<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1997
REGISTRATION NO. 333-32249
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STAR BUFFET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5812 84-1430786
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
440 LAWNDALE DRIVE, SALT LAKE CITY, UTAH 84115-2917
(801) 463-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT E. WHEATON
CHIEF EXECUTIVE OFFICER AND PRESIDENT
STAR BUFFET, INC.
440 LAWNDALE DRIVE
SALT LAKE CITY, UTAH 84115-2917
(801) 463-5500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
C. CRAIG CARLSON, ESQ. PETER LILLEVAND, ESQ.
J. MICHAEL VAUGHN, ESQ. IAIN MICKLE, ESQ.
DAVID E. LAFITTE, ESQ. BRETT E. COOPER, ESQ.
STRADLING YOCCA CARLSON & RAUTH, ORRICK, HERRINGTON & SUTCLIFFE LLP
A PROFESSIONAL CORPORATION OLD FEDERAL RESERVE BANK BUILDING
660 NEWPORT CENTER DRIVE, SUITE 1600 400 SANSOME STREET
NEWPORT BEACH, CALIFORNIA 92660 SAN FRANCISCO, CALIFORNIA 94111
(714) 725-4000 (415) 392-1122
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1997
2,500,000 SHARES
[STAR BUFFET LOGO]
COMMON STOCK
------------------------
Of the 2,500,000 shares of Common Stock offered hereby, 1,900,000 shares
are being sold by Star Buffet, Inc. ("Star Buffet" or the "Company") and 600,000
shares are being sold by CKE Restaurants, Inc. ("CKE" or the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholder. Following completion of this offering, CKE will own
approximately 44.4% of the outstanding shares of Common Stock (approximately
41.0% if the Underwriters' over-allotment option is exercised in full).
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price of the Common Stock will be between $10.00 and $12.00 per share. See
"Underwriting" for a discussion of factors to be considered in determining the
initial public offering price. The Common Stock has been approved for quotation
on the Nasdaq National Market under the symbol "STRZ," subject to official
notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER(2)
- -------------------------------------------------------------------------------------------------
Per Share............ $ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)............. $ $ $ $
=================================================================================================
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses estimated at $700,000, of which $532,000 are
payable by the Company and $168,000 are payable by the Selling Stockholder.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock at the Price to Public, less
the Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them. The
Underwriters reserve the right to reject orders in whole or in part and to
withdraw, cancel or modify the offer without notice. It is expected that
delivery of certificates representing the Common Stock will be made on or about
, 1997.
EQUITABLE SECURITIES CORPORATION
EVEREN SECURITIES, INC.
CRUTTENDEN ROTH INCORPORATED
, 1997
<PAGE> 3
[MAP DEPICTING LOCATION OF THE COMPANY'S RESTAURANTS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON STOCK FOLLOWING THIS
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR MAINTAIN THE
PRICE OF THE COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including notes thereto, included elsewhere in this Prospectus.
Unless otherwise indicated, all information contained in this Prospectus assumes
(i) the consummation of the Formation Transactions described below under the
heading "The Formation Transactions" and (ii) that the Underwriters'
over-allotment option is not exercised. The restaurant holdings of Summit Family
Restaurants Inc. ("Summit") include 16 HomeTown Buffet restaurants operated by
HTB Restaurants, Inc., a wholly-owned subsidiary of Summit ("HTB"), and two Casa
Bonita Mexican-themed restaurants. Summit was acquired by CKE on July 15, 1996.
The operations of HTB prior to July 15, 1996 are referred to herein as the
Predecessor Company. The two Casa Bonita restaurants were acquired by CKE on
October 1, 1996. The combined operations of HTB subsequent to July 15, 1996 and
the two Casa Bonita restaurants subsequent to October 1, 1996 are referred to
herein as the Successor Company. For purposes hereof and unless the context
requires otherwise, the terms "Company" and "Star Buffet" refer to Star Buffet,
Inc. and the operations of the Predecessor Company and the Successor Company.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Growth Strategy" and elsewhere in this
Prospectus.
THE COMPANY
The Company, through its subsidiaries, owns and operates 16 franchised
HomeTown Buffet restaurants, two Mexican-themed restaurants operated under the
Casa Bonita name and has entered into a definitive agreement to acquire seven
additional buffet restaurants which operate under the "JJ North's Grand Buffet"
name (collectively, the "North's Restaurants"). The Company's restaurants,
including the North's Restaurants, are located in nine western states and are
focused upon providing customers with a wide variety of fresh, high quality food
at modest prices in a warm, friendly atmosphere.
The Company's strategic objective is to become a leading national operator
of regional buffet restaurants through (i) acquisitions of existing buffet
restaurants which management believes can benefit from the Company's management
practices, (ii) new restaurant openings, particularly by acquiring existing
restaurant locations which can be converted to buffet restaurants operated or
under development by the Company and (iii) minority investments in or strategic
alliances with other regional buffet restaurant chains. The Company's growth
strategy is designed to capitalize on the opportunities management perceives in
the fragmented buffet segment of the restaurant industry.
The Company believes that regional buffet concepts have certain advantages
in their market area over national buffet concepts due to their name recognition
and ability to meet the specific taste preferences of their customers, but
generally lack the management resources, purchasing power and capital to expand
and capitalize on their regional market strength. The Company believes that its
ability to reduce administrative expenses and achieve other strategic and
financial benefits through increased purchasing power, shared product
development and marketing efficiencies and its greater access to capital will
provide the Company with significant competitive advantages.
The Company plans to actively seek acquisition opportunities which exist
due to the fragmentation of the buffet, cafeteria and grill-buffet segments of
the restaurant industry, which are comprised of a substantial number of regional
chains. The Company believes that most of these regional chains are privately
owned and may be available for acquisition because they lack the financial and
operational structure to compete with larger regional and national chains.
Management believes that the Company will be able to offer these operators an
attractive alternative by allowing them, in many cases, the opportunity to
continue managing their business after acquisition and to increase their focus
on customer service and quality rather than administration and finance.
Following acquisition, management intends to integrate and improve the
3
<PAGE> 5
operations and profitability of regional buffet chains by (i) enhancing food
quality and service levels, (ii) implementing operational cost controls and
management incentive structures and (iii) leveraging CKE's relationship to
reduce overhead expenses. Acquisitions, however, also involve a number of
special risks that could adversely affect the Company's business, financial
condition and results of operations, including the diversion of management's
attention, the assimilation of the operations and personnel of the acquired
restaurants, the amortization of acquired intangible assets and the potential
loss of key employees. See "Risk Factors -- Risks Associated with Expansion and
Acquisitions."
The Company has benefited from its relationship with CKE through its access
to certain operating systems and strategies which CKE successfully implemented
in its Carl's Jr. chain. For the fifty-two weeks ended July 14, 1997, HTB's
HomeTown Buffet restaurants experienced a 1.7% increase in same-store sales,
following a 9.2% decline in same-store sales during the fiscal year ended
December 18, 1995. In addition, management reduced HTB's food costs to 35.2% of
total revenues for the twenty-eight weeks ended August 11, 1997 from 37.0% of
total revenues for the twenty-eight weeks ended August 12, 1996. The Company
believes that its ability to accomplish these cost reductions and operational
improvements is due to the Company's customer focus and management practices.
The Company believes that its ability to deliver high quality food to customers
with superior service in clean and friendly environments has been central to its
success at improving customer perceptions and sales.
As part of CKE's desire to focus its management efforts and capital
resources on quick-service restaurants, CKE has determined that the expansion of
the Company will be enhanced through the creation of a separate publicly traded
company focused on the buffet segment. After the completion of this offering,
CKE will own approximately 44.4% of the outstanding Common Stock (approximately
41.0% if the Underwriters' over-allotment option is exercised in full). Pursuant
to a three-year management service agreement (the "Service Agreement"), CKE will
provide the Company with multi-unit infrastructure support, including
purchasing, accounting, administrative, financial and real estate services. The
Company plans to leverage its relationship with CKE by utilizing CKE's proven
operating systems and corporate infrastructure. Management believes that the
services provided by CKE will enable the Company to focus its resources on
operational improvements, cost control and concept and brand development. See
"Risk Factors -- Control by and Dependence on CKE," "Business -- Relationship
with CKE" and "Certain Transactions."
The Company's corporate headquarters is located at 440 Lawndale Drive, Salt
Lake City, Utah 84115-2917, and its telephone number is (801) 463-5500.
RECENT DEVELOPMENTS
North's Restaurants. On July 24, 1997, CKE entered into an Asset Purchase
Agreement (the "Acquisition Agreement") with North's Restaurants, Inc.
("North's") to acquire the North's Restaurants and the trademarks, menus,
restaurant designs and other intangible assets used in connection with North's
restaurant operations. These seven restaurants are located in Idaho, Oregon,
Utah and Washington. For the fiscal year ended June 30, 1997, the North's
Restaurants generated revenues of $10.5 million and a loss from operations of
$24,000.
Prior to the completion of this offering, CKE will assign to the Company
all of CKE's rights and certain of its obligations under the Acquisition
Agreement. The Company intends to acquire the North's Restaurants (the "North
Acquisition") upon or promptly following the completion of this offering. The
aggregate consideration to be paid by the Company for the North's Restaurants
will be $4.5 million, subject to adjustment. The closing of the North
Acquisition is subject to the satisfaction of certain conditions. See
"Business -- The North Acquisition."
The performance of the North's Restaurants has been adversely affected in
recent years by operational difficulties and inadequate capital resources, the
effects of which were compounded by increased competition in the industry. The
Company believes that it can meaningfully improve the same-store sales and
profitability levels at the North's Restaurants and has developed a plan to
integrate the North's Restaurants into the Company and improve their operations
by implementing certain of the strategies developed by CKE which
4
<PAGE> 6
HTB has used to improve the operations of its HomeTown Buffet restaurants. See
"Risk Factors -- Risks Associated with the North Acquisition."
Stacey's Buffet. On July 18, 1997, CKE signed a non-binding letter of
intent (the "LOI") with Stacey's Buffet, Inc. ("Stacey's") for a strategic
alliance between the Company and Stacey's. Stacey's operates 24 buffet
restaurants, 19 of which are located in Florida. For the fiscal year ended
January 1, 1997, Stacey's reported revenues of $38.8 million and an operating
loss of $1.9 million.
The transactions contemplated by the LOI are subject to the negotiation of
definitive agreements and approval of Stacey's and the Company's Boards of
Directors. The LOI contemplates an arrangement whereby the Company would (i)
provide certain purchasing, administrative and management services to 23 of the
Stacey's buffet restaurants, (ii) loan Stacey's $2.0 million for remodeling or
reconcepting several of Stacey's restaurants and (iii) receive management fees
equal to 3.5% of Stacey's revenues and a warrant to purchase 30% of Stacey's
fully diluted common stock. The Company would also have the right to designate
two members of Stacey's five-member board of directors.
The Company believes that the transactions contemplated by the LOI provide
the Company with an opportunity to leverage its management expertise to improve
Stacey's operations. The Company believes that Stacey's operations have suffered
in recent years due to operational difficulties and inadequate capital
resources. The Company believes that its management practices and purchasing
economies could have a significant positive impact on Stacey's operations. The
Company intends to work with Stacey's to implement labor and other cost saving
programs developed by CKE and to convert certain units to the Company's
prototype buffet restaurant. See "Risk Factors -- Risks Associated with Minority
Investments."
THE FORMATION TRANSACTIONS
The Company was incorporated as a Delaware corporation on July 28, 1997.
Prior to the completion of this offering, CKE will contribute to the Company all
of the issued and outstanding shares of capital stock of Summit in exchange for
2,600,000 shares of Common Stock of the Company (the "Summit Exchange"). Summit
is the parent corporation of HTB, which operates 16 HomeTown Buffet restaurants
as a franchisee of HomeTown Buffet, Inc. (the "HomeTown Franchisor"). Summit was
acquired by CKE in July 1996, at which time it was the owner, operator and
franchisor of 101 JB's Restaurants and the owner and operator of six Galaxy
Diner restaurants. Prior to the Summit Exchange, Summit will transfer
substantially all of its net assets, including its JB's Restaurant system and
Galaxy Diner restaurants, but excluding the shares of capital stock of HTB owned
by Summit, to JB's Restaurants, Inc., a newly formed subsidiary of CKE ("JB's"),
in exchange for a promissory note (the "JB's Note") with a principal amount
equal to CKE's book value of those net assets as of the date of transfer,
determined in accordance with generally accepted accounting principles ("GAAP").
JB's will continue to operate the JB's Restaurants and related franchise system
and the Galaxy Diner restaurants and assume all of Summit's liabilities, other
than liabilities incurred which specifically relate to the restaurant operations
of HTB and the two Casa Bonita restaurants. Immediately following completion of
such transfer, and prior to the Summit Exchange, Summit will assign the JB's
Note and its rights to payment thereunder to CKE as a dividend. In addition,
prior to the Summit Exchange, Taco Bueno Restaurants, Inc., an indirect
wholly-owned subsidiary of CKE formerly known as Casa Bonita Incorporated ("Taco
Bueno"), will transfer substantially all of the net assets relating to its two
Casa Bonita restaurants to Summit in exchange for a promissory note (the "Casa
Bonita Note") with a principal amount equal to CKE's book value of those net
assets (which is estimated at $495,000 as of August 11, 1997) as of the date of
transfer, determined in accordance with GAAP. Summit will continue to operate
the Casa Bonita restaurants and assume substantially all of Taco Bueno's
liabilities relating to those restaurant operations. Prior to the completion of
this offering, all of the parties to the foregoing transactions are direct or
indirect wholly-owned subsidiaries of CKE. The foregoing transactions represent
a reorganization among entities under common control. These transactions are
collectively referred to herein as the "Formation Transactions." See "Certain
Transactions."
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. 1,900,000 shares
Common Stock offered by the Selling
Stockholder.................................... 600,000 shares
Common Stock to be outstanding after this
offering....................................... 4,500,000 shares(1)
Use of proceeds.................................. The Company intends to use approximately
$7.9 million of the net proceeds of this
offering to pay a declared and unpaid cash
dividend to CKE, approximately $2.0
million for the loan to Stacey's
contemplated by the LOI, approximately
$1.7 million to acquire equipment under
certain operating leases, approximately
$500,000 to finance the cash portion of
the consideration to be paid for the North
Acquisition and $495,000 to repay the Casa
Bonita Note. The Company may also use
approximately $3.0 million of the net
proceeds to repay indebtedness assumed in
connection with the North Acquisition. The
remaining net proceeds are expected to be
used to finance the development or
acquisition of additional buffet
restaurants and for working capital and
other general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol.................... STRZ
Risk Factors..................................... See "Risk Factors" for certain factors
that should be considered by prospective
purchasers of the Common Stock.
</TABLE>
- ---------------
(1) Excludes 602,500 shares of Common Stock reserved for issuance upon the
exercise of stock options to be granted under the Company's 1997 Stock
Incentive Plan to certain employees and non-employee directors of the
Company upon the closing of this offering. Also excludes warrants to acquire
up to 150,000 shares of Common Stock that may be purchased in connection
with the North Acquisition. Such options and warrants will have an exercise
price per share equal to the initial public offering price. See
"Management -- 1997 Stock Incentive Plan" and "Business -- The North
Acquisition."
6
<PAGE> 8
SUMMARY COMBINED HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND RESTAURANT OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents summary combined historical financial and
restaurant operating data of the Predecessor Company and the Successor Company.
The Successor Company has adopted a fiscal year ending on the last Monday in
January. The Predecessor Company and the Casa Bonita restaurants historically
have operated on different fiscal year end dates. The following data is derived
from, and should be read in conjunction with, the historical financial
statements and unaudited pro forma combined condensed financial statements, and
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR SUCCESSOR
PREDECESSOR --------- ----------- ---------------------------
-------------------------------- TWENTY- TWENTY-EIGHT WEEKS ENDED
FIFTY-TWO WEEKS THIRTY EIGHT FIFTY-TWO -----------------------------------------
ENDED WEEKS WEEKS WEEKS ENDED AUG. 11,
------------------- ENDED ENDED JAN. 27, 1997
DEC. 19, DEC. 18, JULY 15, JAN. 27, 1997 AUG. 12, AUG. 11, -------------
1994 1995 1996 1997 PRO FORMA(1) 1996(2) 1997 PRO FORMA(1)
-------- -------- ---------- --------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF
EARNINGS DATA:
Total revenues.......... $ 30,871 $ 36,741 $ 23,207 $23,632 $ 53,318 $21,881 $29,306 $34,923
Income from
operations............. 961 242 691 914 1,571 589 2,986 2,914
Income before income
taxes.................. 758 50 546 808 781 466 2,878 2,498
Net income.............. $ 457 $ 28 $ 330 $ 470 $ 469 $ 280 $ 1,727 $ 1,499
Net income per common
share.................. $ 0.10 $ 0.33
Common shares used in
computing per share
amounts (in
thousands)............. 4,500 4,500
RESTAURANT OPERATING
DATA:
Average annual sales per
Restaurant(3):
HomeTown Buffet........ $ 2,627 $ 2,455 $ 2,466
Casa Bonita............ -- -- 5,742
Percentage increase
(decrease) in
comparable store
sales(4):
HomeTown Buffet........ 4.3% (9.2)% (2.4)% 1.9%
Casa Bonita............ -- -- -- 0.5%
Number of restaurants
open (at end of
period):
HomeTown Buffet........ 14 16 16 16 16 16 16
Casa Bonita............ -- -- 2 2 -- 2 2
North's Restaurants.... -- -- -- 7 -- -- 7
------- ------- ------- ------- ------- ------- -------
Total................ 14 16 18 25 16 18 25
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR
------------------------
AUGUST 11, 1997
------------------------
ACTUAL PRO FORMA(1)
--------- ------------
<S> <C> <C>
COMBINED BALANCE SHEET DATA:
Total assets.......................................................................................... $17,745 $ 36,033
Total long-term debt and capital lease obligations, including current portion......................... 2,479 9,479
Stockholders' equity.................................................................................. 10,589 21,114
</TABLE>
- ---------------
(1) Adjusted to give pro forma effect to this offering, the application of the
estimated net proceeds thereof and the North Acquisition. See "Selected Pro
Forma Financial Data."
(2) Includes results of operations of the Successor Company from July 16, 1996
to August 12, 1996.
(3) Calculated on a fifty-two week trailing basis.
(4) Includes only restaurants open throughout the full periods being compared.
7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock.
RISKS ASSOCIATED WITH EXPANSION AND ACQUISITIONS
The Company intends to pursue an aggressive growth strategy, the success of
which will depend in part on the ability of the Company to acquire or construct
additional buffet restaurants or to convert acquired sites into buffet
restaurants, within both existing and new markets. The success of the Company's
growth strategy is dependent upon numerous factors, many of which are beyond the
Company's control, including the availability of suitable acquisition
opportunities, the lease or purchase of suitable sites on acceptable terms, the
ability of the Company to obtain necessary governmental permits and approvals,
the availability of appropriate financing and general economic conditions. The
Company must compete with other restaurant operators for acquisition
opportunities and with other restaurant operators, retail stores, companies and
developers for desirable site locations. Many of these entities have
substantially greater financial and other resources than the Company. There can
be no assurance that the Company will be able to identify, negotiate and
consummate acquisitions of additional buffet restaurants or new restaurant sites
or that acquired restaurants or newly constructed or converted restaurants can
be operated profitably and successfully integrated into the Company's
operations. Many of its acquired and new restaurants will be located in
geographic markets in which the Company has limited or no operating experience.
In addition, the Company's acquisition strategy includes the identification of
companies or properties that are viewed as underperforming by the Company. This
element of the Company's strategy increases the risks involved with the
Company's acquisitions.
Acquisitions involve a number of special risks that could adversely affect
the Company's business, financial condition and results of operations, including
the diversion of management's attention, the assimilation of the operations and
personnel of the acquired restaurants, the amortization of acquired intangible
assets and the potential loss of key employees. In particular, the failure to
maintain adequate operating and financial control systems or unexpected
difficulties encountered during expansion could have a material adverse effect
on the Company's business, financial condition and results of operations. There
can be no assurance that any acquisition will not materially and adversely
affect the Company or that any such acquisition will enhance the Company's
business. The Company is unable to predict the likelihood of any additional
acquisitions (other than the North Acquisition) being proposed or completed in
the near future. If the Company determines to make any significant acquisition,
the Company may be required to sell additional equity or debt securities or
obtain additional credit facilities. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. There can be no assurance that adequate equity or debt financing
would be available to the Company for any such acquisitions.
LACK OF COMBINED OPERATING HISTORY
The Company has only been in existence since July 1997. Prior to the
Formation Transactions, the companies comprising the Successor Company operated
independently and were not under common control or management until October 1,
1996. Therefore, the operations of the Company have a limited combined operating
history upon which investors may evaluate the Company's performance. In view of
its limited combined operating history, the Company remains vulnerable to a
variety of business risks generally associated with young, growing companies.
There can be no assurance that operating results of existing or future
restaurants will be comparable to historical results of operations or that the
Company will be profitable on a quarterly or annual basis in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CONTROL BY AND DEPENDENCE ON CKE
CKE will own approximately 44.4% of the Company's outstanding Common Stock
following the completion of this offering (approximately 41.0% if the
Underwriters' over-allotment option is exercised in full) and will be able to
control or significantly influence substantially all matters requiring approval
by the
8
<PAGE> 10
stockholders of the Company, including the election of directors and the
approval of mergers or other business combination transactions. Such
concentration of ownership could discourage or prevent a change in control of
the Company. The Company's success is highly dependent on its continued
relationship with CKE. Pursuant to the three-year Service Agreement, CKE will
provide the Company with multi-unit infrastructure support, including
purchasing, accounting, administrative, financial and real estate services. The
expiration or termination of the Service Agreement could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition to the Service Agreement, the Company may enter into additional
or modified agreements, arrangements and transactions with CKE. There can be no
assurance that conflicts of interest will not occur with respect to the Service
Agreement or such future business dealings and similar corporate matters.
Conflicts may arise in connection with recruiting, site selection, and
acquisition and expansion opportunities. There can be no assurance that any such
conflicts will be resolved in a manner favorable to the Company or its
non-controlling stockholders. See "Business -- Relationship with CKE," "Certain
Transactions" and "Principal and Selling Stockholders."
RISKS ASSOCIATED WITH THE NORTH ACQUISITION
Consummation of the North Acquisition is subject to the satisfaction of
certain conditions, such as obtaining lien releases, completion of this offering
and other customary closing conditions. Accordingly, there can be no assurance
that the North Acquisition will be consummated. If the North Acquisition is
consummated, the combined companies will be more complex and diverse than any
one of such companies individually, and the combination and continued operation
of their distinct business operations will present difficult challenges for the
Company's management due to the increased time and resources required in the
management effort. The Company and North's Restaurants have different systems
and procedures in many operational areas which must be integrated. There can be
no assurance that integration will be successfully accomplished. The
difficulties of such integration may be increased by the necessity of
coordinating geographically diverse organizations. The integration of certain
operations following the North Acquisition will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the combined companies. The North's Restaurants have
recently experienced declining same-store sales and significant net losses.
There can be no assurance that the Company will be able to return the North's
Restaurants to profitability. The failure to effectively integrate the
operations of the Company and the North's Restaurants or to improve the results
of operations of the North's Restaurants could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- The North Acquisition," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Selected Pro Forma Financial
Data."
DEPENDENCE UPON AND RESTRICTIONS RESULTING FROM RELATIONSHIP WITH THE HOMETOWN
FRANCHISOR
The performance of HTB's HomeTown Buffet restaurant operations is directly
related to the success of the HomeTown Franchisor's buffet restaurant system,
including the management and financial condition of the HomeTown Franchisor as
well as restaurants operated by the HomeTown Franchisor and other franchisees of
HomeTown Buffet restaurants. The inability of HTB's HomeTown Buffet restaurants
to compete effectively with other buffet restaurants would have a material
adverse effect on the Company's business, financial condition and results of
operations. The success of HTB's HomeTown Buffet restaurants depends in part on
the effectiveness of the HomeTown Franchisor's marketing efforts, new product
development programs, quality assurance and other operational systems over which
the Company has no control. For example, adverse publicity involving the
HomeTown Franchisor or one or more HomeTown Buffet restaurants operated by HTB,
the HomeTown Franchisor or its other franchisees could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Relationship with the HomeTown Franchisor," "-- Competition"
and "-- Legal Proceedings."
HTB operates each of its HomeTown Buffet restaurants pursuant to a
franchise agreement with the HomeTown Franchisor (each, a "Franchise
Agreement"). HTB's HomeTown Buffet operations are subject to certain
restrictions imposed by the HomeTown Franchisor's policies and procedures as in
effect from time to time, which restrictions include limitations on HTB's
ability to modify the menu items and decor of its
9
<PAGE> 11
HomeTown Buffet restaurants. In addition, the Company's HomeTown Buffet
operations are subject to certain contractual and other restrictions, including
the following:
Noncompetition. Each of the Franchise Agreements includes a provision
restricting HTB and certain of its affiliates, during the term of the Franchise
Agreement and during the period of two years commencing on the expiration or
termination thereof, from engaging in any business similar to the HomeTown
Buffet restaurant, including any restaurant business that involves a pure buffet
restaurant that does not include waitperson service or the service of separate
entree menu items, within 25 miles of the location of any HomeTown Buffet
restaurant, or hiring any person from, or soliciting or inducing any person to
leave his or her employment with, the HomeTown Franchisor or any HomeTown Buffet
restaurant.
Change of Control of HTB; Issuance of Securities. Each Franchise Agreement
provides that HTB shall not sell, assign, transfer or encumber (collectively, a
"transfer") any right, license or franchise granted by the Franchise Agreement,
or HTB's interest in the respective HomeTown Buffet restaurant, and shall not
cause or permit any such transfer to occur by operation of law or otherwise
without the express written consent of the HomeTown Franchisor. The issuance or
transfer of 20% or more of the stock in HTB, by operation of law or otherwise,
constitutes a transfer of the Franchise Agreement requiring the HomeTown
Franchisor's consent. If the HomeTown Franchisor's consent is required but not
obtained in connection with any such transfer or issuance, the HomeTown
Franchisor could attempt to terminate the Franchise Agreements, which attempt,
if successful, would have a material adverse effect on the Company's business,
financial condition and results of operations.
Proprietary Information. Each Franchise Agreement includes provisions to
the effect that HTB will not use certain proprietary information, such as the
HomeTown Franchisor's operating manual, standard recipe manual and standard menu
and certain information set forth therein (including trade secrets, know-how
methods and techniques), except with respect to the operation of a HomeTown
Buffet restaurant, or disclose such proprietary information to any persons not
permitted by the Franchise Agreement, and that HTB will conform to the common
image and identity created by the foods, products, premiums, novelty items,
recipes, ingredients, cooking techniques and processes and the services
associated with the HomeTown Buffet restaurant system described in the Franchise
Agreement.
Right of First Refusal. Each Franchise Agreement includes a provision
granting the HomeTown Franchisor a right of first refusal to purchase the
HomeTown Buffet restaurant and the franchise granted thereby upon substantially
the same terms and conditions of any bona fide offer for such franchise or any
interest in the ownership thereof or of a substantial portion of the assets of
such restaurant which HTB is ready and willing to accept.
Following CKE's announcement of the Formation Transactions on July 28,
1997, the HomeTown Franchisor and its counsel requested additional information
from HTB relating to the Formation Transactions and this offering for the
purpose of assessing HTB's compliance with the foregoing contractual and other
restrictions. HTB has provided certain of such information to the HomeTown
Franchisor, and representatives of HTB and the HomeTown Franchisor have met to
discuss the foregoing matters and to explore ways of resolving their
differences, including the pending litigation with the HomeTown Franchisor.
There can be no assurance that the HomeTown Franchisor will not pursue claims
against the Company or its subsidiaries alleging noncompliance with the
Franchise Agreements or other matters. If the Company is forced to defend itself
against such claims, whether or not meritorious, the Company may be required to
incur substantial expense and diversion of management attention, and there can
be no assurance that such claims will not have a material adverse effect on the
Company's business, financial condition and results of operations or on its
ability to pursue its business plan. The existence of any such litigation could
also have a material adverse effect on the trading price of the Company's Common
Stock. HTB and the HomeTown Franchisor have recently been, and are currently,
involved in arbitration and litigation proceedings with respect to certain
matters. See "Business -- Legal Proceedings."
10
<PAGE> 12
FLUCTUATIONS IN QUARTERLY RESULTS
The Company has in the past experienced, and expects to continue to
experience, significant fluctuations in restaurant revenues and results of
operations from quarter to quarter. In particular, the Company's quarterly
results can vary as a result of acquisitions and minority investments, costs
incurred to integrate newly acquired entities, and seasonal patterns. A large
number of the Company's restaurants are located in areas which are susceptible
to severe winter weather conditions which may have a negative impact on customer
traffic and restaurant revenues. Accordingly, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that future seasonal and quarterly
fluctuations will not have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The restaurant industry is highly competitive. The Company competes on the
basis of the quality and value of food products offered, price, service,
location and overall dining experience. The Company's primary competitor in the
buffet restaurant business is Buffets, Inc., which owns, operates and franchises
the HomeTown Buffet and Old Country Buffet restaurant concepts. The Company also
competes with a large and diverse group of restaurant chains and individually
owned restaurants, including chains and individually owned restaurants that use
a buffet format. The number of buffet restaurants with operations generally
similar to the Company's has grown considerably in the last several years, and
the Company believes competition among buffet restaurants is increasing. As the
Company and its principal competitors expand operations in various geographic
areas, competition, including competition among buffet restaurants, can be
expected to intensify. Such intensified competition could increase the Company's
operating costs or adversely affect its revenues. A number of competitors have
been in existence longer than the Company and have substantially greater
financial, marketing and other resources and wider geographical diversity than
does the Company. In addition, the restaurant industry is affected by changes in
consumer tastes, national, regional and local economic conditions and market
trends. The Company's significant investment in, and long-term commitment to,
each of its restaurant sites limits its ability to respond quickly or
effectively to changes in local competitive conditions or other changes that
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS ASSOCIATED WITH MINORITY INVESTMENTS
As part of its growth strategy, the Company intends to seek minority
investments in or strategic alliances with other regional buffet restaurant
chains, like Stacey's, that the Company believes can be improved through the
implementation of the Company's management practices. Such investments and
alliances will not be easily liquidated, and the failure of the Company to
improve the operating results of such restaurant chains could adversely affect
the Company's ability to recoup or realize a return on its investments. There
can be no assurance that the Company will be able to improve the operating
results of those restaurant chains in which it makes a minority investment or
with which it forms a strategic alliance. See "Business -- Growth Strategy" and
" -- The Stacey's Strategic Alliance."
RISKS ASSOCIATED WITH RESTAURANT INDUSTRY
Food service businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions and demographic trends. The
performance of individual restaurants may be adversely affected by factors such
as traffic patterns, demographic considerations and the type, number and
location of competing restaurants. Multi-unit food service businesses such as
the Company's can also be materially and adversely affected by publicity
resulting from poor food quality, illness, injury or other health concerns or
operating issues stemming from one restaurant or a limited number of
restaurants. Dependence on frequent deliveries of fresh produce and groceries
subjects food service businesses such as the Company's to the risk that
shortages or interruptions in supply, caused by adverse weather or other
conditions, could adversely affect the availability, quality and cost of
ingredients. The Company's profitability is highly sensitive to increases in
food, labor and other operating costs that cannot always be passed on to its
guests in the form of higher prices or otherwise compensated for. In addition,
unfavorable trends or developments concerning factors such as
11
<PAGE> 13
inflation, increased food, labor and employee benefits costs (including
increases in hourly wage and unemployment tax rates), increases in the number
and locations of competing buffet restaurants, regional weather conditions and
the availability of experienced management and hourly employees may also
adversely affect the food service industry in general and the Company's
business, financial condition and results of operations in particular. Changes
in economic conditions affecting the Company's guests could reduce traffic in
some or all of the Company's restaurants or impose practical limits on pricing,
either of which could have a material adverse effect on the Company's business,
financial condition and results of operations. The success of the Company will
depend in part on the ability of the Company's management to anticipate,
identify and respond to changing conditions. There can be no assurance that
management will be successful in this regard.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend in part on the continuing
services of its key executives, including Robert E. Wheaton, the Company's Chief
Executive Officer and President. The Company does not maintain any key man life
insurance. Mr. Wheaton is also an executive officer of CKE and a portion of his
time will continue to be devoted to CKE's business. The loss of the services of
Mr. Wheaton could have a material adverse effect on the Company's business,
financial condition and results of operations, and there can be no assurance
that a qualified replacement would be available in a timely manner, if at all.
The Company's continued growth will also depend in part on its ability to
attract and retain additional skilled management personnel. See "Management."
GOVERNMENT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and building and zoning requirements. In addition, the Company is subject
to laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Many of the Company's employees are paid hourly rates based upon
the federal and state minimum wage laws. Recent legislation increasing the
minimum wage has resulted in higher labor costs to the Company. An increase in
the minimum wage rate, employee benefit costs or other costs associated with
employees, could have a material adverse effect on the Company's business,
financial condition and results of operations.
NO PRIOR PUBLIC TRADING MARKET
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which will be established by negotiations among the Company, the Selling
Stockholder and the representatives of the Underwriters, may not be indicative
of prices that will prevail in the trading market. See "Underwriting."
LITIGATION
The Company is from time to time the subject of complaints or litigation
from customers alleging illness, injury or other food quality, health or
operational concerns. Adverse publicity resulting from such allegations may
materially adversely affect the Company and its restaurants, regardless of
whether such allegations are valid or whether the Company is liable. The Company
also is the subject of complaints or allegations from employees from time to
time. An existing or future lawsuit or claim could result in an adverse decision
against the Company that could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Legal
Proceedings."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of the Company's Common Stock. The
Company's Certificate of Incorporation allows the Company to issue up to
1,500,000 shares of currently undesignated Preferred Stock, to determine the
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed on any unissued series of Preferred Stock,
12
<PAGE> 14
and to fix the number of shares constituting any such series and the designation
of such series, without any vote or future action by the stockholders. The
Preferred Stock could be issued with voting, liquidation, dividend and other
rights superior to the rights of the Common Stock. The Certificate of
Incorporation also eliminates the ability of stockholders to call special
meetings. The Company's Bylaws require advance notice to nominate a director or
take certain other actions. Such provisions may make it more difficult for
stockholders to take certain corporate actions and could have the effect of
delaying or preventing a change in control of the Company. In addition, the
Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law, which imposes certain limitations on transactions between a
corporation and "interested" stockholders, as defined in such provisions. See
"Description of Capital Stock."
EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON STOCK PRICE
Sales of shares of Common Stock in the public market after this offering
could materially and adversely affect the market price of the Common Stock. Such
sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems acceptable, or at all. Upon the completion of this offering,
the Company will have 4,500,000 shares of Common Stock outstanding, of which
only the 2,500,000 shares sold in this offering will be freely tradable without
restriction under the Securities Act of 1933, as amended (the "Securities Act"),
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act. The remaining shares of Common Stock, all of which
are owned by CKE, are subject to a lock-up agreement and will be eligible for
sale, subject to Rule 144, beginning one year after the date of this Prospectus.
In addition, upon the completion of this offering, options to purchase 602,500
shares of Common Stock will be outstanding, of which options to purchase 229,267
will be immediately exerciseable. Shares issuable upon the exercise of any such
vested options will be subject to 180-day lock-up agreements and will thereafter
be eligible for sale, subject to Rule 701. Equitable Securities Corporation, at
any time and without notice, may release all or any part of the shares from
these restrictions. See "Shares Eligible for Future Sale."
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. Factors such as fluctuations in the
Company's operating results, failure of such operating results to meet the
expectations of stock market analysts and investors, changes in stock market
analyst recommendations regarding the Company, its competitors and other
companies in the restaurant industry, as well as changes in general economic or
market conditions and changes in the restaurant industry may have a significant
adverse effect on the market price of the Common Stock.
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this offering will incur immediate and substantial net tangible
book value dilution of $6.58 per share, assuming an initial public offering
price of $11.00 per share. In the event the Company issues additional Common
Stock in the future, including shares which may be issued in connection with
future acquisitions, purchasers of Common Stock in this offering may experience
further dilution. See "Dilution."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,900,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share are estimated to be $18.9 million ($22.7 million if
the Underwriters' over-allotment option is exercised in full). The Company will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholder.
Of the net proceeds received by the Company from this offering, the Company
intends to use (i) approximately $7.9 million to pay a cash dividend to CKE (the
"Special Dividend"); (ii) approximately $2.0 million for the loan to Stacey's
contemplated by the LOI; (iii) approximately $1.7 million to acquire equipment
under certain operating leases; (iv) approximately $500,000 to finance the cash
portion of the consideration to be paid for the North Acquisition; and (v)
approximately $495,000 to repay the Casa Bonita Note. The Casa Bonita Note was
incurred by the Company in connection with the Formation Transactions to acquire
the net assets of the two Casa Bonita restaurants from Taco Bueno, is payable on
demand and does not bear interest. The Company may also use approximately $3.0
million of the net proceeds to acquire $3.0 million principal amount of
indebtedness of North's from North's primary secured lender or, if the Company
elects to assume such indebtedness in connection with the North Acquisition, to
repay the principal amount of indebtedness so assumed. See "Business -- The
North Acquisition." The remaining portion of the net proceeds will be used to
finance the acquisition or development of additional restaurants and for working
capital and other general corporate purposes. The Company may use a portion of
the net proceeds for acquisitions of or investments in complementary businesses.
The Company's management has from time to time made tentative proposals to, and
entered into discussions with, other buffet restaurant operators with respect to
a variety of business combinations, restaurant acquisitions or other
investments; however, no agreements with respect to any such acquisition or
investment currently exist other than the North Acquisition and the LOI. The
amounts actually expended for each purpose and the timing of such expenditures
may vary significantly depending upon numerous factors, including the progress
of the Company's expansion plans and the results of operations of the Company's
restaurants. Pending such uses, the Company intends to invest the net proceeds
from this offering in short-term, investment grade money-market instruments.
