<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997
REGISTRATION NO. 333-32249
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 -
(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:
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<S> <C>
C. CRAIG CARLSON, ESQ. PETER LILLEVAND, ESQ.
J. MICHAEL VAUGHN, ESQ. IAIN MICKLE, 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 9, 1997
2,500,000 SHARES
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.
- --------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------------------------
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.
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
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
3
<PAGE> 5
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 lowered food costs to 35.3% of total
revenues during the sixteen weeks ended May 19, 1997 from 36.9% of total
revenues for the sixteen weeks ended May 20, 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 twelve months ended December 31, 1996, the North's
Restaurants generated revenues of $10.8 million and income from operations of
$37,000.
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") simultaneously with 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 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
4
<PAGE> 6
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 sell 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 in a principal amount equal to CKE's net book
value of those assets as of the date of sale (the "JB's Note"). 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 sale, 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, Inc., an indirect wholly-owned subsidiary of
CKE formerly known as Casa Bonita Incorporated ("Taco Bueno"), will sell
substantially all of the net assets relating to its two Casa Bonita restaurants
to Summit in exchange for a promissory note in the principal amount equal to
CKE's net book value of those assets (which is estimated at $495,000 as of May
19, 1997) as of the date of sale (the "Casa Bonita Note"). Summit will continue
to operate the Casa Bonita restaurants and assume all of Taco Bueno's
liabilities relating to those restaurant operations. 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 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."
Proposed 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. For purposes of presentation
and for purposes of comparing the historical fifty-two week fiscal 1994 and 1995
results of the Predecessor Company to the combined results of operations of the
Company, the following table includes a 52-week period comprised of the results
of operations of HTB from January 30, 1996 to July 15, 1996 (Predecessor
Company) and July 16, 1996 to January 27, 1997 combined with the results of
operations of the two Casa Bonita restaurants from October 1, 1996 to January
27, 1997 (Successor Company). 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>
PREDECESSOR SUCCESSOR
-------------------------------- --------- SIXTEEN WEEKS ENDED
TWENTY- -----------------------------------------
FIFTY-TWO WEEKS THIRTY EIGHT
ENDED WEEKS WEEKS FIFTY-TWO WEEKS ENDED PREDECESSOR SUCCESSOR MAY 19,
------------------- ENDED ENDED JAN. 27, 1997 ----------- ----------- 1997
DEC. 19, DEC. 18, JULY 15, JAN. 27, ----------------------- MAY 20, MAY 19, -------------
1994 1995 1996 1997 COMBINED PRO FORMA(1) 1996 1997 PRO FORMA(1)
-------- -------- ---------- --------- -------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED
STATEMENT OF
EARNINGS
DATA:
Total
revenues.... $ 30,871 $ 36,741 $ 23,207 $23,632 $42,488 $ 53,318 $12,909 $16,581 $19,717
Income from
operations... 961 242 691 1,051 1,576 1,711 495 1,710 1,641
Income before
income
taxes....... 758 50 546 945 1,357 921 411 1,648 1,404
Net income... $ 457 $ 28 $ 330 $ 551 $ 801 $ 553 $ 246 $ 989 $ 842
Net income
per common
share....... $ 0.12 $ 0.19
Common shares
used in
computing
per share
amounts (in
thousands)... 4,500 4,500
RESTAURANT
OPERATING
DATA:
Average annual sales per
restaurant:
HomeTown
Buffet.... $ 2,627 $ 2,455 $ 2,466
Casa
Bonita.... -- -- 5,887
Percentage
increase
(decrease)
in
comparable
store
sales(2):
HomeTown
Buffet.... 4.3% (9.2)% (0.4)% (3.1)% 2.2%
Casa
Bonita.... -- -- 8.8 % -- 0.4%
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>
MAY 19, 1997
------------------------
SUCCESSOR
---------
ACTUAL PRO FORMA(1)
--------- ------------
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COMBINED BALANCE SHEET DATA:
Total assets.......................................................................................... $17,189 $ 35,429
Total long-term debt and capital lease obligations, including current portion......................... 2,534 9,534
Stockholders' equity.................................................................................. 10,426 20,951
</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 only restaurants open throughout the full periods being compared.
7
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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. 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 and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Business--Growth Strategy" and elsewhere in this Prospectus.
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."
8
<PAGE> 10
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 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. Following the North Acquisition, 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."
9
<PAGE> 11
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 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.
Although management of the Company believes that the foregoing contractual and
other restrictions are not binding upon the Company or any of its subsidiaries
other than HTB (and, with respect to certain provisions of the Franchise
Agreements, Summit), and that there are limitations under applicable law on the
enforceability of certain of such restrictions (such as noncompetition
provisions and provisions relating to the termination or renewal of a
franchise), 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
10
<PAGE> 12
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."
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
11
<PAGE> 13
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
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."
12
<PAGE> 14
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, 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 $6.54 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 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 May
19, 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 MAY 19, 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.......................................... $ 239 $ 1,639
======= =======
Long-term debt and capital lease obligations, less current portion... $ 2,295 $ 7,895
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......................................... 9,191 19,711
Retained earnings.................................................. 1,235 1,235
------- -------
Total stockholders' equity......................................... 10,426 20,951
------- -------
Total capitalization....................................... $12,721 $28,846
======= =======
</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."
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<PAGE> 17
DILUTION
The unaudited pro forma net tangible book value of the Company as of May
19, 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 $0.67 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 May 19, 1997, would have been $20.1 million, or $4.46 per share.
This represents an immediate dilution in unaudited pro forma net tangible book
value of $6.54 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 May 19,
1997............................................................ $ 3.89
Increase per share attributable to new investors................... 3.79
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........................................................... 4.46
------
Dilution per share to new investors.................................. $ 6.54
======
</TABLE>
The following table sets forth, on an unaudited pro forma basis as of May
19, 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% $ 2,046,000 8.9% $ 0.79
New Investors(2)............... 1,900,000 42.2 20,900,000 91.1 11.00
--------- ----- ----------- -----
Total................ 4,500,000 100.0% $22,946,000 100.0%
========= ===== =========== =====
</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."
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<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. For purposes of
presentation and for purposes of comparing the historical 52-week fiscal 1994
and 1995 results of the Predecessor Company to the combined results of
operations of the Company, the following table includes a 52-week period
comprised of the results of operations of the Predecessor Company for the
24-week period ended July 15, 1996 combined with the results of operations of
the Successor Company for the 28-week period ended January 27, 1997. 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
sixteen weeks ended May 20, 1996 and May 19, 1997 have been derived from
unaudited combined financial statements of the Predecessor Company and the
Successor Company, respectively, appearing elsewhere in this Prospectus. 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 --------- SIXTEEN WEEKS ENDED
---------------------------------------------------- TWENTY- COMBINED ------------------------
THIRTY EIGHT FIFTY-TWO
FIFTY-TWO WEEKS ENDED WEEKS WEEKS WEEKS PREDECESSOR SUCCESSOR
----------------------------------------- ENDED ENDED ENDED ----------- ---------
DEC. 21, DEC. 20, DEC. 19, DEC. 18, JULY 15, JAN. 27, JAN. 27, MAY 20, MAY 19,
1992 1993 1994 1995 1996 1997 1997 1996 1997
-------- -------- -------- -------- -------- --------- -------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <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 $42,488 $12,909 $16,581
------- ------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Food costs.............. 1,886 4,918 11,469 13,769 8,569 8,285 15,258 4,760 5,369
Labor costs............. 1,617 3,732 9,089 10,878 6,810 7,514 13,054 3,740 5,169
Occupancy and other
expenses.............. 824 2,695 6,769 8,954 5,030 5,173 9,249 2,727 3,343
General and
administrative........ 467 980 1,762 1,666 1,193 621 1,618 707 367
Depreciation and
amortization.......... 168 384 821 1,232 914 988 1,733 480 623
------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses........ 4,962 12,709 29,910 36,499 22,516 22,581 40,912 12,414 14,871
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from operations.... 251 458 961 242 619 1,051 1,576 495 1,710
Interest expense.......... 54 110 203 192 145 106 219 84 62
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes................... 197 348 758 50 546 945 1,357 411 1,648
Income taxes.............. 80 139 301 22 216 394 556 165 659
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................ $ 117 $ 209 $ 457 $ 28 $ 330 $ 551 $ 801 $ 246 $ 989
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR PREDECESSOR SUCCESSOR
----------------------------------------- -------- ----------- ---------
DEC. 21, DEC. 20, DEC. 19, DEC. 18, JAN. 27, MAY 20, MAY 19,
1992 1993 1994 1995 1997 1996 1997
-------- -------- -------- -------- -------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET
DATA:
Total assets.............. $5,424 $ 9,026 $13,003 $16,283 $16,783 $15,826 $17,189
Total long-term debt and
capital lease
obligations, including
current portion......... 446 5,076 6,714 11,150 2,609 13,683 2,534
Stockholder's equity...... 1,244 2,134 1,801 1,806 9,742 2,143 10,426
</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 May 19, 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 May
19, 1997 and was prepared based upon the combined balance sheet of the Successor
Company as of May 19, 1997 and the balance sheet of North's Restaurants as of
March 31, 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 sixteen weeks ended May 19, 1997 was prepared based upon the
combined results of the Successor Company for the sixteen weeks ended May 19,
1997 and the statement of operations of North's Restaurants for the sixteen
weeks ended April 7, 1997.
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 MAY 19, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
SUCCESSOR NORTH'S
COMPANY RESTAURANTS
MAY 19, MARCH 31, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
--------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Current assets:
Cash....................................................... $ 405 $ 36 $ 8,325A,D,K $ 8,766
Short-term investments..................................... 180 -- 180
Trade receivables.......................................... 206 10 216
Inventories................................................ 384 69 453
Prepaid expenses........................................... 20 4 55E 79
Deferred taxes, net........................................ 118 -- 118
------- ------- -------- -------
Total current assets.................................... 1,313 119 8,380 9,812
Notes receivable............................................. -- -- 3,000A 3,000
Property and equipment, net.................................. 13,260 4,443 1,700K 19,403
Capitalized leases, net...................................... 2,297 -- 2,297
Deposits and other assets.................................... 8 18 26
Franchise fees............................................... 311 -- 311
Costs in excess of net assets of business acquired, net...... -- -- 580J 580
------- ------- -------- -------
Total assets....................................... $17,189 $ 4,580 $ 13,660 $ 35,429
======= ======= ======== =======
Current liabilities:
Accounts payable........................................... $ 2,200 $ 353 $ $ 2,553
Accrued liabilities........................................ 2,029 307 55E 2,391
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....... -- 11,646 (11,646)B --
Current maturities of capital lease obligations............ 239 -- 239
------- ------- -------- -------
Total current liabilities............................... 4,468 12,306 (10,191) 6,583
Notes payable................................................ -- -- 5,600A 5,600
North's debt for which North's Restaurants, Inc. is jointly
and severally liable....................................... -- 1,400 (1,400)B --
Capital lease obligations.................................... 2,295 -- 2,295
------- ------- -------- -------
Total liabilities.................................. 6,763 13,706 (5,991) 14,478
------- ------- -------- -------
Total stockholders' equity................................... 10,426 (9,126) 19,651C,D 20,951
------- ------- -------- -------
Total liabilities and stockholders' equity......... $17,189 $ 4,580 $ 13,660 $ 35,429
======= ======= ======== =======
</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
ADJUSTED ------------- 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 7,514 13,054 3,290 16,344
Occupancy and
other
expenses........ 5,030 (954) 4,076 5,173 9,249 1,885 (746)K 10,388
General and
administrative
expenses........ 1,193 (196) 997 621 1,618 970 350I 2,938
Depreciation and
amortization.... 914 (169) 745 988 1,733 635 298J,K 2,666
------- ------ ------- ------- ------- ------- ----- -------
Total costs
and
expenses... 22,516 (4,185) 18,331 22,581 40,912 10,793 (98) 51,607
------- ------ ------- ------- ------- ------- ----- -------
Income from
operations........ 691 (166) 525 1,051 1,576 37 98 1,711
Interest (income)
expense, net...... 145 (32) 113 106 219 554 17E,F,G 790
------- ------ ------- ------- ------- ------- ----- -------
Income (loss) before
income taxes...... 546 (134) 412 945 1,357 (517) 81 921
Income tax expense
(benefit)......... 216 (54) 162 394 556 (174) (14)H 368
------- ------ ------- ------- ------- ------- ----- -------
Net income (loss)... $ 330 $ (80) $ 250 $ 551 $ 801 $ (343) $ 95 $ 553
======= ====== ======= ======= ======= ======= ===== =======
Net income per
common share...... $ 0.31 $ 0.12
======= =======
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 16-WEEK PERIOD ENDED MAY 19, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
SUCCESSOR NORTH'S
COMPANY RESTAURANTS
MAY 19, APRIL 7, PRO FORMA PRO FORMA
1997 1997 ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenues................................... $16,581 $ 3,136 $ $19,717
------- ------ ----- -------
Costs and expenses:
Food costs..................................... 5,369 1,187 6,556
Labor costs.................................... 5,169 944 6,113
Occupancy and other expenses................... 3,343 587 (207)K 3,723
General and administrative expenses............ 367 346 108I 821
Depreciation and amortization.................. 623 149 91J,K 863
------- ------ ----- -------
Total costs and expense................ 14,871 3,213 (8) 18,076
------- ------ ----- -------
Income (loss) from operations.................... 1,710 (77) 8 1,641
Interest (income) expense, net................... 62 184 (9)E,F,G 237
------- ------ ----- -------
Income (loss) before income taxes................ 1,648 (261) 17 1,404
Income tax expense............................... 659 -- (97)H 562
------- ------ ----- -------
Net income (loss)................................ $ 989 $ (261) $ 114 $ 842
======= ====== ===== =======
Net income per common share...................... $ 0.38 $ 0.19
======= =======
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 $13.046 million, which will not be assumed
by the Company, except as noted in Footnote A.
C To eliminate North's Restaurants' division deficit of $9.126 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 the net assets
sold in 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 $3,000
for the sixteen weeks ended May 19, 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
$172,000 for the sixteen weeks ended May 19, 1997. A 0.125%
increase/decrease in the estimated interest rate incrementally
increases/decreases income before taxes by $9,000 and $3,000 for the fiscal
year ended January 27, 1997 and the sixteen weeks ended May 19, 1997,
respectively.
G To eliminate the historical interest expense recorded by North's of $554,000
and $184,000 for the twelve months ended December 31, 1996 and the sixteen
weeks ended April 7, 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 $108,000 for the year
ended January 27, 1997 and the sixteen weeks ended May 19, 1997,
respectively.
J To record $580,000 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 $15,000 and $4,000 for the
fiscal year ended January 27, 1997 and the sixteen weeks ended May 19, 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 $87,000 and ($207,000), respectively, for the sixteen
weeks ended May 19, 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) $9,126,000; (D)
$10,525,000 = $19,651,000
Statement of Operations (52-week period ended January 27, 1997):
(1) Depreciation and amortization: (J) $15,000; (K)
$283,000 = $298,000
(2) Interest (income) expense, net: (E) $11,000; (F) $560,000; (G)
($554,000) = $17,000
Statement of Operations (16-week period ended May 19, 1997):
(1) Depreciation and amortization: (J) $4,000; (K) $87,000 = $91,000
(2) Interest (income) expense, net: (E) $3,000; (F) $172,000; (G)
($184,000) = ($9,000)
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 simultaneously with this offering
and 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.
The Successor Company 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. For purposes of presentation
and for purposes of comparing the historical 52-week fiscal 1994 and 1995
results of the Predecessor Company to the combined results of operations of the
Company, the following discussion includes a 52-week period comprised of the
results of operations of the Predecessor Company for the 24-week period ended
July 15, 1996 combined with the results of operations of the Successor Company
for the 28-week period ended January 27, 1997. The Company's first fiscal
quarter consists of 16 weeks, while each of the remaining fiscal quarters
consists of 12 weeks.
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
24
<PAGE> 26
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.
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") and the combined 52 weeks ended
January 27, 1997 ("Fiscal 1997") as well as the sixteen week periods ended May
20, 1996 and May 19, 1997. References to "Fiscal 1998" refer to the fiscal year
ending January 26, 1998.
<TABLE>
<CAPTION>
PREDECESSOR
--------------------- SIXTEEN WEEKS ENDED
COMBINED -------------------------
FIFTY-TWO WEEKS FIFTY-TWO
ENDED WEEKS PREDECESSOR SUCCESSOR
--------------------- ENDED ----------- ---------
DEC. 19, DEC. 18, JAN. 27, MAY 20, MAY 19,
1994 1995 1997 1996 1997
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and expenses:
Food costs............................ 37.2 37.5 35.9 36.9 32.4
Labor costs........................... 29.4 29.6 30.7 29.0 31.2
Occupancy and other expenses.......... 21.9 24.4 21.8 21.1 20.2
General and administrative............ 5.7 4.5 3.8 5.5 2.2
Depreciation and amortization......... 2.7 3.4 4.1 3.7 3.7
----- ----- ----- ----- -----
Total costs and expenses...... 96.9 99.4 96.3 96.2 89.7
----- ----- ----- ----- -----
Income from operations.................. 3.1 0.6 3.7 3.8 10.3
Interest expense........................ 0.6 0.5 0.5 0.6 0.3
----- ----- ----- ----- -----
Income before income taxes.............. 2.5 0.1 3.2 3.2 10.0
Income taxes............................ 1.0 0.0 1.3 1.3 4.0
----- ----- ----- ----- -----
Net income.............................. 1.5% 0.1% 1.9% 1.9% 6.0%
===== ===== ===== ===== =====
</TABLE>
25
<PAGE> 27
COMPARISON OF SIXTEEN WEEKS ENDED MAY 19, 1997 TO SIXTEEN WEEKS ENDED MAY 20,
1996
Total revenues increased $3.7 million, or 28.4%, from $12.9 million in the
sixteen weeks ended May 20, 1996 to $16.6 million in the sixteen weeks ended May
19, 1997. The increase was primarily attributable to the inclusion of the
results of Casa Bonita in the first quarter of Fiscal 1998, which results were
not included in the first quarter of Fiscal 1997 comparable period.
Food costs increased $609,000, or 12.8%, from $4.8 million in the sixteen
weeks ended May 20, 1996 to $5.4 million in the sixteen weeks ended May 19,
1997. Food costs as a percentage of total revenues declined from 36.9% in the
sixteen weeks ended May 20, 1996 to 32.4% in the sixteen weeks ended May 19,
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 $1.4 million, or 38.2%, from $3.7 million in the
sixteen weeks ended May 20, 1996 to $5.2 million in the sixteen weeks ended May
19, 1997. Labor costs as a percentage of total revenues increased from 29.0% in
the sixteen weeks ended May 20, 1996 to 31.2% in the sixteen weeks ended May 19,
1997. The increase as a percentage of total revenues is primarily attributable
to the inclusion of Casa Bonita in the first quarter of Fiscal 1998, which
operates at a higher level of labor costs than HTB's HomeTown Buffet
restaurants.
Occupancy and other expenses increased $616,000, or 22.6%, from $2.7
million in the sixteen weeks ended May 20, 1996 to $3.3 million in the sixteen
weeks ended May 19, 1997. Occupancy and other expenses as a percentage of total
revenues decreased from 21.1% in the sixteen weeks ended May 20, 1996 to 20.2%
in the sixteen weeks ended May 19, 1997. The decrease as a percentage of total
revenues is primarily attributable to the inclusion of Casa Bonita in the first
quarter of Fiscal 1998 which operates at a lower level of occupancy and other
expenses due to the relatively fixed nature of certain of these expenses and the
higher average sales volumes of the Casa Bonita restaurants.
General and administrative expenses decreased $340,000, or 48.1%, from
$707,000 in the sixteen weeks ended May 20, 1996 to $367,000 in the sixteen
weeks ended May 19, 1997. General and administrative expenses as a percentage of
total revenues decreased from 5.5% in the sixteen weeks ended May 20, 1996 to
2.2% in the sixteen weeks ended May 19, 1997. The decrease as a percentage of
total revenues is a result of the elimination of certain costs following
acquisition by CKE and the inclusion of $259,000 of non-recurring severance
costs in the sixteen weeks ended May 20, 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 $143,000, or 29.8%, from $480,000
in the sixteen weeks ended May 20, 1996 to $623,000 in the sixteen weeks ended
May 19, 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 $1.2 million, or 245.5%, from $495,000 in
the sixteen weeks ended May 20, 1996 to $1.7 million in the sixteen weeks ended
May 19, 1997. Income from operations as a percentage of total revenues increased
from 3.8% in the sixteen weeks ended May 20, 1996 to 10.3% in the sixteen weeks
ended May 19, 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 quarter of Fiscal 1998.
COMPARISON OF FISCAL 1997 TO FISCAL 1995
Due to 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.
26
<PAGE> 28
Total revenues in Fiscal 1997 increased $5.7 million, or 15.6%, from $36.7
million in Fiscal 1995 to $42.5 million in Fiscal 1997. The increase was
primarily attributable to the inclusion of Casa Bonita since October 1, 1996.
Food costs increased $1.5 million, or 10.8%, from $13.8 million in Fiscal
1995 to $15.3 million in Fiscal 1997. Food costs as a percentage of total
revenues declined from 37.5% in Fiscal 1995 to 35.9% in Fiscal 1997. The decline
as a percentage of total revenues was attributable to an overall 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 cost.
Labor costs increased $2.2 million, or 20.0%, from $10.9 million in Fiscal
1995 to $13.1 million in Fiscal 1997. Labor costs as a percentage of total
revenues increased from 29.6% in Fiscal 1995 to 30.7% in Fiscal 1997. 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 increased $295,000, or 3.3%, from $9.0 million
in Fiscal 1995 to $9.2 million in Fiscal 1997. Occupancy and other expenses as a
percentage of total revenues decreased from 24.4% in Fiscal 1995 to 21.8% in
Fiscal 1997. The decrease as a percentage of total revenues was primarily
attributable to the inclusion of Casa Bonita since its acquisition which
operates at a lower level of occupancy and other expenses due to the relatively
fixed nature of certain of these expenses and the high average volumes of the
Casa Bonita restaurants.
General and administrative expenses decreased $48,000, or 2.9%, from $1.7
million in Fiscal 1995 to $1.6 million in Fiscal 1997. General and
administrative expenses as a percentage of total revenues decreased from 4.5% in
Fiscal 1995 to 3.8% in Fiscal 1997. 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 increased $501,000, or 40.7%, from $1.2
million in Fiscal 1995 to $1.7 million in Fiscal 1997. Depreciation and
amortization as a percentage of total revenues increased from 3.4% in Fiscal
1995 to 4.1% in Fiscal 1997. 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.
Income from operations increased $1.3 million, or 551.2%, from $242,000 in
Fiscal 1995 to $1.6 million in Fiscal 1997. Income from operations as a
percentage of total revenues increased from 0.6% in Fiscal 1995 to 3.7% in
Fiscal 1997. The increase in dollars and 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 in the Fiscal 1997
results.
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.
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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% 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 May 19,
1997, the Company had $405,000 in cash.
Cash provided by operations was approximately $2.7 million, $1.6 million,
$2.8 million and $1.4 million in Fiscal 1994, Fiscal 1995 and Fiscal 1997 and
the sixteen weeks ended May 19, 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.
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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.
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.
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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.
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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 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 19, 1995. In addition, management lowered food costs to 35.3% of total
revenues during the sixteen weeks ended May 19, 1997 from 36.9% of total
revenues for the sixteen weeks ended May 20, 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.
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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 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.
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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
year ended June 30, 1996 and the six months ended December 31, 1996, despite
increasing revenues. 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 of North's existing bank debt, in which case North's
will agree to repay the principal amount thereof to the Company. The $7.0
million aggregate principal amount of indebtedness expected 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. North's
repayment obligations with respect to the $3.0 million portion of such assumed
indebtedness will, if incurred, bear interest at a variable rate and will become
payable over a five-year period commencing twelve months after the closing of
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
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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 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 $5.50
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for lunch and approximately $7.45 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 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 SIXTEEN WEEKS
---------------------------------------- ENDED
DEC. -----------------
20, DEC. 19, DEC. 18, JAN. 27, MAY 20, MAY 19,
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 $12,909 $13,174
Percentage increase (decrease) in
comparable store sales(1).............. N/A 4.3% (9.2)% (0.4)% (3.1)% 2.2%
Average weekly customer count per
restaurant............................. 8,201 9,177 8,150 8,117 8,648 8,769
Average check(2)......................... $ 5.29 $ 5.57 $ 5.69 $ 5.79 $ 5.80 $ 5.85
</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.
35
<PAGE> 37
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.
The chart below sets forth certain data with respect to the Company's Casa
Bonita restaurants:
<TABLE>
<CAPTION>
SIXTEEN WEEKS
FIFTY-TWO WEEKS ENDED ENDED
------------------------------ -----------------
DEC. 19, DEC. 18, JAN. 27, MAY 20, MAY 19,
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 $ 11,774 $3,315 $3,407
Percentage increase (decrease) in
comparable store sales................... (1.2)% (0.3)% 6.3% 2.0% 2.8%
</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.
36
<PAGE> 38
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 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
37
<PAGE> 39
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 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.
38
<PAGE> 40
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.
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.
1997 STOCK INCENTIVE PLAN
On September , 1997, the Company's 1997 Stock Incentive Plan (the "1997
Plan") was adopted by the Company's stockholders and Board of Directors
effective as of September , 1997. The 1997 Plan covers 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"), nonstatutory options and restricted stock
grants 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.
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.
42
<PAGE> 44
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, Summit will acquire the two
Casa Bonita restaurants from Taco Bueno, 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 a purchase price equal to CKE's book value of the net assets
transferred. 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.
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................. 47,548(1) 1.8 -- 47,548 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 , 1997, there will be
2,600,000 shares of Common Stock outstanding, all of which will be held by the
Selling Stockholder, and no shares of Preferred Stock 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, 1995 and 1996 and December 31, 1996 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, 1996 and for the six months
ended December 31, 1996, 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 May 19, 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 16
Weeks Ended May 20, 1996 and May 19, 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 16 Weeks Ended May 20,
1996 and May 19, 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 Financial Statement......................................................... F-18
NORTH'S RESTAURANTS
Independent Auditors' Report......................................................... F-21
Balance Sheets as of June 30, 1995 and 1996, December 31, 1996 and March 31, 1997
(unaudited)....................................................................... F-22
Statements of Operations and Division's Equity for Each of the Years in the
Three-year Period Ended June 30, 1996 and for the Six Months Ended December 31,
1996 and for the Three Months Ended March 31, 1997 (unaudited).................... F-23
Statements of Cash Flows for Each of the Years in the Three-year Period Ended June
30, 1996 and for the Six Months Ended December 31, 1996 and for the Three Months
Ended March 31, 1997 (unaudited).................................................. 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 sell 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 in a
principal amount equal to CKE's net book value of those assets as of the date of
sale (the "JB's Note"). 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 sale, 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, Inc., an
indirect wholly-owned subsidiary of CKE formerly known as Casa Bonita
Incorporated ("Taco Bueno"), will sell 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 net book value of those
assets as of the date of sale. 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 18, JANUARY 27, ----------- -----------
1995 1997 MAY 19, MAY 19,
------------ ----------- 1997 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 8)
<S> <C> <C> <C> <C>
Current assets:
Cash............................................... $ 117,000 $ 353,000 $ 405,000
Short-term investments............................. -- 180,000 180,000
Trade receivables.................................. 39,000 71,000 206,000
Inventories........................................ 242,000 383,000 384,000
Prepaid expenses................................... 139,000 84,000 20,000
Deferred taxes, net (note 4)....................... 78,000 193,000 118,000
----------- ----------- -----------
Total current assets....................... 615,000 1,264,000 1,313,000
----------- ----------- -----------
Property and equipment, at cost, less accumulated
depreciation and amortization (note 2)............. 12,617,000 12,430,000 13,260,000
----------- ----------- -----------
Real property and equipment under capitalized leases,
at cost, less accumulated amortization (notes 2 and
3)................................................. 2,304,000 2,396,000 2,297,000
----------- ----------- -----------
Deposits and other assets............................ 280,000 375,000 8,000
----------- ----------- -----------
Intangible assets, at cost, less accumulated
amortization:
Franchise fees..................................... 356,000 318,000 311,000
Equipment lease acquisition costs.................. 93,000 -- --
----------- ----------- -----------
Total intangible assets.................... 449,000 318,000 311,000
Deferred taxes, net (note 4)......................... 18,000 -- --
----------- ----------- -----------
$ 16,283,000 $16,783,000 $17,189,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable -- trade (note 6)................. $ 2,229,000 $ 2,226,000 $ 2,200,000
Accrued liabilities (note 6):
Payroll and related taxes....................... 667,000 1,207,000 1,069,000
Sales and property taxes........................ 371,000 632,000 510,000
Rent, insurance and other....................... 60,000 367,000 450,000
Current maturities of capital lease obligations
(note 3)........................................ 198,000 239,000 239,000
----------- ----------- -----------
Total current liabilities.................. 3,525,000 4,671,000 4,468,000
----------- ----------- -----------
Long-term debt, net of current maturities:
Capital lease obligations (note 3)................. 2,276,000 2,370,000 2,295,000
Intercompany payable (notes 4 and 6)............... 8,676,000 -- --
----------- ----------- -----------
Total long-term debt....................... 10,952,000 2,370,000 2,295,000
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 9,191,000 9,191,000 10,418,000
Retained earnings.................................. 806,000 551,000 1,235,000 --
----------- ----------- ----------- -----------
Total stockholder's equity................. 1,806,000 9,742,000 10,426,000 10,426,000
Commitments and contingencies (notes 3 and 7)
Subsequent event (note 9)
----------- ----------- -----------
$ 16,283,000 $16,783,000 $17,189,000
=========== =========== ===========
</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, 16 WEEKS 16 WEEKS
1994 1995 1996 1997 ENDED ENDED
------------ ------------ ----------- ----------- MAY 20, MAY 19,
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 $12,909,000 $16,581,000
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Food costs........................... 11,469,000 13,769,000 8,569,000 8,285,000 4,760,000 5,369,000
Labor costs.......................... 9,089,000 10,878,000 6,810,000 7,514,000 3,740,000 5,169,000
Occupancy and other expenses......... 6,769,000 8,954,000 5,030,000 5,173,000 2,727,000 3,343,000
General and administrative
expenses........................... 1,762,000 1,666,000 1,193,000 621,000 707,000 367,000
Depreciation and amortization........ 821,000 1,232,000 914,000 988,000 480,000 623,000
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses....... 29,910,000 36,499,000 22,516,000 22,581,000 12,414,000 14,871,000
----------- ----------- ----------- ----------- ----------- -----------
Income from operations................. 961,000 242,000 691,000 1,051,000 495,000 1,710,000
Interest expense (notes 2 and 3)....... 203,000 192,000 145,000 106,000 84,000 62,000
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes............. 758,000 50,000 546,000 945,000 411,000 1,648,000
Income tax expense (note 4)............ 301,000 22,000 216,000 394,000 165,000 659,000
----------- ----------- ----------- ----------- ----------- -----------
Net income............................. 457,000 28,000 330,000 551,000 $ 246,000 989,000
===========
Retained earnings at beginning of
period............................... 321,000 778,000 806,000 -- 551,000
Distributions to parent and
affiliates........................... -- -- -- -- (305,000)
----------- ----------- ----------- ----------- -----------
Retained earnings at end of period..... $ 778,000 $ 806,000 $ 1,136,000 $ 551,000 $ 1,235,000
=========== =========== =========== =========== ===========
</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 16 WEEKS 16 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 19, DECEMBER 18, JULY 15, JANUARY 27, MAY 20, MAY 19,
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 $ 551,000 $ 246,000 $ 989,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 821,000 1,232,000 914,000 988,000 480,000 623,000
Loss on disposal of assets............ 84,000 100,000 -- -- -- --
Change in operating assets and
liabilities:
Receivables......................... 238,000 (22,000) 21,000 (114,000) 23,000 (135,000)
Inventories......................... (90,000) (48,000) 39,000 (5,000) 4,000 (1,000)
Prepaid expenses and other assets... (153,000) 138,000 (202,000) 178,000 -- 64,000
Deferred tax assets................. 63,000 (136,000) (78,000) 100,000 -- 75,000
Accounts payable.................... 896,000 183,000 (280,000) 273,000 459,000 (26,000)
Accrued liabilities................. 400,000 123,000 72,000 27,000 (15,000) (177,000)
------------ ------------ -------- ------------ ------------ ------------
Net cash provided by operating
activities...................... 2,716,000 1,598,000 816,000 1,998,000 1,197,000 1,412,000
------------ ------------ -------- ------------ ------------ ------------
Cash flows from investing activities:
Acquisition of intangible assets........ (155,000) (125,000) -- -- -- --
Acquisition of property and equipment... (6,057,000) (3,527,000) (68,000) (103,000) (28,000) (980,000)
Purchases of short-term investments..... -- -- -- (180,000) -- --
------------ ------------ -------- ------------ ------------ ------------
Net cash used in investing
activities...................... (6,212,000) (3,652,000) (68,000) (283,000) (28,000) (980,000)
------------ ------------ -------- ------------ ------------ ------------
Cash flows from financing activities:
Net activity with parent and
affiliates............................ 2,512,000 1,998,000 (546,000) (1,326,000) (781,000) (305,000)
Proceeds from sales of assets........... 1,140,000 -- -- -- -- --
Principal payments on capital leases.... (24,000) (46,000) (110,000) (245,000) (381,000) (75,000)
------------ ------------ -------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities............ 3,628,000 1,952,000 (656,000) (1,571,000) (1,162,000) (380,000)
------------ ------------ -------- ------------ ------------ ------------
Net increase (decrease) in cash... 132,000 (102,000) 92,000 144,000 7,000 52,000
Cash at beginning of period............... 87,000 219,000 117,000 209,000 117,000 353,000
------------ ------------ -------- ------------ ------------ ------------
Cash at end of period..................... $ 219,000 $ 117,000 $ 209,000 $ 353,000 $ 124,000 $ 405,000
============ ============ ======== ============ ============ ============
Supplemental disclosures of cash flow
information -- cash paid for interest... $ 203,000 $ 192,000 $ 145,000 $ 110,000 $ 84,000 $ 62,000
============ ============ ======== ============ ============ ============
</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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
(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.
