, Kevin E. Lewis
remains as Chairman of the Board of the Company. On June 7,
1996, the Company entered into an agreement with Mr. Lewis
pursuant to which Mr. Lewis will resign as Chairman of the Board
on December 31, 1996, unless requested by the Board of Directors
to continue until December 31, 1997. See "Management --
Executive Compensation -- Employment and Consulting
Arrangements." As a consequence of this action, the Company
anticipates entering into negotiations with Kmart to modify
the amendment to remove the provisions requiring Mr. Lewis
to remain as Chairman of the Board until the end of 1999. No
assurance can be given that Kmart will agree to such modification.
BUSINESS
GENERAL
The Company is one of the largest operators of family-style
cafeteria restaurants in the United States. The Company believes
that its cafeterias and buffet, which are operated under the
"Furr's" and "Bishop's" names, are well recognized in their
regional markets for their value, convenience, food quality and
friendly service. The Company's 110 cafeterias and one buffet
are located in thirteen states in the Southwest, West and
Midwest. The Company also operates two specialty restaurants in
Lubbock, Texas under the name Zoo-Kini's Soups, Salads and Grill.
In addition, the Company operates Dynamic Foods, its food
preparation, processing and distribution division in Lubbock,
Texas. Dynamic Foods provides in excess of 85% of the food and
supply requirements of the Company's cafeteria and buffet
restaurants. Dynamic Foods also sells pre-cut produce, bakery
items, meats and seafood and various prepared foods to the
restaurant, food service and retail markets.
FAMILY DINING DIVISION
The Family Dining Division consists of the Company's 110
cafeterias and one pay-at-the-door buffet-style restaurant.
Cafeterias. Cafeterias occupy a long standing niche in the
food service industry, providing the customer with a pleasant,
moderately-priced alternative to fast-food chains and
conventional full-service restaurants. The Company's cafeterias
offer a wide variety of meals appealing to a broad range of
personal tastes, including chicken, beef, fish and pasta entrees;
soup, salad and vegetable choices; non-alcoholic beverages; and
freshly baked pies and cakes. The food is prepared for serving
by the individual cafeteria. The Company's cafeterias are
generally characterized by quick service and modest prices per
guest. Guest tickets for the fiscal years ended January 2, 1996
and January 3, 1995 averaged approximately $5.14 and $5.06,
respectively. The Company's cafeterias average approximately
10,000 square feet in size and have average seating capacity for
approximately 300 guests. Virtually all of the Company's
cafeterias feature "All-You-Can-Eat" at a fixed price all day,
every day, as well as the traditional "a la carte" pricing
alternative.
Management believes that the "Furr's" and "Bishop's" names
are widely recognized in their regional markets. Management's
emphasis on consistent food quality, variety, cleanliness and
service has led to a loyal guest base. The Company's customer
base consists principally of people over 45 years of age,
shoppers, working people and young families.
The Company considers its cafeteria business to be a
relatively mature business, but believes that earnings growth can
be achieved through successful implementation of its cost
control, remodeling, marketing and growth strategies. Since the
fourth quarter of fiscal 1992, the Company has undertaken
programs to increase cafeteria traffic by remodeling existing
cafeterias and repositioning the cafeteria concept to attract a
wider array of customers. The Company believes that for a
relatively modest capital investment of approximately $100,000 to
$150,000 per unit, it can freshen the appearance of an existing
cafeteria and thereby enhance its customer appeal. An average
cafeteria remodeling project lasts for a four to six week period
and can typically be accomplished without closing the restaurant.
Virtually all cafeterias offer the choice of "All-You-Can-
Eat" and "a la carte" pricing options. As a result, customers
choose the pricing and dining format which they find most
attractive. The Company's goal is to be the value leader in its
segment. The Company has also introduced "Kids' Bars" to all of
its cafeterias and buffets. The "Kids' Bar" is a free-standing
service area at which children under 10 may serve themselves, on
child-size plates, from foods selected to appeal directly to
children. The Company believes that the installation of "Kids'
Bars" increases the attractiveness of the Company's cafeterias
and buffet to younger family diners.
Buffet. The Company's buffet-style restaurant features
traditional American and ethnic foods at a fixed price that
entitles each guest to unlimited servings of all menu items and
beverages. Food items are served in a "scatter bar" format at
buffet islands centrally located in the restaurant's food service
area. The "scatter-bar" buffet format emphasizes customer choice
by allowing customers to select at their own pace in self
selected portions, thereby improving the restaurant experience
for the guest. The buffet unit is approximately 10,000 square
feet in size and has seating capacity for approximately 300
guests. Guest tickets for the fiscal years ended January 2, 1996
and January 3, 1995 averaged approximately $5.26 and $5.12,
respectively.
ZOO-KINI'S SOUPS, SALADS AND GRILL
The Company's two Zoo-Kini's Soups, Salads and Grill
restaurants are located in Lubbock, Texas. The concept has
appealed to younger age groups than the cafeterias and is
particularly well-liked by high school and college students, as
well as baby boomers. Zoo-Kini's Soups, Salads and Grill
restaurants are known for an extensive Soup, Salad and Potato
Bar, as well as a selection of healthy grilled items and
specialty foods. Selected specials are added to the menu on a
daily basis. Zoo-Kini's Soups, Salads and Grill restaurants
offer full table service and serve several varieties of wine and
beer as well as flavored cappuccino and espresso. Mixed drinks
are available, but do not represent a significant portion of
sales. There is no bar area in either restaurant, but an outdoor
patio area at one location with seating for 55 serves as a bar
during the warmer months.
Zoo-Kini's Soups, Salads and Grill restaurants are known for
the signature neon animals in their windows and a large interior
mural emphasizing wildlife themes. Zoo-Kini's Soups, Salads and
Grill restaurants are currently approximately 4,700 square feet
in size and have seating capacity for 135-200 guests. Guest
tickets for the fiscal years ended January 2, 1996 and January 3,
1995 averaged approximately $5.96 and $5.78, respectively.
MARKETING AND ADVERTISING
The Company's marketing program utilizes a variety of media
to attract customers to the Company's restaurants and to create a
targeted image for the Company's restaurants. First, the Company
utilizes point of sale advertising within its restaurants, to
focus customers on the various food items and promotions being
offered at the restaurant. Billboard advertising, newspaper and
direct mail programs within the communities in which the Company
has a large presence are used to direct customers to the
Company's restaurants and to promote specific programs, including
the one-price "All-You-Can-Eat" concept. Radio and television
advertisements are also used by the Company to enhance its image
with respect to food quality and value pricing and to support and
introduce new concepts or programs at its restaurants. The
Company frequently uses all of its marketing tools together to
introduce or promote one concept or program. In addition, store
managers and other personnel are encouraged to participate in
local public relations and promotional efforts.
DYNAMIC FOODS
The Company operates Dynamic Foods, a food preparation,
processing and distribution facility in Lubbock, Texas which
supplies in excess of 85% of the food and supply requirements of
the Company's family dining restaurants, providing the Company
with uniform quality control and the ability to make volume
purchases. In addition, management believes that there is
significant potential for utilizing the available excess capacity
at Dynamic Foods by increasing sales to third parties of pre-cut
produce and other prepared foods or through other transactions.
Dynamic Foods prepares and processes approximately 250
separate food items, including over 50 salad and other fresh
vegetable offerings under the "Dynamic Foods" and "Furr's Carry
Out Kitchen" labels. Currently, approximately 90% of Dynamic
Food's manufacturing output is used at the Company's restaurants
and the remainder is sold to third parties.
In 1993, Dynamic Foods commenced third party sales of pre-
cut produce, meats and seafood, bakery goods and other prepared
foods and entrees. In fiscal years 1993, 1994 and 1995, third
party sales by Dynamic Foods aggregated $1.7 million, $3.9
million and $4.6 million, respectively.
RESTAURANT MANAGEMENT
The success of each restaurant's operation is largely
dependent upon the quality of in-store management and mid-level
supervisory management. Experienced and well trained in-store
management is important to assure good service, quality food and
the cleanliness of each restaurant, to control costs, and to
monitor local eating habits and traffic.
Each cafeteria and buffet is operated under the supervision
of a general manager, a food and beverage manager and one or two
associate managers. Each cafeteria generally employs between 40
and 70 workers of whom approximately 33% are part-time workers.
The buffet-style restaurant typically employs fewer persons as
the "scatter-bar" concept reduces service staffing requirements.
The general managers of the Company's family dining
restaurants report to twelve regional managers who report to the
Vice President, Field Operations, who reports to the Chief
Executive Officer of the Company. The general managers have
responsibility for day-to-day operations, including food
ordering, labor scheduling, menu planning, customer relations and
personnel hiring and supervision. The regional managers visit
each restaurant regularly and work with the in-store managers to
evaluate maintenance of overall operating standards. They also
make quality control checks, train personnel in operating
procedures and evaluate procedures developed by cafeteria and
buffet personnel for possible use in all Company owned family
dining units.
The management team for a Zoo-Kini's Soups, Salads & Grill
restaurant consists of one general manager and two or three
assistant managers. Each specialty restaurant employs a high
proportion of part-time hourly employees, most of whom work for
an average hourly wage significantly less than employees earn at
cafeterias and buffets, due to the larger possible tip income at
the restaurants. Working in concert with the general managers,
the Company's senior management defines operational and
performance objectives for each specialty restaurant.
SERVICE MARKS AND TRADEMARKS
The Company utilizes and is dependent upon certain
registered service marks, including "Furr's Cafeterias" and
"Bishop Buffets", and a stylized "F" trademarked by Furr's. The
Company has applied for trademark registration for its Zoo-Kini's
Soups, Salads and Grill restaurants as well as its Dynamic Foods
manufacturing division. Other trademarks are current and are
renewable on dates ranging from July 1996 to February 2008. The
Company is not aware of any party who could prevail in a contest
of the validity of such service marks and trademarks. In October
1994, the Company licensed the use of its "El Paso Bar-B-Que
Company" and related trademarks to M&B Restaurants, L.C. under a
License and Development Agreement. The agreement requires M&B
Restaurants, L.C. to pay royalties and new unit opening fees on
25 units required to be opened over the term of the agreement.
The Notes are secured by a security interest in all material service
marks and trademarks of the Parent and the Company, including those
which have been licensed.
SEASONALITY
Customer volume on a Company-wide basis at most established
restaurants is generally somewhat lower in the winter months, due
primarily to weather conditions in certain of the markets for the
Company's restaurants. As a consequence, the first and fourth
quarters of the year historically produce lower sales and results
of operations. A harsh winter season has a negative effect on
the Company's revenues, results of operations and liquidity.
WORKING CAPITAL REQUIREMENTS
The Company's restaurants are a cash business. Funds
available from cash sales are not needed to finance receivables
and are generally not needed immediately to pay for food,
supplies and certain other expenses of the restaurants.
Therefore, the business and operations of the Company have not
historically required proportionately large amounts of working
capital, which is generally common among similar restaurant
companies. Should Dynamic Foods continue to expand its sales to
third parties, the accounts receivables and inventory related to
such sales could require it to maintain additional working
capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources."
COMPETITION
The food service business is highly competitive in each of
the markets in which the Company's restaurants operate and is
often affected by changes in consumer tastes, economic conditions
and demographic and local traffic patterns. In each area in
which the Company's restaurants operate, there is a large number
of other food service outlets including other cafeterias, buffets
and fast-food and limited-menu restaurants which compete directly
and vigorously with the Company's restaurants in all aspects,
including quality and variety of food, price, customer service,
location and the quality of the overall dining experience.
Neither the Company nor any of its competitors has a
significant share of the total food service market in any area in
which the Company competes. The Company believes that its
principal competitors are other cafeterias and buffets;
moderately-priced, conventional restaurants, fast-food outlets,
and eat-at-home alternatives. Many of the Company's competitors,
including its primary cafeteria and buffet competitors, have
greater financial resources, lower total debt-to-equity ratios
and lower debt costs than does the Company. The Company competes
with other food service outlets for management personnel based on
salary, opportunity for advancement and stability of employment.
The Company believes it offers existing and prospective
management personnel an attractive compensation and benefits
package with opportunity for advancement in a stable segment of
the food service industry.
The food manufacturing and distribution business is highly
competitive and many of Dynamic Foods' competitors are large
regional or national food processors and distributors with
significantly greater financial resources than the Company.
Accordingly, there can be no assurance that Dynamic Foods will be
able to penetrate the food distribution market or generate
significantly higher revenue or increase the profitability of the
Company.
CAPITAL EXPENDITURE PROGRAM
During the fiscal years ended January 2, 1996, January 3,
1995 and December 28, 1993, the Company expended $8.0 million,
$5.7 million and $15.7 million, respectively, principally to
maintain and remodel existing cafeterias, convert selected units
to buffets or specialty formats and improve the facility operated
by Dynamic Foods. The Company believes that the aggregate level
of capital expenditures over such period has been below that
required to expand the Company's cafeteria operations and to
remodel existing cafeterias as required by competitive conditions
in the restaurant industry. The Company's capital expenditure
program is necessary to enable the Company and its subsidiaries
to increase their revenue and profitability.
Subject to its ability to generate necessary funds from
operations or to obtain funds from other sources, the Company
intends to pursue an active program of remodeling existing
restaurants and opening new restaurants. The Company anticipates
expending approximately $9 million in each of fiscal years 1996
and 1997 to open new restaurants, remodel existing cafeterias and
make other capital expenditures. No assurance can be given that
the Company will generate sufficient funds from operations or
obtain alternative financing to enable it to make the desired
capital expenditures. The Company's ability to open new
restaurants will also depend, among other things, upon its
ability to secure appropriate store locations on favorable terms
and to identify, hire and train personnel for expansion. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
EMPLOYEES
As of March 13, 1996, the Company employed approximately
6,400 persons, of whom approximately 4,000 were employed on a
full-time basis. The Company employed approximately 400 persons
as managers or assistant managers of its restaurants, twelve
persons as regional managers and approximately 75 persons in
executive, administrative or clerical positions in the corporate
office. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
The majority of the Company's restaurants pay average wages
in excess of the current minimum wage standards. However, any
future increase in the federal minimum wage could have the effect
of increasing the Company's labor costs. In recent years, the
market for those employees who have traditionally been employed
in the restaurant industry has become increasingly competitive
due to fewer persons entering this category of wage earner and
the increased government regulation of immigrants entering and
working in the United States. In response to this decrease in
the available labor pool, the Company has increased its average
hourly wage and expanded its hiring and training efforts.
REGULATION
The Company's restaurants are subject to numerous federal,
state and local laws affecting health, sanitation, waste water,
fire and safety standards, as well as to state and local
licensing regulating the sale of alcoholic beverages.
The Federal Americans With Disabilities Act prohibits
discrimination on the basis of disability in public
accommodations and employment. Such Act became effective as to
public accommodations and employment in 1992. Because of the
absence of comprehensive regulations thereunder, the Company is
unable to predict the extent to which the Act may affect the
Company; however, the Company could be required to expend funds
to modify its restaurants in order to provide service to, or make
reasonable accommodations for the employment of, disabled
persons.
The Company believes that it is in substantial compliance
with applicable laws and regulations governing its operations.
PROPERTIES AND RESTAURANT LOCATIONS
The following table sets forth the number of restaurants
that the Company operates in certain states as of March 28, 1996.
STATE NUMBER OF RESTAURANTS
Arkansas 2
Arizona 8
California 5
Colorado 10
Iowa 7
Illinois 2
Kansas 8
Missouri 3
Nebraska 1
New Mexico 15
Nevada 2
Oklahoma 11
Texas 39
113
Site Selection. The Company generally intends to open new
restaurants or reposition existing restaurants in markets in
which the Company's restaurants are presently located and in
adjacent markets, in order to improve the Company's competitive
position and increase operating margins by obtaining economies of
scale in merchandising, advertising, distribution, purchasing and
supervision. The primary criteria considered by the Company in
selecting new locations are a high level of customer traffic,
convenience to both lunch and dinner customers in demographic
groups that tend to favor the Company's restaurants, and the
occupancy cost of the proposed restaurant. The ability of the
Company to open new restaurants depends on a number of factors,
including its ability to find suitable locations and negotiate
acceptable leases, its ability to attract and retain a sufficient
number of qualified restaurant managers, and the availability of
sufficient financing. The Company actively and continuously
attempts to identify and negotiate leases for additional new
locations.
Properties. Fifty-four of the Company's restaurants are
leased from third parties, another 34 are subleased under a
master sublease agreement, 16 are owned and are situated on land
leased from third parties and nine are owned in fee simple. Most
of the leases have initial terms of from 10 to 20 years and
contain provisions permitting renewal for one or more specified
terms at specified rental rates. Some leases provide for fixed
annual rent plus rent based on a percentage of sales. The
average restaurant contains approximately 10,000 square feet and
seats approximately 300 guests.
Dynamic Foods' food manufacturing and distribution facility
contains approximately 175,000 square feet and is situated on
approximately 24 acres owned in fee simple by the Company in
Lubbock, Texas. In addition, a grocery warehouse of
approximately 36,000 square feet, a truck terminal of
approximately 7,200 square feet and a sales office of
approximately 4,000 square feet are located adjacent to the
distribution facility.
The Company's executive offices in Lubbock, Texas consist of
approximately 34,000 square feet situated on approximately three
acres of land owned in fee simple by the Company. The Company
believes that its properties will be adequate to conduct its
current operations for the foreseeable future.
The Company leases one property from a third party and seven
under a master sublease, owns eight buildings situated on land
leased from third parties and owns three buildings on land owned
in fee simple, which are not used in the Company's restaurant
business and are periodically leased to third parties.
The Company, from time to time, considers whether
dispositions of certain of its assets, including real estate
owned in fee simple and leasehold interests, or potential
acquisitions of assets would be beneficial or appropriate for the
long-term goals of the Company and in order to increase
stockholder value.
LEGAL PROCEEDINGS
(1) The Internal Revenue Service (the "Service") has
examined the federal income tax returns of certain subsidiaries
of the Parent, including (i) Cavalcade Foods, Inc. ("CFI") (for
the tax years ended December 31, 1986, 1987, 1988, and 1989),
(ii) Cavalcade Holdings, Inc. (for the tax years ended June 30,
1985, 1986, 1987, 1988, 1989 and 1990), (iii) CFI as successor in
interest to Bishop Buffets, Inc. (for the tax period ended
December 27, 1986), (iv) CFI as successor in interest to Furr's
Cafeterias, Inc. (for the period December 27, 1986), and (v) CCI
(for the tax years ended December 31, 1987, 1988 and 1989).
The Service has asserted federal income tax deficiencies of
up to $5.5 million plus interest from the date such amounts were
deemed payable, with respect to several of the above tax returns.
Petitions have been filed to dispute the claims. The cases are
on the calendar for trial September 30, 1996.
(2) On August 11, 1995, a complaint was filed in the
District Court of Travis County, Texas by former chairman of the
board of the Parent, Michael J. Levenson, both individually and
on behalf of his minor son Jonathan Jacob Levenson, James Rich
Levenson, Benjamin Aaron Levenson, S.D. Levenson, General
Consulting Group, Inc. and Cerros Morado. The complaint named as
defendants the Parent, the Company, Furr's/Bishop's Cafeterias,
L.P., Cavalcade & Co., individual members of the Board of
Directors, Houlihan, Lokey, Howard & Zukin, Inc., KL Park, KL
Group, Skadden, Arps, Slate, Meagher & Flom, certain of the then
current and certain Original 11% Noteholders, Deloitte & Touche
LLP, Kmart and certain partners and employees of the foregoing.
The complaint alleged, among other things, that the Parent
and certain defendants conspired to wrest control of the Parent
away from the Levensons by fraudulently inducing them to transfer
their working control of the Parent through a series of
transactions in which the Levensons transferred capital stock of
the Parent and stock options in the Parent to KL Park and KL
Group. Plaintiffs initially sought actual damages of
approximately $16.4 million, as well as punitive damages. In a
Third Amended Petition filed January 15, 1996, plaintiffs sought
an unspecified amount of actual damages, alleging only that their
actual damages claim is "no more than $400 million." The
Parent's management believes the allegations are completely without
merit and intends to defend the action vigorously.
On October 6, 1995, the Levensons filed a Notice of Non-Suit
as to certain of the defendants, including the Parent, the
Company, FBLP, CCI and specific individual members of the Board
of Directors (other than William E. Prather and Kevin E. Lewis).
As a result of such Notice of Non-Suit, the named entities and
individuals are no longer defendants in the Levenson Litigation.
The Parent and the Company are required under certain
circumstances to indemnify certain of the defendants originally
named in the Levensons' complaint, including the individual
members of the board of directors, former 11% Noteholders, KL
Group, KL Park and Kmart, from and against all claims, actions,
suits and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties which such
entity may sustain or incur to any person whatsoever by reason of
or arising out of the Levenson Litigation. The Company is not
required to indemnify KL Group and KL Park for any judgments and
settlements in respect of the Levenson Litigation and under no
circumstances will the Company be obligated to indemnify any
party for any liability resulting from such party's willful
misconduct or bad faith. On June 7, 1996, the Company, the
Parent and Kevin E. Lewis entered into the Consulting and
Indemnity Agreement and General Release pursuant to which the
Company and the Parent agreed to release any claims it may have
against Mr. Lewis and indemnify and hold harmless Mr.
Lewis, to the fullest extent permitted by law, from and against
all judgements, costs, interest, charges, counsel fees and other
expenses relating to or in connection with any claims, actions,
suits and other proceedings by reason of or arising out of any
action or inaction by Mr. Lewis in his capacity as an officer,
director, employee or agent of the Parent and its affiliates,
including the Company, except to the extent that such claim or
indemnification arises directly from any claim or cause of action
that the Parent or its affiliates may have that relates to or
arises from Mr. Lewis' knowingly fraudulent, dishonest or willful
misconduct, or receipt of any personal profit or advantage that
he is not legally entitled to receive. See "Risk Factors -
Levenson Litigation."
