UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
SEPTEMBER 8, 1998 000-22753
----------------- ---------
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2016614
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 CRESCENT COURT
BUILDING 300, SUITE 850
DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip code)
(214) 754-0414
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
/X/ YES / / NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS Outstanding at October 23, 1998
----- 10,415,000 SHARES
COMMON STOCK, $.01 PAR VALUE
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
INDEX
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AT
SEPTEMBER 8, 1998 AND DECEMBER 30, 1997 2
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE TWELVE WEEKS ENDED
SEPTEMBER 8, 1998 AND SEPTEMBER 9, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 8, 1998 AND PRO FORMA FOR THE
THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 1997 4
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE THIRTY-SIX WEEKS ENDED
SEPTEMBER 8, 1998 AND FOR THE PERIOD FROM
FEBRUARY 7, 1997 (INCEPTION) THROUGH
SEPTEMBER 9, 1997 5
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 8, 1998 December 30, 1997
----------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 100,881 $ 1,220,598
Marketable securities, available for sale -- 3,315,056
Inventories 590,376 396,758
Pre-opening costs - net 873,850 386,402
Deferred income taxes 199,754 156,571
Other current assets 505,933 350,324
----------- -----------
Total current assets 2,270,794 5,825,709
Property and equipment, net 20,706,246 12,582,081
Intangible and other assets, net (principally goodwill) 4,991,191 4,816,479
----------- -----------
Total assets $27,968,231 $23,224,269
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 2,455,000 $ --
Accounts payable 1,293,625 823,765
Other current liabilities 908,393 422,983
----------- -----------
Total current liabilities 4,657,018 1,246,748
Deferred income taxes 415,670 312,450
Stockholders' Equity:
Preferred stock -- --
Common stock 104,150 104,150
Additional paid-in capital 20,580,764 20,580,764
Retained earnings 2,210,629 980,157
----------- -----------
Total stockholders' equity 22,895,543 21,665,071
----------- -----------
Total liabilities and stockholders' equity $27,968,231 $23,224,269
=========== ===========
</TABLE>
See accompanying notes
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Twelve weeks ended
Sept. 8, 1998 Sept. 9, 1997
----------------- -------------------
<S> <C> <C>
Net sales:
Food and beverage $ 6,042,657 $ 3,028,242
Entertainment and other 879,239 650,461
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Total net sales 6,921,896 3,678,703
Costs and expenses:
Costs of sales 1,922,163 967,522
Restaurant operating expenses 3,415,245 1,648,225
Depreciation and amortization 607,743 242,919
----------- -----------
Entertainment and restaurant costs and expenses 5,945,151 2,858,666
----------- -----------
Entertainment and restaurant operating income 976,745 820,037
General and administrative expenses 560,007 411,175
Goodwill amortization 56,346 54,684
----------- -----------
Income from operations 360,392 354,178
Other income (expense):
Other income, principally interest 5,360 41,017
Interest expense (9,285) (91,778)
----------- -----------
Income before income taxes 356,467 303,417
Provision for income taxes 131,874 113,781
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Net income $ 224,593 $ 189,636
=========== ===========
Basic and diluted earnings per share $ 0.02 $ 0.02
=========== ===========
Average shares outstanding 10,415,000 9,610,000
=========== ===========
</TABLE>
See accompanying notes
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Company
Pro Forma
----------------
Thirty-six Thirty-six
weeks ended weeks ended
Sept. 8, 1998 Sept. 9, 1997
---------------- ----------------
<S> <C> <C>
Net sales:
Food and beverage $ 16,667,860 $ 9,686,806
Entertainment and other 2,732,364 2,069,488
------------ ------------
Total net sales 19,400,224 11,756,294
Costs and expenses:
Costs of sales 5,232,219 3,097,698
Restaurant operating expenses 8,864,729 5,304,745
Depreciation and amortization 1,562,352 707,507
------------ ------------
Entertainment and restaurant costs and expenses 15,659,300 9,109,951
------------ ------------
Entertainment and restaurant operating income 3,740,924 2,646,344
General and administrative expenses 1,680,452 1,346,135
Goodwill amortization 169,036 163,144
------------ ------------
Income from operations 1,891,436 1,137,065
Other income (expense):
Other income, principally interest 70,793 41,165
Interest expense (9,463) (499,035)
------------ ------------
Income before income taxes 1,952,766 679,195
Provision for income taxes 722,294 254,698
------------ ------------
Net income $ 1,230,472 $ 424,497
============ ============
Basic and diluted earnings per share $ 0.12 $ 0.05
============ ============
Average shares outstanding 10,415,000 8,536,667
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the thirty-six Period from February
weeks ended Sept. 8, 7, 1997 (inception)
1998 through Sept. 9, 1997
--------------------- --------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,230,472 $ 323,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,731,388 732,095
Net change in operating assets and liabilities:
Change in operating assets (1,695,920) (460,936)
Change in operating liabilities 1,058,490 976,981
------------ -----------
Net cash provided by operating activities 2,324,430 1,571,601
Cash flows from investing activities:
Purchases of property and equipment (9,214,203) (2,074,963)
Proceeds from sale of marketable securities 3,315,056 -
Cash of companies acquired in Exchange - 733,804
------------ -----------
Net cash used in investing activities (5,899,147) (1,341,159)
Cash flows from financing activities:
Net proceeds from sale of stock - 19,127,532
Proceeds from note payable to bank 2,455,000 10,835,695
Payment of dividends to certain stockholders - (1,675,332)
Payment of notes payable to stockholders - (4,530,071)
Payment of notes payable to affiliates - (233,000)
Payment of notes payable to banks - (4,366,933)
Payment of revolving notes payable to bank - (10,835,695)
------------ -----------
Net cash provided by financing activities 2,455,000 8,322,196
------------ -----------
Net (decrease) increase in cash and cash equivalents (1,119,717) 8,552,639
Cash and cash equivalents at beginning of period 1,220,598 1,000
------------ -----------
Cash and cash equivalents at end of period $ 100,881 $ 8,553,639
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,327 $ 425,527
Cash paid for income taxes 589,008 189,790
</TABLE>
See accompanying notes.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Total Entertainment Restaurant Corp. (the "Company") was organized as a
Delaware corporation on February 7, 1997, for the purpose of developing
entertainment restaurant locations. Effective February 20, 1997, the Company
entered into simultaneous securities exchange transactions pursuant to which the
Company issued an aggregate 8,000,000 shares of its common stock, $.01 par value
per share (the "Common Stock"), in exchange for all of the outstanding common
stock of each of Bailey's Sports Grille, Inc., F&H Restaurant Corp., Fox &
Hound, Inc. and Fox & Hound II, Inc. and the remaining 25% minority interest in
each of 505 Entertainment, Ltd., F&H Dallas, L.P., Midway Entertainment, Ltd.
and N. Collins Entertainment, Ltd. (the "Exchange"). For further information
regarding the Exchange, reference is made to the Company's Form 10-K for the
fiscal year ended December 30, 1997. The unaudited pro forma consolidated
statements of income for the thirty-six weeks ended September 9, 1997 give
effect to the Exchange as if such transactions occurred on January 1, 1997.
The unaudited condensed consolidated financial statements have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally presented in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements in its 1997 Form
10-K. The results of the thirty-six weeks ended September 8, 1998 are not
necessarily indicative of the results to be expected for the full year ending
December 29, 1998.
2. STOCK OPTIONS
During the thirty-six week period ended September 8, 1998, the Company
granted to certain key employees stock options for 118,579 shares of Common
Stock at exercise prices ranging from $3.00 to $7.00 per share pursuant to its
1997 Incentive and Nonqualified Stock Option Plan.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
As of December 31, 1997, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. The Company has no items of other comprehensive income in any period
presented.
The Accounting Standards Executive Committee recently issued Statement
of Position 98-5, Reporting on Costs of Start-Up Activities, which will require
the Company to expense preopening costs, including organizational costs, as
incurred and to report the initial adoption as a cumulative effect of a change
in accounting principle as described in APBO No. 20, Accounting Changes, during
the first quarter of its fiscal year 1999. The cumulative effect upon adoption
would result in a one-time charge to income in an amount equal to the net book
value of the Company's preopening costs. A resulting benefit of this change is
the discontinuance of amortization expense in subsequent periods.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto included elsewhere in this Form 10-Q.
The Company began operations February 20, 1997 with three Fox & Hound
and eight Bailey's entertainment restaurant locations. The Company opened three
Fox & Hound and two Bailey's locations during the period from February 20, 1997
to December 29, 1997 and seven Fox & Hound locations during the thirty-six weeks
ended September 8, 1998, and currently operates ten Bailey's units and 13 Fox &
Hound units located in Alabama, Arkansas, Illinois, Indiana, Iowa, Missouri,
Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee and
Texas.
The components of the Company's net sales are food and non-alcoholic
beverages, alcoholic beverages, and entertainment and other. For the thirty-six
weeks ended September 8, 1998, food and non-alcoholic beverages were 30.5% of
total sales, alcoholic beverages were 55.4% of total sales and entertainment and
other were 14.1% of total sales.