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 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.
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
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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
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
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
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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
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>
(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
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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
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>
<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>
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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY CURRENT DEFERRED TOTAL
- ---------------------------------------------------------- -------- --------- --------
<S> <C> <C> <C>
Period ended January 27, 1997:
Federal................................................. $435,000 $(113,000) $322,000
State................................................... 56,000 16,000 72,000
-------- --------- --------
$491,000 $ (97,000) $394,000
======== ========= ========
</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 $321,000
State income taxes, net of Federal
benefit............................... 41,000 3,000 29,000 50,000
Other................................... 2,000 2,000 1,000 23,000
-------- ------- -------- --------
Actual income tax expense............... $301,000 $ 22,000 $216,000 $394,000
======== ======= ======== ========
</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.
(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.
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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
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).
(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.
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) AND
JANUARY 27, 1997 (SUCCESSOR COMPANY)
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 FINANCIAL STATEMENT
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 FINANCIAL STATEMENT (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 FINANCIAL STATEMENT (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, 1995 and 1996 and December
31, 1996, 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, 1996
and for the six months ended December 31, 1996. 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, 1995 and 1996 and December
31, 1996, and the results of its operations and its cash flows for each of the
years in the three-year period ended June 30, 1996 and for the six months ended
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
May 8, 1997, except as to note 8,
which is as of July 24, 1997
F-21
<PAGE> 73
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1995 1996 1996 1997
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 36,379 $ 40,910 $ 38,466 $ 35,671
Trade accounts receivable................. 52,728 3,414 11,087 9,793
Inventories............................... 45,431 73,111 68,385 69,473
Preopening costs, net..................... 15,414 33,761 -- --
Other current assets...................... -- -- 3,534 3,512
----------- ------------ ------------ ------------
Total current assets............ 149,952 151,196 121,472 118,449
Property and equipment, net (note 2)...... 3,868,699 4,727,210 4,530,228 4,443,228
Other assets.............................. 16,146 16,106 16,106 18,051
----------- ------------ ------------ ------------
$ 4,034,797 $ 4,894,512 $ 4,667,806 $ 4,579,728
=========== ============ ============ ============
LIABILITIES AND DIVISION'S DEFICIT
Current portion of North's Restaurants,
Inc. company debt for which Division is
jointly and severally liable (note 3)... $ 872,016 $ 3,892,082 $ 11,463,301 $ 11,646,084
Accounts payable.......................... 433,190 354,557 339,901 353,015
Other accrued expenses.................... 231,991 293,205 285,494 306,848
----------- ------------ ------------ ------------
Total current liabilities....... 1,537,197 4,539,844 12,088,696 12,305,947
North's Restaurants, Inc. company debt for
which Division is jointly and severally
liable, net of debt issuance costs, less
current portion (note 3)................ 7,920,126 8,553,302 1,400,000 1,400,000
----------- ------------ ------------ ------------
Total liabilities............... 9,457,323 13,093,146 13,488,696 13,705,947
----------- ------------ ------------ ------------
Division's deficit:
Division's equity....................... 3,369,616 4,246,750 4,042,411 3,919,865
North's Restaurants, Inc. company debt
for which Division is jointly and
severally liable, net of debt
issuance costs (note 3).............. (8,792,142) (12,445,384) (12,863,301) (13,046,084)
----------- ------------ ------------ ------------
Net Division's deficit.......... (5,422,526) (8,198,634) (8,820,890) (9,126,219)
Commitments and contingencies (note 5)
Subsequent event (note 8)
----------- ------------ ------------ ------------
$ 4,034,797 $ 4,894,512 $ 4,667,806 $ 4,579,728
=========== ============ ============ ============
</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>
SIX
MONTHS THREE
YEAR ENDED JUNE 30, ENDED MONTHS
---------------------------------------- DECEMBER 31, ENDED
1994 1995 1996 1996 MARCH 31,
----------- ----------- ------------ ------------ 1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 4,676,004 $ 7,762,322 $ 10,533,999 $ 4,843,690 $ 2,303,490
----------- ----------- ------------ ------------ -----------
Costs and expenses:
Food costs...................... (1,646,917) (2,710,982) (3,792,056) (1,797,685) (869,485)
Labor costs..................... (1,400,190) (2,317,741) (3,203,674) (1,446,367) (693,269)
Occupancy and other expenses.... (811,335) (1,301,373) (1,786,573) (880,150) (442,249)
General and administrative
expenses..................... (408,406) (810,362) (1,022,339) (393,080) (246,606)
Depreciation and amortization... (198,091) (346,650) (613,260) (265,111) (110,922)
----------- ----------- ------------ ------------ -----------
Total costs and
expenses.............. (4,464,939) (7,487,108) (10,417,902) (4,782,393) (2,362,531)
----------- ----------- ------------ ------------ -----------
Income (loss) from operations..... 211,065 275,214 116,097 61,297 (59,041)
Interest expense.................. (80,251) (212,842) (459,407) (273,188) (132,268)
----------- ----------- ------------ ------------ -----------
Income (loss) before income tax
expense benefit (provision)..... 130,814 62,372 (343,310) (211,891) (191,309)
Income tax expense benefit
(provision) (note 4)............ (50,363) (24,013) 128,558 59,396 --
----------- ----------- ------------ ------------ -----------
Net income (loss)................. 80,451 38,359 (214,752) (152,495) (191,309)
Division's deficit at beginning of
period.......................... (1,537,726) (2,434,748) (5,422,526) (8,198,634) (8,820,890)
Contributions (distributions)..... (98,026) 2,345,244 1,091,886 (51,844) 68,763
Net additions in North's
Restaurants, Inc. company debt
for which Division is jointly
and severally liable............ (879,447) (5,371,381) (3,653,242) (417,917) (182,783)
----------- ----------- ------------ ------------ -----------
Division's deficit at end of
period.......................... $(2,434,748) $(5,422,526) $ (8,198,634) $ (8,820,890) $(9,126,219)
=========== =========== ============ ============ ===========
</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>
THREE
SIX MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED
-------------------------------------- DECEMBER 31, MARCH 31,
1994 1995 1996 1996 1997
--------- ----------- ------------ ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................ $ 80,451 $ 38,359 $ (214,752) $ (152,495) $ (191,309)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization................ 198,091 346,650 613,260 265,111 110,922
Changes in operating assets
and liabilities:
Trade accounts receivable... 1,749 (48,633) 49,314 (7,673) 1,294
Inventories................. 2,988 (9,265) (27,680) 4,726 (1,088)
Preopening costs............ (37,261) (99,909) (169,093) (2,641) (3)
Other assets................ 42,824 28,379 40 (3,534) (1,923)
Accounts payable and accrued
expenses................. (65,258) 368,059 (17,419) (22,367) 34,468
--------- ----------- ------------ ----------- ----------
Net cash provided by
(used in) operations... 223,584 623,640 233,670 81,127 (47,639)
--------- ----------- ------------ ----------- ----------
Cash flows from investing
activities:
Capital expenditures............. (134,787) (2,937,638) (1,321,025) (31,727) (23,919)
--------- ----------- ------------ ----------- ----------
Cash flows from financing
activities:
Contributions (distributions).... (98,026) 2,345,244 1,091,886 (51,844) 68,763
--------- ----------- ------------ ----------- ----------
Net increase (decrease)
in cash and cash
equivalents............ (9,229) 31,246 4,531 (2,444) (2,795)
Cash and cash equivalents at
beginning of period.............. 14,362 5,133 36,379 40,910 38,466
--------- ----------- ------------ ----------- ----------
Cash and cash equivalents at end of
period........................... $ 5,133 $ 36,379 $ 40,910 $ 38,466 $ 35,671
========= =========== ============ =========== ==========
Supplemental disclosure of cash
flow information:
Cash paid for interest........ $ 45,275 $ 184,698 $ 242,252 $ 136,938 $ --
========= =========== ============ =========== ==========
</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 AND 1996, DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED)
(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 December 31, 1996.
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 $403,000, $787,000, $974,000, $371,000 and $235,000 in fiscal
years 1994, 1995, 1996, the six months ended December 31, 1996 and the three
months ended March 31, 1997 (unaudited), respectively, of allocated costs.
(b) Fiscal Year
The accompanying financial statements cover the fifty-two/fifty-three-week
periods ended June 27, 1994, July 3, 1995 and July 1, 1996, the six months
(twenty-four weeks) ended December 16, 1996 and the three months (twelve weeks)
ended March 10, 1997 (unaudited). 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, 1995 and 1996, December 31, 1996 and March 31, 1997
(unaudited) was approximately $47,000, $42,000, $-0- 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 AND 1996, DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED)
(g) Advertising Costs
Advertising costs are expensed when incurred. Advertising expense, included
in general and administrative expenses, was approximately $79,000, $186,000,
$169,000, $72,000 and $34,000 for the years ended June 30, 1994, 1995 and 1996,
the six months ended December 31, 1996 and the three months ended March 31, 1997
(unaudited), 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 combined balance sheet.
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 six
months ended December 31, 1996, 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 AND 1996, DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED)
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, MARCH 31,
1995 1996 1996 1997
---------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Equipment.................................... $2,831,595 $ 3,526,944 $ 3,553,035 $ 3,576,954
Leasehold improvements....................... 2,113,275 2,529,255 2,544,379 2,544,379
---------- ---------- ---------- ----------
4,944,870 6,056,199 6,097,414 6,121,333
Less accumulated depreciation................ 1,149,386 1,338,477 1,567,186 1,678,105
---------- ---------- ---------- ----------
3,795,484 4,717,722 4,530,228 4,443,228
Construction in progress..................... 73,215 9,488 -- --
---------- ---------- ---------- ----------
$3,868,699 $ 4,727,210 $ 4,530,228 $ 4,443,228
========== ========== ========== ==========
</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, JUNE 30, DECEMBER 31, MARCH 31,
1995 1996 1996 1997
---------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <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........................... $3,257,507 $ 2,913,757 $ 2,863,757 $ 2,863,757
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........................... 1,350,000 5,030,264 5,030,264 5,030,264
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 December 31,
1996....................................... 3,281,240 3,403,813 3,665,958 3,688,923
Subordinated debentures, interest due
quarterly at 10%........................... 1,400,000 1,400,000 1,400,000 1,400,000
Accrued interest............................. 81,395 298,550 434,800 594,618
Debt issuance costs.......................... (578,000) (601,000) (531,478) (531,478)
---------- ----------- ----------- -----------
Total long-term debt............... 8,792,142 12,445,384 12,863,301 13,046,084
Less current portion......................... 872,016 3,892,082 11,463,301 11,646,084
---------- ----------- ----------- -----------
Total long-term debt, less current
portion.......................... $7,920,126 $ 8,553,302 $ 1,400,000 $ 1,400,000
========== =========== =========== ===========
</TABLE>
F-27
<PAGE> 79
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1996, DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED)
(4) INCOME TAXES
The (provision) benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED THREE MONTHS
-------------------------------- DECEMBER 31, ENDED
1994 1995 1996 1996 MARCH 31,
-------- -------- -------- ------------ 1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal........................... $(21,834) $ 21,834 $ -- $ -- $ --
State............................. (3,971) -- -- -- --
-------- -------- -------- -------- -------
Total current............. (25,805) 21,834 -- -- --
-------- -------- -------- -------- -------
Deferred:
Federal........................... (20,680) (43,090) 108,259 50,018 --
State............................. (3,878) (2,757) 20,299 9,378 --
-------- -------- -------- -------- -------
Total deferred............ (24,558) (45,847) 128,558 59,396 --
-------- -------- -------- -------- -------
Total..................... $(50,363) $(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:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED THREE MONTHS
-------------------------- DECEMBER 31, ENDED
1994 1995 1996 1996 MARCH 31,
----- ----- ---- ------------ 1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income tax (provision) benefit
computed at statutory rates.............. (34.0)% (34.0)% 34.0% 34.0% 34.0%
State taxes, net of federal benefit........ (4.0) (4.0) 4.0 4.0 4.0
Increase in valuation allowance............ -- -- -- (9.5) (37.5)
Other...................................... (.5) (.5) (.5) (.5) (.5)
----- ----- ---- ---- -----
Effective tax rate......................... (38.5)% (38.5)% 37.5% 28.0% --%
===== ===== ==== ==== =====
</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, DECEMBER
---------------------- 31, MARCH 31,
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............. $ 10,576 $ 214,596 $ 336,950 $ 437,259
--------- --------- --------- ---------
Total gross deferred tax assets........... 10,576 214,596 336,950 437,259
Valuation allowance.......................... -- -- (19,945) (91,578)
--------- --------- --------- ---------
Total deferred tax assets................. 10,576 214,596 317,005 345,681
--------- --------- --------- ---------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation............... (198,530) (273,992) (317,005) (345,681)
--------- --------- --------- ---------
Total gross deferred tax liabilities...... (198,530) (273,992) (317,005) (345,681)
--------- --------- --------- ---------
Net deferred tax liability................ $(187,954) $ (59,396) $ -- $ --
========= ========= ========= =========
</TABLE>
F-28
<PAGE> 80
NORTH'S RESTAURANTS
(A DIVISION OF NORTH'S RESTAURANTS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995 AND 1996, DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED)
At December 31, 1996, the Division has net operating carryforwards, to be
utilized by NRI, for federal and state purposes of approximately $876,000 and
$944,000, respectively, which are available to offset future taxable income,
through 2011.
(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 December 31:
1997.............................................. $ 570,811
1998.............................................. 565,193
1999.............................................. 563,669
2000.............................................. 574,015
2001.............................................. 563,076
Thereafter........................................ 3,017,420
----------
$5,854,184
==========
</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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED THREE MONTHS
YEAR ENDED JUNE 30, DECEMBER ENDED
-------------------------------------- 31, MARCH 31,
1994 1995 1996 1996 1997
-------- -------- ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Minimum rent.................... $215,700 $326,732 $512,485 $258,228 $129,114
Contingent rent................. 63,359 98,253 81,466 32,523 12,646
-------- -------- -------- -------- --------
$279,059 $424,985 $593,951 $290,751 $141,760
======== ======== ======== ======== ========
</TABLE>
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 1996 or 1995. 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 AND 1996, DECEMBER 31, 1996 AND MARCH 31, 1997 (UNAUDITED)
(7) SELECTED FINANCIAL INFORMATION (UNAUDITED)
The following statements of operations are provided for informational
purposes and are unaudited:
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
TWELVE MONTHS ---------------------------
ENDED APRIL 8, APRIL 7,
DECEMBER 31, 1996 1996 1997
----------------- ----------- -----------
<S> <C> <C> <C>
Total revenues................................... $ 10,830,045 $ 3,440,533 $ 3,136,413
------------ ----------- -----------
Costs and expenses:
Food costs..................................... (4,013,395) (1,275,686) (1,186,698)
Labor costs.................................... (3,289,756) (1,058,763) (943,729)
Occupancy and other expenses................... (1,885,141) (560,052) (587,255)
General and administrative expenses............ (970,170) (388,315) (346,197)
Depreciation and amortization.................. (634,965) (166,063) (149,221)
------------ ----------- -----------
Total costs and expenses............... (10,793,427) (3,448,879) (3,213,100)
------------ ----------- -----------
Income (loss) from operations............... 36,618 (8,346) (76,687)
Interest expense................................. (554,299) (188,953) (184,258)
------------ ----------- -----------
Loss before income tax benefit.............. (517,681) (197,299) (260,945)
Income tax benefit............................... 174,000 73,987 --
------------ ----------- -----------
Net loss.................................... $ (343,681) $ (123,312) $ (260,945)
============ =========== ===========
</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
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 , 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 Letter of Intent with Stacey's Buffet, Inc. dated July 18, 1997.*
10.9 Asset Purchase Agreement between JB's Restaurant, Inc. and Summit Family
Restaurants Inc. dated September , 1997.**
10.10 Contribution Agreement with CKE.**
10.11 Asset Purchase Agreement with Taco Bueno, Inc. dated September , 1997.**
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.
** To be filed by amendment.
(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. 1 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 9th 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. 1 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 9, 1997
- -----------------------------------------------
William P. Foley II
* Chief Executive Officer September 9, 1997
- ----------------------------------------------- President and Director
Robert E. Wheaton (Principal Executive Officer)
/s/ THEODORE ABAJIAN Chief Financial Officer September 9, 1997
- ----------------------------------------------- (Principal Financial and
Theodore Abajian Principal Accounting Officer)
* Director September 9, 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 Letter of Intent with Stacey's Buffet, Inc. dated July 18, 1997.*...
10.9 Asset Purchase Agreement between JB's Restaurant, Inc. and Summit
Family Restaurants Inc. dated September , 1997.**.................
10.10 Contribution Agreement with CKE.**..................................
10.11 Asset Purchase Agreement with Taco Bueno, Inc. dated September ,
1997.**.............................................................
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.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
OH&S DRAFT
9/08/97
2,500,000 SHARES
STAR BUFFET, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
Equitable Securities Corporation __________, 1997
EVEREN Securities, Inc.
Cruttenden Roth Incorporated
As Representatives of the
Several Underwriters
Nashville City Center, Suite 800
511 Union Street
Nashville, Tennessee 37219
Ladies and Gentlemen:
Star Buffet, Inc., a Delaware corporation (the "Company"), and CKE
Restaurants, Inc., a Delaware corporation ("CKE" or the "Selling Stockholder"),
propose to sell to the several underwriters (the "Underwriters") named in
Schedule A hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 2,500,000 shares of the Company's Common
Stock, $.001 par value (the "Firm Shares"), of which 1,900,000 shares will be
issued and sold by the Company and 600,000 shares will be sold by the Selling
Stockholder. The respective amounts of the Firm Shares to be purchased by the
several Underwriters are set forth opposite their names in Schedule A hereto.
The Company also proposes to sell at the Underwriters' option an aggregate of up
to 375,000 additional shares of the Company's Common Stock (the "Option Shares")
as set forth below. The Company and the Selling Stockholder are sometimes
referred to herein collectively as the "Sellers."
As the Representatives, you have advised the Company and the Selling
Stockholder (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule A, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
<PAGE> 2
1. Representations and Warranties of the Company and the Selling
Stockholder.
(a) The Company and CKE represent and warrant as follows:
(i) A registration statement on Form S-1 (File No. 333-32249)
with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended, (the "Act") and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission under
the Act. The Company has complied with the conditions for the use of
Form S-1. Copies of such registration statement, including any
amendments thereto, any preliminary prospectuses (meeting the
requirements of Rule 430A of the Rules and Regulations) contained
therein and the exhibits, financial statements and schedules, as
finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, herein referred to as the
"Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained
in the Prospectus referred to below, as well as any registration
statement filed by the Company pursuant to Rule 462(b) of the Rules and
Regulations, has been declared effective by the Commission under the
Act and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. The form of prospectus
first filed by the Company with the Commission pursuant to its Rule
424(b) and Rule 430A or the term sheet or abbreviated term sheet filed
by the Company with the Commission pursuant to Rule 424(b)(7) together
with the last preliminary prospectus included in the Registration
Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company
to the Underwriters for delivery to purchasers of the Shares is herein
referred to as the "Prospectus." Each preliminary prospectus included
in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein
to any Prospectus also shall be deemed to include any supplements or
amendments thereto, filed with the Commission after the date of filing
of the Prospectus under Rules 424(b) and 430A, and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement; each of the subsidiaries of the Company listed in Schedule B
hereto (collectively, the "Subsidiaries") has been duly incorporated
and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement; the Company and each of the Subsidiaries are
duly qualified to transact business in all jurisdictions in which the
conduct of their business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on
the Company and the Subsidiaries, taken as a whole; the outstanding
shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable and
such shares of capital stock in each Subsidiary are
2
<PAGE> 3
wholly owned by the Company or another Subsidiary free and clear of all
liens, encumbrances and security interests (other than liens granted by
the Company, CKE or a Subsidiary to Banque Paribas, as agent for the
lenders pursuant to that certain Credit Agreement, dated as of July 15,
1997 (the "CKE Credit Agreement") by and among CKE, Banque Paribas, as
agent, and the lenders from time to time party thereto, which liens
will be released at or prior to the closing); and no options, warrants
or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock
or ownership interests in the Subsidiaries are outstanding, except to
the extent set forth in the Registration Statement, including the
exhibits thereto. The Subsidiaries are the only subsidiaries, direct or
indirect, of the Company.
(iii) The outstanding shares of Common Stock, including all
outstanding shares of Common Stock to be sold by the Selling
Stockholder, have been duly authorized and validly issued and are fully
paid and non-assessable; the Shares to be issued and sold by the
Company have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and
non-assessable; shares of Common Stock to be sold by the Selling
Stockholder will be validly issued, fully paid and non-assessable. No
person or entity holds a right to require or participate in the
registration under the Act of shares of Common Stock of the Company
which right has not been waived by the holder thereof as to the
offering contemplated hereby and by the Registration Statement, or
satisfied by participation by such holder in the offering. No person or
entity has any preemptive or other right of participation or first
refusal with respect to any of the Shares or the issue thereof by the
Company or the sale thereof by the Company and the Selling Stockholder,
which rights have not been waived.
(iv) The Shares conform with the statements concerning them
set forth in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the
Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus or Prospectus relating
to the proposed offering of the Shares nor instituted proceedings for
that purpose. The Registration Statement contains and the Prospectus
and any amendments or supplements thereto will contain all statements
which are required to be stated therein by, and in all respects conform
or will conform, as the case may be, to the requirements of, the Act
and the Rules and Regulations. Neither the Registration Statement nor
any amendment thereto, and neither the Prospectus nor any supplement
thereto, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company
makes no representations or warranties as to information contained in
or omitted from the Registration Statement or the Prospectus, or any
such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use in the
preparation thereof.
3
<PAGE> 4
(vi) The historical financial statements of the Company, HTB
Restaurants, Inc., Casa Bonita Restaurants and the North's Restaurants,
together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the
results of operations and cash flows of the Company, HTB Restaurants,
Inc., Casa Bonita Restaurants and the North's Restaurants, at the
indicated dates and for the indicated periods. Such financial
statements have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The pro forma financial
statements set forth in the Registration Statement fairly present the
information required to be presented therein, and such statements meet
the requirements of the Act. The summary financial and statistical data
included in the Registration Statement presents fairly the information
shown therein and have been compiled on a basis consistent with the
financial statements presented therein.
(vii) There is no action or proceeding pending or, to the best
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency which the
Company has reason to believe is likely to result in any material
adverse change in the business or condition of the Company and of the
Subsidiaries taken as a whole, except as set forth in the Registration
Statement.
(viii) The Company and the Subsidiaries have good and
marketable title to all of the properties and assets reflected in the
financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are
not material in amount. The Company and the Subsidiaries occupy leased
properties under valid and binding leases and, as to rented properties,
occupy such properties pursuant to valid and binding agreements, except
where the failure to have such leases or agreements would not have a
material adverse effect on the Company and its Subsidiaries, taken as a
whole.
(ix) The Company and the Subsidiaries have filed all federal,
state and foreign income tax returns which have been required to be
filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such
taxes have become due, except where the failure to do so would not have
a material adverse effect on the Company and its Subsidiaries, taken as
a whole.
(x) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or the earnings, business affairs,
management, or business prospects of the Company and its Subsidiaries
taken as a whole, whether or not occurring in the ordinary course of
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business, and there has not been any material transaction entered into
by the Company or the Subsidiaries, other than transactions in the
ordinary course of business and changes and transactions contemplated
by the Registration Statement, as it may be amended or supplemented.
The Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Registration Statement, as
it may be amended or supplemented.
(xi) Neither the Company nor any of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in
violation of or in default under its Charter or Bylaws or under any
agreement, lease, contract, indenture or other instrument or obligation
to which it is a party or by which it or any of its properties is bound
and which default is of material significance in respect of the
business or financial condition of the Company and the Subsidiaries
taken as a whole. The consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, (A) any indenture, mortgage, deed of trust
or other agreement or instrument to which the Company or any Subsidiary
is a party, except for any such breach or default which would not have
a material adverse effect on the Company and its Subsidiaries, taken as
a whole, or (B) the Charter or Bylaws of the Company or any order, rule
or regulation applicable to the Company or any Subsidiary of any court
or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(xii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or may be necessary to qualify
the Shares for public offering by the Underwriters under state
securities or Blue Sky laws) has been obtained or made and is in full
force and effect.
(xiii) The Company and each of the Subsidiaries has in the
past and will in the future conduct its business in material
compliance with all the laws, rules and regulations of the
jurisdictions in which each such entity is conducting business. Without
limiting the foregoing, the Company and each of the Subsidiaries owns
or possesses and is operating in compliance with the terms, provisions
and conditions of all authorizations, approvals, orders, licenses,
registrations, certificates and permits of and from all governmental
regulatory officials and bodies necessary to conduct their respective
businesses, except where the failure to comply, individually or in the
aggregate, would not have a material adverse effect on the Company and
the Subsidiaries, taken as a whole; as to the Company and each
Subsidiary, each such authorization, approval, order, license,
registration, other certificate and permit of and from such
governmental regulatory officials and bodies is valid and in full force
and effect and there is no proceeding pending or, to the Company's
knowledge, threatened (or any basis therefor) which may cause any such
authorization, approval, order, license, registration, other
certificate or permit of and from all governmental regulatory officials
and bodies to be revoked, withdrawn, cancelled, suspended or not
renewed.
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(xiv) The Company and each of the Subsidiaries owns or
possesses adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks,
service mark applications, tradenames, copyrights, trade secrets and
know-how or other information (collectively, "Intellectual Property")
described in the Prospectus as owned by or used by it or which is
necessary to the conduct of its business as now conducted or proposed
to be conducted as described in the Prospectus. Neither the Company nor
any of the Subsidiaries is aware of any infringement of or conflict
with the rights of claims of others with respect to any of the
Company's or any Subsidiaries' Intellectual Property which could have a
material adverse effect on the business or financial condition of the
Company and the Subsidiaries taken as a whole. Neither the Company nor
any of the Subsidiaries is aware of any infringement of any of the
Company's or Subsidiaries' Intellectual Property rights by any third
party which could have a material adverse effect on the business or
financial condition of the Company and the Subsidiaries taken as a
whole.
(xv) KPMG Peat Marwick LLP, who have certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(xvi) Neither the Company nor, to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of stock to facilitate the sale or resale of
the Shares.
(xvii) The Company is not, and after giving effect to the
issuance of the Shares will not be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and the
Company is not, nor will be subject to regulation under said act.
(xviii) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba, and the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department
of Banking and Finance (the "Department"), whichever date is later, or
if the information reported in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(xix) No labor dispute with the employees of the Company or
any Subsidiary exists or is threatened or imminent that could result in
a material adverse
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<PAGE> 7
change in or affecting the condition, financial or otherwise, of the
Company and the Subsidiaries taken as a whole, except as described in
or contemplated by the Prospectus.
(xx) The Company and each of the Subsidiaries is insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any
Subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely change or
affect the condition, financial or otherwise, of the Company and the
Subsidiaries taken as a whole, except as described in or contemplated
by the Prospectus.
(xxi) No Subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from
the Company or from transferring any of such Subsidiary's property or
assets to the Company or any other Subsidiary of the Company, except as
described in or contemplated by the Prospectus.
(xxii) Neither the Company, nor any of the Subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health or to the storage, handling or
transportation of hazardous or toxic material and the Company and each
Subsidiary has received all permits, licenses or other approvals
required of them under applicable federal and state occupational safety
and health and environmental laws and regulations to conduct their
respective businesses, and the Company and each Subsidiary is in
compliance with all the terms and conditions of any such permit,
license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals which would not, singly or in the aggregate,
result in a material adverse change in or affecting the condition,
financial or otherwise, of the Company and its Subsidiaries taken as a
whole, except as described in or contemplated by the Prospectus.
(xxiii) Each certificate signed by any officer of the Company
and delivered to the Representatives or counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
(xxiv) The Company and each of the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
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<PAGE> 8
maintain assets accountability; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxv) All offers and sales of the Company's capital
stock prior to the date hereof were at all relevant times exempt from
the registration requirements of the Act, and were the subject of an
available exemption from the requirements of all applicable state
securities or Blue Sky laws.
(xxvi) The Company and each of its Subsidiaries are in
compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any Subsidiary would have any liability; neither
the Company nor any Subsidiary has incurred, and neither expect to
incur, liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections
412 or 4971 of the Internal Revenue Code of 1986, as amended, including
the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company or any Subsidiary would
have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(xxvii) Each of the Company, Summit Family Restaurants Inc.
("Summit"), Taco Bueno, Inc. ("Taco Bueno"), JB's Restaurants, Inc.