PARTNERSHIP AGREEMENT
Pursuant to the Company's Partnership Agreement, subject to
certain circumstances, the Parent, as sole general partner, has
the power to, among other things, (i) make and enter into
contracts on behalf of the partnership, (ii) compromise claims in
favor of or against the partnership, (iii) make or revoke any
election for tax purposes, (iv) do all acts necessary or
appropriate for the preservation of the partnership's assets, (v)
make distributions and allocations to the partners, (vi) execute
documents or instruments to carry out the purposes of the
partnership, (vii) file state income tax returns, (viii) invest
partnership funds, (ix) select and dismiss employees, (x) borrow
money on behalf of the partnership, (xi) commence or defend
litigation, (xii) sell, transfer or assign assets of the
partnership and (xiii) enter into leases for real or personal
property. The Company may not, without the consent of the
limited partners, (i) sell, transfer or assign substantially all
of the partnership's assets, (ii) approve an amendment to the
Partnership Agreement and (iii) change the name of the
partnership.
The Parent, as sole general partner of the Company and sole
general partner of FBLP (FBLP being the sole limited partner of
the Company) may in its absolute discretion from time to time
amend any term of the Partnership Agreement.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Parent is the general partner of the Company. As the
sole general partner of the Company, the Parent will generally
have the exclusive right, responsibility and discretion in the
management and control of the Company. See "Business --
Partnership Agreement."
The names and ages of all current directors and executive
officers of the Parent are set forth below. The business address
of each of the directors and executive officers listed below is
c/o Furr's/Bishop's, Incorporated, 6901 Quaker Avenue, Lubbock,
Texas 79413. Pursuant to an agreement with the Company and the
Parent, Kevin E. Lewis will resign as President and Chief
Executive Officer by September 30, 1996 and Chairman of the Board
on December 31, 1996, unless requested by the Board of Directors
to continue until December 31, 1997. See "Management --
Executive Compensation -- Employment and Consulting
Arrangements." The Board of Directors has begun a search for an
individual to serve as President and Chief Executive Officer of
the Company.
Name Age Position
DIRECTORS:
Russell A. Belinsky 36 Director
Suzanne Hopgood 47 Director
Kevin E. Lewis 31 Chairman, President and Chief
Executive Officer
Gilbert C. Osnos 66 Director
Kenneth F. Reimer 56 Director
Sanjay Varma 42 Director
E.W. Williams, Jr. 69 Director
OTHER EXECUTIVE OFFICERS:
Donald M. Dodson 58 Vice President, Operations Services
Jim H. Hale 54 Vice President, Field Operations
Alton R. Smith 43 Executive Vice President
Russell A. Belinsky has been Managing Director of Chanin and
Company since 1990. The company is a specialty investment
banking firm, providing a wide range of services to middle market
companies in the area of financially distressed situations,
mergers and acquisitions and private placements. Mr. Belinsky is
currently a director of Fairfield Communities, Inc., one of the
leading vacation ownership companies.
Suzanne Hopgood has served as President of the Hopgood Group
since founding the company in 1985. The company provides
consulting and brokerage services to clients with hotel
investments.
Kevin E. Lewis was elected Chairman of the Board of the
Parent on June 24, 1993 and President and Chief Executive Officer
of the Parent in July 1994. Prior to serving as Chairman of the
Board, Mr. Lewis was a managing director in the New York office
of Houlihan, Lokey, Howard & Zukin, Inc., an investment banking
firm, where he had previously served as a Senior Vice President
(December 1991 - April 1993), Vice President (1989 - 1991) and
Associate (1988 - 1989). Mr. Lewis was a director of the LVI
Group, Inc. from December 1991 to May 1993 and has been a
director of Robertson-Ceco Corporation since July, 1993.
Gilbert C. Osnos has been President of Gilbert C. Osnos &
Co., Inc. since 1981, and a partner in Grisanti Galef & Osnos
Associates since 1981. Mr. Osnos was a director of the
Turnaround Management Association from 1988 to 1993 and was a
director of Trivest Financial Services Corporation and Reprise
Capital from 1989 to 1991. Mr. Osnos has also served on the
Board of Directors of Mrs. Fields, Inc. since 1983 and American
Mirrex since March 1996.
Kenneth F. Reimer has been Chairman and CEO of Reimer
Enterprises, Inc., since 1993. Mr. Reimer was a director of S A
Holdings, Inc. from 1993 to 1995. Prior to that, Mr. Reimer was
CEO, President and a director of Roma Corporation from 1984 to
1993.
Sanjay Varma has been a partner in Crescent Real Estate
Equities, Ltd. since 1994. Mr. Varma was Executive Vice
President of Walt Disney Company, responsible for the Euro Disney
Resort from 1989-1994 and Walt Disney World Resorts from 1986-
1989. Prior to 1986, Mr. Varma was Area Vice President of Food &
Beverage for the Marriott Hotels where he worked for eight years.
E.W. Williams, Jr. is Chairman of the Board of the Citizens
Bank in Slaton, Texas and Bank of Commerce in McLean, Texas;
Chairman of the Executive Committee of the Hale County State
Bank, Plainview, Texas and First National Bank in Clayton, New
Mexico. Mr. Williams is also Chairman of LubCo BancShares, Inc.,
HaleCo BancShares, Inc., GrayCo BancShares, Inc. and Union
Bancshares, Inc. and is Chairman of the Board of Coyote Lake
Feedyard, Inc., Muleshoe, Texas. Mr. Williams has held each of
these positions for longer than five years. Mr. Williams was
previously a director and executive committee member of the Texas
Tech University President's Council; founder of the West Texas
A&M University President's Council, and was previous director of
the Southern Methodist University Foundation and Alumni
Association. Mr. Williams also served as Chairman of the
Amarillo Hospital District. Mr. Williams currently has farming
and ranching interests in Garza County and Bailey County, Texas.
Donald M. Dodson has been Vice President of Operations
Services since 1993 and was formerly Vice President Food and
Beverage from 1990 until 1993. He was Vice President of
Operations from 1987 to 1990. Mr. Dodson joined the Company in
1958 and managed several cafeterias before becoming a District
Manager in 1968.
Jim H. Hale has been Vice President of Field Operations
since April 1996 and was formerly Regional Vice President of
Operations from 1975. Mr. Hale joined the Parent in 1964 and
managed several cafeterias before being promoted to regional
management.
Alton R. Smith has been Executive Vice President of the
Company since 1993, Secretary since 1995 and was formerly
Executive Vice President and Chief Financial Officer from 1989
until 1993. He was Vice President and Controller between 1986
and 1989. Prior to 1986, Mr. Smith served as Controller and
Assistant Secretary from 1985 until 1986. Mr. Smith was
Assistant Controller and Assistant Secretary from 1982 to 1985,
Director of Taxation from 1978 to 1982 and Tax Manager from 1974
to 1978. He is a certified public accountant and joined the
Company in 1974.
EXECUTIVE COMPENSATION
Shown below is information concerning the annual and long-
term compensation for services in all capacities to the Parent,
the Company and their subsidiaries for the fiscal years ended
January 2, 1996, January 3, 1995 and December 28, 1993 for those
persons who were, at January 2, 1996 (i) the chief executive
officer and, (ii) the four other most highly compensated
executive officers of the Parent, the Company and their
subsidiaries for the 1995 fiscal year (the "Named Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
AWARDS PAYOUTS
STOCK LONG-TERM
NAME AND PRINCIPAL OPTIONS INCENTIVE ALL OTHER
POSITION YEAR SALARY BONUS OTHER (SHARES) PAYOUTS COMPENSATION
-------- ---- ------ ----- ----- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin E. Lewis 1995 406,539 50,000 - - - -
Chairman, 1994 463,400 42,000 - - - -
President and
Chief Executive 1993 251,853(a) - - - - -
Officer
Alton Smith 1995 120,994 5,000 - - - -
Executive 1994 121,500 - - - - -
Vice President 1993 121,500 - - 15,000 - -
Jim Hale 1995 106,474 19,000 - - - -
Regional 1994 100,000 8,395 - - - -
Vice President 1993 91,250 21,047 - - - -
Donald M. 1995 120,994 2,500 - - - -
Dodson
Vice President 1994 125,000 10,000 - - - -
Operations 1993 135,563 - - - - -
Services
Kenneth Rue 1995 116,154 3,390 - - - -
Regional 1994 120,000 8,438 - - - -
Vice President 1993 114,695 19,136 - - - -
<FN>
- --------------------------
(a) The salary of Mr. Lewis includes a partial year beginning June, 1993.
</TABLE>
Option Grants
No grants of stock options were made during the fiscal year
ended January 2, 1996 to the Named Officers which are reflected
in the Summary Compensation Table. No stock appreciation rights
were granted during fiscal 1995.
Option Exercises and Fiscal Year-End Values
At January 2, 1996, there were no options outstanding. All
options that had been granted to executive officers in prior
years had terminated either by the termination of the employee or
by agreement between the Parent and the holders of the options.
Certain Compensation Plans
The Parent has a qualified defined benefit pension plan (the
"Pension Plan") covering employees and former employees of the
Company and its affiliates, including those who were participants
in the Kmart Corporation Employees' Retirement Pension Plan (the
"Kmart Pension Plan"). The Pension Plan assumed all of the
obligations of the Kmart Pension Plan relating to benefits that
accrued for employees and former employees of certain of the
Parent's subsidiaries through the consummation of the acquisition
of such subsidiaries from Kmart. Kmart agreed to transfer an
amount of plan assets equal to the actuarially computed
accumulated benefits applicable to the Parent's employees in the
Kmart Pension Plan.
Benefits for service prior to 1987 were based on the
provisions of the Kmart Pension Plan and are frozen for such
service. Effective December 31, 1988, the Pension Plan was
frozen for highly compensated participants and effective June 30,
1989 benefit accruals of all participants in the Pension Plan
were frozen indefinitely.
The Pension Plan covers all employees who are at least 21
years old and have one year or more of participation service and
is integrated with Social Security. A participant's benefit
under the Pension Plan will be the greater of (i) a benefit
provided by the participant's "cash balance account" (as defined
below), or (ii) the sum of (x) the participant's accrued benefit
under the Kmart Pension Plan plus (y) for each year of service
after 1986, 0.75% of the participant's "considered pay" (as
defined below) for the year plus (z) 0.75% of considered pay
exceeding the Social Security integration level for the year.
"Considered pay" is comprised of total W-2 compensation,
excluding extraordinary items, such as moving expenses and
imputed income, and including pre-tax amounts deferred under the
Employees' Savings Plan described below. The Social Security
integration level is one-half of the Social Security Taxable Wage
Base for the year, rounded to the next highest $1,000. A
participant's cash balance account will contain an amount equal
to the sum of (i) 2% of 1986 considered pay multiplied by the
number of years of benefit service prior to 1987, plus (ii) 2% of
considered pay for each year thereafter, plus (iii) 6% interest
per annum. The normal form of benefit under the Pension Plan
will be a life annuity for an unmarried participant and a 50%
joint and survivor annuity in the case of a married participant.
Alternatively, participants may elect an optional form of payment
which is the actuarial equivalent of the life annuity.
Participants are fully vested in accrued benefits under the
Pension Plan after five years of vesting service. Unreduced
benefits are payable at age 65, or, if earlier, when age plus
years of service equals ninety.
The following table shows the amounts payable using the
pension plan formula and the benefits accrued under the
predecessor plans.
Approximate Annual Pension at Age 65*
Current Total Service As of 12/31/88
Compensation 5 Years 15 Years 25 Years 35 Years
$ 75,000 $ 3,700 $ 9,500 $15,400 $21,400
100,000 5,000 13,500 21,800 30,100
125,000 6,300 17,300 28,000 38,600
150,000 7,700 21,100 34,200 47,200
175,000 9,000 25,000 40,300 55,700
200,000 10,400 28,800 46,500 64,200
225,000 11,700 32,600 52,700 72,800
325,000 17,000 48,300 77,800 94,023
* Estimates of frozen pension plan benefits.
The total plan years of service at June 30, 1989 (the date
benefit accruals were frozen) of the five Named Officers of the
Parent and its subsidiaries are Kevin E. Lewis 0, Alton R. Smith
15, Donald M. Dodson 31, Jim H. Hale 26, and Kenneth B. Rue 26.
If Mr. Smith, Mr. Dodson, Mr. Hale and Mr. Rue were to retire on
their respective retirement dates, they would receive monthly
payments of $848, $3,265, $2,027 and $2,401, respectively.
The Company established an Employees 401K Plan which is
qualified under Sections 401(a) and 401(k) of the Code (the "401K
Plan"). Under the 401K Plan, participants may elect to make pre-
tax contributions, in an amount equal to from 1% to 12% of
"considered pay", which consists of total W-2 compensation for
personal services, excluding extraordinary pay, such as moving
expenses and imputed income. Pre-tax contributions were limited
to $9,240 in 1995. Additionally, the Company may make
discretionary contributions to the 401K Plan. Employees will be
eligible to participate in the 401K Plan at age 21 with one year
of participation service.
Participants' contributions are always fully vested. The
Board of Directors of the Parent will either designate the Parent
and the Company contributions as fully vested when made, or the
Parent and the Company contributions will be subject to a vesting
schedule under which 100% of the Parent and the Company
contributions are vested after seven years. Employee
contributions may be invested either in a fixed income fund,
consisting of guaranteed interest contracts and government
securities, or five different equity funds with various growth
and income objectives. Loans from participants' pre-tax accounts
are permitted after two years of participation.
Participants may generally receive their vested account
balances at the earlier of retirement or separation from service.
Non-employee directors of the Parent receive a fee of $1,500
per month and $1,000 per board meeting attended as compensation
for their services. In addition, non-employee directors who are
members of any Committee of the Board receive $500 for each
meeting attended. Notwithstanding the foregoing, non-employee
director compensation shall not exceed $30,000 in any fiscal
year.
The Board of Directors of the Parent adopted, and on January
2, 1996 the stockholders approved, the 1995 Stock Option Plan
authorizing an aggregate of 40,540,795 shares of common stock
(the "1995 Option Plan"). After giving effect to the reverse
stock split, there are 2,702,720 shares of common stock reserved
for issuance pursuant to the 1995 Option Plan. A Committee of
the Board of Directors administers the 1995 Option Plan,
including determining the employees to whom awards will be made,
the size of such awards and the specific terms and conditions
applicable to awards, such as vesting periods, circumstances of
forfeiture and the form and timing of payment. Grants including
stock options, stock appreciation rights and restricted stock may
be made to selected employees of the Parent and its subsidiaries
and non-employee directors of the Parent. There are no options
outstanding under the 1995 Option Plan.
Employment and Consulting Arrangements
On January 25, 1995, each of Kevin E. Lewis, Alton R. Smith,
Donald M. Dodson, Carlene Stewart, John R. Egenbacher and Danny
K. Meisenheimer entered into an employment agreement with the
Parent and the Company pursuant to which he or she shall be paid
an annual base salary of $420,000, 125,000, 125,000, 115,000,
115,000 and 95,000, respectively, for the period ending January
25, 1996. If such persons' employment shall be terminated by the
Parent without cause or by such employee under certain
circumstances, the Parent shall pay to such employee his or her
annual base salary in effect on the date of termination for the
then remaining term in a lump sum payable on the date of
termination. On June 16, 1995, the board of directors voted to
extend the agreements for the individuals set forth above, except
Kevin E. Lewis, at his request, until a date six months after the
consummation of the Restructuring. As a result, the remaining
employment agreements terminated on July 2, 1996 and
Mr. Lewis's agreement expired by its terms on January 25, 1996.
On June 7, 1996, the Company, the Parent and Kevin E. Lewis
entered into the Consulting and Indemnity Agreement and General
Release (the "Consulting Agreement") pursuant to which, among
other things, Mr. Lewis will resign as President and Chief
Executive Officer by September 30, 1996 and Chairman of the Board
on December 31, 1996, unless requested by the Board of Directors
to continue until December 31, 1997. After his resignation as
President and Chief Executive Officer, Mr. Lewis will serve as a
consultant to the Company until December 31, 1997. Pursuant to
the Consulting Agreement, Mr. Lewis will receive an annual base
salary of $350,000 pro-rated through the end of 1996 and $250,000
through the end of 1997. Mr. Lewis received $75,000 upon the
execution of the Consulting Agreement and is entitled to receive
$75,000 when he resigns as President and Chief Executive Officer
and $100,000 on December 31, 1997. In addition, Mr. Lewis is
entitled to receive $100,000 if requested to assist in certain
negotiations on behalf of the Company and additional compensation
based upon the success of such negotiations. Furthermore, the
Company agreed to pay, among other things, certain legal expenses
of Mr. Lewis incurred in connection with the negotiation of the
Consulting Agreement and certain travel and moving related
expenses. The Board of Directors has begun a search for an
individual to serve as President and Chief Executive Officer of
the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a Delaware limited partnership. Its sole
general partner is the Parent and its sole limited partner is
FBLP, an indirect wholly owned partnership subsidiary of the
Parent. The following table sets forth certain information, as
of July 31, 1996, with respect to beneficial ownership of each
stockholder known by the Parent to be the beneficial owner of
more than five percent of its equity securities.
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES COMMON STOCK
Teachers Insurance and
Annuity Association of
America
730 Third Avenue
New York, NY 10011 8,607,637 17.7
EQ Asset Trust 1993
1345 Avenue of the
Americas
New York, NY 10105 8,499,857(1) 17.5
John Hancock Mutual
Life Insurance Company
P.O. Box 111
Boston, MA 02117 5,477,994 11.3
The Northwestern Mutual
Life Insurance Company
720 East Wisconsin
Avenue
Milwaukee, WI 53202 5,471,679 11.2
The Mutual Life
Insurance Company
of New York
1740 Broadway
New York, NY 10019 4,105,339 8.4
Principal Mutual Life
Insurance Company
711 High Street
Des Moines, IA 50392 3,286,701 6.8
Rock Finance, L.P.
1560 Sherman Avenue
Evanston, IL 60201 2,998,860 6.2
SC Fundamental Value
Fund, L.P.
712 5th Avenue
New York, NY 10019 2,949,620(2) 6.1
_______________
(1) These shares of the Common Stock (the "Equitable Shares")
are held of record by EQ Asset Trust 1993, a Delaware
business trust (the "Trust"). The Equitable Companies
Incorporated ("Equitable") is the beneficiary and owner of
the Trust. The Trust is managed by Alliance Capital
Management, L.P. ("Alliance") pursuant to a Collateral
Management Agreement. A wholly-owned subsidiary of
Equitable is the general partner of Alliance; through
wholly-owned subsidiaries, Equitable owns a majority of the
equity interest in Alliance. The Equitable Shares and such
Collateral Management Agreement have been pledged to The
Chase Manhattan Bank, N.A., as trustee for the benefit and
security of holders of certain notes of the Trust.
AXA beneficially owns approximately 60.7% of Equitable's
outstanding common stock as well as certain convertible
preferred stock of Equitable. AXA is indirectly controlled by
the Mutuelles AXA (five French mutual insurance companies,
acting as a group). AXA and the Mutuelles AXA and certain of
their affiliates disclaim beneficial ownership of the
Equitable Shares.
(2) Excludes 1,502,322 shares held by SC Fundamental Value BVI
Ltd. Gary N. Siegler and Peter M. Collery, controlling
persons of the general partner of the SC Fundamental Value
Fund, L.P. and the investment manager of the SC Fundamental
Value BVI Ltd., may be deemed to be beneficial owners of all
shares held of record by such entities.
The following table sets forth certain information, as of
July 31, 1996, with respect to beneficial ownership of each
director, certain officers and all officers and directors as a
group. Unless otherwise indicated the business address of each
director and executive officer is 6901 Quaker Avenue, Lubbock,
Texas 79413.
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES COMMON STOCK
Russell A. Belinsky 0 0.0
Donald M. Dodson 2,063(1) *
Jim H. Hale 5,764(2) *
Suzanne Hopgood 0 0.0
Kevin E. Lewis 837,032(3) 1.7
Gilbert C. Osnos 0 0.0
Kenneth F. Reimer 0 0.0
Alton Smith 696(4) *
Sanjay Varma 0 0.0
E.W. Williams, Jr. 44,934(5) 0.1
All officers and
directors as a
group 900,813(6) 1.8
* Owns less than 0.1%
(1) Includes warrants to purchase 1,319 shares of common stock
at $1.11 per share.
(2) Includes warrants to purchase 3,691 shares of common stock
at $1.11 per share.
(3) Includes warrants to purchase 535,827 shares of common stock
at $1.11 per share.
(4) Includes warrants to purchase 445 shares of common stock at
$1.11 per share.
(5) Includes warrants to purchase 28,765 shares of common stock
at $1.11 per share.
(6) Includes warrants to purchase 573,342 shares of common stock
at $1.11 per share.
SELLING SECURITY HOLDERS
The following table provides certain information with
respect to the Notes held by each Selling Security Holder.
Except as otherwise noted in this Prospectus, none of the Selling
Security Holders listed below has had a material relationship
within the past three years with the Company or its subsidiaries,
other than as a result of the ownership or placement of the
Notes. As a result of the comprehensive Restructuring of the
Company and the Parent, Selling Security Holders own
approximately 86.5% of the outstanding common stock of the Parent.
See "Security Ownership of Certain Beneficial Owners and
Management." Since the Selling Security Holders may sell all or
some of their Notes, no estimate can be made of the aggregate
amount of the Notes that are to be offered hereby or that will be
owned by each Selling Security Holder upon completion of the
offering to which this Prospectus relates.
The Selling Security Holders are comprised of twelve
separate holders (or groups of affiliated holders) who are
entitled to, and intend to, vote separately upon all matters
submitted to a vote of security holders of the Parent (including
any mergers, sales of all or substantially all of the assets of
the Parent or the Company and going private transactions). There
are no agreements, arrangements or understandings among any of
the Selling Security Holders concerning the voting or disposition
of any of such Common Stock or any other matter regarding the
Company or the Parent or which might be the subject of a vote of
the Parent's stockholders. Also, no Selling Security Holder (or
affiliated group of Selling Security Holders) is a beneficial
owner of more than 18% of the Common Stock; accordingly, no
single Selling Security Holder or affiliated group could itself
approve any matter regarding the Company or the Parent or which
might be the subject of a vote of the Parent's stockholders.