Components of restaurant operating expenses include operating payroll
and fringe benefits, occupancy, advertising and promotion. These costs are
generally variable and will fluctuate with changes in sales volume and sales
mix. All but one of the Company's locations are leased and provide for a minimum
annual rent, with some leases calling for additional rent based on sales volume
at the particular location of specified minimum levels.
Pre-opening costs include labor costs, costs of hiring and training
personnel and certain other costs relating to opening new restaurants, and are
capitalized and amortized over a twelve month period, beginning in the period
the restaurants open.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide an
infrastructure to support future growth. In addition, certain expenses of
recruiting and training unit management personnel are also included. Management,
supervisory and staff salaries, employee benefits, travel, information systems,
training, rent and office supplies as well as accounting services fees are major
items of costs in this category.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the Condensed Consolidated Statement
of Income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA (2)
------------------------ ---------- -------------
TWELVE WEEKS ENDED(1) THIRTY-SIX WEEKS ENDED(1)
--------------------- -------------------------
SEPT. 8, SEPT. 9, SEPT. 8, SEPT. 9,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Costs of sales ............................... 27.8 26.3 27.0 26.4
Restaurant operating expenses ................ 49.3 44.8 45.6 45.1
Depreciation and amortization ................ 8.8 6.6 8.1 6.0
-------- -------- -------- --------
Restaurant costs and expenses ........... 85.9 77.7 80.7 77.5
-------- -------- -------- --------
Restaurant operating income ......................... 14.1 22.3 19.3 22.5
General and administrative expenses ................. 8.1 11.2 8.7 11.5
Goodwill amortization ............................... 0.8 1.5 0.9 1.4
-------- -------- -------- --------
Income from operations .............................. 5.2 9.6 9.7 9.6
Other income, principally interest .................. -- 1.1 0.4 0.4
Interest expense .................................... 0.1 2.5 -- 4.2
-------- -------- -------- --------
Income before provision for income taxes ............ 5.1 8.2 10.1 5.8
Provision for income taxes .......................... 1.9 3.1 3.8 2.2
-------- -------- -------- --------
Net income .......................................... 3.2% 5.1% 6.3% 3.6%
RESTAURANT OPERATING DATA (DOLLARS IN THOUSANDS):
Annualized average weekly sales per location (3) .... $ 1,460 $ 1,319 $ 1,543 $ 1,437
Number of restaurants at end of the period .......... 23 13 23 13
</TABLE>
(1) The Company operates on a fifty-two or fifty-three week fiscal year
ending the last Tuesday in December. The fiscal quarters for the Company
consist of accounting periods of twelve, twelve, twelve and sixteen or
seventeen weeks, respectively.
(2) The pro forma data gives effect to the Exchange as if it occurred on
January 1, 1997.
(3) Annualized average weekly sales per location are computed by dividing
net sales for full weeks open during the period by the number of full
weeks open and multiplying the result by fifty-two.
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<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
TWELVE WEEKS ENDED SEPTEMBER 8, 1998 COMPARED TO TWELVE WEEKS ENDED
SEPTEMBER 9, 1997
Net sales increased $3,243,000 (88.2%) for the twelve weeks ended
September 8, 1998 to $6,922,000 from $3,679,000 for the twelve weeks ended
September 9, 1997, which is principally attributable to sales from the ten new
locations opened since September 1997. Same store sales increased 1.4% in the
twelve weeks ended September 8, 1998 compared to the twelve weeks ended
September 9, 1997.
Costs of sales, primarily food and beverages increased $955,000 (98.7%)
for the twelve weeks ended September 8, 1998 to $1,922,000 from $967,000 in the
twelve weeks ended September 9, 1997, and increased as a percentage of sales
from 26.3% to 27.8%. This increase is attributable to an increase in the food
sales mix, which has a higher cost of sales compared to beverages and
entertainment.
Restaurant operating expenses increased $1,767,000 (107.2%) for the
twelve weeks ended September 8, 1998 to $3,415,000 from $1,648,000 in the twelve
weeks ended September 9, 1997, and increased as a percentage of net sales from
44.8% to 49.3%. Most of this increase is attributable to higher labor costs
resulting from the increase in food sales mix, which has a higher labor cost
compared to beverages and entertainment, incremental labor in the five new
locations opened during the twelve weeks ended September 8, 1998, increased cost
of live entertainment, higher utility costs due to the unseasonably warm weather
and higher maintenance costs.
Depreciation and amortization increased $365,000 (150.2%) for the twelve
weeks ended September 8, 1998 to $608,000 from $243,000 in the twelve weeks
ended September 9, 1997, and increased as a percentage of sales from 6.6% to
8.8%. This increase is due principally to the depreciation and amortization
relating to the opening of ten new restaurants since September 1997.
General and administrative expenses increased $149,000 (36.2%) for the
twelve weeks ended September 8, 1998 to $560,000 from $411,000 in the twelve
weeks ended September 9, 1997, and decreased as a percentage of sales from 11.2%
to 8.1%. This increase reflects the additional corporate infrastructure added to
enable the Company to rapidly develop additional units and operate as a public
company. Certain accounting and administrative services are contracted from
Coulter Enterprises, Inc., a restaurant management services company owned by the
Company's Chairman of the Board. The service agreement provides for specified
accounting and administrative services to be provided on a cost pass-through
basis. For fiscal 1998, the fixed annual charge is $194,500, plus and an
additional fee of $466 per restaurant per 28-day accounting period.
On October 19, 1998, Lone Star Steakhouse & Saloon, Inc. ("Lone Star"),
a restaurant company of which Mr. Coulter is chairman and CEO, purchased certain
assets and assumed certain liabilities of CEI, including the current services
agreement with the Company. Subsequent to October 19, 1998, such services will
be provided by Lone Star.
Other income, principally interest, decreased $36,000 (86.9%) for the
twelve weeks ended September 8, 1998 to $5,000 from $41,000 in the twelve weeks
ended September 9, 1997. The interest was earned from the investment of the net
proceeds of the initial public offering of the Company, which commenced on July
17, 1997 (the "Initial Public Offering"). The decrease in interest earned
resulted from the utilization of the proceeds to develop additional locations.
- 9 -
<PAGE>
Interest expense decreased $83,000 (89.9%) for the twelve weeks ended
September 8, 1998 to $9,000 from $92,000 in the twelve weeks ended September 9,
1997. This decrease reflects the repayment of all debt outstanding immediately
following the Initial Public Offering.
The effective income tax rate for the twelve weeks ended September 8,
1998 was 37.0% and the effective income tax rate for the twelve weeks ended
September 9, 1997 was 37.5%. This decrease was primarily due to the impact of
tax exempt interest income earned during the twelve weeks ended September 8,
1998.
THIRTY-SIX WEEKS ENDED SEPTEMBER 8, 1998 COMPARED TO PRO FORMA INFORMATION FOR
THE THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 1997
Net sales increased $7,644,000 (65.0%) for the thirty-six weeks ended
September 8, 1998 to $19,400,000 from $11,756,000 for the thirty-six weeks ended
September 9, 1997, which is principally attributable to sales from the ten new
locations opened since September 1997. Same store sales decreased 0.2% in the
thirty-six weeks ended September 8, 1998 compared to the thirty-six weeks ended
September 9, 1997.
Costs of sales, primarily food and beverages increased $2,134,000
(68.9%) for the thirty-six weeks ended September 8, 1998 to $5,232,000 from
$3,098,000 in the thirty-six weeks ended September 9, 1997, and increased as a
percentage of sales from 26.4% to 27.0%. This increase is attributable to an
increase in the food sales mix, which has a higher cost of sales compared to
beverages and entertainment.
Restaurant operating expenses increased $3,560,000 (67.1%) for the
thirty-six weeks ended September 8, 1998 to $8,865,000 from $5,305,000 in the
thirty-six weeks ended September 9, 1997, and increased as a percentage of net
sales from 45.1% to 45.6%. Most of this increase is attributable to higher labor
costs resulting from the increase in food sales mix, which has a higher labor
cost compared to beverages and entertainment, and incremental labor in the
initial weeks of the new locations.
Depreciation and amortization increased $855,000 (120.8%) for the
thirty-six weeks ended September 8, 1998 to $1,562,000 from $707,000 in the
thirty-six weeks ended September 9, 1997, and increased as a percentage of sales
from 6.0% to 8.1%. This increase is due principally to the depreciation and
amortization relating to the opening of ten new restaurants since September
1997.
General and administrative expenses increased $334,000 (24.8%) for the
thirty-six weeks ended September 8, 1998 to $1,680,000 from $1,346,000 in the
thirty-six weeks ended September 9, 1997, and decreased as a percentage of sales
from 11.5% to 8.7%. This increase reflects the additional corporate
infrastructure added to enable the Company to rapidly develop additional units
and operate as a public company.
Other income, principally interest, increased $30,000 (72.0%) for the
thirty-six weeks ended September 8, 1998 to $71,000 from $41,000 in the
thirty-six weeks ended September 9, 1997. The interest was earned from the
investment of the net proceeds of the Initial Public Offering.