("JB's") and CKE had all corporate power and authority to carry out the
transactions contemplated by the Contribution Agreement, dated , 1997,
and Casa Bonita Asset Purchase Agreement, dated , 1997, pursuant to
which, among other things (i) CKE contributed 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, (ii) Summit sold
to JB's all of the assets of its JB's Restaurant system and Galaxy
Diner restaurants and JB's assumed all of Summit's liabilities relating
to those restaurant operations, in exchange for a promissory note in
the principal amount of $_____ (the "JB's Note"), (iii) Summit assigned
the JB's Note to CKE as a dividend, and (iv) Taco Bueno sold
substantially all of the assets relating to the two Casa Bonita
restaurants to Summit in exchange for a promissory note in the
principal amount of $495,000 (the transactions described in (i), (ii),
(iii) and (iv) above are collectively referred to as the "Formation
Transactions"); and each of the Company, Summit, Taco Bueno, JB's and
CKE has taken all action required by law, its charter and bylaws or
otherwise to approve the Formation Transactions.
(xxviii) The consummation of the Formation Transactions did
not contravene any provision of applicable law or the charter or bylaws
of the Company, Summit, Taco Bueno, JB's and CKE, or any provision of
any agreement or other instrument binding upon the Company, Summit,
Taco Bueno, JB's and CKE that is
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<PAGE> 9
material to them, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company, Summit,
Taco Bueno, JB's and CKE (except for any such breach or default which
would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole), and all consents, approvals,
authorizations or orders of, or qualifications with, any governmental
body or agency required for the performance by the Company, Summit,
Taco Bueno, JB's and CKE of their respective obligations under the
Contribution Agreement and Casa Bonita Asset Purchase Agreement to
effect the Formation Transactions have been obtained.
(xxix) [Appropriate tax representation.].
(xxx) Each of the Company and CKE had all corporate power and
authority to carry out the transactions contemplated by that certain
asset purchase agreement (the "North Acquisition Agreement"), dated
July 24, 1997, pursuant to which, among other things, (i) CKE agreed to
acquire the assets of seven JJ North's Grand Buffet restaurants
(collectively, the "North's Restaurants") from North's Restaurants,
Inc. ("North's") in exchange for aggregate consideration of $4.5
million, consisting of assumption of $4 million aggregate principal
amount of debt and $500,000 of cash and (ii) CKE will assign to the
Company all of CKE's rights and certain of its obligations under the
North Acquisition Agreement (the transactions described in (i) and (ii)
above are collectively referred to as the "North Acquisition"); and
each of the Company and CKE has taken all action required by law, its
charter and bylaws or otherwise to approve the North Acquisition.
(xxxi) The consummation of the North Acquisition did not
contravene any provision of applicable law or the charter or bylaws of
the Company or its Subsidiaries and CKE, or any provision of any
agreement or other instrument binding upon the Company or its
Subsidiaries and CKE that is material to them, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over the Company or its Subsidiaries and CKE, and all consents,
approvals, authorizations or orders of, or qualifications with, any
governmental body or agency required for the performance by the Company
or its Subsidiaries and CKE of their respective obligations under the
North Acquisition Agreement to effect the North Acquisition have been
obtained.
(b) The Selling Stockholder represents and warrants as follows:
(i) The Selling Stockholder has and at the Closing Date
(as such date is hereinafter defined) will have good and valid title to
the Firm Shares to be sold by the Selling Stockholder, free of any
liens, encumbrances, equities and claims, and full right, power and
authority to effect the sale and delivery of such Firm Shares; and upon
the delivery of and payment for such Firm Shares pursuant to this
Agreement, good and valid title thereto, free of any liens,
encumbrances, equities and claims, will be transferred to the several
Underwriters.
(ii) The Selling Stockholder has duly executed and
delivered the Custody Agreement. Certificates, in suitable form for
transfer by delivery or accompanied
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<PAGE> 10
by duly executed instruments of transfer or assignment in blank,
representing the Shares to be sold by the Selling Stockholder hereunder
have been deposited with the Custodian pursuant to the Custody
Agreement for the purpose of delivery pursuant to this Agreement. The
Selling Stockholder agrees that the shares of Common Stock represented
by the certificates on deposit with the Custodian are subject to the
interest of the Underwriters hereunder, that the arrangements made for
such custody are to that extent irrevocable, and that the obligations
of the Selling Stockholder hereunder shall not be terminated except as
provided in this Agreement and the Custody Agreement.
(iii) The Selling Stockholder has duly executed and
delivered this Agreement and the Custody Agreement; this Agreement
constitutes a legal, valid and binding obligation of the Selling
Stockholder, all authorizations and consents necessary for the
execution and delivery of this Agreement and the Custody Agreement on
behalf of the Selling Stockholder and for the sale and delivery of the
Shares to be sold by the Selling Stockholder hereunder has been given,
except as may be required by the Securities Act or state securities
laws; and the Selling Stockholder has all requisite corporate power and
authority to execute this Agreement and the Custody Agreement.
(iv) The performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated hereby
and thereby by the Selling Stockholder will not result in a breach or
violation of, or conflict with, any of the terms or provisions of, or
constitute a default by the Selling Stockholder under, any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument to which the
Selling Stockholder or any of his or its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to the Selling
Stockholder or any of his properties; provided, however, with respect
to violations of statutes, rules and regulations regarding federal or
state securities laws, nothing contained in this Section 1(b)(iv) shall
be deemed to modify the representations set forth in Section 1(b)(vii)
below.
(v) The Selling Stockholder has not distributed nor will
distribute any prospectus or other offering material in connection with
the offer and sale of the Shares other than any Preliminary Prospectus
filed with the Commission or the Final Prospectus or other material
permitted by the Securities Act.
(vi) To the knowledge of the Selling Stockholder, the
representations and warranties of the Company contained in Section 1(a)
of this Agreement are true and correct; the Selling Stockholder has
reviewed and is familiar with the Registration Statement as originally
filed with the Commission and the Preliminary Prospectus contained
therein. To the knowledge of the Selling Stockholder, the Prospectus
does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; the Selling Stockholder is not prompted to sell the
Shares to be sold by the Selling Stockholder by any information
concerning the Company that is not set forth in the Prospectus.
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(vii) At the time the Registration Statement becomes
effective (A) such parts of the Registration Statement and any
amendments and supplements thereto as specifically refer to the Selling
Stockholder will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (B) such
parts of the Prospectus as specifically refer to the Selling
Stockholder will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(viii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory body,
administrative or other governmental body is necessary in connection
with the execution and delivery of this Agreement by the Selling
Stockholder, and the consummation by the Selling Stockholder of the
transactions herein contemplated (other than as required by the
Securities Act, state securities laws and the NASD).
(ix) Any certificates signed by or on behalf of the Selling
Stockholder as such and delivered to the Representatives or to counsel
for the Representatives shall be deemed a representation and warranty
by the Selling Stockholder to each Underwriter as to the matters
covered thereby.
(x) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock of
the Company.
2. Purchase, Sale and Delivery of the Firm Shares. On the basis of the
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Sellers agree to sell to the Underwriters and
each Underwriter agrees, severally and not jointly, to purchase, at a price of
$__________ per share, the number of Firm Shares set forth opposite the name of
each Underwriter in Schedule A hereof, subject to adjustments in accordance with
Section 9 hereof. The number of Firm Shares to be purchased by each Underwriter
from each Seller shall be as nearly as practicable in the same proportion to the
total number of Firm Shares being sold by each Seller as the number of Firm
Shares being purchased by each Underwriter bears to the total number of Firm
Shares to be sold hereunder. The obligations of the Company and the Selling
Stockholder shall be several and not joint.
Certificates in negotiable form for the total number of the Shares to
be sold hereunder by the Selling Stockholder have been placed in custody with
ChaseMellon Shareholder Services, L.L.C., as custodian (the "Custodian"),
pursuant to the Custody Agreement executed by the Selling Stockholder for
delivery of all Firm Shares to be sold hereunder by the Selling Stockholder. The
Selling Stockholder specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Stockholder under the Custody
Agreement are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Stockholder for such custody are to that extent
irrevocable, and that the obligations of the Selling
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Stockholder hereunder shall not be terminable by any act or deed of the Selling
Stockholder (or by any other person, firm or corporation, including the Company,
the Custodian or the Underwriters) or by operation of law or by the occurrence
of any other event or events, except as set forth in the Custody Agreement. If
any such event should occur prior to the delivery to the Underwriters of the
Firm Shares hereunder, certificates for the Firm Shares shall be delivered by
the Custodian in accordance with the terms and conditions of this Agreement as
if such event has not occurred. The Custodian is authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company for the Shares to be sold by it and to the order of
ChaseMellon Shareholder Services, L.L.C., the Custodian, for the Shares to be
sold by the Selling Stockholder, or by wire transfer of same-day funds to
accounts specified by the Company and the Selling Stockholder, respectively, in
each case against delivery of certificates therefor to the Representatives for
the several accounts of the Underwriters. Such payment and delivery are to be
made at the offices of Equitable Securities Corporation, Nashville City Center,
Suite 800, 511 Union Street, Nashville, Tennessee, at 10:00 a.m., Nashville
time, on the fourth business day after the date of this Agreement, unless
otherwise required by the Commission pursuant to Rule 15c6-1 of the Exchange
Act, or at such other time and date not later than five business days thereafter
as you and the Company shall agree upon, such time and date being herein
referred to as the "Closing Date." (As used herein, "business day" means a day
on which the New York Stock Exchange is open for trading and on which banks in
New York are open for business and not permitted by law or executive order to be
closed.) The certificates for the Firm Shares will be delivered in such
denominations and registered in such manner as the Representatives request in
writing not later than the second full business day prior to the Closing Date,
and will be made available for inspection by the Representatives at least one
business day prior to the Closing Date.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 2. The maximum number of Option Shares to be sold by the Company is
375,000. The option granted hereby may be exercised in whole or in part but only
once and at any time upon written notice given within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears
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to the total number of Firm Shares to be sold hereunder, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in New York Clearing House funds by certified or bank
cashier's check drawn to the order of the Company or by wire transfer of
same-day funds to an account specified by the Company for the Option Shares to
be sold by it against delivery of certificates therefor at the offices of
Equitable Securities Corporation, Nashville City Center, Suite 800, 511 Union
Street, Nashville, Tennessee.
3. Offering by the Underwriters. It is understood that the several
Underwriters are to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters
will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Stockholder.
(a) The Company covenants and agrees with the several Underwriters
and the Selling Stockholder that:
(i) The Company will (A) prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus
containing information previously omitted at the time of effectiveness
of the Registration Statement in reliance on Rule 430A of the Rules and
Regulations, (B) not file any amendment to the Registration Statement
or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is
not in compliance with the Rules and Regulations, and (C) file on a
timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and prior to the termination
of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly
when the Registration Statement or any post-effective amendment thereto
shall have become effective; of the receipt of any comments from the
Commission; of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, or of the issuance by the Commission of any
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stop order suspending the effectiveness of the Registration Statement
or the use of the Prospectus or of the institution of any proceedings
for that purpose, and the Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof,
if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time,
prepare and file such statements, reports, and other documents, as are
or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, three signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement, but without exhibits, and of all amendments
thereto, as the Representatives may reasonably request.
(v) The Company will comply to the best of its ability with
the Act and the Rules and Regulations, and the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and the rules and regulations
of the Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the
Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event shall occur
as a result of which, in the judgment of the Company or in the opinion
of counsel for the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or, if it is necessary at any
time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to
the Prospectus, so that the Prospectus as so amended or supplemented
will not, in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with applicable law.
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<PAGE> 15
(vi) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any
event not later than 18 months after the effective date of the
Registration Statement, an earnings statement (which need not be
audited) in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been
made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information (including
similar documents, reports and information with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements)
furnished by the Company to its stockholders generally or filed with
any securities exchange pursuant to the requirements of such exchange
or with the Commission pursuant to the Act or the Exchange Act.
(viii) In case any Underwriter is required to deliver a
Prospectus in connection with sales of any of the shares at any time
nine months or more after the effective date of the Registration
Statement, the Company will prepare and deliver to such Underwriter as
many copies as such Underwriter reasonably requests of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act.
(ix) No offering, sale, short sale or other disposition of any
Common Stock of the Company or other securities convertible into or
exchangeable for Common Stock or derivative of Common Stock will be
made for a period of 180 days after the date of this Agreement,
directly or indirectly, by the Company otherwise than hereunder or with
the prior written consent of the Representatives except that the
Company may, without such consent, grant options pursuant to its option
plans described in the Prospectus and issue shares of Common Stock upon
the exercise thereof, issue shares upon the exercise of options and
warrants or the conversion of securities as described in the
Prospectus.
(x) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(xi) The Company will apply the net proceeds from the sale of
the Shares for the purposes set forth in the Prospectus.
(xii) The Company is familiar with the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder and has
in the past conducted and will in the future conduct its affairs in
such a manner as to ensure that the Company was not and will not be an
"investment company" within the meaning of said Act and such rules and
regulations.
(b) The Selling Stockholder covenants and agrees with the several
Underwriters and the Company that:
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<PAGE> 16
(i) No offering, sale, pledge or other disposition of any
Common Stock of the Company or any securities convertible into or
exercisable or exchangeable therefor or derivative therefrom will be
made for a period of 365 days after the date of this Agreement,
directly or indirectly, by the Selling Stockholder otherwise than
hereunder or with the prior written consent of the Representatives,
except that the Selling Stockholder may (i) dispose of Common Stock by
bona fide gift without the prior written consent of the Representatives
if the recipient of such gift agrees to be bound by the terms of this
Section 4(b), (ii) transfer shares of Common Stock to its affiliates or
subsidiaries if the transferees agrees to be bound by the terms of this
Section 4(b), and (iii) pledge shares of its Common Stock pursuant to
the CKE Credit Agreement.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, the
Selling Stockholder agrees to deliver to you prior to or at the Closing
Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
5. Cost and Expenses. The Company and the Selling Stockholder will pay,
on a pro rata basis, all costs, expenses and fees incident to the performance of
the obligations of the Sellers under this Agreement, including, without limiting
the generality of the foregoing, the following: accounting fees of the Company;
the fees and disbursements of counsel for the Company and the Selling
Stockholder; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Agreement Among Underwriters, the Underwriters'
internal selling memorandum, the Underwriters' Questionnaire, the syndicate
Invitation Letter, the Power of Attorney, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees and expenses incident to securing any required review by NASD of the terms
of the sale of the Shares; the listing fee of the Nasdaq Stock Market; and the
expenses, including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws. To the extent, if at all, that the Selling
Stockholder engages special legal counsel to represent the Selling Stockholder
in connection with this offering, the fees and expenses of such counsel shall be
borne by the Selling Stockholder. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Sellers pro rata. The
Sellers shall not, however, be required to pay for any of the Underwriters'
expenses (other than those related to qualification under state securities or
Blue Sky laws and NASD review) except that, if this Agreement shall not be
consummated because the conditions in Section 7 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
6 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Stockholder to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms results from the default or omission of any Underwriter, then
the Company shall reimburse the several Underwriters for reasonable
out-of-pocket expenses, including fees and disbursements of counsel,
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<PAGE> 17
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company and the Selling Stockholder shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. Conditions of Obligations of the Underwriters. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date are subject to the
accuracy, as of the Closing Date or the Option Closing Date, as the case may be,
of the representations and warranties of the Company and the Selling Stockholder
contained herein, and to the performance by the Company and the Selling
Stockholder of their covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable request. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued, and no proceedings for that purpose shall have been taken or,
to the best knowledge of the Company or the Selling Stockholder, shall be
contemplated by the Commission.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Stradling Yocca
Carlson & Rauth, counsel for the Company and the Selling Stockholder, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus; each of the
Subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus. The Company
and each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of their business as described
in the Prospectus requires such qualification and in which the failure
to qualify would have a materially adverse effect upon the business of
the Company and the Subsidiaries taken as a whole; and the outstanding
shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable and
are wholly owned (directly or indirectly by a Subsidiary) by the
Company; and the outstanding shares of capital stock of each of the
Subsidiaries is owned free and clear of all liens, encumbrances and
security interests, and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock of the
Subsidiaries are outstanding, except as described in or contemplated by
the Registration Statement, including the exhibits thereto.
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<PAGE> 18
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the
Prospectus; the authorized shares of its Common Stock have been duly
authorized; the outstanding shares of its Common Stock, including the
outstanding shares of Common Stock to be sold by the Selling
Stockholder, have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the description
thereof contained in the Prospectus; the certificates for the Shares
are in due and proper form; the shares of Common Stock, including the
Option Shares, if any, to be sold by the Company pursuant to this
Agreement have been duly authorized and will be validly issued, fully
paid and non-assessable when issued and paid for as contemplated by
this Agreement; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof.
(iii) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or are
pending or threatened under the Act.
(iv) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements and schedules).
(v) The statements under the captions "Business-Government
Regulation," "Management" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, are accurate summaries
in all material respects and fairly present the information called for
with respect to such documents and matters.
(vi) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not
so filed or described as required and such contracts and documents as
are summarized in the Registration Statement or the Prospectus are
fairly summarized in all material respects.
(vii) Such counsel knows of no material legal proceedings
pending or threatened against the Company or any of the Subsidiaries,
except as set forth in the Prospectus.
(viii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, (A) any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, except for any such breach or
default which would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole, or (B) the Charter or Bylaws of
the Company or any order, rule or regulation applicable to the Company
or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
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<PAGE> 19
(ix) This Agreement has been duly authorized, executed and
delivered by the Company.
(x) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the transactions
herein contemplated (other than as may be required by the NASD or as
required by state securities and Blue Sky laws as to which such counsel
need express no opinion) except such as have been obtained or made,
specifying the same.
(xi) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and there are no outstanding or authorized
options, warrants or rights of any character obligating the Company to
issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such stock; and except as described in the Prospectus, to
the best knowledge of such counsel, there is no holder of any
securities of the Company or any other person who has the right,
contractual or otherwise, to cause the Company to sell or otherwise
issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Stock or other securities of the
Company included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to require
registration under the Act of any Common Stock or other securities of
the Company.
(xii) The Company is not, and will not become, as a result
of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
(xiii) Each of the Company, Summit, Taco Bueno, JB's and CKE
had all corporate power and authority to carry out the Formation
Transactions; the Formation Transactions did not contravene any
provision of applicable law or the charter or bylaws of the Company,
Summit, Taco Bueno, JB's and CKE, or, to the best of such counsel's
knowledge, any provision of any agreement or other instrument binding
upon the Company, Summit, Taco Bueno, JB's and CKE that is material to
the Company or its Subsidiaries, taken as a whole, or, to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Company, Summit, Taco Bueno, JB's and CKE (except for any such breach
or default which would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole), and all consents,
approvals, authorizations or order of, or qualifications with, any
governmental body or agency required for the performance by the
Company, Summit, Taco Bueno, JB's and CKE of their respective
obligations under Contribution Agreement and Casa Bonita Asset Purchase
Agreement to effect the Formation Transactions have been obtained.
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<PAGE> 20
(xiv) Each of the Company and CKE has all corporate power and
authority required by law, its charter and by laws or otherwise to
carry out the North Acquisition; the consummation of the North
Acquisition will not contravene any provision of applicable law or the
charter or bylaws of the Company or its Subsidiaries and CKE, or, to
such counsel's knowledge, any provision of any agreement or other
instrument binding upon the Company or its Subsidiaries and CKE that is
material to the Company or its Subsidiaries, taken as a whole, or, to
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or its Subsidiaries and CKE, and all consents, approvals,
authorizations or order of, or qualifications with, any governmental
body or agency required for the performance by the Company or its
Subsidiaries and CKE of their respective obligations under the North
Acquisition Agreement to effect the North Acquisition have been
obtained.
(xv) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholder.
(xvi) The Selling Stockholder has full all requisite
corporate power and authority, and any approval required by law (other
than as required by state securities and Blue Sky laws as to which such
counsel need express no opinion), to sell, assign, transfer and deliver
the portion of the Shares to be sold by the Selling Stockholder.
(xvii) The Custody Agreement executed and delivered by the
Selling Stockholder is a valid, irrevocable instrument legally
sufficient for the purposes intended.
(xviii) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have
acquired good and marketable title to the Shares being sold by the
Selling Stockholder on the Closing Date, free and clear of all claims,
liens, encumbrances and security interests whatsoever.
In rendering such opinion, Stradling Yocca Carlson & Rauth may rely as
to matters governed by the laws of states other than Delaware and California or
federal laws on local counsel in such jurisdictions, provided that in each case
Stradling Yocca Carlson & Rauth shall state that they believe that they and the
Underwriters are justified in relying on such other counsel, and, as to the
matters set forth in subparagraphs (xviii), (xix) and (xx), exclusively as to
factual matters, upon contractual representations made by the Selling
Stockholder. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Registration Statement, as of the
time it became effective under the Act (but after giving effect to the changes
incorporated pursuant to Rule 430A under the Act), or as of the Closing Date or
the Option Closing Date contained (or contains) an untrue statement of a
material fact or omitted (or omits) to state a material fact required to be
stated therein or necessary to make the Statements therein not misleading, or
that the Prospectus or any amendment or supplement thereto, on the date it was
filed pursuant to Rule 424(b), or as of the Closing Date and the Option Closing
Date, as the case may be, contained (or contains), an untrue statement of a
material fact or omitted (or omits) to state a material fact required to be
stated therein or necessary to make the statements therein, in
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<PAGE> 21
the light of the circumstances under which they were made, not misleading
(except that such counsel need express no view as to financial statements and
schedules included therein).
(c) The Representatives shall have received from Orrick, Herrington
& Sutcliffe LLP, counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, with respect to the
incorporation of the Company, this Agreement, the validity of the Shares being
delivered to the Underwriters, the Registration Statement, the Prospectus and
any other related matters as you may reasonably request. Such counsel shall have
received such documents and information as they may reasonably request to enable
them to pass upon such matters. In rendering such opinion, counsel for the
Underwriters may rely as to all matters governed other than by Delaware or
California or federal laws on the opinion of counsel referred to in Paragraph
(b) of this Section 6.
(d) The Representatives shall have received at or prior to the
Closing Date from counsel for the Underwriters a memorandum or summary, in form
and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) You shall have received on the date hereof a letter dated the
date hereof in form and substance satisfactory to you, of KPMG Peat Marwick LLP
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements examined by them and
included in the Registration Statement comply in form in all material respects
with the applicable accounting requirements of the Act and the related published
Rules and Regulations; and containing such other statements and information as
is ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a signed letter from KPMG Peat
Marwick LLP, dated the Closing Date or the Option Closing Date, as the case may
be, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter signed by such firm and dated and delivered
to the Representatives on the date hereof, that nothing has come to their
attention during the period from the date five days prior to the date hereof, to
a date not more than five days prior to the Closing Date or the Option Closing
Date, as the case may be, which would require any change in their letter dated
the date hereof if it were required to be dated and delivered on the Closing
Date or the Option Closing Date, as the case may be. All such letters shall be
in form and substance satisfactory to the Representatives.
(g) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the chief executive officer and the principal financial and accounting officer
of the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
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<PAGE> 22
(i) The Registration Statement has become effective under
the Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been taken or are, to such person's knowledge,
contemplated by the Commission.
(ii) Such person does not know of any litigation instituted
or threatened against the Company of a character required to be
disclosed in the Registration Statement which is not so disclosed; he
does not know of any material contract required to be filed as an
exhibit to the Registration Statement which is not so filed; and the
representations and warranties of the Company contained in Section 1
hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be.
(iii) Such person has carefully examined the Registration
Statement and the Prospectus and, in such person's opinion, as of the
effective date of the Registration Statement, the statements contained
in the Registration Statement, were true and correct in all material
respects, and the Registration Statement and Prospectus did not omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and, in his
opinion, since the effective date of the Registration Statement, no
event has occurred which should have been set forth in a supplement to
or an amendment of the Prospectus which has not been so set forth in
such supplement or amendment.
(h) The Company and the Selling Stockholder shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties contained herein and related matters as the
Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National Market.
(j) All filings required to have been made pursuant to Rules 424 or
430A under the Act shall have been made.
(k) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there shall not have been any
material adverse change or any development involving a prospective adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business affairs, management or business prospects of the Company
whether or not arising in the ordinary course of business.
(l) The Company shall have delivered to you written agreements from
such officers and directors of the Company as you shall reasonably request
pursuant to which such persons agree with you not to offer, sell or dispose of
any Common Stock of the Company, or any securities convertible into or
exercisable or exchangeable therefor or derivative therefrom, for a period of
180 days after the date of this Agreement, directly or indirectly, except with
the prior consent of the Representatives and except for bona fide gifts if the
recipient of such gift agrees to be bound by the terms of such agreement.
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<PAGE> 23
(m) The Formation Transactions shall have been consummated.
(n) The North Acquisition shall have been consummated.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to Orrick,
Herrington & Sutcliffe LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Stockholder of such
termination in writing or by telegram at or prior to the Closing Date or Option
Closing Date, as the case may be.
In such event, the Selling Stockholder, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers. The obligations of the
Sellers to sell and deliver the portion of the Shares required to be delivered
as and when specified in this Agreement are subject to the conditions that at
the Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and in effect and no proceedings therefor shall have been initiated or
threatened.
8. Indemnification.
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of the Act against any losses,
claims, damages or liabilities to which such Underwriter or such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter and each such controlling person
upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding and
expenses reasonably incurred in responding to a subpoena or governmental inquiry
whether or not such underwriter or controlling person is a party to the related
action or proceeding; provided, however, that the Company and the Selling
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the
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<PAGE> 24
preparation thereof; provided further, however, that the liability of the
Selling Stockholder for indemnification under this Section 8(a) shall not exceed
the proceeds received by the Selling Stockholder from the sale of Shares in the
offering and the payment of the dividend in an aggregate amount of [$7.9
million] (the "Special Dividend"). The Company shall not be liable to any
Underwriter pursuant to this subsection (a) with respect to any Preliminary
Prospectus to the extent that such loss, claim, damage or liability of such
Underwriter results from the fact that such Underwriter sold securities in any
case where delivery of a Prospectus is required by the Act if the Company has
previously furnished copies of the Prospectus to such Underwriter and the loss,
claim, damage or liability of such Underwriter results from an untrue statement
or omission of a material fact contained in, or the omission of a material fact
from, such Preliminary Prospectus which was corrected in the Prospectus and such
Underwriter failed to deliver such corrected Prospectus to a purchaser of Shares
as required by the Act. This indemnity agreement will be in addition to any
liability which the Company or the Selling Stockholder may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each of its directors (including each person named in the Registration Statement
as a person to become a director of the Company (collectively, the
"Directors")), each of its officers who have signed the Registration Statement,
the Selling Stockholder, and each person, if any, who controls the Company or
the Selling Stockholder within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such Director,
officer, the Selling Stockholder or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such Director, officer, the Selling Stockholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from
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<PAGE> 25
any liability which it or they may have to the indemnified party for
contribution or otherwise than on account of the provisions of Section 8(a) or
(b). In case any such proceeding shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the case
of parties indemnified pursuant to Section 8(a) and by the Company and the
Selling Stockholder in the case of parties indemnified pursuant to Section 8(b).
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action or proceeding, of which indemnification may be sought hereunder (if the
indemnified party is an actual or reasonably likely potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of the indemnified party from all liability
arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under Section 8(c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholder on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Stockholder on the one hand and the
25
<PAGE> 26
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholder bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholder on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Stockholder and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) the
Selling Stockholder shall not be required to contribute any amount in excess of
the proceeds received by the Selling Stockholder from the sale of Shares in the
offering and the payment of the Special Dividend, and (iii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 8(d)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
9. Default by Underwriters. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Shares which such Underwriter has agreed to purchase and
pay for on such date (otherwise than by reason of any default on the part of the
Company or the Selling Stockholder), you, as Representatives of the
Underwriters, shall use your best efforts to procure within 24 hours thereafter
one or more of the other Underwriters, or any others, to purchase from the
Company and the Selling Stockholder such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 24 hours you, as such Representatives, shall not
26
<PAGE> 27
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company and the Selling Stockholder or you as the Representatives of
the Underwriters will have the right, by written notice given within the next
24-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the nondefaulting Underwriters or of the
Company or the Selling Stockholder except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Default by Selling Stockholder. If on the Closing Date the Selling
Stockholder fails to sell the Firm Shares which the Selling Stockholder has
agreed to sell on such date, the Company agrees that it will sell that number of
shares of Common Stock to the Underwriters which represents the Firm Shares
which the Selling Stockholder has failed to so sell or such lesser number as may
be requested by the Representatives; provided, that the Company shall have the
right to postpone the Closing Date to effect any required changes in the
Registration Statement or Prospectus.
11. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to Equitable Securities
Corporation, Nashville City Center, Suite 800, 511 Union Street, Nashville,
Tennessee 37219, Attention: ________________________; if to the Company, to Star
Buffet, Inc., 440 Lawndale Drive, Salt Lake City, Utah 84115-2917, Attention:
Robert E. Wheaton with a copy to Stradling Yocca Carlson & Rauth, 660 Newport
Center Drive, Suite 1600, Newport Beach, California 92660, Attention: C. Craig
Carlson, Esq.; if to the Selling Stockholder, to CKE Restaurants, Inc., 1200
North Harbor Boulevard, Anaheim, California 92801, Attention: __________________
with a copy to Stradling Yocca Carlson & Rauth, 660 Newport Center Drive, Suite
1600, Newport Beach, California 92660, Attention: C. Craig Carlson, Esq.
12. Termination. This Agreement may be terminated by you by notice to
the Sellers as follows:
27
<PAGE> 28
(a) At any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) At any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change, or
any development involving a prospective material adverse change, in or affecting
the condition, financial or otherwise, of the Company and its Subsidiaries taken
as a whole or the earnings, business affairs, management or business prospects
of the Company and its Subsidiaries taken as a whole, whether or not arising in
the ordinary course of business, (ii) any outbreak or escalation of hostilities
or declaration of war or national emergency after the date hereof or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United States would,
in your reasonable judgment, make impracticable to market the Shares or to
enforce contracts for the sale of the Shares, (iii) suspension of trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or NASDAQ or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange or NASDAQ, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your reasonable opinion materially and adversely affects or will
materially and adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities, (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States or (vii) the suspension of trading of the Company's Common
Stock on the Nasdaq National Market; or
(c) As provided in Sections 6 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company,
as to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (b) above or as provided in Sections 6 and 9 of this
Agreement.
13. Successors. This Agreement has been and is made solely for the
benefit of the Underwriters, the Company and the Selling Stockholder and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Shares merely because of such purchase. No
purchaser of Shares from any Underwriter shall be deemed a successor or assign
merely because of such purchase.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any
28
<PAGE> 29
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or its directors or officers, and (c)
delivery of and payment for the Shares under this Agreement. The other covenants
of the Company in this Agreement shall remain in full force and effect
regardless of (i) any investigation made by or on behalf of any underwriter or
controlling person and (ii) delivery of any payment for the Shares under this
Agreement.
The Company, the Selling Stockholder and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
information provided in connection with Item 502(d) of Regulation S-K under the
Act and information under the caption "Underwriting" in the Prospectus.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Tennessee, without giving effect to its principles of
conflicts of law.
29
<PAGE> 30
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholder, CKE,
the Company and the several Underwriters in accordance with its terms. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement Among
Underwriters, the form of which shall be submitted to the Company for
examination, upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
STAR BUFFET, INC.
By:
-------------------------------------
Robert E. Wheaton
President and Chief Executive Officer
CKE RESTAURANTS, INC.