In addition, as a part of the Restructuring, Original 11%
Noteholders designated for nomination a majority of the members
of the Board of Directors of the Parent. These directors were
duly nominated and elected by holders of the former classes of
the Parent's capital stock at a meeting of stockholders held
prior to the Exchanging 11% Noteholders having exercised the Put
Option. Such directors will generally have the power to direct
the Parent's operations. None of such directors, however, is
affiliated with any former 11% Noteholder or Selling Security
Holders, and there is no agreement, understanding or arrangement
among any former 11% Noteholders, Selling Security Holders or any
such director concerning any matter regarding the governance of
the Parent or the Company. See "Risk Factors -- Ownership of the
Parent."
The Notes offered by his Prospectus may be offered from time
to time by the Selling Security Holders named below:
Aggregate Amount of
Notes Beneficially
Owned and Being
Name Registered
Teachers Insurance and Annuity $8,177,438.84
Association of America
EQ Asset Trust 1993 $8,075,045.42
John Hancock Mutual Life Insurance $5,204,211.54
Company
The Northwestern Mutual Life Insurance $5,198,212.13
Company
The Mutual Life Insurance Company $3,900,158.95
of New York
Principal Mutual Life Insurance Company $3,122,435.77
SC Fundamental Value Fund, L.P. $2,802,201.25
Trustees of General Electric $1,866,033.33
Pension Trust
SC Fundamental Value BVI Ltd. $1,427,237.67
The Ohio National Life Insurance Company $ 935,048.67
Century Life of America $ 908,477.67
Mark Zucker $ 227,669.07
BT Holdings (New York), Inc. $ 455,335.40
Equitable Real Estate, an affiliate of EQ Asset Trust 1993,
is the owner of seven properties in Illinois, Iowa and South
Dakota which are leased by the Company. The aggregate amount
paid by the Company to Equitable Real Estate in respect of
periodic rental installments during fiscal 1995 was $641,402.97.
Northwestern Mutual Life Insurance Company is a 50% partner in
Champion Investors, which owns property in Champaign, Illinois,
which was leased by the Company. The aggregate amount paid by
the Company to Champion Investors in respect of periodic rental
installments during fiscal 1995 was $54,374.65. Such lease was
terminated on December 31, 1995. Each of such leases was entered
into by the Company and the respective affiliate or related
person of such Selling Security Holder prior to the acquisition
by such Selling Security Holder of any equity interest in the
Company or the Parent in connection with Restructuring, and each
such lease was negotiated at arm's length on terms no less
favorable to the Company than would have obtained from an
unrelated landlord.
PLAN OF DISTRIBUTION
The Company will receive none of the proceeds from this
offering. The Notes may be sold from time to time to purchasers
directly by any of the Selling Security Holders. Alternatively,
the Selling Security Holders may from time to time offer the
Notes through underwriters, brokers, dealers or agents, pursuant
to (a) a block trade in which a broker or dealer will attempt to
sell the Notes as agent but may position and resell a portion of
the block as principal to facilitate the transaction, (b)
purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus or
(c) ordinary brokerage transactions and transactions in which the
broker or dealer solicits purchasers. In effecting such sales,
underwriters, brokers or dealers engaged by the Selling Security
Holders may arrange for other brokers or dealers to participate
in the resales. Such sales may be effected at market prices and
on terms prevailing at the time of sale, at prices related to
such market prices, at negotiated prices or at fixed prices. In
addition, the Selling Security Holders may engage in hedging or
other similar transactions, and may pledge the Notes being
offered, and, upon default, the pledgee may effect sales of the
pledged Notes pursuant to this prospectus. Underwriters,
brokers, dealers and agents may receive compensation in the form
of underwriting discounts, concessions or commissions from the
Selling Security Holders or the purchasers of Notes for whom they
may act as agent. The Selling Security Holders and any
underwriters, dealers or agents that participate in the
distribution of Notes may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on the sale of
Notes by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be
deemed to be underwriting discounts and commissions under the
Securities Act.
There is currently no public market for the Notes. The
Company does not currently anticipate listing the Notes on any
stock exchange. Therefore, any trading that does develop with
respect to the Notes will occur in the over-the-counter market.
The Company has not been advised by any broker or dealer that it
intends to make a market in the Notes.
At the time a particular offering of Notes is made, a
Prospectus Supplement or a post-effective amendment to the
Registration Statement, if required, will be distributed which
will set forth the aggregate amount and type of Notes being
offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts,
commissions and other terms constituting compensation from the
Selling Security Holders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
To comply with the securities laws of certain jurisdictions,
if applicable, the Notes will be offered or sold in such
jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions the Notes may not
be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption from registration
or qualification is available and is complied with.
There is no assurance that the Selling Security Holders will
sell any of the Notes. In addition, any Notes covered by this
prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold pursuant to Rule 144 rather than
pursuant to this prospectus.
Pursuant to the Exchange Agreement (the "Exchange
Agreement") dated as of November 15, 1995 between the Parent, the
Company and former 11% Noteholders, some of which are Selling
Security Holders, the Company will pay the expenses of former 11%
Noteholders incident to the offering and sale of the Notes to the
public, other than commissions, concessions and discounts of
underwriters, dealers or agents, but including the fees and
disbursements of one counsel to such Selling Security Holders.
In addition, the Company has agreed to indemnify the Selling
Security Holders, and, if requested, any underwriter they may
utilize, against certain civil liabilities, including liabilities
under the Securities Act and, if such indemnification is
unavailable, to contribute to payments required to be made by any
of them in respect of such liabilities. The Exchange Agreement
requires the Company to keep the registration statement of which
this prospectus is a part continuously effective until the
earlier of (a) July 18, 1999, and (b) the date upon which
all Notes have either (i) been disposed of under this prospectus,
(ii) been distributed to the public pursuant to Rule 144 or Rule
145 under the Securities Act, (iii) been otherwise transferred
and subsequent disposition of them shall not require registration
or qualification of them under the Securities Act or any similar
state law then in force, or (iv) ceased to be outstanding.
DESCRIPTION OF NOTES
The following is only a summary of the material terms of the
Notes, does not purport to be a full description thereof and is
qualified in its entirety by reference to the Indenture, the
Notes and the other exhibits to the Indenture (including certain
terms defined in such documents), copies of which have been filed
as exhibits to the Registration Statement of which this
Prospectus is a part. See "Available Information." The terms of
the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of
1939, as in effect on the date of the Indenture (the "Trust
Indenture Act"). The definitions of the material terms used
herein are set forth in "Definitions" contained elsewhere in this
Prospectus.
GENERAL
Notes in the aggregate principal amount of $40.0 million
were originally issued in a private placement by the Company
pursuant to the Indenture in exchange for the 11% Notes of the
Company. In addition, a Note in the original principal amount of
$1.7 million was issued to GEPT in settlement of a judgment
against FBLP. On January 24, 1996, approximately $4.1 million
aggregate principal amount of Notes were issued in payment of the
first interest installment under the Indenture. No additional
Notes may be issued pursuant to the Indenture and all future
payments of interest must be made in cash. The maturity date of
the Notes is December 31, 2001. The Notes offered hereby are
being offered for sale by the Selling Security Holders and the
Company will not receive any part of the proceeds from any sale
thereof.
The Notes are issuable only in registered form without
coupons in denominations of one thousand dollars ($1,000) and any
integral multiple thereof, except as necessary to reflect
principal amounts not evenly divisible by one thousand dollars
($1,000). As provided in the Indenture and subject to certain
limitations therein, the Notes are exchangeable for a like
aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer
or exchange or redemption of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
INTEREST
The Notes bear interest at 12% per annum, except that upon a
default in the payment of interest for thirty days or principal
at maturity, such interest rate shall be increased to the lesser
of 13% per annum and the highest rate allowed by applicable law.
Interest on the Notes is payable semi-annually on March 31 and
September 30. Interest on the Notes shall be computed on the
basis of a 360-day year of twelve 30-day months. Interest on the
Notes which is payable, and is punctually paid by the Company to
the Trustee or duly provided for, on any Interest Payment Date
shall be paid by the Trustee to the Person in whose name the
Notes are registered at the close of business on the Regular
Record Date for such interest. On January 24, 1996,
approximately $4.1 million aggregate principal amount of Notes
were issued in payment of the first interest installment. No
additional Notes are issuable under the Indenture and all future
interest payments shall be made in cash.
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Company at any
time, upon not less than thirty nor more than sixty days notice,
in whole or in part, at 103% of the principal amount of the Notes
to be redeemed if the redemption occurs on or before September
30, 1998 and at 100% of the principal amount if the redemption
occurs after September 30, 1998, in each case together with the
accrued interest thereon to the redemption date.
In the case of any redemption of Notes, interest
installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Trustee for payment to the
Holders of record of such Notes at the close of business on the
relevant Regular Record Date. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with
the Indenture shall cease to bear interest from and after the
date fixed for redemption.
REQUIRED REDEMPTION
The Company is required to redeem Notes from the proceeds of
certain transfers of assets or property or casualty losses which
are not, within 180 days of the date of receipt thereof, applied,
in the case of transfer, to purchase certain assets used or
useful in the business of the Company, or, in the case of
casualty loss, to either repair or replace the property that gave
rise to such casualty loss except that such proceeds may not be
used to purchase assets if a Default or Event of Default shall
have occurred and be continuing.
In the event that a Specified Asset Sale shall be deemed to
have occurred, or a Specified Casualty Loss Event shall occur,
the Company shall irrevocably offer to redeem Notes without
premium in the aggregate principal amount equal to the Net Cash
Proceeds of such Specified Asset Sale, or an amount equal to such
Specified Casualty Loss Payment, as the case may be, if such
proceeds exceed $1.0 million. Notwithstanding the preceding
sentence, the Company is required to irrevocably offer to redeem
Notes without premium in the aggregate principal amount equal to
all Collected Amounts aggregating $1.0 million. Failure to
affirmatively accept such offer in the manner specified in the
Indenture shall be deemed to be a rejection of such prepayment
offer. A Holder may not elect to have redeemed less than or more
than all of the portion of the Securities held by such Holder
which the Company offers to redeem.
RANKING
The Notes are senior obligations of the Company. The
obligations under the Notes are secured by a security interest in
substantially all of the property and assets of the Company. See
"Security and Guaranty". The Notes rank pari passu with all
existing and future senior indebtedness of the Company. As
of the date hereof, there is no other senior indebtedness
outstanding. The Indenture contains limitations with respect
to the amount of additional indebtedness that can be incurred by
the Company and its subsidiaries. The Company may obtain a
revolving credit facility in the amount of $5.0 million and, under
certain circumstances, release certain collateral, or subordinate
to such facility the liens, securing the Notes. See "--Security
and Guaranty."
SECURITY AND GUARANTY
Pursuant to the Collateral Documents, the Notes are secured
by a valid, perfected security interest in substantially all of
the assets and property of the Company, including, without
limitation, certain real property, all inventory, equipment,
accounts receivable and intellectual property of the Company, and
by a pledge of the partnership interest of the Company in
Specialty. The obligations of the Company in respect of the Notes
and the Indenture are fully and unconditionally guaranteed by
Specialty, which guarantee is secured by a security interest in
substantially all of the property and assets of Specialty.
Specialty, however, has no material assets. The liens and
security interest with respect to certain property may be subject
to prior liens and encumbrances. In addition, property and
assets of the Company may be released from the liens of the
Collateral Documents in connection with a transfer permitted
under the provisions described in "Covenants -- Restricted
Transfers of Assets."
In the event the Company desires to obtain a revolving
credit or similar facility from another lender, the Trustee
shall, at the request of the Company, either (i) subordinate the
Liens of the Collateral Documents to the Lien of such lender in
an amount not to exceed $5.0 million or (ii) release the Lien of
the Collateral Documents upon particularly identified Collateral
which has a fair market value not to exceed $8.0 million.
As of January 2, 1996, the Company's total consolidated
indebtedness was approximately $78.4 million, consisting of an
aggregate of approximately $45.5 million principal amount (plus
approximately $32.9 million interest) outstanding under the
Indenture. At such date, the Company's consolidated total assets
were approximately $86.1 million. There can be no assurance that
the amount realized upon any enforcement against the Collateral
following an Event of Default would be sufficient to satisfy the
Company's payment obligations in respect of the Notes.
CERTAIN COVENANTS
The Indenture contains, among other things, the following
covenants:
Restricted Payments and Restricted Investments.
The Company will not declare or make, or incur any liability
to declare or make, or permit any of its Subsidiaries to declare
or make, or incur any liability to declare or make, any
Restricted Payment or any Restricted Investment, except that, at
any time after the last day of the fiscal quarter during which
the Second Closing Date occurs, the Company may, and may permit
any Subsidiary to take the foregoing actions, so long as,
immediately prior to giving effect to such declaration or
payment, and immediately thereafter and after giving effect
thereto, both:
(a) no Default or Event of Default shall have occurred or
be continuing; and
(b) the aggregate amount of all Restricted Payments made
during the period (treated as a single accounting period)
beginning on the Second Closing Date and ending on such date,
plus the aggregate amount of all Restricted Investments made
after Second Closing Date and remaining outstanding on such
date, does not exceed the difference of:
(i) fifty percent (50%) of Consolidated Net Income accrued
during the period (treated as a single accounting period)
beginning on the Second Closing Date and ending on the last
day of the full fiscal quarter of the Company most recently
ended as of such date; minus
(ii) (A) if Consolidated Net Income for the period
commencing on the first day of the period of four (4) full
consecutive fiscal quarters then most recently ended (or, if
later, the Second Closing Date) and ending on the last day
of the fiscal quarter of the Company then most recently
ended as of such date is a loss, one hundred percent (100%)
of the positive amount of such loss; and
(B) if Consolidated Net Income for the period referred
to in (b)(ii)(A) above is not a loss, Zero Dollars ($0).
Limitations on Indebtedness.
The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume, or Guarantee any
Indebtedness except:
(a) the Company and the Subsidiaries may create, incur,
assume or Guarantee Indebtedness pursuant to a revolving
credit or similar facility, and may from time to time obtain
advances in respect of such facility, so long as the aggregate
amount of Indebtedness outstanding thereunder at any time,
after giving effect to such creation, incurrence, assumption
or Guarantee, or such advance, shall not exceed Five Million
Dollars ($5,000,000); and
(b) any Subsidiary may incur unsecured Indebtedness to the
Company or any Guarantor Subsidiary, and the Company may incur
Subordinated Intercompany Indebtedness;
(c) the Company and its Subsidiaries may incur, create,
assume or Guarantee any other Indebtedness (including
Indebtedness in excess of Five Million Dollars ($5,000,000) in
respect of the revolving credit or similar facility referred
to in clause (a) above) so long as immediately after, and
after giving effect to, such creation, incurrence, assumption
or Guarantee and the concurrent prepayment, redemption,
retirement or acquisition of any Indebtedness of the Company
being prepaid, redeemed, retired or acquired concurrently with
the proceeds of such Indebtedness, the Pro Forma Interest
Coverage Ratio calculated at such time exceeds the
"Percentage" set forth in the following table below associated
with the period in which such date falls:
Period "Percentage"
the period beginning 250%
on the Second Closing
Date and ending on
(and including)
January 2, 1996
the period beginning 275%
on (and including)
January 3, 1996 and
ending on (and
including) January 7,
1997
the period beginning 300%
on (and including)
January 8, 1997 and
ending on (and
including) January 6,
1998
the period beginning 325%
on January 7, 1998
Negative Pledge.
The Company will not create or assume, or permit any of its
Subsidiaries to create or assume, any Lien securing any
Indebtedness on any asset or property, whether now owned or
hereafter acquired by it, except:
(a) Liens in favor of the Trustee, for the benefit of the
Trustee and the Holders, including such Liens contemplated by
the Collateral Documents;
(b) Liens upon property securing Indebtedness which
refinances, renews, replaces or extends Indebtedness secured
by Liens on such Property in existence on the date of the
Indenture, but not any increase in the principal amount of any
thereof or the extension thereof to any other property of the
Company or any of its Subsidiaries (except as otherwise
permitted by the Indebtedness covenant and clause (e) of this
covenant);
(c) Liens securing the revolving credit or similar facility
referred to in "Limitations on Indebtedness," so long as such
Liens secure an amount not in excess of Five Million Dollars
($5,000,000) (except as otherwise permitted by certain
provisions of the Indenture); with respect to such Liens, the
Trustee, if requested by the Company to take either the action
specified in clauses (i) or (ii) below (but not both) shall,
if the lender under such facility is unwilling to make such
facility available upon terms satisfactory to the Company
unless the Trustee takes the action requested by the Company,
either:
(i) enter into an agreement for the benefit of such lender
or lenders subordinating the Liens of the Collateral
Documents (but not the rights of the Holders to receive
payment generally) to the Lien of such lender securing the
obligations owing such lender under such facility, but only
insofar as such obligations do not exceed Five Million
Dollars ($5,000,000); or
(ii) release the Lien of the Collateral Documents upon
particularly identified Collateral specified in such Company
Order (but no other Collateral) including, without
limitation, any particularly identified Collateral
thereafter acquired, which specified Collateral has a fair
market value of not greater than Eight Million Dollars
($8,000,000) at any time;
(d) Purchase Money Mortgages by the Company or any of its
Subsidiaries (including, without limitation, Capital Leases),
so long as (i) such Purchase Money Mortgage secures only the
obligation to pay the purchase price of such asset (or the
obligations under such Capital Lease) or a Subsidiary being
acquired, together with related fees and expenses, (ii) the
initial amount secured by such Purchase Money Mortgage shall
not be more than one hundred percent (100%) of the purchase
price of such asset (or the obligation under such Capital
Lease) or such Subsidiary being acquired, together with
related fees and expenses, and (iii) the aggregate
Indebtedness secured by all such Purchase Money Mortgages
(other than Capital Leases) shall not exceed in the aggregate
for the Company and its Subsidiaries twenty percent (20%) of
the aggregate amount of assets reflected on a consolidated
balance sheet of the Company and the Subsidiaries, as at the
end of the fiscal quarter of the Company then most recently
ended; which Purchase Money Mortgages may rank senior to the
Lien, if any, of the Collateral Documents in respect of the
property or assets so acquired; provided, however, that in the
event that the Company or any Subsidiary shall apply any
Entire Cash Proceeds in respect of any Transfer, or any
Casualty Loss Payment in respect of any Casualty Loss, to the
purchase of any property or assets in accordance with certain
provisions of the Indenture, as the case may be, and the
purchase price of such property or assets exceeds the amount
of Entire Cash Proceeds or Casualty Loss Payment, the Company
or such Subsidiary (subject to certain provisions of the
Indenture) may finance the amount of such excess and may
secure such financing with a Purchase Money Mortgage upon such
property or assets, subject to the limitations set forth in
this paragraph, as if the "purchase price," as such term is
used above, were equal to the amount of such excess; and
(e) subject to the Liens described in clause (a) above,
other Liens securing Indebtedness, so long as, at the time
such Lien is created or assumed, the Indebtedness secured
thereby is permitted to be created and incurred pursuant to
the provisions restricting Indebtedness.
Limitations on Negative Pledges.
The Company will not, and will not permit any of its
Subsidiaries to enter into any agreement prohibiting the creation
or assumption of any Lien upon the properties or assets of the
Company or any of its Subsidiaries in favor of the Trustee
(except under Capital Leases and Purchase Money Mortgage or Lien
documents permitted hereunder but only to the extent such
prohibition relates solely to the property or asset purchased or
leased thereunder) or requiring an obligation to be secured if
any Obligations are secured.
Restricted Transfers of Assets.
The Company shall not, nor shall it permit any Subsidiary
to, Transfer all or any part of its assets (other than
conveyances or transfers of the properties and assets of the
Company substantially as an entirety in compliance with the
provisions of the Indenture governing successors and other than
Permitted Transfers) or agree to do any of the foregoing, unless
the Company, no later than the date following the date of such
Transfer, pays the Entire Cash Proceeds in respect of such
Transfer to the Trustee, subject to release to the Company. All
such Entire Cash Proceeds shall be held in trust for the equal
and ratable benefit of the Holders, and the Company granted to
the Trustee a Lien in all such Entire Cash Proceeds.
In the event that, within one hundred eighty (180) days
after the occurrence of any Transfer, the Company wishes to apply
all or a portion of the Entire Cash Proceeds therefrom to
purchase one or more assets constituting either fixed assets,
real property, machinery or equipment, in each case, used or
useful in the business of the Company or such Subsidiary, then,
so long as no Default or Event of Default shall have occurred and
be continuing, the Company may request the Trustee to pay to the
Company or to its order all or any portion of the amount of such
Entire Cash Proceeds actually applied to any such purchase;
provided, however, that the Company and its Subsidiaries shall
not be entitled to apply to any such purchase any Entire Cash
Proceeds, or any portion thereof, which have become Net Cash
Proceeds. As promptly as practicable following receipt by the
Trustee of a Company order specifying the amount of the Entire
Cash Proceeds to be paid by the Trustee, accompanied by an
officers' certificate certifying that such amount is to be
applied to purchase one or more assets constituting either fixed
assets, real property, leasehold improvements, machinery or
equipment, in each case, used or useful in the business of the
Company or such Subsidiary, the Trustee shall pay the requested
amount of such Entire Cash Proceeds to the Company or its order
in payment for the purchase price of such purchase, so long as
(i) at or prior to the time of such purchase, the Company or such
Subsidiary grants to the Trustee a Lien in such acquired property
and (ii) such acquired property shall be owned by the Company or
such Subsidiary, as the case may be, free and clear of all Liens,
other than Liens not securing Indebtedness and other than those
permitted by certain provisions of the Indenture.
Upon the transfer of property or assets permitted by these
provisions, the lien of the Collateral Documents in respect of
the property or assets so transferred shall be released, but the
lien of the Collateral Documents shall continue in the proceeds
of such transfer.
Limitations on Transactions with Affiliates.