Interest expense decreased $490,000 (98.1%) for the thirty-six weeks
ended September 8, 1998 to $9,000 from $499,000 in the thirty-six weeks ended
September 9, 1997. This decrease reflects the repayment of all debt outstanding
immediately following the Initial Public Offering.
The effective income tax rate for the thirty-six weeks ended September
8, 1998 was 37.0% and the effective income tax rate for the thirty-six weeks
ended September 9, 1997 was 37.5%. This decrease was primarily due to the impact
of tax exempt interest income earned during the thirty-six weeks ended September
8, 1998.
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<PAGE>
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food, liquor and labor costs. Although a large number of the Company's
restaurant personnel are paid at the federal minimum wage level, the majority of
personnel are tipped employees, and therefore, recent as well as future minimum
wage changes will have very little effect on labor costs. As costs of food and
labor have increased, the Company has historically been able to offset these
increases through economies of scale and improved operating procedures. To date,
inflation has not had a material impact on operating margins.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $2,324,000 and purchases of property and
equipment were $9,214,000 for the thirty-six week period ending September 8,
1998.
At September 8, 1998, the Company had $101,000 in cash and cash
equivalents. The Company intends to open fifteen to seventeen locations in 1998
(seven of which were opened during the thirty-six week period ending September
8, 1998 and two of which have been opened since September 8, 1998). Eight units
are currently under construction, and leases have been signed on four additional
sites. The Company anticipates opening units on four to six leased sites in the
first quarter of fiscal 1999. The Company's development plans beyond these units
will be contingent upon maintaining certain debt to equity levels approved by
the Company's Board of Directors and no commitments for additional units in
fiscal 1999 have been made. The Company expects to expend approximately $10.0
million to open the eight new units through the remainder of fiscal 1998. In
order to fund new unit development, the Company has entered into a $20 million
line of credit with Intrust Bank, N.A. (the "Intrust Line").
The Company believes its cash flow from operations and funds available
from the Intrust Line will be sufficient to satisfy its working capital and
capital expenditure requirements for at least the next twelve months. There can
be no assurance, however, that changes in the Company's operating plans, the
acceleration or modification of the Company's expansion plans as outlined above,
lower than anticipated revenues, increased expenses, potential acquisitions or
other events will not cause the Company to seek additional financing sooner than
anticipated. There can be no assurance additional financing will be available on
terms acceptable to the Company or at all.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Stockholders are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to open new
restaurants, general market conditions, competition and pricing. Although the
Company believes the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate,
and, therefore, there can be no assurance the forward-looking statements
contained in the report will prove to be accurate.
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<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires disclosures of
certain information about operating segments and about products and services,
geographic areas in which the Company operates, and their major customers. This
Statement is effective for Financial Statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be presented. This Statement need not be applied to
interim periods in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in Financial Statements for interim periods in the second year of
application.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and requires that these items be recognized as assets or liabilities in the
statement of financial position. This Statement is effective for fiscal years
beginning after June 15, 1999. As of September 8, 1998 the Company does not have
any derivative instruments.
YEAR 2000 COMPLIANCE
Many software applications and operational programs written in the past
were not designed to recognize calendar dates beginning in the Year 2000. The
failure of such applications or systems to properly recognize the dates
beginning in the Year 2000 could result in miscalculations or system failures
which could result in an adverse effect on the Company's operations.
The Company has instituted a Year 2000 project to prepare its computer
systems and communication systems for the Year 2000. The project includes
identification and assessment of all software, hardware and equipment that could
potentially be affected by the Year 2000 issue and remedial action and further
testing, if necessary. The Company believes that the majority of its major
systems are Year 2000 compliant and costs to transition the remaining systems to
Year 2000 compliance are not anticipated to have a material effect on the
Company's financial position or results of operations.
The Company is also contacting critical suppliers of products and
services to determine the extent to which the Company may be vulnerable to such
parties failure to resolve their own Year 2000 issues. Where practicable, the
Company will assess and attempt to mitigate its risks with respect to the
failure of these entities to be Year 2000 ready. The effect, if any, on the
Company's results of operations from the failure of such parties to be Year 2000
ready is not reasonably estimable.
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<PAGE>
PART II. OTHER INFORMATION
- -------- -----------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
SECURITIES SOLD
(c) The following unregistered securities were issued by the Company during the
twelve weeks ended September 8, 1998:
<TABLE>
<CAPTION>
Number of Shares
Description of Sold/Issued/Subject Offering/Exercise
Date of Sale/Issuance Securities Issued to Options or Warrants Price Per Share
--------------------- ----------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
June 22, 1998 Common Stock Options 13,334 $ 3.75
June 24, 1998 Common Stock Options 11,765 $ 4.25
June 24, 1998 Common Stock Options 11,765 $ 4.25
July 1, 1998 Common Stock Options 11,765 $ 4.25
July 2, 1998 Common Stock Options 11,112 $ 4.50
July 17, 1998 Common Stock Options 12,000 $ 4.00
August 10, 1998 Common Stock Options 14,286 $ 3.50
August 12, 1998 Common Stock Options 12,500 $ 4.00
August 24, 1998 Common Stock Options 15,385 $ 3.25
September 3, 1998 Common Stock Options 16,667 $ 3.00
</TABLE>
All of the above options were granted to certain key employees
pursuant to the 1997 Incentive and Nonqualified Stock Option Plan or
to non-employee directors pursuant to the Directors Stock Option
Plan. These options have a vesting period of five years and a life of
ten years or a vesting period of three years and a life of five
years, respectively.
The issuance of these securities is claimed to be exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933,
as amended, as transactions by an issuer not involving a public
offering. There were no underwriting discounts or commissions paid in
connection with the issuance of any of these securities.
USE OF PROCEEDS OF INITIAL PUBLIC OFFERING
------------------------------------------
(4) (vii) Estimated purchases and installation of
furniture, fixtures and equipment 8,259,876
- 13 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibits
The following exhibits are filed as part of this report:
Exhibit No.
10.1...................Loan Agreement with Intrust Bank, N.A.
dated September 1, 1998.
10.2...................Promissory Note to Intrust Bank, N.A. issued by the
Company, dated September 1, 1998.
27.....................Financial Data Schedule
Reports on Form 8-K
None
<PAGE>
TOTAL ENTERTAINMENT RESTAURANT CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
TOTAL ENTERTAINMENT RESTAURANT CORP.
(Registrant)
Date OCTOBER 23, 1998 /s/ James K. Zielke
---------------- -----------------------------------
James K. Zielke
Chief Financial Officer,
Secretary and Treasurer
(Duly Authorized Officer)
- 15 -
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into this 1st day of
September, 1998 by and among INTRUST BANK, N.A. (herein referred to as "Bank"),
TENT Finance, Inc. , a Delaware corporation, and Total Entertainment Restaurant
Corp., a Delaware corporation (herein collectively referred to as "Borrower")
and the Subsidiaries, as defined below (herein collectively referred to as
"Guarantor").
WITNESSETH:
WHEREAS, Borrower has requested a revolving line of
credit in the amount of $20,000,000 from Bank; and
WHEREAS, Bank has agreed to provide such line of
credit under certain terms and conditions; and
WHEREAS, Guarantor has agreed to guarantee
Borrower's obligations to Bank and hypothecate its assets as additional security
for the line of credit.
NOW, THEREFORE, in consideration of the terms and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. When used in this Agreement, the
following terms shall have the following meanings:
(a) "Accounts" shall mean the accounts of the
Borrower and Guarantor as that term is defined in the UCC. "Accounts" include
all receivables, third-party claims, instruments, documents, chattel paper and
executory contract rights
(b) "Agreement" shall mean this Loan Agreement
together with all amendments and supplements hereto.
(c) "Capital Lease Excess" shall mean the amount by
which the total outstanding under all Capital Leases of Borrower or Guarantor on
a consolidated basis, exceeds the sum of one million dollars ($1,000,000.00).
"Capital Leases" shall mean leases of personal property which are eligible for
capital treatment under generally accepted accounting principles consistently
applied.
(d) "Collateral" shall mean all of Borrower's and
Guarantor's right, title and interest in its Accounts, Contracts, Equipment,
General Intangibles and Inventory along with all Borrower's and Guarantor's
right, title and interest in its Restaurants, including but not limited to, the
Real Estate, Leaseholds, FF&E, Accounts, Contracts, General Intangibles,
Inventory, Licenses and Permits and Trademark Licenses relating to the
Restaurants, whether now owned or hereafter acquired, including all proceeds
from the disposition or collection thereof.
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(e) "Contracts" shall mean all contracts,
agreements and warranties governing the use, occupancy, operation, management,
name, or chain affiliation and /or repair and service of a Restaurant, and all
leases and occupancy agreements, and all amendments, modifications, and
supplements to any of the foregoing, of Borrower and Guarantor.
(f) "EBITDA" shall mean the aggregate of Borrower's
and Guarantor's consolidated net income before interest expense, tax expense,
depreciation expense and amortization expense cumulated for the fifty two (52)
weeks immediately preceding the date of determination, excluding EBITDA
generated by any New Restaurant.
(g) "EBITDA Multiple" shall mean the factor 2.5
from the date of this Agreement until March 31, 1999, and the factor 2.25
commencing April 1, 1999.