DIVIDEND POLICY
Other than the Special Dividend, the Company has never declared or paid
dividends on its Common Stock. The Company expects that future earnings, if any,
will be retained to finance the operation and expansion of the Company's
business and, accordingly, does not intend to declare or pay any cash dividends
on the Common Stock in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 11, 1997 and on a pro forma basis to reflect the Formation Transactions
and to give effect to the North Acquisition, the Special Dividend and the sale
of 1,900,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $11.00 per share and the application of the
estimated net proceeds therefrom. The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the combined financial statements and unaudited
pro forma combined condensed financial statements of the Company, and the
related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 11, 1997
---------------------------
ACTUAL PRO FORMA
(UNAUDITED) (UNAUDITED)
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term debt and
capital lease obligations.......................................... $ 248 $ 1,648
======= =======
Long-term debt and capital lease obligations, less current portion... $ 2,231 $ 7,831
Stockholders' equity:
Preferred Stock: $0.001 par value, 1,500,000 shares authorized, no
shares outstanding on a pro forma basis......................... --
Common Stock: $0.01 par value, 1,000 shares authorized, 10 shares
outstanding (Successor Company); and $0.001 par value,
18,500,000 shares authorized, 4,500,000 shares outstanding on a
pro forma basis(1).............................................. -- 5
Additional paid-in capital......................................... 9,272 19,792
Retained earnings.................................................. 1,317 1,317
------- -------
Total stockholders' equity......................................... 10,589 21,114
------- -------
Total capitalization....................................... $12,820 $28,945
======= =======
</TABLE>
- ---------------
(1) Excludes 602,500 shares of Common Stock reserved for issuance upon the
exercise of stock options to be granted under the Company's 1997 Stock
Incentive Plan to certain employees and non-employee directors of the
Company upon the closing of this offering. Also excludes warrants to acquire
up to 150,000 shares of Common Stock that may be purchased in connection
with the North Acquisition. Such options and warrants will have an exercise
price per share equal to the initial public offering price. See
"Management -- 1997 Stock Incentive Plan" and "Business -- The North
Acquisition."
15
<PAGE> 17
DILUTION
The unaudited pro forma net tangible book value of the Company as of August
11, 1997, after giving effect to the Formation Transactions (and assuming the
Special Dividend and the Casa Bonita Note have been paid), was approximately
$1.7 million, or approximately $0.65 per share. Such unaudited pro forma net
tangible book value per share represents the tangible net worth (tangible assets
less total liabilities, assuming the Special Dividend and the Casa Bonita Note
have been paid) of the Company. The number of outstanding shares used for the
per share calculation was 2,600,000 shares, giving effect to the Formation
Transactions but prior to this offering.
Unaudited pro forma net tangible book value dilution per share represents
the difference between the amount per share paid by purchasers of shares of
Common Stock in this offering and the unaudited pro forma net tangible book
value per share of Common Stock immediately after completion of this offering.
After giving effect to the sale of the 1,900,000 shares of Common Stock offered
by the Company in this offering at an assumed initial public offering price of
$11.00 per share, and deducting the underwriting discount and estimated offering
expenses payable by the Company, the Company's unaudited pro forma net tangible
book value at August 11, 1997, would have been $19.9 million, or $4.42 per
share. This represents an immediate dilution in unaudited pro forma net tangible
book value of $6.58 per share to new investors purchasing Common Stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $11.00
Unaudited pro forma net tangible book value per share as of August
11, 1997........................................................ $ 3.88
Increase per share attributable to new investors................... 3.76
Decrease per share attributable to the Special Dividend and the
Casa Bonita Note................................................ (3.22)
------
Unaudited pro forma net tangible book value per share after this
offering........................................................... 4.42
------
Dilution per share to new investors.................................. $ 6.58
======
</TABLE>
The following table sets forth, on an unaudited pro forma basis as of
August 11, 1997, the number of shares of Common Stock purchased from the
Company, the total consideration and the average price per share paid to the
Company by the existing stockholder and by the new investors purchasing shares
of Common Stock in this offering (at an assumed initial public offering price of
$11.00 per share and before deducting the estimated underwriting discount and
offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1)
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholder(2)........ 2,600,000 57.8% $ 2,209,000 9.6% $ 0.85
New Investors(2)............... 1,900,000 42.2 20,900,000 90.4 11.00
--------- ----- ----------- -----
Total................ 4,500,000 100.0% $23,109,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Based upon (a) the capital and net book value of the assets acquired by the
Company in connection with the Formation Transactions, assuming payment of
the Special Dividend and the Casa Bonita Note, and (b) the assumed initial
public offering price of $11.00 per share paid by new investors.
(2) Sales by the existing stockholder in this offering will reduce the number of
shares it holds to 2,000,000 shares, or approximately 44.4% of the
outstanding shares of Common Stock, and will increase the number of shares
held by new investors to 2,500,000, or approximately 55.6% of the
outstanding shares of Common Stock.
The foregoing tables assume no exercise of the Underwriters' over-allotment
option and excludes options to purchase 602,500 shares of Common Stock to be
granted to certain employees and non-employee directors of the Company upon the
closing of this offering. Also excludes warrants to acquire up to 150,000 shares
of Common Stock that may be purchased in connection with the North Acquisition.
Such options and warrants will have an exercise price equal to the initial
public offering price. See "Management -- 1997 Stock Incentive Plan" and
"Business -- The North Acquisition."
16
<PAGE> 18
SELECTED COMBINED FINANCIAL DATA
The following table presents selected combined historical financial data of
the Predecessor Company and the Successor Company. Prior to the Formation
Transactions, the companies comprising the Successor Company operated
independently and were not under common control or management until October 1,
1996. Accordingly, the data may not be comparable to or indicative of
post-combination results. Management believes that a combined presentation of
financial information is most meaningful to investors' understanding of the
results of operations, financial condition and cash flows of the Successor
Company. The Successor Company has adopted a fiscal year ending on the last
Monday in January. The Predecessor Company and the Casa Bonita restaurants
historically have operated on different fiscal year end dates. The Company's
first fiscal quarter consists of 16 weeks, while each of the remaining quarters
consists of 12 weeks.
The Selected Combined Financial Data for the fifty-two weeks ended December
19, 1994 and December 18, 1995, for the thirty weeks ended July 15, 1996
(Predecessor Company) and for the twenty-eight weeks ended January 27, 1997
(Successor Company) have been derived from combined financial statements, which
appear elsewhere in this Prospectus and have been audited by KPMG Peat Marwick
LLP, independent auditors. The Selected Combined Financial Data for the fiscal
years ended December 21, 1992 and December 20, 1993 have been derived from
unaudited combined financial statements of the Predecessor Company not included
elsewhere in this Prospectus. The Selected Combined Financial Data for the
twenty-eight weeks ended August 12, 1996 and August 11, 1997 have been derived
from unaudited combined financial statements of the Predecessor Company and the
Successor Company, respectively, appearing elsewhere in this Prospectus. The
results of operations of the Predecessor Company for the twenty-eight weeks
ended August 12, 1996 include the results of operations of the Successor Company
from July 16, 1996 to August 12, 1996. The unaudited combined financial
statements have been prepared on the same basis as the audited combined
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the combined financial position and combined results of operations for the
periods presented. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and unaudited pro forma
combined condensed financial statements, and the notes thereto, included
elsewhere in this Prospectus.
17
<PAGE> 19
SELECTED COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR ---------
--------------------------------------------------- TWENTY- PREDECESSOR SUCCESSOR
THIRTY EIGHT ----------- ---------
FIFTY-TWO WEEKS ENDED WEEKS WEEKS TWENTY-EIGHT WEEKS ENDED
----------------------------------------- ENDED ENDED ------------------------
DEC. 21, DEC. 20, DEC. 19, DEC. 18, JULY 15, JAN. 27, AUG. 12, AUG. 11,
1992 1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- --------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF EARNINGS DATA:
Total revenues....................... $5,213 $13,167 $30,871 $36,741 $23,207 $23,632 $21,881 $29,306
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Food costs......................... 1,886 4,918 11,469 13,769 8,569 8,285 8,096 9,283
Labor costs........................ 1,617 3,732 9,089 10,878 6,810 7,565 6,425 9,186
Occupancy and other expenses....... 824 2,695 6,769 8,954 5,030 5,259 4,778 6,110
General and administrative......... 467 980 1,762 1,666 1,193 621 1,116 612
Depreciation and amortization...... 168 384 821 1,232 914 988 877 1,129
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses..... 4,962 12,709 29,910 36,499 22,516 22,718 21,292 26,320
------- ------- ------- ------- ------- ------- ------- -------
Income from operations............... 251 458 961 242 691 914 589 2,986
Interest expense..................... 54 110 203 192 145 106 123 108
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes........... 197 348 758 50 546 808 466 2,878
Income taxes......................... 80 139 301 22 216 338 186 1,151
------- ------- ------- ------- ------- ------- ------- -------
Net income........................... $ 117 $ 209 $ 457 $ 28 $ 330 $ 470 $ 280 $ 1,727
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
----------------------------------------- ------------------------------------
DEC. 21, DEC. 20, DEC. 19, DEC. 18, JAN. 27, AUG. 26, AUG. 11,
1992 1993 1994 1995 1997 1996 1997
-------- -------- -------- -------- --------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Total assets......................... $5,424 $ 9,026 $13,003 $16,283 $16,783 $14,555 $17,745
Total long-term debt and capital
lease obligations, including
current portion.................... 446 5,076 6,714 11,150 2,609 2,269 2,479
Stockholder's equity................. 1,244 2,134 1,801 1,806 9,742 8,939 10,589
</TABLE>
18
<PAGE> 20
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined condensed financial information
is based upon the historical combined financial statements of the Predecessor
Company and Successor Company and has been prepared to illustrate the effects of
this offering and the North Acquisition.
The unaudited pro forma combined condensed balance sheet as of August 11,
1997 gives effect to the North Acquisition and application of the estimated net
proceeds from this offering as if such transactions had been completed on August
11, 1997 and was prepared based upon the combined balance sheet of the Successor
Company as of August 11, 1997 and the balance sheet of North's Restaurants as of
June 30, 1997. The historical combined condensed statement of operations for the
period ended January 27, 1997 is comprised of the results of operations of the
Predecessor Company for the 24-week period ended July 15, 1996 and the results
of operations of the Successor Company for the 28-week period ended January 27,
1997 (the "Combined Results") and gives effect to the transactions described
above as if such transactions had been completed on January 30, 1996. The
unaudited pro forma combined condensed statement of operations for the period
ended January 27, 1997 was prepared based upon the Combined Results and the
statement of operations of North's Restaurants for the 52-week period ended
December 31, 1996. The unaudited pro forma combined condensed statement of
operations for the twenty-eight weeks ended August 11, 1997 was prepared based
upon the combined results of the Successor Company for the twenty-eight weeks
ended August 11, 1997 and the statement of operations of North's Restaurants for
the twenty-eight weeks ended June 30, 1997. See Note (7) of Notes to Financial
Statements of North's Restaurants.
The unaudited pro forma combined condensed financial information has been
provided for comparative purposes only and does not purport to be indicative of
results which would actually have been obtained had the North Acquisition been
effected on the date indicated or of results which may be obtained in the
future. These unaudited pro forma combined condensed financial statements should
be read in conjunction with the combined financial statements, including the
notes thereto, which appear elsewhere in this Prospectus.
The unaudited pro forma adjustments are based upon information set forth in
this Prospectus and certain assumptions included in the notes to the unaudited
pro forma combined condensed financial statements. The Company is performing an
ongoing evaluation regarding the nature and scope of its restaurant operations
and various short- and long-term strategic considerations, including whether,
and to what extent, integration, consolidation or other modification of its
restaurant operations is appropriate following the North Acquisition. The
Company believes the pro forma assumptions are reasonable under the
circumstances.
The unaudited pro forma combined condensed financial statements do not give
effect to the transactions with Stacey's contemplated by the LOI and,
accordingly, do not include net fee revenues and interest income, if any, which
may be generated from the Company's strategic alliance with Stacey's. In
addition, the unaudited pro forma combined condensed statements of operations do
not include interest income, if any, which may arise from notes receivable from
North's.
The North Acquisition will be accounted for by the purchase method of
accounting. Accordingly, the Company's cost to acquire the North's Restaurants
(the "Purchase Consideration"), calculated to be $4.5 million (subject to
adjustment), will be allocated to the assets acquired and liabilities assumed
according to their estimated fair values. The final allocation of the Purchase
Consideration is dependent upon certain valuations and other studies that have
not progressed to a stage where there is sufficient information to make such an
allocation in the accompanying unaudited pro forma combined condensed financial
statements.
19
<PAGE> 21
STAR BUFFET, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF AUGUST 11, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
SUCCESSOR
COMPANY NORTH'S
AUGUST RESTAURANTS
11, JUNE 30, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
--------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Current assets:
Cash....................................................... $ 725 $ 17 $ 8,325A,D,K $ 9,067
Short-term investments..................................... 180 -- 180
Trade receivables.......................................... 29 18 47
Inventories................................................ 385 69 454
Prepaid expenses........................................... 79 -- 55E 134
Deferred taxes, net........................................ 193 -- 193
------- ------- -------- -------
Total current assets.................................... 1,591 104 8,380 10,075
Notes receivable............................................. -- -- 3,000A 3,000
Property and equipment, net.................................. 12,982 4,366 1,700K 19,048
Capitalized leases, net...................................... 2,435 -- 2,435
Deposits and other assets.................................... 225 17 242
Organizational costs......................................... 305 -- -- 305
Franchise fees............................................... 207 -- 207
Costs in excess of net assets of business acquired, net...... -- -- 721J 721
------- ------- -------- -------
Total assets....................................... $17,745 $ 4,487 $ 13,801 $ 36,033
======= ======= ======== =======
Current liabilities:
Accounts payable........................................... $ 2,139 $ 390 $ $ 2,529
Accrued liabilities........................................ 2,379 318 55E 2,752
Current portion of notes payable........................... -- -- 1,400A 1,400
Current portion of North's debt for which North's
Restaurants, Inc. is jointly and severally liable....... -- 12,417 (12,417)B --
Current maturities of capital lease obligations............ 248 -- 248
------- ------- -------- -------
Total current liabilities............................... 4,766 13,125 (10,962) 6,929
Notes payable................................................ -- -- 5,600A 5,600
North's debt for which North's Restaurants, Inc. is jointly
and severally liable....................................... -- 1,300 (1,300)B --
Capital lease obligations.................................... 2,231 -- 2,231
Other long-term liabilities.................................. 159 -- -- 159
------- ------- -------- -------
Total liabilities.................................. 7,156 14,425 (6,662) 14,919
------- ------- -------- -------
Total stockholders' equity................................... 10,589 (9,938) 20,463C,D 21,114
------- ------- -------- -------
Total liabilities and stockholders' equity......... $17,745 $ 4,487 $ 13,801 $ 36,033
======= ======= ======== =======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
20
<PAGE> 22
STAR BUFFET, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE 52-WEEK PERIOD ENDED JANUARY 27, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------------------------------
PREDECESSOR
---------------------------------- SUCCESSOR
RESULTING ------------- COMBINED
THIRTY SIX WEEK TWENTY-FOUR TWENTY-EIGHT FIFTY-TWO
WEEKS PERIOD WEEKS WEEKS WEEKS NORTH'S
ENDED ENDED ENDED ENDED ENDED RESTAURANTS
JULY 15, JAN. 29, JULY 15, JAN. 27, JAN. 27, DEC. 31, PRO FORMA PRO FORMA
1996 1996(1) 1996 1997 1997 1996 ADJUSTMENTS COMBINED
-------- --------- ----------- ------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues...... $ 23,207 $(4,351) $18,856 $23,632 $42,488 $ 10,830 $ $53,318
------- ------ ------- ------- ------- ------- ----- -------
Costs and expenses:
Food costs........ 8,569 (1,596) 6,973 8,285 15,258 4,013 19,271
Labor costs....... 6,810 (1,270) 5,540 7,565 13,105 3,290 16,395
Occupancy and
other
expenses........ 5,030 (954) 4,076 5,259 9,335 1,885 (746)K 10,474
General and
administrative
expenses........ 1,193 (196) 997 621 1,618 970 350 I 2,938
Depreciation and
amortization.... 914 (169) 745 988 1,733 635 301 J,K 2,669
------- ------ ------- ------- ------- ------- ----- -------
Total costs
and
expenses... 22,516 (4,185) 18,331 22,718 41,049 10,793 (95) 51,747
------- ------ ------- ------- ------- ------- ----- -------
Income from
operations........ 691 (166) 525 914 1,439 37 95 1,571
Interest (income)
expense, net...... 145 (32) 113 106 219 554 17 E,F,G 790
------- ------ ------- ------- ------- ------- ----- -------
Income (loss) before
income taxes...... 546 (134) 412 808 1,220 (517) 78 781
Income tax expense
(benefit)......... 216 (54) 162 338 500 (174) (14)H 312
------- ------ ------- ------- ------- ------- ----- -------
Net income (loss)... $ 330 $ (80) $ 250 $ 470 $ 720 $ (343) $ 92 $ 469
======= ====== ======= ======= ======= ======= ===== =======
Net income per
common share...... $ 0.28 $ 0.10
======= =======
Common shares used
in computing per
share amounts..... 2,600 4,500
======= =======
</TABLE>
- ---------------
(1) Adjustments necessary to present a 24-week period ended July 15, 1996.
See accompanying notes to unaudited pro forma combined condensed financial
information.
21
<PAGE> 23
STAR BUFFET, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE 28-WEEK PERIOD ENDED AUGUST 11, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
SUCCESSOR
COMPANY NORTH'S
AUGUST RESTAURANTS
11, JUNE 30, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenues................................... $29,306 $ 5,617 $ $34,923
------- ------ ----- -------
Costs and expenses:
Food costs..................................... 9,283 2,150 11,433
Labor costs.................................... 9,186 1,699 10,885
Occupancy and other expenses................... 6,110 1,006 (402)K 6,714
General and administrative expenses............ 612 621 188 I 1,421
Depreciation and amortization.................. 1,129 265 162 J,K 1,556
------- ------ ----- -------
Total costs and expenses............... 26,320 5,741 (52) 32,009
------- ------ ----- -------
Income (loss) from operations.................... 2,986 (124) 52 2,914
Interest (income) expense, net................... 108 319 (11)E,F,G 416
------- ------ ----- -------
Income (loss) before income taxes................ 2,878 (443) 63 2,498
Income tax expense............................... 1,151 (43) (109)H 999
------- ------ ----- -------
Net income (loss)................................ $ 1,727 $ (400) $ 172 $ 1,499
======= ====== ===== =======
Net income per common share...................... $ 0.66 $ 0.33
======= =======
Common shares used in computing per share
amounts........................................ 2,600 4,500
======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
22
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
A To record the acquisition of North's Restaurants for an aggregate purchase
price of $4.5 million, subject to adjustment. The purchase price will be
paid in the form of $500,000 cash, assumption of $7.0 million of North's
debt (the current portion of which is $1.4 million), and the recording of a
$3.0 million note receivable from North's.
B To eliminate the North's debt of $13.717 million, which will not be assumed
by the Company, except as noted in Footnote A.
C To eliminate North's Restaurants' division deficit of $9.938 million.
D To reflect the estimated net cash proceeds of $18.905 million from the sale
of 1,900,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $11.00 per share (less the underwriting
discount and estimated offering expenses payable by the Company), the
payment of the Special Dividend of $7.885 million and the repayment of the
Casa Bonita Note in the amount of $495,000 which represents CKE's book value
of the net assets of the Casa Bonita restaurants to be transferred to Summit
in connection with the Formation Transactions. See "Certain Transactions."
E To record debt issuance costs of $55,000 related to the assumption of $7.0
million of North's debt and related amortization of debt issue costs over
five years of $11,000 for the fiscal year ended January 27, 1997 and $6,000
for the twenty-eight weeks ended August 11, 1997.
F To record interest expense on $7.0 million of North's debt assumed in the
acquisition of North's Restaurants at a variable rate assumed to be 8% in
the amount of $560,000 for the fiscal year ended January 27, 1997 and
$302,000 for the twenty-eight weeks ended August 11, 1997. A 0.125%
increase/decrease in the estimated interest rate incrementally
increases/decreases income before taxes by $9,000 and $5,000 for the fiscal
year ended January 27, 1997 and the twenty-eight weeks ended August 11,
1997, respectively.
G To eliminate the historical interest expense recorded by North's of $554,000
and $319,000 for the twelve months ended December 31, 1996 and the
twenty-eight weeks ended June 30, 1997, respectively, for related
indebtedness which would not have been in existence at the beginning of such
periods as this debt will not be assumed by the Company.
H To record the income tax effects of the pro forma adjustments and
combination of the entities at a pro forma tax rate of 40.0%.
I To record the impact of management fees payable pursuant to the Service
Agreement with CKE. These fees amount to $350,000 and $188,000 for the year
ended January 27, 1997 and the twenty-eight weeks ended August 11, 1997,
respectively.
J To record $721,000 for the excess of consideration paid over the preliminary
estimate of the fair value of net assets acquired, to be amortized over 40
years, and to record goodwill amortization of $18,000 and $10,000 for the
fiscal year ended January 27, 1997 and the twenty-eight weeks ended August
11, 1997, respectively.
K To record the purchase and buyout of certain HTB operating equipment leases
in the amount of $1.7 million, the related depreciation expense using an
estimated useful life of six years and the reduction in rent expense in the
amount of $283,000 and ($746,000), respectively, for the fiscal year ended
January 27, 1997, and $152,000 and ($402,000), respectively, for the
twenty-eight weeks ended August 11, 1997.
L Reconciliation to Unaudited Pro Forma Combined Condensed Financial
Information Adjustments
Balance Sheet:
(1) Cash: (A) ($500,000); (D) $18,905,000, ($7,885,000), ($495,000);
(K) ($1,700,000) = $8,325,000
(2) Stockholders' Equity: (C) $9,938,000; (D)
$10,525,000 = $20,463,000
Statement of Operations (52-week period ended January 27, 1997):
(1) Depreciation and amortization: (J) $18,000; (K)
$283,000 = $301,000
(2) Interest (income) expense, net: (E) $11,000; (F) $560,000; (G)
($554,000) = $17,000
Statement of Operations (28-week period ended August 11, 1997):
(1) Depreciation and amortization: (J) $10,000; (K)
$152,000 = $162,000
(2) Interest (income) expense, net: (E) $6,000; (F) $302,000; (G)
($319,000) = ($11,000)
M There are no material adjustments necessary to convert the Predecessor
Company financial information to the new accounting basis.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in connection with the
information set forth under "Selected Combined Financial Data," "Selected Pro
Forma Financial Data" and the financial statements of the Company and the
accompanying notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below, in
"Risk Factors," "Business -- Growth Strategy" and elsewhere in this Prospectus.
OVERVIEW
Prior to the Formation Transactions, the HomeTown Buffet and Casa Bonita
restaurants were operated as part of separate subsidiaries of CKE. Prior to
their acquisition by CKE, these restaurants were operated as part of other
restaurant operating companies. The historical results of operations reflect
operations in these ownership forms and may not be indicative of their
operations as part of the Company. In particular, general and administrative
expenses reflect allocations from prior owners and may not be meaningful as a
basis of comparison to the general and administrative expenses the Company will
incur. See "Risk Factors -- Lack of Combined Operating History."
The results of operations of the Casa Bonita restaurants have been included
in the Company's results of operations since the date of CKE's acquisition. The
financial statements therefore include results of operations of the Casa Bonita
restaurants since October 1, 1996, and the addition of revenues, expenses and
other components associated with the Casa Bonita restaurants is one of the
principal reasons for the significant differences when comparing results of
operations to prior periods, which do not include results of operations of the
Casa Bonita restaurants.
The North's Restaurants will be acquired upon or promptly following the
completion of this offering and such acquisition will be accounted for as a
purchase transaction. The historical results of operations of the Company do not
include the operations of the North's Restaurants. Due to the inclusion of the
North's Restaurants following this offering, the Company's historical results of
operations and period-to-period comparisons may not be meaningful or indicative
of future results. See "Risk Factors -- Risks Associated with the North
Acquisition."
The Company expects to continue to acquire restaurants and may construct
new restaurants. To the extent that the Company acquires underperforming or
unprofitable restaurants or opens new restaurants, the Company's results of
operations may be negatively affected due to the initial costs associated with
such restaurants.
COMPONENTS OF INCOME FROM OPERATIONS
Total revenues include a combination of food and beverage sales and are net
of applicable state and city sales taxes.
Food costs primarily consist of the costs of food and beverage items.
Various factors beyond the Company's control, including adverse weather and
natural disasters, may affect food costs. Accordingly, the Company may incur
periodic fluctuations in food costs. Generally, these temporary increases are
absorbed by the Company and not passed on to customers; however, management may
adjust menu prices to compensate for increased costs of a more permanent nature.
Labor costs include restaurant management salaries, bonuses, hourly wages
for unit level employees, various health, life and dental insurance programs,
vacations and sick pay and payroll taxes.
Occupancy and other expenses are primarily fixed in nature and generally do
not vary with restaurant sales volume. Rent, insurance, property taxes,
utilities, maintenance and advertising account for the major expenditures in
this category.
24
<PAGE> 26
General and administrative expenses include all corporate and
administrative functions that serve to support the existing restaurant base and
provide the infrastructure for future growth. Management, supervisory and staff
salaries, employee benefits, data processing, training and office supplies are
the major items of expense in this category. Following this offering, CKE will
provide the Company with certain administrative and other services. See
"Business -- Relationship with CKE."
The Company records depreciation on its property and equipment on a
straight-line basis over their estimated useful lives.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of total revenues for the 52 weeks ended December 19, 1994 ("Fiscal
1994") and December 18, 1995 ("Fiscal 1995"), the thirty weeks ended July 15,
1996, the twenty-eight weeks ended January 27, 1997 and the twenty-eight week
periods ended August 12, 1996 and August 11, 1997. References to "Fiscal 1998"
refer to the fiscal year ending January 26, 1998. The results of operations of
the Predecessor Company for the twenty-eight weeks ended August 12, 1996 include
the results of operations of the Successor Company from July 16, 1996 to August
12, 1996.
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------- SUCCESSOR
------------
FIFTY-TWO WEEKS THIRTY TWENTY-EIGHT
PREDECESSOR SUCCESSOR
----------- ---------
TWENTY-EIGHT
ENDED WEEKS WEEKS WEEKS ENDED
------------------- ENDED ENDED -----------------------
DEC. 19, DEC. 18, JULY 15, JAN. 27, AUG. 12, AUG. 11,
1994 1995 1996 1997 1996 1997
-------- -------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- -----
Costs and expenses:
Food costs........................ 37.2 37.5 37.0 35.0 37.0 31.7
Labor costs....................... 29.4 29.6 29.3 32.0 29.4 31.3
Occupancy and other expenses...... 21.9 24.4 21.7 22.3 21.8 20.8
General and administrative........ 5.7 4.5 5.1 2.6 5.1 2.1
Depreciation and amortization..... 2.7 3.4 3.9 4.2 4.0 3.9
----- ----- ----- ----- ----- -----
Total costs and
expenses................ 96.9 99.4 97.0 96.1 97.3 89.8
----- ----- ----- ----- ----- -----
Income from operations.............. 3.1 0.6 3.0 3.9 2.7 10.2
Interest expense.................... 0.6 0.5 0.6 0.5 0.6 0.4
----- ----- ----- ----- ----- -----
Income before income taxes.......... 2.5 0.1 2.4 3.4 2.1 9.8
Income taxes........................ 1.0 0.0 1.0 1.4 0.8 3.9
----- ----- ----- ----- ----- -----
Net income.......................... 1.5% 0.1% 1.4% 2.0% 1.3% 5.9%
===== ===== ===== ===== ===== =====
</TABLE>
COMPARISON OF TWENTY-EIGHT WEEKS ENDED AUGUST 11, 1997 TO TWENTY-EIGHT WEEKS
ENDED AUGUST 12, 1996
Total revenues increased $7.4 million, or 33.9%, from $21.9 million in the
twenty-eight weeks ended August 12, 1996 to $29.3 million in the twenty-eight
weeks ended August 11, 1997. The increase was primarily attributable to the
inclusion of the results of Casa Bonita in the first and second quarters of
Fiscal 1998, which results were not included in the comparable period of Fiscal
1997.
Food costs increased $1.2 million, or 14.7%, from $8.1 million in the
twenty-eight weeks ended August 12, 1996 to $9.3 million in the twenty-eight
weeks ended August 11, 1997. Food costs as a percentage of total revenues
declined from 37.0% in the twenty-eight weeks ended August 12, 1996 to 31.7% in
the twenty-eight weeks ended August 11, 1997. The decline as a percentage of
total revenues was attributable to an overall improvement in food cost at HTB
since the acquisition of Summit by CKE and the inclusion of Casa Bonita since
its acquisition by CKE, which operates at a lower level of food cost.
Labor costs increased $2.8 million, or 43.0%, from $6.4 million in the
twenty-eight weeks ended August 12, 1996 to $9.2 million in the twenty-eight
weeks ended August 11, 1997. Labor costs as a percentage of total revenues
increased from 29.4% in the twenty-eight weeks ended August 12, 1996 to 31.3% in
the twenty-eight weeks ended August 11, 1997. The increase as a percentage of
total revenues is primarily
25
<PAGE> 27
attributable to the inclusion of Casa Bonita in the first and second quarters of
Fiscal 1998, which operates at a higher level of labor costs than HTB's HomeTown
Buffet restaurants.
Occupancy and other expenses increased $1.3 million, or 27.9%, from $4.8
million in the twenty-eight weeks ended August 12, 1996 to $6.1 million in the
twenty-eight weeks ended August 11, 1997. Occupancy and other expenses as a
percentage of total revenues decreased from 21.8% in the twenty-eight weeks
ended August 12, 1996 to 20.8% in the twenty-eight weeks ended August 11, 1997.
The decrease as a percentage of total revenues is primarily attributable to the
inclusion of Casa Bonita in the first and second quarters of Fiscal 1998.
General and administrative expenses decreased $504,000, or 45.2%, from $1.1
million in the twenty-eight weeks ended August 12, 1996 to $612,000 in the
twenty-eight weeks ended August 11, 1997. General and administrative expenses as
a percentage of total revenues decreased from 5.1% in the twenty-eight weeks
ended August 12, 1996 to 2.1% in the twenty-eight weeks ended August 11, 1997.
The decrease as a percentage of total revenues is a result of the elimination of
certain costs following the acquisition by CKE and the inclusion of $332,000 of
non-recurring severance costs in the twenty-eight weeks ended August 12, 1996.
Pursuant to the Service Agreement, CKE will provide the Company with multi-unit
infrastructure support, including accounting and administrative, financial,
purchasing and real estate services. See "Business -- Relationship with CKE."
Depreciation and amortization increased $252,000, or 28.7%, from $877,000
in the twenty-eight weeks ended August 12, 1996 to $1.1 million in the
twenty-eight weeks ended August 11, 1997, and remained constant as a percentage
of total revenues. The increase in absolute dollars was attributable to the
inclusion of the Casa Bonita restaurants.
Income from operations increased $2.4 million, or 407.0%, from $589,000 in
the twenty-eight weeks ended August 12, 1996 to $3.0 million in the twenty-eight
weeks ended August 11, 1997. Income from operations as a percentage of total
revenues increased from 2.7% in the twenty-eight weeks ended August 12, 1996 to
10.2% in the twenty-eight weeks ended August 11, 1997. The increase in dollars
and as a percentage of total revenues is attributable to the cost reduction
efforts implemented by CKE following its acquisitions of Summit and the Casa
Bonita restaurants and inclusion of Casa Bonita in the first and second quarters
of Fiscal 1998.
COMPARISON OF TWENTY-EIGHT WEEKS ENDED JANUARY 27, 1997 TO THIRTY WEEKS ENDED
JULY 15, 1996 AND THIRTY WEEKS ENDED JULY 15, 1996 TO FISCAL 1995
Due to the acquisition of Summit by CKE on July 15, 1996 and the inclusion
of Casa Bonita since the date of acquisition on October 1, 1996 by CKE, the
comparison of these periods may not be meaningful or indicative of future
results.
Food costs as a percentage of total revenues decreased slightly from 37.5%
in Fiscal 1995 to 37.0% for the thirty weeks ended July 15, 1996. Food costs as
a percentage of total revenues decreased to 35.0% during the twenty-eight weeks
ended January 27, 1997 as compared to 37.0% for the thirty weeks ended July 15,
1996. The decline was attributable to a consistent improvement in food cost
since the acquisition of Summit by CKE and the inclusion of Casa Bonita, which
operates at a lower level of food costs.
Labor costs as a percentage of total revenues remained consistent at 29.6%
during Fiscal 1995 as compared to 29.3% for the thirty weeks ended July 15,
1996. Labor costs as a percentage of total revenues increased to 32.0% during
the twenty-eight week period ended January 27, 1997 from 29.3% for the thirty
week period ended July 15, 1996. The increase as a percentage of total revenues
was primarily attributable to the inclusion of the two Casa Bonita restaurants
since their acquisition on October 1, 1996 which operate at a higher level of
labor costs than the Company's HomeTown Buffet restaurants.
Occupancy and other expenses as a percentage of total revenues decreased
from 24.4% in Fiscal 1995 to 21.7% during the thirty weeks ended July 15, 1996.
The decrease as a percentage of total revenues was primarily attributable to
overall reduced expenses and the relatively fixed nature of certain of these
expenses and the high seasonal sales volumes during the period ended July 15,
1996. Occupancy and other expenses as a
26
<PAGE> 28
percentage of total revenues increased to 22.3% during the twenty-eight week
period ended January 27, 1997 from 21.7% for the thirty week period ended July
15, 1996. This increase was primarily attributable to the relatively fixed
nature of certain of these expenses and the relatively low seasonal sales
volumes during the period ended January 27, 1997.
General and administrative expenses as a percentage of total revenues
increased from 4.5% in Fiscal 1995 to 5.1% during the thirty week period ended
July 15, 1996. The increase was primarily attributable to the payment of
severance costs during the period ended July 15, 1996. General and
administrative expenses as a percentage of total revenues decreased to 2.6%
during the twenty-eight week period ended January 27, 1997 from 5.1% for the
thirty week period ended July 15, 1996. The decrease as a percentage of total
revenues was a result of the inclusion of Casa Bonita which operated with
relatively lower general and administrative costs and the elimination of certain
costs following acquisition by CKE.
Depreciation and amortization as a percentage of total revenues increased
from 3.4% in Fiscal 1995 to 3.9% during the thirty week period ended July 15,
1996. The increase as a percentage of total revenues was attributable to two
restaurant openings in late Fiscal 1995 for which restaurant equipment was
purchased rather than leased. Depreciation and amortization as a percentage of
total revenues remained consistent at 4.2% during the twenty-eight week period
ended January 27, 1997 as compared with 3.9% for the thirty week period ended
July 15, 1996.
Income from operations as a percentage of total revenues increased from
0.6% in Fiscal 1995 to 3.0% during the thirty week period ended July 15, 1996.
The increase was attributable to reduced food, labor and occupancy and other
expenses partially offset by increased general and administrative and
depreciation and amortization expenses. Income from operations as a percentage
of total revenues increased from 3.0% during the thirty week period ended July
15, 1996 to 3.9% for the twenty-eight week period ended January 27, 1997. The
increase as a percentage of total revenues was attributable to certain cost
reductions accomplished by CKE following its acquisition of Summit and the
inclusion of Casa Bonita since October 1, 1996.
COMPARISON OF FISCAL 1995 TO FISCAL 1994
Total revenues increased $5.9 million, or 19.0%, from $30.9 million in
Fiscal 1994 to $36.7 million in Fiscal 1995. The increase was attributable to
the opening of two additional restaurants during Fiscal 1995 and the full-year
impact of seven restaurants which were opened during Fiscal 1994.
Food costs increased $2.3 million, or 20.1%, from $11.5 million in Fiscal
1994 to $13.8 million in Fiscal 1995. Food costs as a percentage of total
revenues increased from 37.2% in Fiscal 1994 to 37.5% in Fiscal 1995. The
increase was attributable to the opening of two new restaurants during Fiscal
1995. New restaurants initially operate at a higher level of food costs than
established restaurants.
Labor costs increased $1.8 million, or 19.7%, from $9.1 million in Fiscal
1994 to $10.9 million in Fiscal 1995. Labor costs as a percentage of total
revenues increased from 29.4% in Fiscal 1994 to 29.6% in Fiscal 1995. The
increase was attributable to the opening of new restaurants which initially
operate at a higher level of labor costs.
Occupancy and other expenses increased $2.2 million, or 32.3%, from $6.8
million in Fiscal 1994 to $9.0 million in Fiscal 1995. Occupancy and other
expenses as a percentage of total revenues increased from 21.9% in Fiscal 1994
to 24.4% in Fiscal 1995. The increase was attributable to the opening of seven
additional restaurants during Fiscal 1994 which initially experienced
significantly higher sales volumes than the sales generated by the existing
restaurants open during Fiscal 1995.
General and administrative expenses decreased $96,000, or 5.4%, from $1.8
million in Fiscal 1994 to $1.7 million in Fiscal 1995. General and
administrative expenses as a percentage of total revenues decreased from 5.7% in
Fiscal 1994 to 4.5% in Fiscal 1995. The decrease as a percentage of total
revenues was attributable to the increase in revenue and the relatively fixed
nature of these expenses.
Depreciation and amortization increased $411,000, or 50.1%, from $821,000
in Fiscal 1994 to $1.2 million in Fiscal 1995. Depreciation and amortization
expense as a percentage of total revenues increased from 2.7%
27
<PAGE> 29
in Fiscal 1994 to 3.4% in Fiscal 1995. The increase as a percentage of total
revenues was due to the opening of seven additional restaurants during Fiscal
1994 which initially experienced significantly higher sales volumes than the
sales generated by the existing restaurants open during Fiscal 1995.
Income from operations decreased $719,000, or 74.8%, from $961,000 in
Fiscal 1994 to $242,000 in Fiscal 1995. Income from operations as a percentage
of total revenues decreased from 3.1% in Fiscal 1994 to 0.7% in Fiscal 1995.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, and
construction could affect the Company's operations. Many of the Company's
employees are paid hourly rates based on federal and state minimum wage laws.
Recent legislation increasing the minimum wage has resulted in higher labor
costs to the Company. In addition, most of the Company's leases require the
Company to pay taxes, insurance, maintenance, repairs and utility costs, and
these costs are subject to inflationary pressures. The Company may attempt to
offset the effect of inflation through periodic menu price increases, economies
of scale in purchasing and cost controls and efficiencies at existing
restaurants. Management believes that inflation has had no significant impact on
costs during the last three years, primarily because the largest single item of
expense, food costs, has remained relatively stable during this period.
LIQUIDITY AND CAPITAL RESOURCES
The Predecessor and Successor Companies have historically financed their
operations primarily through a combination of cash on hand, cash provided from
operations and available borrowings under bank lines of credit. As of August 11,
1997, the Company had $725,000 in cash.
Cash provided by operations was approximately $2.7 million, $1.6 million,
$816,000 and $1.9 million in Fiscal 1994, Fiscal 1995, the thirty week period
ended July 15, 1996 and the twenty-eight week period ended January 27, 1997,
respectively. Cash provided by operations was approximately $1.6 million and
$2.9 million for the twenty-eight week periods ended August 12, 1996 and August
11, 1997, respectively.
The Company does not currently have a bank line of credit or other working
capital facility available to it. The Company intends to obtain a bank credit
facility to support its working capital requirements. Management anticipates
that the credit facility will contain customary affirmative and negative
covenants, including maintaining certain minimum working capital, net worth and
financial ratios and restrictions on the Company's ability to pay dividends on
the Common Stock. There can be no assurance that the Company will be able to
arrange a credit facility when required or on terms acceptable to the Company.