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into any
transaction (including, without limitation, the purchase, sale or
exchange of property or the rendering of a service), whether or
not in the ordinary course of business, with any Affiliate of the
Company or such Subsidiary unless (a) such transaction is entered
into upon terms and conditions no less favorable to the Company,
or the affected Subsidiary, as those that would be obtained
through an arm's-length negotiation with an unaffiliated third
party, and (b) the terms of any such transaction shall be
approved by a majority of the directors who are not parties to,
and have no interest in, such transaction. The foregoing
restrictions shall not apply to (i) any issuance of capital stock
of the Parent, or options, stock appreciation rights or similar
rights in respect thereof, or other awards or grants, in cash or
otherwise, pursuant to, or the funding of, employee benefit plans
approved by a majority of the disinterested directors of the
board of directors of the General Partner (or, if the General
Partner is a partnership, the general partner of the General
Partner), (ii) loans or advances to employees in the ordinary
course of business, (iii) transactions between and among the
Company and the Guarantor Subsidiaries, (iv) transactions and the
making of payments contemplated by the Reimbursement Agreement
and (v) any agreements to do any of the foregoing acts described
in clauses (i) through (iv).
Future Property.
The Company will, with respect to all property (other than
real property and improvements thereon) acquired by the Company
after the date hereof (and, if such acquisition were financed, if
there were no prohibition in the documents governing such
financing to encumbrances on such property), duly execute and
deliver to the Trustee, not later than thirty (30) days after the
acquisition thereof, such pledge agreements, security agreements
or other like agreements with respect to such property creating
in the Trustee's favor for the ratable benefit of the Holders a
valid, perfected and enforceable first priority (except for Liens
permitted by certain provisions of the Indenture) Lien on such
property, such pledge agreements, security agreements or other
like agreements to be, to the extent applicable, substantially in
the forms of such agreements executed by the Company in favor of
the Trustee on the date of the Old Indenture (except for changes
authorized under the Indenture) reasonably acceptable to the
Trustee, together with such other documents, certificates,
opinions of counsel and the like as the Trustee shall reasonably
request in connection therewith.
The Company will, with respect to its real property and
improvements thereon (other than any leasehold interests of the
Company in real property and improvements thereon) acquired by
the Company after the date hereof (and, if such acquisition were
financed, if there was no prohibition in the documents governing
such financing to encumbrances on such property), duly execute
and deliver to the Trustee, not later than thirty (30) days after
the acquisition thereof, Mortgages creating in the Trustee's
favor for the ratable benefit of the Holders, upon recordation
thereof, a valid, perfected and enforceable first priority
(except for Liens permitted by certain provisions of the
Indenture) Lien on all such real property and improvements
thereon, such Mortgages to contain substantially the same terms
as the Mortgages securing the Obligations on the date after the
date of this Indenture and which shall be reasonably acceptable
to the Trustee, and the enforceability, proper filing and proper
recording of which shall be supported by an opinion of counsel
acceptable to the Trustee. The Company shall use its best
efforts to cause to be executed and delivered to the Trustee,
prior to or concurrently with the delivery by the Company of the
aforesaid Mortgages to the Trustee (or if such is not possible,
as promptly as possible thereafter), any and all necessary
estoppel certificates, non-disturbance agreements, waivers,
consents of third parties thereto to the extent deemed necessary
or appropriate by the Trustee, and the Company shall cause such
Mortgages to be duly recorded in the appropriate recording office
or offices and shall pay all fees and taxes payable in connection
therewith.
Maintenance of Liens.
Except for the filing of continuation statements and the
making of other filings by the Trustee as secured party or
assignee, the Company shall at all times take all action
necessary to maintain the Liens provided for under or pursuant to
the Collateral Documents as valid and perfected first priority
Liens on the property intended to be covered thereby (subject
only to Liens expressly permitted hereunder) and supply all
information to the Trustee necessary for such maintenance.
Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to (a) pay dividends
or make any other distribution on any of such Subsidiary's
Capital Stock owned by the Company or any Subsidiary of the
Company, (b) pay any Indebtedness owed to the Company or any
other Subsidiary, (c) make loans or advances to the Company or
any other Subsidiary, or (d) transfer any of its property or
assets to the Company or any other Subsidiary; except, in each
case, for (i) any restrictions created by the Credit Documents;
(ii) any restrictions existing under any agreements in effect on
the date of the Original Indenture; (iii) any renewals or
extensions of the restrictions referred to in clause (i) or (ii);
(iv) with respect to clause (d) above only, Capital Leases or
Purchase Money Mortgage or Lien documents permitted hereunder
(but only with respect to the property leased or purchased
thereunder), and customary non-assignment provisions of any
leases governing any leasehold interest or any supply, license or
other similar agreement entered into in the ordinary course of
business; and (v) any restrictions existing by reason of
applicable law.
Limitations on Merger, Consolidation and Sale of
Substantially All Assets
The Company shall not consolidate with or merge with or
into, Transfer its properties and assets substantially as an
entirety to or purchase or acquire the properties and assets
substantially as an entirety of any of the Parent Restricted
Subsidiaries. The Company shall not consolidate with or merge
with or into any other Person, or Transfer its properties and
assets substantially as an entirety to any Person, unless (a)
the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person
which acquires by Transfer the properties and assets of the
Company substantially as an entirety (the "Surviving Person")
shall be a corporation or partnership organized and existing
under the laws of the United States of America or any State or
the District of Columbia, and shall expressly assume the due and
punctual payment of the principal of (and premium, if any) and
interest on all the Notes, the performance of every covenant of
the Indenture and the other Credit Documents on the part of the
Company to be performed or observed, and all other Obligations of
the Company pursuant to the Indenture, the Notes and the Credit
Documents, (b) immediately after, and after giving effect to,
such transaction, no Default or Event of Default shall have
occurred and be continuing, (c) either (i) immediately after,
and after giving effect to, such transaction, both (A) the
Tangible Net Worth of the Company or the surviving person, as the
case may be, and its Subsidiaries on a consolidated basis shall
be equal to or greater than the Tangible Net Worth of the Company
and its Subsidiaries on a consolidated basis immediately prior to
the consummation of such transaction and (B) the Company or the
Surviving Person, as the case may be, shall be entitled to incur
at least One Dollar ($1.00) of additional Indebtedness pursuant
to certain provisions of the Indenture or (ii) such transaction
involves a merger of the Company with and into, or a Transfer of
its properties and assets substantially as an entirety to, the
Parent, so long as, but only so long as, the Parent shall not, at
any time prior to or contemporaneously with such transaction,
have consolidated with or merged with or into, Transferred its
properties and assets substantially as an entirety to or
purchased or acquired the properties and assets substantially as
an entirety of, any of the Parent Restricted Subsidiaries, and
(d) the Company or the Surviving Person, as the case may be, has
executed and delivered to the Trustee certain certificates and
opinions all necessary assignments, amendments to financing
statements under the Uniform Commercial Code of any jurisdiction
and other documents necessary to maintain the Trustee's right,
title and interest in and to the Trust Estate.
SEC Reports
Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), the Company shall file with the Securities and Exchange
Commission (the "Commission") and provide the Trustee and Holders
with such annual reports and such information, documents and
other reports specified in Section 13 and 15(d) of the Exchange
Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines Event of Default as any one of the
following events: (a) if default shall be made in the due and
punctual payment of the principal, premium, if any, and interest
of any of the Notes when due and payable and in the case of
interest such default shall continue unremedied for a period of
thirty (30) days; (b) if (A) a default shall be made in the
performance or observance of any covenant, agreement or provision
described above in "-- Certain Covenants" and such default shall
continue unremedied for a period of thirty (30) days after any
officer of the General Partner becomes aware of such default, (B)
a default shall be made in the due and punctual payment of any
amounts payable under the Indenture or under any other Credit
Document when due and payable or a default shall be made in the
performance or observance of any covenant, agreement or provision
contained in the Indenture or the Notes or in any other Credit
Document, and such default shall continue unremedied for a period
of thirty (30) days after there has been given, in the manner
contemplated by the Indenture by the Holders of twenty-five
percent (25%) or more in aggregate principal amount of
outstanding Notes, a written notice specifying such default or
breach, requiring it to be remedied and stating that such notice
is a "Notice of Default," (C) the Indenture or any other Credit
Document shall terminate, be terminated or become void or
unenforceable without the prior written consent of the Holders,
or (D) any of the Liens created by the Collateral Documents shall
cease to be enforceable or shall not have the priority purported
to be created thereby with respect to Collateral having a fair
market value in excess of two million five hundred thousand
dollars ($2,500,000); (c) if a default shall occur (A) in the
payment of any principal or interest (after giving effect to any
applicable grace period) with respect to any Indebtedness of the
Company or any of its Subsidiaries or any General Partner (other
than the Notes) or (B) under any agreement pursuant to which any
such indebtedness may have been issued, created, assumed,
Guaranteed or secured by the Company or any of its Subsidiaries
or any General Partner, and, as a result thereof, such
Indebtedness shall be declared due and payable prior to the
stated maturity thereof or shall not be paid in full at the
stated maturity thereof, provided, however, that the aggregate
amount of all Indebtedness as to which such a payment default or
such other default causing acceleration shall occur exceeds (x)
one million dollars ($1,000,000) in Indebtedness other than Non-
Recourse Indebtedness or (y) two million five hundred thousand
dollars ($2,500,000) in Indebtedness consisting of Non-Recourse
Indebtedness; (d) if the Company or any of its Significant
Subsidiaries or any General Partner (A) is dissolved, (B) files a
petition to take advantage of any insolvency act, (C) makes an
assignment for the benefit of its creditors of itself or of the
whole or any substantial part of its property, (D) commences a
proceeding for the appointment of a receiver, trustee, liquidator
or conservator of itself or of the whole or any substantial part
of its property or (E) files a petition or answer seeking
reorganization or similar relief under applicable law or statute
of the United States of America, any state thereof or any foreign
country; (e) if a court of competent jurisdiction (A) shall enter
an order, judgment or decree appointing a custodian, receiver,
trustee, liquidator or conservator of the Company or any of its
Significant Subsidiaries or any General Partner or of the whole
or any substantial part of their respective properties, or
approve a petition filed against the Company or any of its
Significant Subsidiaries or any General Partner seeking
reorganization or similar relief under applicable law or statute
of the United States of America, any state thereof or any foreign
country, (B) under the provisions of any other law for the relief
or aid of debtors, shall assume custody or control of the Company
or any of its Significant Subsidiaries or any General Partner or
of the whole or any substantial part of their respective
properties, or (C) if there is commenced against the Company or
any of its Significant Subsidiaries or any General Partner any
proceeding for any of the foregoing relief and such proceeding
remains undismissed for a period of sixty (60) days or the
Company or any of its Significant Subsidiaries or any General
Partner by any act indicates its consent to or approval of any
such proceeding or petition; (f) if (A) one or more judgments
exceeding the insurance coverage in respect thereof by more than
two million five hundred thousand dollars ($2,500,000) in the
aggregate are rendered against any of the Company or any of its
Subsidiaries or any General Partner or (B) there are any
attachments or executions against any of the properties of the
Company or any of its Subsidiaries or any General Partner for
amounts in excess of two million five hundred dollars
($2,500,000) in the aggregate and (C) such judgments, attachments
or executions remain unpaid, unstayed or undismissed for any
period of sixty (60) consecutive days; (g) if there shall occur
the loss, theft, substantial damage to or destruction of any
portion of the Collateral not fully covered by insurance (less
deductibles in an amount permitted hereunder), which uncovered
portion of the Collateral by itself has a fair market value in
excess of two million five hundred thousand dollars ($2,500,000)
or with other such losses, thefts, damage or destruction of
uncovered portions of Collateral occurring while this Indenture
is in effect have an aggregate fair market value in excess of two
million five hundred thousand dollars ($2,500,000); or (h) the
partnership agreement of the Company shall be amended in any
manner so that the partnership agreement shall violate, conflict
with or breach any provision of the Indenture, any of the
Collateral Documents or any other document delivered thereunder
or the partnership agreement shall prohibit or prevent the
performance by the Company of any of its obligations or
agreements made in the Indenture, any of the Collateral Documents
or any other such documents.
If an Event of Default specified in clause (d) or (e) above
with respect to the Company occurs and is continuing, then the
principal amount of the Notes, together with accrued interest on
the principal amount of such Notes as well as all other
Obligations, shall automatically become immediately due and
payable, without any declaration or other act on the part of the
Trustee or any Holder. If an Event of Default (other than an
Event of Default specified in clause (d) or (e) above with
respect to the Company) occurs and is continuing, then and in
every such case the Holders of not less than a majority of the
principal amount of the Notes outstanding may, and the Trustee
upon the request of the Holders of not less than a majority of
the principal amount of the Notes outstanding shall, by written
notice to the Company (and to the Trustee if given by Holders)
declare the principal of the Notes, together with accrued
interest on the principal amount of such Notes as well as all
other Obligations, to be immediately due and payable and the same
shall become immediately due and payable without any further
declaration or other act on the part of the Trustee or any
Holder. Under certain circumstances, the Holders of the
Requisite Amount of the Notes outstanding may rescind any such
acceleration with respect to the Notes and its consequences.
The Holders of the Requisite Amount of the Notes Outstanding
may on behalf of the Holders of all the Notes waive any past
Default hereunder or under any other Credit Document and its
consequences, except a Default in the payment of the principal of
(or premium, if any) or interest on any Security or in respect of
a covenant or provision in the Indenture or under any other
Credit Document which under the provisions of the Indenture
cannot be modified or amended without the consent of the Holder
of each Outstanding Security affected. Upon any such waiver,
such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent
thereon.
The Holders of the Requisite Amount of the Notes outstanding
shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the
Trustee, whether before or after the occurrence of an Event of
Default, provided that such direction shall not be in conflict
with any rule of law or with the Indenture and the Trustee may,
but shall not be required to, take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
In addition to exercise of all other rights and remedies
permitted to be exercised by the Trustee hereunder, in the event
that either (a) the Stated Maturity of the Notes is accelerated
in accordance with the provisions of the Indenture or (b) under
certain circumstances, an Event of Default has occurred and is
continuing, and the Trustee is directed to do so in writing by
the Holders of the Requisite Amount of Notes, then the Trustee
shall proceed, subject to certain provisions of the Indenture, to
enforce the rights of the Trustee and the Holders of Notes
pursuant to the provisions of the Collateral Documents. In no
event may a Holder exercise any right or remedy with respect to
any Collateral under any Collateral Document, such right of
exercise being vested solely in the Trustee as herein provided
and as provided in the Collateral Documents.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture,
or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless (a) such Holder has previously given
written notice to the Trustee of a continuing Event of Default,
(b) the Holders of not less than twenty-five percent (25%) in
principal amount of the Outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder, (c)
such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request, (d) the Trustee for
sixty (60) days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding,
and (e) no direction inconsistent with such written request has
been given to the Trustee during such sixty (60) day period by
the Holders of the Requisite Amount of the Notes outstanding; it
being understood and intended that no one or more Holders shall
have any right in any manner whatever by virtue of, or by
availing of, any provision of the Indenture to affect, disturb or
prejudice the rights of any other Holders, or to obtain priority
or preference over any other Holders or to enforce any right
under the Indenture, except in the manner herein provided and for
the equal and ratable benefit of all the Holders.
The Company will be required to furnish annually to the
Trustee a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any
default in such performance.
AMENDMENTS AND WAIVERS
Without prior notice to or the Consent of the Holders of
Notes outstanding, the Company (and additionally for any Credit
Document as to which the Company is not the sole obligor, such
other obligor(s); or for any Credit Document as to which the
Company is not the obligor, the obligor of such document) and the
Trustee may enter into an indenture or indentures supplemental to
the Indenture or amendments or waivers to other Credit Documents
constituting Collateral Documents or Guarantees, but solely for
one or more of the following purposes (a) to evidence the
succession of a successor to the Company or such obligor, and the
assumption by such successor of the covenants of the Company or
such obligor under the Indenture, in the Notes and in the other
Credit Documents to which the Company or such obligor is a party
contained, (b) to add to the covenants of the Company or such
other obligor, for the benefit of the Holders, or to surrender
any right or power herein or therein conferred upon the Company
or such other obligor, (c) to cure any ambiguity, to correct or
supplement any provision of the Indenture which may be
inconsistent with any other provision of the Indenture or in such
Credit Documents or to make any other provisions with respect to
matters arising thereunder which shall not be inconsistent with
the provisions of the Indenture; provided, however, such action
shall not adversely affect the interests of the Holders, and (d)
to modify, eliminate or add to the provisions of the Indenture to
the extent necessary to effect the qualification of the Indenture
under, or the compliance by the Indenture with the provisions of,
the Trust Indenture Act.
With the Consent of the Holders, the Company (and
additionally for any Credit Document as to which the Company is
not the sole obligor, such other obligor(s); or for any Credit
Document as to which the Company is not the obligor, the obligor
of such document) and the Trustee may enter into an indenture or
indentures supplemental to the Indenture or amendments or waivers
to other Credit Documents constituting Collateral Documents or
Guarantees for the purpose of adding, amending or waiving
compliance with any provisions of the Indenture or any such other
Credit Document or of modifying in any manner the rights of the
Holders under the Indenture or under any such other Credit
Document; provided, however, that no such supplemental indenture,
amendment or waiver shall, without the consent of the Holder of
each outstanding Note affected thereby (a) change the Stated
Maturity of or any Redemption Date with respect to the principal
of, or of any installment of interest on or any premium payable
upon the redemption of, any Note, or reduce the principal amount
thereof or the rate of interest thereon payable upon the
redemption or other payment thereof, or change the coin or
currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case
of redemption, on or after any Redemption Date), (b) reduce the
percentage in principal amount of the outstanding Notes, the
consent of whose Holders is required for any such supplemental
indenture, amendment or waiver, (c) modify certain remedial
provisions of the Indenture, except to increase any such
percentage or to provide that certain or other provisions of this
Indenture cannot be modified or waived without the consent of the
Holder of each Note affected thereby, (d) waive a Default or
Event of Default in the payment of principal of or interest on,
or redemption payment with respect to, any Security, or (e)
modify any of the provisions of the Indenture relating to the pro
rata redemption of Notes.
It shall not be necessary for the Holders to approve the
particular form of any proposed supplemental indenture, amendment
or waiver, but it shall be sufficient if they shall approve the
substance thereof.
After a supplemental indenture, amendment or waiver under
the Indenture with respect to a Credit Document is effective, the
Company shall mail to each Holder a copy of such supplemental
indenture, amendment or waiver. Any failure of the Company to so
mail such copy shall not, however, in any way impair or affect
the validity of any such supplemental indenture, amendment or
waiver.
TRANSFER
The Notes will be issued in registered form in denominations
of one thousand dollars ($1,000) and any integral multiple
thereof, except as necessary to reflect principal amounts not
evenly divisible by one thousand dollars ($1,000), and will be
transferable only upon surrender of the Notes being transferred
for registration of transfer. The Company may require payment of
a sum sufficient to cover any tax or other governmental charge
payable in connection with certain transfers and exchanges.
DEFEASANCE
The Indenture shall cease to be of further effect (except as
to any surviving rights of transfer or exchange of Notes
expressly provided for), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture and
release of the Liens of the Collateral Documents securing the
Obligations, when (a) either (i) all Notes theretofore
authenticated and delivered (other than Notes which have been
destroyed, lost or stolen and which have been replaced) have been
delivered to the Trustee cancelled or for cancellation or (ii)
all such Notes not theretofore delivered to the Trustee cancelled
or for cancellation (A) have become due and payable in full, or
(B) will become due and payable at their Stated Maturity within
six (6) months or (C) are to be called for redemption within six
(6) months under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and at
the expense, of the Company; and the Company, in the case of (A),
(B) or (C) above, has deposited or caused to be deposited with
the Trustee as trust funds in trust for the purpose an amount in
cash sufficient (without giving effect to any income or gain in
respect of the investment of such amount) to pay and discharge
the entire indebtedness on such Securities not theretofore
delivered to the Trustee cancelled or for cancellation, for
principal (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable),
or to the Stated Maturity or Redemption Date, as the case may be
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company and (c) the Company has
delivered to the Trustee certain officers' certificates and
opinions of counsel. Notwithstanding the satisfaction and
discharge of the Indenture, the obligations of the Company
pursuant to certain Sections of the Indenture shall survive.
INFORMATION CONCERNING THE TRUSTEE
The Trustee and its subsidiaries may from time to time in
the future provide the Company and its Subsidiaries with banking
and financial services in the ordinary course of their business.
DEFINITIONS
Affiliate -- means, with respect to any Person, any other
Person (the "Subject Affiliate") that, directly or indirectly
through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person and, without
limiting the generality of the foregoing, includes:
(a) any Subject Affiliate which beneficially owns or holds
ten percent (10%) or more of any class of voting securities of
such Person or ten percent (10%) or more of the equity
interest in such Person;
(b) any Subject Affiliate ten percent (10%) or more of any
class of voting securities (or, in the case of any Person
which is not a corporation, ten percent (10%) or more of the
equity interest) in which is held by such Person; and
(c) any director or executive officer of such Person or an
Affiliate of such Person;
provided, however, that in no event shall any Person who was a
holder of Original Securities on the day prior to the date of the
Indenture be deemed, at any time or for any purpose under the
Indenture, to be an Affiliate of the Company, the Parent, and
General Partner or any of their respective Subsidiaries; and
provided, further, that the Parent, the General Partner and their
respective Subsidiaries shall be deemed to be Affiliates of the
Company whether or not they would otherwise be included by virtue
of the foregoing provisions of this definition.
The term "control" (including, with correlative meanings,
the terms "controlled by" and "under common control") means the
possession, directly or indirectly, of the power either to direct
or cause the direction of the management or policies of a Person,
or to vote a majority of the securities having ordinary voting
power for the election of directors of such Person, in either
case whether through the ownership of voting securities, by
contract, by proxy or otherwise. The term "Affiliate," when used
with respect to any particular Person, means an Affiliate of the
Company.
Capital Expenditures -- means, with respect to any Person,
any item which, pursuant to GAAP, would be classified on the
financial statements of such Person as a "capital expenditure."