(h) "Equipment" shall mean Borrower's and each of
Guarantor's equipment as that term is defined in the UCC.
(i) "Event of Default" shall mean an event
described in Article VII.
(j) "Facility" shall mean the revolving credit
facility extended to Borrower by Bank evidenced by the Facility Note, as further
described in Section 2.1 hereof.
(k) "FF&E" shall mean Borrower's and each of
Guarantor's fixtures, furnishings, Equipment, furniture and other items of
tangible personal property now or hereafter located in the Restaurant or used in
connection with the operation, and the maintenance of all or any part of the
Restaurant, including, without limitation, appliances, machinery, equipment,
signs, artwork, furnishings, and specialized equipment for kitchens, laundries,
bars, restaurants, public rooms, linens, dishware, awnings, shades, blinds,
floor coverings, hall and lobby equipment, heating, lighting, plumbing,
ventilating, refrigerating, incinerating, elevators, escalators, air
conditioning and communication systems, security systems, sprinkler systems,
fire prevention and extinguishing apparatus, cash registers, computers and
related equipment, equipment for the maintenance, repair and cleaning of parking
areas, walks, driveways and common areas.
(l) "General Intangibles" shall mean Borrower's and
each of Guarantor's general intangibles as that term is defined in the UCC.
(m) "Indebtedness" shall refer to all debt,
including all contract, tort and statutory obligations of any nature of Borrower
or Guarantor to Bank of every kind and description, direct or indirect, primary
or secondary, secured or unsecured (including overdrafts), joint and several,
absolute or contingent, due or to become due, now existing or hereafter arising,
regardless of how it may be evidenced.
(n) "Inventory" shall mean Borrower's and each of
Guarantor's inventory as that term is defined in the UCC.
(o) "Leasehold" shall mean the interest of Borrower
or Guarantor under any ground lease or lease of improvements, including the
leasehold estate created thereby, and the buildings, structures, fixtures,
additions, enlargements, extensions, modifications, repairs,
2
<PAGE>
replacements and improvements now or hereafter located thereon, plus all
modifications, extensions and renewals of any lease and all credits, deposits,
options, privileges and rights of Borrower or Guarantor as lessee under a lease,
including, but not limited to, the right, if any, to renew or extend the lease
for a succeeding term or terms; all the estates, rights, title, claims or
demands whatsoever of Borrower or Guarantor either in law or in equity, in
possession or expectancy, of, in and to the real estate covered by any lease or
improvements located thereon; and all easements, rights-of-way, strips of land,
streets, ways, alleys, passages, sewer rights, water, water courses, water
rights and powers, air rights and development rights.
(p) "Licenses & Permits" shall mean all building
permits, certificates of occupancy and other permits, licenses, memberships,
franchises, contracts, approvals and authorizations necessary for Borrower or
Guarantor to own, use, occupy, operate or maintain a Restaurant or any part
thereof as operated now or in the future, including any license required for the
service of alcoholic beverages.
(q) "Loan Documents" shall mean and refer to this
Agreement, the Note, all mortgages or deeds of trust, all security agreements
and assignments, all guaranty agreements, and all other documents and agreements
required to be executed herein or executed pursuant hereto, and as any of them
may be extended, renewed, amended or supplemented from time to time.
(r) "National Prime Rate" shall mean the Prime Rate
as published in the Wall Street Journal, Money Rates Table, as of the date of
any interest rate adjustment.
(s) "Net Worth" shall mean at any date the net
worth of Borrower, consolidated with Guarantor, including intangible assets not
to exceed $6,000,000, as determined under GAAP.
(t) "New Restaurant' shall mean a Restaurant under
construction or in its first fiscal quarter of operation, if the results of its
operation are not, and have not previously been, included in Borrower's EBITDA
calculation.
(u) "Note" shall mean the Facility Note, and all
extensions, renewals, modifications or replacements thereof.
(v) "Operating Leases" shall mean leases of
personal or real property by Borrower or Guarantor, the payment of which is
deducted from the results of operations of Borrower or Guarantor prior to
calculation of EBITDA.
(w) "Real Estate" shall mean the real estate, all
buildings or improvements situated thereof, together with all easements,
servitudes, rights of way, sewer rights and all appurtenances whatsoever, in any
way now or hereafter belonging to the real estate and the rents, issues and
profits thereof.
(x) "Restaurant" shall mean the Real Estate, if
owned by Borrower or Guarantor; any Leasehold interest of Borrower or Guarantor;
all improvements, buildings, structures and appurtenances located on the Real
Estate or any leasehold, including bars, banquet,
3
<PAGE>
meeting and other public rooms, garage and parking spaces, kitchens, storerooms
and maintenance workshops and all public grounds; and all Accounts, Contracts,
General Intangibles, Inventory, Licenses and Permits, FF&E, plans and
specifications, Trademark Licenses and all other property of every kind and
description used or useful in the ownership, occupancy, operation, and
maintenance of the restaurant as currently operated or proposed to be operated
in the future, together with any and all proceeds of the foregoing, including,
without limitation, any and all cash and noncash consideration received from the
sale, exchange, lease, collection or other disposition of any of the foregoing,
any payment received from any insurer or other person or entity as a result of
the destruction, loss, theft, damage or other involuntary conversion of whatever
nature of any of the foregoing, and all replacements, substitutions for the
foregoing or assessions thereto.
(y) "Subsidiaries" shall mean on the date of this
Agreement, the entities identified on Attachment "A" hereto. "Subsidiaries"
shall further include all future entities owned in whole or in part by TENT
Finance, Inc. to the extent such entities own and operate Fox & Hound
Restaurants, Bailey's Sports Grilles, or other ventures financed in whole or in
part by proceeds of the Facility.
(z) "Trademark Licenses" shall mean all trademark
rights, trade names, trade name rights, patents, patent rights, and fictitious
name rights necessary to enable Borrower or Guarantor to conduct its business
without conflict with the rights of others, including contracts granting to
Borrower or Guarantor any right to use any Trademark or name with regard to a
Restaurant or part thereof.
(aa) "UCC" shall mean the Uniform Commercial Code
as from time to time in effect in the State of Kansas.
ARTICLE II
NOTE AND SECURITY
Section 2.1. FACILITY. Pursuant to the terms and
conditions of this Agreement, Bank agrees to establish a Facility of $20,000,000
in favor of Borrower, to be evidenced by a Facility Note which shall mature on
October 1 , 2001. A copy of the Facility Note is attached hereto as Attachment
"B ". Advances under the Facility will be made by Bank to Borrower from time to
time in accordance with the terms and conditions of this Agreement. All advances
shall be used by Borrower solely for the purposes set forth in Section 2.4
hereof.
Section 2.2. TERMS OF PAYMENT ON FACILITY. Interest
on the Note, or any advance thereunder, shall be adjusted on the first day of
each month to National Prime Rate as of such date less %. Accrued interest shall
be due on the first day of each month beginning October 1, 1998. Principal shall
be due and payable at maturity.
Section 2.3. LIMITATIONS ON THE FACILITY. Borrower
may borrow, partially or wholly repay its borrowings, and reborrow, by
requesting advances from the Facility, so long as:
(a) The total Indebtedness owed Bank, including all
principal and accrued interest does not exceed the Facility at any one time;
4
<PAGE>
(b) None of the terms and conditions of this
Agreement are in default and Bank has not determined that there has been a
material adverse change in the financial condition of Borrower on a consolidated
basis; or
(c) Neither Borrower nor Guarantor is in default
under any loan, any other financial obligation, or any other material agreement.
(d) The advance, when aggregated with all
outstanding Indebtedness of Borrower, will not result in a breach of the
financial covenants set forth in Section 5.12 hereof, as of the date of such
loan or advance hereunder; and
(e) The advance, when aggregated with all
outstanding loans, advances or loan commitments by Bank, to Borrower (or to
other persons or entities required by law to be aggregated with the outstanding
loans of Borrower), would not exceed Bank's legal lending limit determined
pursuant to federal regulations and issuances of the Office of the Comptroller
of the Currency, as of the date of such loan or advance hereunder.
Section 2.4. USE OF PROCEEDS. The proceeds from the
Facility shall be used for working capital and restaurant development, including
acquisition of furnishings, fixtures, equipment and leaseholds for Fox & Hound
restaurants, English Pub & Grille restaurants, Bailey's Sports Grille , Baileys
Pub & Grille restaurants, or other ventures approved by Bank.
Section 2.5. SECURITY. As security for the entire
Indebtedness to Bank, Borrower and Guarantor hereby pledge, assign and grant a
first security interest in favor of Bank in the Collateral of Borrower and
Guarantor. It is acknowledged that Borrower may from time to time form
additional Subsidiaries for the purpose of operating additional locations. From
the date of formation of such new Subsidiary, it shall be deemed a Guarantor
hereunder, subject to the terms and condition of this Agreement. Borrower agrees
to promptly notify Bank of the formation of any new Subsidiary and to cause such
Subsidiary to deliver to Bank an unlimited guaranty of the Indebtedness and
other Loan Documents reasonably requested by Bank to grant and perfect in Bank a
first and prior security interest in the Collateral held by such new Subsidiary.