The Company intends to expand its operations through the opening of new
restaurants and acquisitions of regional buffet restaurant chains. In addition,
the Company may expand through the purchase of existing restaurant sites which
would be converted to one of the Company's restaurant concepts. Management
estimates the cost of opening its prototype restaurant to be approximately $1.5
million to $1.7 million assuming leased real estate. In many instances,
management believes that existing restaurant locations can be acquired and
converted to the Company's prototype concept at a lower cost than new unit
openings. Management believes that the cost of converting an existing restaurant
facility to the Company's prototype concept is approximately $400,000 to
$500,000 per unit. These costs consist primarily of exterior and interior
appearance modifications and certain kitchen and food service equipment. There
can be no assurance that the Company will be able to acquire additional
restaurant chains or locations or, if acquired, that these restaurants will have
a positive contribution to the Company's results of operations.
The Company believes that the net proceeds from this offering, together
with existing cash balances and funds expected to be generated from operations,
will provide the Company with sufficient funds to finance its operations for at
least the next 12 months. The Company may require additional funds to support
its working capital requirements or for other purposes, including acquisitions,
and may seek to raise such additional funds through public or private equity
and/or debt financings or from other sources. No assurance can be given that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to the Company.
28
<PAGE> 30
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), effective for fiscal years ending after December 15, 1997. SFAS 128
introduces and requires the presentation of "basic" earnings per share which
represents net earnings divided by the weighted average shares outstanding
excluding all common stock equivalents. Dual presentation of "diluted" earnings
per share, reflecting the dilutive effects of all common stock equivalents, will
also be required. The diluted presentation is similar to the current
presentation of fully diluted earnings per share. Management has not determined
whether the adoption of SFAS 128 will have a material impact on the Company's
combined financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS 130 requires all items that are required to
be recognized under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 does not require a specific
format for that financial statement but requires that an enterprise display an
amount representing total comprehensive income for the period covered by that
financial statement. SFAS 130 requires an enterprise to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Management has not determined whether the
adoption of SFAS 130 will have a material impact on the Company's combined
financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, Financial Reporting for Segments of a Business Enterprise, but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, Consolidation of All Majority-Owned Subsidiaries, to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets, information about the revenues derived from the enterprise's
products or services, and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 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 restated. SFAS 131 need not be applied to
interim financial statements 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. Management has not determined whether the adoption of SFAS 131
will have a material impact on the Company's segment reporting.
29
<PAGE> 31
BUSINESS
GENERAL
The Company, through its subsidiaries, owns and operates 16 franchised
HomeTown Buffet restaurants, two Mexican-themed restaurants operated under the
Casa Bonita name and has entered into a definitive agreement to acquire seven
additional buffet restaurants which operate under the "JJ North's Grand Buffet"
name. The Company's restaurants, including the North's Restaurants, are located
in nine western states and are focused upon providing customers with a wide
variety of fresh, high quality food at modest prices in a warm, friendly
atmosphere. The Company's strategic objective is to become a leading national
operator of regional buffet restaurants through the acquisition of established
regional concepts and the development of additional restaurants within existing
or new markets.
The Company was formed on July 28, 1997 as a wholly-owned subsidiary of
CKE, an operator, franchisor and licensor of over 4,000 branded restaurants in
the United States and abroad. See "Certain Transactions." The Company has
benefited from its relationship with CKE through its access to certain operating
systems and strategies which CKE successfully implemented in its Carl's Jr.
chain. Since acquiring Summit in July 1996, these systems and procedures have
been successful at increasing the overall revenues and profitability of HTB's
HomeTown Buffet restaurants. As part of CKE's desire to focus its management
efforts and capital resources on quick-service restaurants, CKE has determined
that the expansion of the Company will be enhanced through the creation of a
separate publicly traded company focused on the buffet restaurant segment. After
the completion of this offering, CKE will beneficially own approximately 44.4%
of the outstanding Common Stock (approximately 41.0% if the Underwriters'
over-allotment option is exercised in full).
OPERATING STRATEGY
Since the acquisition of Summit by CKE in July 1996, HTB's HomeTown Buffet
restaurants have experienced significant reductions in operating costs and
improvements in same-store revenues. The Company believes that its ability to
accomplish these cost reductions and operational improvements is due to the
Company's customer focus and management practices.
Customer Focus. The Company believes that its ability to deliver high
quality food to customers with superior service in clean and friendly
environments has been central to its success at improving customer perceptions
and sales at its buffet restaurants. The key elements of management's focus
include:
- High Quality Food. The Company seeks to differentiate itself by providing
higher quality and better tasting food than its competitors. Food items
are prepared frequently and in small batches to ensure the correct
temperature, texture and flavor. Management limits the number of items
prepared each day and frequently rotates selected specialty items to
maintain customer interest while ensuring that the Company's signature
items are offered at the highest possible quality.
- Superior Service. The Company provides a level of customer service which
it believes has helped it establish a higher level of customer
satisfaction than its competitors. Customers are greeted by an employee
who seats the customers and explains the features of the restaurant and
menu offerings. In addition, the restaurants' managers seek to visit each
customer table during peak meal periods to ensure guest satisfaction. The
Company's restaurants are inspected by independent "mystery shoppers"
several times each month, and restaurants not performing up to Company
standards receive additional inspection surveys until appropriate
standards are restored.
- Clean and Friendly Environment. The Company strives to offer a pleasant,
customer friendly environment at its restaurants by providing attractive,
updated restaurant decors and by emphasizing cleanliness in all areas of
its operations. Further, through regular maintenance, the Company seeks
to enhance the customer dining experience by keeping its restaurants
clean and pleasant.
30
<PAGE> 32
Management Practices. The Company's management team has developed and
implemented a series of management practices, many of which were developed by
CKE, that have improved the operations of HTB's HomeTown Buffet restaurants.
Management believes that many of these practices and policies can be applied to
the North's Restaurants as well as other buffet restaurants. The key elements of
these management practices are:
- Restaurant Management. The Company has developed food, labor and customer
service management practices and reporting mechanisms that allow
management to effectively monitor restaurant-level operations, benchmark
restaurant performance statistics and communicate best-practices across
its restaurant operations. Management supports these practices through
the use of its restaurant-level incentive and bonus programs oriented
toward motivating employees. The Company believes that these incentive
and bonus programs, as well as its traditional recognition programs,
foster an environment where employees are encouraged to share their ideas
and cost saving suggestions with management.
- Cost Management. The Company's relationship with CKE has enabled it to
maintain a lean corporate management structure. The Company believes that
it can continue to leverage its corporate infrastructure and Service
Agreement with CKE in order to achieve additional synergies in
purchasing, information systems, finance and accounting, benefits and
human resource management. The Company is committed to controlling costs
at all levels of its operations. Through effective management of the
Company's product mix, production quantities and staffing, the Company
has significantly reduced its food, labor and other operating costs.
- Brand Management. The Company promotes its restaurants and enhances its
brand awareness through local promotions and advertising programs which
convey a targeted, consistent message and build customer awareness and
loyalty. The Company primarily utilizes local marketing representatives
to promote the restaurants to local organizations and groups seeking
facilities and services offered by buffet restaurants.
The successful implementation of these management practices is best
exemplified by the recent increases in same-store sales and operating margins at
HTB's HomeTown Buffet restaurants. For the fifty-two weeks ending July 15, 1997,
HTB's HomeTown Buffet restaurants experienced a 1.7% increase in same-store
sales, following a 9.2% decline in same-store sales during the fiscal year ended
December 19, 1995. In addition, management reduced food costs to 35.2% of total
revenues during the twenty-eight weeks ended August 11, 1997 from 37.0% of total
revenues for the twenty-eight weeks ended August 12, 1996.
GROWTH STRATEGY
The Company's strategic objective is to become a leading national operator
of regional buffet restaurants through (i) acquisitions of existing buffet
restaurants which management believes can benefit from the Company's management
practices, (ii) new restaurant openings, particularly by acquiring existing
restaurant locations which can be converted to buffet restaurants operated or
under development by the Company and (iii) minority investments in or strategic
alliances with other regional buffet restaurant chains. The Company's growth
strategy is designed to capitalize on the opportunities management perceives in
the fragmented buffet segment of the restaurant industry.
Acquisition Strategy. Management believes that the Company will be able to
capitalize on the successful attributes of acquired buffet chains while
increasing their focus on customer service and quality. Management believes that
a number of acquisition opportunities exist due to the fragmentation of the
buffet, cafeteria and grill-buffet segments of the restaurant industry, which
are comprised of a substantial number of regional chains. The Company believes
that most of these regional chains are privately owned and may be available for
acquisition because they lack the financial and operational structure to compete
with larger regional and national chains. Following acquisition, management
intends to integrate and improve the operations and profitability of the chain
through the implementation of the following key strategies:
- Enhance Food Quality and Service Levels. Management believes that, due to
the limited capital and management resources of many regional chains,
such restaurants often offer poor food quality and an
31
<PAGE> 33
insufficient level of customer service. Management intends to increase
the chains' customer focus and utilize the management practices which
have proven successful at other CKE restaurants.
- Implement Operational Cost Controls and Management Incentive Structures.
Management believes that the management practices which have successfully
lowered food, labor and other operating costs at other CKE restaurants
can be implemented in other regional buffet chains. In addition, the
Company believes that its management incentive programs can increase the
customer service and profitability of acquired restaurants.
- Leverage CKE Relationship to Reduce Overhead Expenses. The Company
intends to achieve operating efficiencies by eliminating certain
administrative functions and redundant operations. Management believes
that significant savings can result through the implementation of CKE's
purchasing, financial services, information systems and accounting
functions.
Acquisitions, however, involve a number of special risks that could
adversely affect the Company's business, financial condition and results of
operations, including the diversion of management's attention, the assimilation
of the operations and personnel of acquired restaurants, the amortization of
acquired intangible assets and the potential loss of key employees. See "Risk
Factors -- Risks Associated with Expansion and Acquisitions."
New Restaurant Opening Strategy. In order to increase the Company's
presence in existing markets, or when acquisition opportunities are not
available, the Company intends to expand through new restaurant openings. While
the Company may construct new restaurant facilities, management intends to seek
opportunities to convert locations currently occupied by other buffet, family
dining or budget steakhouse restaurant concepts. The Company has developed its
prototype design and menu for new restaurant openings which management believes
will offer customers a dining environment and experience superior to existing
buffet restaurants. Management believes that this design can be easily
implemented at restaurants acquired by the Company.
In recent years, a number of chains in the family dining and budget
steakhouse segments of the restaurant industry have experienced operational
difficulties and declining performance. Management believes that these
difficulties are the result of increasing competition for these concepts from
the rapid growth of lower priced casual dining chains and casual steakhouses
which offer superior product quality and service at only moderately higher
prices. Many of these family dining restaurants and budget steakhouses occupy
desirable locations and provide opportunities to acquire desirable restaurant
locations at attractive prices. Management believes that these locations can be
acquired at lower prices or leased at rates lower than those available from a
comparable undeveloped site.
Minority Investments. Management intends to seek minority investments in
other restaurant chains, like Stacey's, that the Company believes can be
improved through the implementation of the Company's management practices.
Management believes that minority investments can provide an attractive
investment opportunity for the Company and may lower the acquisition cost of
such chain should it ultimately be acquired by the Company.
THE NORTH ACQUISITION
On July 24, 1997, CKE entered into an Asset Purchase Agreement with
North's, an operator and franchisor of 24 buffet restaurants in the western
United States, to acquire certain of the North's Restaurants which are located
in Idaho, Oregon, Utah and Washington, as well as the trademarks, menus,
restaurant designs and other intangible assets used in connection with North's
Restaurants.
The Company believes the North Acquisition is a significant first step in
its strategy of growth through acquisitions. The Company believes the increased
credibility and visibility resulting from the North Acquisition will position
the Company to pursue aggressively its strategy of growth through acquisitions
as regional buffet chains are pressured to consolidate. The performance of the
North's Restaurants has been adversely affected by operational difficulties and
inadequate capital resources, the effects of which were compounded by increased
competition in the industry. These difficulties resulted in net losses for the
years
32
<PAGE> 34
ended June 30, 1996 and 1997, despite an increase in revenues during the year
ended June 30, 1996. See "Risk Factors -- Risks Associated with the North
Acquisition." The Company believes that it can meaningfully improve the
same-store sales and profitability levels at the North's Restaurants and has
developed a plan to integrate the North's Restaurants into the Company and
improve their operations by implementing the strategies which were used to
improve the operations of other CKE restaurants. The key elements of these
strategies are as follows:
- Improve Food Quality. The Company believes that it can improve the
quality of the food served at the North's Restaurants by implementing
certain management practices utilized by other CKE restaurants. The
Company intends to limit the number of items offered each day, frequently
rotate selected specialty items and prepare items frequently and in small
batches to ensure the correct temperature, texture and flavor.
- Enhance Service Quality. The Company believes that the level of service
provided at North's Restaurants falls below that provided at the
Company's HomeTown Buffet restaurants. To address this situation, the
Company will selectively utilize certain policies which were successfully
implemented at other CKE restaurants to improve the quality of their
service.
- Implement Management Practices. The Company believes there is a
significant opportunity to improve restaurant-level margins, which are
lower than restaurant-level margins at HTB's HomeTown Buffet restaurants,
by implementing labor scheduling and other management practices and
incentive and bonus programs utilized by other CKE restaurants.
The aggregate consideration to be paid by the Company for the North's
Restaurants will be $4.5 million, subject to adjustment, consisting of $4.0
million of assumed liabilities and $500,000 in cash. Pursuant to the Acquisition
Agreement, the Company agreed to use reasonable commercial efforts to secure a
term loan of up to $3.0 million for North's, the proceeds of which are to be
used to repay certain indebtedness of North's, and a credit line of up to
$750,000 for North's, the proceeds of which North's may draw upon for working
capital requirements. The Company anticipates that it will satisfy its
obligation to secure the $3.0 million term loan for North's by assuming an
additional $3.0 million principal amount of North's existing bank debt or
acquiring such principal amount of indebtedness from North's primary secured
lender with $3.0 million of the net proceeds of this offering. North's will
agree to repay the $3.0 million principal amount of indebtedness assumed or
acquired by the Company, together with interest at a variable rate, over a
five-year period commencing twelve months after the closing of the North
Acquisition. The indebtedness to be assumed by the Company in connection with
the North Acquisition will bear interest at a variable rate and will be fully
amortized over a five-year term. CKE has agreed to guarantee the payment of up
to $7.0 million of the principal amount of indebtedness to be assumed by the
Company in connection with the North Acquisition. In addition, the Company has
agreed to offer to North's the right to purchase, upon the completion of this
offering, 150,000 warrants at $3.50 per warrant. Each warrant will entitle the
holder to purchase one share of Common Stock at an exercise price per share
equal to the initial public offering price.
Pursuant to the Acquisition Agreement, the Company and CKE have agreed to
(a) license to North's certain intellectual property rights, which are to be
acquired by the Company as part of the North Acquisition, for use in the
remaining restaurants operated by North's and its franchisees, and new
restaurants, if any, developed by North's; (b) enter into a business services
agreement with North's pursuant to which CKE will provide certain purchasing,
marketing, human resources, payroll and accounting services to North's; and (c)
negotiate in good faith to enter into a development agreement pursuant to which
North's would have the right to develop restaurants based on the buffet concept
which the Company has developed. CKE also received an option to purchase the
assets of nine additional restaurants operated by North's. There can be no
assurance that the HomeTown Franchisor will not assert a claim that the
Company's ability to exercise this option conflicts with the noncompetition
provision in the Franchise Agreements since a majority of these nine restaurants
are located within approximately 25 miles of an existing HomeTown Buffet
restaurant. See "Risk Factors -- Dependence Upon and Restrictions Resulting from
Relationship with the HomeTown Franchisor." Prior to the completion of this
offering, CKE will assign to the Company its rights and certain of its
obligations under the Acquisition Agreement to the Company. The Company has also
agreed to enter into an employment
33
<PAGE> 35
agreement with John F. North, Jr., the President of North's, at such time as the
Company shall have acquired a total of 10 restaurants from North's. In addition,
CKE has agreed to vote for the election of John F. North, Jr. to the Company's
Board of Directors for one full term. Following the completion of this offering,
the Company has agreed to grant to John F. North, Jr. fully vested options to
purchase a number of shares of the Company's Common Stock, representing one
percent of the outstanding shares on a fully diluted basis as of the date of the
grant, at an exercise price equal to the initial public offering price. In
addition, if the Company exercises its option to purchase additional North's
restaurants, the Company has agreed to issue to James E. North and John F.
North, Jr., collectively, options to purchase between .6667% and 2%, depending
on the number of additional restaurants acquired, of the Company's outstanding
shares of Common Stock on a fully diluted basis as of the date of grant. The
exercise price of any such options will be based on the last reported sales
price of the Common Stock on the date of grant.
The Acquisition Agreement contains certain customary representations,
warranties, covenants and indemnification provisions. In addition, the
consummation of the North Acquisition is subject to certain conditions,
including obtaining lien releases from North's creditors, the consummation of
this offering and other customary closing conditions.
THE STACEY'S STRATEGIC ALLIANCE
On July 18, 1997, CKE signed a non-binding letter of intent with Stacey's
for a strategic alliance between the Company and Stacey's. Stacey's operates 24
buffet restaurants, 19 of which are located in Florida. For the fiscal year
ended January 1, 1997, Stacey's reported revenues of $38.8 million and an
operating loss of $1.9 million.
The transactions contemplated by the LOI are subject to the negotiation of
definitive agreements and approval of Stacey's and the Company's Boards of
Directors. The LOI contemplates an arrangement whereby the Company would (i)
provide certain purchasing, administrative and management services to a majority
of the Stacey's buffet restaurants, (ii) loan Stacey's $2.0 million for
remodeling or reconcepting several of Stacey's restaurants and (iii) receive
management fees equal to 3.5% of Stacey's revenues and a warrant to purchase 30%
of Stacey's fully diluted common stock. The Company would also have the right to
designate two members of Stacey's five-member board of directors.
The Company believes that the transactions contemplated by the LOI provide
the Company with an opportunity to leverage its management expertise to improve
Stacey's operations. The Company believes that Stacey's operations have suffered
in recent years due to operational difficulties and inadequate capital
resources. The Company believes that its management practices and purchasing
economies could have a significant positive impact on Stacey's operations. The
Company intends to work with Stacey's to implement labor and other cost saving
programs developed by CKE and to convert certain units to the Company's
prototype buffet restaurant.
RESTAURANTS
HomeTown Buffet
HTB's HomeTown Buffet restaurants offer fixed price lunch, dinner and
weekend breakfast menus that entitle each customer to unlimited servings of all
menu items and beverages. Prices are approximately $5.75 for lunch and
approximately $7.65 for dinner, and may vary depending on restaurant location.
The restaurants offer reduced prices to children under age 12 and to senior
citizens.
At HTB's buffet restaurants, customers pay for the meal upon entering the
restaurant and are generally seated by restaurant personnel before proceeding to
the food service area. The restaurants generally utilize "scatter bar" formats
with approximately eight buffet islands located throughout the food service
area. Each buffet island contains different courses or types of menu items. The
"scatter bar" format enables guests to avoid waiting in long food lines. The
food service areas are designed to be accessible from all dining areas. The
large dining areas of the HomeTown Buffet restaurants are often divided into
separate rooms which may be
34
<PAGE> 36
used for special functions. In addition to the public areas, each restaurant has
a food preparation and storage area, including a fully-equipped kitchen.
HomeTown Buffet restaurants seek to differentiate themselves from other
buffet and cafeteria restaurants by the quality and variety of their food
offerings. Menus emphasize traditional American "home cooking" and include
soups, salads, entrees, vegetables, non-alcoholic beverages and desserts.
Customers can choose from multiple entree choices, including fried and baked
chicken and fish, roast beef, turkey and ham. Additional entrees, such as
lasagna, barbecued ribs and other regional or seasonal dishes, are featured on
particular days of the week. In addition to entrees, each meal includes two
freshly-prepared soups, assorted vegetable and potato dishes, hot bread and an
extensive salad bar. Dessert selections include pudding, assorted cobblers,
cakes, cookies and soft-serve frozen dairy desserts and various sundae toppings.
HTB uses high-quality ingredients, including fresh seasonal fruits and
vegetables, in its menu offerings, and all menu items are prepared in small
batches throughout the day. The items are served promptly in relatively small
serving pans in order to ensure that all items are fresh, visually appealing and
served at the proper temperature. HTB regularly tests new menu items and
upgrades ingredients and cooking methods in order to improve the quality and
consistency of its food offerings.
HTB's typical restaurant format is approximately 9,200 square feet with
seating for approximately 350 customers. The restaurant design is based upon
standardized construction plans, with modifications made for each particular
site.
The chart below sets forth certain data with respect to the HTB HomeTown
Buffet restaurants:
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED TWENTY-EIGHT
---------------------------------------- WEEKS ENDED
DEC. -------------------
20, DEC. 19, DEC. 18, JAN. 27, AUG. 12, AUG. 11,
1993 1994 1995 1997 1996 1997
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of restaurants open (end of
period)................................ 7 14 16 16 16 16
Revenues (in thousands).................. $13,167 $ 30,871 $ 36,741 $ 39,455 $ 21,881 $ 22,270
Percentage increase (decrease) in
comparable store sales(1).............. N/A 4.3% (9.2)% (0.4)% (2.4)% 1.9%
Average weekly customer count per
restaurant............................. 8,201 9,177 8,150 8,117 8,411 8,508
Average check(2)......................... $ 5.29 $ 5.57 $ 5.69 $ 5.79 $ 5.79 $ 5.83
</TABLE>
- ---------------
(1) Includes only restaurants open throughout the full periods being compared.
(2) Net of discounts and promotions.
Casa Bonita
The Company's two Casa Bonita restaurants are located in Denver, Colorado
and Tulsa, Oklahoma and contain 42,000 and 26,000 square feet, respectively. The
restaurants are designed to recreate the atmosphere of a Mexican village at
night. The restaurants also feature entertainment daily, including strolling
mariachis, authentic Mexican dancers, magicians and games. The restaurant's
entertainment, combined with high quality, authentic Mexican food, is designed
to attract a diverse customer base, including tourists and local customers. In
addition to typical Mexican menu offerings, these restaurants feature
all-you-can-eat dinners which offer customers unlimited servings of selected
menu items.
The Company focuses on three primary target audiences in its advertising
and promotional programs for its Casa Bonita restaurants: (i) local customers;
(ii) tourists; and (iii) groups and parties. The Company markets aggressively to
attract tourists by placing advertisements in local tourist and special event
guides and by otherwise promoting each Casa Bonita restaurant as a local
attraction. With its large dining areas and private rooms, the Company also
promotes Casa Bonita as an ideal setting for banquets, private parties and other
group events.
35
<PAGE> 37
The chart below sets forth certain data with respect to the Company's Casa
Bonita restaurants:
<TABLE>
<CAPTION>
TWENTY-EIGHT
FIFTY-TWO WEEKS ENDED WEEKS ENDED
------------------------------ -------------------
DEC. 19, DEC. 18, JAN. 27, AUG. 12, AUG. 11,
1994 1995 1997 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of restaurants (end of period)...... 2 2 2 2 2
Revenues (in thousands).................... $ 10,856 $ 10,823 $ 11,483 $7,004 $7,036
Percentage increase (decrease) in
comparable store sales................... (1.2)% (0.3)% 6.1% 5.4% 0.5%
</TABLE>
SITE SELECTION, RESTAURANT LOCATIONS AND PROPERTIES
The Company and CKE entered into a Service Agreement pursuant to which the
Company will utilize the services of CKE to assist management with respect to
site selection and other real estate related activities. In selecting new
restaurant locations, management considers target population density, local
competition, household income levels and trade area demographics, as well as
specific location characteristics, such as visibility, accessibility, parking
capacity and traffic volume. An important factor in the site selection process
is the convenience of the potential location to both lunch and dinner customers
and the occupancy cost of the proposed site. In addition, management considers
the success of chain restaurants in the area. Potential site locations are
identified by Company personnel, consultants and independent real estate
brokers. Executive management visits and approves or disapproves any proposed
restaurant site.
Upon consummation of the North Acquisition, the Company will operate 25
restaurants in nine states. The following table reflects the locations of the
Company's restaurants.
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
-------------------------------------------
HOMETOWN
STATE BUFFET JJ NORTH'S CASA BONITA TOTAL
------------------------------------------ -------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Arizona................................... 8 -- -- 8
Colorado.................................. 2 -- 1 3
Idaho..................................... -- 3 -- 3
New Mexico................................ 2 -- -- 2
Oklahoma.................................. -- -- 1 1
Oregon.................................... -- 1 -- 1
Utah...................................... 3 1 -- 4
Washington................................ -- 2 -- 2
Wyoming................................... 1 -- -- 1
-- -- -- --
Total........................... 16 7 2 25
== == == ==
</TABLE>
The Company's restaurants are primarily freestanding locations. The Company
prefers to lease its restaurant facilities in order to reduce the initial costs
of development. In addition, the Company seeks to obtain construction allowances
from the landlord in order to defray the cost of improvements.
The Company currently leases the restaurant sites for all of its
restaurants. The leases expire on dates ranging from 2000 to 2014 with the
majority of the leases providing for renewal options. All leases provide for
specified periodic rental payments, and most call for additional rental based
upon revenue volume. Most of the leases require the Company to maintain the
property and to pay for the cost of insurance and taxes.
The Company's headquarters is located in 15,512 square feet of leased
office space in Salt Lake City, Utah. The base lease for this property expires
in 2000. The Company has the option to lease this property for an additional
five-year term upon the expiration of such lease.
HTB RESTAURANT OPERATIONS AND MANAGEMENT
HomeTown Buffet restaurant management is under the direction of Joseph J.
Hollencamp, Senior Vice President of HTB, who oversees staffing, training,
restaurant operations and local store marketing. The Senior
36
<PAGE> 38
Vice President relies on the support of corporate administrative services and a
team of two regional managers who supervise eight restaurants each.
The management staff of a typical restaurant consists of one General
Manager, one Service Manager, one Kitchen Manager, one Assistant Service Manager
and one Assistant Kitchen Manager. Individual restaurants typically employ
between 70 and 110 non-management hourly employees (made up of a mix of part-
and full-time workers), depending on restaurant size and traffic.
HTB attempts to attract and train high quality employees at all levels of
restaurant operations. Generally, restaurant management has been recruited from
outside the Company and has had significant prior restaurant experience. The
Company has in place strict operating standards and believes that strong
standardized training processes are an important aspect of its operations. All
management employees (including Assistant Managers), regardless of former
experience, participate in a four- to seven-week formal course of training at
one of the Company's training sites. Additional periodic training is provided as
required. Non-management employees are trained at the local restaurant site.
The General Manager of a restaurant has responsibility for day-to-day
operation of the restaurant and acts independently to maximize restaurant
performance, subject to Company-established management policies. The General
Manager makes personnel decisions and determines orders for produce and dairy
products as well as centrally-contracted food items and other supplies. The
Company's management compensation program includes bonuses based on restaurant
profit performance.
RELATIONSHIP WITH THE HOMETOWN FRANCHISOR
HTB was the first franchisee of the HomeTown Franchisor and entered into an
initial franchise agreement and a Multiple Unit Development Agreement with the
HomeTown Franchisor in October 1991.
Each of the Franchise Agreements has a 20-year term (with two five-year
renewal options) and provides for a one-time payment to the HomeTown Franchisor
of an initial franchise fee and a continuing royalty fee at a variable rate of
between 2% and 4% of gross sales. HTB provides weekly sales reports to the
HomeTown Franchisor as well as periodic and annual financial statements.
HTB is obligated to operate its Hometown Buffet restaurants in compliance
with the HomeTown Franchisor's operating and recipe manuals, but is not required
to purchase food products or other supplies through the HomeTown Franchisor's
suppliers.
The HomeTown Franchisor may terminate a franchise agreement for a number of
reasons, including the failure to pay royalty fees when due, failure to comply
with applicable laws or repeated failure to comply with one or more requirements
of the Franchise Agreement. Many state franchise laws limit the ability of a
franchisor to terminate or refuse to renew a franchise. Generally, a franchisor
may terminate a franchise agreement only if franchisee violates a material and
substantial provision of the agreement and fails to remedy the violation within
a specified period. See "Risk Factors -- Dependence Upon and Restrictions
Resulting from Relationship with the HomeTown Franchisor" and "Business -- Legal
Proceedings."
RELATIONSHIP WITH CKE
In connection with the Formation Transactions, CKE and the Company will
enter into the Service Agreement pursuant to which CKE will provide the Company
with certain multi-unit retail infrastructure support for a period of three
years in exchange for an annual fee of $350,000, which fee may be increased up
to 10% per year based upon increases in CKE's cost of providing such services.
Such services will consist of (i) accounting and administrative services, such
as maintaining accounting records, performing accounting activities, preparing
financial reports, operating and maintaining the information technology system,
establishing and administering certain employee benefits and complying with
reporting obligations thereunder; (ii) financial services, including the
identification and analysis of possible transactions and related financial and
strategic advice, assistance in budget and forecast preparation, consultations
and advice as to presentations, discussions and disclosures to financial
analysts and the financial press and advice concerning crisis
37
<PAGE> 39
management and control; (iii) real estate services, including site analysis and
other real estate matters and (iv) purchasing services.
COMPETITION
The restaurant industry is highly competitive. The Company competes on the
basis of the quality and value of food products offered, price, service,
location and overall dining experience. The Company's primary competitor in the
buffet restaurant business is Buffets, Inc., which owns, operates and franchises
the HomeTown Buffet and Old Country Buffet restaurant concepts. The Company also
competes with a large and diverse group of restaurant chains and individually
owned restaurants, including chains and individually owned restaurants that
utilize a buffet format. The number of buffet restaurants with operations
generally similar to the Company's has grown considerably in the last several
years and the Company believes competition among buffet restaurants is
increasing. As the Company and its principal competitors expand operations in
various geographic areas, competition, including competition among buffet
restaurants with concepts similar to the Company's concepts, can be expected to
intensify. Such intensified competition could increase the Company's operating
costs or adversely affect its revenues. A number of competitors have been in
existence longer than the Company and have substantially greater financial,
marketing and other resources and wider geographical diversity than the Company.
In addition, the restaurant industry is affected by changes in consumer tastes,
national, regional and local economic conditions and market trends. The
performance of individual restaurants may be affected by factors such as traffic
patterns, demographic considerations and the type, number and location of
competing restaurants. The Company's significant investment in and long-term
commitment to each of its restaurant sites limits its ability to respond quickly
or effectively to changes in local competitive conditions or other changes that
could have a material adverse effect on the Company's operations. The Company's
continued success is dependent to a substantial extent on its reputation for
providing high quality and value and this reputation may be affected not only by
the performance of its restaurants but also by the performance of
franchisor-owned restaurants and restaurants operated by other franchisees, over
which the Company has no control.
GOVERNMENT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and building and zoning requirements. In addition, the Company is subject
to laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Many of the Company's employees are paid hourly rates based upon
the federal and state minimum wage laws. Recent legislation increasing the
minimum wage has resulted in higher labor costs to the Company. An increase in
the minimum wage rate, employee benefit costs or other costs associated with
employees, could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of July 28, 1997, the Company employed approximately 1,640 persons, of
whom approximately 1,560 were restaurant employees, and approximately 80 were
restaurant management, supervisory and corporate personnel. Restaurant employees
include both full-time and part-time workers and all are paid on an hourly
basis. No Company employees are covered by collective bargaining agreements. The
Company believes that its relations with its employees are generally good.
LEGAL PROCEEDINGS
On August 9, 1996, HTB, Summit and CKE filed a complaint in the United
States District Court for the District of Utah, Central Division against
Buffets, Inc. and the HomeTown Franchisor, alleging violations of federal and
state antitrust laws, claims for unfair business practices, claims for tortious
interference with contract, and claims for breach of contract and breach of the
covenant of good faith and fair dealing. The litigation is continuing and is not
scheduled for trial until August 1998.
38
<PAGE> 40
HTB's HomeTown Buffet restaurants were opened pursuant to the terms of a
Multiple Unit Agreement entered into with the HomeTown Franchisor in October
1991, under which HTB was granted exclusive rights to develop and operate up to
27 HomeTown Buffet restaurants as a franchisee in eight western states, subject
to HTB's compliance with a development schedule. In July 1996, the HomeTown
Franchisor provided written notice to HTB of termination of the Multiple Unit
Agreement, based upon HTB's alleged breach of its development obligations. As a
result of an award entered in favor of the HomeTown Franchisor in a binding
arbitration proceeding, which award was unsuccessfully appealed by HTB, HTB has
no contractual or other right to develop any additional HomeTown Buffet
restaurants. Although the loss of exclusive development rights exposes HTB to
increased competitive risks relating to the HomeTown Franchisor's expansion and
development activities, the Company does not believe that the result of these
arbitration proceedings will have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Dependence Upon and Restrictions Resulting from Relationship with the
HomeTown Franchisor."
The Company is from time to time the subject of complaints or litigation
from customers alleging illness, injury or other food quality, health or
operational concerns. Adverse publicity resulting from such allegations may
materially adversely affect the Company and its restaurants, regardless of
whether such allegations are valid or whether the Company is liable. The Company
also is the subject of complaints or allegations from employees from time to
time. The Company believes that the lawsuits, claims and other legal matters to
which it has become subject in the course of its business are not material to
the Company's business, financial condition or results of operations, but an
existing or future lawsuit or claim could result in an adverse decision against
the Company that could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Litigation."
39
<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors, director nominees and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ----------------------------------------------
<S> <C> <C>
William P. Foley II(1)(2) 52 Chairman of the Board
Robert E. Wheaton(2) 45 Chief Executive Officer, President and
Director
Theodore Abajian 33 Chief Financial Officer
C. Thomas Thompson(2) 47 Director
Stuart W. Clifton(3) 53 Director Nominee
Jack M. Lloyd(3) 47 Director Nominee
Thomas G. Schadt(1) 56 Director Nominee
Norman N. Habermann(1)(3) 64 Director Nominee
John F. North, Jr. 48 Director Nominee
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Executive Committee
(3) Member of Audit Committee
William P. Foley II has served as the Chairman of the Board of the Company
since its formation in July 1997. Mr. Foley has been the Chief Executive Officer
of CKE since October 1994, the Chairman of the Board of Directors of CKE since
March 1994, and has served as a director of CKE since December 1993. Since 1981,
Mr. Foley has been Chairman of the Board, President (until January 1995) and
Chief Executive Officer of Fidelity National Financial, Inc., a company engaged
in title insurance and related services. Mr. Foley is also the Chairman of the
Board of Checkers Drive-In Restaurants, Inc. and a member of the Boards of
Directors of Rally's Hamburgers, Inc., DataWorks Corporation, Micro General
Corporation and GB Foods Corporation.
Robert E. Wheaton has served as the Chief Executive Officer and President
and as a director of the Company since its formation in July 1997. Mr. Wheaton
has served as an Executive Vice President of CKE since January 1996. From April
1995 to January 1996, he served as Vice President and Chief Financial Officer of
Denny's Inc., a subsidiary of Flagstar Corporation. From 1991 to 1995, Mr.
Wheaton served as President and Chief Executive Officer, and from 1989 to 1991
as Vice President and Chief Financial Officer of The Bekins Company.
Theodore Abajian has served as the Chief Financial Officer of the Company
since its formation in July 1997. Mr. Abajian has been the Vice President and
Controller of Summit since 1994. From 1983 to 1994, he held several positions
with Family Restaurants, Inc., including Director of Financial Analysis,
Planning and Reporting for the family restaurant division, which included 350
Carrows and Coco's restaurants.
C. Thomas Thompson has been a director of the Company since its formation
in July 1997. Mr. Thompson has served as the President and Chief Operating
Officer of CKE since October 1994. Mr. Thompson has been a franchisee of CKE
since 1984, and currently operates 15 Carl's Jr. Restaurants in the San
Francisco Bay Area. Mr. Thompson also currently serves as Vice Chairman of the
Board and Chief Executive Officer of Checkers Drive-In Restaurants, Inc. and a
member of the Board of Directors of Rally's Hamburgers, Inc. Mr. Thompson has
more than 20 years of experience in the restaurant industry. He previously held
positions with Jack-in-the-Box and Pacific Fresh Restaurants, a full-service
restaurant chain in the Bay Area.
Stuart W. Clifton will serve as a director of the Company following this
offering. Since 1987, Mr. Clifton has been the Chief Executive Officer and
President and a member of the Board of Directors of DataWorks Corporation, a
supplier of information systems to manufacturing companies.
40
<PAGE> 42
Thomas G. Schadt will serve as a director of the Company following this
offering. Mr. Schadt has been the Chief Executive Officer of a privately-held
beverage distribution company, Bear Creek, L.L.C., since 1995. From 1976 to
1994, he held several positions with Pepsico, Inc., most recently, Vice
President of Food Service.
Norman N. Habermann will serve as a director of the Company following this
offering. Since February 1994, Mr. Habermann has been the President of Scobrett
Associates, Inc., which is involved in venture capital and consulting
activities. From December 1986 to January 1994, Mr. Habermann was President and
Chief Executive Officer of the Restaurant Enterprises Group, Inc. and its
predecessors. From November 1994 until its acquisition by CKE in July 1996, Mr.
Habermann was a director of Summit. Mr. Habermann also serves as a director of
International Food & Beverage, Inc.
Jack M. Lloyd will serve as a director of the Company following this
offering. Mr. Lloyd has served as Chairman of the Board of DenAmerica Corp.
since July 9, 1996 and as President, Chief Executive Officer and a director of
DenAmerica Corp. since March 29, 1996. Mr. Lloyd served as Chairman of the Board
and Chief Executive Officer of Denwest Restaurant Corp. ("DRC") from 1987 until
the March 1996 merger of DRC and DenAmerica and served as President of DRC from
1987 until November 1994. Mr. Lloyd engaged in commercial and residential real
estate development and property management as President of First Federated
Investment Corporation during the early and mid-1980's. Mr. Lloyd also currently
serves as a director of Action Performance Companies, Inc.
John F. North, Jr. will serve as a director of the Company following this
offering. Mr. North is the co-founder of JJ North's Grand Buffet and, since
1978, has served as the President and Co-Chairman of the Board of Directors of
North's Restaurants, Inc.
BOARD COMMITTEES AND COMPENSATION
The Audit Committee of the Board of Directors, which will be formed upon
completion of this offering, will consist of Messrs. Clifton, Lloyd and
Habermann. The Audit Committee will recommend to the Board of Directors the
independent public accountants to be selected to audit the Company's annual
financial statements and approves any special assignments given to such
accountants. The Audit Committee will also review the planned scope of the
annual audit and the independent accountants' letter of comments and
management's response thereto, any major accounting changes made or contemplated
and the effectiveness and efficiency of the Company's internal accounting staff.
The Compensation Committee of the Board of Directors, which will be formed
upon completion of this offering, will consist of Messrs. Foley, Habermann and
Schadt. The Compensation Committee will establish remuneration levels for
executive officers of the Company, review management organization and
development and review executive compensation and significant employee benefit
programs.