By:
-------------------------------------
William P. Foley II
Chairman and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Equitable Securities Corporation
EVEREN Securities, Inc.
Cruttenden Roth Incorporated
As Representatives of the several
Underwriters listed on Schedule A
By: Equitable Securities Corporation
By:
--------------------------------
Authorized Officer
30
<PAGE> 31
SCHEDULE A
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Equitable Securities Corporation......................
EVEREN Securities, Inc. ..............................
Cruttenden Roth Incorporated..........................
Total 2,500,000
</TABLE>
31
<PAGE> 32
SCHEDULE B
SCHEDULE OF SUBSIDIARIES
<TABLE>
<CAPTION>
Ownership Percentage
Name of the Company
- ---- --------------------
<S> <C>
Summit Family Restaurants Inc. 100%
HTB Restaurants, Inc.* 100%
[Entity formed to complete the North Acquisition] 100%
</TABLE>
- --------
* owned by Summit Family Restaurants Inc.
32
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
STAR BUFFET, INC.
A DELAWARE CORPORATION
AS ADOPTED ______________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I .......................................................................................................3
SECTION 1. REGISTERED OFFICE...........................................................................3
SECTION 2. OTHER OFFICES...............................................................................3
SECTION 3. BOOKS.......................................................................................3
ARTICLE II ......................................................................................................3
SECTION 1. PLACE OF MEETINGS...........................................................................3
SECTION 2. ANNUAL MEETINGS.............................................................................3
SECTION 3. SPECIAL MEETINGS............................................................................3
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING........................................3
SECTION 5. NOTICE; WAIVER OF NOTICE....................................................................4
SECTION 6. QUORUM; ADJOURNMENT.........................................................................4
SECTION 7. VOTING......................................................................................4
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.....................................4
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE.......................................................5
SECTION 10. STOCK LEDGER................................................................................5
SECTION 11. INSPECTORS OF ELECTION......................................................................5
SECTION 12. ORGANIZATION................................................................................5
SECTION 13. ORDER OF BUSINESS...........................................................................5
ARTICLE III .....................................................................................................6
SECTION 1. POWERS......................................................................................6
SECTION 2. NUMBER AND ELECTION OF DIRECTORS............................................................6
SECTION 3. VACANCIES...................................................................................6
SECTION 4. TIME AND PLACE OF MEETINGS..................................................................6
SECTION 5. ANNUAL MEETING..............................................................................6
SECTION 6. REGULAR MEETINGS............................................................................7
SECTION 7. SPECIAL MEETINGS............................................................................7
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT...............................................7
SECTION 9. ACTION BY WRITTEN CONSENT...................................................................7
SECTION 10. TELEPHONE MEETINGS..........................................................................7
SECTION 11. COMMITTEES..................................................................................8
SECTION 12. COMPENSATION................................................................................8
SECTION 13. INTERESTED DIRECTORS........................................................................8
ARTICLE IV ......................................................................................................9
SECTION 1. OFFICERS....................................................................................9
SECTION 2. APPOINTMENT OF OFFICERS.....................................................................9
SECTION 3. SUBORDINATE OFFICERS........................................................................9
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS.........................................................9
SECTION 5. VACANCIES IN OFFICES........................................................................9
SECTION 6. CHAIRMAN OF THE BOARD.......................................................................9
SECTION 7. VICE CHAIRMAN OF THE BOARD..................................................................9
SECTION 8. CHIEF EXECUTIVE OFFICER.....................................................................9
SECTION 9. PRESIDENT...................................................................................10
SECTION 10. VICE PRESIDENT..............................................................................10
SECTION 11. SECRETARY...................................................................................10
SECTION 12. CHIEF FINANCIAL OFFICER.....................................................................10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V .......................................................................................................11
SECTION 1. FORM OF CERTIFICATES........................................................................11
SECTION 2. SIGNATURES..................................................................................11
SECTION 3. LOST CERTIFICATES...........................................................................11
SECTION 4. TRANSFERS...................................................................................11
SECTION 5. RECORD HOLDERS..............................................................................12
ARTICLE VI ......................................................................................................12
SECTION 1. RIGHT TO INDEMNIFICATION....................................................................12
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT...........................................................13
SECTION 3. NON-EXCLUSIVITY OF RIGHTS...................................................................13
SECTION 4. INSURANCE...................................................................................13
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION...................................13
SECTION 6. INDEMNIFICATION CONTRACTS...................................................................13
SECTION 7. EFFECT OF AMENDMENT.........................................................................13
ARTICLE VII .....................................................................................................13
SECTION 1. DIVIDENDS...................................................................................13
SECTION 2. DISBURSEMENTS...............................................................................14
SECTION 3. FISCAL YEAR.................................................................................14
SECTION 4. CORPORATE SEAL..............................................................................14
SECTION 5. RECORD DATE.................................................................................14
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION....................................................14
SECTION 7. CONSTRUCTION AND DEFINITIONS................................................................14
SECTION 8. AMENDMENTS..................................................................................14
</TABLE>
<PAGE> 4
BYLAWS
OF
JB'S RESTAURANTS, INC.
a Delaware corporation
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICER. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
SECTION 3. BOOKS. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of a stockholder or
stockholders owning stock of the Corporation possessing ten percent (10%) of the
voting power possessed by all of the then outstanding capital stock of any class
of the Corporation entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.
-3-
<PAGE> 5
SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by law, such notice shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting of the time and place of the adjourned meeting, until a quorum shall
be present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
SECTION 7. VOTING. Except as otherwise required by law, or provided by
the Certificate of Incorporation or these Bylaws, any question brought before
any meeting of stockholders at which a quorum is present shall be decided by the
vote of the holders of a majority of the stock represented and entitled to vote
thereat. Unless otherwise provided in the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. Elections of directors need not be by ballot
unless the Chairman of the meeting so directs or unless a stockholder demands
election by ballot at the meeting and before the voting begins.
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Except as otherwise provided in the Certificate of Incorporation, any action
which may be taken at any annual or special meeting of stockholders, may be
taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. All such consents shall be filed with the
Secretary of the Corporation and shall be maintained in the corporate records.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
-4-
<PAGE> 6
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence or
if one shall not have been elected, the President) shall act as Chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the Chairman of the meeting shall appoint secretary of the meeting) shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 13. ORDER OF BUSINESS. The order and manner of transacting
business at all meetings of stockholders shall be determined by the Chairman of
the meeting.
-5-
<PAGE> 7
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations
in the Certificate of Incorporation, the authorized number of directors of the
Corporation shall be three (3) until changed by an amendment to this Bylaw
adopted by the affirmative vote of a majority of the entire Board of Directors.
Directors shall be elected at each annual meeting of stockholders to replace
directors whose terms then expire, and each director elected shall hold office
until his successor is duly elected and qualified, or until his earlier death,
resignation or removal. Any director may resign at any time effective upon
giving written notice to the Board of Directors, unless the notice specifies a
later time for such resignation to become effective. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor prior to such effective time to take
office when such resignation becomes effective. Directors need not be
stockholders.
SECTION 3. VACANCIES. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so selected shall hold office for the
remainder of the full term of office of the former director which such director
replaces and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Director shall hold
its meetings at such place, either within or without the State of Delaware, and
at such time as may be determined from time to time by the Board of Directors.
SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place, either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided in
Section 7 of this Article III or in a waiver of notice thereof.
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SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such date
and time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or by
any director. Notice of the date, time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at the director's
address as it is shown on the records of the Corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. The notice need not specify the purpose of
the meeting. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting.
SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the Certificate of Incorporation, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute presence
in person at such meeting.
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SECTION 11. COMMITTEES. The Board of Directors may, by resolution
passed unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the committee member or members present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member. Any committee, to the extent allowed by law
and as provided in the resolution establishing such committee, shall have and
may exercise all the power and authority of the Board of Directors in the
management of the business and affairs of the Corporation, but no such committee
shall have the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes of its meetings and report to the Board of
Directors when required.
SECTION 12. COMPENSATION. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time determine.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
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ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, a
Vice Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents, one or more Assistant Financial Officers and Treasurers, one or more
Assistant Secretaries and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article IV.
SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be appointed by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint,
and may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights
of an officer under any contract, any officer may be removed at any time, with
or without cause, by the Board of Directors or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation shall be without prejudice to
the rights of the Corporation under any contract to which the officer is a
party.
SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors. He shall, in addition, perform such other
functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all duties of the Chairman of the Board and when
so acting shall have all the powers of and be subject to all of the restrictions
upon the Chairman of the Board. The Vice Chairman of the Board shall have such
other powers and duties as may be prescribed by the Board of Directors or the
Bylaws.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and
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control of the business and the officers of the Corporation. He shall exercise
the duties usually vested in the chief executive officer of a corporation and
perform such other powers and duties as may be assigned to him from time to time
by the Board of Directors or prescribed by the Bylaws. In the absence of the
Chairman of the Board and any Vice Chairman of the Board, the Chief Executive
Officer shall preside at all meetings of the stockholders and of the Board of
Directors.
SECTION 9. PRESIDENT. The President of the Corporation shall, subject
to the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the Chairman of the Board, Vice Chairman of the Board and Chief Executive
Officer, the President shall preside at all meetings of the Board of Directors
and stockholders.
SECTION 10. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a Vice President designated by the Board
of Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at Directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep or cause to be kept the seal of the
Corporation if one be adopted, in safe custody, and shall have such powers and
perform such other duties as may be prescribed by the Board of Directors or by
the Bylaws.
SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation.
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The Chief Financial Officer shall also have such other powers and perform such
other duties as may be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name of
the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and (ii) by the Chief Financial Officer or
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by such
stockholder in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Corporation may issue a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation, alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. The Corporation may, in the discretion of the Board of
Directors and as a condition precedent to the issuance of such new certificate,
require the owner of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnify it against any claim that may be made against the Corporation
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the record
holder of shares to receive dividends, and to vote as such record holder, and to
hold liable for calls and assessments a person registered on its books as the
record holder of shares, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise required by law.
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ARTICLE VI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of this Article VI with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking, by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Article VI or otherwise (hereinafter an
"undertaking").
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section
1 of this Article VI is not paid in full by the Corporation within forty-five
(45) days after a written claim has been received by the Corporation, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or part in any
such suit or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) to have made a determination prior to the commencement of
such suit that
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<PAGE> 14
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of expenses
under this Article VI or otherwise shall be on the Corporation.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and
to the advancement of expenses conferred in this Article VI shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION.
The Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VI.
SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification
of any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
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SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal
in such form as shall be prescribed by the Board of Directors.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. Stockholders on the record date are entitled to
notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as otherwise provided by agreement or by applicable law.
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of
the Board, the Chief Executive Officer, the President and any other officer of
the Corporation authorized by the Board of Directors shall have power, on behalf
of the Corporation, to attend, vote and grant proxies to be used at any meeting
of stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the
State of Delaware, the Certificate of Incorporation and these Bylaws, the Board
of Directors may by the affirmative vote of a majority of the entire Board of
Directors amend or repeal these Bylaws, or adopt other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws
may be adopted, at any annual meeting of the stockholders (or at any special
meeting thereof duly called for that purpose) by a majority of the combined
voting power of the then outstanding shares of capital stock of all classes and
series of the Corporation entitled to vote generally in the election of
directors, voting as a single class, provided that, in the notice of any such
special meeting, notice of such purpose shall be given.
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<PAGE> 1
EXHIBIT 10.1
STAR BUFFET, INC.
1997 STOCK INCENTIVE PLAN
This 1997 STOCK INCENTIVE PLAN (the "Plan") is hereby established by
STAR BUFFET, INC. (the "Company") and adopted by its Board of Directors as of
the ____ day of ___________, 1997 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees, officers,
directors (including non-employee officers and directors), consultants and other
service providers and persons with important business relationships with the
Company upon whose judgment, initiative and efforts the successful conduct and
development of the Company's business largely depends, and (b) to provide
additional incentives to such persons or entities to devote their utmost effort
and skill to the advancement and betterment of the Company, by providing them an
opportunity to participate in the ownership of the Company and thereby have an
interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change of Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of the Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change
<PAGE> 2
the state in which the Company is incorporated; (iii) the sale, transfer or
other disposition of all or substantially all of the assets of the Company; (iv)
a complete liquidation or dissolution of the Company; or (v) any reverse merger
in which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to or acquired by a person or
persons different from the persons holding those securities immediately prior to
such merger.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 6.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, $0.001 par
value, of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan
is adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per
share of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to trading
on a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of
valuation, then the Fair Market Value shall be determined by the Administrator
in good faith using any reasonable method of evaluation, which determination
shall be conclusive and binding on all interested parties.
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<PAGE> 3
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated
and qualified as an "incentive stock option" as defined in Section 422 of the
Code.
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member
of the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that
is not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Stockholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement"
means an Option Agreement with respect to a Nonqualified Option.
2.17 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.18 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.19 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.20 PARTICIPANT. "Participant" means an individual or entity who holds
an Option.
2.21 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.22 10% STOCKHOLDER. "10% Stockholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
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<PAGE> 4
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company
or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.
3.2 NONQUALIFIED OPTIONS. Officers and other key employees of the
Company or of an Affiliated Company, members of the Board (whether or not
employed by the Company or an Affiliated Company), Service Providers, and other
persons with important business relationships with the Company, are eligible to
receive Nonqualified Options under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Options in any one calendar year pursuant to which the aggregate number of
shares of Common Stock that may be acquired thereunder exceeds 300,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. A total of 750,000 shares of Common
Stock may be issued under the Plan, subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation,
in the event that (a) all or any portion of any Option granted under the Plan
can no longer under any circumstances be exercised, or (b) any shares of Common
Stock are reacquired by the Company pursuant to an Incentive Option Agreement or
a Nonqualified Option Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option, or the shares so reacquired, shall again be
available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements
in order to preserve, as nearly as practical, but not to increase, the benefits
to Participants.
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<PAGE> 5
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall
be evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. A form
of the Option Agreement is attached hereto as Exhibit "A;" however, each Option
Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock
covered by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Stockholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
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<PAGE> 6
5.4 TERM AND TERMINATION OF OPTIONS. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted. An Incentive Option
granted to a person who is a 10% Stockholder on the date of grant shall not be
exercisable more than five (5) years after the date it is granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and be
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS STOCKHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6.
ADMINISTRATION OF THE PLAN
6.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
6.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at
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<PAGE> 7
which, Incentive Options or Nonqualified Options shall be granted, the number of
shares to be represented by each Option and the consideration to be received by
the Company upon the exercise thereof; (b) to interpret the Plan; (c) to create,
amend or rescind rules and regulations relating to the Plan; (d) to determine
the terms, conditions and restrictions contained in, and the form of, Option
Agreements; (e) to determine the identity or capacity of any persons who may be
entitled to exercise a Participant's rights under any Option under the Plan; (f)
to correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any Option Agreement; (g) to accelerate the vesting of any
Option; (h) to extend the exercise date of any Option; (i) to provide for rights
of first refusal and/or repurchase rights; (j) to amend outstanding Option
Agreements to provide for, among other things, any change or modification which
the Administrator could have provided for upon the grant of an Option or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
6.3 LIMITATION ON LIABILITY. No employee of the Company or member of
the Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
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<PAGE> 8
ARTICLE 7.
CHANGE IN CONTROL
7.1 CHANGE IN CONTROL. In order to preserve a Participant's rights in
the event of a Change in Control of the Company, (i) the time period relating to
the exercise or realization of all outstanding Options shall automatically
accelerate immediately prior to the consummation of such Change in Control, and
(ii) with respect to Options, the Administrator in its discretion may, at any
time an Option is granted, or at any time thereafter, take one or more of the
following actions: (A) provide for the purchase or exchange of each Option for
an amount of cash or other property having a value equal to the difference, or
spread, between (x) the value of the cash or other property that the Participant
would have received pursuant to such Change in Control transaction in exchange
for the shares issuable upon exercise of the Option had the Option been
exercised immediately prior to such Change in Control transaction and (y) the
Exercise Price of such Option, (B) adjust the terms of the Options in a manner
determined by the Administrator to reflect the Change in Control, (C) cause the
Options to be assumed by another entity, through the continuance of the Plan and
the assumption of outstanding Options, or the substitution for such Options of
new options of comparable value covering shares of a successor corporation, with
appropriate adjustments as to the number and kind of shares and Exercise Prices,
in which event the Plan and such Options, or the new options and rights to
purchase substituted therefor, shall continue in the manner and under the terms
so provided, or (D) make such other provision as the Administrator may consider
equitable. If the Administrator does not take any of the foregoing actions, this
Option shall terminate upon the consummation of the Change in Control and the
Administrator shall cause written notice of the proposed transaction to be given
to the Optionee not less than fifteen (15) days prior to the anticipated
effective date of the proposed transaction.
ARTICLE 8.
AMENDMENT AND TERMINATION OF THE PLAN
8.1 AMENDMENTS. The Board may from time to time alter, amend, suspend
or terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement without such Participant's consent. The Board may
alter or amend the Plan to comply with requirements under the Code relating to
Incentive Options or other types of options which give Optionees more favorable
tax treatment than that applicable to Options granted under this Plan as of the
date of its adoption. Upon any such alteration or amendment, any outstanding
Option granted hereunder may, if the Administrator so determines and if
permitted by applicable law, be subject to the more favorable tax treatment
afforded to an Optionee pursuant to such terms and conditions.
8.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options may be granted under the Plan thereafter, but
Option Agreements then outstanding shall continue in effect in accordance with
their respective terms.
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<PAGE> 9
ARTICLE 9.
TAX WITHHOLDING
9.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised under the Plan. To the extent permissible under
applicable tax, securities and other laws, the Administrator may, in its sole
discretion and upon such terms and conditions as it may deem appropriate, permit
a Participant to satisfy his or her obligation to pay any such tax, in whole or
in part, up to an amount determined on the basis of the highest marginal tax
rate applicable to such Participant, by (a) directing the Company to apply
shares of Common Stock to which the Participant is entitled as a result of the
exercise of an Option or (b) delivering to the Company shares of Common Stock
owned by the Participant. The shares of Common Stock so applied or delivered in
satisfaction of the Participant's tax withholding obligation shall be valued at
their Fair Market Value as of the date of measurement of the amount of income
subject to withholding.
ARTICLE 10.
MISCELLANEOUS
10.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits
under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.
10.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a
voluntary undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant to be
consideration for, or an inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to give the right to
any Participant to be retained as an employee of the Company or any Affiliated
Company or to interfere with the right of the Company or any Affiliated Company
to discharge any Participant at any time.
10.3 APPLICATION OF FUNDS. The proceeds received by the Company from
the sale of Common Stock pursuant to Option Agreements, except as otherwise
provided herein, will be used for general corporate purposes.
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<PAGE> 1
EXHIBIT 10.2
STAR BUFFET, INC.
STOCK OPTION AGREEMENT
TYPE OF OPTION (CHECK ONE): [ ] INCENTIVE [ ] NONQUALIFIED
This Stock Option Agreement (the "Agreement") is entered into as of
_____________, 19__, by and between Star Buffet, Inc., a Delaware corporation
(the "Company"), and ________________________________________ (the "Optionee")
pursuant to the Company's 1997 Stock Incentive Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
(the "Option") to purchase all or any portion of a total of ___________________
(____) shares (the "Shares") of the Common Stock of the Company at a purchase
price of _________________________ ($_____) per share (the "Exercise Price"),
subject to the terms and conditions set forth herein and the provisions of the
Plan. If the box marked "Incentive" above is checked, then this Option is
intended to qualify as an "incentive stock option" as defined in Section 422 of
the Internal Revenue Code of l986, as amended (the "Code"). If this Option fails
in whole or in part to qualify as an incentive stock option, or if the box
marked "Nonqualified" is checked, then this Option shall to that extent
constitute a nonqualified stock option.
2. VESTING OF OPTION. The right to exercise this Option shall vest in
installments, and this Option shall be exercisable from time to time in whole or
in part as to any vested installment, as follows:
This Option shall be
On or After: Exercisable as to:
------------ ------------------
(i) _________________ , 19___: ______________ shares
(ii) _________________ , 19___: an additional ______________ shares
(iii) _________________ , 19___: an additional ______________ shares
(iv) _________________ , 19___: an additional ______________ shares
No additional shares shall vest after the date of termination of Optionee's
"Continuous Service" (as defined in Section 3 below), but this Option shall
continue to be exercisable in accordance with Section 3 hereof with respect to
that number of shares that have vested as of the date of termination of
Optionee's Continuous Service.
3. TERM OF OPTION. Optionee's right to exercise this Option shall
terminate upon the first to occur of the following:
(a) the expiration of ____ (____) years from the date of this
Agreement;
<PAGE> 2
(b) the expiration of three (3) months from the date of termination
of Optionee's Continuous Service if such termination occurs for any reason other
than permanent disability, death or voluntary resignation; provided, however,
that if Optionee dies during such three-month period the provisions of Section
3(e) below shall apply;
(c) the expiration of one (1) month from the date of termination of
Optionee's Continuous Service if such termination occurs due to voluntary
resignation; provided, however, that if Optionee dies during such one-month
period the provisions of Section 3(e) below shall apply;
(d) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to permanent disability
of the Optionee (as defined in Section 22(e)(3) of the Code);
(e) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to Optionee's death or
if death occurs during either the three-month or one-month period following
termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c)
above, as the case may be; or
(f) upon the consummation of a "Change in Control" (as defined in
Section 2.4 of the Plan), unless otherwise provided pursuant to Section 9 below.
As used herein, the term "Continuous Service" means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or by
a corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code), or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the Company
until Optionee resigns, is removed from office, or Optionee's term of office
expires and he or she is not reelected, or (iii) so long as Optionee is engaged
as a consultant or service provider to the Company or other corporation referred
to in clause (i) above.
4. EXERCISE OF OPTION. On or after the vesting of any portion of this
Option in accordance with Sections 2 or 9 hereof, and until termination of the
right to exercise this Option in accordance with Section 3 above, the portion of
this Option which has vested may be exercised in whole or in part by the
Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive
offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional Shares may
be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment
of the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws with respect to the taxable income, if any, recognized
by the Optionee in connection with the exercise of this Option
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<PAGE> 3
(unless the Company and Optionee shall have made other arrangements for
deductions or withholding from Optionee's wages, bonus or other compensation
payable to Optionee, or by the withholding of Shares issuable upon exercise of
this Option or the delivery of Shares owned by the Optionee in accordance with
Section 10.1 of the Plan, provided such arrangements satisfy the requirements of
applicable tax laws); and
(d) a letter, if requested by the Company, in such form and
substance as the Company may require, setting forth the investment intent of the
Optionee, or person designated in Section 5 below, as the case may be.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under
this Agreement may not be assigned or transferred except by will or by the laws
of descent and distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Any attempt to sell, pledge, assign,
hypothecate, transfer or dispose of this Option in contravention of this
Agreement or the Plan shall be void and shall have no effect. If the Optionee's
Continuous Service terminates as a result of his or her death, and provided
Optionee's rights hereunder shall have vested pursuant to Section 2 hereof,
Optionee's legal representative, his or her legatee, or the person who acquired
the right to exercise this Option by reason of the death of the Optionee
(individually, a "Successor") shall succeed to the Optionee's rights and
obligations under this Agreement. After the death of the Optionee, only a
Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that this Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Shares under the Securities Act
of l933, as amended (the "Securities Act"), on the basis of certain exemptions
from such registration requirement. Accordingly, Optionee agrees that his or her
exercise of the Option may be expressly conditioned upon his or her delivery to
the Company of an investment certificate including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing thereof and an agreement by Optionee that the
certificates evidencing the Shares may bear a legend indicating such
non-registration under the Securities Act and the resulting restrictions on
transfer. Optionee acknowledges that, because Shares received upon exercise of
an Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the
Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan.
7. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of this Option, and Optionee
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<PAGE> 4
hereby consents to the placing of any such legends upon certificates evidencing
the Shares as the Company, or its counsel, may deem necessary or advisable.
8. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend or other change in the
capital structure of the Company, then appropriate adjustment shall be made by
the Administrator to the number of Shares subject to the unexercised portion of
this Option and to the Exercise Price per share, in order to preserve, as nearly
as practical, but not to increase, the benefits of the Optionee under this
Option, in accordance with the provisions of Section 4.2 of the Plan.
9. CHANGE IN CONTROL. In the event of a Change in Control (as defined
in Section 2.4 of the Plan) of the Company, (i) the vesting of this Option
pursuant to Section 2 above shall automatically accelerate immediately prior to
the consummation of such Change in Control, and (ii) the Administrator in its
discretion may take one or more of the following actions: (A) provide for the
purchase or exchange of this Option for an amount of cash or other property
having a value equal to the difference, or spread, between (x) the value of the
cash or other property that the Optionee would have received pursuant to such
Change in Control transaction in exchange for the shares issuable upon exercise
of this Option had this Option been exercised immediately prior to such Change
in Control transaction and (y) the Exercise Price, (B) adjust the terms of this
Option in a manner determined by the Administrator to reflect the Change in
Control, (C) cause this Option to be assumed, or new rights substituted
therefor, by another entity, through the continuance of the Plan and the
assumption of this Option, or the substitution for this Option of a new option
of comparable value covering shares of a successor corporation, with appropriate
adjustments as to the number and kind of shares and Exercise Price, in which
event the Plan and this Option, or the new option substituted therefor, shall
continue in the manner and under the terms so provided, or (D) make such other
provision as the Administrator may consider equitable. If the Administrator does
not take any of the forgoing actions, this Option shall terminate upon the
consummation of the Change in Control and the Administrator shall cause written
notice of the proposed transaction to be given to the Optionee not less than
fifteen (15) days prior to the anticipated effective date of the proposed
transaction.
10. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option
nor the exercise hereof shall be construed as granting to the Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved.
11. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this option
by will or by the laws of descent and distribution) shall have no rights as a
shareholder with respect to any Shares covered by this Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares, notwithstanding the exercise of this Option.
12. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested by
the Company or the managing underwriter of any proposed public offering of the
Company's securities, Optionee will not sell or otherwise transfer or dispose of
any Shares held by Optionee without the prior written consent of the Company or
such underwriter, as the case may be, during such period of time, not to
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<PAGE> 5
exceed 180 days following the effective date of the registration statement filed
by the Company with respect to such offering, as the Company or the underwriter
may specify.
13. INTERPRETATION. This Option is granted pursuant to the terms of the
Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.
14. NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention: the
Chief Financial Officer, and if to the Optionee, at his or her most recent
address as shown in the employment or stock records of the Company.
15. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this
Agreement, the Company will furnish to the Optionee copies of all annual and
other periodic financial and informational reports that the Company distributes
generally to its shareholders.
16. GOVERNING LAW. The validity, construction, interpretation, and
effect of this Option shall be governed by and determined in accordance with the
laws of the State of California.
17. SEVERABILITY. Should any provision or portion of this Agreement be
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one instrument.
19. SECURITIES LAW COMPLIANCE. The sale of the Shares that are the
subject of this Agreement has not been qualified with the administrator of the
securities laws of any state and the issuance of such Shares or the payment or
receipt of any part of the consideration therefor prior to such qualification
may be unlawful, unless the sale of such Shares is exempt from such
qualification. The rights of all parties to this Agreement are expressly
conditioned upon such qualification being obtained, unless the sale is so
exempt.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
STAR BUFFET, INC. "OPTIONEE"
By: ___________________________ ___________________________
(Signature)
Name: _________________________
Title: ________________________ ___________________________
(Type or print name)
6
<PAGE> 1
EXHIBIT 10.3
YATES INDUSTRIAL PARK
405 LAWNDALE DRIVE, 12600 SOUTH SALT LAKE CITY, UTAH 84115
COMMERCIAL AND INDUSTRIAL LEASE
(New Construction)
THIS LEASE made and entered into this 25th day of July, 1979, by and
between GORDON H. YATES, hereinafter called "Landlord," and TRACY COLLINS BANK
AND TRUST, hereinafter called "Tenant."
W I T N E S S E T H:
In consideration of the covenants and agreements of the respective
parties herein contained, the parties hereto do hereby agree as follows:
I. DEMISED PREMISES:
Landlord has demised and let and by these presents does hereby demise
and let unto Tenant, and Tenant leases and hires from Landlord all those certain
premises hereinafter more fully described, together with the buildings and other
improvements now and hereafter erected thereon for the term and upon the rental
and the covenants and agreements of the respective parties herein set forth.
Said premises consist of a parcel of ground in what is commonly known as
YATES INDUSTRIAL PARK, located in South Salt Lake City, State of Utah, more
particularly described on Exhibit "A" annexed hereto as a part hereof.
II. ERECTION OF BUILDING AND OTHER IMPROVEMENTS:
(a) Building: Landlord agrees to erect on the above described premises a
building containing approximately 27,120 square feet of floor space with
appurtenances and other improvements in accordance with the plans and
specifications attached hereto and marked Exhibit "B," signed by the parties to
this agreement, and by this reference made a part hereof (such building,
appurtenances and improvements being hereinafter, for the sake of brevity,
referred to collectively as "building"). Landlord represents and warrants that
building will be erected in a good, safe and workmanlike manner with all
facilities, installations, and equipment (and sewer, water, and public utility
connections, if provided in plans and specifications) installed and completed in
good working order and condition and ready for legal occupancy on or before 200
days after execution of lease, subject to delays due to strikes, acts of God,
unavailability of materials or other causes beyond Landlord's control. Building
so erected by Landlord shall in every respect comply with the laws, ordinances
and regulations, municipal or otherwise, that may govern the construction of the
same and Landlord shall hold Tenant harmless of and from any loss or damage
caused by defective construction
<PAGE> 2
of said new building or by reason of any mechanic's lien or encumbrances of any
kind or nature against the property.
(b) Completion: Promptly upon completion of building in accordance with
the provisions of this Lease, Landlord will give written notice thereof to
Tenant and within ten (10) days after the receipt of such notice, Tenant will
give written notice of its acceptance of the property if the property shall have
been completed and ready for occupancy in accordance with the provisions of this
agreement, or notice of the respects in which the building has not been
satisfactorily completed. If no notice is given, then it shall be conclusively
presumed that the property is acceptable to Tenant. If notice that the property
has not been satisfactorily completed shall be validly given, then Landlord
shall immediately proceed to make the necessary corrections and thereafter new
notices as provided for in this article shall be given. Upon acceptance of
building by Tenant, Exhibit "C" shall be filled in and executed by the parties
hereto.
III. TERM:
The term of this Lease shall be for 20 years commencing on the date of
Tenant's acceptance of the property as hereinabove provided or upon occupancy of
said premises by Tenant, whichever event shall occur first, and ending twenty
(20) years thereafter; provided, that, if the term shall commence on a day other
than the 1st day of a calendar month, rental shall be paid for the fraction of
the first month in proportion to the monthly rental rate as hereafter provided,
and the term provided for in this Lease shall consist of twenty (20) years in
addition to that part of the calendar month during which completion occurred.
IV. TERMS AND CONDITIONS OF LEASE:
This Lease is made on the following terms and conditions, which are
expressly agreed to by Landlord and Tenant:
1. RENT: Tenant agrees to pay as rental to Landlord, at the address
specified in this Lease or at such other place Landlord may from time to time
designate in writing, the sum of Two Million Eight Hundred Eighty Thousand and
No/100 Dollars ($2,880,000), said sum to be in lawful money of the United
States, payable as follows: $24,000.00 upon possession of the building, which is
rent for the first and two hundred fortieth month of this lease, then $12,000.00
each and every month thereafter until one month before the completion of the
term of this lease.