Section 2.6. RENEWALS AND EXTENSIONS. If no Event
of Default has occurred or is continuing, Borrower shall have the option to
renew the Indebtedness outstanding under the Facility Note on its maturity date.
Such renewal shall be evidenced by a term note having a maturity date of October
1 , 2005 (the "Renewal Note"). Interest on the Renewal Note shall be adjusted on
the first day of each month to National Prime Rate as of such date less %. The
Renewal Note shall provide for equal installments of principal and interest
commencing on November 1, 2001 and continuing each month thereafter as necessary
to fully amortize the Indebtedness plus future interest over the term. As a
precondition of such renewal, Borrower and Guarantor agree to execute and
deliver to Bank such additional documents as may be required by Bank to grant,
continue or perfect Bank's interest in the Collateral, as it may exist at the
time of such renewal.
Any renewal, extension or modification of the Facility Note, or any advance made
pursuant to the terms of such note, or any other indebtedness which Borrower may
have with Bank in the future, shall be subject to the terms of this Agreement.
Except as expressly set forth herein, Bank is
5
<PAGE>
under no obligation to renew any obligation when it matures.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
Borrower and Guarantor hereby represent and
warrant, and so long as any indebtedness from Borrower to the Bank remains
outstanding, continuously represents and warrants as follows:
Section 3.1. LEGAL STATUS. Borrower is a
corporation duly organized and existing under the laws of the State of Delaware,
and is qualified to do business, and is in good standing, in all jurisdictions
in which it conducts its business. Guarantor is an entity as described on
Attachment "A", organized and existing under the laws set forth on Attachment
"A", and is qualified to do business, and is in good standing, in all
jurisdictions in which it conducts its business.
Section 3.2. NO VIOLATION. The making and
performance by Borrower and Guarantor of this Agreement does not violate any
provision of law, or result in a breach of, or constitute a default under,
Borrower's or Guarantor's articles of incorporation and bylaws, or any Loan
Documents, agreement, indenture or other instrument to which Borrower or
Guarantor may be a party or by which it may be bound.
Section 3.3. LITIGATION. There are no pending or
threatened actions or proceedings before any court or administrative agency
against Borrower or any Guarantor which would have a material adverse effect
upon the financial condition or results of operations of Borrower or any
Guarantor other than those heretofore disclosed to Bank in writing.
Section 3.4. CORRECTNESS OF FINANCIAL STATEMENTS.
The financial statements heretofore and hereafter delivered by Borrower to Bank
present fairly the financial condition of Borrower, consolidated with Guarantor,
and have been prepared in accordance with generally accepted accounting
principles consistently applied. As of the date of each such financial
statement, and since such date, there has been no material adverse change in the
financial condition or results of operations of Borrower or Guarantor, nor has
Borrower or Guarantor mortgaged, pledged or granted a security interest in, or
encumbered, any assets or properties since such date.
Section 3.5. AUTHORIZATION. The Loan Documents have
been duly authorized, executed and delivered by Borrower and Guarantor and are
the legal, valid and binding obligations of Borrower and Guarantor enforceable
in accordance with their respective terms except as rights to indemnity and
contribution contained in the Loan Documents may be limited by applicable law
and except as enforceability may be limited by bankruptcy, insolvency,
moratorium and similar laws affecting creditors' rights.
Section 3.6. NO SUBORDINATION. The obligations of
Borrower and Guarantor under this Agreement and the Loan Documents, are not
subordinated in right of payment or in lien priority to any obligation of
Borrower or Guarantor.
6
<PAGE>
Section 3.7. PERMITS, FRANCHISES. The Borrower or
Guarantor, as applicable, now possesses, and will hereafter possess, all
Licenses and Permits and Trademark Licenses, except where the failure to possess
such Licenses and Permits and Trademark Licenses would not have a material
adverse effect upon the financial condition or results of operations of the
Borrower or any Guarantor.
Section 3.8. YEAR 2000 COMPLIANT. Borrower and each
Guarantor has:
(a) Undertaken a detailed inventory, review, and
assessment of all areas within its business and operations that could be
materially adversely affected by the failure of Borrower or Guarantor to be Year
2000 Compliant on a timely basis;
(b) Developed a plan and timeline for becoming Year
2000 Compliant on a timely basis; and
(c) To date, implemented in all material respects
that plan in accordance with that timetable, except to the extent that a failure
to do so could not reasonably be expected to have a material adverse effect on
the financial condition or results of operations of Borrower or any Guarantor.
Borrower and Guarantor reasonably anticipate that they will be Year 2000
Compliant on a timely basis. Borrower and Guarantor plan to make timely written
inquiry of each of their key suppliers, vendors, and customers as to whether
such persons will, on a timely basis, be Year 2000 Compliant in all material
respects and on the basis of such inquiry believe that all such persons will be
so compliant. For the purposes hereof, "Year 2000 Compliant" means, with regard
to any entity, that all software, embedded microchips, and other processing
capabilities utilized by, and material to the business operations or financial
condition of, such entity are able to interpret and manipulate data on and
involving all calendar dates correctly and without causing any abnormal ending
scenario, including in relation to dates in and after the Year 2000. For
purposes hereof, "key suppliers, vendors and customers" refers to those
suppliers, vendors and customers of Borrower or Guarantor whose business failure
would, with reasonable probability, result in a material adverse change in the
business, properties, condition (financial or otherwise), or prospects of
Borrower or Guarantor.
ARTICLE IV - CONDITIONS PRECEDENT
The obligation of Bank to make any advance under
the Loan Agreement , is subject to the fulfillment of the following conditions:
Section 4.1. APPROVAL OF BANK COUNSEL. All legal
matters incidental to all such advances hereunder shall be satisfactory to legal
counsel of Bank.
Section 4.2. COMPLIANCE. The representations and
warranties contained herein shall be true as of the date of the signing of this
Agreement and on the date of any advance, no Event of Default, as defined in
Article VII herein, and no condition, event or act which, with the giving of
notice or the lapse of time or both, would constitute an Event of Default, shall
have occurred.
7
<PAGE>
Section 4.3. DOCUMENTATION. Borrower shall have
delivered to Bank in form and substance satisfactory to Bank the following
described documents:
(a) This Agreement and other Loan Documents duly
executed by Borrower and Guarantor granting to Bank a first and prior perfected
security interest in the Collateral;
(b) Certified copy of Corporate Resolution of
Borrower ratifying this Agreement and authorizing the execution of the Loan
Documents;
(c) Certified copy of Resolution of Guarantor
ratifying this Agreement and authorizing the Guaranty Agreement and other Loan
Documents;
(d) Unlimited unconditional Guaranty Agreement from
the Guarantors;
(e) Such other documentation as the Bank may
reasonably require.
ARTICLE V - AFFIRMATIVE COVENANTS
Borrower and Guarantor covenant that so long as
Borrower is indebted to Bank under this Agreement, Borrower and Guarantor will:
Section 5.1. PUNCTUAL PAYMENT. Punctually pay to
Bank all payments required to be made under this Loan Agreement and any Note.
Section 5.2. ACCOUNTING RECORDS. Maintain adequate
books and accounts in accordance with generally accepted accounting principles
consistently applied, so that any time, and from time to time, the true and
complete financial condition of Borrower consolidated with Guarantor is fairly
presented and can be readily determined, and permit any representative of Bank
at any reasonable time, to inspect, audit and examine such books and accounts of
Borrower or any Guarantor and permit Bank to make and obtain copies of any such
books and accounts, and to permit any representative of Bank to inspect the
properties of Borrower and any Guarantor.
Section 5.3. FINANCIAL STATEMENTS: Furnish Bank:
(a) Not later than 105 days after, and as of the
end of each fiscal year, a financial statement of Borrower prepared by a
certified public accountant to include balance sheet and income statement;
(b) Not later than 50 days after the end of each
calendar quarter, a balance sheet and statement of income of Borrower,
consolidated with Guarantor, in a form satisfactory to Bank, certified correct
by an officer of Borrower;
(c) Not later than 15 days after the end of each 4
week accounting period, a borrowing base certificate in a form acceptable to
Bank, to include certification of EBITDA and detailed description of New
Restaurants opened for business during the period, certified correct by an
officer of Borrower; and
8
<PAGE>
(d) From time to time such other information as
Bank may reasonably request.
Section 5.4. NOTICE TO ACCOUNTANTS. Notify
Borrower's and Guarantor's accountants in writing that Bank intends to rely upon
financial information prepared by such accountants on behalf of Borrower and
each Guarantor in determining whether to make any extension of credit covered by
this Loan Agreement, including any advance, renewal or extension thereto.
Section 5.5. EXISTENCE. Preserve and maintain the
existence and all of the rights, privileges and franchises of Borrower and
Guarantor; conduct all business in an orderly, efficient, and regular manner;
and comply in all material respects with the requirements of all applicable
laws, rules, regulations and orders of a governmental authority except where the
failure to preserve and maintain such rights, privileges and franchises or where
the failure to comply with such laws, rules, regulations and orders would not
have a material adverse effect upon the financial condition or results of
operations of Borrower or any Guarantor. Provided, further, that upon the prior
written consent of Bank which shall not be unreasonably withheld or delayed,
Borrower or Guarantor may relocate, consolidate or close any Restaurant if such
relocation, consolidation or discontinuance would not have a material adverse
effect upon the financial condition or results of operations of Borrower or any
Guarantor.