The Executive Committee of the Board of Directors, which consists of
Messrs. Foley, Wheaton and Thompson, exercises the powers and authority of the
full Board of Directors on all matters, to the maximum extent permitted by law,
between meetings of the Board, other than those functions which may from time to
time be assigned to specific committees of the Board.
Following consummation of this offering, the Company's non-employee
directors will receive $2,000 per meeting of the Board of Directors and $500 per
meeting of any committees thereof. In addition, in connection with their joining
the Company's Board of Directors, each of Messrs. Clifton, Lloyd, Schadt and
Habermann will be granted options to purchase 7,500 shares of Common Stock at an
exercise price equal to the initial public offering price under the 1997 Stock
Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, no executive officer of the Company, except for Mr. Foley, who
is Chairman of the Board of the Company and will serve as a member of the
Compensation Committee thereof, serves as a member of the compensation committee
or as a director of any other entity, one of whose executive officers serves on
the Compensation Committee or is a director of the Company. Mr. Foley is the
Chairman of the Board and Chief Executive Officer of CKE.
41
<PAGE> 43
EXECUTIVE COMPENSATION
The Company was incorporated on July 28, 1997, and its activities to date
have been limited to corporate organizational matters, the Formation
Transactions and this offering. The Company's executive officers have been
employed by CKE or its subsidiaries, and all or substantially all of their
compensation paid prior to the Formation Transactions was paid by CKE or its
subsidiaries primarily for services rendered to CKE or its subsidiaries other
than Summit and HTB. Following the Formation Transactions, the Company expects
to pay Robert E. Wheaton, the Chief Executive Officer and President of the
Company, an allocated annual base salary of $187,000. In addition, the Company
expects to pay annual base salaries of $95,000 to Theodore Abajian, the
Company's Chief Financial Officer, and $90,000 to Joseph J. Hollencamp, Senior
Vice President, Operations, of HTB. The following table sets forth the
compensation paid to the Company's executive officers by CKE and its
subsidiaries for the fiscal year ended January 27, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
-------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
FISCAL SALARY BONUS COMPENSATION OPTIONS
NAME AND TITLE YEAR ($) ($) ($) (#)(1)
- ---------------------------------------- ------ -------- ------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Robert E. Wheaton....................... 1997 200,000 70,000 9,344 30,000
Chief Executive Officer and
President(2)
Theodore Abajian........................ 1997 78,092 3,000 1,846 1,500
Chief Financial Officer(3)
</TABLE>
- ---------------
(1) Represents options to purchase shares of common stock of CKE.
(2) Represents compensation paid by CKE to Mr. Wheaton in his capacity as
Executive Vice President of CKE. Other Annual Compensation for Mr. Wheaton
represents auto related payments of $9,344.
(3) Represents compensation paid by Summit to Mr. Abajian in his capacity as
Vice President and Controller of Summit. Other Annual Compensation for Mr.
Abajian represents auto related payments of $1,846.
1997 STOCK INCENTIVE PLAN
The Company has recently adopted the 1997 Stock Incentive Plan (the "1997
Plan"), which provides for the grant of options to purchase an aggregate of
750,000 shares of Common Stock. The 1997 Plan provides for the granting of
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and nonstatutory options to
directors, officers, employees and consultants of the Company, except that
incentive stock options may not be granted to non-employee directors or
consultants. The purpose of the 1997 Plan is to provide participants with
incentives which will encourage them to acquire a proprietary interest in, and
continue to provide services to, the Company. The 1997 Plan is administered by
the Board of Directors, which has sole discretion and authority, consistent with
the provisions of the 1997 Plan, to determine which eligible participants will
receive options, the time when options will be granted, the terms of options
granted and the number of shares which will be subject to options granted under
the 1997 Plan. No options have been issued under the 1997 Plan.
42
<PAGE> 44
Upon completion of the offering made hereby, the Company intends to grant
options to purchase an aggregate of 602,500 shares of Common Stock under the
1997 Plan, at an exercise price equal to the initial public offering price, to
the persons and in the amounts set forth below:
<TABLE>
<CAPTION>
NUMBER OF
NAME OPTIONS
------------------------------------------------------------------ ---------
<S> <C>
William P. Foley II............................................... 143,543
Robert E. Wheaton................................................. 239,237
C. Thomas Thompson................................................ 95,695
John F. North, Jr. ............................................... 54,775
Theodore Abajian.................................................. 15,000
Joseph J. Hollencamp.............................................. 12,500
Charlotte Miller.................................................. 4,250
Stuart W. Clifton................................................. 7,500
Jack M. Lloyd..................................................... 7,500
Thomas G. Schadt.................................................. 7,500
Norman N. Habermann............................................... 7,500
Other employees................................................... 7,500
--------
Total................................................... 602,500
========
</TABLE>
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence by indemnified parties,
and permits the Company to advance litigation expenses in the case of
stockholder derivative actions or other actions, against an undertaking by the
indemnified party to repay such advances if it is ultimately determined that the
indemnified party is not entitled to indemnification.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Company has entered into separate indemnification agreements with its
directors and executive officers. These agreements require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be opposed to the best interests of the Company) to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified and to obtain directors' insurance if available
on reasonable terms. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. The Company believes that its Certificate of
Incorporation and Bylaw provisions and indemnification agreements are necessary
to attract and retain qualified persons as directors and officers.
43
<PAGE> 45
CERTAIN TRANSACTIONS
The Company will enter into a three-year Service Agreement, pursuant to
which CKE will provide the Company with certain multi-unit infrastructure
support, including accounting and administration, purchasing services, financial
services and real estate services, in exchange for which CKE will receive an
annual management fee in the amount of $350,000, which may be increased up to
10% per year by CKE based upon increases in CKE's cost of providing such
services. See "Risk Factors -- Control by and Dependence on CKE" and
"Business -- Relationship with CKE."
Prior to this offering, the Company declared the Special Dividend to the
Selling Stockholder in an aggregate amount equal to $7.9 million. The Company
intends to pay the Special Dividend in September 1997 with a portion of the net
proceeds of this offering. See "Use of Proceeds."
Pursuant to a Contribution Agreement (the "Contribution Agreement") that is
being entered into between CKE, the Company and Summit in connection with the
Formation Transactions, CKE will transfer to the Company all of the issued and
outstanding shares of capital stock of Summit (after giving effect to other
asset transfers among Summit, JB's and Taco Bueno described below) in exchange
for 2,600,000 shares of Common Stock. Prior to the Summit Exchange to be
effected pursuant to the Contribution Agreement, Taco Bueno will transfer the
two Casa Bonita restaurants to Summit, and Summit will transfer to JB's all of
its assets, other than HTB, and all of its liabilities, other than those
relating to HTB and the two Casa Bonita restaurants, in each of the foregoing
cases for CKE's book value of the net assets transferred determined in
accordance with GAAP. Summit's restaurant holdings upon consummation of the
Summit Exchange will include the 16 HomeTown Buffet restaurants operated by HTB
(which will remain a direct wholly-owned subsidiary of Summit) and the two Casa
Bonita Mexican theme restaurants being acquired from Taco Bueno. The assets of
Summit being transferred to JB's primarily consist of all assets relating to
Summit's JB's Restaurant system and Galaxy Diner restaurants, which include
accounts receivable, inventories, property and equipment, real and personal
property leases, franchise agreements and other contractual rights, and
intangible assets, including trademarks, trade secrets, menus, and related
properties. In addition, Summit will assign to JB's all of its interests in
other real properties not currently used for restaurant operations, except for
certain office leases. JB's has agreed with Summit to assume and be solely
responsible for any liabilities that may arise from or which relate to the
restaurant operations and assets of Summit transferred to JB's.
CKE has also agreed to indemnify and hold the Company harmless from any
income tax liability attributable to periods ending on or before the
consummation of this offering. For periods ending after the consummation of this
offering, the Company will pay its income tax liability directly to the
appropriate taxing authorities. CKE generally will control audits and
administrative and judicial proceedings with respect to periods ending on or
before the consummation of this offering, although CKE cannot compromise or
settle any issue that increases the Company's liability without the Company's
prior written consent. The Company generally will control all other audits and
administrative and judicial proceedings.
CKE has agreed to guarantee the payment of up to $7.0 million of the
principal amount of indebtedness to be assumed by the Company in connection with
the North Acquisition.
44
<PAGE> 46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of the date of this Prospectus, and
as adjusted to give effect to the sale of the shares of Common Stock offered
hereby, by (i) each person who is known by the Company to own beneficially more
than 5% of the Company's Common Stock, (ii) each director and director nominee
of the Company, (iii) each of the Company's executive officers, (iv) the Selling
Stockholder, and (v) all directors, director nominees and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THIS OFFERING NUMBER AFTER THIS OFFERING
NAME AND ADDRESS ----------------------- OF SHARES ----------------------
OF BENEFICIAL OWNERS SHARES PERCENTAGE BEING OFFERED SHARES PERCENTAGE
- ------------------------------------ --------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
CKE Restaurants, Inc................ 2,600,000 100.0% 600,000 2,000,000 44.4%
1200 North Harbor Boulevard
Anaheim, CA 92801
William P. Foley II................. 47,848(1) 1.8 -- 47,848 1.0
Robert E. Wheaton................... 79,746(1) 3.0 -- 79,746 1.7
Theodore Abajian.................... 5,000(1) * -- 5,000 *
C. Thomas Thompson.................. 31,898(1) 1.2 -- 31,898 *
Stuart W. Clifton................... 7,500(1) * -- 7,500 *
Jack M. Lloyd....................... 7,500(1) * -- 7,500 *
Thomas G. Schadt.................... 7,500(1) * -- 7,500 *
Norman N. Habermann................. 7,500(1) * -- 7,500 *
John F. North, Jr................... 54,775(1) 2.1 54,775 1.2
All directors, director nominees and
executive officers as a group
(9 persons)....................... 229,267 8.1% -- 229,267 4.8%
</TABLE>
- ---------------
* Less than one percent.
(1) Represents options to purchase Common Stock to be granted upon the
completion of this offering which will become immediately exercisable. See
"Management -- 1997 Stock Incentive Plan."
45
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 18,500,000 shares
of Common Stock, par value $0.001 per share, and 1,500,000 shares of Preferred
Stock, par value $0.001 per share. As of September 24, 1997, 2,600,000 shares of
Common Stock were outstanding, all of which were held by the Selling
Stockholder, and no shares of Preferred Stock were outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders and do not have cumulative voting rights.
Subject to preferences that may be applicable to the holders of outstanding
shares of Preferred Stock, if any, at the time holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock shall be entitled to assets of the Company remaining
after payment of the Company's liabilities and the liquidation preference, if
any, of any outstanding Preferred Stock. All outstanding shares of Common Stock,
are, and the shares of Common Stock offered by the Company hereby will be, when
issued and paid for, fully paid and nonassessable. Holders of Common Stock have
no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority, without further vote or action by
the stockholders, to provide for the issuance of up to 1,500,000 shares of
Preferred Stock from time to time in one or more series with such designations,
rights, preferences and privileges and limitations on the Board of Directors may
determine, including the consideration received therefor. The Board of Directors
also will have the authority to determine the number of shares comprising each
series, dividend rates, redemption provisions, liquidation preferences, sinking
fund provisions, conversion rights and voting rights without approval by the
holders of Common Stock. Although it is not possible to state the effect that
any issuance of Preferred Stock might have on the rights of holders of Common
Stock, the issuance of Preferred Stock may have one or more of the following
effects: (i) to restrict the payment of dividends on the Common Stock, (ii) to
dilute the voting power and equity interests of holders of Common Stock, (iii)
to prevent holders of Common Stock from participating in any distribution of the
Company's assets upon liquidation until any liquidation preferences granted to
holders of Preferred Stock are satisfied, or (iv) to require approval by the
holders of Preferred Stock for certain matters such as amendments to the
Company's Certificate of Incorporation or any reorganization, consolidation,
merger or other similar transaction involving the Company. As a result, the
issuance of Preferred Stock may, under certain circumstances, have the effect of
delaying, discouraging or preventing bids for the Common Stock at a premium over
the market price thereof, or a change in control of the Company, and could have
a material adverse effect on the market price for the Common Stock. See "Risk
Factors -- Possible Anti-Takeover Effects of Certain Charter and Bylaw
Provisions."
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested" stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless either
(i) prior to the date at which the person becomes an interested stockholder, the
board of directors approves such transaction or business combination, (ii) the
stockholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of such transaction, or (iii)
the business combination is approved by the board of directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent). A "business combination" includes a merger, asset sale or other
46
<PAGE> 48
transaction resulting in a financial benefit to such interested stockholder. For
purposes of Section 203, an "interested" stockholder is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
The Certificate of Incorporation also eliminates the ability of
stockholders to call special meetings and requires advance notice to nominate a
director or take certain other actions. These provisions may be deemed to have a
potential anti-takeover effect and may delay or prevent a change of control of
the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and adversely affect the
Company's ability to raise additional capital in the capital markets at a time
and price favorable to the Company.
Upon completion of this offering, the Company will have 4,500,000 shares of
Common Stock outstanding. Of these shares, the 2,500,000 shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless they are purchased by "affiliates" of the
Company as that term is used under the Securities Act. The remaining 2,000,000
shares, all of which will be owned by CKE, will be "restricted securities" as
defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rule 144 promulgated under the
Securities Act, which is summarized below. Sales of Restricted Shares in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock.
All officers and directors of the Company have agreed with the Underwriters
that they will not sell any Common Stock owned or subsequently acquired by them
for a period of 180 days after the date of this Prospectus, and the Selling
Stockholder has agreed with the Underwriters that it will not sell any shares of
Common Stock beneficially owned by it, other than in connection with this
offering, for one year after the date of this Prospectus, in each case without
the prior written consent of Equitable Securities Corporation (the "Lock-up
Agreements").
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock (approximately 45,000 shares immediately after this
offering) or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current public
information about the Company. A person who is not an affiliate, has not been an
affiliate within three months prior to the sale and has beneficially owned the
Restricted Shares for a least two years is entitled to sell such shares under
Rule 144(k) as currently in effect without regard to any of the limitations
described above.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock reserved for issuance under
its 1997 Stock Incentive Plan, thus permitting the resale of shares issued under
such plan by non-affiliates in the public market without restriction under the
Securities Act. Such registration statement will become effective immediately
upon filing, which is expected shortly after the closing of this offering. As of
the completion of this offering, options to purchase 602,500 shares of Common
Stock will be outstanding under the Company's 1997 Stock Incentive Plan, 595,000
of which will be subject to the Lock-up Agreements as described above.
47
<PAGE> 49
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Equitable
Securities Corporation, EVEREN Securities, Inc. and Cruttenden Roth Incorporated
are acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement"), to purchase from the Company and the Selling
Stockholder the numbers of shares of Common Stock set forth below opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------------------------------------------------------------- ----------
<S> <C>
Equitable Securities Corporation.................................
EVEREN Securities, Inc...........................................
Cruttenden Roth Incorporated.....................................
----------
Total.................................................. 2,500,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to the approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the shares of
Common Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock being
purchased directly to the public at the initial offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After this offering, the offering price and other
selling terms may be changed.
The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock at the public offering price less
the underwriting discount set forth on the cover page of this Prospectus to
cover over-allotments, if any. If the Underwriters exercise their over-allotment
option to purchase any of the 375,000 additional shares of Common Stock from the
Company, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by each of them as shown in the above table
bears to the 2,500,000 shares of Common Stock offered hereby. The Underwriters
may exercise this option only to cover over-allotments made in connection with
the sale of the Common Stock offered hereby.
Prior to this offering, there has been no market for the Common Stock. The
initial public offering price will be determined by negotiations among the
Company, the Selling Stockholder and the Representatives. The factors to be
considered in determining such initial public offering price include the
financial and operational history and trends of the Company, the history of and
the prospects for the industry in which the Company competes, an assessment of
the Company's management, its past and present operations, its past and present
earnings and the trend of such earnings, the general condition of the securities
markets at the time of this offering and the price-earnings multiples and market
prices of publicly traded securities of comparable companies. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales of Common Stock to any accounts over which they exercise
discretionary authority. The Representatives intend to make a market in the
Common Stock after completion of the offering.
Subject to certain exceptions, CKE and its subsidiaries for a period of one
year, and the Company and its directors and executive officers for a period of
180 days, after the date of this Prospectus have agreed not to offer, pledge,
issue, sell, contract to sell, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock without the prior
written consent of Equitable Securities Corporation on behalf of the
Representatives,
48
<PAGE> 50
provided, however, the Company may grant stock options, and issue shares of
Common Stock upon the exercise of certain outstanding stock options granted,
under the Company's 1997 Stock Incentive Plan.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters and controlling persons, if any, against, certain liabilities,
including liabilities under the Securities Act or to contribute to the payments
the Underwriters or any controlling persons may be required to make in respect
thereof.
The Underwriters have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Underwriters to reclaim the selling concession otherwise accruing
to an Underwriter or dealer in connection with this offering if the Common Stock
originally sold by such Underwriter or dealer is purchased by the Underwriters
in a syndicate covering transaction and has therefore not been effectively
placed by such Underwriter or dealer. The Underwriters have advised the Company
that such transactions may be affected on the Nasdaq Stock Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport
Beach, California. Certain legal matters in connection with this offering will
be passed upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, San
Francisco, California.
EXPERTS
The balance sheet of Star Buffet, Inc. as of July 28, 1997 has been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined balance sheets of HTB Restaurants, Inc. as of December 18,
1995 (Predecessor Company) and January 27, 1997 (Successor Company), and the
related combined statements of earnings and retained earnings and cash flows for
the 52-week periods ended December 19, 1994 and December 18, 1995 and the
30-week period ended July 15, 1996 (Predecessor Company) and the 28-week period
ended January 27, 1997 (Successor Company), have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The statement of earnings of Casa Bonita Restaurants (a division of Casa
Bonita Incorporated) for the nine months ended September 30, 1996 has been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The balance sheets of North's Restaurants (a division of North's
Restaurants, Inc.) as of June 30, 1996 and 1997 and the related statements of
operations and division's equity and cash flows for each of the years in the
three-year period ended June 30, 1997, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
49
<PAGE> 51
AVAILABLE INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission (the "Commission"). This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and exhibits. A copy of the Registration Statement
may be inspected by anyone without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661. Copies of
all or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and its public reference facilities in New York, New York and Chicago,
Illinois, upon the payment of the prescribed fees. The Registration Statement is
also available through the Commission's Website on the World Wide Web at the
following address: http://www.sec.gov.
50
<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
STAR BUFFET, INC.
Independent Auditors' Report......................................................... F-2
Balance Sheet as of July 28, 1997.................................................... F-3
Note to Balance Sheet................................................................ F-4
HTB RESTAURANTS, INC.
Independent Auditors' Report......................................................... F-5
Combined Balance Sheets as of December 18, 1995 (Predecessor Company), January 27,
1997 (Successor Company) and August 11, 1997 (unaudited).......................... F-6
Combined Statements of Earnings and Retained Earnings for the 52 Weeks Ended December
19, 1994 and December 18, 1995, the 30 Weeks Ended July 15, 1996 (Predecessor
Company) and the 28 Weeks Ended January 27, 1997 (Successor Company) and the 28
Weeks Ended August 12, 1996 and August 11, 1997 (unaudited)....................... F-7
Combined Statements of Cash Flows for the 52 Weeks Ended December 19, 1994 and
December 18, 1995, the 30 Weeks Ended July 15, 1996 (Predecessor Company) and the
28 Weeks Ended January 27, 1997 (Successor Company) and the 28 Weeks Ended August
12, 1996 and August 11, 1997 (unaudited).......................................... F-8
Notes to Combined Financial Statements............................................... F-9
CASA BONITA RESTAURANTS
Independent Auditors' Report......................................................... F-16
Statement of Earnings for the Nine Months Ended September 30, 1996................... F-17
Notes to Statement of Earnings....................................................... F-18
NORTH'S RESTAURANTS
Independent Auditors' Report......................................................... F-21
Balance Sheets as of June 30, 1996 and 1997.......................................... F-22
Statements of Operations and Division's Equity for Each of the Years in the
Three-year Period Ended June 30, 1997............................................. F-23
Statements of Cash Flows for Each of the Years in the Three-year Period Ended June
30, 1997.......................................................................... F-24
Notes to Financial Statements........................................................ F-25
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
The Stockholder and Board of Directors
Star Buffet, Inc.:
We have audited the accompanying balance sheet of Star Buffet, Inc. (a
wholly-owned subsidiary of CKE Restaurants, Inc.) as of July 28, 1997. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Star Buffet, Inc. at July 28, 1997,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Orange County, California
July 28, 1997
F-2
<PAGE> 54
STAR BUFFET, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CKE RESTAURANTS, INC.)
BALANCE SHEET
JULY 28, 1997
ASSETS
<TABLE>
<S> <C>
Total assets...................................................................... $ --
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Total liabilities................................................................. $ --
--------
Stockholder's equity:
Preferred stock, $0.001 par value; 1,500,000 shares authorized; no shares issued
or outstanding............................................................... --
Common stock, $0.001 par value; 18,500,000 shares authorized; no shares issued
or outstanding............................................................... --
Additional paid-in capital...................................................... --
Common stock subscribed (2,600,000 shares)...................................... 26,000
Less stock subscription receivable.............................................. (26,000)
--------
Total liabilities and stockholder's equity........................................ $ --
========
</TABLE>
See accompanying note to balance sheet.
F-3
<PAGE> 55
STAR BUFFET, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CKE RESTAURANTS, INC.)
NOTE TO BALANCE SHEET
JULY 28, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Star Buffet, Inc. (the Company) was incorporated in the State of Delaware
on July 28, 1997 as a wholly-owned subsidiary of CKE Restaurants, Inc. ("CKE").
The Company has filed a Registration Statement with the Securities and Exchange
Commission with respect to an initial public offering of 2,500,000 shares of
common stock, of which 1,900,000 shares of common stock are to be sold by the
Company.
Prior to the completion of such offering, CKE will contribute to the
Company all of the issued and outstanding shares of capital stock of Summit
Family Restaurants Inc. ("Summit") in exchange for 2,600,000 shares of common
stock of the Company (the "Summit Exchange"). Summit is the parent corporation
of HTB Restaurants, Inc. ("HTB"), which operates 16 HomeTown Buffet restaurants
as a franchisee of HomeTown Buffet, Inc. Summit was acquired by CKE in July
1996, at which time it was the owner, operator and franchisor of 101 JB's
Restaurants and the owner and operator of six Galaxy Diner restaurants. Prior to
the Summit Exchange, Summit will transfer substantially all of its net assets,
including its JB's Restaurant system and Galaxy Diner restaurants, but excluding
the shares of capital stock of HTB owned by Summit, to JB's Restaurants, Inc., a
newly formed subsidiary of CKE ("JB's"), in exchange for a promissory note (the
"JB's Note") with a principal amount equal to CKE's book value of those net
assets as of the date of transfer, determined in accordance with generally
accepted accounting principles ("GAAP"). JB's will continue to operate the JB's
Restaurants and related franchise system and the Galaxy Diner restaurants and
assume all of Summit's liabilities, other than liabilities incurred which
specifically relate to the restaurant operations of HTB and the two Casa Bonita
restaurants. Immediately following completion of such transfer, and prior to the
Summit Exchange, Summit will assign the JB's Note and its rights to payment
thereunder to CKE as a dividend. In addition, prior to the Summit Exchange, Taco
Bueno Restaurants, Inc., an indirect wholly-owned subsidiary of CKE formerly
known as Casa Bonita Incorporated ("Taco Bueno"), will transfer substantially
all of the net assets relating to its two Casa Bonita restaurants to Summit in
exchange for a promissory note with a principal amount equal to CKE's book value
of those net assets as of the date of transfer, determined in accordance with
GAAP. Summit will continue to operate the Casa Bonita restaurants and will
assume all of Taco Bueno's liabilities relating to those restaurant operations.
Fiscal Year
The Company will utilize a 52- or 53-week accounting period which ends on
the last Monday of January each year.
F-4
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
The Stockholder and Board of Directors
HTB Restaurants, Inc.:
We have audited the accompanying combined balance sheets of HTB
Restaurants, Inc. (a wholly-owned subsidiary of Summit Family Restaurants Inc.)
as of December 18, 1995 (Predecessor Company) and January 27, 1997 (Successor
Company) and the related combined statements of earnings and retained earnings
and cash flows for the 52-week periods ended December 19, 1994 and December 18,
1995 and the 30-week period ended July 15, 1996 (Predecessor Company) and the
28-week period ended January 27, 1997 (Successor Company). These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of HTB Restaurants,
Inc. as of December 18, 1995 (Predecessor Company) and January 27, 1997
(Successor Company) and the results of its operations and its cash flows for the
52-week periods ended December 19, 1994 and December 18, 1995 and the 30-week
period ended July 15, 1996 (Predecessor Company) and the 28-week period ended
January 27, 1997 (Successor Company) in conformity with generally accepted
accounting principles.
As discussed in note 1 to the combined financial statements, effective July
15, 1996, CKE Restaurants, Inc. acquired all of the outstanding common stock of
Summit Family Restaurants Inc. in a business combination accounted for as a
purchase. As a result of the acquisition, the combined financial information for
the period after the acquisition is presented on a different cost basis than
that for the periods before the acquisition and, therefore, is not comparable.
KPMG PEAT MARWICK LLP
Orange County, California
July 22, 1997, except as to
note 9 which is as
of July 28, 1997
F-5
<PAGE> 57
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR PRO FORMA
COMPANY COMPANY SUCCESSOR SUCCESSOR
----------- ----------- COMPANY COMPANY
DECEMBER JANUARY 27, ----------- -----------
18, 1995 1997 AUGUST 11, AUGUST 11,
----------- ----------- 1997 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 8)
<S> <C> <C> <C> <C>
Current assets:
Cash............................................... $ 117,000 $ 353,000 $ 725,000
Short-term investments............................. -- 180,000 180,000
Trade receivables.................................. 39,000 71,000 29,000
Inventories........................................ 242,000 383,000 385,000
Prepaid expenses................................... 139,000 84,000 79,000
Deferred taxes, net (note 4)....................... 78,000 193,000 193,000
----------- ----------- -----------
Total current assets....................... 615,000 1,264,000 1,591,000
----------- ----------- -----------
Property and equipment, at cost, less accumulated
depreciation and amortization (note 2)............. 12,617,000 12,430,000 12,982,000
----------- ----------- -----------
Real property and equipment under capitalized leases,
at cost, less accumulated amortization (notes 2 and
3)................................................. 2,304,000 2,396,000 2,435,000
----------- ----------- -----------
Deposits and other assets............................ 280,000 375,000 225,000
----------- ----------- -----------
Intangible assets, at cost, less accumulated
amortization:
Franchise fees..................................... 356,000 318,000 207,000
Equipment lease acquisition costs.................. 93,000 -- --
Organizational costs............................... -- -- 305,000
----------- ----------- -----------
Total intangible assets.................... 449,000 318,000 512,000
Deferred taxes, net (note 4)......................... 18,000 -- --
----------- ----------- -----------
$16,283,000 $16,783,000 $17,745,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- trade (note 6)................. $ 2,229,000 $ 2,226,000 $ 2,139,000
Accrued liabilities (note 6):
Payroll and related taxes....................... 667,000 1,207,000 1,228,000
Sales and property taxes........................ 371,000 632,000 572,000
Rent, insurance and other....................... 60,000 367,000 579,000
Current maturities of capital lease obligations
(note 3)........................................ 198,000 239,000 248,000
----------- ----------- -----------
Total current liabilities.................. 3,525,000 4,671,000 4,766,000
----------- ----------- -----------
Long-term debt, net of current maturities:
Capital lease obligations (note 3)................. 2,276,000 2,370,000 2,231,000
Intercompany payable (notes 4 and 6)............... 8,676,000 -- --
Other long-term liabilities........................ -- -- 159,000
----------- ----------- -----------
Total long-term debt....................... 10,952,000 2,370,000 2,390,000
Stockholder's equity (note 8):
Common stock, $0.01 par value. Authorized 1,000
shares;
issued and outstanding 10 shares................ 0 0 0 $ 8,000
Additional paid-in capital......................... 1,000,000 9,272,000 9,272,000 10,581,000
Retained earnings.................................. 806,000 470,000 1,317,000 --
----------- ----------- ----------- -----------
Total stockholder's equity................. 1,806,000 9,742,000 10,589,000 10,589,000
Commitments and contingencies (notes 3 and 7)
Subsequent event (note 9)
----------- ----------- -----------
$16,283,000 $16,783,000 $17,745,000
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 58
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
COMBINED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SUCCESSOR
PREDECESSOR COMPANY COMPANY
------------------------------------------- ----------- PREDECESSOR SUCCESSOR
52 WEEKS 52 WEEKS 30 WEEKS 28 WEEKS COMPANY COMPANY
ENDED ENDED ENDED ENDED ----------- -----------
DECEMBER 19, DECEMBER 18, JULY 15, JANUARY 27, 28 WEEKS 28 WEEKS
1994 1995 1996 1997 ENDED ENDED
------------ ------------ ----------- ----------- AUGUST 12, AUGUST 11,
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total revenues......................... $30,871,000 $36,741,000 $23,207,000 $23,632,000 $21,881,000 $29,306,000
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Food costs........................... 11,469,000 13,769,000 8,569,000 8,285,000 8,096,000 9,283,000
Labor costs.......................... 9,089,000 10,878,000 6,810,000 7,565,000 6,425,000 9,186,000
Occupancy and other expenses......... 6,769,000 8,954,000 5,030,000 5,259,000 4,778,000 6,110,000
General and administrative
expenses........................... 1,762,000 1,666,000 1,193,000 621,000 1,116,000 612,000
Depreciation and amortization........ 821,000 1,232,000 914,000 988,000 877,000 1,129,000
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses....... 29,910,000 36,499,000 22,516,000 22,718,000 21,292,000 26,320,000
----------- ----------- ----------- ----------- ----------- -----------
Income from operations................. 961,000 242,000 691,000 914,000 589,000 2,986,000
Interest expense (notes 2 and 3)....... 203,000 192,000 145,000 106,000 123,000 108,000
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes............. 758,000 50,000 546,000 808,000 466,000 2,878,000
Income tax expense (note 4)............ 301,000 22,000 216,000 338,000 186,000 1,151,000
----------- ----------- ----------- ----------- ----------- -----------
Net income............................. 457,000 28,000 330,000 470,000 $ 280,000 $ 1,727,000
===========
Retained earnings at beginning of
period............................... 321,000 778,000 806,000 -- 470,000
Distributions to parent and
affiliates........................... -- -- -- -- (880,000)
----------- ----------- ----------- ----------- -----------
Retained earnings at end of period..... $ 778,000 $ 806,000 $ 1,136,000 $ 470,000 $ 1,317,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE> 59
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR SUCCESSOR
PREDECESSOR COMPANY COMPANY COMPANY COMPANY
----------------------------------------- ----------- ----------- -----------
52 WEEKS 52 WEEKS 30 WEEKS 28 WEEKS 28 WEEKS 28 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 19, DECEMBER 18, JULY 15, JANUARY 27, AUGUST 12, AUGUST 11,
1994 1995 1996 1997 1996 1997
------------ ------------ --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 457,000 $ 28,000 $ 330,000 $ 470,000 $ 280,000 $ 1,727,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 821,000 1,232,000 914,000 988,000 877,000 1,129,000
Loss on disposal of assets............ 84,000 100,000 -- -- -- --
Change in operating assets and
liabilities:
Receivables......................... 238,000 (22,000) 21,000 (114,000) (10,000) 42,000
Inventories......................... (90,000) (48,000) 39,000 (5,000) (28,000) (2,000)
Prepaid expenses and other assets... (153,000) 138,000 (202,000) 178,000 66,000 155,000
Deferred tax assets................. 63,000 (136,000) (78,000) 100,000 -- --
Accounts payable.................... 896,000 183,000 (280,000) 273,000 585,000 (87,000)
Accrued liabilities................. 400,000 123,000 72,000 27,000 (138,000) 332,000
------------ ------------ -------- ------------ ------------ ------------
Net cash provided by operating
activities...................... 2,716,000 1,598,000 816,000 1,917,000 1,632,000 3,296,000
------------ ------------ -------- ------------ ------------ ------------
Cash flows from investing activities:
Acquisition of intangible assets........ (155,000) (125,000) -- -- -- (305,000)
Acquisition of property and equipment... (6,057,000) (3,527,000) (68,000) (103,000) (57,000) (1,609,000)
Purchases of short-term investments..... -- -- -- (180,000) (180,000) --
------------ ------------ -------- ------------ ------------ ------------
Net cash used in investing
activities...................... (6,212,000) (3,652,000) (68,000) (283,000) (237,000) (1,914,000)
------------ ------------ -------- ------------ ------------ ------------
Cash flows from financing activities:
Net activity with parent and
affiliates............................ 2,512,000 1,998,000 (546,000) (1,245,000) (1,239,000) (880,000)
Proceeds from sales of assets........... 1,140,000 -- -- -- -- --
Principal payments on capital leases.... (24,000) (46,000) (110,000) (245,000) (112,000) (130,000)
------------ ------------ -------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities............ 3,628,000 1,952,000 (656,000) (1,490,000) (1,351,000) (1,010,000)
------------ ------------ -------- ------------ ------------ ------------
Net increase (decrease) in cash... 132,000 (102,000) 92,000 144,000 44,000 372,000
Cash at beginning of period............... 87,000 219,000 117,000 209,000 179,000 353,000
------------ ------------ -------- ------------ ------------ ------------
Cash at end of period..................... $ 219,000 $ 117,000 $ 209,000 $ 353,000 $ 223,000 $ 725,000
============ ============ ======== ============ ============ ============
Supplemental disclosures of cash flow
information -- cash paid for interest... $ 203,000 $ 192,000 $ 145,000 $ 110,000 $ 147,000 $ 108,000
============ ============ ======== ============ ============ ============
</TABLE>
Supplemental disclosure of noncash financing and investing activities: A
capital lease obligation of $677,000 was incurred in 1995 when the Company
entered into a lease for restaurant equipment.
See accompanying notes to combined financial statements.
F-8
<PAGE> 60
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by HTB
Restaurants, Inc. (the Company) in preparing and presenting its combined
financial statements.
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited combined financial
statements have been prepared in accordance with generally accepted accounting
principles. All adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of financial position and results of operations for the
interim periods presented have been reflected herein. The results of operations
for such interim periods are not necessarily indicative of results to be
expected for the full year or for any other future periods.
ORGANIZATION AND NATURE OF OPERATIONS
The Predecessor Company has been a wholly-owned subsidiary of Summit Family
Restaurants Inc. (Summit) since October 9, 1991. The Predecessor Company
operated 16 buffet style restaurants in five western states as a franchisee of
HomeTown Buffet, Inc.
On July 15, 1996, CKE Restaurants, Inc. (CKE) acquired the outstanding
common stock of Summit in a business combination accounted for as a purchase. On
October 1, 1996, CKE acquired the outstanding Common Stock of Casa Bonita
Incorporated (CBI). CBI operated approximately 110 restaurants primarily located
in Texas and Oklahoma, including two casual dining Mexican-themed restaurants
located in Denver, Colorado and Tulsa, Oklahoma (the Casa Bonita Restaurants).
This transaction was accounted for as a purchase.
As a result of these acquisitions and the subsequent transaction described
in note 9, the financial information of the Company (the Successor Company)
combines the results of operations for the Company's 16 buffet restaurants from
July 16, 1996 and the results of the Casa Bonita Restaurants from October 1,
1996. Additionally, the financial information for periods after the acquisition
is presented on a different cost basis than that for the periods before the
acquisition (Predecessor Company) and, therefore, is not comparable. The results
of operations of the Predecessor Company for the twenty-eight weeks ended August
12, 1996 include the results of operations of the Successor Company from July
16, 1996 to August 12, 1996.
The Predecessor Company financial statements are based on the historical
cost basis of the Company. The Successor Company financial statements reflect
push down accounting based on allocations by CKE.
FISCAL YEAR
The Successor Company utilizes a fiscal year which ends on the last Monday
in January; the period ended January 27, 1997 contains 28 weeks.
The Predecessor Company utilized a 52/53-week fiscal year which ends in
December. The fiscal years ended December 19, 1994 and December 18, 1995
contained 52 weeks. The period ended July 15, 1996 contained 30 weeks.
SHORT-TERM INVESTMENTS
Short-term investments in the accompanying combined balance sheet
(consisting primarily of certificates of deposits, with original maturities of
greater than three months) are held-to-maturity securities and, accordingly,
have been stated at cost.
F-9
<PAGE> 61
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
INVENTORIES
Inventories consist of food, beverages and restaurant supplies and are
valued at cost, determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment and real property under capitalized leases are
carried at cost, less accumulated depreciation and amortization. Depreciation
and amortization are provided using the straight-line method over the following
useful lives: buildings and leasehold improvements -- lesser of lease life or 20
years; furniture, fixtures and equipment -- five to eight years; capitalized
leases -- lesser of lease life or 20 years. Lease renewal option periods are
included in determining leasehold improvement useful lives when, in management's
opinion, such renewal options will be exercised.
Repairs and maintenance are charged to operations as incurred. Remodeling
costs are generally capitalized.
INTANGIBLE ASSETS
Franchise fees are amortized using the straight-line method over the
remaining terms of the franchise agreements, which range from nine to 17 years.
Lease acquisition costs are amortized using the straight-line method over the
respective lease terms.
Accumulated amortization of these intangible assets totaled $77,000 at
December 18, 1995 (Predecessor Company) and $128,000 at January 27, 1997
(Successor Company).
PRE-OPENING COSTS
Pre-opening costs, which represent expenses incurred for hiring and
training personnel relating to new restaurants and expenses for promotion of new
store openings, are capitalized and amortized over the restaurant's first year
of operation.
FRANCHISE EXPENSES
Royalty costs and all other franchise costs are charged to operations as
incurred.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include certain expenses directly
related to the Company and other corporate overhead. Allocations of expenses are
made by Summit (and subsequent to July 15, 1996 by Summit and CKE) for certain
corporate services and overhead incurred on behalf of the Company. Total
corporate allocations included in general and administrative expenses in the
accompanying combined statements of earnings amounted to approximately $912,000,
$951,000, $808,000 and $253,000 for the years ended December 19, 1994 and
December 18, 1995 and the period ended July 15, 1996 (Predecessor Company) and
the period ended January 27, 1997 (Successor Company), respectively. These
allocations were based on, among other things, percentage of revenues, number of
stores, number of employees or the amount of capital expenditures in relation to
the total of the respective amounts of Summit on a combined basis. Included in
the allocation for the period ended January 27, 1997 is $15,000 of general and
administrative expenses relating to the two Casa Bonita Restaurants. This
allocation was based upon the number of restaurants in the CBI chain.
Allocations are made on a basis that management of the Company believes to be
F-10
<PAGE> 62
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
reasonable; however, such allocations are not necessarily indicative of the
expenses which might have been incurred by the Company had they operated on a
stand-alone basis.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, income tax assets and liabilities are recognized
using enacted tax rates for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A change in tax
rates is recognized in income in the period that includes the enactment date.