Capital Lease -- means, as to any Person, any lease of
property, real or personal, the obligations under which are, or
should be in conformity with GAAP, capitalized on a consolidated
balance sheet of such Person.
Casualty Loss -- means and includes each separate loss,
damage or injury to any tangible property subject to the Lien of
the Trustee or any condemnation or eminent domain proceedings in
respect of any such property.
Casualty Loss Payment -- means and includes any payment of
proceeds of any insurance required to be maintained on account of
each separate loss, damage or injury to any tangible property
subject to the Lien of the Trustee or any payment of proceeds of
any condemnation or eminent domain proceedings in respect of any
such property.
Collateral -- means all property and interests therein (real
and personal, tangible and intangible) in which a Lien is now or
hereafter held by the Trustee or granted by the Company or any
other Person to the Trustee for the ratable benefit of the
Holders as security for the payment and performance of any or all
of the Obligations.
Collateral Documents -- means and includes each document,
agreement, assignment, mortgage or deed of trust executed or
delivered with the Old Indenture, the Indenture or from time to
time granting a Lien in any property in favor of the Trustee for
the ratable benefit of the Holders to secure the payment and
performance of any or all of the Obligations.
Collected Amount -- Redemption Amounts less than $1,000,000
plus certain excess amounts of past Redemption Amounts.
Consent of the Holders -- means the requisite principal
amount of the Securities Outstanding with respect to any consent
of the Holders pursuant to the Indenture which, except as
otherwise specifically stated in any provision of the Indenture,
shall be more than fifty percent (50%) of the principal amount of
the Securities Outstanding.
Consolidated Cash Flow -- means, for any period, the sum of:
(a) Consolidated Net Income for such period; provided,
however, that for purposes of calculating Consolidated Cash
Flow only:
(i) extraordinary non-cash charges (to the extent deducted
in calculating Consolidated Net Income) shall be added back
to Consolidated Net Income; and
(ii) extraordinary non-cash revenue (to the extent included
in calculating Consolidated Net Income) shall be deducted
from Consolidated Net Income;
plus
(b) the sum of (but in each case, only to the extent not
included in Consolidated Net Income for such period) the
following, without duplication:
(i) Consolidated Interest Expense; plus
(ii) Consolidated Income Tax Expense; plus
(iii) Consolidated Depreciation and Amortization Expense.
Consolidated Depreciation and Amortization Expense -- means,
for any period, the consolidated depreciation and amortization
expense of the Company and its Subsidiaries for such period,
calculated on a consolidated basis in accordance with GAAP.
Consolidated Income Tax Expense -- means, for any period,
the aggregate of all current and deferred taxes based upon income
and franchise tax expense of the Company and its Subsidiaries for
such period determined on a consolidated basis in accordance with
GAAP.
Consolidated Interest Expense -- means, for any period, the
interest expense of the Company and its Subsidiaries (including
amortization of original issue discount on any Indebtedness, the
interest portion of any deferred payment obligation, the net
costs associated with interest rate swap obligations or
agreements and the interest component of rentals in respect of
Capital Leases) for such period calculated on a consolidated
basis, such consolidation to be performed in accordance with
GAAP.
Consolidated Net Income -- means, for any period, the
aggregate of the Net Income of the Company and its Subsidiaries,
determined on a consolidated basis.
Consolidated Revenues -- means, for any period, the
aggregate revenue for such period of the Company and its
Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
Credit Documents -- means, collectively, the Indenture, the
Securities, the Collateral Documents, the Specialty Guaranty, any
other Guarantees of any or all of the Obligations and any and all
other documents, instruments and agreements now or hereafter
executed and/or delivered in connection therewith.
Default -- means an event, act or condition that, with
notice or lapse of time, or both, would become an Event of
Default.
Defaulted Interest -- any interest which is payable, but is
not punctually paid or duly provided for on any Interest Payment
Date.
Entire Cash Proceeds -- means, with respect to any Transfer
of assets, the difference of:
(a) the cash proceeds (whenever received) actually received
by the Company or any Subsidiary of the Company from such
Transfer; minus
(b) the sum of:
(i) commissions and other fees and expenses (including
fees and expenses of counsel, accountants and investment
bankers) related to such Transfer; plus
(ii) provisions for all taxes paid or payable as a result
thereof and in connection therewith and payments made to
retire Indebtedness (other than the Securities or the
Original Securities) secured by or otherwise relating
directly to such assets being sold or otherwise disposed of
where payment of such Indebtedness is required in connection
therewith.
Event of Default -- has the meaning described in
"Description of Notes -- Events of Default."
GAAP -- means generally accepted accounting principles in
effect from time to time in the United States applied on a
consistent basis.
General Partner -- means the Parent or any other general
partner of the Company.
Governmental Authority -- means any federal, state, local,
foreign or other governmental or administrative body,
instrumentality, department or agency or any court, tribunal,
administrative hearing body, arbitration panel, commission or
other similar dispute resolving panel or body.
Guarantee -- means, with respect to any Person, any
guarantee or other contingent liability (other than any
endorsement for collection or deposit in the ordinary course of
business), direct or indirect, of such Person with respect to any
obligation of another Person, through an agreement or otherwise,
including, without limitation:
(a) any other endorsement or discount with recourse or
undertaking substantially equivalent to or having economic
effect similar to a guarantee in respect of any such
obligation; and
(b) any agreement:
(i) to purchase, or to advance or supply funds for the
payment or purchase of, any such obligation;
(ii) to purchase, sell or lease property, products,
materials, supplies, transportation or services, to enable
such other Person to pay any such obligation or to assure
the owner thereof against loss regardless of the delivery or
nondelivery of the property, products, materials, supplies,
transportation or services; or
(iii) to make any Investment in, or to otherwise provide
funds to or for, such other Person to enable such Person to
satisfy any obligation (including any liability for a
dividend, stock liquidation payment or expense) or to assure
a minimum equity, working capital or other balance sheet
condition in respect of any such obligation.
The amount of any Guarantee shall be equal to the outstanding
amount of the obligation directly or indirectly guaranteed. The
term "Guarantee" used as a verb has a corresponding meaning.
Guarantor Subsidiary -- means Specialty.
Holder -- means a Person in whose name a Security is
registered in the Security register.
Indebtedness -- of a Person means, without duplication:
(a) all indebtedness of such Person for borrowed money or
evidenced by bonds, notes, debentures or similar instruments;
(b) all obligations of such Person under leases which have
been or, in accordance with GAAP, should be, recorded as
Capital Leases;
(c) all indebtedness of such Person arising under
acceptance facilities;
(d) the face amount of all letters of credit (other than
letters of credit securing solely the payment of insurance
premiums) issued for the account of such Person and, without
duplication, all drafts drawn thereunder;
(e) all liabilities secured by any Lien on any property
owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person
has not assumed or become liable for the payment thereof;
(f) all obligations of such Person under any interest rate
swap, interest rate future, interest rate cap, interest rate
option or other form of interest rate hedging agreement or
arrangement designed to protect against fluctuations in
interest rates; and
(g) any Guarantee of such Person with respect to
Indebtedness of another Person.
Investment -- means any investment in any Person, whether by
means of asset or share or equity purchase, capital contribution,
loan, advance, time deposit, purchase of notes, bonds or other
evidences of Indebtedness or otherwise, other than:
(a) the purchase by such Person of assets either
constituting Capital Expenditures or made in the ordinary
course of such Person's business;
(b) the exchange of the Original Securities pursuant to the
provisions of, and the consummation of the transactions
contemplated by, the Exchange Agreement; and
(c) repurchases of the Securities.
Junior Indebtedness -- means any Indebtedness of the Company
which is subordinated to the Securities in right of payment.
Lien -- means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, deposit arrangement,
encumbrance, lien (statutory or other), security interest,
easement, defect in or exception to title or preference, priority
or other security agreement or preferential arrangement of any
kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement, any Capital
Lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement (other than
notice filings not perfecting a security interest) under the
Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing.
Mortgages -- means each and every mortgage, deed of trust,
collateral assignment of leases, collateral assignment of rents
or similar instrument granting the Trustee an interest in or Lien
upon any real property and securing the Obligations, in each
case, as amended through and including the date hereof and as
hereafter amended.
Net Cash Proceeds -- means:
(a) in respect of a Specified Asset Sale described in
clause (a) of the definition of "Specified Asset Sale", the
Entire Cash Proceeds with respect to such Specified Asset
Sale; and
(b) in respect of a Specified Asset Sale described in
clause (b) of the definition of "Specified Asset Sale", an
amount equal to the difference of:
(i) the Entire Cash Proceeds in respect of such Transfer;
minus
(ii) the amount of such Entire Cash Proceeds in respect of
such Transfer actually applied to purchase assets used or
useful in the business of the Company or its Subsidiaries;
together, in either case, with any amounts previously retained by
the Trustee required to be added thereto.
Net Income -- means, for any Person and for any period, the
net income (loss) of such Person for such period, determined in
accordance with GAAP; provided, however, that:
(a) no gains and no losses realized by such Person and its
Subsidiaries upon the sale or other disposition (including,
without limitation, pursuant to Sale-Leaseback Transactions,
sales or disposals of business segments, or sales or
abandonment of properties, plants and equipment of such Person
and its Subsidiaries) of property or assets which are not sold
or otherwise disposed of in the ordinary course of business,
or pursuant to the sale of any Capital Stock of or other
equity or ownership interest in such Person or any Subsidiary,
shall be considered in calculating Net Income;
(b) no writedowns, writeoffs or writeups by such Person and
its Subsidiaries of receivables, inventories, fixed assets,
real property, real estate leasehold interests or intangible
assets (not including amortization of intangible assets in
accordance with GAAP) shall be considered in calculating Net
Income;
(c) net income or net loss of any Person combined with such
Person on a "pooling of interests" basis attributable to any
period prior to the date of such combination shall not be
considered in calculating Net Income; and
(d) net income or net loss of any Person which is not
consolidated with such Person shall not be considered in
calculating Net Income except to the extent of the amount of
dividends or distributions paid to such Person or any of its
Subsidiaries.
Non-Recourse Indebtedness -- owing by any Person means
Indebtedness for money borrowed or evidenced by a Lien, wherein
liability is limited solely to the security therefor without any
liability on the part of such Person for any deficiency, or with
respect to which the holder of such Indebtedness has irrevocably
made the election under Section 1111(b)(1)(A)(i) of Title 11 of
the United States Code, as amended.
Obligations -- means any and all obligations and liabilities
of the Company, now or hereafter incurred, under or with respect
to the Securities, the Indenture, the Collateral Documents or any
other Credit Document, whether or not such obligations and
liabilities are reduced to judgment, liquidated, unliquidated,
evidenced by any note or other instrument, direct or indirect,
absolute or contingent, due or to become due, disputed,
undisputed, legal, equitable, secured or unsecured, and whether
or not any such obligations and liabilities are discharged,
stayed or otherwise affected by any dissolution, insolvency or
similar proceeding such obligations and liabilities to include
without limitation:
(a) the payment of the principal and interest (and premium,
if any) on all of the Securities now and hereafter issued and
delivered and outstanding;
(b) the payment of all other sums owing hereunder and under
each of the other Credit Documents to any Holder or to the
Trustee;
(c) all costs and expenses (including attorneys' fees)
incurred or payable in connection with any Credit Document;
and
(d) the performance of the respective covenants of the
Company herein and in each of the other Credit Documents
contained.
Omnibus Amendment -- means that certain Omnibus Amendment
Agreement, dated as of the date hereof, among the Company,
Specialty and the Trustee.
Original Holders -- means the holders of the Original
Securities on the day preceding the date of the Indenture.
Parent Restricted Subsidiaries -- means and includes
Cavalcade Holdings, Inc.; Cavalcade Foods, Inc.; Cavalcade
Development, L.P.; Furr's/Bishop's Cafeterias, L.P.; any of their
respective subsidiaries; or any of their respective successors
and assigns.
Paying Agent -- means the Person or Persons authorized by
the Company to pay the principal of (and premium, if any) or
interest on any Securities on behalf of the Company. The Company
initially appoints the Trustee to act as Paying Agent. For
purposes of redemption of the Notes, neither the Company nor any
Affiliate may act as Paying Agent.
Permitted Transfers -- means and includes:
(a) sales of inventory in the ordinary course of business;
(b) Transfers of obsolete or worn-out machinery and
equipment, and subleases of leased property, no longer used or
useful in the conduct of the business of the Company and its
Subsidiaries;
(c) Transfers of assets from any Subsidiary of the Company
to the Company; and Transfers from the Company to any
Guarantor Subsidiary;
(d) with respect to cafeteria or other restaurant
properties acquired after the date hereof and in accordance
with the terms hereof, Transfers of land adjacent to or in the
immediate proximity of any such cafeteria or restaurant not
necessary for the operation of such cafeteria's or
restaurant's business;
(e) so long as no Default or Event of Default shall have
occurred and be continuing, with respect to any land,
buildings or equipment acquired after the date hereof and in
accordance with the terms hereof, Sale-Leaseback Transactions
of any such assets; and
(f) so long as no Default or Event of Default shall have
occurred and be continuing, Transfers of any assets or
property of the Company, so long as the aggregate fair market
value for all such assets or property so sold or disposed of
in any one calendar year does not exceed Five Million Dollars
($5,000,000).
Person -- means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust,
unincorporated organization or Governmental Authority or any
agency or political subdivision thereof.
Priority Indebtedness -- means and includes, without
duplication:
(a) Indebtedness secured by any Lien (including, without
limitation, any Purchase Money Mortgage) on any property owned
by the Company or any of its Subsidiaries, to the extent
attributable to such Person's interest in such property,
whether or not such Person has not assumed or become liable
for the payment thereof;
(b) all Indebtedness of, and all preferred stock (valued at
the liquidation preference thereof), of Subsidiaries of the
Company (other than Guarantor Subsidiaries), except:
(i) such Indebtedness owing to, or such preferred stock
beneficially owned by, the Company; and
(ii) in the case of any such Indebtedness owing to, or
preferred stock beneficially owned by, a Subsidiary of the
Company, for the amount thereof owing (directly or
indirectly through Subsidiaries of the Company) to the
Company; and
(c) with respect to any Sale-Leaseback Transaction, the net
amount of all rent required to be paid in respect of the lease
of the property subject thereto by the Company or any of its
Subsidiaries during the remaining primary term thereof,
discounted from the respective due dates thereof to such date
at the rate per annum implicit in such lease.
Pro Forma - means, for any period, with respect to any
calculation of Consolidated Cash Flow or Consolidated Interest
Expense, in connection with the incurrence of any Indebtedness
during such period, the amount of Consolidated Cash Flow or
Consolidated Interest Expense, as the case may be, which would
have resulted during and for such period, assuming that:
(a) any assets acquired with the proceeds of the
Indebtedness being incurred had been acquired, and such
Indebtedness had been incurred, created, assumed or
Guaranteed, on the first day of such period;
(b) any other Indebtedness repaid with the proceeds of such
Indebtedness had been repaid on the first day of such period;
(c) the rate of interest in effect for floating rate
Indebtedness shall at all times be the rate of interest in
effect on the date of determination;
(d) the entire principal amount of such newly incurred
Indebtedness shall be outstanding for each day during such
period; and
(e) if the Second Closing Date occurred during such period,
the Second Closing Date had occurred, and the transactions
contemplated to occur on the Second Closing Date pursuant to
the provisions of the Exchange Agreement had occurred, on the
first day of such period.
Pro Forma Interest Coverage Ratio -- means, at any time of
calculation, the ratio, expressed as a percentage, of:
(a) Pro Forma Consolidated Cash Flow for the period of four
(4) full consecutive fiscal quarters of the Company most
recently ended at such time; to
(b) Pro Forma Consolidated Interest Expense for such
period.
Purchase Money Mortgage -- means:
(a) a Lien held by any Person (whether or not the seller of
such assets) on tangible property (other than assets acquired
to replace, repair, upgrade or alter tangible property owned
by the Company or any of its Subsidiaries on the date hereof)
acquired or constructed by the Company or any of its
Subsidiaries after the date hereof, which Lien secures all or
a portion of the related purchase price or construction costs
of such property; provided, however, that such Lien is created
not later than one hundred eighty (180) days after acquisition
or completion of construction of such property;
(b) any Lien existing on any fixed assets at the time such
fixed assets are acquired by the Company or any of its
Subsidiaries; and
(c) any Lien existing on any fixed assets of any Person at
the time it becomes a direct or indirect Subsidiary of the
Company;
provided, however, that no such Lien extends to any other asset
or property of the Company or any of its Subsidiaries.
Redemption Amount -- the aggregate Net Cash Proceeds and
Specified Casualty Loss Payments prompting an offer of
redemption.
Redemption Date -- when used with respect to any Securities
to be redeemed means the date fixed for such redemption by or
pursuant to the Indenture.
Redemption Price -- when used with respect to any Security
to be redeemed means the price at which it is to be redeemed
pursuant to the Indenture (including, without limitation, any
accrued and unpaid interest thereon payable with respect to such
redemption).
Regular Record Date -- for the interest payable on any
Interest Payment Date (other than the first Interest Payment Date
and other than on December 31, 2001) means the March 15 or
September 15 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date or, in the case of the
first Interest Payment Date, the Second Closing Date.
Reimbursement Agreement -- means the Reimbursement
Agreement, dated as of the date hereof, among the Company, the
Parent and Furr's/Bishop's Cafeterias, L.P., a Delaware limited
partnership.
Requisite Amount -- means the requisite principal amount of
the Securities Outstanding with respect to any request, demand or
other action of the Holders pursuant to the Indenture which,
except as otherwise specifically stated in any provision of the
Indenture, shall be more than fifty percent (50%) of the
principal amount of the Notes outstanding.
Restricted Investment -- means any Investment made by the
Company or any Subsidiary of the Company except:
(a) Investments in stock or partnership interests of any
Subsidiaries of the Company existing on the date hereof, but
not any increase in the amount thereof;
(b) Temporary Cash Investments, which shall be pledged to
the Trustee for the ratable benefit of the Holders as
collateral security for the payment of the Obligations
pursuant to a pledge agreement in form and substance stated in
an opinion of counsel to be effective to accomplish the valid
pledge thereof to the Trustee; provided, however, that to the
extent that such pledge agreement and such opinion of counsel
covers specified after-acquired Temporary Cash Investments, no
new pledge agreement or opinion of counsel shall be necessary
upon the subsequent acquisition of such after-acquired
Temporary Cash Investments if the Lien thereupon is perfected
in the manner contemplated in such opinion of counsel and the
Company so states in an officers' certificate delivered to the
Trustee;
(c) Investments in Guarantor Subsidiaries or Persons which,
contemporaneously with the making of such Investment become
Guarantor Subsidiaries;
(d) for the formation of other Subsidiaries of the Company
created and utilized solely to satisfy state and local
alcoholic beverage licensing requirements for the Company's
businesses and any of its current or future retail liquor
sales establishments; and
(e) Investments in Subsidiaries of the Company:
(i) in which the Company has contributed less than One
Million Dollars ($1,000,000) (whether in cash, property,
assets or otherwise) in the aggregate, which contributions
(to the extent subject to a Lien in favor of the Trustee)
shall remain subject to the Lien of the Trustee after giving
effect to such contribution (and such Subsidiaries shall
acknowledge same); and
(ii) so long as the Company has no Indebtedness and no
other obligations owing to such Subsidiaries or to any third
party with respect to such Subsidiary.
Restricted Payment -- means, with respect to any Person:
(a) any dividend or other distribution in respect of such
Person's capital stock, or incurrence of a liability for such
dividend or distribution, in cash, properties or other assets,
on any shares of such Person's capital stock, but excluding
any dividend or distribution consisting solely of capital
stock of such Person;
(b) any payment (including, without limitation, the setting
aside of assets or the deposit of funds therefor) on account
of the purchase, redemption, retirement or acquisition of:
(i) any capital stock of such Person, the Company or any
of its Subsidiaries; or
(ii) any option, warrant or other right to acquire any
security or interest described in the immediately preceding
clause (i); and
(c) any optional payment or prepayment of principal or
premium on account of Junior Indebtedness (other than Non-
Recourse Indebtedness paid solely out of the property or
assets securing such Non-Recourse Indebtedness) or any
optional purchase, defeasance, redemption, retirement or
acquisition of any principal on any such Junior Indebtedness
(including, without limitation, the setting aside of assets or
the deposit of funds therefor);
provided, however, that:
(A) no such dividend, distribution or payment made by
any Subsidiary to the Company or any Guarantor
Subsidiary shall be deemed to be a Restricted Payment;
(B) no such dividend, distribution or payment made by
any Subsidiary to another Subsidiary shall be deemed to
be a Restricted Payment to the extent of the Company's
direct or indirect equity interest in such Subsidiary;
(C) the exchange, conversion or exercise of any
option on the part of holders of the limited
partnership interests of the Company to exchange,
convert, exercise or otherwise transfer such interests
to the Parent or any Affiliate of the Parent, solely in
exchange for Capital Stock of the Parent or such
Affiliate, shall not constitute a Restricted Payment;
and
(D) payments made by the Company and the Subsidiaries
pursuant to the Reimbursement Agreement shall not
constitute Restricted Payments; and
(E) payments made by the Company to any Person which
is or was a partner of the Company solely to reimburse
such Person for income taxes payable and paid by such
partner in respect of the income of the Company for any
period, shall not constitute a Restricted Payment.
Sale-Leaseback Transaction -- means any arrangements,
directly or indirectly, with any Person, whereby the Company or
any of its Subsidiaries shall sell or transfer any property,
whether now owned or hereafter acquired, used or useful in its
business, in connection with the rental or lease of the property
so sold or transferred or of other property which the Company or
such Subsidiary intends to use for substantially the same purpose
or purposes as the property so sold or transferred.
Second Closing Date -- January 2, 1996.