Section 5.6. INSURANCE. Maintain and keep in force
insurance of the types and in amounts customarily carried in the line of
business similar to that of Borrower and Guarantor, including, but not limited
to, fire, public liability, property damage, workers' compensation, and carried
with companies and in amounts reasonably satisfactory to Bank; and Borrower and
Guarantor shall deliver to Bank from time to time, at Bank's request, schedules
setting forth all insurance then in effect. Borrower and Guarantor shall
maintain and keep in force product liability insurance in such amounts deemed
adequate and economically feasible by the parties.
Section 5.7. FACILITIES. Keep all Borrower's and
Guarantor's properties in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto as shall be reasonably
necessary for the proper conduct of its business. . Provided, further, that upon
the prior written consent of Bank which shall not be unreasonably withheld or
delayed, Borrower or Guarantor may relocate, consolidate or close any of its
facilities if such relocation, consolidation or discontinuance would not have a
material adverse effect upon the financial condition or results of operations of
Borrower or any Guarantor. Borrower and Guarantor shall promptly satisfy any and
all mechanic's or materialmen's liens filed on any of its facilities.
Section 5.8. TAXES AND OTHER LIABILITIES. Pay and
discharge when due any and all indebtedness, obligations, assessments, and taxes
of Borrower or Guarantor, except such as it may in good faith contest or as to
which a bona fide dispute may arise.
Section 5.9. LITIGATION. Promptly give notice in
writing to Bank of any litigation pending or threatened against Borrower or
Guarantor where the amount sought exceeds $50,000.
Section 5.10. NOTICE TO BANK. Promptly give notice
in writing to Bank of (a)
9
<PAGE>
the occurrence of any Event of Default, as defined in Article VII; (b) any
change in the name, identity or corporate structure of Borrower or Guarantor; or
(c) any uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $100,000 to Borrower or to
Guarantor.
Section 5.11. SECURITY DOCUMENTATION AND POWER OF
ATTORNEY. Upon request of Bank, assist Bank in obtaining and filing all security
agreements, financing statements, and other documentation required to retain
Bank's perfected security interest in the assets of Borrower and Guarantor.
Borrower and Guarantor irrevocably appoints Bank as its attorney in fact to
execute all financing statements and amendments thereto on behalf of Borrower
and Guarantor. Bank shall promptly provide Borrower with copies of all documents
executed by Bank under this Section.
Section 5.12. FINANCIAL CONDITIONS. Maintain
Borrower's financial condition, when consolidated with Guarantor, as follows:
(a) Borrower shall maintain Net Worth of not less
than $20,000,000.
(b) Borrower's Indebtedness to Bank plus any
Capital Lease Excess, shall not exceed the lesser of (i) $20,000,000 , or (ii)
(EBITDA x EBITDA Multiple) + (New Restaurants x $250,000) . If such limit is
exceeded, Borrower shall immediately reduce its outstanding Indebtedness to Bank
as required to bring itself into compliance with the foregoing financial
condition.
Section 5.13. PAYMENT OF COSTS AND EXPENSES.
Borrower and Guarantor agree to pay to Bank, on demand, all reasonable and
necessary costs and expenses as provided in this Agreement and the other Loan
Documents, and all costs and expenses reasonably and necessarily incurred by
Bank from time to time in connection with this Agreement and the other Loan
Documents, including, without limitation, those reasonably and necessarily
incurred in: (i) preparing, negotiating, amending, waiving or granting consent
with respect to the terms of any or all of the Loan Documents; (ii) enforcing
the Loan Documents; (iii) performing any of Borrower's or Guarantor's duties
under the Loan Documents upon Borrower's or Guarantor's failure to perform them;
(iv) filing financing statements, assignments or other documents relating to the
Collateral (e.g., filing fees, registration taxes); (v) compromising, pursuing,
or defending any controversy, action or proceeding resulting, directly or
indirectly, from Bank's relationship with Borrower or Guarantor, regardless of
whether Borrower or Guarantor is a party to such controversy, action or
proceeding and whether the controversy, action or proceeding occurs before or
after all indebtedness owing to Bank by Borrower and Guarantor has been paid in
full; provided, however, that Borrower and Guarantor shall not be liable to Bank
for costs and expenses resulting from the gross negligence or the willful
misconduct of Bank in connection therewith; (vi) enforcing or collecting any
part of the indebtedness owing to Bank by Borrower or any guaranty contemplated
under the Loan Documents; (vii) actual out of pocket expenses of Bank incurred
to employ collection agencies or other agents to collect any or all of the
accounts and accounts receivables; and (viii) obtaining independent appraisals
of the Collateral from time to time as deemed reasonably necessary by Bank. Any
amount due to Bank pursuant to this Section shall, if not paid upon demand,
accrue interest at the per annum rate of 5 percentage points over Bank's base
rate as adjusted from time to time.
10
<PAGE>
ARTICLE VI - NEGATIVE COVENANTS
Borrower and Guarantor covenants that so long as
Borrower is indebted to Bank, Borrower and Guarantor will not, without prior
written consent of Bank which shall not be unreasonably withheld or delayed:
Section 6.1. OTHER INDEBTEDNESS. , Create, incur,
or permit to exist any liabilities resulting from borrowings, leases, loans or
advances, whether secured or unsecured, or any liens, mortgages or other
encumbrances, except:
(a) Indebtedness to Bank,
(b) Obligations of Borrower or Guarantor under
Operating Leases,
(c) Obligations of Borrower or Guarantor under
Capital Leases aggregating less than one million dollars ($1,000,000), computed
on a consolidated basis;
(d) other indebtedness of Borrower or Guarantor
outstanding on the date of this Agreement and reflected in its financial
statements or otherwise disclosed in writing to Bank; and
(e) obligations in the ordinary course of business.
Section 6.2. MERGER, CONSOLIDATION, SALE OF ASSETS.
Merge into or consolidate with any corporation or other entity or acquire all or
substantially all of the assets of any other corporation or entity; or sell,
lease, assign, transfer or otherwise dispose of all or substantially all of its
assets.
Section 6.3. GUARANTIES, ADVANCES AND DIVIDENDS.
Guarantee or become liable in any way as surety, endorser (other than as
endorser of negotiable instruments in the ordinary course of business) or
accommodation for the debt or obligations of any person or entity, or make
advances to officers or employees in excess of $50,000 in the aggregate, other
than regularly scheduled salary payments and regular payments to an existing
qualified profit or pension plan. Borrower may not make treasury stock
purchases.
ARTICLE VII - EVENTS OF DEFAULT
Section 7.1. EVENTS OF DEFAULT. Any of the
following shall constitute an Event of Default.
(a) Default by Borrower in any payment of principal
or interest under any indebtedness to Bank or any sum due in this Agreement; or
(b) Any representation or warranty made by Borrower
or Guarantor hereunder which shall be incorrect in any material respect; or
(c) Default by Borrower or Guarantor in the
performance of any other term,
11
<PAGE>
covenant or agreement contained herein, which default is not cured within 20
days from its occurrence; or
(d) Default by Borrower or Guarantor under the
terms of any agreement, note or other instrument except to the extent that such
default could not reasonably be expected to have a material adverse effect on
the financial condition of Borrower or any Guarantor or where such default has
been cured within 30 days; provided, however, that if Borrower or Guarantor
defaults in its performance under any other agreement, note, or instrument and
such default causes Borrower's or Guarantor's obligations to be immediately due
and payable, then Bank, in its sole discretion, may immediately exercise its
rights under Section 7.3 herein; or
(e) The failure of Borrower or Guarantor to
promptly pay and discharge any final judgment, levy of attachment, execution or
other process against the assets of Borrower and such judgment be not satisfied,
or such levy or other process be not removed, within 30 days after the date on
which any period for appeal has expired ; or
(f) Borrower or Guarantor shall be adjudicated a
bankrupt or insolvent, or shall consent to or apply for the appointment of a
receiver, trustee or liquidator of itself or any of its property, or shall admit
in writing its inability to pay its debts generally as they become due, or shall
make a general assignment for the benefit of creditors, or shall file a
voluntary petition in bankruptcy or voluntary petition or an answer seeking
reorganization or arrangement in a proceeding under any bankruptcy law; or
(g) There shall have occurred a material adverse
change, as reasonably determined by Bank, in the financial condition or results
in operations of the Borrower or Guarantor since the date of this Agreement
including, but not limited to, a change in ownership or management of Borrower
or Guarantor; or
(h) An Event of Default (as defined in the other
Loan Documents) occurs in any of the other Loan Documents.