The Company files a consolidated income tax return with Summit;
accordingly, many of the tax assets or liabilities may be utilized or paid by
its parent based upon the consolidated income tax return. In accordance with the
tax allocation policy, current income taxes calculated by a subsidiary on an "as
if" filing separately basis and subsidiary tax benefits utilized (including
certain prior year benefits) by the consolidated group are recorded as amounts
due to or from parent.
ADVERTISING EXPENSES
Advertising costs are charged to operations as incurred.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial statements
in conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) PROPERTY AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES
The components of property and equipment and real property under
capitalized leases are as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
------------ -----------
DECEMBER 18, JANUARY 27,
1995 1997
------------ -----------
<S> <C> <C>
Property and equipment:
Buildings and leasehold improvements.................... $ 10,444,000 $10,255,000
Furniture, fixtures and equipment....................... 4,446,000 3,012,000
------------ -----------
14,890,000 13,267,000
Less accumulated depreciation and amortization.......... (2,273,000) (837,000)
------------ -----------
$ 12,617,000 $12,430,000
============ ===========
Real property and equipment under capitalized leases.... $ 2,566,000 $ 2,547,000
Less accumulated amortization........................... (262,000) (151,000)
------------ -----------
$ 2,304,000 $ 2,396,000
============ ===========
</TABLE>
F-11
<PAGE> 63
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
(3) LEASES
The Company occupies certain restaurants under long-term leases expiring at
various dates through 2014. Most restaurant leases have renewal options for
terms of 5 to 20 years, and substantially all require the payment of real estate
taxes and insurance. Certain leases require for rent to be the greater of a
stipulated minimum rent or a specified percentage of sales.
Rent expense for the years ended December 19, 1994, December 18, 1995, the
period ended July 15, 1996 (Predecessor Company) and the period ended January
27, 1997 (Successor Company) was approximately $2,477,000, $3,316,000,
$1,617,000 and $1,345,000, respectively. Contingent rentals, measured as a
percentage of sales, included in rent expense for the years ended December 19,
1994, December 18, 1995, the period ended July 15, 1996 (Predecessor Company)
and the period ended January 27, 1997 (Successor Company) was approximately
$99,000, $46,000, $28,000 and $55,000, respectively.
Future minimum payments on noncancelable leases as of January 27, 1997
(Successor Company), exclusive of taxes, insurance and percentage rentals are as
follows:
<TABLE>
<CAPTION>
FURNITURE,
FIXTURES
AND
REAL PROPERTY EQUIPMENT
-------------------------- ----------
TYPE OF PROPERTY CAPITAL OPERATING OPERATING
- ------------------------------------------------------ ---------- ----------- ----------
<S> <C> <C> <C>
Fiscal year ended January 31:
1998................................................ $ 439,000 $ 2,021,000 $ 942,000
1999................................................ 439,000 2,052,000 942,000
2000................................................ 405,000 2,103,000 467,000
2001................................................ 235,000 2,083,000 39,000
2002................................................ 235,000 2,017,000 --
Thereafter.......................................... 2,518,000 18,379,000 --
---------- ----------- ----------
Total minimum lease payments................ 4,271,000 $28,655,000 $2,390,000
=========== ==========
----------
Less amount representing interest................... (1,662,000)
----------
Present value of minimum lease payments..... 2,609,000
Less current portion................................ (239,000)
----------
Capital lease obligations, excluding current
portion................................... $2,370,000
==========
</TABLE>
(4) INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY CURRENT DEFERRED TOTAL
- ---------------------------------------------------------- -------- --------- --------
<S> <C> <C> <C>
Year ended December 19, 1994:
Federal................................................. $189,000 $ 50,000 $239,000
State................................................... 49,000 13,000 62,000
-------- ------ -------
$238,000 $ 63,000 $301,000
======== ====== =======
Year ended December 18, 1995:
Federal................................................. $132,000 $(115,000) $ 17,000
State................................................... 26,000 (21,000) 5,000
-------- --------- --------
$158,000 $(136,000) $ 22,000
======== ========= ========
</TABLE>
F-12
<PAGE> 64
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- --------
<S> <C> <C> <C>
Period ended July 15, 1996:
Federal................................................. $226,000 $ (55,000) $171,000
State................................................... 68,000 (23,000) 45,000
-------- --------- --------
$294,000 $ (78,000) $216,000
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR COMPANY CURRENT DEFERRED TOTAL
- ---------------------------------------------------------- -------- --------- --------
<S> <C> <C> <C>
Period ended January 27, 1997:
Federal................................................. $388,000 $(113,000) $275,000
State................................................... 47,000 16,000 63,000
-------- --------- --------
$435,000 $ (97,000) $338,000
======== ========= ========
</TABLE>
A reconciliation of "expected" income tax expense computed at the U.S.
Federal rate of 34% to actual income tax expense follows:
<TABLE>
<CAPTION>
SUCCESSOR
COMPANY
PREDECESSOR COMPANY ------------
---------------------------------------------- PERIOD
YEAR ENDED YEAR ENDED PERIOD ENDED ENDED
DECEMBER 19, DECEMBER 18, JULY 15, JANUARY 27,
1994 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computed "expected" income tax
expense............................... $258,000 $ 17,000 $186,000 $275,000
State income taxes, net of Federal
benefit............................... 41,000 3,000 29,000 43,000
Other................................... 2,000 2,000 1,000 20,000
-------- ------- -------- --------
Actual income tax expense............... $301,000 $ 22,000 $216,000 $338,000
======== ======= ======== ========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 18, 1995
(Predecessor Company) and January 27, 1997 (Successor Company) is as follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
COMPANY COMPANY
------------ -----------
DECEMBER 18, JANUARY 27,
1995 1997
------------ -----------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities............................... $ 78,000 $ 65,000
Building and equipment, depreciation.............. 20,000 128,000
Credit carryforwards.............................. 34,000 --
-------- --------
Total deferred tax assets................. 132,000 193,000
Less valuation allowance.......................... -- --
-------- --------
Net deferred tax assets................... 132,000 193,000
Deferred tax liabilities............................ 36,000 --
-------- --------
Net deferred tax assets................... $ 96,000 $ 193,000
======== ========
</TABLE>
While there can be no assurance that the Company will generate any earnings
or any specific level of earnings in future years, management believes it is
more likely than not that the Company will realize the majority of the benefit
of the existing net deferred tax assets at January 27, 1997, based on the
Company's current, historical and future pretax earnings.
F-13
<PAGE> 65
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
(5) EMPLOYEE BENEFIT PLANS
Eligible employees participated in the following Summit employee benefit
plans until July 15, 1996 (Predecessor Company). Subsequent to July 15, 1996
(Successor Company), eligible employees of the Company may participate in the
employee benefit and retirement plans of CKE.
EMPLOYEE STOCK OWNERSHIP PLAN
Employees participated in Summit's employee stock ownership plan where the
Company contributed funds authorized by the Board of Directors of Summit. The
plan could purchase shares of Summit's common stock as directed by the Board of
Directors. All employees who had one year of service and were over 21
participated in the plan. Participant vesting began after the third year of
participation in the plan at 20% per year. Funds contributed to the plan were
used to retire debt previously incurred, to pay participants who were entitled
to benefits under the plan and to purchase shares of Summit's common stock.
Allocated shares within the plan were 92,737 at December 18, 1995 (Predecessor
Company). Contributions to the employee stock ownership plan totaled $85,000 for
the year ended December 19, 1994 (Predecessor Company). There were no
contributions made during the year ended December 18, 1995 (Predecessor Company)
and the period ended July 15, 1996 (Predecessor Company). Subsequent to the
acquisition of Summit by CKE, Summit commenced actions to terminate this plan.
STOCK OPTION PLANS
Employees and directors participated in Summit's stock option plans to
purchase Summit's common stock were granted at the fair market value at the date
of grant. Under the plans, options were for a term of not more than ten years.
Incentive stock options granted to employees through April 7, 1994, become
exercisable over a four-year period. Incentive stock options granted after April
7, 1994 become exercisable over a five-year period.
CKE Restaurants, Inc. assumed the options outstanding under Summit's
existing stock option plans. Options under these Summit plans became fully
vested on July 15, 1996 (Predecessor Company). No further shares may be granted
under these plans.
EXECUTIVE LONG-TERM STOCK AWARD PLAN
Summit had an Executive Stock Award Plan (the Plan) adopted in September
1992 by the Board of Directors and approved in February 1993 by Summit's
shareholders. There were 100,000 shares authorized under the Plan to be awarded
to key employees of Summit and the Company based on the achievement of certain
performance objectives established by the Compensation Committee of the Board of
Directors. No shares were awarded under this Plan for the years ended December
19, 1994, December 18, 1995 and the period ended July 15, 1996 (Predecessor
Company). This Plan was terminated upon the acquisition of Summit by CKE.
401(K) PLAN
The Company has a 401(k) plan covering all employees who attained age 21
and completed one year of service. The plan allows participants to allocate up
to 10% of their annual compensation before taxes for investment in several
investment alternatives. The Company provided contributions of $24,000 and
$26,000 during the years ended December 19, 1994 and December 18, 1995
(Predecessor Company), respectively. No contributions were made during the
period ended July 15, 1996 (Predecessor Company) or the period ended January 27,
1997 (Successor Company).
F-14
<PAGE> 66
HTB RESTAURANTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF SUMMIT FAMILY RESTAURANTS INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 18, 1995 (PREDECESSOR COMPANY),
JANUARY 27, 1997 (SUCCESSOR COMPANY) AND AUGUST 11, 1997 (UNAUDITED)
(6) RELATED PARTY TRANSACTIONS
The Company participated in the cash management system of Summit through
July 15, 1996 (Predecessor Company). The intercompany amounts to and from Summit
are non-interest bearing.
Subsequent to July 15, 1996 (Successor Company) the Company participated in
the cash management systems of CKE and Summit. Certain amounts relating to the
Casa Bonita Restaurants are allocated by CBI. Accounts payable -- trade and
accrued liabilities aggregating $337,000 and $839,000, respectively, have been
allocated by CBI to the Casa Bonita Restaurants and are included in the
accompanying January 27, 1997 combined balance sheet. These allocations are
based on a percentage of revenues in the CBI chain.
(7) COMMITMENTS AND CONTINGENCIES
The Company is engaged in ordinary and routine litigation incidental to its
business. Management does not anticipate that any resolution will require
payments that will have a material effect on the Company's combined statement of
operations or financial position or liquidity.
(8) UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial information is included for
purposes of additional analysis and is prepared in accordance with Staff
Accounting Bulletin 1:B.3. The pro forma information reflects the equity section
after giving effect to the payment of a special dividend payable to CKE in the
amount of $7,885,000; a $495,000 payment to CKE for the net assets of two Casa
Bonita restaurants and issuance of a sufficient number of shares of common
stock, at an assumed offering price of $11.00 per share, to fund these payments.
(9) SUBSEQUENT EVENT
On July 28, 1997, CKE formed Star Buffet, Inc. as an indirect wholly-owned
subsidiary to acquire the outstanding shares of capital stock of Summit and the
Casa Bonita restaurants.
F-15
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Casa Bonita Incorporated:
We have audited the accompanying statement of earnings of Casa Bonita
Restaurants (a division of Casa Bonita Incorporated) for the nine months ended
September 30, 1996. This financial statement is the responsibility of the
Division's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the results of operations of Casa Bonita Restaurants
for the nine months ended September 30, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
February 14, 1997
F-16
<PAGE> 68
CASA BONITA RESTAURANTS
(A DIVISION OF CASA BONITA INCORPORATED)
STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Total revenues................................................................... $8,990,724
----------
Costs and expenses:
Food costs..................................................................... 2,144,998
Labor costs.................................................................... 2,913,458
Occupancy and other expenses................................................... 1,860,411
General and administrative expenses (notes 2 and 6)............................ 335,525
Depreciation and amortization.................................................. 460,411
----------
Total costs and expenses............................................... 7,714,803
----------
Income from operations........................................................... 1,275,921
Other income, net................................................................ 779
----------
Earnings before pro forma income tax provision................................... 1,276,700
Pro forma income tax provision (note 3).......................................... 511,000
----------
Net earnings..................................................................... $ 765,700
==========
</TABLE>
See accompanying notes to financial statement.
F-17
<PAGE> 69
CASA BONITA RESTAURANTS
(A DIVISION OF CASA BONITA INCORPORATED)
NOTES TO STATEMENT OF EARNINGS
SEPTEMBER 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statement includes the accounts of Casa Bonita
Restaurants (the Division), a division of Casa Bonita Incorporated (CBI). The
Division operates two casual dining Mexican themed restaurants located in
Denver, Colorado and Tulsa, Oklahoma. The Division has no separate legal status
or existence.
CBI was a subsidiary of Beck Holdings, Inc. (BHI or the Parent -- formerly
Casa Bonita Holdings, Inc.), which is wholly owned by Beck Restaurants, Inc.
(BRI -- formerly Casa Bonita Restaurants, Inc.). CBI operates approximately 110
restaurants primarily located in Texas and Oklahoma.
CBI maintains a note payable to the Parent. As the Division is not jointly
and severally liable for this debt, no debt or related interest expense has been
allocated to the Division for the period presented.
On October 1, 1996, CBI was sold to CKE Restaurants, Inc. (see note 7).
FISCAL YEAR
The accompanying financial statement covers the nine months (36 weeks)
ended September 30, 1996.
INVENTORIES
Inventories, consisting mainly of food, beverages and supplies, are stated
at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
is provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated useful lives, principally on a straight-line
basis for financial reporting purposes, while accelerated methods are used for
tax purposes. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever is
shorter. Lease renewal option periods are included in determining leasehold
improvement useful lives when, in management's opinion, such renewal options
will be exercised.
Leasehold interests are amortized on a straight-line basis over the
remaining life of the leases.
Repairs and maintenance are charged to operations as incurred. Remodeling
costs are generally capitalized.
PRO FORMA INCOME TAXES
Certain of the assets and liabilities comprising the Division are not stand
alone taxable entities. The taxable income from the Division was included in the
consolidated Federal tax returns of BRI. For the purposes of the accompanying
financial statement, a pro forma income tax provision has been provided at 40%
of reported pretax earnings.
ADVERTISING EXPENSES
The Company expenses advertising production costs and media costs as
incurred.
F-18
<PAGE> 70
CASA BONITA RESTAURANTS
(A DIVISION OF CASA BONITA INCORPORATED)
NOTES TO STATEMENT OF EARNINGS (CONTINUED)
SEPTEMBER 30, 1996
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(2) EMPLOYEE RETIREMENT PLANS
BHI has a qualified defined contribution retirement plan covering eligible
employees of BHI and subsidiaries who have reached the age of 21 and completed
one year of service. On April 1, 1990, BHI and subsidiaries adopted a
nonqualified defined contribution retirement plan for highly compensated
employees as defined. Under these plans, CBI makes discretionary contributions
each year. Expense is allocated to the Division in the form of contributions by
CBI for these plans. The allocation is based on the level of sales and
aggregated approximately $16,000 for the nine months ended September 30, 1996.
(3) PRO FORMA TAXES
The Division reported income before income tax provision for the nine
months ended September 30, 1996. For financial reporting purposes, a pro forma
tax provision equal to 40% of reported earnings has been provided in the
accompanying statement of earnings.
(4) LEASES
The Division leases its restaurant facilities under operating leases
covering initial periods of five to ten years with renewal options of five to
ten years. In addition to fixed lease obligations, the Division pays a
percentage of sales for various restaurants and additional costs for property
taxes and certain other expenses. A summary of rental expense for these
operating leases for the nine months ended September 30, 1996 follows:
<TABLE>
<S> <C>
Minimum rentals................................... $101,000
Contingent rentals................................ 51,000
--------
$152,000
========
</TABLE>
(5) CONTINGENCIES
CBI is engaged in various legal proceedings and has certain unresolved
claims pending. The ultimate liability, if any, for the aggregate amounts
claimed cannot be determined at this time. Management of CBI and the Division,
based upon consultation with legal counsel, is of the opinion that there are no
matters pending or threatened which are expected to have a material adverse
effect on the Division's financial condition, results of operations or
liquidity.
(6) TRANSACTIONS WITH AFFILIATES
The Division's corporate administrative functions, including accounting,
data processing and other corporate services, were combined with the
administrative functions of certain affiliates. The cost of these administrative
functions was allocated to divisions or affiliates in proportion to the budgeted
net revenues of each division or affiliate, number of units, number of employees
or the amount of capital expenditures in relation to the total of the respective
amounts on a consolidated basis. Employee retirement plan expense is allocated
based on the level of sales. Management believes these allocation methods are
reasonable; however,
F-19
<PAGE> 71
CASA BONITA RESTAURANTS
(A DIVISION OF CASA BONITA INCORPORATED)
NOTES TO STATEMENT OF EARNINGS (CONTINUED)
SEPTEMBER 30, 1996
such allocated costs may not necessarily be indicative of the cost of obtaining
such services if the Division operated on a stand-alone basis. Included in
general and administrative expenses for the nine months ended September 30, 1996
is approximately $287,000 of allocated costs.
(7) SALE OF COMPANY
On August 27, 1996, BHI entered into a Stock Purchase Agreement (the
Agreement) with CKE Restaurants, Inc., an unrelated third party, to sell BHI's
interest in CBI, including the Division. The final closing of the sale occurred
on October 1, 1996 at which time CKE Restaurants, Inc. paid $42 million cash for
BHI's interest in CBI.
F-20
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Summit Family Restaurants Inc.:
We have audited the accompanying balance sheets of North's Restaurants (a
Division of North's Restaurants, Inc.) as of June 30, 1996 and 1997, and the
related statements of operations and division's deficit and cash flows for each
of the years in the three-year period ended June 30, 1997. These financial
statements are the responsibility of North's Restaurants, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North's Restaurants (a
Division of North's Restaurants, Inc.) as of June 30, 1996 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
September 9, 1997
F-21
<PAGE> 73
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
----------- ------------
<S> <C> <C>
Cash and cash equivalents........................................ $ 40,910 $ 17,683
Trade accounts receivable........................................ 3,414 18,108
Inventories...................................................... 73,111 68,707
Preopening costs, net............................................ 33,761 --
------------ ------------
Total current assets................................... 151,196 104,498
Property and equipment, net (note 2)............................. 4,727,210 4,365,870
Other assets..................................................... 16,106 16,939
------------ ------------
$ 4,894,512 $ 4,487,307
============ ============
LIABILITIES AND DIVISION'S DEFICIT
Current portion of North's Restaurants, Inc. company debt for
which Division is jointly and severally liable (note 3)........ $ 3,892,082 $ 12,416,558
Accounts payable................................................. 354,557 389,673
Other accrued expenses........................................... 293,205 318,345
------------ ------------
Total current liabilities.............................. 4,539,844 13,124,576
North's Restaurants, Inc. company debt for which Division is
jointly and severally liable, net of debt issuance costs, less
current portion (note 3)....................................... 8,553,302 1,300,000
------------ ------------
Total liabilities...................................... 13,093,146 14,424,576
------------ ------------
Division's deficit:
Division's equity.............................................. 4,246,750 3,779,289
North's Restaurants, Inc. company debt for which Division is
jointly and severally liable, net of debt issuance costs
(note 3).................................................... (12,445,384) (13,716,558)
------------ ------------
Net Division's deficit................................. (8,198,634) (9,937,269)
Commitments and contingencies (note 5)
------------ ------------
$ 4,894,512 $ 4,487,307
============ ============
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 74
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
STATEMENTS OF OPERATIONS AND DIVISION'S DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Total revenues..................................... $ 7,762,322 $10,533,999 $ 10,460,347
----------- ------------ ------------
Costs and expenses:
Food costs....................................... (2,710,982) (3,792,056) (3,902,672)
Labor costs...................................... (2,317,741) (3,203,674) (3,137,537)
Occupancy and other expenses..................... (1,301,373) (1,786,573) (1,901,602)
General and administrative expenses.............. (810,362) (1,022,339) (1,012,619)
Depreciation and amortization.................... (346,650) (613,260) (530,059)
----------- ------------ ------------
Total costs and expenses................. (7,487,108) (10,417,902) (10,484,489)
----------- ------------ ------------
Income (loss) from operations...................... 275,214 116,097 (24,142)
Interest expense................................... (212,842) (459,407) (591,889)
----------- ------------ ------------
Income (loss) before income tax expense benefit
(provision)...................................... 62,372 (343,310) (616,031)
Income tax expense benefit (provision) (note 4).... (24,013) 128,558 59,396
----------- ------------ ------------
Net income (loss).................................. 38,359 (214,752) (556,635)
Division's deficit at beginning of year............ (2,434,748) (5,422,526) (8,198,634)
Contributions...................................... 2,345,244 1,091,886 89,174
Net additions in North's Restaurants, Inc. company
debt for which Division is jointly and severally
liable........................................... (5,371,381) (3,653,242) (1,271,174)
----------- ------------ ------------
Division's deficit at end of year.................. $(5,422,526) $(8,198,634) $ (9,937,269)
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 75
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 38,359 $ (214,752) $(556,635)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 346,650 613,260 530,059
Changes in operating assets and liabilities:
Trade accounts receivable..................... (48,633) 49,314 (14,694)
Inventories................................... (9,265) (27,680) 4,404
Preopening costs.............................. (99,909) (169,093) --
Other assets.................................. 28,379 40 (833)
Accounts payable and accrued expenses......... 368,059 (17,419) 60,256
----------- ----------- ---------
Net cash provided by operations............ 623,640 233,670 22,557
----------- ----------- ---------
Cash flows from investing activities:
Capital expenditures............................... (2,937,638) (1,321,025) (134,958)
----------- ----------- ---------
Cash flows from financing activities:
Contributions...................................... 2,345,244 1,091,886 89,174
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents.............................. 31,246 4,531 (23,227)
Cash and cash equivalents at beginning of year....... 5,133 36,379 40,910
----------- ----------- ---------
Cash and cash equivalents at end of year............. $ 36,379 $ 40,910 $ 17,683
=========== =========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 184,698 $ 242,252 $ --
=========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 76
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The financial statements present the financial position and operations of
North's Restaurants (the Division), a division of North's Restaurants, Inc.
(NRI). The Division consists of seven of NRI's twenty buffet style restaurants
located in California, Idaho, Oregon, Utah and Washington. The Division has no
separate legal status or existence.
As of June 30, 1995 the Division operated six restaurants and operated
seven restaurants at June 30, 1996 and 1997.
The Division's corporate administrative functions, including accounting,
data processing and other corporate services, were combined with the
administrative functions of NRI. The cost of these administrative functions was
allocated to the Division in proportion to the revenues of the Division in
relation to the total revenues of NRI. Management believes this allocation
method is reasonable; however, such allocated costs may not necessarily be
indicative of the cost of obtaining such services if the Division operated on a
stand-alone basis. Included in general and administrative expenses is
approximately $787,000, $974,000 and $966,000 in fiscal years 1995, 1996 and
1997, respectively, of allocated administrative costs. Interest expense
represents the allocated financing costs.
(b) Fiscal Year
The accompanying financial statements cover the fifty-two/fifty-three-week
periods ended July 3, 1995, July 1, 1996 and June 30, 1997. For clarity of
presentation, all periods are presented as if the period ended on the last day
of the month-end.
(c) Cash and Cash Equivalents
Cash and cash equivalents include amounts on hand at restaurant locations.
(d) Inventories
Inventories consist of food and beverages and are stated at the lower of
cost or market, determined on the first-in, first-out method.
(e) Pre-opening costs
Certain costs associated with hiring, training, and other direct costs as
incurred in connection with opening new restaurants are capitalized and
amortized over the first year of the restaurants' operations. Accumulated
amortization at June 30, 1996 and 1997, was approximately $42,000 and $-0-,
respectively.
(f) Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are being accounted for primarily on the straight-line method over the estimated
useful lives of the assets for financial reporting purposes. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the term of the related lease. Depreciation begins on construction in
progress at the time the related asset is placed in service.
Maintenance and repairs, including replacement of minor items, are expensed
as incurred.
F-25
<PAGE> 77
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(g) Advertising Costs
Advertising costs are expensed when incurred. Advertising expense, included
in general and administrative expenses, was approximately $186,000, $169,000 and
$194,000 for the years ended June 30, 1995, 1996 and 1997, respectively.
(h) Income Taxes
The Division, or any restaurant individually contained therein, presented
in the accompanying financial statements is not a separate legal or taxable
entity. The taxable income or loss from the Division is included in the federal
and state tax returns of NRI. Income tax expense is calculated on a separate
basis as if the Division were a stand alone entity. Any current or deferred
assets and liabilities have been recorded through net divisional equity.
(i) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Financial Instruments
The carrying amounts of cash equivalents, trade accounts receivable, and
accounts payable approximate fair value because of the short-term nature of
these instruments. The fair value of long-term debt was estimated by discounting
the future cash flows using market interest rates and does not differ
significantly from the carrying value reflected in the accompanying balance
sheets.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(k) Impairment of Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", was issued. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. During the year
ended June 30, 1997, the Division adopted this statement and determined that no
impairment loss need be recognized for property and equipment.
F-26
<PAGE> 78
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Equipment......................................... $3,526,944 $3,519,614
Leasehold improvements............................ 2,529,255 2,547,429
---------- ----------
6,056,199 6,067,043
Less accumulated depreciation..................... 1,338,477 1,765,860
---------- ----------
4,717,722 4,301,183
Construction in progress.......................... 9,488 64,687
---------- ----------
$4,727,210 4,365,870
========== ==========
</TABLE>
(3) LONG-TERM DEBT
NRI and the Division are jointly and severally liable for the outstanding
balance of certain debt of NRI. As such, the Division has reported the
outstanding balance for this debt in its financial statements, NRI debt for
which the Division is jointly and severally liable, as a liability and reduction
of the Division's equity. NRI debt for which the Division is jointly and
severally liable, net of debt issuance costs, is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Note payable, interest due monthly at 2% over the
bank's prime rate, collateralized by all
tangible and intangible, real and personal
property and stock of NRI, guaranteed
unconditionally by two shareholders of NRI,
principal payable on October 15, 1997. NRI is in
violation of certain financial covenants as of
June 30, 1997................................... $ 2,913,757 $ 2,913,757
Note payable, interest due monthly at 2% over the
bank's prime rate, collateralized by all
tangible and intangible, real and personal
property and stock of NRI, guaranteed
unconditionally by two shareholders of NRI,
principal payable on October 15, 1997. NRI is in
violation of certain financial covenants as of
June 30, 1997................................... 5,030,264 4,950,264
Note payable to Pacific Mezzanine Fund, interest
due quarterly at 13%, collateralized by all
tangible and intangible, real and personal
property and stock of NRI, principal payable on
October 15, 1997. NRI is in violation of certain
financial covenants as of June 30, 1997......... 3,403,813 3,552,212
Subordinated debentures, interest due quarterly at
10%............................................. 1,400,000 1,400,000
Accrued interest.................................. 298,550 1,143,897
Debt issuance costs............................... (601,000) (243,572)
----------- -----------
Total long-term debt.................... 12,445,384 13,716,558
Less current portion.............................. 3,892,082 12,416,558
----------- -----------
Total long-term debt, less current
portion............................... $ 8,553,302 $ 1,300,000
=========== ===========
</TABLE>
F-27
<PAGE> 79
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(4) INCOME TAXES
The (provision) benefit for income taxes consists of the following for the
year ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $ 21,834 $ -- $ --
State........................................ -- -- --
-------- -------- -------
Total current........................ 21,834 -- --
-------- -------- -------
Deferred:
Federal...................................... (43,090) 108,259 50,018
State........................................ (2,757) 20,299 9,378
-------- -------- -------
Total deferred....................... (45,847) 128,558 59,396
-------- -------- -------
Total................................ $(24,013) $128,558 $59,396
======== ======== =======
</TABLE>
The (provision) benefit for income taxes vary from the amounts computed by
applying the federal statutory rate to income before pro forma taxes as follows
for the year ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal income tax (provision) benefit computed
at statutory rates............................. (34.0)% 34.0% 34.0%
State taxes, net of federal benefit.............. (4.0) 4.0 4.0
Increase in valuation allowance.................. -- -- (27.9)
Other............................................ (.5) (.5) (.5)
----- ----- -----
Effective tax rate............................... (38.5)% 37.5% 9.6%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 214,596 $ 520,622
--------- ---------
Total gross deferred tax assets.................. 214,596 520,622
Valuation allowance................................. -- 171,580
--------- ---------
Total deferred tax assets........................ 214,596 349,042
--------- ---------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation...................... (273,992) (349,042)
--------- ---------
Total gross deferred tax liabilities............. (273,992) (349,042)
--------- ---------
Net deferred tax liability....................... $ (59,396) $ --
========= =========
</TABLE>
At June 30, 1997, the Division has net operating carryforwards, to be
utilized by NRI, for federal and state purposes of approximately $1,360,000 and
$1,428,000, respectively, which are available to offset future taxable income,
through 2011.
F-28
<PAGE> 80
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(5) COMMITMENTS AND CONTINGENCIES
The Division leases restaurant facilities and equipment under several
operating leases, expiring through 2010. Most leases contain renewal options.
Minimum rentals under operating leases are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1998.............................................. $ 568,988
1999.............................................. 562,858
2000.............................................. 567,971
2001.............................................. 579,032
2002.............................................. 550,609
Thereafter........................................ 2,739,671
----------
$5,569,129
==========
</TABLE>
Each restaurant facility lease contains a percentage rent clause which
requires additional rent based on a percentage of gross sales in excess of
specified amounts. Total rent expense for all operating leases is comprised of
the following for the year ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Minimum rent....................... $326,732 $512,485 $514,204
Contingent rent.................... 98,253 81,466 79,268
-------- -------- --------
$424,985 $593,951 $593,472
======== ======== ========
</TABLE>
NRI's corporate office facility is leased from a partnership in which NRI
shareholders are partners. Rent paid to the partnership amounted to
approximately $100,500, $108,000 and $106,800 for the years 1995, 1996 and 1997,
respectively. Said amounts are included in the general and administrative
expense allocated to the Division.
The Division is subject to various legal proceedings and certain unresolved
claims pending of NRI. The ultimate liability, if any, for the aggregate amounts
claimed against NRI cannot be determined at this time. Management of NRI and the
Division, based on consultation with legal counsel, is of the opinion that there
are no matters pending or threatened which are expected to have a material
adverse effect on the Division's financial condition or results of operations.
(6) PROFIT-SHARING PLAN
NRI had a 401(k) profit-sharing plan (the Plan) which covered substantially
all of its employees. NRI's annual contribution to the Plan was fixed by a
resolution of its Board of Directors. No contributions were made to the Plan for
the years 1995 or 1996. The Plan was terminated as of December 29, 1995. Upon
termination, all participants became 100% vested. Net plan assets were
distributed to participants, according to Plan provisions.
F-29
<PAGE> 81
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, 1996 AND 1997
(7) SELECTED FINANCIAL INFORMATION (UNAUDITED)
The following statements of operations are provided for informational
purposes and are unaudited:
<TABLE>
<CAPTION>
TWELVE MONTHS TWENTY-EIGHT WEEKS ENDED
ENDED ------------------------------
DECEMBER 31, 1996 JULY 1, 1996 JUNE 30, 1997
----------------- ------------ -------------
<S> <C> <C> <C>
Total revenues............................ $10,830,045 $ 5,986,355 $ 5,616,657
----------- ----------- -----------
Costs and expenses:
Food costs.............................. 4,013,395 2,196,355 2,149,852
Labor costs............................. 3,289,756 1,839,275 1,699,028
Occupancy and other expenses............ 1,885,141 1,012,928 1,005,968
General and administrative expenses..... 970,170 577,076 621,040
Depreciation and amortization........... 634,965 353,258 264,821
----------- ----------- -----------
Total costs and expenses........ 10,793,427 5,978,892 5,740,709
----------- ----------- -----------
Income (loss) from operations........ 36,618 7,463 (124,052)
Interest expense.......................... (554,299) 281,101 318,709
----------- ----------- -----------
Loss before income tax benefit....... (517,681) (273,638) (442,761)
Income tax benefit........................ 174,000 102,614 42,505
----------- ----------- -----------
Net loss............................. $ (343,681) $ (171,024) $ (400,256)
=========== =========== ===========
</TABLE>
(8) SUBSEQUENT EVENT
On July 24, 1997, NRI signed a definitive agreement to sell certain assets
and liabilities of the Division to CKE Restaurants, Inc. for $4,500,000, subject
to adjustment. The transaction is subject to normal closing conditions and
events.
F-30
<PAGE> 82
[Photos of Representative Restaurants]
<PAGE> 83
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO SUCH CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Combined Financial Data....... 17
Selected Pro Forma Financial Data...... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 30
Management............................. 40
Certain Transactions................... 44
Principal and Selling Stockholders..... 45
Description of Capital Stock........... 46
Shares Eligible for Future Sale........ 47
Underwriting........................... 48
Legal Matters.......................... 49
Experts................................ 49
Available Information.................. 50
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,500,000 SHARES
[STAR BUFFET LOGO]
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
EQUITABLE SECURITIES
CORPORATION
EVEREN SECURITIES, INC.
CRUTTENDEN ROTH INCORPORATED
, 1997
======================================================
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee...................................... $ 10,455
NASD filing fee........................................... 3,950
Nasdaq National Market application fee.................... 27,500
Printing expenses......................................... 125,000
Legal fees and expenses................................... 200,000
Accounting fees and expenses.............................. 200,000
Blue sky fees and expenses................................ 5,000
Transfer agent and registrar fees......................... 5,000
Miscellaneous............................................. 123,095
--------
Total........................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Certificate
of Incorporation of the Registrant (Exhibit 3.1 hereto) eliminates the liability
of directors to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a directors, except to the extent otherwise required
by the Delaware General Corporation Law.
(b) The Certificate of Incorporation provides that the Registrant will
indemnify each person who was or is made a party to any proceeding by reason of
the fact that such person is or was a director or officer of the Registrant
against all expense, liability and loss reasonably incurred or suffered by such
person in connection therewith to the fullest extent authorized by the Delaware
General Corporation Law. The Registrant's Bylaws (Exhibit 3.2 hereto) provide
for a similar indemnity to directors and officers of the Registrant to the
fullest extent authorized by the Delaware General Corporation Law.
(c) The Certificate of Incorporation also gives the Registrant the ability
to enter into indemnification agreements with each of its directors and
officers. The Registrant has entered into indemnification agreements with
certain of its directors and officers (Exhibit 10.4 hereto), which provide for
the indemnification of such persons against any an all expenses, judgments,
fines, penalties and amounts paid in settlement, to the fullest extent permitted
by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On September 23, 1997, the Registrant issued 2,600,000 shares of Common
Stock to CKE in exchange for all the issued and outstanding capital stock of
Summit. The foregoing transaction was completed without registration under the
Act in reliance upon Section 4(2) of the Act for transactions not involving a
public offering, among others, on the basis that such transaction did not
involve any public offering and the purchaser was an accredited investor with
access to the kind of information registration would provide.
II-1
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Form of Common Stock Certificate.
5.1 Opinion of Stradling Yocca Carlson & Rauth, a professional corporation.
10.1 Star Buffet, Inc. 1997 Stock Incentive Plan (the "1997 Plan").*
10.2 Form of Stock Option Agreement for the 1997 Plan.*
10.3 Commercial and Industrial Lease between Gordon Yates and Tracy Collins Bank and
Trust dated July 25, 1979 and Sublease Agreement between West One Bank, Utah
(successor in interest to Tracy Collins Bank and Trust) and Summit Family
Restaurants Inc. dated May 18, 1995.*
10.4 Form of Indemnification Agreement.*
10.5 Management Services Agreement with CKE.*
10.6 Form of Franchise Agreement with HomeTown Buffet, Inc.*
10.7 Asset Purchase Agreement with North's Restaurants, Inc. dated July 24, 1997.*
10.8 Form of Credit Agreement With Stacey's Buffet, Inc.
10.9 Form of Contribution Agreement among CKE Restaurants, Inc., Summit Family
Restaurants Inc. and the Registrant.
10.10 Form of Bill of Sale and Assumption Agreement between Summit Family Restaurants
Inc. and Taco Bueno Restaurants, Inc. (formerly known as Casa Bonita
Incorporated).
10.11 Form of Bill of Sale and Assumption Agreement between Summit Family Restaurants
Inc. and JB's Restaurants, Inc.
21.1 List of Subsidiaries.
23.1 Consent of Stradling Yocca Carlson & Rauth, a professional corporation (see
Exhibit 5.1).
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consents of director nominees.*
24.1 Power of Attorney.*
27.1 Financial Data Schedules.*
</TABLE>
- ---------------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
II-2
<PAGE> 86
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Salt Lake City, Utah, on the 22nd day of September, 1997.
STAR BUFFET, INC.
By: /s/ THEODORE ABAJIAN
------------------------------------
Theodore Abajian
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ -------------------
<C> <C> <S>
* Chairman of the Board September 22, 1997
- -----------------------------------------------
William P. Foley II
* Chief Executive Officer September 22, 1997
- ----------------------------------------------- President and Director
Robert E. Wheaton (Principal Executive Officer)
/s/ THEODORE ABAJIAN Chief Financial Officer September 22, 1997
- ----------------------------------------------- (Principal Financial and
Theodore Abajian Principal Accounting Officer)
* Director September 22, 1997
- -----------------------------------------------
C. Thomas Thompson
*By: /s/ THEODORE ABAJIAN
- -----------------------------------------------
Theodore Abajian,
Attorney-in-fact
</TABLE>
II-4
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement*.....................................
3.1 Certificate of Incorporation of the Registrant*.....................
3.2 Bylaws of the Registrant*...........................................
4.1 Form of Common Stock Certificate....................................
5.1 Opinion of Stradling Yocca Carlson & Rauth, a professional
corporation.........................................................
10.1 Star Buffet, Inc. 1997 Stock Incentive Plan (the "1997 Plan")*......
10.2 Form of Stock Option Agreement for the 1997 Plan*...................
10.3 Commercial and Industrial Lease between Gordon Yates and Tracy
Collins Bank and Trust dated July 25, 1979 and Sublease Agreement
between West One Bank, Utah (successor in interest to Tracy Collins
Bank and Trust) and Summit Family Restaurants Inc. dated May 18,
1995*...............................................................
10.4 Form of Indemnification Agreement*..................................
10.5 Management Services Agreement with CKE*.............................
10.6 Form of Franchise Agreement with HomeTown Buffet, Inc.*.............
10.7 Asset Purchase Agreement with North's Restaurants, Inc. dated July
24, 1997*...........................................................
10.8 Form of Credit Agreement With Stacey's Buffet, Inc..................
10.9 Form of Contribution Agreement among CKE Restaurants, Inc., Summit
Family Restaurants Inc. and the Registrant..........................
10.10 Form of Bill of Sale and Assumption Agreement between Summit Family
Restaurants Inc. and Taco Bueno Restaurants, Inc. (formerly known as
Casa Bonita Incorporated)...........................................