In the event Tenant shall fail to pay said rental on the due date or
within ten (10) days thereafter, a late charge of two (2) percent of the monthly
rental shall be added to the rental and paid to Landlord for each such late
payment; provided, however, that the total late charges in any year shall not
exceed ten percent (10%) of the annual rental due hereunder.
2. AUTHORIZED USE: Tenant shall use the leased premises for the
following purpose, and for no other purpose whatsoever, without the written
consent of Landlord first had and obtained: office - computer center.
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3. TENANT TO INSURE BUILDINGS: Tenant shall insure and keep insured
against the perils of fire, lightning, and "extended coverages," the premises of
Landlord hereby leased. Such insurance shall be made payable to Landlord and
mortgagee as their interests appear and shall be in an amount sufficient to
provide recovery, in the event of loss, of not less than ninety percent (90%) of
the replacement value of the improvements of the leased premises damaged or
destroyed. Such insurance provided for hereunder shall be in a company or
companies acceptable to Landlord and shall be procured and paid for by Tenant
and said policy or policies will be delivered to Landlord. Such insurance may,
at Tenant's election, be carried under any general blanket insurance policy of
Tenant; provided, however, that a satisfactory certificate of the insurer
evidencing insurance carried with proof of payment of the premium shall be
deposited with Landlord.
4. CONDITION OF THE PREMISES: Tenant accepts the leased premises in the
same condition they are in at the time of the commencement of the term of this
Lease. Tenant agrees if, during said term, Tenant shall change the usual method
of conducting Tenant's business on the leased premises, or should Tenant install
thereon or therein any new facilities, Tenant will, at the cost and expense of
Tenant, make alterations or improvements in or to the demised premises which may
be required by reason of any Federal or State law, or by any municipal
ordinance, or regulation applicable thereto.
5. REPAIR AND CARE OF BUILDING BY TENANT: Tenant will not commit any
waste of the demised premises, nor shall it use or permit the use of the
premises in violation of any present or future law of the United States or of
the State in which said premises are located, or in violation of any municipal
ordinance or regulation applicable thereto. Tenant agrees to keep the interior
and the exterior of the building, and the improvements on the premises outside
the building and grounds in good condition and repair, including all labor,
materials and other repairs to the electrical wiring, plumbing, air conditioning
and heating systems (including spring and fall servicing as recommended by the
manufacturer, and replacement of filters as necessary); the mowing of grass,
care of shrubs, general landscaping, if any, and to clean and paint the interior
and exterior of the leased premises as the same may or might be necessary in
order to maintain said premises in a clean, attractive and sanitary condition.
Tenant shall keep the driveways and sidewalks, if any, reasonably free from ice
and snow.
6. REPAIR OF BUILDING BY LANDLORD: Landlord agrees, for the term of this
Lease, to maintain , and to repair any latent defects in the exterior
----------
walls, floor joists, and foundations, and to repair any defects in the plumbing,
electrical, heating and air conditioning systems for one year after date of
occupancy, as well as any damage that might result from acts of Landlord or
Landlord's representatives. Landlord shall not, however, be obligated to repair
any such damage until written notice of the need of repair shall have been given
to Landlord by Tenant, and, after such notice is so given, Landlord shall have a
reasonable time in which to make such repairs.
7. ALTERATION OF BUILDINGS AND INSTALLATION OF FIXTURES AND OTHER
APPURTENANCES: Tenant may, with consent of Landlord, but at its own cost and
expense in a good, workmanlike manner, make such alterations and repairs in the
building as Tenant may require for the conduct of its business without, however,
materially altering the basic character of the building or improvements, or
weakening any structure on the demised premises. Tenant shall have the right,
without the permission of Landlord, to erect, at Tenant's sole cost and expense,
such temporary partitions, including office partitions, as may be necessary to
facilitate the handling of
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Tenant's business and to install electrical fixtures, additional lights and
wiring and other trade appliances. Any alterations or improvements to the leased
premises, including partitions, all electrical fixtures, lights and wiring,
shall, at the option of Landlord, become the property of Landlord, at the
expiration or sooner termination of this Lease. Should Landlord request Tenant
to remove all or any part of the above mentioned items, Tenant shall do so prior
to the expiration of this Lease and repair the premises as described below.
Temporary shelves, bins and machinery installed by Tenant shall remain the
property of Tenant and may be removed by Tenant at any time; provided, however,
that all covenants, including rent, due hereunder to Landlord shall have been
complied with and paid. At the expiration or sooner termination of this Lease,
or any extension thereof, Tenant shall remove said shelves, bins and machinery,
and repair, in a good and workmanlike manner, all damage done to the leased
premises by such removal. Tenant shall not exercise the right and privilege
granted by this Article 7 in such manner as to damage or affect the structural
qualities of the building. Removable partitions are not to be included in this
paragraph and may be removed by tenant.
8. PAYMENT OF TAXES AND OTHER ASSESSMENTS: Landlord will pay all
property taxes when due. Tenant shall pay any and all increases in the taxes and
other assessments assessed or levied against the premises over and above amounts
assessed for the year 1981, as well as any special assessment imposed upon the
demised premises for any purpose whatsoever during the term, whether the
increase in taxation results from a higher tax rate or an increase in the
assessed valuation of the demised premises or of both. Such payment shall be
made by Tenant to Landlord not later than thirty (30) days following the date on
which Landlord provides Tenant with written evidence of such increase. If Tenant
fails to pay any such taxes or assessments when due, Landlord may pay the same
under the provisions of paragraph 20, hereinafter set forth. Anything herein to
the contrary notwithstanding, if Tenant deems excessive or illegal any such tax
or assessment, Tenant may defer payment thereof so long as the validity or the
amount thereof is contested by the Tenant in good faith, in which case Tenant
shall furnish to Landlord a bond, in form reasonably satisfactory to Landlord,
in an amount equal to the amount of taxes or assessments so contested, which
bond shall guarantee the payment thereof with interest and penalties thereon.
9. ERECTION AND REMOVAL OF SIGNS: Tenant may place suitable signs on the
leased premises for the purpose of indicating the nature of the business carried
on by Tenant in said premises; provided, however, that such signs shall be in
keeping with other signs in the district where the leased premises are located;
and provided, further, that the location and size of such sings shall be
approved by Landlord prior to their erection, and shall not damage the leased
premises in any manner.
10. GLASS: Tenant agrees to immediately replace all glass broken or
damaged during the term of the Lease with glass of the same quality as that
broken or damaged.
11. RIGHT OF ENTRY BY LANDLORD: Tenant at any time during this Lease
term shall permit inspection of the demised premises during reasonable business
hours by Landlord or Landlord's agents or representatives for the purpose of
ascertaining the condition of the demised premises and in order that Landlord
may make such repairs as may be required to be made by Landlord under the terms
of this Lease. Sixty (60) days prior to the expiration of this Lease, Landlord
may post suitable notice on the demised premises that the same are "For Rent"
and may show the premises to prospective tenants at reasonable times. Landlord
may not, however, thereby unnecessarily interfere with the use of demised
premises by Tenant.
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<PAGE> 5
12. PAYMENT OF UTILITIES: Tenant shall pay all charges, including but
not limited to charges for water, heat, gas, electricity and other public
utilities used on the lease premises, including all replacements of light bulbs,
tubes, ballasts and starters.
13. ASSIGNMENT AND SUBLETTING: Neither this Lease nor any interest
herein may be assigned by Tenant voluntarily or involuntarily, by operation of
law, and neither all nor any part of the leased premises shall be sublet by
Tenant without the written consent of Landlord first had and obtained; however,
Landlord agrees not to withhold its consent unreasonably for Tenant to sublet
the demised premises.
14. DAMAGE OR DESTRUCTION: If the demised premises or any part thereof
shall be damaged or destroyed by fire or other casualty, Landlord shall promptly
repair all such damage and restore the demised premises without expense to
Tenant, subject to delays due to adjustment of insurance claims, strikes and
other causes beyond Landlord's control. If such damage or destruction shall
render the premises untenantable in whole or in party, the rent shall be abated
wholly or proportionately as the case may be until the damage shall be repaired
and the premises restored. If the damage or destruction shall be so extensive as
to require the substantial rebuilding (i.e., expenditure of fifty per cent (50%)
or more of replacement cost) of the building or buildings on the demised
premises, Landlord or Tenant may elect to terminate this Lease by written notice
to the other given within thirty (30) days after the occurrence of such damage
or destruction.
Landlord and Tenant hereby release each other from responsibility for
loss or damage occurring on or to the leased premises or the premises of which
they are a part or to the contents of either thereof, caused by fire or other
hazards ordinarily covered by fire and extended coverage insurance policies and
each waives all rights of recovery against the other for such loss or damage.
Willful misconduct lawfully attributable to either party, whether in whole or in
part a contributing cause of the casualty giving rise to the loss or damage,
shall not be excused under the foregoing release and waiver.
15. INJURIES AND PROPERTY DAMAGE: Tenant agrees to indemnify and hold
harmless Landlord of and from any and all claims of any kind or nature arising
from Tenant's use of the demised premises during the term hereof, and Tenant
hereby waives all claims against Landlord for damage to goods, wares or
merchandise or for injury to persons in and upon the premises from any cause
whatsoever, except such as might result from the negligence of Landlord or
Landlord's representatives or from failure of Landlord to perform its obligation
hereunder within reasonable time after notice in writing by Tenant requiring
such performance by Landlord. Tenant shall at all times during the term hereof
keep in effect in responsible companies liability insurance in the names of and
for the benefit of Tenant and Landlord with limits as follows:
Bodily Injury $100,000.00 each person
$200,000.00 each accident
Property Damage $50,000.00
Such insurance may, at Tenant's election, be carried under any general blanket
coverage of Tenant. A renewal policy shall be procured not less than ten (10)
days prior to the expiration of any policy. Each original policy or a certified
copy thereof, or a satisfactory certificate of the Insurer evidencing
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<PAGE> 6
insurance carried with proof of payment of the premium shall be deposited with
Landlord. Tenant shall have the right to settle and adjust all liability claims
and all claims against the insurance companies, but without subjecting Landlord
to any liability or obligation.
16. SURRENDER OF PREMISES: Tenant agrees to surrender the lease premises
at the expiration, or sooner termination of this Lease or any extension thereof,
broom-clean in the same condition as when said premises were delivered to
Tenant, or as altered, pursuant to the provisions of this Lease, ordinary wear,
tear and damage by the elements expected and Tenant shall remove all of its
property. Tenant agrees to pay a reasonable cleaning charge should it be
necessary for Landlord to restore or cause to be restored the premises to the
same condition as when said premises were delivered to Tenant.
17. HOLDOVER: Should Tenant hold over the leased premises or any part
thereof after the expiration of the term of this Lease unless otherwise agreed
in writing, such holding over shall constitute a tenancy from month to month
only, and Tenant shall pay as monthly rental the then reasonable value of the
use and occupation of the leased premises which shall not be less, however, than
the rent to be paid for the lease month under this Lease. Tenant agrees to give
Landlord thirty (30) days' prior written notice of intent to vacate premises.
18. QUIET ENJOYMENT: If and so long as Tenant pays the rents reserved by
this Lease and performs and observes all the covenants and provisions hereof,
Tenant shall quietly enjoy the demised premises, subject, however, to the terms
of this Lease, and Landlord will warrant and defend Tenant in the enjoyment and
peaceful possession of the demised premises throughout the term of this Lease.
19. WAIVER OF COVENANTS: It is agreed that the waiving of any of the
covenants of this Lease agreement by either party shall be limited to the
particular instance and shall not be deemed to waive any other breaches of such
covenant or any provision herein contained.
20. DEFAULT: If Tenant shall make default in the fulfillment of any of
the covenants and conditions hereof except default in payment of rent, Landlord
may, at is option, after thirty (30) days prior notice to Tenant, make
performance for Tenant and for the purpose advance such amounts as may be
necessary. Any amounts so advanced or any expense incurred or sum of monies paid
by Landlord by reason of the failure of Tenant to comply with any covenant,
agreement, obligation or provision of this Lease or in defending any action to
which Landlord may be subjected by reason of any such failure for any reason of
this Lease shall be deemed to be additional rent for the leased premises and
shall be due and payable to Landlord on demand. The acceptance by Landlord of
any installment of fixed rent or of any additional rent hereunder shall not be a
waiver of any other rent then due.
If Tenant shall make default in fulfillment of any of the covenants or
conditions of this Lease (other than the covenants for the payment of rent or
other amounts) and any such default shall continue for a period of thirty (30)
days after notice, then Landlord may, at its option, terminate this Lease by
giving Tenant notice of such termination and, thereupon, this Lease shall expire
as fully and completely as if that day were the date definitely fixed for the
expiration of the term of this Lease and Tenant shall then quit and surrender
the leased premises.
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21. DEFAULT IN RENT, INSOLVENCY OF TENANT: If Tenant shall make default
in the payment of the rent reserved hereunder, or any party thereof, or in
making any other payment herein provided for, and any such default shall
continue for a period of fifteen (15) days, after written notice to Tenant, or
if the leased premises or any part thereof shall be abandoned or vacated or if
Tenant shall be dismissed therefrom by or under any authority other than
Landlord, or if Tenant shall file a voluntary petition in bankruptcy or if
Tenant shall file any petition or institute any proceedings under any insolvency
or Bankruptcy Act or any amendment thereto hereafter made, seeking to effect its
reorganization or a composition with its creditors or if, in any proceedings
based on the insolvency of Tenant or the leased premises or if any proceedings
shall be commenced for the reorganization of Tenant or if the leasehold estate
created hereby shall be taken on execution or by any process of law or if Tenant
shall admit in writing its inability to pay its obligations generally as they
become due, then Landlord may, at its option, terminate the Lease, without
notice, and Landlord or Landlord's agents and servants may immediately, or at
any time thereafter, re-enter the leased premises by force, summary proceedings
or otherwise, and remove all persons and property therein, without being liable
to indictment, prosecution or damage therefor, and Tenant hereby expressly
waives the service of any notice in writing or intention to re-enter said
premises. Landlord may, in addition to any other remedy provided by law or
permitted herein, at its option re-let said premises on behalf of Tenant,
applying any moneys collected first to the payment of expenses of resuming or
obtaining permission, and second to the payment of costs of placing the leased
premises in rentable condition, including leasing commission, and third to use
payment of rent due hereunder, and any other charges due to Landlord. Any
surplus remaining thereafter shall be paid to Tenant and Tenant shall remain
liable for any deficiency in rental which shall be paid upon demand therefor to
Landlord.
22. ENFORCEMENT: In the event either party shall enforce the terms of
this Lease by suit or otherwise, the party at fault shall pay the costs and
expenses incident thereto, including a reasonable attorney's fee.
23. FAILURE TO PERFORM COVENANT: Any failure on the part of either party
to this Lease to perform any obligations hereunder, and any delay in doing any
act required hereby shall be excused if such failure or delay is caused by any
strike, lockout, governmental restriction or any other similar cause beyond the
control of the party so failing to perform, to the extent and for the period
that such continues, save and except that the provisions of this paragraph shall
not excuse a non-payment of rent or other sums due hereunder on its due date.
24. RIGHTS OF SUCCESSORS AND ASSIGNS: The covenants and agreements
contained in the within Lease shall apply to insure to the benefit of, and be
binding upon the parties hereto, their heirs, distributees, executors,
administrators, legal representatives, assigns and upon their respective
successors in interest, except as expressly otherwise hereinbefore provided.
25. TIME: Time is of the essence of this Lease and every term, covenant
and condition herein contained.
26. LIENS: Tenant agrees not to permit any lien for moneys owing by
Tenant to remain against the leased premises for a period of more than thirty
(30) days following discovery of the same by Tenant; provided, however, that
nothing herein contained shall prevent Tenant, in good faith and for good cause,
from contesting in the courts the claim or claims of any person, firm or
corporation growing out of Tenant's operation of the demised premises or costs
of improvements by Tenant on the
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said premises, and the postponement of payment of such claim or claims, until
such contest shall finally be decided by the courts shall not be violation of
this agreement or any covenant thereof. Should any such lien be filed and not be
released or dishcarged or action not commenced to declare the same invalid
within 30 days after discovery of the same by Tenant, Landlord may at Landlord's
option (but without any obligation so to do) pay and discharge such lien and may
likewise pay and discharge any taxes, assessments or other charges against the
leased premises which Tenant is obligated hereunder to pay and which may or
might become a lien on said premises. Tenant agrees to repay any sums so paid by
Landlord upon demand therefor, together with interest at the rate of ten per
center (10%) per annum from the date any such payment is made.
27. CONSTRUCTION OF LEASE: The word "Landlord" as used herein shall
refer to the individual, individuals, partnership or corporation called
"Landlord" at the commencement of this Lease, and the word "Tenant" shall
likewise refer to the individual, individuals, partnership, or corporation
called "Tenant." Words of any gender used in this Lease shall be held to include
any other gender, and words in the singular number shall be held to include the
plural when the sense requires.
28. PARAGRAPH HEADINGS: The paragraph headings as to the contents of
particular paragraphs herein, are inserted only for convenience and are in no
way to be construed as part of such paragraph or as a limitation on the scope of
the particular paragraph to which they refer.
29. COMMISSIONS: Landlord acknowledges the service of None as Real
Estate Broker in this transaction and in the consideration of the effort of said
broker in obtaining Tenant herein, does hereby agree to pay to said broker for
services rendered, commissions on the rental of the demised premises at the rate
specified and adopted by the Salt Lake Board of Realtors in accordance with
Exhibit "B" annexed to Landlord's copy of this Lease and made a part hereof.
30. NOTICES: It is agreed that the legal address of the parties for all
notices required or permitted to be given hereunder or for all purposes of
billing, process, correspondence, and any other legal purposes whatsoever, shall
be deemed sufficient, if given by a communication in writing by United States
mail, postage paid and certified, and addressed as follows:
If to Landlord, at the following address: 405 Lawndale Dr.
Salt Lake City, Utah
If to Tenant, at the following address: 107 South Main
Salt Lake City, Utah
31. INDUSTRIAL CENTER RULES: It is understood that the premises to be
occupied by Tenant constitute a part of an industrial center being developed by
Landlord, and Tenant agrees that it will conform to any reasonable rules and
regulations promulgated by Landlord and relating to parking, or the
organization, development or operation of the industrial center except as
provided. Tenant agrees that it will neither fence nor enclose any portion of
the leased premises outside the building. Tenant agrees that it will not store
any materials outside the building.
32. LANDSCAPING: Tenant agrees to pay his proportionate share of a
landscaping service to be secured by Landlord.
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33. RENT REVIEW: At the end of 60 months the rental rate as set forth in
Paragraph 1, Page 2, will be increased by the same ratio as the increase, if
any, in the Consumer Price Index for all items, as published by the United
States Department of Labor, Bureau of Labor Statistics between the date of
possession and the end of the 60th month. If no increase occurs in the Consumer
Price Index during this first 5 year period rent will remain the same as the
base rent. At the end of 120 months the rental rate will be increased or
decreased by 50% of the aforementioned Consumer Price Index change, if any,
between the beginning of the 61st month and the end of the 120th month. If no
increase occurs in the Consumer Price Index during this second 5 year period the
rent will remain the same as established between the 61st. and the 121st. month.
At the end of 180 months the rental rate will again b e increased or decreased
by 50% of the aforementioned Consumer Price Index change, if any, between the
beginning of the 121st and the end of the 180th month. If no increase occurs in
the Consumer Price Index during this third 5 year period the rent will remain
the same as established between the 121st and 181st months. In no event will the
rent go below the original $12,000.00 base figure.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed the day and year first above written.
TRACY COLLINS BANK AND TRUST GORDON H. YATES
By:/s/ Peter K. Raison By:/s/ Gordon H. Yates
--------------------------------- ---------------------------
Executive Vice President/Cashier
--------------------------------- ------------------------------
TENANT LANDLORD
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EXHIBIT 2
LEGAL DESCRIPTION OF PREMISES
BEGINNING at a point on the West Line of Lawndale Drive at a point which is
North 00(degree) 04' 30" West 800.893 feet and due West 842,952 feet from the
Salt Lake County Surveyors Monument at 2700 South and 300 West Street, said
point is also North 1256.32 feet and West 513.234 feet from the South Quarter
Corner of Section 24, Township 1 South, Range 1 West, Salt Lake Base and
Meridian, and running thence West 198.50 feet to the East Line of the State Road
I-15 Right-of-Way Line; thence South 00(degree) 25' 00" West 350.898 feet along
said Right-of-Way line (State bearing South 00(degree) 40' 00" West); thence
East 201.052 feet to a point on the West line of Lawndale Drive; thence North
350.889 feet to the point of BEGINNING.
The above described property also known by the street address of:
None Shown
* * *
<PAGE> 11
EXHIBIT 3
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Sublease") is made and entered into
effective the 18th day of May, 1995 by and between WEST ONE BANK, UTAH
(successor in interest to TRACY COLLINS BANK AND TRUST), a Utah corporation
("Sublessor"), and SUMMIT FAMILY RESTAURANTS INC., a Delaware corporation
("Sublessee").
W I T N E S S E T H:
WHEREAS, Gordon H. Yates, as Landlord, and Sublessor, as Tenant, entered
into that certain Commercial and Industrial Lease dated July 25, 1979 (the "Base
Lease"), covering and describing property located at 440-460 Lawndale Drive,
South Salt Lake City, Utah, together with the building and other improvements
thereon, which building contains approximately twenty-seven thousand one hundred
twenty (27,120) square feet, all of which is referred to herein as the Premises
(the "Premises") and which is described on Exhibit A to the Base Lease which is
attached hereto as Exhibit 1;
WHEREAS, subject to the terms of Section 5 below, a legal description of
the Premises is set forth on Exhibit 2 attached hereto and;
WHEREAS, a true and correct copy of the Base Lease is attached hereto as
Exhibit 1 and made a part hereof for all purposes;
WHEREAS, THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a
New York corporation ("Landlord"), has succeeded to the interest and title of
Gordon H. Yates in and to the Base Lease and the Premises;
WHEREAS, West One Bank, Utah, a Utah corporation ("Tenant" and
"Sublessor"), has succeeded to the interest and title of Tracy Collins Bank and
Trust in and to the Base Lease;
WHEREAS, Sublessee desires to sublease from Sublessor all of the
Premises described in the Base Lease upon the terms and conditions hereinafter
set forth; and
NOW, THEREFORE, in consideration of the Premises and the mutual
covenants contained herein, Sublessor and Sublessee hereby agree as follows:
1. Subleased Premises. Sublessor hereby subleases to Sublessee, and
Sublessee hereby subleases from Sublessor, the Premises.
2. Term. Subject to and upon the terms ad conditions hereinafter set
forth, the Sublease shall be in force for a term ("Sublease Term") commencing
upon execution of this Sublease and expiring on February 29, 2000.
Notwithstanding anything in the prior sentence to the contrary, the parties
hereto expressly agree that their intent is to enter a sublease of the Premises
and that this Sublease is not intended to be and shall not be interpreted to be
an assignment of the Base Lease.
<PAGE> 12
Sublessee will be allowed access to the portion of the Premises not currently
being utilized by Sublessor immediately upon execution of this Sublease but
shall not begin construction of its tenant improvements until the plans for said
improvements have been approved by the Landlord. Sublessor shall vacate the
entire Premises and Sublessee shall have full access to the entire Premises not
more than seventy-five (75) days after execution of this Sublease. Sublessor
shall provide written notice to Sublessee that Sublessor has fully vacated the
Premises.
3. Base Sublease Rental. During the Sublease Term, Sublessee agrees to
pay as rent ("Base Sublease Rental") for the Premises the sum of Thirteen
Thousand Nine Hundred Eight Dollars and Four Cents ($13,908.04) per month.
Sublessee shall commence paying the monthly Base Sublease Rental sixty (60) days
following receipt of written notice from Sublessor that Sublessor has fully
vacated the Premises ("Rent Commencement Date"). If for any reason the Rent
Commencement Date shall not commence on the first day of a month, the Base
Sublease Rental shall be prorated. Thereafter, the monthly Base Sublease Rental
shall be payable in advance on the first day of each calendar month throughout
the Sublease Term. Sublessee agrees to pay all Base Sublease Rental and
additional sums due under this Sublease to Sublessor at Sublessor's address as
provided herein (or such other address as may be designated by Sublessor from
time to time) without demand, counterclaim, or offset. All past due installments
of Base Sublease Rental and other sums of any kind past due hereunder shall bear
interest at the maximum lawful non-usurious rate per annum until paid or if no
such rate is set, then at the rate of ten percent (10%), annually.
Any abatement of rent which Sublessor receives from the Landlord as a
result of damage, destruction, condemnation, untenantability, or other events
shall be passed on to Sublessee and Sublessee's rent shall be likewise abated up
to a maximum of the Base Sublease Rental due from Sublessee to Sublessor.
4. Base Lease. This Sublease is subject to all the provisions, terms,
covenants, and conditions of the Base Lease. Sublessor agrees to pay all
rentals, base, additional or otherwise, as provided in the Base Lease, but the
foregoing shall not obligate Sublessor to Sublessee for the payment of, and
Sublessee agrees to pay as required by the Base Lease (or reimburse Sublessor,
if applicable), all other sums due and payable pursuant to the terms of the Base
Lease for the use and occupancy of the Premises during the Sublease Term for
indemnity obligations of Sublessor in favor of Landlord, holdover rent,
maintenance, repairs, alterations, additions, common area fee or other sums
which are deemed additional rental under the Base Lease and are required to be
paid by the Tenant under the Base Lease. The sums payable by Sublessee under
this paragraph constitute additional rentals under applicable law. Sublessee
assumes and agrees to perform and observe all provisions, terms, covenants, and
conditions of the Tenant under the Base Lease as the same relate to the Premises
and to Sublessee's use and occupancy of the same during the Sublease Term,
except as may be expressly provided to the contrary herein. Sublessee shall have
no right to exercise (and Sublessor shall have no obligation to exercise) any
options available to Sublessor under the Base Lease or to exercise any rights of
control or termination under the Base Lease as all the same are retained by
Sublessor. Except to the extent assumed by Sublessee in this Sublease, Sublessor
agrees to fully and timely perform all of Tenant's duties and obligations under
the Base Lease. Sublessor agrees to and shall refrain from entering into any
amendment to or modification of the Base Lease that would conflict with the
rights granted to Sublessee under this Sublease without the prior written
consent of Sublessee. A copy of any amendment to or modification of the Base
Lease between Sublessor and Landlord shall be promptly furnished to Sublessee.
2
<PAGE> 13
5. Memorandum of Sublease. Upon execution of this Sublease, Sublessee
and Sublessor shall execute a recordable Memorandum of Sublease in the form of
Exhibit 3 attached hereto. For the purposes of recording the Memorandum of
Sublease, the parties hereto agree to attach to the Memorandum of Sublease, the
legal description set forth on Exhibit 2 hereto which has been provided by a
title company. The parties agree and acknowledge that by utilizing the legal
description set forth in Exhibit 2, Sublessor is in no way subleasing to
Sublessee any premises other than those described in the Base Lease and set
forth on Exhibit A to the Base Lease. Therefore, if at any time, the Memorandum
of Sublease needs to be amended to set forth a more accurate legal description,
the parties hereto agree to do so, and to record such amendment.
6. Condition of Subleased Premises. Upon commencement of the Sublease
Term, Sublessee accepts the Premises and any leasehold improvements thereto in
their then existing condition, on an "as is" basis as of the date of the joint
inspection of the Premises by Sublessee and Sublessor. Upon inspection, the
parties hereto shall execute Exhibit 4 attached hereto indicating that the
inspection has occurred and any furniture, fixtures and equipment which will
remain with the Premises after vacation by the Sublessor. Sublessor shall repair
any damage to the Premises caused by Sublessor's vacation of the Premises.
Sublessor hereby agrees that there will be no material changes to the Premises
from the date of inspection to the date Sublessor fully vacates the entire
Premises, except those alterations approved by or at the direction of Sublessee.
Sublessor shall not be required to make for the benefit of Sublessee any
improvements to or repairs of any kind or character in or to the Premises during
the Sublease Term, but this sentence shall not relieve Sublessor of its
obligations to Landlord under the Base Lease.
7. Use. Sublessee agrees to use the Premises as office space, a test
kitchen, and distribution center for its business and for no other purpose
without first obtaining the permission of Sublessor and Landlord.
8. Indemnity. To the extent not prohibited by applicable law, Sublessee
shall indemnify and hold harmless Sublessor and Landlord from and against any
and all claims, demands, liabilities, losses, costs, expenses and damages for
anything whatsoever, arising from or out of the Sublessee's use or occupancy of
the Premises or the use and occupancy thereof by Sublessee's agents, employees,
servants, customers, or invitees. The foregoing shall not be construed as an
agreement by Sublessee to indemnify Sublessor against or from Sublessor's
negligent acts.
To the extent not prohibited by applicable law, Sublessor shall
indemnify and hold harmless Sublessee from and against any and all claims,
demands, liabilities, losses, costs, expenses and damages for anything
whatsoever, arising from or out of the Sublessor's use or occupancy of the
Premises or the use and occupancy thereof by Sublessor's agents, employees,
servants, customers, or invitees. The foregoing shall not be construed as an
agreement by Sublessor to indemnify Sublessee against or from Sublessee's
negligent acts.
Nothing contained herein shall be construed to enlarge or expand
Sublessor's obligations to Landlord under the Base Lease. Subject to the
foregoing, Sublessee shall not assume any liabilities, responsibilities or
obligations, and Sublessor shall indemnify, defend, and hold Sublessee harmless
from and against any and all claims, demands, liabilities, losses, costs,
expenses and damages arising out of the former presence and removal of a 5,000
gallon underground gasoline storage tank ("Storage Tank") from the Premises in
August 1990 as identified by the Subsurface Study conducted by Delta
3
<PAGE> 14
Geotechnical Consultants Inc., Job No. 3039, dated February 10, 1994, or the
ongoing monitoring of groundwater by Delta Geotechnical Consultants, Inc., Job
No. 3575, or any other consultant authorized by Sublessor to perform tests on
the Premises. Without limiting the foregoing, such indemnification by Sublessor
shall include (a) the pro rata abatement of rent in the event any portion of the
Premises is not useable by Sublessee as a result of any monitoring or other
actions that are taken by Sublessor or its agents or representatives with
respect to the prior existence of the Storage Tank and (b) responsibility by
Sublessor for damages incurred by Sublessee as a result of any portion of the
Premises not being useable as a result of any monitoring or other actions that
are taken by Sublessor or its agents or representatives with respect to the
prior existence of the Storage Tank.
Sublessor agrees that any and all monitoring or other actions related to
the Storage Tank and the prior existence or removal of it from the Premises
required under any applicable law or any governmental authority shall be the
responsibility of Sublessor during the term of the Sublease. Sublessee agrees
that it will provide access to the three well monitoring stations located
outside of the west side of the building on the Premises to Sublessor or its
agents or representatives as reasonably requested by Sublessor.
9. No Warranty. WHEN SUBLESSEE BEGINS OCCUPYING ANY PORTION OF THE
PREMISES, SUBLESSEE WILL ACCEPT SUCH OCCUPIED PORTION OF THE PREMISES WITHOUT
ANY WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ITS CONDITION,
SUITABILITY, FITNESS FOR PURPOSE OR ITS COMPLIANCE WITH ANY LAWS, REGULATIONS OR
ORDINANCES, EXCEPT THAT SUBLESSOR DOES WARRANT THAT IT HAS A LEASEHOLD INTEREST
IN THE PREMISES WHICH IT IS SUBLEASING TO SUBLESSEE PURSUANT TO THIS SUBLEASE,
AND EXCEPT FOR THE INDEMNITY IN PARAGRAPH 8 HEREOF.