Section 7.2. ENVIRONMENTAL EVENTS OF DEFAULT. Any
of the following shall constitute an additional Event of Default:
(a) If Bank receives its first notice of a
hazardous discharge or environmental complaint from a source other than Borrower
or Guarantor, and Bank does not receive notice (which may be given in oral form,
provided same is followed with all due dispatch by written notice given by
Certified Mail, Return Receipt Requested) of such hazardous discharge or
environmental complaint from Borrower or Guarantor within seven (7) days of the
time Bank first receives said notice from a source other than Borrower or
Guarantor; or
(b) If any federal, state or local agency asserts
or creates a lien in excess of $50,000 on any or all of the assets, equipment,
property, leaseholds or other facilities of the Borrower by reason of the
occurrence of a hazardous discharge or environmental complaint; or
(c) If any federal, state or local agency asserts a
claim against Borrower or Guarantor and/or its assets, equipment, property,
leaseholds or other facilities for damages or
12
<PAGE>
cleanup costs in excess of $50,000 relating to a hazardous discharge or
environmental complaint; provided, however, such claim shall not constitute an
Event of Default if, within ten (10) business days of the occurrence giving rise
to the claim;
(i) Borrower or Guarantor can demonstrate to Bank's
satisfaction that Borrower or Guarantor has commenced and is diligently pursuing
either: (1) a cure or correction of the event which constitutes the basis for
the claim, and continues diligently to pursue such cure or correction to
completion or (2) proceedings for an injunction, a restraining order or other
appropriate emergent relief preventing such agency or agencies from asserting
such claim, which relief is granted within ten (10) business days of the
occurrence giving rise to the claim and the injunction, order or emergency
relief is not thereafter resolved or reversed on appeal; and
(ii) In either of the foregoing events, Borrower or
Guarantor has posted a bond, letter of credit or other security satisfactory in
form, substance and amount to both Bank and the agency or entity asserting the
claim to secure the correction of the event which constitutes the basis for the
claim.
Section 7.3. ACCELERATION. If an Event of Default
shall occur, any indebtedness of Borrower under this Agreement or any Note, any
term of such Note to the contrary notwithstanding, shall, at Bank's option and
without notice become immediately due and payable without presentment, notice or
demand, all of which are hereby expressly waived by Borrower and Guarantor; and
the obligation, if any, of the Bank to permit further borrowings hereunder shall
immediately cease and terminate.
ARTICLE VIII - ENVIRONMENTAL
Section 8.1. SURVIVAL. This Article shall survive
the expiration or termination of this Agreement.
Section 8.2. REPRESENTATIONS AND WARRANTIES. (a)
Borrower and Guarantor have duly complied in all material respects with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance in all material respects with, the provisions of
all federal, state and local environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder.
(b) Borrower and Guarantor have been issued and
will maintain all required federal, state and local permits, licenses,
certificates and approvals relating to (i) air emissions, (ii) discharges to
surface or groundwater, (iii) noise emissions, (iv) solid or liquid waste
disposal, (v) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (intended hereby and hereafter to include any
and all such materials listed in any federal, state or local law, code or
ordinance and all rules and regulations promulgated thereunder, as hazardous or
potentially hazardous), or (vi) other environmental, health or safety matters. A
true, accurate and complete list of all such permits, licenses, certificates and
approvals will be made available at Bank's request.
(c) Borrower and Guarantor have received no notice
of, and neither knows of
13
<PAGE>
nor suspect, facts which might constitute any violations of any federal, state
or local environmental, health or safety laws, codes or ordinances and any rules
or regulations promulgated thereunder with respect to its business, operations,
assets, equipment, property, leaseholds or other facilities.
(d) Except in accordance with a valid governmental
permit, license, certificate of approval attached hereto, there has been no
emission, spill, release or discharge into or upon (i) the air, (ii) soils or
any improvements located thereon, (iii) surface water or groundwater, or (iv)
the sewer, septic system or waste treatment, storage or disposal system
servicing the premises, of any toxic or hazardous substances or wastes at or
from the premises in amounts that would require corrective action; and
accordingly the premises contain no such toxic or hazardous substances or wastes
above amounts that would require corrective action.
(e) Except where Borrower or Guarantor have
provided written notification to Bank, there has been no complaint, order,
directive, claim, citation or notice by any governmental authority or any person
or entity with respect to (i) air emissions, (ii) spills, releases or discharges
to soils or improvements located thereon, surface water, groundwater or the
sewer, septic system or waste treatment, storage or disposal systems servicing
the premises, (iii) noise emissions, (iv) solid or liquid waste disposal, (v)
the use, generation, storage, transportation or disposal of toxic or hazardous
substances or waste or (vi) other environmental, health or safety matters
affecting the Borrower, Guarantor or its business, operations, assets,
equipment, property, leaseholds, or other facilities.
Section 8.3. BORROWER'S AND GUARANTOR'S LIABILITY.
Borrower and Guarantor have no indebtedness, obligation or liability, absolute
or contingent, matured or not matured, with respect to the storage, treatment,
clean-up or disposal of any solid wastes, hazardous wastes or other toxic or
hazardous substances (including without limitation any such indebtedness,
obligation or liability with respect to any current regulation, law or statute
regarding such storage, treatment, clean-up or disposal).
Section 8.4. AFFIRMATIVE COVENANTS. Borrower and
Guarantor will, unless Bank shall otherwise consent in writing:
(a) be and remain in compliance in all material
respects with the provisions of all federal, state and local environmental,
health and safety laws, codes and ordinances and all rules and regulations
issued thereunder;
(b) notify the Bank immediately of any notice of a
hazardous discharge or environmental complaint received from any governmental
agency or any other party;
(c) notify the Bank immediately of any hazardous
discharge from or affecting its premises; and
(i) immediately contain and remove the same, in
compliance in all material respects with all applicable laws; and
14
<PAGE>
(ii) promptly pay any fine or penalty assessed in
connection therewith;
(d) permit the Bank to inspect the premises, to
conduct tests thereon, and to inspect all books, correspondence and records
pertaining thereto; and
(e) at the Bank's request, and at the Borrower's
and Guarantor's expense, provide a report to Bank of a qualified environmental
engineer, satisfactory in scope, form, and content to the Bank, and such other
and further assurances reasonably satisfactory to the Bank that the condition
has been corrected.
Section 8.5. INDEMNIFICATION. Borrower and
Guarantor hereby agree to defend, indemnify, and hold the Bank harmless from and
against any and all claims, damages, judgments, penalties, costs and expenses
(including reasonable attorney fees and court costs now or hereafter arising
from the aforesaid enforcement of this clause) arising directly or indirectly
from the activities of Borrower and Guarantor, their predecessors in interest,
or third parties with whom it has a contractual relationship, or arising
directly or indirectly from the violation of any environmental protection,
health or safety law, whether such claims are asserted by any governmental
agency or any other person. This indemnity shall survive termination of this
Agreement.
ARTICLE IX - MISCELLANEOUS
Section 9.1. WAIVER. No delay or failure of Bank,
in exercising any right, power or privilege hereunder, shall affect such right,
power or privilege; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power or
privilege hereunder, shall affect such right, power or privilege. The rights and
remedies of Bank hereunder are cumulative and not exclusive. Any waiver, permit,
consent or approval of any kind to Bank, of any breach or default hereunder, or
any such waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in such writing.
Section 9.2. JURY WAIVER. Borrower and Guarantor
expressly waive any right to a trial by jury in any action or proceedings to
enforce or defend any rights hereunder or under any amendment, instrument,
document or agreement delivered, or which may hereafter be delivered, to or by
Borrower or Guarantor.
Section 9.3. NOTICES. All notices, requests and
demands given to or made upon the respective parties shall be deemed to have
been given or made when deposited in the mail, postage prepaid, and addressed as
follows:
Borrower: TENT Finance, Inc.
300 Crescent Court, Suite 850
Attn: James K. Zielke
Dallas, Texas 75201
Bank: INTRUST Bank, N.A.
P.O. Box One
Attn: Bruce A. Long, Sr. Vice President
Wichita, KS 67201
15
<PAGE>
Guarantor: As Set Forth On Attachment "A".
Section 9.4. WRITTEN AGREEMENTS. THIS LOAN
AGREEMENT, TOGETHER WITH OTHER WRITTEN AGREEMENTS OF THE PARTIES, IS THE FINAL
EXPRESSION OF THE AGREEMENT BETWEEN THE BANK, THE BORROWER AND GUARANTOR, AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL
AGREEMENT BETWEEN THE PARTIES. ANY NON-STANDARD TERM MUST BE WRITTEN BELOW TO BE
ENFORCEABLE.
BY SIGNING BELOW THE PARTIES AFFIRM THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THEM.
"BANK" "BORROWER"
INTRUST Bank, N.A. TENT Finance, Inc.
By: /s/ Bruce A. Long By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Bruce A. Long, Sr. Vice President Gary M. Judd, CEO, COO & President
Total Entertainment Restaurant Corp.