10.11 Form of Bill of Sale and Assumption Agreement between Summit Family
Restaurants Inc. and JB's Restaurants, Inc..........................
21.1 List of Subsidiaries................................................
23.1 Consent of Stradling Yocca Carlson & Rauth, a professional
corporation (see Exhibit 5.1).......................................
23.2 Consents of KPMG Peat Marwick LLP...................................
23.3 Consents of director nominees*......................................
24.1 Power of Attorney*..................................................
27.1 Financial Data Schedules*...........................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
STAR BUFFET
COMMON STOCK [LOGO] COMMON STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 855086 10 4
This Certifies that
Is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$.001 PAR VALUE PER SHARE, OF
- -------------------------- STAR BUFFET, INC. ----------------------------
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
STAR BUFFET, INC.
CORPORATE SEAL 1997
DELAWARE
[SIG] [SIG]
SECRETARY CHIEF EXECUTIVE
OFFICER AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The Corporation shall furnish without charge to each stockholder who
so requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ..............Custodian...............
TEN ENT - as tenants by the entireties (Cust.) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...................................
in common (State)
UNIF TRF MIN ACT - ...........Custodian (until age......)
(Cust.)
............., under Uniform Transfers
(Minor)
to Minors Act.........................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________
X ______________________________________
X ______________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
NOTICE: WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
[STRADLING YOCCA CARLSON & RAUTH LETTERHEAD]
September 22, 1997
Star Buffet, Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
Re: Registration Statement on Form S-1
Gentlemen:
At your request, we have examined the form of Amendment No. 2 to
Registration Statement on Form S-1, Registration No. 333-32249 (the
"Registration Statement"), being filed by Star Buffet, Inc., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission on
September 22, 1997, in connection with the registration under the Securities Act
of 1933, as amended, of 2,875,000 shares of Common Stock, par value $.001 per
share, of the Company (the "Common Stock"). Such shares of Common Stock, which
include 375,000 shares that will be subject to an over-allotment option to be
granted to the underwriters by the Company, are to be sold to the underwriters
as described in the Registration Statement for sale to the public.
We have examined the proceedings heretofore taken and are familiar with
the additional proceedings proposed to be taken by the Company in connection
with the authorization, issue and sale of the shares of Common Stock.
Based upon such examination, and subject to compliance with applicable
state securities and "blue sky" laws, it is our opinion that the 2,875,000
shares of Common Stock, when issued and sold in the manner described in the
Registration Statement, will be legally issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus, which is a part of the Registration Statement.
Respectfully Submitted,
/s/ STRADLING YOCCA CARLSON & RAUTH
<PAGE> 1
EXHIBIT 10.8
CREDIT AGREEMENT
dated as of
_____________, 1997
between
STACEY'S BUFFET, INC.
and
STAR BUFFET, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<C> <S> <C>
Section 1.1. Definitions.....................................................................................1
Section 1.2. Accounting Terms and Determinations.............................................................8
Section 1.3. References......................................................................................9
Section 1.4. Use of Defined Terms............................................................................9
Section 1.5. Terminology ..............................................................................9
ARTICLE II
THE CREDIT
Section 2.1. Loan............................................................................................9
Section 2.2. Miscellaneous Matters...........................................................................9
Section 2.3. Maturity of Loan...............................................................................10
Section 2.4. Interest.......................................................................................10
Section 2.5. Optional Prepayments...........................................................................10
Section 2.6 Prepayment at Election of Lender Upon Change of Control........................................10
Section 2.7. General Provisions as to Payments..............................................................10
Section 2.8. Collateral.....................................................................................11
ARTICLE III
CONDITIONS TO CLOSING
Section 3.1.Conditions to Closing................................................................................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Corporate Existence and Power..................................................................13
Section 4.2. Corporate and Governmental Authorization; No Contravention.....................................13
Section 4.3. Binding Effect.................................................................................13
Section 4.4. Financial Information..........................................................................13
Section 4.5. No Litigation..................................................................................14
Section 4.6. Compliance with ERISA..........................................................................14
Section 4.7. Compliance with Laws; Payment of Taxes.........................................................14
Section 4.8. No Subsidiaries................................................................................14
Section 4.9. Investment Company Act.........................................................................14
Section 4.10. Public Utility Holding Company Act.............................................................14
Section 4.11. Ownership of Property; Liens...................................................................15
Section 4.12. No Default.....................................................................................15
Section 4.13. Full Disclosure................................................................................15
Section 4.14. Environmental Matters..........................................................................15
Section 4.15. Capital Stock..................................................................................15
Section 4.16. Margin Stock...................................................................................15
Section 4.17. Insolvency.....................................................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE V
COVENANTS
<C> <S> <C>
Section 5.1. Information....................................................................................16
Section 5.2. Inspection of Property, Books and Records......................................................18
Section 5.3. Restricted Payments............................................................................18
Section 5.4. Limitation on Indebtedness.....................................................................18
Section 5.5. Loans or Advances..............................................................................19
Section 5.6. Investments....................................................................................19
Section 5.7. Negative Pledge................................................................................20
Section 5.8. Maintenance of Existence.......................................................................20
Section 5.9. Dissolution....................................................................................20
Section 5.10. Consolidations, Mergers and Sales of Assets....................................................20
Section 5.11. Use of Proceeds................................................................................21
Section 5.12. Compliance with Laws; Payment of Taxes; SEC Filings............................................21
Section 5.13. Insurance......................................................................................21
Section 5.14. Change in Fiscal Year..........................................................................21
Section 5.15. Maintenance of Property........................................................................21
Section 5.16. Environmental Notices..........................................................................21
Section 5.17. Environmental Matters..........................................................................22
Section 5.18. Environmental Release..........................................................................22
Section 5.19. Transactions with Affiliates...................................................................22
ARTICLE VI
DEFAULTS
Section 6.1. Events of Default..............................................................................22
ARTICLE VII
MISCELLANEOUS
Section 7.1. Notices........................................................................................24
Section 7.2 No Waivers.....................................................................................25
Section 7.3 Expenses, Documentary Taxes....................................................................25
Section 7.4. Indemnification................................................................................25
Section 7.5. Amendments and Waivers.........................................................................25
Section 7.6. Successors and Assigns.........................................................................26
Section 7.7. Confidentiality................................................................................27
Section 7.8. California Law.................................................................................27
Section 7.9. Severability...................................................................................27
Section 7.10. Interest.......................................................................................27
Section 7.11. Interpretation.................................................................................28
Section 7.12. Waiver of Jury Trial; Consent to Jurisdiction..................................................28
Section 7.13. Counterparts...................................................................................28
</TABLE>
ii
<PAGE> 4
EXHIBITS
--------
EXHIBIT A Form of Promissory Note
- ---------
EXHIBIT B Form of Warrant
- ---------
EXHIBIT C Form of Registration Rights Agreement
- ---------
EXHIBIT D Form of Borrower Security Agreement
- ---------
EXHIBIT E Form of Opinion Borrower's Counsel
- ---------
SCHEDULES
---------
Schedule 4.4 Material Adverse Effects
- ------------
Schedule 4.5 Litigation
- ------------
Schedule 5.4 Indebtedness
- ------------
Schedule 5.5 Loans
- ------------
Schedule 5.7 Liens
- ------------
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of this ___
day of __________, 1997, by and between STACEY'S BUFFET, INC. a Florida
corporation (the "Borrower") and STAR BUFFET, INC., a Delaware corporation
("Lender").
WHEREAS, the Borrower has requested that lender make a loan of Two
Million Dollars ($2,000,000) to Borrower, and lender is willing to make such
loan to Borrower, upon the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The terms as defined in this Section 1.01
shall, for all purposes of this Agreement and any amendment hereto (except as
herein otherwise expressly provided or unless the context otherwise requires),
have the meanings set forth herein:
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person"), (ii)
any Person (other than the Borrower or a Subsidiary) which is controlled by or
is under common control with a Controlling Person, or (iii) any Person (other
than a Subsidiary) of which the Borrower owns, directly or indirectly, 20% or
more of the common stock or equivalent equity interests, excluding existing
joint ventures. As used herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. It is acknowledged and agreed that Lender is not an
Affiliate of Borrower.
"Agreement" means this Credit Agreement, together with all amendments
and supplements hereto and all exhibits and schedules hereto.
"Assignee" has the meaning set forth in Section 7.6(c).
"Assignment Agreement" means an Assignment Agreement executed in
accordance with Section 7.6(c).
"Base Rate" shall be an interest rate per annum equal to the sum of (i)
the Prime Rate from time to time in effect, plus (ii) two percent (2.0%), which
shall change as and when the Prime Rate changes.
"Borrower" means Stacey's Buffet, Inc., a Florida corporation, and its
successors and its permitted assigns.
<PAGE> 6
"Borrower Security Agreement" shall mean the Security Agreement,
substantially in the form of Exhibit D hereto, executed and delivered by the
Borrower to the Lender, together with all amendments and modifications thereto.
"Capital Stock" means any nonredeemable capital stock of the Borrower
or any Consolidated Subsidiary (to the extent issued to a Person other than the
Borrower), whether common or preferred.
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss. 9601 et. seq. and its implementing regulations
and amendments.
"CERCLIS" means the Comprehensive Environmental Response Compensation
and Liability Inventory System established pursuant to CERCLA.
"Change of Control" means the occurrence of any of the following
events: (a) the acquisition after the Closing Date, in one or more transactions,
of "beneficial ownership" (within the meaning of Section 13(d) under the
Exchange Act and the rules and regulations promulgated thereunder) by (i) any
Person or entity, or (ii) any group of Persons or entities who constitute a
group (within the meaning of Section 13 of the Exchange Act), in either case, of
any securities of the Borrower such that, as a result of such acquisition, such
Person, entity or group either (A) "beneficially owns" (within the meaning of
Rule 13 under the Exchange Act), directly or indirectly 20% or more of the
Borrower's then outstanding voting securities entitled to vote on the election
of directors of the Borrower ("Voting Securities") (it being understood that
this clause (A) shall not apply if the Lender or its Affiliates acquire
beneficial ownership of 20% or more of Borrower's than outstanding Voting
Securities) or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of the Borrower's Board of Directors; (b) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Borrower (together with any new
directors selected by such Board of Directors or whose nomination for election
by the stockholders of the Borrower was approved by a vote of 66-2/3 % of the
directors of the Borrower then still in office who are either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors of the Borrower then in office; (c) the sale,
lease, transfer or other disposition of all or substantially all of the assets
of the Borrower as entirety or substantially as an entirety in one transaction
or a series of related transactions; (d) the liquidation or dissolution of the
Borrower; or (e) any transaction permitted under Section 5.10 which results in
any of the foregoing.
"Closing Certificate" has the meaning set forth in Section 3.1(f).
"Closing Date" means the date on which all matters set forth in Section
3.1 are satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor Federal tax code.
"Collateral" has the meaning set forth in the Borrower Security
Agreement.
2
<PAGE> 7
"Compliance Certificate" has the meaning set forth in Section
5.1(a)(iii).
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of the Borrower in its consolidated financial statements as of such
date.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
"Default" has the meaning set forth in Section 6.1.
"Default Rate" means a rate per annum equal to the sum of the then
applicable Base Rate plus two percent (2%).
"Dollars" or "$" means dollars in lawful currency of the United States
of America.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the State of California are authorized by
law to close.
"Environmental Authority" means any foreign, federal, state, local or
regional government that exercises any form of jurisdiction or authority under
any Environmental Requirement.
"Environmental Authorizations" means all licenses, permits, orders,
approvals, notices, registrations or other legal prerequisites for conducting
the business of the Borrower or any Wholly Owned Subsidiary required by any
Environmental Requirement.
"Environmental Judgments and Orders" means all judgments, decrees or
orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent or written agreements with an
Environmental Authority or other entity arising from or in any way associated
with any Environmental Requirement.
"Environmental Liabilities" means any liabilities, whether accrued,
contingent or otherwise, arising from and in any way associated with any
Environmental Requirements.
"Environmental Notices" means notice from any Environmental Authority,
of possible or alleged noncompliance with or liability under any Environmental
Requirement, including without limitation any complaints, citations, demands or
requests from any Environmental Authority or from any other person or entity for
correction of any, violation of any Environmental Requirement or any
investigations concerning any violation of any Environmental Requirement.
"Environmental Proceedings" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement.
"Environmental Releases" means releases as defined in CERCLA or under
any applicable state or local environmental law or regulation.
3
<PAGE> 8
"Environmental Requirements" means any legal requirement relating to
health, safety or the environment and applicable to the Borrower, any Wholly
Owned Subsidiary or the Properties, including but not limited to any such
requirement under CERCLA or similar state legislation and all federal, state and
local laws, ordinances, regulations, orders, writs, decrees and common law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor law. Any reference to any provision
of ERISA shall also be deemed to be a reference to any successor provision or
provisions thereof.
"Event of Default" has the meaning set forth in Section 6.1.
"Fiscal Quarter" means any fiscal quarter of the Borrower, it being
understood that each of the first, second and fourth fiscal quarters of each
Fiscal Year consists of three Reporting Periods and the third fiscal quarter
consists of four Reporting Periods.
"Fiscal Year" means any fiscal year of the Borrower consisting of the
52 or 53 week period generally ending on the Wednesday closest to December 31.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with those which, in accordance with Section 1.2, are to be
used in making the calculations for purposes of determining compliance with the
terms of this Agreement.
"Hazardous Materials" includes, without limitation, (a) solid or
hazardous waste, as defined in the Resource Conservation and Recovery Act of
1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and
amendments, or in any applicable state or local law or regulation, (b)
"hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in
any applicable state or local law or regulation, (c) gasoline, or any other
petroleum product or by-product, including, crude oil or any fraction thereof or
(d) insecticides, fungicides, or rodenticides, as defined in the Federal
Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state
or local law or regulation, as each such Act, statute or regulation may be
amended from time to time.
"Indebtedness" shall have the meaning set forth in Section 5.4.
"Interest Period" means the period commencing on the first day of each
calendar month and ending on the last day of such calendar month; provided,
that:
(a) any Interest Period (other than an Interest Period
determined pursuant to paragraph (b) below) which would otherwise end
on a day which is not a Domestic Business Day shall be extended to the
next succeeding Domestic Business Day;
(b) the first Interest Period shall commence on the date of
this Agreement and shall end on [September 30], 1997; and
(c) any Interest Period which begins before the Termination
Date and would otherwise end after the Termination Date shall end on
the Termination Date.
4
<PAGE> 9
"Investment" means any investment in any Person, whether by means of
purchase or acquisition of obligations or securities of such Person, capital
contribution to such Person, loan or advance to such Person, making of a time
deposit with such Person, Guarantee or assumption of any obligation of such
Person or otherwise.
"Lender" means Star Buffet, Inc., a Delaware corporation, and its
successors and assigns.
"Lending Office" means, as to Lender, its office located at its address
set forth on the signature pages hereof or identified on the signature pages
hereof as its Lending Office or such other office as such Lender may hereafter
designate as its Lending Office by notice to the Borrower.
"Lien" means, with respect to any asset, any mortgage, deed to secure
debt, deed of trust, lien, pledge, charge, security interest, security title, or
encumbrance or servitude of any kind in respect of such asset to secure or
assure payment of a Indebtedness or a Guarantee, whether by consensual agreement
or by operation of statute or other law, or by any agreement, contingent or
otherwise, to provide any of the foregoing. For the purposes of this Agreement,
a Person shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease (as determined under GAAP) or other
title retention agreement relating to such asset. Provided, however, an
operating lease (as determined under GAAP) shall not constitute a Lien.
"Loan" shall have the meaning set forth in Section 2.1 below .
"Loan Documents" means this Agreement, the Note, the Warrants, the
Borrower Security Agreement, the Post-Closing Collateral Documents, the
Registration Rights Agreement, the Mortgage Documents and any other document
evidencing, relating to or securing the obligations of the Borrower hereunder,
and any other document or instrument delivered from time to time in connection
with the foregoing documents, or the obligations of the Borrower hereunder, as
such documents and instruments may be amended, modified or supplemented from
time to time.
"Margin Stock" means "margin stock" as defined in Regulations G, T, U
or X.
"Material Adverse Effect" means, with respect to any event, act,
condition or occurrence, of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding that
is not a judgment giving rise to a Default), whether singly or in conjunction
with any other event or events, act or acts, condition or conditions, occurrence
or occurrences, whether or not related, a material adverse change in, or a
material adverse effect upon, any of (a) the financial condition, operations,
business, properties or prospects of the Borrower and its Consolidated
Subsidiaries taken as a whole, (b) the rights and remedies of the Lender under
the Loan Documents, or (c) the legality, validity or enforceability of any Loan
Document.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
5
<PAGE> 10
"Note" means the Promissory Note, in the form attached hereto as
Exhibit A, delivered to Lender to evidence the Loan together with all
amendments, consolidations, modifications, renewals and supplements thereto, and
replacements thereof.
"Participant" has the meaning set forth in Section 7.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
unincorporated association, a trust or any other entity or organization,
including, but not limited to, a government or political subdivision or an
agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
"Post-Closing Collateral" has the meaning set forth in Section 2.8(a).
"Post-Closing Collateral Documents" has the meaning set forth in
Section 2.8(a).
"Prime Rate" shall mean, for any.day, a floating rate equal to the rate
publicly quoted from time to time by The Wall Street Journal as the "base rate
on corporate loans at large U.S. money center commercial banks" (or, if The Wall
Street Journal ceases quoting a base rate of the type described, the highest per
annum rate of interest published by the Federal Reserve Board in Federal Reserve
statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank
prime loan rate or its equivalent). Each change in any interest rate provided
for in the Agreement based upon the Prime Rate shall take effect at the time of
such change in the Prime Rate.
"Properties" means all real property owned, leased or otherwise used or
occupied by the Borrower or any Consolidated Subsidiary, wherever located.
"Registration Rights Agreement" means the Registration Rights
Agreement, in the form of Exhibit C hereto, executed and delivered by the
Borrower and Lenders.
"Regulation G" means Regulation G of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
"Regulation T" means Regulation T of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
6
<PAGE> 11
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
"Regulation X" means Regulation X of the Board of Governors of the
Federal Reserve System, as in effect from time to time, together with all
official rulings and interpretations issued thereunder.
"Reporting Period" means, with respect to any Fiscal Year, each
consecutive 4 week period beginning on the first day of such Fiscal Year.
"Restricted Payment" means (i) any dividend or other distribution on
any shares of the Borrower's capital stock (except dividends payable solely in
shares of its capital stock) or (ii) any cash payment on account of the
purchase, redemption, retirement or acquisition (excluding therefrom any nominal
amount of cash paid in lieu of fractional shares of Capital Stock issued in the
ordinary course of business) of (a) any shares of the Borrower's capital stock
(except shares acquired upon the conversion thereof into other shares of its
capital stock) or (b) any option, warrant or other right to acquire shares of
the Borrower's capital stock.
"Retail Building" means any removable restaurant building owned by the
Borrower and operated under the "Stacey's" trade name and all related equipment
and moveable site improvements.
"Rights Agreement" shall mean that certain Rights Agreement dated
November 1, 1996 by and between Stacey's Buffet, Inc. and American Stock
Transfer and Trust Company.
"Stacey's Restaurant" shall mean any and all restaurants operated as a
Stacey's Buffet, whether owned or operated by the Borrower or any other Person.
"Subsidiary" means any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower, and any partnership in which
the Borrower or any Consolidated Subsidiary is a general partner.
"Termination Date" means the fifth (5th) anniversary of the date of
this Agreement.
"Transferee" has the meaning set forth in Section 7.6(d).
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable benefits under such Plan exceeds (ii) the fair market value of
all Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of a member of the Controlled Group to the PBGC
or the Plan under Title IV of ERISA.
"Warrants" mean the warrants to purchase shares of Borrower's Common
Stock in the form attached hereto as Exhibit B to be issued to the Lender on the
Closing Date pursuant to Section 2.1(a).
7
<PAGE> 12
"Wholly Owned Subsidiary" means any Subsidiary all of the shares of
capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the Borrower.
Section 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all terms of an accounting character used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared, in
accordance with GAAP, applied on a basis consistent (except for changes with
which the Borrower's independent public accountants concur or that are otherwise
required by a change in GAAP) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Lenders except for any change in which the Borrower's independent public
accountants concur or is required by GAAP, in determining compliance with any of
the provisions of this Agreement or any of the other Loan Documents: (i) the
Borrower shall have objected to determining such compliance on such basis at the
time of delivery of such financial statements, or (ii) the Required Lenders
shall so object in writing within 30 days after the delivery of such financial
statements, in either of which events such calculations shall be made on a basis
consistent with those used in the preparation of the latest financial statements
as to which such objection shall not have been made (which, if objection is made
in respect of the first financial statements delivered under Section 5.1 hereof,
shall mean the financial statements referred to in Section 4.4).
Section 1.3. References. Unless otherwise indicated, references in this
Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other
Subdivisions are references to articles, exhibits, schedules, sections and other
subdivisions hereof.
Section 1.4. Use of Defined Terms. All terms defined in this Agreement
shall have the same defined meanings when used in any of the other Loan
Documents, unless otherwise defined therein or unless the context shall require
otherwise.
Section 1.5. Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and the plural shall
include the singular. Titles of Articles and Sections in this Agreement are for
convenience only, and neither limit nor amplify the provisions of this
Agreement.
8
<PAGE> 13
ARTICLE II
THE CREDIT
Section 2.1. Loan. Lender agrees, subject to the terms and conditions
set forth herein and based on the representations and warranties set forth
herein, to loan to Borrower, and Borrower agrees to borrow from Lender, the
principal amount of Two Million Dollars ($2,000,000.00) on the Closing Date (the
"Loan"). In consideration for making the Loan, on the Closing Date, the Borrower
shall grant to the Lender warrants for the purchase of an aggregate of 1,342,422
shares of the Borrower's Common Stock at an exercise price of $1.00 each, which
warrants may be exercised in accordance with and subject to the terms and
conditions of the Warrants.
Section 2.2. Miscellaneous Matters.
(a) Prior to the Closing Date, Borrower has amended, or will
amend prior to the Closing Date, the Borrower's Rights Agreement to provide that
neither the acquisition of shares of Borrower by Lender or any of its affiliates
nor the execution, delivery and performance of this Agreement and the Loan
Documents, including the Warrants, or the consummation of the transactions
contemplated thereby will (i) cause Lender or any of its affiliates to become an
Acquiring Person (as such term is defined in the Rights Agreement), or (ii)
otherwise affect the rights of the holders of Rights (as such term is defined in
the Rights Agreement), including by causing such Rights to separate from the
underlying shares or by giving such holders the right to acquire securities of
any party hereto.
(b) Upon the closing, the Borrower shall take all corporate
actions necessary to (i) increase the size of Borrower's Board of Directors to
five (5) from three (3); and (ii) elect to the Board of Directors of the
Borrower two (2) designees of the Lender, and such Board of Directors shall
consist of five (5) Persons, of whom two (2) Persons shall have been designated
by the Lender. At each election of directors from and after the Closing Date,
the Borrower shall nominate for election to its Board of Directors and recommend
to its stockholders the election of two (2) designees of the Lender to the Board
of Directors. No change in the actual number of directors of the Borrower shall
be made without the prior written consent of the Lender.
Section 2.3. Maturity of Loan. The Loan shall mature, and the principal
amount thereof, if any, together with all accrued but unpaid interest thereon,
if any, shall be due and payable on the applicable Termination Date without
notice to or demand upon the Borrower.
Section 2.4. Interest. The Borrower agrees to pay interest in respect
of the principal amount of the Loan, for each day from the date such Loan is
made until such Loan shall be paid in full at a rate per annum equal to the Base
Rate from time to time in effect, such interest rate to change as and when the
Base Rate changes and to be computed on the basis of a 360-day year and paid for
the actual number of days elapsed. Interest on the Loan shall accrue from and
including the making of the Loan and shall be payable monthly in arrears, for
each Interest Period, on the 15th day of the calendar month immediately
following the end of such Interest Period. Any overdue principal of and, to the
extent permitted by applicable law, overdue interest on the Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the
9
<PAGE> 14
Default Rate. After the occurrence and during the continuance of a Default, the
principal amount of the Loans (and, to the extent permitted by applicable law,
all accrued interest thereon) shall, at the election of the Lender, bear
interest at the Default Rate.
Section 2.5. Optional Prepayments The Borrower may, upon at least five
Domestic Business Day's notice to the Lender, prepay the Loan by an aggregate
amount of at least $100,000 or any larger multiple of $100,000, without premium
or penalty.
Section 2.6. Prepayment at Election of Lender Upon Change of Control.
Upon the occurrence of a Change of Control, Lender shall have the right to
require the Borrower to prepay the then outstanding principal amount thereof,
plus accrued and unpaid interest, if any, to the date of prepayment. Within five
Domestic Business Days following any Change of Control, the Borrower will mail a
notice thereof to Lender, (a "Change of Control Notice"). Lender, by written
notice to the Borrower within 30 days following receipt of such Change of
Control Notice, may elect prepayment of its Notes and the Borrower shall prepay
such Notes at the price specified above no later than 30 days thereafter.
Section 2.7. General Provisions as to Payments. The Borrower shall make
each payment of principal of, and interest on, the Loan not later than 11:00
A.M. (Pacific Time) on the date when due, in Federal or other funds immediately
available. Whenever any payment of principal of, or interest on, the Loans or of
fees hereunder shall be due on a day which is not a Domestic Business Day, the
date for payment thereof shall be extended to the next succeeding Domestic
Business Day.
Section 2.8. Collateral.
(a) In addition to the collateral security granted by the
Borrower and the Guarantors under the Security Agreements the Borrower shall, at
the sole cost and expense of the Borrower, grant to the Lender and do all things
requested to maintain, for the benefit of the Lender to secure all obligations
of the Borrower under the loan documents, a continuing, blanket and general lien
upon and security interest and title in and to all real property, equipment,
inventory, general intangibles, personal property and assets of the Borrower and
the Guarantors, or other assets as the Lenders shall designate in its reasonable
discretion (the "Post-Closing Collateral") and shall deliver (or cause to be
delivered) to the Lender such duly executed security agreements, security deeds,
mortgages, deeds of trust, estoppels, subordination agreements, pledge
agreements, stock powers, Uniform Commercial Code financing statements, title
certificates, affidavits, and other documents, as are reasonably necessary or
desirable in the judgment of the Lender to perfect first priority liens (as such
first priority may be available) against the Post-Closing Collateral
(collectively, the "Post-Closing Collateral Documents").
(b) The Borrower shall (and shall cause each of the Guarantors
to), after an Event of Default, at the sole cost and expense of the Borrower,
deliver (or cause to be delivered) to the Lender such appraisals, surveys, title
searches, title policies, environmental audits and other documents, all of which
shall be satisfactory to the Lender in all respects, as are deemed reasonably
necessary or desirable by the Lender in connection with the Collateral.
(c) The Borrower agrees to pay all costs and expenses incurred
by the Lender in connection with the actions contemplated by this Section 2.8,
including, without limitation, all
10
<PAGE> 15
filing fees, lien search fees, intangible taxes (whether incurred before or
after payment in full of the Loan), documentary stamp taxes (whether incurred
before or after payment in full of the Loan), surveys, environmental surveys,
and title reports. All such documentation shall be reasonable and customary and
in form and substance satisfactory to the Lender in its discretion. The Borrower
hereby irrevocably appoints the Lender as the Borrower's attorney-in-fact to (i)
deliver and record in the appropriate filing office any instrument contemplated
or required hereby (including, without limitation, the relevant security deeds,
mortgages, deeds of trust, and Uniform Commercial Code financing statements) and
to pay the related recording expenses and (ii) from time to time in the Lender's
discretion, to take any other action which the Lender may deem reasonably
necessary or advisable to accomplish the purposes of this Section 2.8 with
respect to the Collateral. At each time Lender exercises the foregoing power of
attorney it shall provide notice thereof to Borrower, including a copy of any
documentation so executed.
ARTICLE III
CONDITIONS TO CLOSING
Section 3.1. Conditions to Closing. The obligation of Lender to make
the Loan is subject to the satisfaction of the conditions set forth below and
receipt by the Lender of the documents, instruments, agreements and certificates
set forth below:
(a) duly executed original of the Note;
(b) duly executed original of the Warrants;
(c) duly executed Registration Rights Agreement;
(d) duly executed Security Agreements;
(e) a certificate (the "Closing Certificate") dated as of the
Closing Date, signed by the chief executive officer and the chief financial
officer of the Borrower, to the effect that (i) the representations and
warranties of the Borrower contained in Article IV are true on and as of the
Closing Date; (ii) Borrower and each of its Subsidiaries has complied with or
performed with all covenants and agreements which is required to have performed
or complied with on or prior to the Closing Date; and (iii) no event, act or
condition has occurred after January 1, 1997 which has had or could have a
Material Adverse Effect.
(f) an opinion letter (together with any opinions of local
counsel relied on therein) of, counsel for the Borrower, dated as of the Closing
Date, substantially in the form of Exhibit E and covering such additional
matters relating to the transactions contemplated hereby as the Lender may
reasonably request;
(g) all documents which the Lender may reasonably request
relating to the existence of the Borrower and the Guarantors, the corporate
authority for and the validity of this Agreement, the Note, the Warrants and the
other Loan Documents and any other matters relevant hereto, or thereto, all in
form and substance reasonably satisfactory to the Lender, including, without
limitation, a certificate of incumbency of each of the Borrower and the
Guarantors, signed by the Secretary or an Assistant Secretary of the Borrower
and the Guarantors, certifying as to the
11
<PAGE> 16
names, true signatures and incumbency of the officer or officers, respectively,
of the Borrower and the Guarantors authorized to execute and deliver the Loan
Documents, and certified copies of the following items, for the Borrower and
each of the Guarantors, respectively: (i) Certificate/Articles of Incorporation,
(ii) Bylaws, (iii) a certificate of the Secretary of State of the state of
incorporation of each as to the good standing of each as a corporation in that
state, and (iv) the action taken by the Board of Directors authorizing the
execution, delivery and performance of this Agreement, the Note, the Warrants
and the other Loan Documents to which the Borrower or any of the Guarantors is a
party;
(h) a certificate of insurance evidencing, of all insurance
required by Section 5.13 showing the insurer, the face amount and the nature of
coverage, and the Lender as a loss payee (or beneficiary, as the case may be)
under each policy then in force; and
(i) all mortgages and security interests securing the
Borrower's obligations hereunder shall be duly perfected and validly recorded.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 4.1. Corporate Existence and Power. The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, is duly qualified to transact business
in every jurisdiction where, by the nature of its business, such qualification
is necessary, except where the failure to qualify could not reasonably be
expected to have or cause a Material Adverse Effect, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where the failure to
have any license, authorization, consent or approval could not reasonably be
expected to have or cause a Material Adverse Effect.
Section 4.2. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement, the Note, the Warrants and the other Loan Documents delivered as of
the Closing Date (i) are within the Borrower's corporate powers, (ii) have been
duly authorized by all necessary corporate action, (iii) require no action by or
in respect of or filing with, any governmental body, agency or official, (iv) do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of the Borrower
or of any agreement, judgment, injunction, order, decree or other material
instrument binding upon the Borrower or any Guarantor, and (v) do not result in
the creation or imposition of any Lien on any asset of the Borrower or any
Guarantor other than Liens created or imposed pursuant to the Loan Documents.
Section 4.3. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower enforceable in accordance with its terms, the
Note, the Warrants and the other Loan Documents, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
the Borrower enforceable in accordance with their respective terms; provided
that the enforceability hereof and thereof is subject in each case to general
12
<PAGE> 17
principles of equity and to bankruptcy, insolvency and similar laws affecting
the enforcement of creditors' rights generally.
Section 4.4. Financial Information. The consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as of January 1, 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the Fiscal Year then ended, reported on by KPMG Peat Marwick, LLP and
the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
of March 26, 1997, and the related consolidated statements of operations and
cash flows for the Fiscal Quarter then ended, copies of which have been
delivered Lender, fairly present, in conformity with GAAP, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
dates and their consolidated results of operations and cash flows for such
periods stated. Since January 1, 1997 and excepted as disclosed in Schedule 4.4
attached hereto, there has been no event, act, condition or occurrence having a
Material Adverse Effect.
Section 4.5. No Litigation. Except as disclosed as Schedule 4.5, there
is no action, suit or proceeding pending, or to the knowledge of the Borrower
threatened, against or affecting the Borrower or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official which could
reasonably be expected to have or cause a Material Adverse Effect.
Section 4.6. Compliance with ERISA. The Borrower and each member of the
Controlled Group have fulfilled their obligations in all material respects under
the minimum funding standards of ERISA and the Code with respect to each Plan
and are in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and have not incurred any liability to the
PBGC or a Plan under Title IV of ERISA. Neither the Borrower nor any member of
the Controlled Group is or ever has been obligated to contribute to any
Multiemployer Plan.
Section 4.7. Compliance with Laws; Payment of Taxes. The Borrower and
its Consolidated Subsidiaries are in compliance with all applicable laws,
regulations and similar requirements of governmental authorities, except where
such compliance is being contested in good faith through appropriate proceedings
and except where the failure to comply could not reasonably be expected to have
or cause a Material Adverse Effect. There have been filed on behalf of the
Borrower and its Consolidated Subsidiaries all Federal and state income, excise,
property and other tax returns which are required to be filed by them and all
taxes due pursuant to such returns or pursuant to any assessment received by or
on behalf of the Borrower or any Consolidated Subsidiary have been paid. There
have been filed on behalf of the Borrower and its Consolidated Subsidiaries all
local income, excise, property and other tax returns that are required to be
filed by them and all taxes due pursuant to the returns or any assessment
received by Borrower or any Consolidated Subsidiary have been paid. The charges,
accruals and reserves on the books of the Borrower and its Consolidated
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate, except for any changes in taxes which are
imposed retroactively.
Section 4.8. No Subsidiaries. The Borrower has no Subsidiaries.
Section 4.9. Investment Company Act. Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
13
<PAGE> 18
Section 4.10. Public Utility Holding Company Act. Neither the Borrower
nor any of its Consolidated Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
Section 4.11. Ownership of Property; Liens. Each of the Borrower and
its Consolidated Subsidiaries has title to its properties sufficient for the
conduct of its business, and none of such property is subject to any Lien except
as permitted in Section 5.7.
Section 4.12. No Default. Borrower is not in default under or with
respect to any agreement, instrument or undertaking to which it is a party or by
which it or any of its property is bound which could have or cause a Material
Adverse Effect.
Section 4.13. Full Disclosure. All written information heretofore
furnished by the Borrower to the Lender for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all such
information hereafter furnished by the Borrower to Lender will be, true,
accurate and complete in every material respect or based on reasonable estimates
on the date as of which such information is stated or certified. The Borrower
has disclosed to the Lenders in writing any and all facts which could have or
cause a Material Adverse Effect.
Section 4.14. Environmental Matters.
(a) Borrower is not subject to any Environmental Liability
which could have or cause a Material Adverse Effect as the Environmental
Liability becomes due and the Borrower has not been designated as a potentially
responsible party under CERCLA or under any state statute similar to CERCLA.
None of the Properties has been identified on any current or proposed (i)
National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii) any
list arising from a state statute similar to CERCLA.
(b) No Hazardous Materials are being used, produced,
manufactured, processed, treated, recycled, generated, stored, disposed of,
managed or otherwise handled at, or shipped or transported to or from the
Properties except in material compliance with Environmental Requirements. No
Hazardous Materials are present at, on, in or under the Properties, or, to the
best of the knowledge of the Borrower, at or from any adjacent site or facility
(except for Hazardous Materials, such as cleaning solvents, pesticides and other
materials used, produced, manufactured, processed, treated, recycled, generated,
stored, disposed of, managed, or otherwise handled in minimal amounts in the
ordinary course of business in compliance with all applicable Environmental
Requirements) in such quantities that the cost to monitor, investigate, and/or
remediate the Hazardous Materials in compliance with Environmental Requirements
could not reasonably be expected to have or cause a Material Adverse Effect.
(c) The Borrower in all material respects is in compliance
with all Environmental Requirements in connection with the operation of the
Properties and the Borrower's businesses.
Section 4.15. Capital Stock. All Capital Stock, debentures, bonds,
notes and all other securities of the Borrower presently issued and outstanding
are validly and properly issued in
14
<PAGE> 19
accordance with all applicable laws, including but not limited to, the "Blue
Sky" laws of all applicable states and the federal securities laws.
Section 4.16. Margin Stock. The Borrower is not engaged principally, or
as one of its important activities, in the business of purchasing or carrying
any Margin Stock, and no part of the proceeds of the Loan will be used to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock, or be used for any purpose which
violates, or which is inconsistent with, the provisions of Regulation X.
Section 4.17. Insolvency. After giving effect to the execution and
delivery of this Agreement, the Note and the other Loan Documents, the Borrower
will not be "insolvent," within the meaning of such term as defined in ss. 101
of Title 11 of the United States Code or Section 2 of the Uniform Fraudulent
Transfer Act, or any other applicable state law pertaining to fraudulent
transfers, as amended from time to time, or be unable to pay its debts generally
as such debts become due, or have an unreasonably small capital to engage in any
business or transaction, whether current or contemplated.
15
<PAGE> 20
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any amount payable
hereunder or under the Note remains unpaid:
Section 5.1. Information.
(a) The Borrower will deliver to the Lender:
(i) as soon as available and in any event within 120 days
after the end of each Fiscal Year, a consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as of
the end of such Fiscal Year and the related consolidated
statements of operations, stockholders' equity and cash flows
for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous fiscal year, all
certified by independent public accountants of nationally
recognized standing, with such certification to be free of
exceptions and qualifications not acceptable to the Lender;
(ii) as soon as available and in any event within 45 days
after the end of each of the first three Fiscal Quarters of
each Fiscal Year, a consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of the end of such Fiscal
Quarter and the related statements of operations and
statements of cash flows for such Fiscal Quarter and for the
portion of the Fiscal Year ended at the end of such Fiscal
Quarter, setting forth in each case in comparative form the
figures for the corresponding Fiscal Quarter and the
corresponding portion of the previous Fiscal Year, all
certified (subject to normal year-end adjustments) as to
fairness of presentation, GAAP and consistency by the chief
financial officer or the chief accounting officer of the
Borrower, except to the extent that interim financial
statements on Form 10-Q do not require footnotes and other
disclosures that would otherwise be required by GAAP;
(iii) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (i) and (ii)
above, a certificate (a "Compliance Certificate") of the chief
financial officer stating whether any Default exists on the
date of such certificate and, if any Default then exists,
setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(iv) within two (2) Domestic Business Days after the
Borrower has knowledge of the occurrence of any Default, a
certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth the details
thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
16
<PAGE> 21
(v) promptly upon the mailing thereof to the stockholders
of the Borrower generally, copies of all financial statements,
reports and proxy statements so mailed; and
(vi) promptly upon the filing thereof, copies of all
registration statements, proxy statements, and annual,
quarterly or other reports and other information and documents
which the Borrower shall have filed with the Securities and
Exchange Commission.