Significant Subsidiary -- means a Subsidiary, including its
Subsidiaries, which meets any of the following conditions:
(a) the Company's and its other Subsidiaries' investments
in and advances to the Subsidiary exceed ten percent (10%) of
the total assets of the Company and its Subsidiaries
consolidated as of the end of the most recently completed
fiscal year of the Company; or
(b) the total assets (after intercompany eliminations) of
the Subsidiary exceed ten percent (10%) of the total assets of
the Company and its Subsidiaries consolidated as of the end of
the most recently completed fiscal year of the Company; or
(c) the Company's and its other Subsidiaries' equity in the
income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in
accounting principle of the Subsidiary exceeds ten percent
(10%) of such income of the Company and its Subsidiaries
consolidated for the most recently completed fiscal year of
the Company.
Specialty Guaranty -- means that certain Unlimited Guaranty
of Specialty, dated March 27, 1992, for the benefit of the
Trustee, as amended by the Omnibus Amendment and as thereafter
amended from time to time.
Specified Asset Sales -- means:
(a) the receipt by the Company or any of its Subsidiaries
of any Entire Cash Proceeds in respect of any Transfer (other
than Permitted Transfers), if any Default or Event of Default
is continuing at the time of receipt of such proceeds; and
(b) the failure of the Company to apply the entire amount
of Entire Cash Proceeds from any such Transfer to purchase
assets used or useful in the business of the Company or its
Subsidiaries within one hundred eighty (180) days of the date
of receipt thereof.
Specified Casualty Loss Event -- means:
(a) the receipt by the Company or any of its Subsidiaries
of any Casualty Loss Payment in respect of any Casualty Loss,
if any Default or Event of Default is continuing at the time
of receipt of such Casualty Loss Payment; and
(b) the failure of the Company to apply the entire amount
of any Casualty Loss Payment to either repair or replace the
property that gave rise to such Casualty Loss within one
hundred eighty (180) days of the date of receipt thereof.
Specified Casualty Loss Payment -- means:
(a) in respect of a Specified Casualty Loss Event described
in clause (a) of the definition of "Specified Casualty Loss
Event", the entire Casualty Loss Payment with respect to such
Specified Casualty Loss Event; and
(b) in respect of a Specified Casualty Loss Event described
in clause (b) of the definition of "Specified Casualty Loss
Event", an amount equal to the difference of:
(i) the entire Casualty Loss Payment in respect of such
Casualty Loss; minus
(ii) the amount of such Casualty Loss Payment in respect of
such Casualty Loss actually applied to either repair or
replace the property that gave rise to such Casualty Loss;
together, in either case, with any excess amounts previously
retained by the Trustee and required to be added thereto.
Stated Maturity -- when used with respect to any Security or
any installment of interest thereon means the date specified in
such Security as the fixed date on which the principal of such
Security (disregarding any mandatory redemption payments required
by the terms of the Indenture) or such installment of interest is
due and payable.
Subordinated Intercompany Indebtedness -- means unsecured
Indebtedness of the Company or any Guarantor Subsidiary, owing
solely to one or more Guarantor Subsidiaries, which is
subordinated to the Securities in right of payment and the terms
of which do not permit the Company to make any payment in respect
thereof at any time:
(a) during which an Event of Default shall have occurred or
shall be continuing; or
(b) following acceleration of the maturity of the
Securities or the exercise of any other remedy in respect
thereof, pursuant to any Collateral Document or otherwise,
until after the final and indefeasible payment in full of all
the Securities.
Subsidiary -- means, with respect to any Person, any
corporation or other Person with respect to which more than fifty
percent (50%) of the Capital Stock or other equity or ownership
interests having ordinary voting power (other than stock or other
equity or ownership interests having such power only by reason of
the happening of a contingency) is at the time owned by such
Person or by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person.
Tangible Net Worth -- means, with respect to any Person or
group of consolidated Persons, at any time, the difference of:
(a) the stockholders' equity (or, in the case of a
partnership, the partners' equity) of such Person or group
determined on a consolidated basis in accordance with GAAP at
such time; minus
(b) the sum of:
(i) the aggregate amount of deferred assets, other than
prepaid insurance and prepaid taxes;
(ii) patents, copyrights, trademarks, trade names,
franchises, goodwill and other similar intangible assets;
and
(iii) unamortized debt discount and expense;
of such Person or group of consolidated Persons at such time.
Temporary Cash Investments -- means and includes Investments
in:
(a) securities issued or directly and fully guaranteed or
insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than one
(1) year from the date of acquisition;
(b) certificates of deposit and Eurodollar time deposits
with maturities of not more than six (6) months from the date
of acquisition, bankers' acceptances with maturities not
exceeding six (6) months and overnight bank deposits, in each
case, with:
(i) Amarillo National Bank;
(ii) any domestic commercial bank having capital and
surplus in excess of One Hundred Million Dollars
($100,000,000) and a long-term unsecured debt rating from
both Moody's Investors Services, Inc. and Standard & Poor's
Ratings Group (a division of McGraw Hill, Inc.) of at least
"A";
(c) repurchase obligations with respect to securities of
the types described in clauses (a) and (b), entered into with
any financial institution meeting the qualifications specified
in clause (b) above and having a term not in excess of
fourteen (14) days;
(d) commercial paper rated at least A-2 or the equivalent
thereof by Standard & Poor's Ratings Group (a division of
McGraw Hill, Inc.) or at least P-2 or the equivalent thereof
by Moody's Investors Service, Inc. and in either case maturing
within six (6) months after the date of acquisition;
(e) certificates of deposit with maturities of not greater
than six (6) months from the date of acquisition with any
domestic commercial bank at which the Company has an operating
account aggregating not greater than One Hundred Thousand
Dollars ($100,000) at any one time outstanding for all such
certificates of deposit at any one such bank and not greater
than Five Hundred Thousand Dollars ($500,000) at any one time
outstanding for all such certificates of deposits under this
clause (e); and
(f) money market mutual funds subject to regulation as
investment companies under the Investment Company Act of 1940,
as amended, so long as such mutual fund:
(i) has assets of at least One Hundred Million Dollars
($100,000,000);
(ii) is either:
(A) an Affiliate of, or managed by, Fidelity
Management & Research Company; or
(B) rated "A" or better by Standard & Poor's Ratings
Group (a division of McGraw Hill, Inc.) or an
equivalent rating by another nationally recognized
rating service;
(iii) invests solely in Investments listed in clause (a) and
clause (c) of this definition of "Temporary Cash
Investments;"
(iv) permits redemptions to be made on any Business Day;
and
(v) has as a fundamental investment goal the maintenance
of a constant net asset value.
Transfer -- means, with respect to any assets or property,
to sell, lease, transfer, convey or otherwise dispose of such
assets or property.
Trust Estate -- means all Collateral granted to the Trustee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 28, 1994, the Company and M&B Restaurants, L.C
. ("M&B") entered into a Lease and Sublease Agreement (the
"Lease") and a Trademark License and Development Agreement (the
"License"). Under the terms of the Lease, the Company leases the
two existing El Paso Bar-B-Que facilities to M&B, a company
controlled by William Prather, formerly CEO of the Company, for
an initial term ending December 31, 2003. Pursuant to the
License, M&B agreed to pay opening fees of $25,000 per unit and
royalties based on sales on 31 units required to be opened by
December 31, 2003 and to acquire the trademarks and other
intangibles used by the El Paso Bar-B-Que Company by December 31,
2003, but not earlier than December 31, 1997, for a cash payment
of seven times the prior four quarterly payments under the
License. The Company received approximately $16,000 in 1995
relating to the lease. On November 10, 1995, Amendment One to
Trademark License and Development Agreement (the "Amendment") was
executed. The Amendment modified to 25 the number of new units
required to be opened by December 31, 2003 and on which M&B
agreed to pay opening fees and royalties. The Amendment also
modified the earliest buyout date to December 31, 1999. The
Company and M&B have held preliminary discussions and
negotiations regarding the acceleration of the earliest buyout
date under the License and certain modifications to the Lease.
Chanin and Company received approximately $1.2 million from
the Company for providing investment banking services to the
former 11% Noteholders in connection with the Restructuring.
Russell A. Belinsky, who became a director of the Company on
January 2, 1996 following the Restructuring, is and, at all
relevant times, was a Managing Director of Chanin and Company.
As of March 31, 1996, Kenneth F. Reimer received
compensation of approximately $29,000 for certain consulting
activities on behalf of the Company and the Parent during fiscal
1996.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered
hereby are being passed upon for the Company by Skadden, Arps,
Slate, Meagher & Flom.
EXPERTS
The consolidated balance sheets as of January 2, 1996 and
January 3, 1995 and the related consolidated statements of
operations, changes in partners' capital (deficit) and cash flows
for the fifty-two week year ended January 2, 1996, the fifty-
three week year ended January 3, 1995 and the fifty-one and one-
half week year ended December 28, 1993, in this Prospectus, have
been audited by Deloitte & Touche LLP, independent certified
public accountants, as stated in their report appearing herein
and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets, at April 2, 1996 (unaudited)
and for years ended January 2, 1996 and January 3, 1995 F-3
Consolidated Statements of Operations
Thirteen weeks ended April 2, 1996 (unaudited),
thirteen weeks ended April 4, 1995 (unaudited),
fifty-two weeks ended January 2, 1996, fifty-three
weeks ended January 3, 1995 and fifty-one
and one-half weeks ended December 28, 1993 F-5
Consolidated Statements of Partners' Capital (Deficit)
Years ended December 28, 1993, January 3, 1995,
January 2, 1996 and thirteen weeks ended
April 2, 1996 (unaudited) F-6
Consolidated Statements of Cash Flows
Thirteen weeks ended April 2, 1996 (unaudited),
thirteen weeks ended April 4, 1995 (unaudited),
fifty-two weeks ended January 2, 1996, fifty-three
weeks ended January 3, 1995 and fifty-one
and one-half weeks ended December 28, 1993 F-7
Notes to Consolidated Financial Statements
Fifty-two weeks ended January 2, 1996, fifty-three weeks
ended January 3, 1995, and fifty-one and one half
weeks ended December 28, 1993 F-8
INDEPENDENT AUDITORS' REPORT
To the Partners of
Cafeteria Operators, L.P.
Lubbock, Texas
We have audited the accompanying consolidated balance sheets of Cafeteria
Operators, L.P. (a Delaware limited partnership indirectly owned by
Furr's/Bishop's, Incorporated) and subsidiaries (collectively, the
Partnership) as of January 2, 1996 and January 3, 1995, and the related
consolidated statements of operations, changes in partners' capital
(deficit) and cash flows for the 52-week year ended January 2, 1996, the
53-week year ended January 3, 1995 and the 51-1/2-week year ended December
28, 1993. These financial statements are the responsibility of the
Partnership'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 consolidated financial position of Cafeteria Operators, L.P.
and subsidiaries as of January 2, 1996 and January 3, 1995 and the
consolidated results of their operations and their cash flows for the 52-
week year ended January 2, 1996, the 53-week year ended January 3, 1995 and
the 51-1/2-week year ended December 28, 1993, in conformity with generally
accepted accounting principles.
In our report dated March 2, 1995, we included an explanatory paragraph
which identified factors which raised substantial doubt about the
Partnership's ability to continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the shareholders of
Furr's/Bishop's, Incorporated approved a financial restructuring which
significantly reduced the Partnership's large debt burden and resulting
interest expense. Accordingly, our present opinion on the January 3, 1995
and December 28, 1993 consolidated financial statements, as expressed
herein, is different from that expressed in our previous report.
As discussed in Notes 1 and 10 to the consolidated financial statements
effective January 2, 1996, the Partnership changed its method of accounting
for impairment of long-lived assets and for long-lived assets to be
disposed of to conform to Statement of Financial Accounting Standards No.
121.
Deloitte & Touche LLP
March 28, 1996
Dallas, Texas
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership Indirectly Owned by Furr's/Bishop's,
Incorporated)
CONSOLIDATED BALANCE SHEETS
APRIL 2, 1996 (UNAUDITED), JANUARY 2, 1996 AND JANUARY 3, 1995
(Dollars in Thousands)
April 2, January 2, January 3,
ASSETS 1996 1996 1995
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents
($800 restricted in both
years) $2,026 $964 $ 1,475
Accounts and notes receivable
(net of allowance for
doubtful accounts of $27
and $64, respectively) 603 745 912
Inventories 5,641 5,831 6,478
Prepaid expenses and other 1,553 1,355 3,475
Total current assets 9,823 8,895 12,340
PROPERTY, PLANT AND EQUIPMENT:
Land 10,424 10,424 10,424
Buildings 40,771 40,623 44,886
Leasehold improvements 21,062 21,139 20,228
Equipment 45,653 45,762 45,212
Construction in progress 1,353 442 282
119,263 118,390 121,032
Less accumulated depre-
ciation and amortization (53,732) (52,263) (40,099)
Total property, plant
and equipment 65,531 66,127 80,933
RECEIVABLE FROM AFFILIATE, NET 10,671 10,503 9,972
OTHER ASSETS 493 541 185
TOTAL ASSETS $86,518 $86,066 $103,430
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership Indirectly Owned by Furr's/Bishop's,
Incorporated)
CONSOLIDATED BALANCE SHEETS
APRIL 2, 1996 (UNAUDITED), JANUARY 2, 1996 AND JANUARY 3, 1995
(Dollars in Thousands)
April 2, January 2, January 3,
LIABILITIES AND PARTNER'S 1996 1996 1995
CAPITAL (DEFICIT) (Unaudited)
CURRENT LIABILITES:
Trade accounts payable $ 5,100 $ 5,074 $ 6,221
Other payables and
accrued expenses 17,666 18,13 414,890
Accrued interest subject
to restructuring -- -- 33,903
Reserve for store closings
- current portion 2,187 2,21 21,762
Current maturities of
long-term debt 5,493 3,798 54
Long-term debt classified
as current 192,854
Total current liabiliities 30,446 29,218 249,684
RESERVE FOR STORE CLOSINGS 3,217 3,443 1,531
LONG-TERM DEBT 71,894 74,610 13
OTHER PAYABLES, INCLUDING
ACCRUED PENSION COST 9,845 9,611 7,361
EXCESS OF FUTURE LEASE PAYMENTS
OVER FAIR VALUE, NET OF
AMORTIZATION 3,978 4,130 4,961
PARTNERS' CAPITAL (DEFICIT) (32,862) (34,946) (160,120)
TOTAL LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT) $ 86,518 $ 86,066 $ 103,430
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership Indirectly Owned by
Furr's/Bishop's, Incorporated)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Unaudited Unaudited Fifty-One and
Thirteen Thirteen Fifty-Two Fifty-Three One-Half
Weeks Ended Weeks Ended Weeks Ended Weeks Ended Weeks Ended
April 2, April 4, January 2, January 3, December 28,
1996 1995 1996 1996 1996
REVENUES
Sales $ 48,817 $ 52,754 $ 210,093 $ 225,186 $ 253,700
EXPENSES:
Cost of
sales
(excluding
depreciation) 15,166 16,847 67,763 70,188 75,790
Selling,
general and
administra-
tive 29,154 31,870 127,000 137,604 158,190
Depreciation
and
amortization 2,349 3,340 14,002 11,320 13,926
Special
charges -- -- 12,273 2,214 11,867
Goodwill
charge -- -- -- -- 135,208
46,669 52,057 221,038 221,326 394,981
Operating
income (loss) 2,148 697 (10,945) 3,860 (141,281)
Interest 64 6,380 26,209 23,570 22,105
Income (Loss)
before
extraordinary
item 2,084 (5,683) (37,154) (19,710) (163,386)
Extraordinary
item: net gain
on financial
restructuring -- -- 157,619 -- --
NET INCOME
(LOSS) $2,084 $(5,683) $ 120,465 $(19,710) $(163,386)
See notes to consolidated financial statements.
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership Indirectly Owned by
Furr's/Bishop's, Incorporated)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FISCAL YEARS ENDED DECEMBER 28, 1993, JANUARY 3, 1995 AND JANUARY
2, 1996 AND THIRTEEN WEEKS ENDED APRIL 2, 1996 (UNAUDITED)
(Dollars in Thousands)
Total
Partners'
General Limited Capital
Partner Partners (Deficit)
BALANCE, JANUARY 2, 1993 $ (7,585) $ 29,662 $22,077
Net loss from operations (137,155) (26,231) (163,386)
Pension liability adjustment 35) (3,431) (3,466)
BALANCE, DECEMBER 28, 1993 (144,775) - (144,775)
Net loss from operations (15,388) (4,322) (19,710)
Pension liability adjustment 43 4,322 4,365
BALANCE, JANUARY 3, 1995 (160,120) - (160,120)
Net income 115,452 5,013 120,465
Capital contribution - 9,742 9,742
Distributions declared - (3,041) (3,041)
Pension liability adjustment (20) (1,972) (1,992)
BALANCE, JANUARY 2, 1996 (44,688) 9,742 (34,946)
Net income 2,084 - 2,084
BALANCE, APRIL 2, 1996 $(42,604) $9,742 $(32,862)
(Unaudited)
See notes to consolidated financial statements.
CAFETERIA OPERATORS, L. P. AND SUBSIDIARIES
(A Delaware Limited Partnership Indirectly Owned by Furr's/Bishop's,
Incorporated)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fifty-Two Fifty-Three Fifty-One
(Unaudited) Weeks Ended Weeks Ended and One-Half
Thirteen Weeks Ended January 2, January 3, Weeks Ended
April 2, 1996 April 4, 1995 1996 1995 December 28,1993
------------- ------------- ------------ ------------- ----------------
CASH FLOWS FROM (USED IN) OPERAT- ING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 2,084 (5,683) $ 120,465 $ (19,710) $(163,386)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,349 3,340 14,002 11,320 13,926
Goodwill charge 135,208
(Gain) loss on sale of property, plant and (28) 50 203 111 (906)
equipment and other assets
Provision for (reversal of) closed store 92 (247) (339) (645) 286
reserves
Special charges 12,273 2,214 11,867
Stock options issued by parent as
compensation 125
Deferred charges 203 65 499 853 284
Extraordinary credit (157,619)
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes 142 2 167 943 (693)
receivable
Decrease in restricted cash 1,200
Decrease in inventories 190 (321) 647 1,512 149
(Increase) decrease in prepaid expenses (197) (798) (3,501) (3,126) 342
and other
Increase (decrease) in trade accounts 26 1,752 (1,147) (4,572) 4,820
payable
Increase in other payables and accrued (469) 5,056 24,821 18,899 10,375
expenses
Decrease in other payables, including
accrued pension cost 50 50 (547) (826) 0
--------- --------- --------- --------- ---------
Net cash from operating activities 4,442 3,266 9,924 6,973 13,597
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures (1,928) (2,136) (8,019) (5,695) (15,749)
Expenditures charged to reserve for (342) (467) (1,794) (2,330) (2,014)
store closings
Proceeds from the sale of property, plant and 59 4 41 700 619
equipment and other assets
Other, net (8) (1) (34) (40)
--------- --------- --------- --------- ---------
Net cash used in investing activities (2,151) (2,607) (9,773) (7,359) (17,184)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Repayment of borrowings (1,021) (13) (53) (49) (44)
Paid to affiliates (169) (239) (530) (761) (1,070)
Other, Net (37) (49) (79) (220) 168
--------- --------- --------- --------- ---------
Net cash used in financing activities (1,227) (301) (662) (1,030) (946)
--------- --------- --------- --------- ---------
INCREASE (DECREASE) IN UNRESTRICTED
CASH AND CASH EQUIVALENTS 1,062 358 (511) (1,416) (4,533)
UNRESTRICTED CASH AND CASH EQUI-
VALENTS AT BEGINNING OF PERIOD 164 675 675 2,091 6,624
--------- --------- --------- --------- ---------
UNRESTRICTED CASH AND CASH
EQUIVALENTS AT END OF PERIOD $ 1,226 $ 1,033 $ 164 $ 675 $ 2,091
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid excluding SFAS 15 interest $ 7 $ 9 $ 36 $ 242 $ 10,553
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pension liability adjustment 0 0 $ 1,992 $ (4,365) $ 3,466
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred asset associated with the 0 0 0 0 $ 425
stock warrant issued by parent --------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
(A Delaware Limited Partnership Indirectly Owned by
Furr's/Bishop's, Incorporated)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 2, 1996 AND JANUARY 3, 1995
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Cafeteria Operators, L.P. (the
"Partnership"), a Delaware limited partnership, is indirectly
owned by Furr's/Bishop's, Incorporated (the "Company") and
operates cafeterias and specialty restaurants. COLP Sales, L. P.
and Furr's/Bishop's Specialty Group, L. P. are wholly owned
subsidiaries of the Partnership. The financial statements
presented herein are the consolidated financial statements of
Cafeteria Operators, L.P. and its subsidiaries and all material
intercompany transactions and account balances have been
eliminated in consolidation.
The financial statements at January 2, 1996 reflect the results
of a series of transactions relating to the financial
restructuring of the Company, as described in Note 2.
The activities of the Partnership are governed by the terms of
the partnership agreement, as amended (the "Partnership
Agreement"). Prior to the financial restructuring described in
Note 2, the Company owned the 1% general partner interest in the
Partnership and indirectly owned the 99% limited partner interest
through its wholly owned subsidiary Furr's/Bishop's Cafeterias,
L.P. (the "Holding Partnership"). As a result of a series of
transactions relating to the financial restructuring, 95% of the
limited partner interest was transferred to the Company. The
Company, as the general partner, has exclusive and complete
discretion in managing the business and operations of the
Partnership, as provided in the Partnership Agreement.
Fiscal Year - The Partnership operates on a 52- or 53-week fiscal
year ending on the Tuesday nearest December 31. The fiscal years
ended January 2, 1996 and January 3, 1995 represent a 52-week
year and a 53-week year, respectively. As of December 28, 1993,
the year end was changed from the Saturday nearest December 31 to
the Tuesday nearest December 31. As a result, the fiscal year
ended December 28, 1993 contains 51 weeks plus three days.
Business Segments - The Partnership operates in a single business
segment, namely the operation of cafeterias and restaurants which
includes retailing, food processing, warehousing and distribution
of food products, and real estate in thirteen states in the
Southwest, West and Midwest areas of the United States.