By: /s/ Gary M. Judd
--------------------------------
Gary M. Judd, CEO, COO & President
"GUARANTOR"
Fox & Hound of Texas, Inc. Alabama Fox & Hound, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of Colorado, Inc. Bailey's Sports Grille, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
F & H Restaurant Corp. F & H Restaurant of Georgia, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
16
<PAGE>
Fox & Hound of Illinois, Inc. Fox & Hound of Indiana, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
F & H of Iowa, Inc. Fox & Hound of Kansas, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
"GUARANTOR"
Fox & Hound of Louisiana, Inc. Fox & Hound of Michigan, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of Missouri, Inc. Fox & Hound of Nebraska, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
North Carolina Fox & Hound, Inc. Fox & Hound of Ohio, Inc..
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Pennsylvania Fox & Hound, Inc. Fox & Hound of Tennessee, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound, Inc. Fox & Hound II, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
17
<PAGE>
F & H Dallas, L.P., Fox & Hound Club
F & H Restaurant Corp., General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Midway Entertainment, Ltd., N. Collins Entertainment, Ltd.,
F & H Restaurant Corp., General Partner F & H Restaurant Corp.,
General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
"GUARANTOR"
505 Entertainment, Ltd., 505 Beverage, Inc.
F & H Restaurant Corp., General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of Houston, Ltd., Fox & Hound of Lubbock, Ltd.,
F & H Restaurant Corp., General Partner F & H Restaurant Corp.,
General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Raider Beverage Corporation Fox & Hound of Lewisville, Ltd.,
F & H Restaurant Corp.,
General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of San Antonio, Ltd., Jackson Beverage Corporation,
F & H Restaurant Corp., General Partner f/k/a N. Collins Beverage, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Section 9.5. KANSAS LAW APPLICABLE. This Agreement
shall be construed in accordance with the laws of the State of Kansas, without
regard to principles of conflicts of laws, and applicable federal law. Borrower
expressly agrees that jurisdiction and venue for all legal proceedings filed in
connection herewith shall lie exclusively in Sedgwick County, Kansas.
Section 9.6. OTHER LOAN DOCUMENTS. Borrower and
Guarantor understands and agrees that it is additionally bound by the terms and
conditions of the other Loan Documents, which such terms and conditions are
incorporated herein and made a part of this Agreement. To the extent that any
term or provision contained in other Loan Documents conflicts
18
<PAGE>
with a term or provision of this Agreement, the term or provision providing the
Bank the most security or the greatest right shall control.
Section 9.7. BINDING EFFECT. The rights and
obligations of the parties under this Agreement shall inure to the benefit of,
and shall be binding upon their heirs, personal representatives, successors and
assigns.
Section 9.8. COUNTERPARTS. This Agreement may be
executed in one or more counterparts each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement the day first above written.
"BANK" "BORROWER"
INTRUST Bank, N.A. TENT Finance, Inc.
By: /s/ Bruce A. Long By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Bruce A. Long, Sr. Vice President Gary M. Judd, CEO, COO & President
Total Entertainment Restaurant Corp.
By: /s/ Gary M. Judd
--------------------------------
Gary M. Judd, CEO, COO & President
19
<PAGE>
"GUARANTOR"
Fox & Hound of Texas, Inc. Alabama Fox & Hound, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of Colorado, Inc. Bailey's Sports Grille, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
"GUARANTOR"
F & H Restaurant Corp. F & H Restaurant of Georgia, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
"GUARANTOR"
Fox & Hound of Illinois, Inc. Fox & Hound of Indiana, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
F & H of Iowa, Inc. Fox & Hound of Kansas, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of Louisiana, Inc. Fox & Hound of Michigan, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
20
<PAGE>
Fox & Hound of Missouri, Inc. Fox & Hound of Nebraska, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
North Carolina Fox & Hound, Inc. Fox & Hound of Ohio, Inc..
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Pennsylvania Fox & Hound, Inc. Fox & Hound of Tennessee, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound, Inc. Fox & Hound II, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
21
<PAGE>
F&H Dallas, L.P., Fox & Hound Club
F & H Restaurant Corp., General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Midway Entertainment, Ltd., N. Collins Entertainment, Ltd.,
F & H Restaurant Corp., General Partner F & H Restaurant Corp.,
General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
505 Entertainment, Ltd., 505 Beverage, Inc.
F & H Restaurant Corp., General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of Houston, Ltd., Fox & Hound of Lubbock, Ltd.,
F & H Restaurant Corp., General Partner F & H Restaurant Corp.,
General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Raider Beverage Corporation Fox & Hound of Lewisville, Ltd.,
F & H Restaurant Corp.,
General Partner
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
Fox & Hound of San Antonio, Ltd., Jackson Beverage Corporation,
F & H Restaurant Corp., General Partner f/k/a N. Collins Beverage, Inc.
By: /s/ Gary M. Judd By: /s/ Gary M. Judd
--------------------------------- --------------------------------
Gary M. Judd, President Gary M. Judd, President
22
PROMISSORY NOTE
BORROWER: TENT FINANCE, INC. & LENDER: INTRUST Bank, N.A
TOTAL ENTERTAINMENT P.O. Box One
RESTAURANT CORP. 105 N. Main
P.O. Box 11248 Wichita, KS 67201
Wichita, KS 67277-2248
PRINCIPAL AMOUNT: $20,000,000.00 INITIAL RATE: 8.000% DATE OF NOTE: September 1,
1998
PROMISE TO PAY. TENT Finance, Inc. and Total Entertainment Restaurant Corp.
("Borrower") promises to pay to INTRUST Bank, N.A. ("Lender"), or order, in
lawful money of the United States of America, the principal amount of Twenty
Million & 00/100 Dollars ($20,000,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on October 1, 2001. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning October 1,
1998, and all subsequent interest payments are due on the same day of each month
after that. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Prime Rate as
published in the Wall Street Journal Southwestern Edition (the "Index"). The
Index is not necessarily the lowest rate charged by Lender on its loans. If the
Index becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the current
Index rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The interest rate change will not occur more
often than each month on the first day of the month following the change of the
index. The Index currently is a 8.500% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 0.500
percentage points under the Index, resulting in an initial rate of 8.000% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $100.00,
whichever is less.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part
<PAGE>
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest. This
includes a garnishment of any of Borrower's accounts with Lender. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the indebtedness is impaired. (h) Lender in good faith
deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid balance of
this Note and all accrued unpaid interest immediately due, without notice, and
then Borrower will pay that amount. Upon default, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate of this Note 5.000 percentage points.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else who is not a salaried employee of Lender to
help collect this Note if Borrower does not pay. Borrower will be liable for all
reasonable costs incurred in the collection of this Note, including but not
limited to, court costs, attorneys' fees, and collection agency fees, except
that such costs of collection shall not include the recovery of both attorneys'
fees and collection agency fees. This Note has been delivered to Lender and
accepted by Lender in the State of Kansas. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of Sedgwick County,
the State of Kansas. This Note shall be governed by and construed in accordance
with the laws of the State of Kansas.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
COLLATERAL. This Note is secured by Security Agreement dated 9/1/98 covering
accounts, inventory, equipment contract rights & general intangibles (TENT
Finance, Inc.) Security Agreement dated 9/1/98 covering accounts, inventory,
equipment, contract rights & general intangibles (Total Entertainment) Loan
Agreement dated 9/1/98; Security Agreement dated 9/1/98 covering accounts,
inventory, general intangibles, furniture, fixtures, equipment, leasehold
improvements and contract rights, including, but not limited to, rights arising
under leases, licenses & permits and trademark licenses (in the names of various
Grantors).
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Gary M. Judd,
CEO/President/COO; and James Zielke, Secretary. Borrower agrees to be liable for
all sums either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts with Lender. The
unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
-2-
<PAGE>
funds provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or any
other agreement between Lender and Borrower.
PRIOR NOTE. Promissory Note #418082-33345 to renew.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party show signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
NO ORAL AGREEMENTS. This written agreement is the final expression of the
agreement between Lender and Borrower and may not be contradicted by evidence of
any prior oral agreement or of a contemporaneous oral agreement between Lender
and Borrower.
NOTICE CONCERNING APPRAISAL WAIVER. The laws of South Carolina provide that in
any real estate foreclosure proceeding a defendant against whom a personal
judgment is taken or asked may within thirty days after the sale of the
mortgaged property apply to the court for an order of appraisal. The statutory
appraisal value as approved by the court would be substituted for the high bid
and may decrease the amount of any deficiency owing in connection with the
transaction. THE UNDERSIGNED HEREBY WAIVE(S) AND RELINQUISH(ES) THE STATUTORY
APPRAISAL RIGHTS WHICH MEANS THE HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL
BE APPLIED TO THE DEBT.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER
TENT Finance, Inc. & Total Entertainment
Restaurant Corp.
By:/S/ Gary M. Judd By:/s/ James K. Zielke
------------------------------- --------------------------
Gary M. Judd, CEO/President/COO James K. Zielke, Secretary
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 8, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> SEP-08-1998
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 590
<CURRENT-ASSETS> 2,271
<PP&E> 20,706
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,968
<CURRENT-LIABILITIES> 4,657
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 22,791
<TOTAL-LIABILITY-AND-EQUITY> 27,968
<SALES> 6,922
<TOTAL-REVENUES> 6,922
<CGS> 1,922
<TOTAL-COSTS> 5,945
<OTHER-EXPENSES> 616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 356
<INCOME-TAX> 132
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