(b) Upon the request of the Lender, the Borrower will deliver
to the Lender:
(i) if and when any member of the Controlled Group (A)
gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy
of the notice of such reportable event given or required to be
given to the PBGC; (B) receives notice of complete or partial
withdrawal liability under Title IV of ERISA, a copy of such
notice; or (C) receives notice from the PBGC under Title IV of
ERISA of an intent to terminate or appoint a trustee to
administer any Plan, a copy of such notice; and
(ii) as soon as available and in any event within 25 days
after the end of each of the first 12 Reporting Periods of
each Fiscal Year, a consolidated statement of income and
balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such Reporting Period and for
the portion of the Fiscal Year ended at the end of such
Reporting Period, setting forth in each case in comparative
form the figures for the corresponding Reporting Period and
the corresponding portion of the previous Fiscal Year, all
certified (subject to normal year-end adjustments) as to
fairness of presentation, GAAP and consistency by the chief
financial officer or the chief accounting officer of the
Borrower, except to the extent that interim financial
statements do not require footnotes and that such financial
statements are subject to normal year-end adjustments;
(iii) promptly upon receipt or obtaining knowledge
thereof, any and all bona fide offers or expressions of
interest (whether verbal or written, solicited or unsolicited)
to merge with or to acquire all or any part of the assets or
capital stock of the Borrower;
(iv) within 25 days after the end of each Reporting
Period: (A) a variance report which reconciles the performance
of the Borrower for the immediately preceding Reporting Period
to the projected budget of the Borrower for such period; (B)
an accounts payable schedule for the Borrower; (C) a written
schedule of the revenues, profit contributions and other
operating and financial information with respect to each
Stacey's Restaurant, on an individual and regional basis; and
(D) a written summary of the Borrower's advertising and
promotional activities, including a summary of amounts
expended in connection therewith and a cost/benefit analysis
of such expenditures
17
<PAGE> 22
(v) within five days after the end of each calendar week,
written weekly sales reports with respect to each Stacey's
Restaurant, on an individual and regional basis; and
(vi) from time to time such additional information
regarding the financial position or business of the Borrower
and its Subsidiaries as may be reasonably requested.
Section 5.2. Inspection of Property, Books and Records. The Borrower
will (i) keep, and cause each Consolidated Subsidiary to keep, proper books of
record and account in which full, true and correct entries in conformity with
GAAP shall be made of all dealings and transactions in relation to its business
and activities; and (ii) permit, and cause each Wholly Owned Subsidiary to
permit, representatives of Lender, at the Borrower's expense, to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants. The Borrower agrees to cooperate and assist in
such visits and inspections, in each case at such reasonable times and as often
as may reasonably be desired.
Section 5.3. Restricted Payments. The Borrower will not declare or make
any Restricted Payments.
Section 5.4. Limitation on Indebtedness. Neither the Borrower nor any
of its Subsidiaries will create, incur, assume, or become, be or remain liable
in any manner in respect of, or allow to exist, any Indebtedness (which term
shall include: all indebtedness, obligations and liabilities which in accordance
with generally accepted accounting principles would be reflected on the balance
sheet of the Borrower as a liability; all indebtedness, obligations and
liabilities, whether or not assumed by Borrower or any Subsidiary, secured by
any mortgage, pledge or lien existing on property owned by the Borrower or any
Subsidiary; and all amounts representing rental payments which, in accordance
with generally accepted accounting principles, would be classified as a
liability on its balance sheet), except for:
(a) the Note and any other obligations owed to the Lender
under this Agreement or otherwise;
(b) Indebtedness of the Borrower existing as of the date of
this Agreement which is specifically disclosed in Schedule 5.5 attached hereto;
(c) Indebtedness representing trade debt, wages, employee
benefits, advance payments on sales contracts and other indebtedness incurred in
the ordinary course of business;
(d) Indebtedness existing as of the date of this Agreement
secured by liens permitted by subsection (a) of Section 5.7;
(e) Liabilities for taxes, assessments, governmental charges,
liens or claims described in Section 5.12 hereof to the extent that payment
thereof is not required by such Section 5.12; and
18
<PAGE> 23
(f) Indebtedness in respect of final judgments for the payment
of money not in excess of $10,000 in the aggregate at any time outstanding
(excluding sums covered by insurance) remaining unsatisfied and in effect for
any period of less than thirty (30) days or in respect of which a stay of
execution shall have been obtained pending an appeal or proceeding for review.
Section 5.5. Loans or Advances. Neither the Borrower nor any Guarantor
shall make loans or advances to any Person except (without duplication): (a)
loans or advances to employees not exceeding $5,000 in the aggregate principal
amount outstanding at any time, in each case made in the ordinary course of
business and consistent with practices existing on the Closing Date; (b)
deposits required by government agencies or public utilities; (c) loans,
advances or monetary capital contributions from the Borrower or a Guarantor to
any Guarantor, or from any Guarantor to the Borrower; (d) loans in existence on
the Closing Date not exceeding a total aggregate principal amount of outstanding
as described on Schedule 5.5 attached hereto, which are evidenced by legally
enforceable promissory notes and subject to the Lender's perfected Liens; and
(e) loans or advances consented to by the Lender in connection with asset sales
under Section 5.10 or loans or advances in connection with asset sales which do
not require the consent of the Lender; provided that after giving effect to the
making of any loans, advances or deposits permitted by this Section, the
Borrower will be in full compliance with all the provisions of this Agreement.
Section 5.6. Investments. Neither the Borrower nor any Guarantor shall
make Investments in any Person except as permitted by Section 5.5 and except
Investments (i) in direct obligations of the United States Government maturing
within one year, (ii) in certificates of deposit issued by a commercial bank
whose long-term certificates of deposit are rated at least AA or the equivalent
thereof by Standard & Poor's Corporation and Aa or the equivalent thereof by
Moody's Investors Service, Inc., (iii) in commercial paper rated A1 or the
equivalent thereof by Standard & Poor's Corporation or P1 or the equivalent
thereof by Moody's Investors Service, Inc. and in either case maturing within 6
months after the date of acquisition, and (iv) in tender bonds the payment of
the principal of and interest on which is fully supported by a letter of credit
issued by a United States bank whose long-term certificates of deposit are rated
at least AA or the equivalent thereof by Standard & Poor's Corporation and Aa or
the equivalent thereof by Moody's Investors Service, Inc.
Section 5.7. Negative Pledge. Neither the Borrower nor any Wholly Owned
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement and
identified on Schedule 5.7;
(b) any Lien on any asset securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of acquiring or
constructing such asset (so long as the asset so acquired or constructed
constitutes a capital expenditure permitted hereunder);
(c) Liens securing Indebtedness owing by any Subsidiary to the
Borrower;
(d) any Lien arising out of the refinancing, extension,
renewal or refunding of any Indebtedness secured by any Lien permitted by any of
the foregoing paragraphs of this Section,
19
<PAGE> 24
provided that (i) such Indebtedness is not secured by any additional assets, and
(ii) the amount of such Indebtedness secured by any such Lien is not increased
or, if increased, the excess of the amount of the Indebtedness secured by any
such lien over the amount of the Indebtedness so refinanced extended, renewed,
or refunded shall be tendered to the Lender as a prepayment of the Loan;
(e) Liens incidental to the conduct of its business or the
ownership of its assets which (i) do not secure Indebtedness and (ii) do not in
the aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business;
(f) Liens in favor of the Lenders created under the Loan
Documents; and
(g) Liens incurred by Borrower in the ordinary course of
business for items not past due and payable, including mechanics' and
materialmen's liens and deposits and charges for workers' compensation and liens
for taxes and assessments not past due and payable.
Section 5.8. Maintenance of Existence. The Borrower shall, and shall
cause each Subsidiary to, maintain its corporate existence and carry on its
business in substantially the same manner and in substantially the same fields
as such business is now carried on and maintained.
Section 5.9. Dissolution. Neither the Borrower nor any of its Wholly
Owned Subsidiaries shall suffer or permit dissolution or liquidation either in
whole or in part or redeem or retire any shares of its own stock or that of any
Wholly Owned Subsidiary, except through corporate reorganization to the extent
permitted by Section 5.12.
Section 5.10. Consolidations, Mergers and Sales of Assets. The Borrower
will not, nor will it permit any Consolidated Subsidiary to, consolidate or
merge with or into, or sell, lease or otherwise transfer all or any substantial
part of its assets to, any other Person, or discontinue or eliminate any
business line or segment; provided, however, that if no Default has occurred and
is continuing (i) the Borrower may merge with another Person if (A) such Person
was organized under the laws of the United States of America or one of its
states, (B) the Borrower is the corporation surviving such merger, and (C)
immediately after giving effect to such merger, no Default shall have occurred
and be continuing, and (ii) solvent Subsidiaries of the Borrower may merge with
one another or, if the Borrower is the surviving corporation, the Borrower.
Section 5.11. Use of Proceeds. The proceeds of the Loan shall be used
by Borrower for the purpose of remodeling Stacey's Restaurants or for the costs
of converting Stacey's Restaurants to any regional buffet restaurant concept
which is approved by Lender, and for general working capital purposes. No
portion of the proceeds of the Loan will be used by the Borrower or any
Subsidiary (i) in connection with, whether directly or indirectly, any tender
offer for, or other acquisition of, stock of any corporation with a view towards
obtaining control of such other corporation, (ii) directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any Margin Stock, or (iii) for any purpose in violation of any
applicable law or regulation.
Section 5.12. Compliance with Laws; Payment of Taxes; SEC Filings. The
Borrower will, and will cause each of its Wholly Owned Subsidiaries and each
member of the Controlled Group to, comply with applicable laws (including but
not limited to ERISA), regulations and
20
<PAGE> 25
similar requirements of governmental authorities (including but not limited to
PBGC) in all material respects, except where the necessity of such compliance is
being contested in good faith through appropriate proceedings. The Borrower
will, and will cause each of its Wholly Owned Subsidiaries to, pay promptly
before past due all taxes, assessments, governmental charges, claims for labor,
supplies, rent and other obligations which, if unpaid, might become or remain a
lien against the property of the Borrower or any Wholly Owned Subsidiary, except
liabilities being contested in good faith and against which, if requested by the
Lender, the Borrower will set up reserves in accordance with GAAP. The Borrower
will timely file all reports, statements and other information and documents
with the Securities and Exchange Commission required to be filed under, and will
otherwise comply in all respects with, applicable securities laws.
Section 5.13. Insurance. The Borrower will maintain, and will cause
each of its Wholly Owned Subsidiaries to maintain (either in the name of the
Borrower or in such Subsidiary's own name), with financially sound and reputable
insurance companies, insurance on all its property in at least such amounts and
against at least such risks as are usually insured against in the same general
area by companies of established repute engaged in the same or similar business,
and as required by the other Loan Documents.
Section 5.14. Change in Fiscal Year. The Borrower will not change its
Fiscal Year.
Section 5.15. Maintenance of Property. The Borrower shall, and shall
cause each Wholly Owned Subsidiary to, maintain all of its properties and assets
in good condition, repair and working order, except for ordinary wear and tear
and loss by casualty.
Section 5.16. Environmental Notices. The Borrower shall furnish to the
Lender prompt written notice of all Environmental Liabilities, pending,
threatened or anticipated Environmental Proceedings, Environmental Notices,
Environmental Judgments and Orders, and Environmental Releases at, on, in, under
or in any way affecting the Properties or any adjacent property, and all facts,
events, or conditions that could lead to any of the foregoing.
Section 5.17. Environmental Matters. The Borrower and its Wholly Owned
Subsidiaries will not, and will not permit any Third Party to, use, produce,
manufacture, process, treat, recycle, generate, store, dispose of, manage at, or
otherwise handle, or ship or transport to or from the Properties any Hazardous
Materials except for Hazardous Materials such as cleaning solvents, pesticides
and other similar materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed, managed, or otherwise handled in minimal
amounts in the ordinary course of business in compliance with all applicable
Environmental Requirements.
Section 5.18. Environmental Release. The Borrower agrees that upon the
occurrence of an Environmental Release at or on any of the Properties it will
act immediately to investigate the extent of, and to take appropriate remedial
action to eliminate, such Environmental Release, whether or not ordered or
otherwise directed to do so by any Environmental Authority.
Section 5.19. Transactions with Affiliates. Neither the Borrower nor
any of its Consolidated Subsidiaries shall enter into, or be a party to (and the
Borrower shall use its best efforts to cause any other Subsidiary to not enter
into or be a party to), any transaction with any Affiliate of the Borrower or
such Subsidiary (which Affiliate is not the Borrower or a Subsidiary), except
(i) such transactions between and/or among the Borrower and its Consolidated
Subsidiaries
21
<PAGE> 26
which are permitted by law, consistent with its past practices, in the ordinary
course of business and pursuant to reasonable terms which are no less favorable
to Borrower or such Consolidated Subsidiary than would be obtained in a
comparable arm's length transaction with a Person which is not an Affiliate or
(ii) such transactions as are otherwise fully disclosed to the Lender and
consented to in writing in advance by the Lender.
ARTICLE VI
DEFAULTS
Section 6.1. Events of Default. If one or more of the following events
(each, a "Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of
the Loan or shall fail to pay any interest on the Loan within two (2) Domestic
Business Days after such interest shall become due; or
(b) the Borrower shall fail to observe or perform any covenant
contained in: (i) Section 5.1 and such failure shall continue for ten (10)
Business Days after the earlier to occur of (x) written notice thereof has been
given to the Borrower by the Lender or (y) the Borrower obtains knowledge of any
such failure; or (ii) Sections 5.2, 5.3 to 5.12, inclusive, Sections 5.14 or
5.19; or
(c) the Borrower shall fail to observe or perform any covenant
or agreement contained or incorporated by reference in this Agreement (other
than those covered by paragraph (a) or (b) above) and such failure shall not
have been cured within 30 days after the earlier to occur of (i) written notice
thereof has been given to the Borrower by the Lender or (ii) the Borrower
otherwise becomes aware of any such failure; or
(d) any representation, warranty, certification or statement
made by the Borrower in Article IV of this Agreement or in any certificate,
financial statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect or misleading in any material respect when made (or
deemed made); or
(e) the Borrower or any Consolidated Subsidiary shall fail to
make any payment in respect of Indebtedness outstanding in an aggregate amount
in excess of $500,000 (other than the Notes) when due or within any applicable
grace period; or
(f) any event or condition shall occur which results in the
acceleration of the maturity of Indebtedness of the Borrower or any Consolidated
Subsidiary outstanding in an aggregate amount in excess of $500,000 (including,
without limitation, any required mandatory prepayment or "put" of such
Indebtedness to the Borrower or any Consolidated Subsidiary) or enables (or,
with the giving of notice or lapse of time or both, would enable) the holders of
such Indebtedness or any Person acting on such holders' behalf to accelerate the
maturity thereof (including, without limitation, any required mandatory
prepayment or "put" of such Indebtedness to the Borrower or any Consolidated
Subsidiary); or
22
<PAGE> 27
(g) the Borrower or any Consolidated Subsidiary shall commence
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to authorize
any of the foregoing; or
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Consolidated Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Borrower
or any Consolidated Subsidiary under the federal bankruptcy laws as now or
hereafter in effect; or
(i) the Borrower or any member of the Controlled Group shall
fail to pay when due any material amount which it shall have become liable to
pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to
terminate a Plan or Plans shall be filed under Title IV of ERISA by the
Borrower, any member of the Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any such Plan or Plans or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of
ERISA and such proceeding shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated; or the Borrower or any other member of the Controlled Group shall
enter into, contribute or be obligated to contribute to, terminate or incur any
withdrawal liability with respect to, a Multiemployer Plan;
(j) one or more final, nonappealable judgments or orders for
the payment of money in an aggregate amount in excess of $250,000 shall be
rendered against the Borrower or any Consolidated Subsidiary and such judgment
or order shall continue unsatisfied and unstayed for a period of 30 days; or
(k) a federal tax lien for a claimed amount in excess of
$100,000 shall be filed against the Borrower or any Consolidated Subsidiary
under Section 6323 of the Code or a lien of the PBGC shall be filed against the
Borrower or any Consolidated Subsidiary under Section 4068 of ERISA and in
either case such lien shall remain undischarged for a period of 25 days after
the date of filing; or
(l) except as a result of the election of designees of Lender
to Borrower's Board of Directors on the Closing Date pursuant to this Agreement,
as of any date a majority of the Board of Directors of the Borrower consists of
individuals who were not either (A) directors of the Borrower as of the
corresponding date of the previous year, (B) selected or nominated to become
23
<PAGE> 28
directors by the Board of Directors of the Borrower of which a majority
consisted of individuals described in clause (A), or (C) selected or nominated
to become directors by the Board of Directors of the Borrower of which a
majority consisted of individuals described in clause (A) and individuals
described in clause (B); or
(m) (i) any default by the Borrower or any of the Guarantors
under any of the Loan Documents shall exist after the satisfaction of any
applicable grace, notice or cure periods, if any, (ii) any Loan Documents
(including, without limitation, the Guaranty) shall cease to be enforceable, or
(iii) any Guarantor or the Borrower shall assert that any Loan Document
(including, without limitation, the Guaranty) shall cease to be enforceable
then, and in every such event (an "Event of Default"), the Lender may by notice
to the Borrower declare the Note (together with accrued interest thereon) to be,
and the Note shall thereupon become, immediately due and payable without
presentment, demand, protest or additional notice of any kind, all of which are
hereby waived by the Borrower, together with interest at the Default Rate
accruing on the principal amount thereof from and after the date of such Event
of Default; provided that if any Event of Default specified in paragraph (g) or
(h) above occurs with respect to the Borrower, without any notice to the
Borrower or any other act by the Lender, the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower together with interest thereon at the Default Rate accruing on the
principal amount thereof from and after the date of such Event of Default.
Notwithstanding the foregoing, the Lender shall have available to it all other
remedies at law or equity, and may any one or all of them.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telecopier or
similar writing) and shall be given to such party at its address or telecopier
number set forth on the signature pages hereof or such other address or
telecopier number as such party may hereafter specify for the purpose by notice
to each other party. Each such notice, request or other communication shall be
effective (i) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (ii) if
given by any other means, when delivered at the address specified in this
Section.
Section 7.2. No Waivers. No failure or delay by the Lender in
exercising any right, power or privilege hereunder or under the Note or other
Loan Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Section 7.3. Expenses; Documentary Taxes. If a Default occurs, the
Borrower shall pay or reimburse lender, as the case may be, for all
out-of-pocket expenses incurred by the Lender, including fees and disbursements
of counsel, in connection with such Default and collection and other enforcement
proceedings resulting therefrom, including out-of-pocket expenses incurred in
enforcing this Agreement and the other Loan Documents. The Borrower shall
indemnify the
24
<PAGE> 29
Lender against any transfer taxes, documentary taxes, assessments or charges
made by any Authority by reason of the execution and delivery of this Agreement
or the other Loan Documents.
Section 7.4. Indemnification. The Borrower shall indemnify the Lender
and its directors, officers, partners, trustees, beneficiaries, controlling
persons, shareholders, employees and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims or damages to which any of them
may become subject, insofar as such losses, liabilities, claims or damages arise
out of or result from (i) any actual or proposed use by the Borrower of the
proceeds of any extension of credit by Lender hereunder, or (ii) breach by the
Borrower of this Agreement (including, without limitation, representations,
warranties and covenants relating to environmental matters) or any other Loan
Document, or from any investigation, litigation (including, without limitation,
any actions taken by Lender to enforce this Agreement or any of the other Loan
Documents) or other proceeding (including, without limitation, any threatened
investigation or proceeding) relating to the foregoing, and the Borrower shall
reimburse Lender, and its directors, officers, employees and agents, upon demand
for any expenses (including, without limitation, legal fees) incurred in
connection with any such investigation or proceeding; but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified.
Section 7.5. Amendments and Waivers. Any provision of this Agreement,
the Note or any other Loan Documents may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the Borrower and the
Lender. The Borrower will not solicit, request or negotiate for or with respect
to any proposed waiver or amendment of any of the provisions of this Agreement
unless Lender shall be informed thereof by the Borrower and shall be afforded an
opportunity of considering the same and shall be supplied by the Borrower with
sufficient information to enable it to make an informed decision with respect
thereto.
25
<PAGE> 30
Section 7.6. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement.
(b) Lender (or successor or assignee of any Lender) may at any
time sell to one or more Affiliates (each a "Participant") participating
interests in Loan owing to such Lender, any Note held by such Lender, or any
other interest of such Lender hereunder. In the event of any such sale by the
Lender of a participating interest to a Participant, Lender's obligations under
this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Note for all purposes under this Agreement, and the Borrower shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. In no event shall a Lender
that sells a participation be obligated to the Participant to take or refrain
from taking any action hereunder except that such Lender may agree that it will
not (except as provided below), without the consent of the Participant, agree to
(i) the change of any date fixed for the payment of principal of or interest on
the related loan or loans, (ii) the change of the amount of any principal,
interest or fees due on any date fixed for the payment thereof with respect to
the related loan or loans, (iii) the change of the principal of the related loan
or loans, (iv) any change in the rate at which either interest is payable
thereon or (if the Participant is entitled to any part thereof) fee is payable
hereunder from the rate at which the Participant is entitled to receive interest
or fee (as the case may be) in respect of such participation, (v) the release or
substitution of all or any substantial part of the collateral (if any) held as
security for the Borrower's obligations hereunder, or (vi) the release of any
Guarantee given to support payment of the Borrower's obligations hereunder. Each
Lender selling a participating interest in any Loan, Note, or other interest
under this Agreement shall provide the Borrower with written notification
stating that such sale has occurred and identifying the Participant and the
interest purchased by such Participant.
(c) Lender or assignee of any Lender (in either case, a
"Transferor") may at any time assign to one or more Affiliates of Lender (each
an "Assignee") all, or a proportionate part of all, of its rights and
obligations under this Agreement, the Note and the other Loan Documents and such
Assignee shall assume all rights and obligations of the Transferor hereunder
pursuant to an agreement executed by such Assignee and such Transferor in form
and substance satisfactory to the Transferor (an "Assignment Agreement"). Upon
(a) execution of the Assignment Agreement by and such Transferor, such Assignee
and (b) payment by such Assignee to and Transferor of an amount equal to the
purchase price agreed between such Transferor and such Assignee, and (c) payment
of a such Assignee shall for all purposes be a Lender party to this Agreement
and shall have all the rights and obligations of a Lender under this Agreement
to the same extent as if it were an original party hereto with a pro rata share
as set forth in the Assignment Agreement, and the Transferor shall be released
from its obligations hereunder to a corresponding extent, and no further consent
or action by the Borrower, or the Lender shall be required. Upon the
consummation of any transfer to an Assignee pursuant to this paragraph (c), the
Transferor, and the Borrower shall make appropriate arrangements so that, if
required, a new Note (or Notes) is (are) issued to such Assignee.
26
<PAGE> 31
(d) Subject to the provisions of Section 7.7, the Borrower
authorizes each Lender to disclose to any Participant, Assignee or other
transferee (each a "Transferee") and any prospective Transferee who has agreed
in writing to be bound by Section 7.7 any and all financial information in such
Lender's possession concerning the Borrower which has been delivered to such
Lender by the Borrower pursuant to this Agreement or which has been delivered to
such Lender by the Borrower in connection with such Lender's credit evaluation
prior to entering into this Agreement.
(e) Anything in this Section 7.6 to the contrary
notwithstanding, any Lender may assign and pledge all or any portion of the Loan
and/or obligations owing to it to as collateral security, provided that any
payment in respect of such assigned Loan and/or obligations made by the Borrower
to the assigning and/or pledging Lender in accordance with the terms of this
Agreement shall satisfy the Borrower's obligations hereunder in respect of such
assigned Loan and/or obligations to the extent of such payment. No such
assignment shall release the assigning and/or pledging Lender from its
obligations hereunder.
Section 7.7. Confidentiality. Lender agrees to keep any information
delivered or made available by the Borrower to it which is clearly indicated to
be confidential information, confidential from anyone other than persons
employed or retained by Lender who are or are expected to become engaged in
evaluating, approving, structuring or administering the Borrower's obligations
hereunder provided, that, such individuals shall be subject to the agreement
contained in this Section 7.7; provided, however that nothing herein shall
prevent Lender from disclosing such information (i) to any other Lender, (ii)
upon the order of any court or administrative agency after notice to the
Borrower, (iii) upon the request or demand of any regulatory agency or authority
having jurisdiction over such Lender after notice to the Borrower, (iv) which
has been publicly disclosed by Borrower, (v) to the extent reasonably required
in connection with any litigation to which the Lender or its Affiliates may be a
party, (vi) to the extent reasonably required in connection with the exercise of
any remedy hereunder, (vii) to Lender's legal counsel and independent auditors
and (viii) to any actual or proposed Participant, Assignee or other Transferee
of all or part of its rights hereunder, provided that such proposed Participant,
Assignee or other Transferee agrees in writing to be bound by this Section.
Section 7.8. California Law. This Agreement and each of the loan
documents shall be construed in accordance with and governed by the law of the
State of California.
Section 7.9. Severability. In case any one or more of the provisions
contained in this Agreement, the Note or any of the other Loan Documents should
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby and shall be enforced to the
greatest extent permitted by law.
Section 7.10. Interest. In no event shall the amount of interest due or
payable hereunder or under the Notes exceed the maximum rate of interest allowed
by applicable law, and in the event any such payment is inadvertently made to
Lender by the Borrower or inadvertently received by Lender, then such excess sum
shall be credited as a payment of principal, unless the Borrower shall notify
such Lender in writing that it elects to have such excess sum returned
forthwith. It is the express intent hereof that the Borrower not pay and the
Lender not receive, directly or
27
<PAGE> 32
indirectly in any manner whatsoever, interest in excess of that which may
legally be paid by the Borrower under applicable law.
Section 7.11. Interpretation. No provision of this Agreement or any of
the other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
Section 7.12. Waiver of Jury Trial; Consent to Jurisdiction. Each of
the Borrower and the Lender irrevocably (a) waives any and all right to trial by
jury in any legal proceeding arising out of this Agreement, any of the other
Loan Documents, or any of the transactions contemplated hereby or thereby, (b)
submits to the nonexclusive personal jurisdiction in the State of California,
the courts thereof and the United States District Courts sitting therein, for
the enforcement of this Agreement, the Note and the other Loan Documents, (c)
waives any and all personal rights under the law of any jurisdiction to object
on any basis (including, without limitation, inconvenience of forum) to
jurisdiction or venue within the State of California for the purpose of
litigation to enforce this Agreement, the Notes or the other Loan Documents, and
(d) agrees that service of process may be made upon it in the manner prescribed
in Section 7.1 for the giving of notice to the Borrower. Nothing herein
contained, however, shall prevent the Lender from bringing any action or
exercising any rights against any security and against the Borrower personally,
and against any assets of the Borrower, within any other state or jurisdiction.
Section 7.13. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
28
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
STACEY'S BUFFET, INC
By:
------------------------------------
Name:
Title:
801 West Bay Drive
Suite 704
Largo, Florida 33770
Attention:
---------------------
Telecopier number:
-------------
Telephone number:
--------------
STAR BUFFET, INC.,
By:
------------------------------------
Name:
Tile:
440 Lawndale Drive
Salt Lake City, Utah 84115-1917
Attention:
---------------------
Telecopier No.: (801) 463-5500
Telephone No.: (801) 463-5585
29
<PAGE> 1
EXHIBIT 10.9
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of
September __, 1997 by and among CKE RESTAURANTS, INC., a Delaware corporation
("CKE"), SUMMIT FAMILY RESTAURANTS INC., a Delaware corporation and, as of the
date of this Agreement, a wholly-owned subsidiary of CKE ("Summit"), STAR
BUFFET, INC., a Delaware corporation and, as of the date of this Agreement, a
wholly-owned subsidiary of CKE ("Star"). CASA BONITA INCORPORATED, a Texas
corporation and indirect wholly-owned subsidiary of CKE ("Casa Bonita"), and
JB's RESTAURANTS, INC., a Delaware corporation and wholly-owned subsidiary of
CKE ("JB's").
RECITALS:
A. CKE is engaged, through its subsidiaries listed in Schedule 1
attached hereto (the "CKE Subsidiaries"), in the primary business, among
others, of owning, operating, franchising and licensing quick-service
restaurants, primarily consisting of the Carl's Jr.(R), Hardee's(R) and Taco
Bueno(R) concepts (CKE and the CKE Subsidiaries other than members of the Star
Group (as such term is hereinafter defined) are collectively referred to as the
"CKE Group");
B. CKE has determined to reorganize and consolidate the assets and
operations of the buffet-style restaurant business of certain of its
subsidiaries (collectively, the "Buffet Restaurant Business"), which is
currently comprised of 16 HomeTown Buffet restaurants currently operated by HTB
Restaurants, Inc., a Delaware corporation and wholly-owned subsidiary of Summit
("HTB"), as a franchisee of HomeTown Buffet, Inc. (the "Franchisor"), two (2)
Casa Bonita Mexican theme restaurants currently operated by Casa Bonita, and
seven (7) JJ North's Grand Buffet restaurants to be acquired pursuant to an
Asset Purchase Agreement, dated July 24, 1997 (the "North Purchase Agreement"),
between CKE and North's Restaurants, Inc., an Oregon corporation ("North's"),
into Star and Star's subsidiaries listed in Schedule 2 attached hereto (the
"Star Subsidiaries") (Star and the Star Subsidiaries, after giving effect to the
Asset Transfers (as such term is hereinafter defined) and the consummation of
the transactions contemplated by this Agreement, are collectively referred to
herein as the "Star Group"); and
C. Star has filed a registration statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to an initial public offering of 2,500,000 shares of Star Common Stock,
of which 600,000 shares are to be offered and sold by CKE (the "Offering")
pursuant to an Underwriting Agreement to be entered into by and among Star, CKE
and Equitable Securities Corporation, EVEREN Securities, Inc. and Cruttenden
Roth Incorporated, as representatives of the Underwriters (the "Underwriting
Agreement"), on or promptly following the date on which the Registration
statement is declared effective by the SEC;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and in consideration
of the mutual covenants and conditions contained herein, the parties hereby
agree as follows:
<PAGE> 2
1. FORMATION TRANSACTIONS
1.1 Exchange of Summit Shares for Star Shares; Section 351.
Effective as of the Effective Time (as defined in Section 1.3 below), CKE agrees
to contribute and transfer to Star all of the issued and outstanding shares of
capital stock of Summit (the "Summit Shares"), free and clear of any and all
liens, claims, pledges, options, security interests, encumbrances and
restrictions on transfer (other than restrictions imposed pursuant to applicable
federal and state securities laws), in exchange for, and Star agrees to issue to
CKE, Two Million Six Hundred Thousand (2,600,000) newly issued shares of common
stock, par value $0.001 per share (the "Common Stock) of Star (the "Star
Shares"). This Agreement is being entered into by the parties as part of a
unified plan of contribution and exchange of stock (the "Plan") that is intended
by the parties to qualify for non-recognition treatment under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"). Such Plan is comprised
of the transactions contemplated by this Agreement provided that none of the
parties to this Agreement or such other agreements have made or are making any
representations or warranties with respect to whether the transactions being
consummated pursuant to and as part of such Plan will comply with the
requirements of Code Section 351 or as to the consequences, under applicable
federal, state or other tax laws, of such transactions to the parties to this
Agreement or the parties to the other agreements and transactions that are part
of the Plan.
1.2 Asset Transfers and Assumption of Liabilities. Prior to
the Effective Time, Star, Summit and CKE shall, and shall cause their respective
subsidiaries to, execute and deliver such agreements, instruments and other
documents as may be necessary or appropriate to evidence the transactions
contemplated by this Agreement. Notwithstanding the generality of the foregoing,
prior to the closing of the Offering, CKE, Star and Summit shall cause (i) the
entities, assets, operations and corresponding liabilities of the Buffet
Restaurant Business to be included as part of the Star Group, and (ii) the
entities, assets and operations and liabilities of the Star Group to be limited
to the Buffet Restaurant Business.
(a) Casa Bonita. Prior to the Effective Time, Casa Bonita
shall transfer to Summit, and Summit shall accept from Casa Bonita,
substantially all of the assets of Casa Bonita used in connection with the
operation of the two Casa Bonita Restaurants described in Schedule 1.2(a)
attached hereto (the "Casa Bonita Assets"), subject to the Casa Bonita
Liabilities (as such term is defined in Section 1(d)(i) below, in consideration
for an amount (subject to adjustment as provided in Section 1.5 below) equal to
$495,000, representing the estimated net asset value of the Casa Bonita
Restaurants (the "Casa Bonita Asset Transfer") pursuant to a Bill of Sale and
Assumption of Liabilities in the form attached hereto as Exhibit A (the "Casa
Bonita Bill of Sale"). The foregoing amount shall be paid by delivery of an
interest free promissory note to Casa Bonita (the "Casa Bonita Note"). Star
shall cause the Casa Bonita Note to be repaid in full from the net proceeds of
the Offering.
(b) Summit. Prior to the Effective Time, Summit shall
transfer to JB's, and JB's shall accept from Summit, substantially all of
Summit's assets (other than the outstanding shares of HTB and the Casa Bonita
Assets), including, without limitation, all assets used by Summit relating to
its JB's Restaurants and related franchise system and its Galaxy Diner
restaurants and all interests (including leasehold interests) of Summit in and
to any real property (collectively, the "JB's Assets"), subject to the JB's
Liabilities (as such term is defined in Section 1(e) in consideration for an
amount (subject to adjustment as provided in Section 1.5 below) equal to
$________, representing the estimated net asset value of the JB's Assets (the
"JB's Asset Transfer"), pursuant to a Bill of Sale and Assumption of Liabilities
in the form attached hereto as Exhibit B (the "JB's Bill of Sale"). The
foregoing amount shall be paid by delivery of a promissory note of JB's to
Summit (the "JB's Note").
(c) Transfer of JB's Note. After the effectiveness of the
JB's Asset Transfer, but prior to the Effective Time, Summit shall transfer to
CKE, as a dividend, all of Summit's right, title and interest in and to
-2-
<PAGE> 3
the JB's Note (the "Note Transfer" and, collectively with the Casa Bonita Asset
Transfer and the JB's Asset Transfer, the "Asset Transfers").
(d) Assumption of Liabilities by Star and Summit.
(i) Casa Bonita Liabilities. As of the Effective Time,
Summit agrees to assume and pay all contracts, obligations and liabilities of
Casa Bonita or any other member of the CKE Group associated in any way with the
Casa Bonita Assets or the operation of the Casa Bonita restaurants, whether
accrued, absolute, contingent or otherwise, and whether due or to become due
(collectively, the "Casa Bonita Liabilities"), except as provided herein as in
the Casa Bonita Bill of Sale. The Casa Bonita Liabilities shall include, without
limitation, all obligations of any member of the CKE Group acting as a guarantor
of obligations of Casa Bonita which relate to the Casa Bonita Assets and all
obligations of Casa Bonita under leases for real or personal property and other
executory contracts and liabilities, whether arising as a result of the
transactions contemplated hereby, existing on the date hereof or based on facts
or actions arising on or prior to the Effective Date.
(ii) Buffet Restaurant Liabilities. As of the
Effective Time, Star agrees to assume and pay, or to cause a subsidiary entity
included within the Star Group to assume and pay, all contracts, obligations and
liabilities of each member of the CKE Group associated in any way with the
Buffet Restaurant Business, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, including, without limitation, all obligations
of any member of the CKE Group acting as a guarantor of obligations of the
Buffet Restaurant Business, all obligations under leases and other executory
contracts and liabilities, whether arising as a result of the transactions
contemplated hereby, existing on the date hereof or based on facts or actions
arising on or prior to the Effective Date, and all Retained Summit Liabilities
(as defined below) (collectively, the "Assumed Liabilities").
(e) Assumption of Liabilities by JB's. As of the
Effective Time, JB's agrees to assume and pay all contracts, obligations and
liabilities of Summit and each member of the CKE Group associated in any way
with the JB's Assets, whether accrued, absolute, contingent or otherwise, and
whether due or to become due, including, without limitation, all obligations of
Summit under any lease agreement for real or personal property and other
executory contracts and liabilities, whether arising as a result of the
transactions contemplated hereby, existing on the date hereof or based on facts
or actions arising on or prior to the Effective Date (collectively, the "JB's
Liabilities"); provided, however, that Summit shall retain full responsibility
for the payment or performance and satisfaction of, and none of the CKE Group
shall be deemed to have assumed, any obligation of Summit which, by the terms
and provisions thereof, relates specifically to the Buffet Restaurant Business
(the "Retained Summit Liabilities"). By way of example, the Retained Summit
Liabilities include, without limitation, certain agreements executed by Summit
in favor of the Franchisor with respect to the operations of the HomeTown Buffet
restaurants operated by HTB, guarantees executed by Summit of any obligation of
HTB, and Casa Bonita Liabilities.
(f) Casa Bonita Name Change. Casa Bonita shall take all
corporate actions necessary to amend its charter documents to change its name to
"Taco Bueno Restaurants, Inc."
(g) Special Dividend. Star agrees to declare prior to
the issuance of shares of Common Stock of Star to the Underwriters pursuant to
the Underwriting Agreement (subject to the completion of the Offering), and to
pay to CKE, as sole stockholder of Star, a dividend in cash in an amount equal
to $7,885,000. Such dividend shall be paid by Star upon completion of the
Offering.
1.3 Effective Time. The "Effective Time" shall mean 6:00 a.m.
Pacific Time on Tuesday, September 23, 1997, or such later time and date as CKE
and Star may mutually agree.
1.4 Delayed Transfers. To the extent that any required consent
with respect to the assignment, transfer or bifurcation of a contract,
agreement, lease or other instrument included in the Casa Bonita Assets or the
JB's Assets has not been obtained on or prior to the Effective Time and the
transferor is unable (by sublease or otherwise) to transfer the legal benefit
thereof to the transferee, such contract, agreement, lease or instrument (a
"Delayed Asset") shall not be transferred and any related liability (a "Delayed
Liability") shall not be assumed by the transferee as an Assumed Liability
-3-
<PAGE> 4
hereunder, unless and until such required consent has been obtained or the
transferor is otherwise able to transfer the legal benefit thereof.
Notwithstanding the foregoing, if such required consent to transfer is not
obtained, CKE shall cause Casa Bonita to use its best efforts to attempt to
provide to Summit the benefits of any such Delayed Assets which are Casa Bonita
Assets and Star shall cause Summit to use its best efforts to attempt to provide
to JB's the benefits of any such Delayed Assets which are JB's Assets. At such
time and on each occasion after the Effective Time that a required consent shall
be obtained with respect to a Delayed Asset, such Delayed Asset shall forthwith
be deemed transferred and assigned as contemplated hereunder, and all related
Delayed Liabilities shall be simultaneously assumed by the transferee hereunder,
whereupon (i) such delayed asset shall constitute a JB's Asset or a Casa Bonita
Asset, as the case may be, for all purposes hereunder and (ii) such delayed
liability shall constitute an Assumed Liability for all purposes hereunder.