10. Assignment or Sublease. Sublessee shall not assign, mortgage,
pledge, hypothecate or otherwise encumber this Sublease or the Premises, or any
interest herein or any right or privilege appurtenant thereto, without the
express prior written consent of Sublessor, which shall not be unreasonably
withheld, and Landlord. Sublessee may not sublet any portion of the Premises
without the prior written consent of Sublessor which shall not be unreasonably
withheld, and Landlord. Sublessee shall not be relieved of any of its
obligations hereunder by reason of any assignment of this Sublease or of any
sublease of all or part of the Premises.
11. Sublessor's Acts. It is specifically agreed that Sublessee shall not
be responsible for the discharge and performance of the duties and obligations
required to be performed and/or discharged by Sublessor in connection with the
Base Lease prior to the Commencement of the Sublease Term. In that regard,
Sublessor agrees to indemnify, defend and hold Sublessee harmless from and
against any and all loss, cost, expense or liability (including, without
limitation, attorneys' fees, accountant's fees and court costs) resulting from
any claims or causes of action existing in favor of or asserted by any party
arising out of or relating to Sublessor's failure to perform any duties or
obligations imposed on Sublessor under the Base Lease with respect to periods
beginning prior to the commencement of the Sublease Term. However, in no event
does Sublessor intend or agree to indemnify Sublessee from the consequences of
the acts or omissions of Sublessee, its agents, employees or contractors.
Sublessor warrants and represents that the Base Lease represents Sublessor's
entire agreement with Landlord of the use and occupancy of the Premises and that
4
<PAGE> 15
Sublessor has received no notice, and has no actual knowledge, of any default of
Sublessor under the Base Lease.
12. Default. If Sublessee fails to pay any Base Sublease Rental within
five (5) days after the same is due or fails to pay any other sum payable under
this Sublease or the Base Lease when due, or fails to perform or observe any
other covenant, term, provision or condition of this Sublease or the Base Lease,
which failure continues to ten (10) days after written notice from Sublessor to
Sublessee describing such failure, Sublessee shall be in default under this
Sublease and, as regards this Sublease only, Sublessor shall be entitled, as
between itself and Sublessee, to the same types of rights and remedies that are
available under the Base Lease as between the Landlord and Tenant thereunder in
the event a default by Tenant had occurred thereunder and to any rights and
remedies available to a landlord under applicable law. Upon any default by
Sublessee under this Sublease, Sublessor, without being under any obligation to
do so and without thereby waiving such default, may make such payment and/or
remedy such default for the account of Sublessee, and thereupon Sublessee agrees
to and shall pay to Sublessor, immediately upon demand, all costs, expenses and
disbursements incurred by Sublessor in taking such remedial action (including,
without limitation, attorneys' fees, accountant's fees and court costs).
In the event Sublessor shall fail to pay any sum provided to be paid by
Tenant under the Base Lease and not provided to be paid or reimbursed by
Sublessee pursuant to this Sublease, or if Sublessor shall be in default of any
of the other provisions of the Base Lease, which default is not the result of
any default by Sublessee under this Sublease or the Base Lease and Sublessor
fails to remedy any such default within the time provided in the Base Lease,
Sublessee, in addition to any other rights or remedies that Sublessee may have
at law or in equity, may recover any actual damages sustained by Sublessee as a
result of Sublessor's default plus Sublessee's reasonable attorney's fees.
Sublessee, at Sublessee's option, may cure at Sublessor's sole expense, any such
default of which Sublessor shall first have been given notice, and all sums
expended by Sublessee in curing such default shall be due and payable by
Sublessor upon receipt of Sublessee's demand therefor, or at Sublessor's option,
such amounts may be credited against future rentals payable by Sublessee to
Sublessor under this Sublease. Upon receipt, Sublessor shall promptly furnish
Sublessee with a copy of each notice, demand or correspondence received from
Landlord. Sublessor understands and agrees that Sublessee shall have the option
to assume at Sublessee's sole cost and risk, the position of Sublessor in any
proceeding to enforce any term or condition of the Base Lease which Sublessor
has the right to enforce. Sublessor agrees (at the expense of Sublessee) to join
with Sublessee in any such proceedings in the event such action is necessary.
13. Quiet Enjoyment. Sublessee shall peacefully have, hold and enjoy the
Premises, subject to the terms and conditions of this Sublease and the Base
Lease, provided that Sublessee timely and fully performs its covenants, duties
and obligations under this Sublease. Sublessor and Sublessee shall share equally
in the cost of a leasehold policy of title insurance in the face amount of
$800,000.00, to be provided to Sublessee as soon as possible after execution of
this Sublease.
14. Insurance. At its expense, Sublessee shall maintain during the
Sublease Term all the insurance required by Sections 3 and 15 of the Base Lease.
The insurance required by Section 3 of the Base Lease shall name Landlord as the
insured and the insurance required by Section 15 of the Base Lease shall name
Landlord and Sublessor as additional insureds. Certificates evidencing the
insurance required by this Sublease shall be furnished to Sublessor and Landlord
upon the Commencement of the
5
<PAGE> 16
Sublease Term and such certificates shall provide that such insurance overages
may not be amended or cancelled without thirty (30) days prior written notice to
Sublessor and Landlord. Notwithstanding the foregoing, prior to Sublessor
vacating the entire Premises, Sublessor and Sublessee each shall maintain
insurance for the Premises and each party shall be responsible for any damage or
destruction to the portion of the Premises it possesses.
15. Waiver of Subrogation Rights. Anything contained in this Sublease to
the contrary notwithstanding, and to the extent not prohibited by applicable
law, Sublessor and Sublessee each waive for themselves and their respective
insurers any and all rights of recovery, claim, action or cause of action
against the other, its agents, officers, and employees, for any loss or damage
that may occur to the Premises, or any improvements thereto, or any personal
property, by reason of fire, and elements, or any other cause which could be
insured against under the terms of a fire and extended coverage insurance
policy, regardless of cause or origin, including without limitation, negligence
of either Sublessor or Sublessee or their respective agents, officers, employees
or contractors, and covenant that no insurer shall hold any right of subrogation
against either Sublessor or Sublessee.
16. Condemnation. Sublessor agrees to assign to Sublessee any of its
rights to awards or damages in any condemnation proceedings affecting the
Premises.
17. Governing Law. This Sublease shall be governed by and construed in
accordance with the laws of the State of Utah, without regard to the conflict of
law principles thereof.
18. Notices. Any notice or other communication to any party required or
permitted to be given under this Sublease must be in writing and shall be
effectively given if hand delivered, if sent by facsimile, or if sent by United
States Mail, postage prepaid, certified or registered, return receipt requested,
to the following addresses:
If to Sublessor: West One Bank, Utah
Controller/Treasurer #7-9065
107 South Main Street
Salt Lake City, Utah 84111
Fax: (801) 534-6269
With copy to: West One Bancorp
Corporate Facilities #3-2220
P.O. Box 8247
Boise, Idaho 83733
Attention: Vice President & Manager, Real Estate
Fax: (208) 387-3332
If to Sublessee: Summit Family Restaurants Inc.
Attn: Law Department
440 Lawndale Drive
Salt Lake City, Utah 84119
Fax: (801) 974-4385
6
<PAGE> 17
With copy to: Summit Family Restaurants Inc.
Attn: Chief Financial Officer
440 Lawndale Drive
Salt Lake City, Utah 84119
Fax: (801) 974-4385
Any notice mailed shall be deemed to have been given on the second (2nd)
business day following the date of deposit of such item in a depository of the
United States Postal Service. Notice effected by hand delivery or facsimile
shall be deemed to have been given at the time of actual delivery. Any party
shall have the right to change its address to which notices shall thereafter be
sent by giving the other parties notice thereof.
19. Successors and Assigns. This Sublease shall be binding upon and
shall inure to the benefit of Sublessor, Sublessee and their respective heirs,
successors and assigns, subject to the limitations set forth in paragraph 10
above.
20. Taxes. Sublessee shall pay when due all taxes as well as any special
assessments imposed on the Premises and incurred during the Sublease Term over
and above the base amounts as indicated in Section 8 of the Base Lease.
21. Sublessor's Access. Sublessor shall have the right, at all
reasonable times during the Sublease Term, after reasonable notice to Sublessee,
not to be less than forty-eight (48) hours unless Sublessee is in default under
this Sublease (in which event no notice is required), to enter into the Premises
and to cure any defaults of Sublessee hereunder that Sublessor elects to cure.
No such entry by Sublessor will constitute an assumption of any of Sublessee's
obligations hereunder.
22. Security Deposit. No security deposit shall be paid by Sublessee.
23. Fees. Except with respect to the listing agent, Richard H. Nordlund
of Commerce Properties, Inc. who represents Sublessor and Steve Condie of
Commerce Properties Management Corp. who represents the Sublessee, Sublessor and
Sublessee warrant and represent that no broker was involved on either's behalf
in negotiating or consummating this Sublease. Sublessor shall pay the applicable
commission to Commerce Properties, Inc. and Commerce Properties Management Corp.
which total combined commissions shall equal six percent (6%) of the rental
income of the Sublease, less the allowance for tenant improvements.
24. Landlord's Consent. The provisions of Landlord's consent which is
attached hereto and is incorporated herein and the agreements of Sublessor and
Sublessee contained therein are a part of this Sublease and binding on Sublessor
and Sublessee, respectively. Likewise, the agreements and consents of Landlord
contained in such consent are part of this Sublease and inure to the benefit of
and are enforceable by Sublessor and Sublessee, respectively. To the extent such
consent modifies or amends the Base Lease, Sublessor and Sublessee consent to
the same.
25. Attorney Fees. In the event that at any time during the term of this
Sublease either Sublessor or Sublessee shall institute any action or proceedings
against the other to enforce the provisions of this Sublease, or resulting from
any default thereunder, then in that event, the unsuccessful party in such
action or proceeding shall reimburse the prevailing party therein for the
reasonable attorneys' fees and costs incurred by the prevailing party.
7
<PAGE> 18
26. Tenant Improvement Allowance. Sublessor shall pay to Sublessee a
total of Five Dollars ($5.00) per square foot or One Hundred Thirty-Five
Thousand Six Hundred Dollars ($135,600.00) to be used for tenant improvements of
the Premises. Payment of such funds will be made at the completion of tenant
improvements. Sublessee will show proof of those improvements to Sublessor in
the amount of One Hundred Thirty-Five Thousand Six Hundred Dollars
($135,600.00). To the extent the cost of tenant improvements in the Premises
exceeds the allowance provided by Sublessor, Sublessee will pay for the overage
amount to those third parties.
27. Lease Contingency. This Sublease is contingent on Silver State
Suppliers, Inc. closing on the purchase of Sublessee's land, building and
improvements at 1010 West 2610 South, Salt Lake City, Utah on or before May 22,
1995. This Sublease shall be null and void if such sale is not completed by May
22, 1995, and all monies paid by Sublessee to Sublessor will be returned to
Sublessee.
IN WITNESS WHEREOF, the parties have entered into this Sublease as of
the day and year first above written.
WEST ONE BANK, UTAH SUMMIT FAMILY RESTAURANTS INC.
By: /s/ Lewis B. Goodwin By: /s/ David E. Pertl
---------------------- ------------------------------------
Name: Lewis B. Goodwin Name: David E. Pertl
---------------------- ------------------------------------
Title:Sr. Vice President Title:Sr. Vice President, CFO & Treasurer
---------------------- ------------------------------------
"Sublessor" "Sublessee"
8
<PAGE> 1
EXHIBIT 10.6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. License........................................................................ 2
1.1 Grant................................................................. 2
1.2 Restrictions.......................................................... 2
2. Location....................................................................... 2
2.1 Initial Location...................................................... 2
2.2 Relocation............................................................ 2
3. Restaurant Construction and Opening Date....................................... 3
3.1 Lease, Mortgage or Deed of Trust...................................... 3
3.2 Plans................................................................. 3
3.3 Opening Date.......................................................... 4
4. Training and Assistance........................................................ 4
4.1 Manager Training...................................................... 4
4.2 Opening Assistance.................................................... 5
4.3 Subsequent Training................................................... 6
4.4 Operating Manual, Recipe Manual and Menu.............................. 6
4.5 Consultation.......................................................... 6
4.6 Compliance............................................................ 7
5. Restaurant Operation........................................................... 7
5.1 Business Name......................................................... 7
5.2 Signs................................................................. 7
5.3 Insurance............................................................. 7
5.4 Employees............................................................. 9
5.5 Managers.............................................................. 9
5.6 Hours................................................................. 10
5.7 Products for Sale..................................................... 10
5.8 Approved Suppliers.................................................... 10
5.9 Maintenance and Repairs............................................... 11
5.10 Alterations........................................................... 12
5.11 Remodeling and Redecoration........................................... 12
5.12 Compliance with Laws and Good Business Practices...................... 13
5.13 Notice of Action...................................................... 13
6. Changes........................................................................ 13
7. The Marks; Proprietary Information............................................. 14
7.1 Ownership of the Marks................................................ 14
7.2 Litigation............................................................ 14
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
7.3 Nonexclusivity of License............................................. 15
7.4 Registration.......................................................... 15
7.5 Offering of Securities................................................ 15
7.6 Proprietary Information............................................... 15
8. Payments....................................................................... 17
8.1 Franchise Fee......................................................... 17
8.2 Continuing Payments................................................... 17
8.2.4 Application of Payments...................................... 18
9. Advertising.................................................................... 18
9.1 Advertising Fee....................................................... 18
9.2 Telephone Directory Listings.......................................... 19
9.3 Approved Advertising.................................................. 19
10. Financial Statements; Maintenance of Books and Records: Inspections............ 19
10.1 Weekly Report......................................................... 19
10.2 Periodic Reports...................................................... 19
10.3 Annual Reports........................................................ 19
10.4 Form of Reports....................................................... 20
10.5 Records............................................................... 20
10.6 Audits................................................................ 20
10.7 Inspections........................................................... 21
11. Additional Conditions.......................................................... 21
11.1 Other Locations....................................................... 21
11.2 Other Businesses...................................................... 21
11.3 Independent Contractor................................................ 22
11.4 Indemnity............................................................. 22
11.4.1 Franchisee Indemnity......................................... 22
11.4.2 Franchisor Indemnity......................................... 22
11.5 Corporate Franchisees................................................. 23
12. Assignment..................................................................... 23
12.1 Transfers............................................................. 23
12.2 Assignment to Corporation............................................. 25
12.3 Franchisor's Right of First Refusal................................... 25
12.4 No Waiver or Release of Existing Claims............................... 26
12.5 Assignment by Franchisor.............................................. 26
12.6 Rights Upon Death or Incapacity....................................... 26
13. Term; Renewal; Termination..................................................... 27
13.1 Term.................................................................. 27
13.2 Renewal............................................................... 27
13.3 Extension............................................................. 28
13.4 Termination by Franchisor upon Event of Default....................... 28
13.5 Termination by Franchisee............................................. 30
13.6 Effect of Termination................................................. 30
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
14. Noncompetition................................................................. 33
15. Arbitration.................................................................... 34
16. General Provisions............................................................. 34
16.1 Franchisee's Warranty................................................. 34
16.2 Notices............................................................... 34
16.3 Integration........................................................... 35
16.4 Governing Law and Construction........................................ 35
16.5 Waiver................................................................ 35
16.6 Binding Effect........................................................ 35
16.7 Captions.............................................................. 35
16.8 Severability.......................................................... 35
16.9 Equally Favorable Treatment........................................... 35
16.10 Acknowledgement....................................................... 36
16.11 Disclaimer............................................................ 37
Appendix
Exhibits
Exhibit A Marks
Exhibit B Location
Exhibit C Shareholder List
Acknowledgement of Receipt of Completed Agreements
</TABLE>
<PAGE> 4
HOMETOWN BUFFET
FRANCHISE AGREEMENT
BETWEEN: HomeTown Buffet, Inc., FRANCHISOR
a Delaware corporation
9171 Towne Centre Drive, #260
San Diego, California 92122
AND: HTB Restaurants, Inc., FRANCHISEE
a Delaware corporation
1010 West 2610 South
Salt Lake City, Utah 84119-2486
R E C I T A L S
A. Franchisor has developed a distinctive restaurant business known and
referred to as HomeTown Buffet that is based on operating restaurants which
feature a unique restaurant business system developed by Franchisor
characterized by a self-service buffet, with customers serving themselves from
scattered buffet service islands and includes special recipes and food
preparation methods, distinctive menus and a stylized restaurant appearance,
specially designed equipment and a unique system of operation and method of
doing business and other distinctive and special elements, all of which may be
improved, further developed or otherwise modified from time to time (the
"Restaurant System").
B. Franchisor has rights to certain service marks, trademarks and
related logos used in connection with the Restaurant System and franchise
operations and may develop additional such marks in the future (the "Marks") and
is the exclusive licensee of the mark "HOMETOWN" pursuant to a license agreement
dated as of April 29, 1991, between Franchisor and Hometown Pharmacy Company,
Inc. A copy of the current logotype version of Franchisor's "HOMETOWN BUFFET"
name and service mark is attached as Exhibit A.
C. Franchisee has examined and fully considered an Offering Circular
that Franchisor has presented to Franchisee. Franchisee acknowledges that
Franchisor has made no projections of cost or revenue of such business and that
Franchisor has advised Franchisee to seek the counsel of independent
professionals respecting the terms and conditions of this agreement. Franchisee
has independently and carefully assessed the risk of undertaking the business
franchised under this agreement and has developed its own projections of the
cost and possible revenues of such a business.
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D. Franchisee desires Franchisor to train and franchise it to operate a
HomeTown Buffet restaurant according to this agreement, using the Marks and
Franchisor's standards, methods and techniques. Franchisor is willing to grant
such a franchise to Franchisee upon the terms and conditions set forth in this
agreement.
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the obligations and undertakings of each party as set forth in
this agreement, Franchisor and Franchisee agree as follows:
1. License.
1.1 Grant. Subject to the terms and conditions of this agreement,
Franchisor grants Franchisee for the term of this agreement a nonexclusive right
to use the Marks and the Proprietary Information (as defined in Section 7.6)
exclusively in connection with the operation by Franchisee of the restaurant
(the "Restaurant") contemplated by this agreement at the Location (as defined in
Section 2.1).
1.2 Restrictions. Franchisee will operate the Restaurant in
conformity in every respect with all provisions of this agreement, the Franchise
Operating Manual, Recipe Manual and Menu referred to in Section 4.4 and as
otherwise specified or required from time to time in writing by Franchisor and
will use its best efforts to achieve the highest practicable level of sales and
to make the Restaurant as productive as possible.
2. Location.
2.1 Initial Location. The Restaurant shall be located at the address
described on the attached Exhibit B (the "Location"). Franchisor's approval of
the Location shall not be construed as a representation of the eventual success
of the Restaurant at the Location.
2.2 Relocation. Notwithstanding any provision in this agreement to
the contrary, Franchisee may, with the prior written approval of Franchisor,
relocate the Restaurant to another location during the term of this agreement.
The failure of Franchisee to obtain the written approval of Franchisor prior to
the relocation shall be a material breach of this agreement. In the event
Location is relocated pursuant to this provision, the "new" location must comply
with all applicable provisions of this agreement and with the standards then
being required of new franchisees by Franchisor. If, pursuant to the terms of
this Section, Franchisee relocates the Location to another location during the
term of this agreement,
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then Franchisee shall pay Franchisor a relocation fee equal to 50 percent of the
then applicable franchise fee.
3. Restaurant Construction and Opening Date.
3.1 Lease, Mortgage or Deed of Trust. Any lease, mortgage or deed of
trust for the Location or the Restaurant premises must be approved in advance in
writing by Franchisor, which approval shall not be unreasonably withheld.
Franchisor shall provide Franchisee with a copy of its standard lease for use in
leasing the Location. In the event Franchisee does not use Franchisor's standard
lease, Franchisee agrees to deliver a true and correct copy of such lease,
mortgage or deed of trust to Franchisor not less than ten (10) days prior to
execution thereof by Franchisee. Any such lease must have a remaining term at
least as long as the remaining term of this agreement, must require lessor to
give Franchisor reasonable written notice of Franchisee's default under the
lease and written notice of termination on the same terms set forth with respect
to the Franchisee, and must allow Franchisor the opportunity to cure
Franchisee's default under the lease without such cure constituting an
assumption of the lease or any obligation by Franchisor. Any such mortgage or
deed of trust must require reasonable written notice to Franchisor of intent to
foreclose and must allow Franchisor the opportunity to cure Franchisee's default
under the mortgage or deed of trust without such cure constituting an assumption
of the mortgage or deed of trust or any obligation by Franchisor. Any such
lease, mortgage or deed of trust shall permit assumption by Franchisor or its
designee without consent in the event Franchisor purchases the Restaurant
pursuant to Section 12.3, Section 13.6 or otherwise.
3.2 Plans. Franchisee shall develop architectural plans, including
building plans and site plans, and specifications for the Restaurant's interior
and exterior design, decoration and layout consistent with the standards and
specifications established by Franchisor. Franchisor during its regular business
hours shall make generally available to Franchisee its personnel for telephone
and written consultation regarding design, decoration and layout of the
Restaurant. Franchisor shall provide Franchisee with its standardized building
plans for the Restaurant. Franchisee may use these building plans or develop its
own, provided that if Franchisee uses the standardized plans, Franchisee shall
be responsible for all fees charged by the architect for the use of such
building plans. If Franchisee uses the standardized plans, Franchisee shall be
responsible for preparation of a suitable site plan and for site-specific
modifications to the standardized plans. Franchisee shall not commence
improvement of the Location until (a) all final plans and specifications have
been submitted to and are approved by Franchisor, which approval shall not be
unreasonably withheld or delayed; (b) all
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necessary financing to fully develop the Restaurant has been secured; and (c)
all necessary governmental approvals and permits have been obtained. Franchisee
shall construct, complete and fully furnish and equip the Restaurant at its sole
expense according to such plans and specifications as are approved by
Franchisor.
3.3 Opening Date. Franchisee shall commence substantial improvement
of the Location for the Restaurant on or before 120 days after the execution of
this agreement and shall complete, fully furnish and equip and open the
Restaurant for business on or before 270 days after the execution of this
agreement (the "Opening Date"); provided, however, that in any event Franchisee
shall open the Restaurant for business as required under any development
schedule under the Multiple Unit Agreement between Franchisor and Franchisee
dated October 9, 1991, as amended from time to time, relating to the development
of multiple franchise units of HomeTown Buffet restaurants (the "Multiple Unit
Agreement"). If Franchisee fails to meet the requirements of this Section within
the times specified, Franchisor may terminate this agreement upon refunding to
Franchisee 50 percent of the franchise fee paid pursuant to Section 8.1.
Franchisor may retain the remainder of the franchise fee to defray its costs for
training, consultation, site selection review and other services provided and
expenses incurred in connection with the sale and development of the franchise
for the Restaurant.
4. Training and Assistance.
4.1 Manager Training.
4.1.1 Franchisor will provide a mandatory training program to
Franchisee's Designated Manager (as defined in Section 5.5) and one of
Franchisee's assistant managers prior to the Opening Date. The manager training
program will be conducted at the HomeTown Buffet located in Medford, Oregon or
such other location as may be designated by Franchisor and will be offered from
time to time as necessary to accommodate new franchisees. The manager training
program will consist primarily of on-the-job training in a HomeTown Buffet
restaurant, supplemented at the option of Franchisor by classroom instruction,
individual study and question and answer sessions. The training program will be
for a minimum of four weeks and for such additional period of time as Franchisor
shall deem necessary and will include instruction in the basic elements of the
Restaurant System and the management, operation and maintenance of the
Restaurant and the use of the Operating Manual, Recipe Manual and other
Proprietary Information. Except as provided in Section 4.1.3, Franchisee will
not be charged tuition for such manager training for the Designated Manager and
one of Franchisee's assistant managers, but
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Franchisee will be responsible for all compensation of the managers and all
associated expenses, including without limitation meals, lodging and
transportation.
4.1.2 Before the Restaurant is open for business, Franchisee's
Designated Manager and one of Franchisee's assistant managers shall take and
complete the manager training program, to Franchisor's satisfaction, such
satisfaction to be determined in Franchisor's sole discretion. If Franchisee's
Designated Manager and at least one of Franchisee's assistant managers do not
successfully take and complete the manager training program to Franchisor's
satisfaction before the Opening Date, Franchisor may terminate this agreement
upon refunding to Franchisee 50 percent of the franchise fee paid pursuant to
Section 8.1. Franchisor may retain the remainder of such franchise fee to defray
its costs for training, consultation, location selection review and other
services provided and expenses incurred in the sale and development of the
franchise for the Restaurant.
4.1.3 If Franchisee hires a new manager or assistant manager who
has not successfully completed Franchisor's manager training program, then any
such new manager or assistant manager must successfully complete the training
Program within 30 days after the date of hire by Franchisee; provided that if,
in Franchisor's judgment, it is not necessary for the new manager or assistant
manager to complete the training program, Franchisor may waive this requirement.
After opening, Franchisor will offer the manager training program to
Franchisee's new managers and assistant managers from time to time as deemed
necessary by Franchisor. Franchisee must pay Franchisor the then-current
training fee for each such person who attends the Franchisor's training program.
As an alternative to providing all or any part of such training itself,
Franchisor, in its sole discretion, may certify Franchisee to conduct, or assist
in conducting, the manager training program for Franchisee's new managers. To
the extent such training is conducted by Franchisor, Franchisor may charge
Franchisee tuition of up to $2,000 per manager for the training of managers
other than those for whom tuition is not required under Section 4.1.2.
4.2 Opening Assistance. For the opening of the Restaurant,
Franchisor during its regular business hours shall make generally available to
Franchisee its personnel for telephone and written consultation regarding the
opening of the Restaurant. Franchisor will dispatch an opening team of at least
three personnel to the Restaurant to consult and assist Franchisee and its
managers regarding the opening, the initial marketing and sales effort and the
management and operation of the Restaurant, for a period not to exceed two
weeks, the exact period to be determined by Franchisor. Such consultation and
assistance shall be provided at no additional cost to Franchisee.
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4.3 Subsequent Training. From time to time, Franchisor may provide
and may require that Franchisee's Designated Manager and/or assistant managers
attend, and complete to Franchisor's satisfaction, refresher training programs,
seminars or meetings. Such programs will be held at locations designated by
Franchisor and will be provided without charge to Franchisee. Franchisee,
however, will be responsible for all compensation of such managers and all
associated expenses, including without limitation meals, lodging and
transportation.
4.4 Operating Manual, Recipe Manual and Menu. In order for
Franchisor to maintain uniform standards of operation among its franchisees and
to protect and enhance the goodwill and acceptance relating to the Restaurant
System and the Marks, Franchisor will furnish to Franchisee one copy and any
supplements and modifications to its Operating Manual (the "Operating Manual"),
Standard Recipe Manual (the "Recipe Manual") and Standard Menu (the "Menu").
Franchisee 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 Restaurant System which are
portrayed and described by the Operating Manual, Recipe Manual and Menu.
Franchisee acknowledges that the Operating Manual, Recipe Manual and Menu shall
at all times remain the sole and exclusive property of Franchisor and that
Franchisee is merely licensed to use the same as provided in this agreement. It
is further understood that the Operating Manual, Recipe Manual and Menu are
deemed confidential in all respects and constitute Proprietary Information and
are subject to all the restrictions of Section 7.6. Franchisor may from time to
time revise and update the Operating Manual, Recipe Manual and Menu in order to
include any improvements or changes that Franchisor may adopt in its sole
discretion. Franchisee will not use the Operating Manual, Recipe Manual or the
Menu or any information contained therein in connection with the operation of
any other business or for any purpose other than in conjunction with the
operation of Franchisee's franchise.
4.5 Consultation. Franchisor shall make its personnel available to
Franchisee during Franchisor's regular business hours for telephone consultation
and for written correspondence on problems or questions that Franchisee may
desire to discuss regarding operation of the Restaurant. Other assistance,
including visits by Franchisor's personnel to Franchisee's Restaurant, also will
be provided at Franchisor's sole discretion and within the limits of its
staffing. Except as set forth in Section 4.2, if such visits are made at the
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request of Franchisee, Franchisee shall pay the associated meals, lodging and
transportation expenses incurred by Franchisor or its personnel. Such
reimbursement to be paid after billing pursuant to Section 8.2.2.
4.6 Compliance. Franchisee agrees to faithfully and completely
follow and observe all standards, specifications, requirements, instructions and
procedures (a) as set forth in the Operating Manual, Recipe Manual and Menu and
any amendments or supplements thereto and any bulletins or materials provided by
Franchisor; (b) as taught in any training course conducted by Franchisor; (c) as
otherwise established from time to time by Franchisor pursuant to this
agreement. Franchisee shall cause all its Restaurant employees to be trained
with respect to all such standards, specifications, requirements, instructions
and procedures as are relevant to the performance of their respective duties.
5. Restaurant Operation.
5.1 Business Name. At its own expense, Franchisee shall comply with
all applicable federal, state and local laws governing registration and use of
assumed business names in connection with operation of the Restaurant.
Franchisee shall not use any of the Marks or any similar words as part of its
corporate or business name. Franchisee shall not license, register or purchase
vehicles, fixtures, products, supplies or equipment or perform any other
activity or incur any obligation or indebtedness except in its own corporate or
business name.
5.2 Signs. At its own expense, Franchisee will have made and will
exhibit and maintain on the inside and outside of the Restaurant a signing
package that conforms to specifications established from time to time by
Franchisor. Franchisee may not display on the inside or outside of the
Restaurant any signs not approved by Franchisor.
5.3 Insurance.
5.3.1 Franchisee shall procure and maintain in full force and
effect, at its sole cost and expense, insurance coverage for the Restaurant and
Location in an amount and form satisfactory to Franchisor, including, but not
limited to:
(a) general liability insurance with coverage of at least
one million dollars insuring Franchisee, Franchisor and their
respective officers, directors, agents and employees from and
against any and all loss, liability, claim or expense of any kind
whatsoever, including bodily injury, personal injury, death,
property damage, products
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liability and all other occurrences resulting from the condition,
operation, use, business or occupancy of the Restaurant and the
Location, including the surrounding premises or area, the parking
area and the sidewalks of the Location;
(b) "all risks" property insurance coverage, which shall
include fire and extended coverage, for the inventory, machinery,
equipment, fixtures and furnishings owned or leased by Franchisee
and used by Franchisee or at the Location with coverage limits of at
least "replacement" cost;
(c) all insurance required under any lease, mortgage, deed
of trust, contract for deed or any other legal contract in
connection with the Location or the Restaurant; and
(d) all other insurance required by state or federal law,
including workers' compensation insurance for its employees.
5.3.2 If Franchisee, or any of Franchisee's shareholders or
partners, owns, either directly or indirectly, the building or the business
premises at the Location, then Franchisee will insure the building or the
business premises for and against all risk, loss and damages in an amount equal
to at least "replacement" cost. If the Location is either partially or
completely destroyed by fire or any other catastrophe, then Franchisee will use
the insurance proceeds to repair or reconstruct the Location and recommence
business as soon as reasonably possible.
5.3.3 All insurance companies providing coverage to Franchisee
must be acceptable to and approved by Franchisor, and must be licensed in the
state where coverage is provided. Franchisee will provide Franchisor with
certificates of insurance evidencing the insurance coverage required of
Franchisee pursuant to this Section 5.3 no later than the date the Franchisee
opens for business, and Franchisee will immediately provide, upon expiration,
change or cancellation, a new certificate of insurance to the Franchisor.