Cash and Cash Equivalents - The Partnership has a cash management
program which provides for the investment of excess cash balances
in short-term investments. These investments have original or
remaining maturities of three months or less at date of
acquisition, are highly liquid and are considered to be cash
equivalents for purposes of the consolidated balance sheets and
consolidated statements of cash flows.
Interim Unaudited Financial Statements - The interim unaudited
financial statements have been prepared pursuant to the rules and
regulations of the Commission. In management's opinion, all
adjustments and eliminations, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial
statements, have been made. The results of operations for such
interim period are not necessarily indicative of the results of
operations for the full year.
Inventories - Inventories are stated at the lower of cost (first-
in, first-out method) or market.
Prepaid Expenses and Other - Direct costs comprising legal and
consulting fees of $2,144 relating to the proposed restructuring
discussed in Note 2 were capitalized as of January 3, 1995 and as
of January 2, 1996 were charged off as a part of the
extraordinary item. As of January 2, 1996 and January 3, 1995,
this account balance included prepaid rent of $748 and $762,
respectively, along with other assets recorded in the ordinary
course of business.
Property, Plant and Equipment - Property, plant and equipment is
generally recorded at cost, while certain assets considered to be
impaired are recorded at the estimated fair value. All property,
plant and equipment is depreciated at annual rates based upon the
estimated useful lives of the assets using the straight-line
method. Restaurant equipment is generally depreciated over a
period of 1 to 5 years, while the useful life of manufacturing
equipment is considered to be 5 to 10 years. Buildings are
depreciated over a 30 year useful life, while repairs and
improvements to owned buildings have estimated useful lives of 3
to 5 years. Provisions for amortization of leasehold
improvements are made at annual rates based upon the estimated
useful lives of the assets or terms of the leases, whichever is
shorter.
Excess of Cost Over Fair Value of Net Assets Acquired - The
excess of cost over the fair value of net assets acquired was
being amortized using the straight-line method over 40 years
(approximately 36 years as to goodwill resulting from the merger
in March 1991). Effective December 28, 1993, the remaining
balance of goodwill was written off (see Note 13).
Valuation of Long-Lived Assets - Effective January 2, 1996, the
Partnership adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121") and recorded a special charge of $7,772 to recognize
the write-down of certain assets in property, plant and equipment
to estimated fair value, based on expected future cash flows.
SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Start-Up and Closing Costs of Restaurants - Start-up and
preopening costs incurred in connection with a new restaurant
becoming operational are charged to expense over the fiscal year
in which the restaurant is opened.
When the decision to close a restaurant is made, the present
value of all fixed and determinable costs are accrued. These
fixed and determinable costs primarily consist of obligations
defined in lease agreements such as rent and common area
maintenance, reduced by sublease income, if any. If a decision
is made to keep or reopen such restaurants, the remaining costs
are reversed.
Unfavorable Leases - For leases acquired through purchase, the
net excess of future lease rental payments over the fair value of
these payments is being amortized over the lives of the leases to
which the differences relate.
Income Taxes - For state and federal income tax purposes, the
Partnership is not a tax-paying entity. As a result, the taxable
income or loss, which may vary substantially from income or loss
reported for financial reporting purposes, should be included in
the state and federal tax returns of the individual partners.
Accordingly, no provision for income taxes is reflected in the
accompanying financial statements.
Allocation of Results of Operations - Each item of income, gain,
loss and deduction is allocated in accordance with the
Partnership Agreement.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts of certain assets, liabilities, revenues and expenses as
of and for the reporting periods and actual results may differ
from such estimates.
Reclassification - Certain amounts in the prior year financial
statements have been reclassified to conform with current year
classification.
2. RESTRUCTURING
On January 25, 1995, the Company announced that it had entered
into an Agreement in Principle dated as of January 24, 1995 (the
"Agreement in Principle") among the Company, its subsidiaries,
the holders of the 11% Senior Secured Notes of the Partnership
(as defined in Note 4), the holder of the 9% Note of Cavalcade
Foods, Inc., ("Foods"), the Trustees of General Electric Pension
Trust ("GEPT"), and Kmart Corporation ("Kmart").
The Agreement in Principle sets forth the principal terms and
conditions relating to the proposed restructuring of the Company.
It provided for (i) the exchange of an aggregate of approximately
$249,344 of debt of the Partnership for the issuance of $40,000
principal amount of new senior secured notes of the Partnership
due 2001 pursuant to a new indenture and 95% of the limited
partner interest of the Partnership, (ii) the exchange of
warrants to purchase an aggregate of approximately 21.5% of the
Company's common stock for options to acquire an aggregate of 95%
of a new class of common stock of the Company ("Common Stock")
and new five year warrants to purchase an aggregate of 1% of the
fully diluted Common Stock, (iii) the exchange of $6,117 of other
obligations of the Partnership for the issuance of $1,700
principal amount of new senior secured notes of the Partnership
due 2001 pursuant to a new indenture, (iv) the exchange of
$11,737 of debt of Foods, an indirect subsidiary of the Company,
for options to acquire 2.5% of the Common Stock and an interest
in certain land owned by a subsidiary of the Company and (v) the
exchange of the Company's outstanding shares of Class A Common,
Class B Common and Convertible Preferred Stock for an aggregate
of 2.5% of the Common Stock and five year warrants to purchase an
aggregate of 4% of the fully diluted Common Stock (together, the
"Restructuring"). The Restructuring became effective upon
approval of the stockholders of the Company at a meeting held
January 2, 1996.
The Restructuring has been accounted for in accordance with
Statement of Financial Accounting Standard No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings" ("SFAS
15"), under which the transactions include both a partial
settlement and modification of terms. The fair value of the 95%
limited partner interest issued by the Partnership as partial
settlement of indebtedness in connection with the Restructuring
was estimated based upon discounted cash flows anticipated from
the reorganized business. The remaining indebtedness was
recorded at the sum of all future principal and interest payments
and there will be no recognition of interest expense in future
periods. The amounts of indebtedness subject to modification
less than the amount recorded in accordance with SFAS 15 was
recorded as an extraordinary gain of $157,619, net of all
expenses associated with the Restructuring. The extraordinary
item is made up of the following:
Long-term debt reclassified as current $ 192,854
Accrued interest subject to restructuring 60,118
Partnership distribution 3,041
Long-term debt, issued for payment of
interest (3,627)
Capital contribution (9,742)
Expenses related to series of financial
transactions (10,415)
Long-term debt, including accrued interest (74,610)
On October 4, 1993, an arbitration panel granted a $5,408 award
against the Holding Partnership in favor of GEPT. The
arbitration award related to the March 1991 merger of the Holding
Partnership into the Company pursuant to which GEPT had sought an
appraisal of the value of the subordinated partnership units of
the Holding Partnership. On February 6, 1994, the Delaware Court
of Chancery confirmed and entered judgment on the arbitrators'
award in the aggregate amount of $5,408 together with post-
judgment interest at the legal rate from the date of the Court's
Order. The Partnership issued 12% Notes in the amount of $1,700
as a distribution to the Holding Partnership. The liability for
the notes was recorded as $3,041, including interest accrued
through maturity of the notes in accordance with SFAS 15. The
Holding Partnership transferred the 12% Notes to GEPT in full
satisfaction of the outstanding judgement including all accrued
interest thereon.
3. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued expenses consist of the following:
January 2, January 3,
1996 1995
Salaries, wages and commissions $ 3,441 $ 3,983
Rent 1,072 1,121
Taxes other than income taxes 3,892 4,603
Restructuring expenses 4,795
Insurance 2,152 2,000
Gift certificates outstanding 1,045 1,218
Utilities 728 617
Other payables and accrued expenses 1,009 1,348
$ 18,134 $ 14,890
4. NOTES PAYABLE AND LONG-TERM DEBT
In 1992, the Partnership consummated a restructuring with all of
the holders of the then outstanding indebtedness and issued
$187,422 of 11% Senior Secured Notes, due June 30, 1998 (the "11%
Notes"), to replace its entire indebtedness, including all
interest accrued thereon. Additional 11% Notes were issued in
June 1992 for the $5,432 interest payment then due. The 11%
Notes were amended at various times in 1993 and 1994 to modify or
waive covenants that were not being met, including to allow the
Partnership to receive a going concern opinion, and to defer the
due date of interest payments. The last payment of interest by
the Partnership on the 11% Notes was June 30, 1993 and at January
2, 1996, before the series of financial restructuring
transactions, a total of $56,493 of interest was accrued and
outstanding, and the Partnership was in default on the 11% Notes
since October 1994 due to, among other things, missed payments of
interest.
Effective January 2, 1996, as part of a series of financial
restructuring transactions, the Partnership issued $41,700 of 12%
Senior Secured Notes, due December 31, 2001 (the "12% Notes"), to
replace $40,000 of 11% Notes and the interest accrued thereon and
to terminate a $5,408 judgement and the interest accrued thereon.
In January 1996, the Partnership also issued $3,781 of 12% Notes
as payment in kind for all interest accrued as of January 2,
1996. Substantially all of the assets of the Partnership are
pledged as collateral security on behalf of the holders of the
12% Notes. The Partnership also issued limited partner interests
equal to 95% of the outstanding partnership interests in exchange
for and in full satisfaction of the remaining $152,854 of 11%
Notes, together with all interest accrued thereon. Subsequent to
year end, the holder of such partnership interests put such
interests to the Company in exchange for common stock of the
Company.
Payments of interest on the 12% Notes will be due each March 31
and September 30. While payments of interest will be due during
the life of the 12% Notes, there will not be any interest expense
recorded under SFAS 15, as all of the interest through maturity
has been recorded as a liability.
The Partnership has other mortgages outstanding on certain real
estate properties totaling $14 due in 1996.
Long-term debt consists of the following:
Stated
Maturity January 2, January 3,
Date 1996 1995
12% Notes, including
$32,913 interest
accrued through
maturity 2001 $ 78,394 -
11% Notes 1998 - $ 192,854
Real estate mortgages 1996 14 67
78,408 192,921
Interest classified as
current maturities of
long-term debt (3,784) -
Current maturities of
long-term debt (14) (54)
Long-term debt classified
as current - (192,854)
Long-term debt $ 74,610 $ 13
At January 2, 1996, the scheduled aggregate amount of all
maturities of long-term debt and interest classified as long-term
debt for the next five years is as follows:
1996 $ 3,798
1997 5,493
1998 5,493
1999 5,493
2000 5,493
Thereafter 52,638
$ 78,408
5. PARTNERS' CAPITAL
On January 2, 1996, the Partnership issued an aggregate 95%
limited partner interest to the holders of the 11% Notes in
exchange for reductions of debt and interest thereon, as
described in Note 2. Subsequent to year end, the holders of the
95% limited partner interest exercised their option to put the
limited partner interest to the Company in exchange for common
stock of the Company. As a result of a series of financial
restructuring transactions, the Company owns a 1% general partner
interest and 95% limited partner interest and indirectly owns the
remaining 4% limited partner interest through the Holding
Partnership.
The Partnership made a distribution to the Holding Partnership in
fiscal 1996 by issuing 12% Notes in the amount of $1,700. The
liability for the notes was recorded as $3,041, including
interest accrued through maturity of the notes in accordance with
SFAS 15.
Each item of income, gain, loss and deduction is allocated in
accordance with the Partnership Agreement based on the partners'
respective percentage interest. The allocation of losses and
deductions, including those of subsidiary partnerships, are
limited to the respective partners' basis.
6. INCOME TAXES
The Partnership is currently a nontaxable entity.
The Internal Revenue Service ("IRS") has examined the federal
income tax returns of certain of the Company's subsidiaries and
of their former majority stockholder, Mr. Michael J. Levenson,
for years prior to 1990. The IRS has asserted claims of
approximately $5,500, plus interest, against certain of the
Company's subsidiaries and/or the shareholder's tax liability.
Certain of the Company's subsidiary corporations may have
obligations for federal, state, local or other taxes incurred or
assessed against persons or entities as a result of being, or
being treated by any taxing authority as, a direct or indirect
shareholder of the subsidiary corporations, under certain
circumstances. The Company intends to vigorously contest the IRS
assessment and believes that the outcome of these audits will not
have a material adverse effect on its equity, results of
operations, and liquidity and capital resources after
consideration of the applicable amounts previously accrued.
7. EMPLOYEE BENEFIT PLANS
The Partnership has a noncontributory defined benefit pension
plan for which benefit accruals were frozen effective June 30,
1989. The funding policy is to make the minimum annual
contribution required by applicable regulations. The
Partnership, the sponsor of the plan, agreed to provide for
funding by the 1998 plan year, of at least two-thirds of the
$4,569 of the unfunded current liability which existed at the
beginning of the 1993 plan year. If the agreed upon funding is
not satisfied by the minimum required annual contributions, as
adjusted for the deficit reduction contribution, determined under
Section 412 of the Internal Revenue Code, the Partnership will
make contributions in excess of the minimum annual requirement.
Pension expense was $592, $785 and $1,013 for the years ended
January 2, 1996, January 3, 1995 and December 28, 1993,
respectively.
Beginning January 1, 1989, the Partnership was required to
recognize the additional minimum liability aspects of Statement
of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions" ("SFAS 87"). SFAS 87 requires the recognition of
an additional pension liability in the amount of the
Partnership's unfunded accumulated benefit obligation in excess
of accrued pension cost with an equal amount to be recognized as
either an intangible asset or a reduction of equity. Based upon
plan actuarial and asset information as of December 28, 1993,
January 3, 1995 and January 2, 1996, the Partnership recorded an
increase at December 28, 1993, a decrease at January 3, 1995 and
an increase at January 2, 1996 to the noncurrent pension
liability and a corresponding decrease or increase to partners'
capital of approximately $3,466, $4,365 and $1,992 because the
unfunded accumulated benefit obligation increased or decreased,
respectively.
The funded status of the plan amounts recognized in the balance
sheets and major assumptions used to determine these amounts are
as follows.
Years Ended
January 2, January 3, December 28,
1996 1995 1993
Components of pension expense:
Interest cost $ 966 $ 972 $ 1,171
Actual return on plan assets (1,475) (74) (306)
Net amortization and deferral 1,101 (113) 148
Service cost
Net pension expense $ 592 $ 785 $ 1,013
Actuarial present value of
projected benefit obligations:
Vested $(14,211) $11,492)
Plan assets at fair value
(primarily money market
cash investments, corporate
equities and corporate bonds) 10,349 9,117
Projected benefit obligation in
excess of plan assets (3,862) (2,375)
Net loss 5,283 3,291
Additional liability for unfunded
accumulated benefit obligation (5,283) (3,291)
Accrued pension cost $(3,862) $(2,375)
Major assumptions at beginning
of year:
Discount rate 7.00% 8.50%
Expected long-term rate of
return on plan assets 9.00% 9.00%
Effective January 2, 1996, for purposes of calculating benefit
obligations, the assumed discount rate was changed from 8.50% to
7.00% to reflect the current financial market for high-quality
debt instruments. There have been no other changes in the plan's
major actuarial assumptions for the three years ended January 2,
1996.
The Partnership also has a voluntary savings plan (401(k) plan)
covering all eligible employees of the Partnership and affiliates
through which it contributes discretionary amounts as approved by
the Board of Directors of the general partner. Administrative
expenses paid by the Partnership for the years ended January 2,
1996, January 3, 1995 and December 28, 1993 amounted to $2, $24
and $24, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Partnership leases restaurant properties under various
noncancelable operating lease agreements which expire between
1996 and 2015 and require various minimum annual rentals.
Certain leases contain escalation clauses. Further, many leases
have renewal options ranging from one five-year period to ten
five-year periods.
Certain of the leases also require the payment of property taxes,
maintenance charges, advertising charges, insurance and parking
lot charges, and additional rentals based on percentages of sales
in excess of specified amounts.
On November 15, 1993, the Partnership entered into an amendment
of a master sublease agreement pursuant to which it leased 43
properties from Kmart. Pursuant to the amendment and subject to
the terms and conditions thereof, two properties were removed
from the master sublease, and the aggregate monthly rent for the
period August 1, 1993 through and including December 31, 1996 has
been reduced by 25% and the aggregate monthly rent for period
January 1, 1997 through and including December 31, 1999 has been
reduced by 20%. The reductions in rent are subject to
termination by Kmart if Kevin E. Lewis ceases to be Chairman of
the Board of Directors of the Company. In consideration, the
Company had granted Kmart warrants to purchase 1.7 million shares
of Class A Common Stock of the Company on or prior to September
1, 2003, at $.75 per share. As a part of the Restructuring,
effective January 2, 1996, these warrants were terminated and
replaced with warrants to purchase 8,108,159 shares of Common
Stock on or before January 2, 2001, at $0.074 per share, and
following the reverse stock split, Kmart retained warrants to
purchase 540,544 shares at $1.11 per share.
The total minimum annual rental commitment and future minimum
sublease rental income under noncancelable operating leases are
as follows as of January 2, 1996:
MINIMUM SUBLEASE
YEAR RENT INCOME
1996 $ 10,099 $ 461
1997 9,623 530
1998 8,930 510
1999 8,393 510
2000 8,972 420
For the remaining terms of the leases 50,742 1,059
Total rental expense included in the statements of operations is
$11,929, $12,408 and $13,510, which includes $1,187, $1,095 and
$1,526 of additional rent based on net sales for the years ended
January 2, 1996, January 3, 1995 and December 28, 1993,
respectively.
The results of operations include sublease rent income of $717,
$312 and $178 for the years ended January 2, 1996, January 3,
1995 and December 28, 1993, respectively.
The Partnership has letters of credit outstanding at January 2,
1996 and January 3, 1995, amounting to approximately $1,000 each
year, which are required under its insurance program. A
restricted cash deposit balance of $800 at January 2, 1996 and
January 3, 1995 serves as collateral for these letters of credit.
The Partnership, in the ordinary course of business, is a party
to various legal actions. In the opinion of management, these
actions ultimately will be disposed of in a manner which will not
have a material adverse effect upon the Partnership's capital,
results of operations, and liquidity and capital resources after
consideration of the applicable amounts previously accrued.
On August 11, 1995, a complaint was filed in the District Court
of Travis County, Texas by former chairman of the board of the
Company, Michael J. Levenson, both individually and on behalf of
his minor son Jonathan Jacob Levenson, James Rich Levenson,
Benjamin Aaron Levenson, S.D. Levenson, General Consulting Group,
Inc. and Cerros Morado. The complaint named as defendants the
Company, the Holding Partnership, the Partnership, Cavalcade &
Co., individual members of the Board of Directors, Houlihan,
Lokey, Howard & Zukin, Inc., KL Park, KL Group, Skadden, Arps,
Slate, Meagher & Flom, certain of the then current and former 11%
Noteholders, Deloitte & Touche LLP, Kmart and certain partners
and employees of the foregoing.
The complaint alleged, among other things, that the Company and
certain defendants conspired to wrest control of the Company away
from the Levensons by fraudulently inducing them to transfer
their working control of the Company through a series of
transactions in which the Levensons transferred Class B Common
Stock and stock options in the Company to KL Park and KL Group.
Plaintiffs sought actual damages of approximately $16,425, as
well as punitive damages.
On October 6, 1995, the Levensons filed a Notice of Non-Suit as
to certain of the defendants, including the Company, the
Partnership, the Holding Partnership, Cavalcade & Co. and
specific individual members of the Board of Directors (other than
William E. Prather and Kevin E. Lewis) and amended their
complaint. As a result of such Notice of Non-Suit, the named
entities and individuals are no longer defendants in the Levenson
litigation.
The Company is required to indemnify certain of the defendants
originally named in the Levensons' complaint, including the
individual members of the Board of Directors and certain of their
affiliated entities pursuant to the Company's Certificate of
Incorporation and otherwise, for any and all damages that may
result from such complaint. As part of the Restructuring, the
Company also agreed to indemnify certain parties named as
defendants in the Levensons' complaint, including the holders of
the 11% Notes, KL Group, KL Park and Kmart, from and against all
claims, actions, suits and other legal proceedings, damages,
costs, interest, charges, counsel fees and other expenses and
penalties which such entity may sustain or incur to any person
whatsoever (excluding judgments in the case of KL Group and KL
Park) by reason of or arising out of the Levenson litigation.
Under no circumstances will the Company be obligated to indemnify
any party for any liability resulting from such party's willful
misconduct or bad faith.
9. RELATED PARTY TRANSACTIONS
The Partnership had receivables of $28 and $72 at January 2, 1996
and January 3, 1995, respectively, from the general partner.
The receivable from affiliates consists primarily of obligations
from the Holding Partnership, the Company and Cavalcade
Development, L.P. and includes accounts receivable transferred to
the Partnership and receivables for the funding of operating
expenses of these entities, as these affiliates have limited
income sources.
In June, 1993, Michael J. Levenson resigned from his position of
Chairman of the Board and was terminated without cause as an
employee of the Company. The Company and certain of its
affiliates entered into an agreement with Mr. Levenson which
provided for quarterly payments of his severance and provision of
certain benefits to Mr. Levenson for a period of twenty-six
months versus the forty-five months he would have otherwise
received under his existing employment agreement. In September,
1993, this agreement was amended to substantially reduce the
severance compensation claims of Mr. Levenson to a period of
twelve months. During 1993, the Company paid $496 to Mr.
Levenson pursuant to the severance agreement. Mr. Levenson
released the Company from any future compensation obligations on
the consulting agreement with his affiliate and the funding
obligations on the Split-Dollar Life Insurance policy beyond
December 2, 1993. Mr. Levenson retained the right to acquire the
Company's receivable with respect to such policy from the Company
at its discounted present value. The option to purchase the
policy receivable expires on December 15, 1997. As a result of
these activities, the receivable was fully reserved by the
Company in the fourth quarter of 1993.
On September 28, 1994, the Partnership and M & B Restaurants, L.