1.5 Post-Closing Adjustments. As soon as practicable, but in
no event later than 45 days following the Effective Time, CKE shall prepare and
deliver to Star statements of the net assets setting forth (a) with respect to
the Casa Bonita Asset Transfer, the book values of the Casa Bonita Assets and
the Casa Bonita Liabilities as of the Effective Time, and (b) with respect to
the JB's Asset Transfer, the book values of the JB's Assets and the Assumed
Liabilities as of the Effective Time (which shall be subject to adjustment
pursuant to Section 1.7 below) Star shall provide CKE and its representatives
with full access to the books, records, facilities and employees of the Star
Group and corporate fully with CKE and CKE's representatives, including the
provision on a timely basis of all necessary as useful information, in
connection with the preparation of the foregoing statements of net assets. Upon
receipt of such statements, Star shall have 30 days to review the statements
and related work papers, and shall be deemed to have accepted and agreed to the
statements and the adjustments resulting therefrom. Otherwise, CKE and Star
shall use reasonable commercial efforts to resolve any differences, and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive. Within ten Business Days following agreement by CKE and Star to the
statements of net assets, (a) Summit shall pay to Casa Bonita the amount, if
any, by which the net asset value of the Casa Bonita Assets and Casa Bonita
Liabilities exceeds $495,000, or Casa Bonita shall pay to Summit the amount, if
any, by which $495,000 exceeds such net asset value, and (b) JB's shall pay to
Summit the amount, if any, by which the net asset value of the JB's Assets and
Assumed Liabilities exceeds $_______, or Summit shall pay to JB's the amount,
if any, by which $________ exceeds such net asset value. Any such payments made
pursuant to this Section 1.5 shall be accompanied by interest, accrued from the
Effective Time up to and including the date of payment, at the Base Rate of
interest provided under CKE's primary secured credit facility.
1.6 Adjustments and Prorations. The parties agree to prorate
as of the Effective Time, as appropriate, rents, taxes, insurance, utilities
and similar items and to make such adjustments to the statements of net assets
to be prepared pursuant to Section 1.5 above or to provide for direct
reimbursement, as the case may be, in order to reasonably allocate to the party
for whose benefit payments or accruals are made all such payments or accruals
made prior to the Effective Time but which relate to periods from and after the
Effective Time and for which no assumption of liabilities is provided in the
Casa Bonita Bill of Sale or the JB's Bill of Sale, as the case may be.
1.7 Special Summit Adjustment. The net asset value of the
JB's Assets to be determined pursuant to Section 1.5 above shall be adjusted,
as appropriate, to the extent that the balance as of the Effective Time of the
intercompany account balance between Summit and HTB is different than
$7,885,000 million. Such difference, if a positive number, shall result in an
increase to the net asset value of the JB's Assets and, if a negative number,
shall result in a decrease to the net asset value of the JB's Assets.
2. OTHER AGREEMENTS
2.1 Letters of Credit. Star shall use its best efforts to
cause the beneficiaries of all letters of credit, guarantees and other
contingent liabilities relating to the Buffet Restaurant Business (including,
without limitation, commercial letters of credit, financing guarantees,
performance guarantees, and insurance and workers' compensation liabilities)
which will not have expired on or prior to the Effective Date to release and
terminate all such letters of credit, guarantees and contingent liabilities on
or prior to the Effective Date and, where necessary or appropriate, to accept
substitute letters of credit, guarantees or contingent liabilities issued for
the account of Star or to post sufficient cash collateral on behalf of Star.
From and after the Effective Date, Star will pay to CKE a fee based upon the
maximum exposure related to any such letters of credit, guarantees and
contingent liabilities which were not released, terminated or replaced prior to
the Effective Date. Such fee will be structured consistent with the pricing for
letter of credit fees under CKE's senior credit facility from time to time in
effect, and shall at all times indemnify and hold each member of the CKE Group
harmless from and against all losses, liabilities and obligations incurred with
respect to such letters of credit, guarantees or contingent liabilities and
shall pay or reimburse CKE, upon demand, within ten days for any amounts
actually paid by any member of the CKE Group with respect thereto.
-4-
<PAGE> 5
2.2 Insurance. All policies of liability, fire, workers'
compensation and other forms of insurance maintained by the CKE Group insuring
the properties, assets and/or operations of the Buffet Restaurant Business or
the Star Group shall continue in full force and effect up to and through the
Effective Date and, shall be terminated effective 11:59 p.m. Pacific Time on the
Effective Date. Any refunds of prepaid premiums with respect to such terminated
insurance shall be for CKE's account. Star shall be liable for payment of all
claims arising out of incidents, known or unknown, reported or unreported, which
occur prior to, on or after the Effective Date with respect to any insurance
programs relating to the Star Group.
2.3 Further Assurances. Each party shall execute and deliver
such further instruments and take such further actions as the other party may
reasonably request in order to carry out the intent of this Agreement and to
consummate the transactions contemplated hereby.
2.4 Cooperation. Each of CKE, Star and Summit acknowledge and
agree that because of the relationship between the parties prior to the
Effective Time, a very high degree of cooperation between the parties will be
necessary subsequent to the Effective Time in order to ensure a smooth and
efficient transition. Each party therefore agrees to cooperate in good faith
with the other party for the purpose of ensuring a smooth transition. Such
cooperation shall be without charge (other than reimbursement of expenses) and
shall include, but shall not be limited to, cooperating by each party in
preparing, reviewing, analyzing and responding to inquiries, claims, requests,
threats of litigation or actual litigation involving the business or the
assets of the other party.
3. TAX MATTERS
3.1 Liability for Taxes and Related Matters.
(a) CKE's Indemnification of Star. CKE shall be liable for
and indemnify Star for all Taxes (as hereinafter defined) (including, without
limitation, any obligation to contribute to the payment of a tax determined on a
consolidated, combined or unitary basis with respect to a group of corporations
that includes or included the Star Group and Taxes resulting from the members of
the Star Group ceasing to be members of the CKE Group) (i) imposed on the CKE
Group (other than the members of the Star Group) for any taxable year and (ii)
imposed on the Star Group or for which the Star Group may otherwise be liable
for any taxable year or period that ends on or before the Effective Date and,
with respect to any taxable year or period beginning before and ending after the
Effective Date, the portion of such taxable year ending on and including the
Effective Date. CKE shall also indemnify, defend and hold harmless Star from all
costs and expenses incurred by Star (including reasonable attorneys' fees and
expenses) in connection with any liability to, or claim by, any taxing
authority, for Taxes for which CKE is required to indemnify Star under this
Section 3.1(a). Except as set forth in Section 3.1(d), CKE shall be entitled to
any refund of Taxes of the Star Group received for such periods.
(b) Star's Indemnification of CKE. Star shall be liable
for and indemnify CKE for the Taxes of the Star Group for any taxable year or
period that begins after the Effective Date and, with respect to any taxable
year or period beginning before and ending after the Effective Date, the portion
of such taxable year beginning after the Effective Date. Star shall also
indemnify, defend and hold harmless CKE from all costs and expenses incurred by
CKE (including reasonable attorneys' fees and expenses) in connection with any
liability to, or claim by, any taxing authority, for Taxes for which Star is
required to indemnify CKE under this Section 3.1(b). Star shall be entitled to
any refund of Taxes of the Star Group received for such periods.
(c) Taxes for Short Taxable Year. For purposes of
paragraphs (a) and (b), whenever it is necessary to determine the liability for
Taxes of the Star Group for a portion of a taxable year or period that begins
before and ends after the Effective Date, the determination of the Taxes of the
Star Group for the portion of the year or period ending on, and the portion of
the year or period beginning after, the Effective Date shall be determined by
assuming that the Star Group had a taxable year or period which ended at the
close of the Effective Date, except that exemptions, allowances or deductions
that are calculated on an annual basis, such as the deduction for depreciation,
shall be apportioned on a time basis.
(d) Refunds from Carrybacks. If CKE becomes entitled to a
refund or credit of Taxes for any period for which it is liable under Section
3.1(a) to indemnify Star and such Taxes are attributable solely to the carryback
of losses, credits or similar items attributable to the Star Group and from a
taxable year or period that begins after the Effective Date, CKE shall promptly
pay to Star the amount of such refund or credit together with any interest
thereon. In the event that any refund or credit of Taxes for which a payment has
been made is subsequently reduced or disallowed, Star shall indemnify and hold
harmless CKE for any tax liability, including interest and penalties, assessed
against CKE by reason of the reduction or disallowance.
-5-
<PAGE> 6
(e) Tax Returns. CKE shall file or cause to be filed when
due all Tax Returns (as hereinafter defined) that are required to be filed by or
with respect to the Star Group for taxable years or periods ending on or before
the Effective Date and shall pay any Taxes due in respect of such Tax Returns,
and Star shall file or cause to be filed when due all Tax Returns that are
required to be filed by or with respect to the Star Group for taxable years or
periods ending after the Effective Date and shall pay any Taxes due in respect
of such Tax Returns. CKE shall pay Star the Taxes for which CKE is liable
pursuant to Section 3.1(a) but which are payable with Tax Returns to be filed by
Star pursuant to the previous sentence within ten days prior to the due date for
the filing of such Tax Returns.
(f) Contest Provisions. Star shall promptly notify CKE in
writing upon receipt by Star, any of its affiliates or the Star Group of notice
of any pending or threatened federal, state, local or foreign income or
franchise tax audits or assessments which may materially affect the tax
liabilities of the Star Group for which CKE would be required to indemnify Star
pursuant to Section 3.1(a), provided that failure to comply with this provision
shall not affect Star's right to indemnification hereunder. CKE shall have the
sole right to represent the Star Group's interests in any tax audit or
administrative or court proceeding relating to taxable periods ending on or
before the Effective Date, and to employ counsel of its choice at its expense.
Notwithstanding the foregoing, CKE shall not be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
which would adversely affect the liability for Taxes of Star or the Star Group
for any period after the Effective Date to any extent (including, but not
limited to, the imposition of income tax deficiencies, the reduction of asset
basis or cost adjustments, the lengthening of any amortization or depreciation
periods, the denial of amortization or depreciation deductions, or the reduction
of loss or credit carry forwards) without the prior written consent of CKE. Such
consent shall not be unreasonably withheld.
CKE shall be entitled to participate at its expense in the
defense of any claim for Taxes for a year or period ending after the Effective
Date which may be the subject of indemnification by CKE pursuant to Section
3.1(a) and, with the written consent of Star, and at its sole expense, may
assume the entire defense of such tax claim. Neither Star nor Summit nor any of
the Star Group may agree to settle any tax claim for the portion of the year or
period ending on the Effective Date which may be the subject of indemnification
by CKE under Section 3.1(a) without the prior written consent of CKE, which
consent shall not be unreasonably withheld.
(g) Certain Definitions. For purposes of this Section 3,
(i) the term "Tax" shall mean all federal, state, local or foreign income, gross
receipts, windfall or excess profits, severance, property, production, sales,
use, license, excise, franchise, employment, withholding or similar taxes,
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties, and (ii) the term "Tax
Return" shall mean all federal, state, local or foreign tax returns, tax
reports, and declarations of estimated tax, including without limitation
consolidated federal income tax returns of the Star Group.
3.2 Assistance and Cooperation. After the Effective Date, each
of CKE and Star shall: (i) assist (and cause their respective affiliates to
assist) the other party in preparing any Tax Returns or reports which such other
party is responsible for preparing and filing in accordance with this Agreement;
(ii) cooperate fully in preparing for any audits of, or disputes with taxing
authorities regarding, any Tax Returns of the Star Group; (iii) make available
to the other and to any taxing authority as reasonably requested all
information, records, and documents relating to Taxes of the Star Group; (iv)
provide timely notice to the other in writing of any pending or threatened tax
audits or
-6-
<PAGE> 7
assessments of the Star Group for taxable periods for which the other may have a
liability under this Agreement, provided, that failure to comply with this
provision shall not affect the other party's rights to indemnification
hereunder; and (v) furnish the other with copies of all correspondence received
from any taxing authority in connection with any tax audit or information
request with respect to any such taxable period.
3.3 Tax Sharing Agreements. Any and all tax sharing, tax
indemnity, or tax allocation agreements with respect to which Summit or any of
its subsidiaries was a party at any time prior to the Effective Date shall
terminate upon the Closing Date. No further amounts shall be payable by Star or
any of its subsidiaries under such agreements following the Closing.
3.4 Survival of Obligations. The obligations of the parties
set forth in this Section shall be unconditional and absolute and shall remain
in effect without limitation as to time.
4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to the Obligations of the Parties.
The obligations of each of the parties to effect the transactions contemplated
hereby are subject to the condition that, at the Effective Time, no (i)
threatened, instituted or pending action, proceeding, application, claim or
counterclaim by or before any court or governmental authority or agency seeking
to restrain or prohibit the consummation of the transactions contemplated hereby
or described in the Registration Statement or (ii) statute, rule, regulation,
decree, order of injunction promulgated, enacted, entered or enforced by any
court or governmental agency or authority restraining or prohibiting the
consummation of such transactions.
5. INDEMNIFICATION
5.1 Indemnification.
(a) CKE shall indemnify and hold harmless the Star Group
and their respective officers, directors, employees, representatives, agents,
successors and assigns (collectively, the "Star Group Indemnitees") against and
in respect of any and all damages, claims, liabilities, expenses as incurred
(including reasonable attorneys' fees) and losses (collectively "Damages")
incurred by the Star Group Indemnitees that arise out of or relate to (i) any
breach or violation of this Agreement by CKE; (ii) the conduct of CKE's business
(excluding the Buffet Restaurant Business) prior to the Effective Time, or (iii)
the conduct of CKE's business after the Effective Time; excluding therefrom any
Damages relating to any Assumed Liabilities.
(b) Star and Summit shall indemnify and hold harmless the
CKE Group their respective officers, directors, employees, representatives,
agents, successors and assigns (collectively, the "CKE Group Indemnitees")
against and in respect of any and all Damages incurred by the CKE Group
Indemnitees that arise out of or relate to (i) any breach or violation of this
Agreement
-7-
<PAGE> 8
by Star or Summit or their respective subsidiaries, (ii) the conduct of the
Buffet Restaurant Business after the Effective Time , and (iii) the Assumed
Liabilities.
5.2 Indemnification Procedure.
(a) Claims for Indemnification. Whenever any claim shall
arise for indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify the other party or parties (the
"indemnifying party") of the claim and, when known, the facts constituting the
basis for such claim; provided that the indemnified party's failure to give such
notice shall not affect any rights or remedies of an indemnified party hereunder
with respect to indemnification for damages except to the extent that the
indemnifying party is materially prejudiced thereby. In the event of any claim
for indemnification hereunder resulting from or in connection with any claim or
legal proceedings by a third party, the notice to the indemnifying party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom. The indemnified party shall not settle or compromise any
claim by a third party for which it is entitled to indemnification hereunder
without the prior written consent of the indemnifying party (which shall not be
unreasonably withheld) unless suit shall have been instituted against it and the
indemnifying party shall not have taken control of such suit after notification
thereof as provided in Section 5.2(b) of this Agreement.
(b) Defense by Indemnifying Party. In connection with any
claim giving rise to indemnity hereunder or resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to indemnify
the indemnified party with respect to such claim, and thereafter diligently
conducts the defense thereof with counsel reasonably acceptable to the
indemnified party. The indemnified party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense. If the indemnifying party does not assume or fails to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom,
(a) the indemnified party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to the indemnifying party,
on such terms as the indemnified party may deem appropriate, and (b) the
indemnifying party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
indemnifying party thereafter seeks to question the manner in which the
indemnified party defended such third party claim or the amount or nature of any
such settlement, the indemnifying party shall have the burden to prove by a
preponderance of the evidence that the indemnified party did not defend or
settle such third party claim in a reasonably prudent manner. Each party agrees
to cooperate fully with the other, such cooperation to include, without
limitation, attendance at depositions and the provision of relevant documents as
may be reasonably requested by the indemnifying party, provided that the
indemnifying party will hold the indemnified party harmless from all of its
expenses, including reasonable attorney's fees, incurred in connection with such
cooperation by the indemnified party.
6. MISCELLANEOUS
6.1 Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
or facsimile communications)) and shall be mailed (return receipt requested),
telegraphed, sent by facsimile or hand delivered to each party at the address
set forth as follows, or at such other address as either party may designate by
notice to the others, and any such notice, request, demand or other
communications shall be effective upon receipt:
-8-
<PAGE> 9
If to CKE: CKE Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92801
Attn: Chief Financial Officer
If to Summit: Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
Attn: Chief Financial Officer
If to Star: Star Buffet, Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
Attn: Chief Financial Officer
6.2 Amendments. This Agreement shall not be amended, changed,
modified, terminated or discharged in whole or in part except by an instrument
in writing signed by all parties, or their respective successors or assigns, or
otherwise as provided herein.
6.3 Attorneys' Fees. In the event of any dispute arising out
of or in connection with this Agreement, and any other documents executed
pursuant, the prevailing party, in addition to any other amounts which it may be
entitled to, shall be entitled to recover from the other party reasonable
attorneys' fees and court costs as shall be awarded in the resolution of such
dispute.
6.4 Entire Agreement. This Agreement contains the entire
agreement between the parties pertaining to the subject matter hereof. This
Agreement supersedes all prior written agreements and all prior or
contemporaneous verbal agreements with respect to the subject matter hereof.
6.5 Waiver. Any forbearance by a party to this Agreement in
exercising any right or remedy under this Agreement or otherwise afforded by
applicable law shall not be a waiver of or preclude the exercise of that or any
other right or remedy.
6.6 Headings. The section headings hereof have been inserted
for convenience of reference only and shall not be construed to affect the
meaning, construction or effect of this Agreement.
6.7 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity of any other
provision, and all other provision, and all other provisions shall remain in
full force and effect.
6.8 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and performed in such State, without regard to conflicts of laws
principles.
6.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed an original, and
all of which taken together shall counterparts, each of which when so executed
shall be deemed an original, and all of which taken together shall constitute
one and the same instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, this Agreement is executed on behalf of the parties
by duly authorized representatives as of the date first above written.
CKE RESTAURANTS, INC.
By:
--------------------------------
Name:
Title:
SUMMIT FAMILY RESTAURANTS INC.
By:
--------------------------------
Name:
Title
STAR BUFFET, INC.
By:
--------------------------------
Name:
Title:
CASA BONITA INCORPORATED
By:
--------------------------------
Name:
Title:
JB'S RESTAURANTS, INC.
By:
--------------------------------
Name:
Title:
-10-
<PAGE> 1
EXHIBIT 10.10
BILL OF SALE AND ASSUMPTION OF LIABILITIES
------------------------------------------
(Casa Bonita Incorporated to Summit Family Restaurants Inc.)
This Bill of Sale and Assumption of Liabilities, entered into effective
as of 6:00 a.m., Pacific time, on September 23, 1997 ("Bill of Sale"), is
executed and delivered between (i) Casa Bonita Incorporated, a Texas corporation
("CB") and indirect wholly-owned subsidiary of CKE Restaurants, Inc. ("CKE"),
and (ii) Summit Family Restaurants Inc., a Delaware corporation ("Summit") and a
wholly-owned subsidiary of CKE pursuant to the Contribution Agreement, dated as
of September , 1997, by and among CKE, Summit, CB and others (the
"Contribution Agreement").
ARTICLE 1
---------
Definitions
-----------
The following definitions shall for all purposes apply to the terms
used in this Bill of Sale.
(a) "Assets" means all of CB's assets, properties and rights of every
kind, character and description, whether tangible or intangible, whether real,
personal or mixed, whether accrued or contingent, and wherever located that are
related to or used in the operation of the Casa Bonita Restaurants (other than
Excluded Assets), including, without limitation, CB's entire right, title and
interest in and to the following, as the same shall exist at and as of the time
and date hereof:
(1) All of the equipment, furniture, fixtures, trade fixtures,
signs, sign poles, machinery, kitchen equipment, computers, cash registers,
menus, uniforms, small equipment, small wares and other tangible personal
property located at and used in connection with the operation of the Casa Bonita
Restaurants;
(2) All inventories of food products and supplies purchased by CB
for use in connection with the Casa Bonita Restaurants;
(3) All of the agreements relating to the Casa Bonita Restaurants
under which CB owns or holds any leasehold interest in real property, including
any buildings and improvements thereon, or leases in personal property, whether
tangible or intangible (collectively, the "Leases");
(4) All of the agreements, contracts, licenses, instruments,
commitments and understandings, written or oral, that are related to or required
for the operation of the Casa Bonita Restaurants (collectively, the "Assigned
Contracts");
(5) All rights in and to any governmental and private permits,
licenses, certificates of occupancy, franchises and authorizations, to the
extent assignable, used in or relating to the Casa Bonita Restaurants;
(6) All rights in and to any processes, recipes, menus,
formulations, methods, software (including documentation), technology, know-how,
formulae, trade secrets, trade dress, inventions, patents, copyrights, copyright
registrations, trade names, trademarks and service marks (and federal and state
registrations thereof), and all applications therefor, owned or held by CB and
<PAGE> 2
used in connection with the operation of or relating to the Casa Bonita
Restaurants which shall include, without limitation, all goodwill associated
therewith;
(7) All financial books and accounting records, and all files,
lists, publications, and other records and data used in or relating to the Casa
Bonita Restaurants, including, without limitation, lists of suppliers and
distributors and related files, environmental records, price lists, marketing
plans, sales records, labor relations and employee compensation records, and
maintenance records, regardless of the medium on which such information is
stored or maintained;
(8) All cash on hand (store drawer and safe) at the Casa Bonita
Restaurants;
(9) All prepaid fees and deposits associated with any Assigned
Contracts or with the operation of the Casa Bonita Restaurants (including,
without limitation, a $50,000 deposit with Sygma), and all prepaid rents,
property taxes and repairs and maintenance supplies and similar prepaid expense
items (subject to proration as provided in the Contribution Agreement);
(10) Any cause of action, claim, suit, proceeding, judgment or
demand, of whatsoever nature, of or held by CB against any third parties arising
out of the Assets or the Casa Bonita Restaurants; and
(11) All goodwill associated with the Casa Bonita Restaurants and
the Assets.
(b) "Assumed Liabilities" means all of CB's liabilities, duties and
obligations, other than Excluded Liabilities, of every kind, character and
description, whether known or unknown, whether matured or unmatured and whether
accrued or contingent related to the Assets and the Casa Bonita Restaurants
(other than Excluded Liabilities) and including, without limitation, the
following:
(1) All current liabilities of CB arising out of the operation of
the Casa Bonita Restaurants;
(2) All unperformed and unfulfilled obligations of CB under all
Assigned Contracts and all purchase orders, commitments and
undertakings related to the Casa Bonita Restaurants;
(3) all accrued vacation and bonus, and workers' compensation
general liability reserves related to the Casa Bonita
Restaurants; and
(4) All other liabilities, duties and obligations arising from
CB's operations of the Casa Bonita Restaurants including,
without limitation, those executory obligations arising after
the date hereof under the Assigned Contracts and the Leases.
(c) "Casa Bonita Restaurants" means the two Mexican-themed restaurants
operated under the Casa Bonita name which are located at the addresses set forth
on Schedule 1 attached hereto.
(d) "Excluded Assets" shall mean, and CB shall retain all of its
right, title and interest in and to, all Unit Depository Accounts maintained by
CB and all accounts receivable arising from the Casa Bonita Restaurants to and
including the date of this Bill of Sale.
(e) "Excluded Liabilities" shall mean, and CB shall remain solely
responsible for the payment of, all of CB's obligations as of the date of this
Bill of Sale for trade accounts payable and accrued payroll and taxes.
-2-
<PAGE> 3
ARTICLE 2
---------
Conveyances
-----------
(a) For the consideration described in the Contribution Agreement, in
consideration of the assumption by Summit of the Assumed Liabilities and the
delivery by Summit to CB of a promissory note in the principal amount of
[$495,000], which reflects CB's book value of the net Assets (i.e., the sum of
the book values of the Assets less the book value of the Assumed Liabilities),
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, CB hereby grants, assigns, transfers and delivers to
Summit all of its right, title and interest to the Assets, at and as of the time
and date hereof.
TO HAVE AND TO HOLD all the foregoing Assets to its own use forever.
(b) In the event that the transfer and assignment attempted to be made
hereunder of any right, title or interest in, to or under any agreement,
easement, right-of-way, lease, permit, license, right, claim or other Asset
would be ineffective as between CB and Summit or would violate any applicable
law or regulation without the order, approval, waiver or consent of any person
or entity, or would serve as a cause for modifying, terminating or invalidating
any such agreement, easement, right-of-way, lease, permit, license, right, claim
or other Assets, or would cause or serve as a cause for the loss, or the
modification of the terms, or ownership thereof or the right, title of interest
therein, then, notwithstanding the foregoing, such Asset shall be temporarily
excluded from the aforesaid conveyance and assignment; provided, however, that,
in any event, CB shall, to the greatest extent permitted, hold such right, title
or interest for the exclusive use and benefit of Summit and its successors and
assigns until such order, approval, waiver or consent has been obtained or
until, following the exhaustion of all challenges and appeals, it is finally
determined that no such order, approval, waiver or consent will be obtained, at
which time such right, title or interest shall automatically and with no further
action or consideration in respect thereof be excluded from this Bill of Sale;
and provided, further, that, without further consideration therefor, CB and
Summit shall execute such other and further documents, and shall take such other
and further actions, as shall be reasonably necessary to transfer, convey and
assign to Summit any right, title or interest excluded from this Bill of Sale
pursuant to the preceding proviso. Upon the obtaining of such order, approval,
wavier or consent, no further conveyance or assignment shall be required, but
such right, title or interest shall automatically and with no further action or
consideration therefor become fully and completely vested in Summit by virtue of
this Bill of Sale.
ARTICLE 3
---------
Assumption of Liabilities
-------------------------
For the consideration described in the Contribution Agreement, in
consideration of the contribution of the Assets to Summit and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Summit hereby assumes the Assumed Liabilities at and as of the
time and date hereof, and agrees to pay, perform and discharge all of the
Assumed Liabilities promptly when due or when required to be performed.
-3-
<PAGE> 4
ARTICLE 4
---------
Power of Attorney
-----------------
CB does hereby constitute and appoint Summit, its successors and
assigns the true and lawful attorney-in-fact of CB with full power and
substitution for it and in its name, place and stead or otherwise by or on
behalf of CB, its successors and assigns and for the benefit of Summit, its
successors and assigns, to demand and receive from time to time any and all
moneys, property and assets, real, personal and mixed, tangible and intangible,
hereby transferred and assigned or intended so to be and to make, execute,
acknowledge, swear to and file in the name of the CB and its successors and
assigns any deeds, assignments, notices, filings, applications, registrations
and other instruments of further assurance and transfer and registration of the
same and to give receipts and releases in respect of the same, and from time to
time, to institute and prosecute in the name of Summit, or CB for the benefit of
Summit, any and all proceedings at law, in equity or otherwise which Summit, its
successors and assigns may deem proper in order to collect, assert, perfect,
improve or enforce any claims, rights, interest or title of any kind in and to
the Assets, and to defend and compromise any and all actions, suits or
proceedings in respect of any of the Assets and to do any and all such acts and
things in furtherance of the purposes of this Bill of Sale as Summit, its
successors or assigns shall deem advisable. CB hereby declares that the
appointment hereby made and the powers hereby granted are coupled with an
interest and are and shall be irrevocable and perpetual and shall not be
terminated by an act of CB or its successors or assigns, by the bankruptcy,
insolvency or dissolution of CB or any successor thereto or assign thereof or
otherwise by operation of law.
ARTICLE 5
---------
Governing Law
-------------
This Bill of Sale shall be governed by and construed and enforced in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Bill of Sale has been duly executed by the
parties hereto as of the date first above written.
CASA BONITA INCORPORATED,
a Texas corporation
By:
-------------------------------------
Its:
--------------------------------
SUMMIT FAMILY RESTAURANTS INC.,
a Delaware corporation
By:
-------------------------------------
Its:
--------------------------------
-4-
<PAGE> 1
EXHIBIT 10.11
BILL OF SALE AND ASSUMPTION OF LIABILITIES
(Summit Family Restaurants Inc. to JB's Restaurants, Inc.)
This Bill of Sale and Assumption of Liabilities, entered into effective
as of 6:00 a.m., Pacific time, on September 22, 1997 ("Bill of Sale"), is
executed and delivered between (i) Summit Family Restaurants Inc., a Delaware
corporation ("Summit") and a wholly-owned subsidiary of CKE Restaurants, Inc.
("CKE"), and (ii) JB's Restaurants, Inc., a Delaware corporation and a
wholly-owned subsidiary of CKE ("JB's") pursuant to the Contribution Agreement,
dated as of September , 1997, by and among CKE, Summit, JB's and others (the
"Contribution Agreement").
ARTICLE 1
Definitions
The following definitions shall for all purposes apply to the terms used
in this Bill of Sale.
(a) "Assets" means all of Summit's assets, properties and rights of
every kind, character and description, whether tangible or intangible, whether
real, personal or mixed, whether accrued or contingent, and wherever located,
including, without limitation, all such assets, properties and rights relating
to Summit's JB's Restaurants and related franchise system and its Galaxy Diner
restaurants (the "Restaurant Operations"), all interests (including leasehold
interests) of Summit in and to any real property, and Summit's entire right,
title and interest in and to the following, as the same shall exist at and as of
the time and date hereof:
(1) All of the equipment, furniture, fixtures, trade fixtures,
signs, sign poles, machinery, kitchen equipment, computers, cash registers,
menus, uniforms, small equipment, small wares and other tangible personal
property;
(2) All inventories of food products and supplies;
(3) All of the agreements under which Summit owns or holds any
leasehold interest in real property, including any buildings and improvements
thereon, or leases in personal property, whether tangible or intangible
(collectively, the "Leases");
(4) All of the Franchise Agreements and other agreements,
contracts, licenses, instruments, commitments and understandings, written or
oral, that are related to or required for the operation of the Restaurant
Operations (collectively, the "Assigned Contracts");
(5) All rights in and to any governmental and private permits,
licenses, certificates of occupancy, franchises and authorizations, to the
extent assignable, used in or relating to the Restaurant Operations;
(6) All rights in and to any processes, recipes, menus,
formulations, methods, software (including documentation), technology, know-how,
formulae, trade secrets, trade dress, inventions, patents, copyrights, copyright
registrations, trade names, trademarks and service marks (and federal and state
registrations thereof), and all applications therefor, owned or held by Summit
and
<PAGE> 2
used in connection with the operation of or relating to the Restaurant
Operations which shall include, without limitation, all goodwill associated
therewith;
(7) All financial books and accounting records, and all files,
lists, publications, and other records and data used in or relating to the
Restaurant Operations, including, without limitation, lists of suppliers and
distributors and related files, environmental records, price lists, marketing
plans, sales records, labor relations and employee compensation records, and
maintenance records, regardless of the medium on which such information is
stored or maintained;
(8) All cash on hand;
(9) All prepaid fees and deposits associated with any Assigned
Contracts or with the Restaurant Operations and all prepaid rents, property
taxes and repairs and maintenance supplies and similar prepaid expense items;
(10) Any cause of action, claim, suit, proceeding, judgment or
demand, of whatsoever nature, of or held by Summit against any third parties
arising out of the Assets; and
(11) All goodwill associated with the Assets.
provided, however, that the Assets shall not include the assets, rights or
properties identified on Annex A hereto (the "Excluded Assets"), which shall be
retained by Summit.
(b) "Assumed Liabilities" means all of Summit's liabilities, duties and
obligations, other than Excluded Liabilities, of every kind, character and
description, whether known or unknown, whether matured or unmatured and whether
accrued or contingent, and including, without limitation, the following:
(1) All liabilities of Summit arising out of the Restaurant
Operations (including, without limitation, liabilities
arising under all Franchise Agreements and obligations to
Franchisees);
(2) All unperformed and unfulfilled obligations of Summit
under all Assigned Contracts and all purchase orders,
commitments and undertakings; and
(3) All other liabilities, duties and obligations arising from
the Restaurant Operations including, without limitation,
those executory obligations arising after the date hereof
under the Assigned Contracts and the Leases;
provided, however, that the Liabilities shall not include the liabilities,
duties and obligations identified on Annex B hereto (the "Excluded
Liabilities"), for which Summit shall remain solely responsible.
(c) "Franchise Agreements" shall mean all agreements pursuant to which
Summit has granted to any other person or entity (a "Franchisee") the right or
license to operate any JB's Restaurant.
-2-
<PAGE> 3
ARTICLE 2
Conveyances
(a) For the consideration described in the Contribution Agreement, in
consideration of the assumption by JB's of the Assumed Liabilities and the
delivery by JB's to Summit of a promissory note in the principal amount of
$___________, which reflects Summit's book value of the net Assets (i.e., the
sum of the book values of the Assets less the book value of the Assumed
Liabilities), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Summit hereby grants, assigns,
transfers and delivers to JB's all of its right, title and interest to the
Assets, at and as of the time and date hereof.
TO HAVE AND TO HOLD all the foregoing Assets to its own use forever.
(b) In the event that the transfer and assignment attempted to be made
hereunder of any right, title or interest in, to or under any agreement,
easement, right-of-way, lease, permit, license, right, claim or other Asset
would be ineffective as between Summit and JB's or would violate any applicable
law or regulation without the order, approval, waiver or consent of any person
or entity, or would serve as a cause for modifying, terminating or invalidating
any such agreement, easement, right-of-way, lease, permit, license, right, claim
or other Assets, or would cause or serve as a cause for the loss, or the
modification of the terms, or ownership thereof or the right, title of interest
therein, then, notwithstanding the foregoing, such Asset shall be temporarily
excluded from the aforesaid conveyance and assignment; provided, however, that,
in any event, Summit shall, to the greatest extent permitted, hold such right,
title or interest for the exclusive use and benefit of JB's and its successors
and assigns until such order, approval, waiver or consent has been obtained or
until, following the exhaustion of all challenges and appeals, it is finally
determined that no such order, approval, waiver or consent will be obtained, at
which time such right, title or interest shall automatically and with no further
action or consideration in respect thereof be excluded from this Bill of Sale;
and provided, further, that, without further consideration therefor, Summit and
JB's shall execute such other and further documents, and shall take such other
and further actions, as shall be reasonably necessary to transfer, convey and
assign to JB's any right, title or interest excluded from this Bill of Sale
pursuant to the preceding proviso. Upon the obtaining of such order, approval,
wavier or consent, no further conveyance or assignment shall be required, but
such right, title or interest shall automatically and with no further action or
consideration therefor become fully and completely vested in JB's by virtue of
this Bill of Sale.
ARTICLE 3
Assumption of Liabilities
For the consideration described in the Contribution Agreement, in
consideration of the contribution of the Assets to JB's and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, JB's hereby assumes the Assumed Liabilities at and as of the time
and date hereof, and agrees to pay, perform and discharge all of the Assumed
Liabilities promptly when due or when required to be performed.
-3-
<PAGE> 4
ARTICLE 4
Power of Attorney
Summit does hereby constitute and appoint JB's, its successors and
assigns the true and lawful attorney-in-fact of Summit with full power and
substitution for it and in its name, place and stead or otherwise by or on
behalf of Summit, its successors and assigns and for the benefit of JB's, its
successors and assigns, to demand and receive from time to time any and all
moneys, property and assets, real, personal and mixed, tangible and intangible,
hereby transferred and assigned or intended so to be and to make, execute,
acknowledge, swear to and file in the name of Summit and its successors and
assigns any deeds, assignments, notices, filings, applications, registrations
and other instruments of further assurance and transfer and registration of the
same and to give receipts and releases in respect of the same, and from time to
time, to institute and prosecute in the name of JB's, or Summit for the benefit
of JB's, any and all proceedings at law, in equity or otherwise which JB's, its
successors and assigns may deem proper in order to collect, assert, perfect,
improve or enforce any claims, rights, interest or title of any kind in and to
the Assets, and to defend and compromise any and all actions, suits or
proceedings in respect of any of the Assets and to do any and all such acts and
things in furtherance of the purposes of this Bill of Sale as JB's, its
successors or assigns shall deem advisable. Summit hereby declares that the
appointment hereby made and the powers hereby granted are coupled with an
interest and are and shall be irrevocable and perpetual and shall not be
terminated by an act of Summit or its successors or assigns, by the bankruptcy,
insolvency or dissolution of Summit or any successor thereto or assign thereof
or otherwise by operation of law.
ARTICLE 5
Governing Law
This Bill of Sale shall be governed by and construed and enforced in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, this Bill of Sale has been duly executed by the
parties hereto as of the date first above written.
SUMMIT FAMILY RESTAURANTS INC.,
a Delaware corporation
By:______________________________
Its:__________________________
JB'S RESTAURANTS, INC.,
a Delaware corporation
By:______________________________
Its:__________________________
-4-
<PAGE> 5
ANNEX A
-------
EXCLUDED ASSETS
---------------
1. All of the issued and outstanding shares of capital stock of HTB
Restaurants, Inc. ("HTB") owned, beneficially as of record, by Summit.
2. The Casa Bonita Assets (as such term is defined in the Contribution
Agreement).
3. Leases and Assigned Contracts, to the extent subleased or otherwise held by
Summit for the benefit of or used by HTB in connection with the operation
of its restaurants.
<PAGE> 6
ANNEX B
-------
EXCLUDED LIABILITIES
--------------------
1. All obligations of Summit assumed pursuant to the Contribution Agreement
with respect to the Casa Bonita Restaurants.
2. All obligations of Summit under Leases and Assigned Contracts included in
Item 3 of the definition of Excluded Assets in Annex A.
3. All obligations and liabilities of Summit, if any, arising under or
relating to the franchise agreements between HTB Restaurants, Inc. ("HTB")
and HomeTown Buffet, Inc. or the restaurant operations of HTB.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage
Name of Incorporation Ownership
- ---- ---------------- ----------
<S> <C> <C>
Summit Family Restaurants Inc. Delaware 100%
HTB Restaurants, Inc. Delaware 100%(1)
Northstar Buffet, Inc. Delaware 100%
Star Buffet Management, Inc. Delaware 100%
</TABLE>
- ----------
(1) Owned by Summit Family Restaurants, Inc.
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Star Buffet, Inc.:
We consent to the use of our report for Casa Bonita Restaurants included herein
and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Orange County, California
September 22, 1997
<PAGE> 2
EXHIBIT 23.2
The Board of Directors
Star Buffet, Inc.:
We consent to the use of our report for North's Restaurants included herein and
to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
September 22, 1997
<PAGE> 3
EXHIBIT 23.2
The Board of Directors
Star Buffet, Inc.:
We consent to the use of our report for Star Buffet, Inc. included herein and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Orange County, California
September 22 1997
<PAGE> 4
EXHIBIT 23.2
The Board of Directors
Star Buffet, Inc.:
We consent to the use of our report for HTB Restaurants, Inc. included herein
and to the reference to our firm under the headings "Selected Combined Financial
Data" and "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Orange County, California
September 22, 1997