5.3.4 All liability insurance policies procured and maintained
by Franchisee will require the insurance company to provide and pay for
attorneys to defend any legal actions, lawsuits or claims brought against
Franchisee, Franchisor and their respective officers, directors and employees.
5.3.5 All insurance policies procured and maintained by
Franchisee pursuant to this Section 5.3 will name
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Franchisor as an additional insured (with the exception of workers'
compensation, will contain endorsements by the insurance companies waiving all
rights of subrogation against Franchisor, and will stipulate that Franchisor
will receive copies of all notices of cancellation, nonrenewal or coverage
reduction or elimination at least 30 days prior to the effective date of such
cancellation, nonrenewal or coverage change.
5.3.6 Franchisor shall have the right and authority to require
additional insurance coverage and higher policy limits than set forth above as
may be specified by Franchisor in writing.
5.3.7 In the event Franchisee, for any reason, fails to procure
and maintain the insurance coverage required by this Section, Franchisor shall
have the right and authority to immediately procure such insurance coverage and
charge the cost thereof to Franchisee, which charges shall be paid immediately
upon written notice and shall be subject to charges for late payments in the
manner set forth in Section 8.2.3.
5.3.8 Franchisee may self-insure for any of the risks described
in this Section 5.3, provided that Franchisee reasonably believes the coverage
required for any such risk exceeds reasonably necessary coverage or reasonably
believes that the premiums necessary to support such coverage are excessive.
5.4 Employees. Franchisee shall employ, train (with the assistance
described in Section 4), compensate and maintain at all times during the term of
this agreement sufficient personnel to operate the Restaurant in conformance
with the standards, procedures and requirements set forth in this agreement, the
Operating Manual and as otherwise specified or required from time to time orally
or in writing by Franchisor.
5.5 Managers. Franchisee shall at all times have a qualified
designated manager of the Restaurant (the "Designated Manager") and at least one
full-time qualified assistant manager and may appoint as many additional
assistant managers as Franchisee deems appropriate. Franchisee shall notify
Franchisor immediately of the designation of the initial manager and any
replacement manager. It is of the essence of this agreement that the Designated
Manager shall devote his or her full time and energies to achieving the highest
practicable level of sales and making the Restaurant as productive as possible
and that he or she shall directly supervise, on the premises, the operation of
the Restaurant. The Designated Manager or a qualified assistant manager shall be
at the Restaurant during all hours of operation. The Designated Manager or an
assistant manager shall be deemed to be
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"qualified" as that term is used in this Section if the particular manager has
completed to Franchisor's satisfaction the manager training described in Section
4.1.
5.6 Hours. Franchisee shall cause the Restaurant to be open for
business for the number of hours per day and the number of days each year
consistent with the most common operating schedule of the HomeTown Buffet
restaurants operated by Franchisor. In the first year the Restaurant is open,
the number of days the Restaurant is required to be open for business shall be
prorated from the opening date to the end of that calendar year. Franchisee may
close the Restaurant for such periods as may be reasonably required to
accomplish remodeling, repairs and alterations. Failure of Franchisee to cause
the Restaurant to be open for business as described herein shall be excused for
a period, not exceeding 180 days, where such failure is caused by acts beyond
its reasonable control including but not limited to acts of God, or public
enemy, acts of other parties, governmental laws, regulations or requirements,
the acts or failure to act of any governmental authority, acts of civil or
military authority, labor disputes, fires, riots, wars, embargoes, epidemics,
floods, unusually severe weather, or shortage or absence of power or fuel. If
the failure to cause the Restaurant to be open for business extends for a period
beyond 180 days, Franchisee's obligation to open the Restaurant shall be excused
and Franchisee's and Franchisor's obligations hereunder relating to the
Restaurant shall terminate.
5.7 Products for Sale. Franchisee must offer for sale all, and will
sell only, those foods, beverages, products, goods, premiums, novelty items,
clothing, souvenirs, merchandise, sundries and services (the "Items") set forth
in the Operating Manual, Recipe Manual and Menu or otherwise specified from time
to time orally or in writing by Franchisor, and Franchisee will conform to all
customer service standards prescribed by Franchisor orally or in writing.
Franchisee shall prepare foods, food items and beverages only in conformity with
the Recipe Manual and Menu or as otherwise required by Franchisor. Franchisee
may not sell or offer for sale any other Items without prior written consent of
Franchisor. Franchisee will have the absolute right to sell all Items at
whatever prices and upon whatever terms it deems appropriate.
5.8 Approved Suppliers. Franchisee will purchase from suppliers
approved in writing by the Franchisor those Items and those recipe ingredients,
supplies, uniforms, machinery, signs, furniture, fixtures and equipment (the
"Supplies") which are to be used or sold by Franchisee and which Franchisor
determines meet the specifications or standards of quality and uniformity
required to protect the
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valuable goodwill and uniformity symbolized by and associated with the Marks and
the Restaurant System. Franchisor maintains and shall make available to
Franchisee the names and addresses of approved suppliers for all Items and
Supplies for which Franchisor has established specifications or standards.
Franchisee will have the right and option to purchase these Items and supplies
from other or outside suppliers provided that such Items and Supplies conform in
quality to Franchisor's specifications or standards, as determined by
Franchisor. If Franchisee desires to purchase any Items or Supplies from such
other suppliers, then Franchisee must petition Franchisor for approval of such
Items, Supplies and other suppliers and submit samples and specifications and/or
standards to Franchisor for review and testing to determine whether the Items
and Supplies comply with Franchisor's specifications or standards. Written
approval of Franchisor must be obtained by Franchisee before Franchisee uses or
sells any such Items or Supplies obtained from such previously unapproved
supplier, which approval shall not be unreasonably withheld or delayed.
With respect to any proposed new supplier, Franchisor reserves the
right to require execution of a confidentiality agreement with Franchisor as a
condition of approval. As a further condition of approval, Franchisor and its
designees shall have the right to inspect the supplier's facilities. Franchisor
shall notify Franchisee concerning approval or disapproval within a reasonable
period of time, depending on the circumstances, after its receipt of the
approval petition, required information, including samples and specifications or
standards, and inspection of facilities. As a condition of continued approval,
the supplier must permit Franchisor and its designees to reinspect the
supplier's facilities as deemed necessary by Franchisor.
Franchisor reserves the right to terminate approval of any supplier
based on the supplier's breach of any agreement with Franchisor, including
without limitation any confidentiality agreement, or the supplier's failure to
consistently produce a product within the specifications or standards set forth
in the Operating Manual, Recipe Manual and Menu.
Franchisor will provide Franchisee at least 20 days' prior written
notice of its intent to revoke approval of any approved supplier.
5.9 Maintenance and Repairs. Franchisee shall maintain, at its expense,
the condition of the Restaurant, including without limitation all furnishings,
equipment, fixtures, signs, buildings and improvements, in good repair,
attractive appearance and sound operating condition in compliance with the
standards specified in the Operating Manual or otherwise specified from time to
time orally or in writing by Franchisor Such maintenance shall include, without
limitation:
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(a) regular and thorough cleaning and sanitation of the interior
and exterior of the Restaurant;
(b) prompt repair of any broken or damaged equipment, furnishings,
signs, buildings or improvements;
(c) replacement and/or refurbishing of worn out or outdated
equipment, furnishings, signs, buildings or improvements; and
(d) periodic painting and redecorating.
If Franchisee does not maintain the condition and appearance of the Restaurant
as required by this Section and does not cure such deficiency within 30 days of
its receipt of Franchisor's notice of the deficiency, Franchisor may, but shall
not be required to, cause such deficiency to be corrected and Franchisee shall
reimburse Franchisor for all associated costs and expenses. Franchisor's rights
under this Section shall be in addition to and not in lieu of any other rights
it may have under this agreement or applicable law.
5.10 Alterations. Franchisee shall not make any material
alterations to the Location or Restaurant nor shall the Franchisee make any
material replacements of or alterations to the layout, leasehold improvements,
fixtures, signs, equipment, accounting systems or appearance of the Restaurant
without prior written approval by Franchisor, which approval shall not be
unreasonably withheld or delayed. Franchisor shall have the right, in its sole
discretion, and at the sole expense of the Franchisee, to rectify any material
alterations to the Location or Restaurant not previously approved by Franchisor.
5.11 Remodeling and Redecoration. Franchisee shall, from time to
time as reasonably required by Franchisee (taking into consideration the cost
and then remaining term of this agreement), make the reasonable capital
expenditures necessary to extensively modernize the Restaurant and Location and
to replace the furniture, fixtures, supplies and equipment. All such
modernization or replacement must conform to Franchisor's then-current standards
and specifications, and must be approved by Franchisor in writing. Franchisee
shall commence and complete such remodeling, modernizing, redecorating and
renovating within three months from the date that Franchisee receives written
notice from Franchisor specifying the required remodeling, modernization,
redecoration and renovation, and
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will diligently complete such remodeling, modernization, redecoration and
renovation within a reasonable time after its commencement. Except as provided
for in Section 5.9 of this agreement, Franchisee shall not be required to
extensively modernize the Restaurant or Location or to replace or modernize the
furniture, fixtures, supplies and equipment more than once, every five years
during the term of this agreement.
5.12 Compliance with Laws and Good Business Practices. Franchisee
shall secure and maintain in force all required licenses, permits and
certificates relating to the operation of the Restaurant and shall operate the
Restaurant in full compliance with all applicable federal, state and local laws,
ordinances and regulations. Franchisee shall pay promptly when due any and all
taxes and assessments relating to the Restaurant. Franchisee agrees to use good
business and advertising practices in the operation of the Restaurant.
5.13 Notice of Action. Franchisee shall notify Franchisor in
writing within five days of the commencement of any action, suit or proceeding,
or of the issuance of any order, writ, injunction, award or decree of any court,
agency or other governmental instrumentality, that might materially adversely
affect the operation or financial condition of Franchisee or the Restaurant.
6. Changes.
6.1 Franchisee agrees and understands that Franchisor shall have
the right to change or modify the Restaurant System, Marks, Operating Manual,
Recipe Manual and Menu, the training programs, and the standards, procedures or
requirements set forth in the Operating Manual, Recipe Manual and Menu or
otherwise specified from time to time orally or in writing by Franchisor, and
shall have the right to adopt new marks, standards, procedures or requirements
or new product" or equipment to be sold or used by the Franchisee in the
Restaurant System. Franchisee shall accept and use all such changes as if they
were set forth in this agreement or the Operating Manual, Recipe Manual and Menu
as of the execution of this agreement. Franchisee will make such expenditures as
are reasonably required by such changes and shall do so within the time
specified by Franchisor. Any changes or modifications to the Marks and any new
marks shall be deemed Marks for all purposes of this agreement.
6.2 Franchisee acknowledges and agrees that some of the required
changes may be material and may involve the addition or substitution of new
products, product lines, services or an alteration of the product and service
mix of Franchisor's Restaurant System. Franchisor will give
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Franchisee as much notice as is reasonably practicable in the circumstances in
respect of any and all such material changes.
6.3 Upon receipt of any such notice, Franchisee hereby agrees to
comply with and carry out all such changes, modifications or additions at its
own expense, promptly as required by and within the time specified by such
notice.
7. The Marks; Proprietary Information.
7.1 Ownership of the Marks. The Marks are, and at all times shall
remain, both during the term of this agreement and at all times thereafter, the
sole and exclusive property of Franchisor, or in the case of the mark
"HOMETOWN," Franchisor and its licenser. Subject to Section 5.1, Franchisee
agrees to use the Marks in conjunction with its operation of the Restaurant as
provided in this agreement, in the Operating Manual and as otherwise specified
from time to time orally or in writing by Franchisor. Franchisee shall in no
event use or authorize the use of the Marks in any other connection or for any
purpose whatsoever. During the term of this agreement and after its expiration
or termination, Franchisee shall not directly or indirectly contest, register or
attempt to register with state or federal authorities as a trade name, trademark
or service mark, or aid in contesting the validity or ownership of, the Marks or
any copyrights of Franchisor. All goodwill associated with the Marks and
Franchisor's copyrights, including any goodwill arising through Franchisee's
activities, shall inure directly and exclusively to Franchisor, except as
otherwise specifically provided by law.
7.2 Litigation. Franchisee shall give Franchisor prompt notice of
any observed or suspected infringement, challenge or claim or the commencement
of any litigation or United States Patent and Trademark Office or other
proceeding of which Franchisee has knowledge involving any of the Marks or
Franchisee's right to use the Marks in operating the Restaurant. Franchisee
shall not communicate with any person other than Franchisor and its counsel in
connection with any such infringement, challenge or claim; provided, however,
that Franchisee may communicate with such other persons as may be required to
comply with a subpoena, court order or other order or requirement of a judicial
proceeding or to make reasonable and prudent initial efforts to resolve any
alleged infringement, challenge or claim. Franchisor shall have sole discretion
to take such action as it deems appropriate and may, but shall not be required
to, defend or prosecute any litigation or proceeding relating to the Marks or
their use by Franchisee, in the name of either Franchisor or Franchisee, as
Franchisor may elect. As to any litigation or proceeding that Franchisor shall
defend or prosecute in connection with the Restaurant or the Marks, Franchisee
shall extend such cooperation and execute such documents as Franchisor shall
request.
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7.3 Nonexclusivity of License. Franchisee's rights to use of the
Marks are nonexclusive, and Franchisor in its sole discretion has the right to
use the Marks in the operation of its own business and to grant other licenses
to use the Marks on any terms and conditions Franchisor deems fit.
7.4 Registration. Franchisee acknowledges that the Marks are not now
registered and may not qualify for registration with appropriate state
authorities or with the United States Patent and Trademark Office, that third
parties may have superior rights to use some or all the Marks, and that
Franchisee may be prevented by law from using some or all of the Marks in
operating the Restaurant. In such event, this agreement shall remain valid and
binding, and Franchisor and Franchisee shall work together in good faith to
determine such alternative marks as may be mutually agreeable to Franchisee and
Franchisor under which to operate the Restaurant; provided, however, that if the
parties fail to agree on alternative marks within 60 days of being prevented by
law form using some or all of the marks, Franchisor shall designate appropriate
marks that shall impart a similar connotation to that of the mark "HOMETOWN."
Franchisor shall make best efforts to cause any currently pending application
for registration of any of the Marks to be prosecuted diligently and in good
faith.
7.5 Offering of Securities. Franchisee shall not use any Mark in any
private or public offering of its securities, except to reflect its franchise
relationship with Franchisor, nor shall the Franchisee misrepresent, by any
statement or omission of an essential statement, its relationship with
Franchisor. Any offering memorandum, prospectus or registration statement
proposed to be used in any such offering shall be submitted to Franchisor in
substantially final form not less than five days prior to the circulation
thereof for the limited purpose of permitting Franchisor to verify the
Franchisee's compliance herewith.
7.6 Proprietary Information.
7.6.1 The term "Proprietary Information" refers to the Operating
Manual, Recipe Manual and Menu (including trade secrets, know-how, methods,
techniques, recipes and other information set forth in the Operating Manual,
Recipe Manual and Menu), the curriculum of the training programs and all
information or documents designated or treated as confidential by Franchisor.
Franchisee acknowledges that it will have access to certain of the Proprietary
Information in connection with its operation of the Restaurant and its
performance of this agreement. All of the Proprietary Information shall remain
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the exclusive property of Franchisor or its affiliated entities. Franchisee
shall not duplicate Proprietary Information without the express consent of
Franchisor and shall not use the Proprietary Information except with respect to
operation of the Restaurant.
7.6.2 Franchisee shall not disclose the Proprietary Information
to any other person except as provided below:
(a) Franchisee shall not disclose Proprietary Information
to its employees without informing such employees of the
confidential nature of the information and without taking all steps
necessary to safeguard confidentiality, and any such disclosure
shall be made only to such employees having a need for the
Proprietary Information in order to perform their duties; and
(b) Franchisee shall not disclose the Proprietary
Information to any person other than its employees, including
without limitation affiliates, subcontractors, customers, licensees,
consultants or prospective purchasers of Franchisee's business,
without prior written consent of Franchisor.
7.6.3 Franchisee agrees to maintain adequate security measures
to control the use and handling of the Proprietary Information in order to
minimize the risk of inadvertent disclosure. Such security measures shall
include numbering of all Franchisee's copies of the Operating Manual, Recipe
Manual and Menu and keeping track at all times of the location of, and person
responsible for, each copy. All copies of the Operating Manual, Recipe Manual
and Menu shall remain at the Restaurant at all times. At Franchisor's request,
Franchisee shall require its stockholders, directors, officers, partners or
employees to sign written confidentiality agreements pertaining to the
Proprietary Information in such form as may be prescribed by Franchisor. With
respect to any forms or other materials furnished by Franchisor to Franchisee
for duplication, any copies Franchisee makes shall retain Franchisor's name, the
Marks or any copyright notice or trademark designation found on the original of
the form or other materials. At Franchisor's request, Franchisee will insert in
any materials used by Franchisee that contain the Marks or are derived from
written materials prepared by Franchisor a proprietary rights legend, copyright
notice or trademark designation as specified by Franchisor.
7.6.4 Franchisee acknowledges that any disclosure of any
Proprietary Information will cause irreparable harm to Franchisor. If Franchisee
violates any of
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the provisions of this agreement regarding Proprietary Information, Franchisor
will be entitled to specific performance, including immediate issuance of a
temporary restraining order or a preliminary or permanent injunction enforcing
this agreement, and to any other remedies provided by applicable law.
8. Payments.
8.1 Franchise Fee. Franchisee shall pay Franchisor an initial
franchise fee of $25,000 upon execution of this agreement. No part of the
franchise fee shall be refundable, except as expressly provided in Sections 3.3
and 4.1.2 or as required by applicable law. The franchise fee and the time for
payment of the franchise fee set forth herein are subject to adjustment as
provided in the Multiple Unit Agreement.
8.2 Continuing Payments. In addition to the initial franchise fee,
Franchisee will make continuing payments to Franchisor as follows:
8.2.1 For any partial Accounting Year (as defined below) and for
each Accounting Year during the term of this agreement Franchisee shall pay
Franchisor, commencing with the opening of the Restaurant, a weekly royalty
based on the royalty rate set forth below on all the Gross Sales (as defined
below) of Franchisee in connection with the Restaurant as set forth below:
Annual Gross Sale Royalty Rate
----------------- ------------
$0 to $1,000,000 4%
$1,000,001 to $2,000,000 3%
$2,000,001 and Over 2%
The above rate is subject to adjustment as provided in the Multiple Unit
Agreement. As used herein, Accounting Year shall mean the 52- or 53-week period,
ending on the Wednesday nearest December 31, and divided into four periods of
16, 12, 12 and 12 or 13 weeks, as the case may be, or Franchisee's regular
fiscal period.
As used herein, Gross Sales shall mean the total of all amounts
received in connection with the Restaurant, whether in cash, merchandise or
services and all other income of any kind related to the Restaurant, including
but not limited to (i) all products prepared and services performed at the
Restaurant, (ii) sales and orders made, solicited or received at the Restaurant,
and (iii) all other business whatsoever conducted or transacted at or from the
Restaurant, including sales outside the Restaurant, whether evidenced by cash,
check, credit, gift certificates, services, property or other means of
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exchange; provided, however, that Gross Sales do not include any sales taxes
collected from customers by Franchisee for transmittal to the appropriate taxing
authority. Gross Sales shall be deemed to be realized by Franchisee at the time
of the sale or delivery of the products, merchandise or services by Franchisee,
irrespective of when Franchisee actually receives payment therefor. Franchisor
shall pay the royalty on a weekly basis on or before the close of business on
Monday of each week for the week preceding the prior week. The royalty will be
paid and submitted with the Franchisee's report of weekly Gross Sales in the
form described in Section 10.1.
8.2.2 Franchisor will bill Franchisee for all other amounts due
under this agreement. Such amounts billed to Franchisee shall be due 30 days
from the billing date, unless otherwise specified in this agreement.
8.2.3 Without limiting any of Franchisor's other rights or
remedies under this agreement or otherwise, if Franchisee shall fail to make any
payment when due, Franchisee agrees to pay a late charge equal to the amount due
times two percent per month from the date due until paid, or the highest charge
allowed by law, whichever is less. Such late charges shall accrue
notwithstanding the expiration or termination by either party of this agreement.
8.2.4 Application of Payments. Franchisor shall have sole
discretion to apply any payments by Franchisee to any past due indebtedness of
Franchisee for royalty and continuing fees, advertising contributions if any),
purchases from Franchisor or its affiliates, interest or any other indebtedness.
9. Advertising.
9.1 Advertising Fee. Franchisor reserves the right in the future to
establish weekly advertising fees for Franchisor administered advertising and/or
Franchisee administered cooperative advertising on a local, regional, national
or international basis. If an advertising cooperative is not established,
Franchisee shall pay a maximum of one-half of one percent of Franchisee's Gross
Sales made during the period for which the advertising fee contribution is made.
Such one-half of one percent shall be applied to the cost of production for
menus, point of purchase materials and other advertising materials. If a media
advertising cooperative is established in the ADIs in which Franchisee is
operating, Franchisee shall pay a maximum of one-half of the royalties payable
by Franchisee to Franchisor pursuant to Section 8.2.1 of this agreement
(inclusive of the one-half of one percent for production). Franchisee will abide
by the reasonable requirements (not in violation of the fee limitations
described above) established by Franchisor and any cooperative for any
advertising. Franchisor will be obligated to provide 90 days' written notice
prior to establishing any advertising cooperatives.
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9.2 Telephone Directory Listings. Franchisee shall be required to
continually advertise in the Yellow Pages under the listing of "restaurants."
The format, size, and content of the listing will conform in all respects to the
standards established by the Franchisor from time to time. Expenditures made by
Franchisee for Yellow Pages advertising shall be in addition to all other
advertising requirements of the Franchisee that may be imposed pursuant to
Section 9.1.
9.3 Approved Advertising. Franchisee will not conduct any
advertising, promotion, marketing, public relations or telemarketing program or
campaign for its Restaurant unless and until Franchisor has given Franchisee
prior written approval for all concepts, materials or media proposed for any
such advertising, promotion, marketing, public relations or telemarketing
program or campaign. Franchisee will not permit any third party to advertise its
business, services or products on the premises of the Location without obtaining
the prior written approval of Franchisor.
10. Financial Statements; Maintenance of Books and Records: Inspections.
10.1 Weekly Report. Franchisee will maintain an accurate written
record of the daily Gross Sales of Franchisee in connection with the Restaurant
and will remit a signed and verified statement of the Gross Sales generated by,
at, as a result of or from the Restaurant using such forms as Franchisor may
from time to time prescribe in writing. The statement of Gross Sales will be
provided to Franchisor on Monday of each week for the week preceding the prior
week and will accompany the Franchisee's payment of the weekly royalty fee
pursuant to Section 8.2.1.
10.2 Periodic Reports. Within 15 days after the end of each four or
five week accounting period or Franchisee's regular four week accounting period,
Franchisee will, at its expense, provide Franchisor with a balance sheet and
statement of profit and loss for such accounting period, which will consist of a
balance sheet, statement of profit and loss, statement of cash flows and
explanatory footnotes.
10.3 Annual Reports. Not later than 60 days after the end of each
Accounting Year of Franchisee, Franchisee shall furnish to Franchisor a balance
sheet profit and loss statement, statement of cash flows and explanatory
footnotes with respect to the particular Accounting Year.
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10.4 Form of Reports. All financial statements provided to
Franchisor by Franchisee will be presented in the form reasonably prescribed by
Franchisor in writing, and will be categorized according to the standard chart
of accounts developed and approved by Franchisor. These financial statements
will be prepared in accordance with generally accepted accounting principles
applied on a consistent basis. If Franchisee's annual financial statements are
not certified by an independent certified public accountant, then, Franchisee's
annual financial statements must be verified by Franchisee's President and Chief
Financial Officer, or if Franchisee is not a corporation, then by Franchisee's
Managing Partner or Chief Operating Partner and Franchisee's Chief Financial
Partner.
10.5 Records. Franchisee will maintain at its business address
readily available for inspection by Franchisor (a) true, accurate and complete
books of account and records, in conformity with generally accepted accounting
principles, reflecting all sales made and other business activities of the
Restaurant; (b) Franchisee's federal and state income tax returns and any state
or local sales tax or equivalent returns; and (c) cash register tapes and daily
sales reports. Franchisee shall retain all such books, records, reports and tax
returns for at least three years from the closing dates of the periods to which
they apply. Franchisee shall, at its expense, furnish copies of such reports and
other information as Franchisor may require. Franchisee's in-store accounting
system shall comply at all times with any standards, specifications and
procedures from time to time established by Franchisor.
10.6 Audits. Franchisor, by any representative designated by it,
shall have the right, with or without prior notice to Franchisee, from time to
time to inspect, examine, audit and copy such books, records, reports and tax
returns at Franchisee's address. If any such examination or audit discloses that
Franchisee, in any statement or payment furnished to Franchisor, has
under-reported its Gross Sales in any period or failed to pay in full amounts
due Franchisor, Franchisee shall pay Franchisor, upon five days' notice, the
additional amount due to Franchisor as disclosed by such examination or audit
plus a late charge equal to the amount due times two percent per month from the
date on which such additional amounts should have been paid to the date of
payment, or the highest charge allowed by law, whichever is less. In addition,
if any such examination or audit discloses that Franchisee, in any statement or
payment furnished to Franchisor, has under-reported its gross revenues by more
than five percent, then, without affecting any rights or remedies Franchisor may
have as a result of such violation, Franchisee shall pay to Franchisor the cost
of the examination or audit.
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Any payments due under this Section shall be in addition to and not in lieu of
other remedies or rights to which Franchisor may be entitled under this
agreement or applicable law.
10.7 Inspections. Franchisor, by any representative designated by
it, shall have the right, with or without prior notice to Franchisee, to visit
periodically the Restaurant to examine and check Franchisee's compliance with
the provisions of this agreement and the Operating Manual, Recipe Manual and
Menu. This right shall include without limitation the right to (i) test and
evaluate all equipment, food products, food ingredients, beverages and supplies
and (ii) evaluate and interview any and all employees and agents of the
Franchisee. If the Franchisor finds that any food, ingredients or supplies do
not meet current Franchisor standards and requirements, the Franchisee shall
immediately remove the same from the Restaurant, even if such removal results in
the disposal of food products or ingredients held in its inventory.
11. Additional Conditions.
11.1 Other Locations. Franchisee shall conduct the business
franchised by this agreement only at the Location or such substitute location as
Franchisor may subsequently approve. Franchisee may not conduct the franchised
business at any remote location through temporary stands or booths or any other
means without the prior approval of Franchisor in writing; provided that
Franchisee may conduct the franchised business through catering without such
prior approval. Subject to the Multiple Unit Agreement, if Franchisee is in full
compliance with this agreement and desires to operate a HomeTown Buffet
restaurant at a location in addition to the Location, Franchisee may apply to
Franchisor for a franchise for such location. If Franchisor determines in its
sole discretion to grant the additional franchise, Franchisee will be required
to pay the then-current initial franchise fee and enter into a separate
franchise agreement (in the form then in use by Franchisor) for the additional
franchise.
11.2 Other Businesses. Franchisee may not own or operate any other
franchises, or sell or offer to sell any goods or services, from the Restaurant
or Location except those described in Sections 5.7 and 5.8. Franchisee will not
permit any jukebox, video and electronic games, vending machines, coin or token
operated machines (including pinball) or gambling devices to be used on premises
of the Location other than pay telephones or those approved by the Franchisor in
writing. Franchisee will not keep or offer for sale or allow employees to offer
for sale at or near the Location any tickets, subscriptions, pools, chances,
raffles, lottery tickets or pull tabs, except with the prior written approval of
Franchisor.
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11.3 Independent Contractor. Nothing in this agreement shall be
deemed to make Franchisee an agent of Franchisor for any purpose. Franchisee
shall not hold itself out as an agent, legal representative, joint venturer,
partner, employee, division or representative of Franchisor, and Franchisor
shall not incur any liability by reason of any representation, act or omission
of Franchisee. Franchisee in the operation of the Restaurant is an independent
contractor operating its own business and is not authorized to make any
contract, agreement, warranty or representation on behalf of Franchisor or to
create any obligation express or implied on behalf of Franchisor.
11.4 Indemnity.
11.4.1 Franchisee Indemnity. Franchisee shall defend,
indemnify and hold Franchisor and its officers, directors, employees, agents,
affiliates, successors and assigns harmless against any claims, losses or
damages (including attorneys' fees at trial or on appeal or petition for
review), fines, suits, proceedings, claims or losses of any nature arising out
of or relating to, directly or indirectly, (a) the acts or omissions of
Franchisee or its principals, agents or employees or the operation or condition
of the Restaurant, Location or Restaurant Assets (as defined in Section 13.6.5)
and (b) the breach of any provision of this agreement.
11.4.2 Franchisor Indemnity. Franchisor shall defend,
indemnify and hold Franchisee and its officers, directors, employees, agents,
affiliates, successors and assigns harmless against any claims, losses or
damages (including attorneys' fees at trial or on appeal or petition for
review), fines, suits, proceedings, claims or losses of any nature arising out
of or relating to, or directly or indirectly, (a) the acts or omissions of
Franchisor or its principals, agents or employees in connection with
Franchisor's obligations under this agreement; (b) the breach of any provision
of this agreement; (c) the acts or omissions of Franchisor or its principals,
agents (excluding Franchisee) or employees in connection with Franchisor's
obligations under any provisions of the Trademark License Agreement between
Hometown Pharmacy Company, Inc. and S.W. Restaurants, Inc. dated effective April
29, 1991, the Stock Purchase Agreement between Buffets, Inc. and C. Dennis Scott
dated November 9, 1990, the Assignment, Consent and Release Agreement between C.
Dennis Scott and Joel C. Brown dated November 9, 1990, the Waiver and
Termination Agreement between Evergreen Buffets Inc., Buffets, Inc., C. Dennis
Scott and Joel C. Brown dated November 9, 1990, the Shareholders' Agreement
between Buffets, Inc., C. Dennis Scott and Joel C. Brown dated January 17, 1989,
and the Employment Agreement between Buffets, Inc. and C. Dennis Scott
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dated January 26, 1989; and (d) the acts, omissions or negligence of Franchisor
or its principals, agents (excluding Franchisee) or employees related to any
infringement actions with regard to any of the Marks.
11.5 Corporate Franchisees. If Franchisee is, or becomes, a
corporation, the following provisions apply:
(a) Franchisee represents and warrants that the persons
listed on the attached Exhibit C are the holders of all the
outstanding stock of Franchisee; and
(b) all stock certificates representing stock in
Franchisee shall have conspicuously endorsed upon them a statement
that the transfer of the certificate is subject to the restrictions
of this agreement;
Franchisor in its discretion may waive some or all of the requirements of this
Section 11.5.
12. Assignment.
12.1 Transfers.
12.1.1 Franchisee shall not sell, assign, transfer or encumber
(collectively referred to as "transfer") any right, license or franchise granted
by this agreement, or its interest in the Restaurant, and shall not cause or
permit any such transfer to occur by operation of law or otherwise without the
express written consent of Franchisor, which consent shall not be unreasonably
withheld. If Franchisee is a partnership, the admission of any new partner to
the partnership, the withdrawal of a partner or the transfer of any partnership
interest shall constitute a transfer of this agreement requiring Franchisor's
consent. If Franchisee is a corporation, the issuance of 20 percent or more of
the stock in the corporation or the transfer, by operation of law or otherwise,
or redemption of 20 percent or more of the outstanding stock of the corporation
shall constitute a transfer of this agreement requiring Franchisor's consent.