C. ("M&B") entered into a Lease and Sublease Agreement (the
"Lease") and a Trademark License and Development Agreement (the
"License"). Under the terms of the Lease, the Partnership leases
two El Paso Bar-B-Que facilities to M&B, a company controlled by
William Prather, former CEO of the Company, for an initial term
ending December 31, 2003. Pursuant to the License, M&B agreed to
pay opening fees and royalties on 31 units required to be opened
by December 31, 2003 and to acquire the trademarks and other
intangibles used by The El Paso Bar-B-Que Company by December 31,
2003, but not earlier than December 31, 1997, for a cash payment
of seven times the prior four quarterly payments under the
License. The Partnership received $16 relating to the lease
during 1995. On November 10, 1995, Amendment One to Trademark
License and Development Agreement (the "Amendment") was executed
to modify to 25 the number of new units required to be opened by
December 31, 2003 and on which M&B agreed to pay opening fees and
royalties. The Amendment also modified the earliest buyout date
to December 31, 1999.
10. SPECIAL CHARGES
The loss from operations for the fifty-two week period ended
January 2, 1996 includes special charges of $12,273, which
includes $4,501 related to the reserve for store closings. Also
included in the special charges is $7,772 to recognize the write-
down of certain assets in property, plant and equipment to
estimated fair values in accordance with the adoption of SFAS
121.
Special charges for the fifty-three week period ended January 3,
1995 includes charges to reserves of $2,656 for the estimated
costs of closing five cafeteria locations and one specialty
restaurant, including approximately $1,164 for the write-down of
certain assets in property, plant and equipment to estimated fair
value. Also included is a credit of $442 related to the
settlement of a lawsuit by the Internal Revenue Service.
The loss from operations for the fifty-one and one-half week
period ended December 28, 1993 includes special charges of
$11,867. These include charges of $8,729 reflecting management's
intention to close thirteen restaurants, including the write-down
of certain assets in property, plant and equipment to estimated
fair value, and to adjust the units previously reserved for
closing; a special credit of $1,937 for the reversal of
liabilities accrued relative to two cafeterias which were
previously closed and for which the lease agreements were
terminated; $1,209 for the estimated costs of closing one
specialty unit (closed May 1993) and two nonrestaurant units
(closed in January and February 1994), and charges of $515 for
severance amounts payable to the former Chairman of the Board per
the terms of an agreement dated June 24, 1993, and amended
September 30, 1993 (see Note 9). Also included are special
charges of $1,464 for the Company's operating and financial
restructuring, $761 for writing down the values of certain
operating assets, $741 of estimated costs related to certain
lawsuits, including an action filed in U.S. District Court for
the Northern District of Lubbock by the Internal Revenue Service
against Cafeteria Operators, et al. as alleged successors by
merger to Bishop Buffets, Inc., alleging the Internal Revenue
Service issued an erroneous refund to Bishop Buffets, Inc. on
December 6, 1988, and $385 for writing down the values of certain
non-operating assets.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" ("SFAS 107"). The
estimated fair value amounts have been determined by the
Partnership using available market information and appropriate
valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the
Partnership could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair value amounts.
At January 2, 1996, the carrying amount and the fair value of the
Partnership's financial instruments, as determined under
SFAS 107, were as follows:
CARRYING ESTIMATED
AMOUNT FAIR VALUE
Long-term debt, including current
portion and interest accrued
through maturity $ 78,408 $45,495
The Partnership's long-term debt is not publicly traded, and as a
result, market quotes are not readily available. The fair value
of the long-term debt at January 2, 1996 is based upon the face
amount of the debt resulting from the Restructuring described in
Note 2 as management believes that this is most indicative of the
fair value. The carrying amount of the debt at January 3, 1995
was $192,921. The debt instruments were held by a limited number
of holders, were not publicly traded and, due to the pending
Restructuring, an estimated fair value was not practicable to
determine.
12. CONDENSED PRO FORMA INFORMATION (UNAUDITED)
The financial restructuring transactions have been accounted for
in accordance with SFAS 15 and accordingly, the indebtedness was
recorded at the sum of all future principal and interest payments
and there will be no recognition of interest expense in future
periods. Following is condensed pro forma information for the
fiscal year ended January 2, 1996, reflecting the elimination of
$25,973 interest expense related to such indebtedness.
Revenues $210,093
Cost of Sales 67,763
Selling, general and
administrative 127,000
Depreciation and amortization 14,002
Selling Charges 12,273
Operating Loss (10,945)
Interest Expense 236
Net Loss (11,181)
13. GOODWILL
After a careful analysis of the Company's financial condition as
part of management's periodic review of the carrying amount of
goodwill, the Company determined at the end of fiscal 1993, based
upon historical operating trends, and without anticipating the
effects of any potential restructuring of its debts and other
obligations, that its projected results would not support the
future amortization of the Company's goodwill balance of
$135,479, including the Operating Partnership's goodwill balance
of $135,208. Accordingly, the Company wrote off its goodwill
balance, including the goodwill balance of the Operating
Partnership, in the fourth quarter of 1993.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Thirteen weeks ended
April 4, 1995 July 4, 1995 Oct. 3, 1995 Jan. 2, 1996
Years ended
January 2, 1996:
Sales $ 52,754 $54,216 $53,944 $49,179
Gross profit(1) 35,711 36,282 36,528 33,100
Loss before
extraordinary
item (2) (5,683) (5,851) (6,539) (19,081)
Net income
(loss) (2)(3) (5,683) (5,851) (6,539) 138,538
Fourteen
Thirteen weeks ended weeks ended
Mar. 29, 1994 June 28, 1994 Sept. 27, 1994 Jan. 3, 1995
Years ended
January 3,
1995:
Sales $ 54,209 $ 56,046 $ 56,526 $ 58,405
Gross
profit(1) 37,192 38,344 39,119 39,752
Net loss (2) (5,194) (3,895) (4,903) (5,718)
(1) Gross profit is computed using cost of sales including
depreciation expense.
(2) See Note 10 Special Charges.
(3) See Note 2 Restructuring.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection
with the sale of the Notes being registered, all of which will be
paid by the registrant. All amounts are estimates except the
registration fee.
Registration Fee . . . . . . . . . . . . . . . $ 15,784
Accounting Fees and Expenses . . . . . . . . . $ *
Legal Fees and Expenses . . . . . . . . . . . $ *
Trustee's Fees and Expenses . . . . . . . . . $ *
Printing and Engraving Fees and Expenses . . . $ *
Miscellaneous . . . . . . . . . . . . . . . . $ *
Total . . . . . . . . . . . . . . . . . . $ *
* To be completed by amendment.
ITEM 16. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of Delaware
enables a Delaware corporation to provide in its certificate of
incorporation, and the Parent has so provided in its Restated
Certificate of Incorporation, for the elimination or limitation
of the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as
a director; provided, however, that a director's liability is not
eliminated or limited: (1) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (2) for acts
or omissions not in good faith or which involve an intentional
misconduct or a knowing violation of law; (3) under Section 174
of the General Corporation Law of Delaware (which imposes
liability on directors for unlawful payment of dividends or
unlawful stock purchases or redemptions); or (4) for any
transaction from which the director derived an improper personal
benefit. The Restated Certificate of Incorporation further
provides that if the Delaware General Corporation Law is amended
to authorize the further elimination or limitation of the
liability of directors, then the liability of a director shall be
eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as amended.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or
witness or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that
he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation or enterprise. Depending on the character of the
proceeding, a corporation may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted
in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. If
the person indemnified is not wholly successful in such action,
suit or proceeding, but is successful, on the merits or
otherwise, in one or more but less than all claims, issues or
matters in such proceeding, he or she may be indemnified against
expenses actually and reasonably incurred in connection with each
successfully resolved claim, issue or matter. In the case of an
action or suit by or in the right of the corporation, no
indemnification may be made in respect to any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was
brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the
defense of any action, suit or proceeding referred to above or in
the defense of any claim, issue or manner therein, he or she
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection
therewith.
The By-laws of the Parent provide that, to the fullest
extent permitted by the General Corporation Law of the State of
Delaware, the Parent shall indemnify any person who was or is a
party or is threatened to be made a party to any action, suit or
proceeding of the type described above by reason of the fact that
he or she is or was a director or officer of the Parent or is or
was serving at the request of the Parent as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. No expenses will be paid in
advance except, as authorized by the Board of Directors, to a
director or officer for expenses incurred while acting in his or
her capacity as a director or officer, who has delivered an
undertaking to the corporation to repay all amounts advanced if
it should be later determined that such director or officer was
not entitled to indemnification. The By-laws further provide
that the above rights of indemnification are not exclusive of any
other rights of indemnification that a director or officer may be
entitled to from any other source.
In addition, the Partnership Agreement of the Company
provides that the Company shall indemnify and hold harmless each
general partner, and any former general partner, of the Company,
their respective affiliates and all officers, directors,
partners, employees and agents of each general partner, former
general partner and their respective affiliates (individually,
an "Indemnitee"; provided, however, under no circumstances shall
Michael J. Levenson or any of his affiliates be considered an
Indemnitee) from and against all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses (including
attorneys' fees and disbursements), judgments, fines, settlements
and other amounts arising from any and all claims, demands,
actions, suits, or proceedings, civil, criminal, administrative
or investigative, in which an Indemnitee may be involved, or
threatened to be involved, as a party or otherwise, relating to
or arising out of the Company, its property, business or affairs,
regardless of whether the Indemnitee continues to be a general
partner, an affiliate or an officer, director, partner, employee
or agent of a general partner or an affiliate at the time any
such liability or expense is paid or incurred, if the Indemnitee
acted in good faith and in a manner the Indemnitee reasonably
believed to be in the best interest of the Company and the
Indemnitee's course of conduct does not constitute actual fraud,
gross negligence or willful or wanton misconduct; provided,
however, that such indemnification will be recoverable only out
of the assets of the Company. The indemnification provided by
the Partnership Agreement of the Company is in addition to any
other rights to which the Indemnitee may be entitled to under any
agreement with the Company or by vote of the partners, as a
matter of law, or otherwise, as to both an action in the
Indemnitee's capacity and any action in another capacity, and
shall continue as to Indemnitee who has ceased to serve in such
capacity and shall inure to the benefit of the heirs, successors,
assigns, administrators, and personal representatives of the
Indemnitee. An Indemnitee shall not be denied indemnification
because the Indemnitee had an interest in the transaction with
respect to which the indemnification applies if the transaction
was not prohibited by the terms of the Partnership Agreement of
the Company.
Expenses incurred (including legal fees and expenses)
by, or on behalf of, the Indemnitee shall, from time to time, be
paid by the Company in advance of any final disposition upon the
approval of the general partner and the receipt of a written
undertaking by, or on behalf of, the Indemnitee to repay such
amounts if it shall ultimately be determined by a final, non-
appealable judgment of a court of competent jurisdiction that the
Indemnitee is not entitled to be indemnified by the Company. The
Company may purchase and maintain insurance on behalf of any
Indemnitee, enter into indemnity contracts with Indemnitees and
adopt written procedures pursuant to which arrangements are made
for the advancement of expenses and the funding of
indemnification obligations.
Each current director of the Parent has entered into an
Indemnification Agreement dated as of January 2, 1996 by and
between the Parent and such director pursuant to which the Parent
will indemnify such director and hold such director harmless from
any and all losses, expenses and fines to the fullest extent
authorized, permitted or not prohibited (i) by the Delaware
General Corporation Law or any other applicable law (including
judicial, regulatory or administrative interpretations or
readings thereof), the Parent's Certificate of Incorporation or
By-laws as in effect on the date of execution of the agreement or
other statutory provision authorizing such indemnification that
is adopted after January 2, 1996. In the event that after the
date of the agreements the Parent provides any greater right of
indemnification, in any respect, to any other person serving as
an officer or director of the Parent, then such greater right of
indemnification shall inure to the benefit of the respective
director and shall be deemed to be incorporated in the relevant
agreement as a basis for indemnity, at each director's election,
together with the indemnity expressly set forth therein.
ITEM 17. RECENT SALES OF UNREGISTERED SECURITIES.
On November 30, 1995, as part of the Restructuring, the
Company issued to former 11% Noteholders $40.0 million aggregate
principal amount of 12% Notes in exchange for $40.0 million
aggregate principal amount of 11% Notes in reliance upon the
exemptions provided by Sections 4(2) and 3(a)(9) of the
Securities Act.
On January 2, 1996, as part of the Restructuring, the
Company issued to former 11% Noteholders an aggregate of 95% of
the limited partnership interests of the Company in exchange for
approximately $153 aggregate principal amount (plus approximately
$46.6 million in accrued and unpaid interest) of 11% Notes in
reliance upon the exemptions provided by Sections 4(2) and
3(a)(9) of the Securities Act.
On January 2, 1996, as part of the Restructuring, the
Company issued a 12% Note in the principal amount of $1.7 million
to the Trustees of General Electric Pension Trust in settlement
of a $5.4 million, plus interest, judgment against
Furr's/Bishop's Cafeterias, L.P. in reliance upon the exemption
provided by Section 4(2) of the Securities Act.
ITEM 18. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBITS DESCRIPTION
3.1 Certificate of Amendment to the Certificate of Limited
Partnership of Cafeteria Operators, L.P dated July 11,
1995.
3.2 Second Amended and Restated Agreement of Limited
Partnership of Cafeteria Operators, L.P. (included as
Exhibit I to the Exchange Agreement filed as Exhibit
10.1)
*4.1 Amended and Restated Indenture, dated as of November
15, 1995, by and between Cafeteria Operators, L.P. and
Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.).
**4.2 First Supplemental Indenture dated as of January 24,
1996 by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.).
4.3 General Security Agreement dated March 27, 1992 by and
between Cafeteria Operators, L.P. and Shawmut Bank,
N.A.
4.4 Security Agreement dated March 27, 1992 by and between
Cafeteria Operators, L.P. and Shawmut Bank, N.A.
4.5 Form of Assignment and Security Agreements relating to
deposits at Amarillo National Bank and Carlsbad
National Bank dated March 27, 1992 by and between
Cafeteria Operators, L.P. and Shawmut Bank, N.A.
4.6 General Security Agreement dated March 27, 1992 by and
between Furr's/Bishop's Specialty Group, L.P. and
Shawmut Bank, N.A.
4.7 Assignment for Security (Trademarks) dated March 27,
1992 by Cafeteria Operators, L.P. filed with the Patent
and Trademark Office.
4.8 Assignment for Security (Trademarks) dated as of
December 28, 1995 by Cafeteria Operators, L.P. filed
with the Patent and Trademark Office.
4.9 Assignment for Security (Trademarks) dated as of
December 28, 1995 by Furr's/Bishop's Specialty Group,
L.P. filed with the Patent and Trademark Office.
4.10 Amended and Restated Security Agreement and Mortgage --
Trademarks and Patents dated as of December 31, 1995 by
and among Cafeteria Operators, L.P., Furr's/Bishop's
Specialty Group, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.).
4.11 Special Power of Attorney by dated March 27, 1992 by
Cafeteria Operators, L.P..
4.12 Special Power of Attorney dated as of December 28, 1995
by Cafeteria Operators, L.P.
4.13 Special Power of Attorney dated as of December 28, 1995
by Furr's/Bishop's Specialty Group, L.P.
4.14 Omnibus Agreement dated November 15, 1996 by and among
Cafeteria Operators, L.P., Specialty Group, L.P. and
Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) (included as Exhibit E to the Exchange
Agreement filed as Exhibit 10.1)
4.15 First Amendment to Deed of Trust, dated as of November
15, 1995 by and between Cafeteria Operators, L.P. and
Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) for premises located at Pima County,
Arizona
4.16 First Amendment to Deed of Trust, dated as of November
15, 1995 by and between Cafeteria Operators, L.P. and
Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) for premises located at Jefferson County,
Colorado.
4.17 First Amendment to Deed of Trust, dated as of November
15, 1995 by and between Cafeteria Operators, L.P. and
Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) for premises located at Clark County,
Nevada.
4.18 First Amendment to Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of
Rents and Leases, dated as of November 15, 1995 by and
between Cafeteria Operators, L.P. and Fleet National
Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for
premises located at San Bernardino County, California.
4.19 First Amendment to Mortgage, Security Agreement and
Assignment of Leases and Rents, dated as of November
15, 1995 by and between Cafeteria Operators, L.P. and
Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) for premises located at Johnson County,
Kansas.
4.20 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases and Rents, dated as of
November 15, 1995 by and between Cafeteria Operators,
L.P. and Fleet National Bank of Massachusetts (f/k/a
Shawmut Bank, N.A.) for premises located at St. Louis
County, Missouri.
4.21 First Amendment to New Mexico Deed of Trust, dated as
of November 15, 1995 by and between Cafeteria
Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) for premises
located at Bernalillo County, New Mexico.
4.22 First Amendment to Mortgage with Power of Sale, dated
as of November 15, 1995 by and between Cafeteria
Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) for premises
located at Tulsa County, Oklahoma.
4.23 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases, dated as of November 15, 1995
by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Taylor County, Texas.
4.24 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases, dated as of November 15, 1995
by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Cameron County, Texas.
4.25 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases, dated as of November 15, 1995
by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Dallas County, Texas.
4.26 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases, dated as of November 15, 1995
by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Lubbock County, Texas.
4.27 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases, dated as of November 15, 1995
by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Grayson County, Texas.
4.28 First Amendment to Deed of Trust, Security Agreement
and Assignment of Leases, dated as of November 15, 1995
by and between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Hopkins County, Texas.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.
*10.1 Exchange Agreement, dated as of November 15, 1995,
among Furr's/Bishop's, Incorporated, Cafeteria
Operators, L.P. and holders of the 11% Senior Secured
Notes.
12.1 Statement re Computation of Ratios.
**21.1 Subsidiaries of the Registrant.
+23.1 Consent of Deloitte & Touche LLP, as independent public
accountants.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom
(included in their opinion filed as Exhibit 5.1).
+24.1 Power of Attorney (included in the Signature Page to
this Registration Statement).
25.1 Statement of Eligibility of Trustee.
(b) Financial Statement Schedules
Schedule Description Page
II Consolidated Valuation and S-1
Qualifying Accounts
- -----------------------------
* Incorporated by reference from Furr's/Bishop's,
Incorporated's Registration Statement on Form S-4, File
No. 33-38978.
** Incorporated by reference from Furr's/Bishop's,
Incorporated's Form 10-K for the year ended January 2,
1996.
+ Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement;
(ii) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(iii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iv) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold as of the termination of the offering.
The undersigned Registrant hereby undertakes that:
(1) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(2) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on August 7,
1996.
FURR'S/BISHOP'S INCORPORATED
By: /s/ Kevin E. Lewis
_____________________________
Kevin E. Lewis
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEYS
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Kevin E. Lewis,
E.W. Williams, Jr. and Alton R. Smith, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of
substitution and restitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF
1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
Signature Title Date
/s/ Kevin E. Lewis Chairman, President and
____________________ Chief Executive Officer August 7, 1996
Kevin E. Lewis
/s/ * Director August 7, 1996
_______________________
E. W. Williams, Jr.
___________________ Director
Russell A. Belinsky
/s/________*__________ Director August 7, 1996
Suzanne Hopgood
/s/_______ *__________ Director August 7, 1996
Gilbert C. Osnos
/s/________*__________ Director August 7, 1996
Kenneth R. Reimer
/s/________*__________ Director August 7, 1996
Sanjay Varma
/s/ Alton R. Smith Principal Accounting August 7, 1996
_______________________ and Principal Financial
Alton R. Smith Officer
*By /s/ Kevin E. Lewis
_______________________
Kevin E. Lewis
Attorney-in-Fact
INDEPENDENT AUDITORS' REPORT
To the Partners of
Cafeteria Operators, L.P.
Lubbock, Texas
We have audited the consolidated balance sheets of Cafeteria
Operators, L.P. (a Delaware limited partnership indirectly owned
by Furr's/Bishop's, Incorporated) and subsidiaries (collectively,
the Partnership) as of January 2, 1996 and January 3, 1995 and
the related consolidated statements of operations, changes in
partners' capital (deficit) and cash flows for the 52-week year
ended January 2, 1996, the 53-week year ended January 3, 1995,
and the 51-1/2-week year ended December 28, 1993, and have issued
our report thereon dated March 28, 1996 (included elsewhere in
this Registration Statement). Our audits also included the
financial statement schedules listed in Part II, Item 16(b) of
this Registration Statement. These financial statement schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth
therein.
March 28, 1996
Dallas, Texas
Schedule II
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
QUARTER ENDED
APRIL 2, 1996:
Reserve for
store closing $ 5,655 $ 92 $ -- $ 342(1) $5,405
Allowance for
doubtful
accounts
receivable $ 27 $ 4 $ -- $ 2(3) $ 29
Other
valuation
accounts $ -- $ -- $ -- $ -- $ --
YEAR ENDED
JANUARY 2, 1996:
Reserve for
store closing $ 3,293 $4,156 $ -- $ 1,794(1) $5,655
Allowance for
doubtful
accounts
receivable $ 64 $ (16)(2) $ -- $ 21(3) $ 27
Other valuation
accounts $ -- $ -- $ -- $ -- $ --
YEAR ENDED
JANUARY 3, 1995:
Reserve for
store closing $ 4,657 $ 966 $ -- $2,330(1) $3,293
Allowance for
doubtful
accounts
receivable $ 35 $ 29 $ -- $ -- $ 64
Other valuation
accounts $ -- $ -- $ -- $ -- $ --
YEAR ENDED
DECEMBER 28, 1993:
Reserve for
store closing $3,317 $3,354 $ -- $2,014(1) $4,657
Allowance for
doubtful
accounts
receivable $ 129 $ (83)(4) $ -- 11(3) $ 35
Other
valuation
accounts $ -- $ -- $ -- $ -- $ --
(1) Includes costs and expenses incurred during the year on
closed units and severance payments.
(2) Net adjustment reflects 16 reversal of expense.
(3) Related asset account was written off.
(4) Net adjustment reflects 23 expense for additional reserves
and 106 reduction for related asset account being written off.
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Cafeteria Operators,
L.P. on Form S-1 of our report dated March 28, 1996, relating to Cafeteria
Operators, L.P. (the Partnership) appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/Deloitte & Touche LLP
Dallas, Texas
June 27, 1996