Any attempted or purported transfer without Franchisor's prior written consent
shall be void and shall constitute a material breach of this agreement. Except
as set forth in Section 12.2, Franchisor shall not consent to such transfer
unless the following conditions are met:
(a) Franchisor determines in its sole discretion that
the transferee meets Franchisor's then-current standards for new
franchisees, which may include subjective standards, as determined
by Franchisor in its sole discretion;
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(b) the transferee's cost of acquiring the transferred
rights, license, franchise or assets will not impair its ability to
continue operation of the Restaurant; and
(c) Franchisee shall not be in default under this
agreement.
12.1.2 No such transfer shall become effective unless and until
each of the following conditions are satisfied:
(a) the transferee shall have executed Franchisor's
then-current form of franchise agreement for the same royalty,
continuing fees and advertising fees (if any) required hereunder and
for a term equal to the remaining term of this agreement and the
transferee shall be required to pay additional fees not specified or
provided for in this agreement but which are required to be paid to
Franchisor pursuant to the terms of the Franchisor's then-current
franchise agreement. As a condition of such transfer, the transferee
shall have paid to Franchisor a transfer fee to defray Franchisor's
costs for supervision, administrative, overhead, legal, accounting
and other expenses associated with the transfer. The transfer fee
shall equal 50 percent of the initial franchisee fee payable under
Franchisor's then-current franchise agreement and shall be paid in
lieu of any payment of a franchise fee;
(b) a Designated Manager and assistant manager of the
transferee shall have attended and completed, to Franchisor's
satisfaction, the training program described by Section 4.1 and
shall have paid Franchisor the then-current manager training tuition
for each manager attending the course;
(c) Franchisee shall execute an agreement in form
satisfactory to Franchisor by which Franchisee shall release
Franchisor from all claims and liabilities (except to the extent
such a release is limited by applicable law) and shall agree to
indemnify and hold Franchisor harmless from all claims by the
transferee arising from or relating to the transfer, including
without limitation, claims arising from or relating to any
misrepresentations made by Franchisee to the transferee;
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(d) Franchisee shall have continued to be in compliance
with the requirements of this agreement through the date of transfer
and shall have paid all amounts to Franchisor that have accrued
under this agreement or otherwise as of the date of transfer;
(e) if the transferee is a corporation, the transferee
and its shareholders shall have satisfied the requirements of
Section 11.5; and
(f) if required by the terms of the lease, mortgage or
deed of trust, the lessor, mortgagee or trustee, as the case may be,
shall have consented to the Franchisee's assignment, sublease or
transfer of said premises to the transferee.
12.1.3 If Franchisee is a corporation or partnership,
Franchisor in its discretion may waive some or all the requirements of Sections
12.1.1 and 12.1.2 if (a) the transfer will not involve a change in ownership or
control of 50 percent or more of the corporation or partnership; (b) the
transferor is not the Designated Manager and the transfer will not otherwise
cause a change in the Designated Manager; and (c) the remaining partners or
shareholders as a group satisfy Franchisor's-then-current requirements for new
franchisees, notwithstanding the inability of the transferee to satisfy
individually such requirements.
12.2 Assignment to Corporation. Notwithstanding any provision of
Section 12.1, if Franchisee is an individual or a partnership, Franchisee may
assign this agreement to a corporation upon giving notice to Franchisor,
provided that Franchisee, if an individual, or the partners in Franchisee, if a
partnership, are the legal and beneficial owners of all the stock of the
transferee corporation and provided also that the transferee corporation and
each of its shareholders comply with all the requirements of Section 11.5.
12.3 Franchisor's Right of First Refusal. Franchisor shall have a
right of first refusal to purchase the Restaurant and the franchise granted by
this agreement, which may be exercised as follows: If Franchisee shall receive
any bona fide offer for the franchise or any interest in the ownership thereof
or of a substantial portion of the assets of the Restaurant, which offer
Franchisee is ready and willing to accept, Franchisee shall promptly give
Franchisor written notice of the terms and conditions of such offer in the form
of a written and signed offer to Franchisee from the prospective purchaser.
Franchisor shall have a right of first refusal to
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purchase the rights and assets subject to the bona fide offer from Franchisee
upon substantially the same terms and conditions stated in the notice and may
exercise such right of first refusal by giving notice to Franchisee within 30
days after receipt by Franchisor of such notice. If Franchisor does not exercise
its right of first refusal within the prescribed time, Franchisee may sell the
rights and assets subject to the bona fide offer to any transferee approved by
Franchisor pursuant to Section 12.1, provided that such sale may not be on terms
and conditions more favorable to the transferee than those offered to Franchisor
and provided that such sale is closed within 60 days of the notice to Franchisor
of the bona fide offer.
12.4 No Waiver or Release of Existing Claims. Franchisor's consent
to an assignment of any interest subject to the restrictions of this Section 12
shall not constitute a waiver of any claims it may have against the assignor,
nor shall it be deemed a waiver of Franchisor's right to demand exact compliance
by the assignee with any of the terms or conditions of this agreement or the
franchise.
12.5 Assignment by Franchisor. This agreement may be assigned and
transferred by Franchisor and shall inure to the benefit of Franchisor's
successors and assigns. Franchisor will provide Franchisee with written notice
of any assignment or transfer, and the assignee will be required to fully
perform Franchisor's obligations under this agreement.
12.6 Rights Upon Death or Incapacity. The foregoing notwithstanding
and except as provided below or as otherwise required by law, the heirs,
successors, executor, administrator, guardian, personal representative or
trustee of Franchisee, or of any partner or shareholder of a Franchisee, shall
succeed to the same rights, obligations and liabilities under the Franchise
Agreement as Franchisee.
If a deceased or mentally incapacitated Franchisee or any partner or
shareholder of Franchisee is not the Designated Manager and the remaining
shareholders or partners and the deceased or incapacitated Franchisee's heirs or
successors as a group meet the then-current standards for new Franchisees, which
may include subjective standards applied in Franchisor's sole discretion, then
no transfer fee shall be charged to Franchisee or its heirs or successors.
If Franchisee or any partner or shareholder of Franchisee is the
Designated Manager, immediately following the death or mental incapacity of such
Franchisee, or of any Designated Manager with a 50% or a majority interest in a
corporate or partnership Franchisee, or during any period in which the
Restaurant is owned by an executor, administrator,
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guardian, personal representative or trustee of that person, the day-to-day
operation of the Restaurant may be conducted under the supervision of an interim
manager satisfactory to Franchisor, pending transfer of the interest in the
Restaurant to the deceased or incapacitated individual's lawful heirs or
successors. The successor Designated Manager shall be designated by the
executor, administrator, guardian, personal representative or trustee, or by any
other responsible person within 30 days of the death or incapacity, and shall
satisfactorily complete training within 90 days of the death or incapacity, and
pay for such training at the same cost as transferee Designated Managers. Prior
to the satisfactory completion of training of the successor Designated Manager,
Franchisor may, in its sole discretion, provide a manager for the franchised
business, for which Franchisor shall be reimbursed by Franchisee, within 15 days
of the end of any calendar month, for all compensation, training and maintenance
costs incurred by Franchisor in providing the manager.
Within 30 days after the franchise is transferred by law to
Franchisee's or Franchisee's partner's or shareholder's heirs or successors, the
heirs or successors must notify Franchisor in writing and make application for
approval for assignment of the franchise. The application for assignment shall
be subject to the same conditions, procedures and costs as assignment of any
franchise, except that there shall be no transfer fee or new franchise fee
payable.
13. Term; Renewal; Termination.
13.1 Term. The term of this agreement shall commence on the date
first written above and shall continue for 20 years thereafter unless sooner
terminated pursuant to Section 13.4 or 13.5.
13.2 Renewal. Franchisee may request renewal of the franchise
granted by this agreement for two successive terms of five years each, by giving
Franchisor written notice at least 270 days before the expiration of this
agreement. Upon such request, Franchisor shall renew Franchisee's franchise
unless:
(a) Franchisor is entitled to terminate this agreement
pursuant to Section 13.4;
(b) Franchisor is withdrawing from distributing its products
and services through franchises in the geographic market served by
Franchisee; or
(c) Franchisee fails to satisfy Franchisor's then-current
standards for new franchisees.
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<PAGE> 31
If Franchisor intends not to renew the franchise for any of the above
reasons, Franchisor will so notify Franchisee not later than 180 days (or
earlier if required by applicable law) before the expiration of this agreement
of its intent not to renew and its reasons.
If Franchisor grants Franchisee's request for renewal, renewal shall be
for such period, on such terms and conditions and with such fees and royalties
as set forth in Franchisor's then-current standard form of franchise agreement,
which may specify terms and conditions different from those stated in this
agreement with respect to such matters as training, management, standards of
quality, continuing payments by Franchisee, reporting, assignment, term,
renewal, termination and other material matters. Upon renewal, Franchisee shall
execute and be bound by Franchisor's then-current standard form of franchise
agreement. Franchisee, however, shall not be required to pay Franchisor a
renewal fee or the initial franchise fee as a condition of renewal. Before a
renewal term begins, Franchisee shall remodel and upgrade the Restaurant,
including without limitation inventory, supplies, furnishings, equipment,
fixtures, signs, buildings and improvements, as reasonably requested by
Franchisor to meet the standards then being required of new franchisees by
Franchisor, and Franchisee's Designated Manager and at least one assistant
manager shall attend and complete, to Franchisor's satisfaction, a manager
training refresher course.
13.3 Extension. If Franchisee fails to give notice of its election
to renew the franchise as required by Section 13.2 and Franchisor nonetheless
permits Franchisee to continue to operate the Restaurant using the Marks or the
Proprietary Information, all the terms and conditions of this agreement shall be
deemed to be extended on a month-to-month basis. In such event, Franchisor or
Franchisee may terminate this agreement, effective the last day of any calendar
month, upon giving the other party 30 days' written notice. If Franchisor fails
to give notice of intent not to renew as required by Section 13.2 or applicable
law, Franchisor may extend the term of this agreement for a limited period
sufficient to satisfy the required time for notice of intent not to renew.
13.4 Termination by Franchisor upon Event of Default. Franchisor may
terminate this agreement upon any material occurrence of any of the following
events of default if Franchisee has failed to cure any such default within 30
days of notice of default (or such other specified period) or if such default
cannot reasonably be cured within 30 days (or other specified period), has
failed to initiate within 30 days (or other specified period) substantial and
continuing action to cure such default:
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<PAGE> 32
(a) failure of Franchisee to cure its failure to pay any payment
required under this agreement within 10 days after receipt of notice
from Franchisor that payment is overdue;
(b) dissolution, termination of existence, insolvency on a
balance sheet basis or business failure of Franchisee; the commencement
by Franchisee of a voluntary case under the federal bankruptcy laws or
under any other federal or state law relating to insolvency or debtor's
relief; the entry of a decree or order for relief against Franchisee in
an involuntary case under the federal bankruptcy laws or under any
other applicable federal or state law relating to insolvency or
debtor's relief; the appointment or the consent-by Franchisee to the
appointment of a receiver, trustee or custodian of Franchisee or of any
of Franchisee's properties associated with the Restaurant; an
assignment for the benefit of creditors by Franchisee, the making or
suffering by Franchisee of a fraudulent transfer under applicable
federal or state law; concealment by Franchisee of any of its property
in fraud of creditors; or Franchisee's failure, generally, to pay its
debts as such debts become due (the events of default stated in this
subsection (b) refer to the occurrence of such event with respect to
Franchisee, any partners in Franchisee or any shareholder of
Franchisee);
(c) cessation by Franchisee of business operations at the
Restaurant:
(d) except as provided in Section 5.6 concerning closure due to
force majeure or remodeling, repair or alteration, closing of the
Restaurant for a period of 30 or more consecutive days;
(e) except as provided in Section 2.2 of this agreement, loss by
Franchisee of the right to occupy the Restaurant premises by
termination of its lease of the premises, by the sale or foreclosure of
the premises or by any other means;
(f) failure by Franchisee to comply in all respects material to
the ownership or operation of the Restaurant with any federal, state or
local law or regulation applicable to the operation of the
29
<PAGE> 33
Restaurant, unless after 30 days' notice of noncompliance from
Franchisor or from any federal, state or local governmental authority
Franchisee has resolved such noncompliance, or if such noncompliance
cannot reasonably be cured within 30 days, has initiated within 30 days
substantial and continuing action to cure such noncompliance;
(g) the conviction of Franchisee, any partner in Franchisee or
any shareholder of Franchisee of any felony or of other criminal
misconduct relevant to the operation of the Restaurant;
(h) failure of Franchisee to meet the requirements of Section
3.3 or 4.1.2 of this agreement;
(i) violation by Franchisee of any other provision of this
agreement;
(j) repeated material occurrences of one or more events of
default under this agreement, whether or not corrected after notice;
(k) Franchisee has made a material misrepresentation relating to
the acquisition of the franchise granted by this agreement;
(l) Any breach of Franchisee of any franchise agreement entered
into between Franchisor and Franchisee or other event, occurrence or
circumstance, which breach, event, occurrence or circumstance
constitutes grounds under such franchise agreement for the Franchisor
to terminate such franchise agreement; and
(m) any other event or reason specified by applicable law as a
basis for terminating a franchise by a franchiser.
13.5 Termination by Franchisee. Franchisee shall have the right to
terminate this agreement only if Franchisor violates any of the material
provisions of this agreement in a manner that justifies such termination under
applicable law and Franchisor has failed to remedy such violation within 30 days
after receiving written notice from Franchisee specifically describing such
violation.
13.6 Effect of Termination. Either party's right to terminate this
agreement shall be in addition to and not in lieu of any other rights or
remedies that the parties may have under this agreement or applicable law. The
obligations and status of Franchisee after the expiration or termination of this
agreement are as follows:
30
<PAGE> 34
13.6.1 Within 10 days following the effective date of
expiration or termination of this agreement, Franchisee shall pay all amounts
due to Franchisor, including royalty fees and advertising fees with respect to
operation of the Restaurant up to and including the effective date of expiration
or termination and all other amounts due Franchisor under this agreement or
otherwise. Franchisee shall provide Franchisor with the reports required by
Sections 10.1 and 10.2 as if the effective date of termination were the last day
of Franchisee's fiscal year.
13.6.2 After the effective date of termination, Franchisee
shall continue to be bound by the provisions of this Section 13.6 and Sections
7.l, 7.6, 8.2.3, 10.5, 10.6, 10.7, 11.4, 14 and 16.
13.6.3 Franchisee shall no longer hold itself out as a
franchisee of Franchisor and shall discontinue all use of the Marks (or any
names, words or symbols similar to the Marks or colorable imitations of the
Marks), the Proprietary Information or any other materials provided by
Franchisor. Franchisee shall take all steps necessary to disassociate itself
from Franchisor and the Restaurant System, including the removal and destruction
of any items bearing any of the Marks, including without limitation interior and
exterior signs, menus, paper products, novelty items, clothing, souvenir and
merchandise, unless such items are returned to or purchased by Franchisor
pursuant to Section 13.6.4 or 13.6.5. Franchisee shall make reasonable
alterations to the exterior and interior of the Restaurant as Franchisor deems
necessary to prevent the appearance that the Restaurant is or was a HomeTown
Buffet restaurant. If Franchisee fails to make such alterations, Franchisor may
enter upon the premises and make such alterations at Franchisee's expense
without incurring any liability to Franchisee. Franchisee shall cease to use any
telephone number listed under any name incorporating any of the Marks or similar
words and shall instruct the telephone company to forward any calls to a number
specified by Franchisor.
13.6.4 Franchisee shall return promptly to Franchisor all
copies of the Operating Manual, Recipe Manual and Menu, together with all other
materials, forms, training and promotional materials and aids and other written
materials furnished by Franchisor and all copies of any of the foregoing.
Franchisor shall have the right to enter upon Franchisee's premises to remove
such materials.
31
<PAGE> 35
13.6.5 Upon expiration or termination of this agreement for any
reason, Franchisor shall have the option to purchase at fair market value from
Franchisee the Restaurant, including all inventory, supplies, furnishings,
equipment, fixtures, land, buildings and improvements (collectively the
"Restaurant Assets"), and to require assignment by Franchisee to Franchisor of
any and all leases, mortgages or deeds of trust for any of the Restaurant
Assets. Franchisor may exclude from the Restaurant Assets any property that does
not meet the specifications or standards set forth in the then-current operating
manual, or for which no standards or specifications are set forth in the
then-current operating manual. Franchisor may exercise its option under this
subsection by giving written notice of intent to purchase to Franchisee before,
or within 30 days after, termination or expiration of this agreement. Fair
market value shall be determined by the parties within 30 days of Franchisee's
receipt of Franchisor's notice or of the effective date of termination or
expiration, whichever is later. Subject to the requirements of applicable law,
fair market value shall be based upon the value of the Restaurant Assets, but
shall not include the value of the HomeTown Buffet franchise, the Proprietary
Information or any element of good-will associated with the Marks or the
franchise. If the parties are unable to agree upon the fair market value, it
shall be determined by an independent appraiser chosen by the parties. If the
parties are unable to agree upon a single appraiser within 40 days of
Franchisee's receipt of Franchisor's notice or within 40 days of termination or
expiration, whichever is later, the parties shall each choose an appraiser and
the two appraisers shall choose a third. If all three appraisers have not been
chosen within the 40-day period, the unappointed appraiser shall be appointed,
upon petition by either party, by any court of record in the county in which the
Restaurant is located. Each appraiser shall submit an appraisal of the
Restaurant Assets within 30 days of appointment of all the last appraiser. The
highest and lowest of the three appraisals shall be disregarded and the third
appraisal shall control. Franchisor and Franchisee shall share equally the cost
of the single or third appraiser, but shall each separately bear the cost of
their respectively selected appraisers. The closing of the purchase shall occur
within 30 days of the determination of fair market value, and the purchase price
shall be paid in cash. Franchisor may offset the purchase price for the
Restaurant Assets against amounts due it from Franchisee under this agreement.
13.6.6 Franchisee shall not be entitled to any refund of the
franchise fee or other amounts paid under this agreement unless expressly
required by this agreement or applicable law.
32
<PAGE> 36
13.7 Applicable Law. The applicable laws of some states require
notice periods greater than those set forth in this agreement for termination or
nonrenewal, limit the reasons for termination or nonrenewal or impose other
requirements pertaining to this agreement. If any provisions of this agreement
are inconsistent with applicable law, and if such, applicable law cannot be
superseded by agreement of the parties, they shall not be effective and
Franchisor and Franchisee shall comply with applicable law regarding such
matters.
14. Noncompetition.
Franchisee for itself (and, if a corporation, for its shareholders
and, if a partnership, for its partners), for its officers and for any affiliate
under the control of, or controlled by or under common control with Franchisee,
covenants and agrees that during the term of this agreement and during the
period of two years commencing on the date of expiration or termination for any
reason of this agreement, it will not, either directly or indirectly, (a) engage
in any business similar to the Restaurant, including any restaurant business
that involves a pure buffet style restaurant that does not include waitperson
service or the service of separate entree menu items, as officer, director,
manager, owner, investor, consultant, employee or in any other capacity within
25 miles of the Location of the Restaurant or the location of any HomeTown
Buffet restaurant, or (b) hire any person from, or solicit or induce any person
to leave his employment with Franchisor or any HomeTown Buffet restaurant. If
Franchisee shall become associated with any business similar to the business
franchised under this agreement in violation of this Section or shall hire any
person from or solicit or induce any person to leave his employment with
Franchisor or any HomeTown Buffet restaurant, the parties agree that
Franchisor's remedy at law would be inadequate and that Franchisor shall be
entitled to injunctive relief. The restrictions contained in this Section shall
not apply in cases where Franchisee's sole relationship with or activity with a
competing business is ownership of less than five percent of any class of the
outstanding equity securities of any corporation whose stock is publicly traded.
Franchisee acknowledges and understands that Franchisor's rights to develop the
Restaurant System are limited by the terms of certain agreements concerning Old
Country Buffet restaurants. Franchisee acknowledges and understands that, until
November 9, 1992, these agreements limit the location of the Restaurant and
require that no HomeTown Buffet restaurant be located in Washington, in the
State of Oregon at any latitude north of the City of Cottage Grove, Oregon, or
within twenty-five (25) miles of any Old Country Buffet restaurant located in
any state in the United States, except for Arizona, Colorado and California.
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<PAGE> 37
15. Arbitration.
Except as specifically otherwise provided in this agreement, the
parties agree that any and all disputes between them, and any claim by either
party that cannot be amicably settled, shall be determined solely and
exclusively by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association then in effect, the award rendered by
the arbitrator shall be binding between the parties, and judgment on such award
may be entered in any court having jurisdiction. Absent other agreement by the
parties, all arbitration proceedings shall be conducted in Boise, Idaho and the
arbitration award shall be rendered within 30 days of the conclusion of the
arbitration hearing. This agreement to arbitrate shall not prevent either party
from applying to a court of competent jurisdiction for a temporary restraining
order, preliminary injunction, or other equitable relief to preserve the status
quo or prevent irreparable harm pending the selection and confirmation of the
arbitrators.
16. General Provisions.
16.1 Franchisee's Warranty. Franchisee and Franchisor each warrant
and represent for itself and not for the other that it has the authority and
ability to enter into and perform this agreement and that it has not made any
prior inconsistent commitments or agreements.
16.2 Notices. Any and all notices required or permitted under this
Agreement shall be in writing and shall be personally delivered or mailed by
certified or registered mail return receipt requested, or Express Mail, or sent
via recognized national or international courier, postage or fees prepaid to the
respective parties at the following addresses unless and until a different
address has been designated by written notice to the other party pursuant to
this Section:
Notices to Franchisor: HomeTown Buffet, Inc.
9171 Towne Centre Dr. #260
San Diego, California 92122
Notices to Franchisee: HTB Restaurants, Inc.
1010 West 2610 South
Salt Lake City, Utah 84119
With copies to: Attn: General Counsel
Attn: Chief Financial Officer
All Notices shall be effective upon receipt or refusal.
34
<PAGE> 38
16.3 Integration. This agreement and any referenced attachments)
exhibits or schedules (which are incorporated herein by this reference) are the
entire agreement between the parties and supersede all previous agreements or
understandings between them. This agreement may be modified only in writing
signed by both parties. The parties acknowledge that they are also parties to
the Multiple Unit Agreement, and may become parties to other franchise
agreements and other agreements on related matters in the future.
16.4 Governing Law and Construction. This agreement shall be
governed and construed under the laws of the state in which the Restaurant is to
be located. The parties intend that this agreement comply with the requirements
of all applicable laws. If in any judicial or arbitration proceeding a court or
arbitrator shall refuse to enforce all the provisions of this agreement, any
unenforceable provisions shall be deemed eliminated from this agreement for the
purpose of that proceeding as is necessary to permit the remainder of the
agreement to be enforced in that proceeding.
16.5 Waiver. Any waiver with respect to the provisions of this
agreement shall not be effective unless in writing and signed by the party
against whom it is asserted. No such driver shall constitute a waiver of any
subsequent breach or default.
16.6 Binding Effect. Except as provided in Section 12, this
agreement shall inure to the benefit of and bind the heirs, executors,
administrators, successors and assigns of the respective parties.
16.7 Captions. The captions of the sections of this agreement have
been inserted for descriptive purposes only and shall not be considered part of
the provisions of this agreement.
16.8 Severability. If any provision of this agreement is held
invalid or unenforceable, the scope of such provision shall be deemed modified
and diminished to the extent necessary to render it valid and enforceable. In
any event, invalidity or enforceability of any such provision shall not affect
any other provision of this agreement, and this agreement shall be construed and
enforced as if such invalid or unenforceable provision had not been included.
16.9 Equally Favorable Treatment. In the event that more favorable
provisions, terms and conditions are afforded any other HomeTown Buffet
franchisee (other than a current or former officer, director, key employee or
affiliate of Franchisor or any corporation or partnership whose principals
involve any of the foregoing) whether prior to or subsequent to
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<PAGE> 39
the execution of this agreement, Franchisee shall receive the benefits of such
provisions, terms and conditions from the later of execution of this agreement
or execution of a franchise agreement with such other franchisee until the
termination of this agreement.
16.10 Acknowledgement. Franchisee hereby acknowledges and warrants
that the following dates are true and correct with respect to its investigation
and purchase of a HomeTown Buffet franchise:
1. The date of my first face-to-face meeting with Franchisor to discuss the
possible purchase of a franchise was:
8/28/91 (illegible) -- Vice President
-------------- -----------------------------
Month/day/year Signature and title
2. The date on which I received a Disclosure Statement (or Uniform Franchise
Offering Circular), about the Franchisor:
8/26/91 (illegible) -- Vice President
-------------- -----------------------------
Month/day/year Signature and title
3. The date I received a completed copy (other than signatures) of the Franchise
Agreement was:
6/1/92 (illegible) -- Vice President
-------------- -----------------------------
Month/day/year Signature and title
4. The date on which I delivered cash, check or other consideration in the
amount of $15,000.00, to the Franchisor was:
8/24/93 (illegible) -- Vice President
-------------- -----------------------------
Month/day/year Signature and title
5. No oral, written or visual claim or representation, which contradicted the
Disclosure Statement (or Uniform Franchise Offering Circular) was made to me
except:
None
- --------------------------------------------------------------------------------
(If none, the prospective Franchisee will write "none.")
36
<PAGE> 40
6. No oral, written or visual claim or representation, which stated or suggested
any sales, income or profit levels, was made to me except:
None
- --------------------------------------------------------------------------------
(If none, the prospective Franchisee will write "none.")
16.11 Disclaimer. NO PERSON HAS ANY AUTHORITY TO MAKE ANY
REPRESENTATION OR PROMISE ON BEHALF OF EITHER PARTY NOT SPECIFICALLY STATED IN
THIS AGREEMENT, AND THIS AGREEMENT HAS NOT BEEN EXECUTED BY EITHER PARTY BASED
UPON ANY REPRESENTATION OR PROMISE NOT SPECIFICALLY STATED IN THIS AGREEMENT.
WITHOUT LIMITATION, NO REPRESENTATION OR GUARANTEE HAS BEEN OR IS MADE TO
FRANCHISEE THAT THE RESTAURANT WILL BE SUCCESSFUL OR THAT FRANCHISEE WILL EARN
ANY SPECIFIED AMOUNT IN CONNECTION WITH IT. IT IS SPECIFICALLY UNDERSTOOD AND
RECOGNIZED THAT THE SUCCESS OF THE RESTAURANT, AS OF MANY OTHER BUSINESSES, IS
SPECULATIVE IN NATURE AND DEPENDS TO A SUBSTANTIAL DEGREE UPON FRANCHISEE'S
ABILITIES AS WELL AS UPON ECONOMIC CONDITIONS AND MANY OTHER FACTORS.
FRANCHISOR: HOMETOWN BUFFET, INC.,
a Delaware corporation
By: (illegible)
--------------------
Title: President
------------------
Date: 8/25/93
-------------------
By: (illegible)
---------------------
Title: CFO
------------------
Date: 8/25/93
-------------------
FRANCHISEE: HTB RESTAURANTS, INC.,
a Delaware corporation
By: (illegible)
--------------------
Title: Vice President
------------------
Date: 8/23/93
-------------------
By: (illegible)
---------------------
Title: Chairman
------------------
Date: 8/23/93
-------------------
37
<PAGE> 41
EXHIBIT A
HomeTown Buffet (stylized)
<PAGE> 42
EXHIBIT B
LOCATION
<PAGE> 43
EXHIBIT C
SHAREHOLDER LIST
JB' s Restaurants, Inc.
<PAGE> 44
ACKNOWLEDGEMENT OF RECEIPT OF COMPLETED AGREEMENTS
The undersigned, personally and as an officer of or partner in the
proposed franchisee if applicable), does hereby acknowledge receipt of the
following agreements:
Franchise Agreement
with all blanks completely filled in an any and all exhibits or addendums in the
completed form in which they are intended to be executed by the undersigned.
(Note: This receipt must be signed and dated at least five business days before
the undersigned executes the Franchise Agreement. Do not sign and return
documents until five business days have elapsed from the date of this receipt.)
DATED: 8/24, 1993
----
FRANCHISEE:
HTB Restaurants, Inc., a Delaware corporation
By: (illegible)
--------------------
Its: Vice President
-------------------
(Attach additional signatures if necessary. If franchise is to be owned jointly
or as community property by husband and wife, both must review all documents and
sign. All partners of a partnership franchisee and the shareholders of a
corporate franchise must review all documents and sign individually and on
behalf of the entity).
<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)
[Entity to be formed to complete North Acquisition] Delaware 100%
[Entity to be formed to provide business
services to other entities] Delaware 100%
</TABLE>
- ----------
(1) Owned by Summit Family Restaurants, Inc.
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
CKE Restaurants, 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 9, 1997
<PAGE> 2
EXHIBIT 23.2
The Board of Directors
CKE Restaurants, 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 9, 1997
<PAGE> 3
EXHIBIT 23.2
The Board of Directors
CKE Restaurants, 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 9, 1997
<PAGE> 4
EXHIBIT 23.2
The Board of Directors
CKE Restaurants, 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 9, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF STUART W. CLIFTON
The undersigned, STUART W. CLIFTON, hereby consents to being named in the
accompanying Registration Statement on Form S-1 of Star Buffet, Inc. (the
"Registrant") as about to become a director of the Registrant following
completion of the offering of securities which is described in the Prospectus
forming part of such Registration Statement.
DATED: July 28, 1997
/s/ STUART W. CLIFTON
--------------------------------------
STUART W. CLIFTON
<PAGE> 2
CONSENT OF NORMAN N. HABERMANN
The undersigned, NORMAN N. HABERMANN, hereby consents to being named in the
accompanying Registration Statement on Form S-1 of Star Buffet, Inc. (the
"Registrant") as about to become a director of the Registrant following
completion of the offering of securities which is described in the Prospectus
forming part of such Registration Statement.
DATED: July 28, 1997
/s/ NORMAN N. HABERMANN
--------------------------------------
NORMAN N. HABERMANN
<PAGE> 3
CONSENT OF JACK M. LLOYD
The undersigned, JACK M. LLOYD, hereby consents to being named in the
accompanying Registration Statement on Form S-1 of Star Buffet, Inc. (the
"Registrant") as about to become a director of the Registrant following
completion of the offering of securities which is described in the Prospectus
forming part of such Registration Statement.
DATED: July 28, 1997
/s/ JACK M. LLOYD
--------------------------------------
JACK M. LLOYD
<PAGE> 4
CONSENT OF JOHN NORTH
The undersigned, JOHN NORTH, hereby consents to being named in the
accompanying Registration Statement on Form S-1 of Star Buffet, Inc. (the
"Registrant") as about to become a director of the Registrant following
completion of the offering of securities which is described in the Prospectus
forming part of such Registration Statement.
DATED: July 28, 1997
/s/ JOHN NORTH
--------------------------------------
JOHN NORTH
<PAGE> 5
CONSENT OF THOMAS G. SCHADT
The undersigned, THOMAS G. SCHADT, hereby consents to being named in the
accompanying Registration Statement on Form S-1 of Star Buffet, Inc. (the
"Registrant") as about to become a director of the Registrant following
completion of the offering of securities which is described in the Prospectus
forming part of such Registration Statement.
DATED: July 28, 1997
/s/ THOMAS G. SCHADT
--------------------------------------
THOMAS G. SCHADT
