<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-6054
STAR BUFFET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 84-1433454
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
440 LAWNDALE DRIVE 84115
SALT LAKE CITY, UTAH (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (801) 463-5500
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(TITLE OF EACH CLASS): NAME OF EACH EXCHANGE ON WHICH REGISTERED:
- ---------------------- ------------------------------------------
COMMON STOCK NATIONAL ASSOCIATION OF SECURITIES DEALERS
$.001 PAR VALUE (NASDAQ)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 1998, was $56,276,000.
The number of shares outstanding of the registrant's common stock was 5,450,000
shares as of March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after January 26, 1998, are incorporated by reference into Part
III of this Report.
The Exhibit Index is contained in Part IV herein on Page E-1.
================================================================================
<PAGE> 2
STAR BUFFET, INC., AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 26, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 9
ITEM 3. LEGAL PROCEEDINGS........................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 11
ITEM 6. SELECTED FINANCIAL DATA..................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 18
ITEM 11. EXECUTIVE COMPENSATION...................................... 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 19
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
Star Buffet, Inc., a Delaware corporation ("Star" and collectively with its
subsidiaries, the "Company") is engaged primarily in the food service industry.
As of January 26, 1998, the Company owns and operates 16 franchised HomeTown
Buffet restaurants, seven JJ North's Grand Buffet restaurants and two Mexican-
themed restaurants operated under the Casa Bonita name. Subsequent to January
26, 1998, the Company has acquired twelve franchised JB's Restaurants, three
Stacey's Buffet restaurants, two Maggie's Buffet restaurants, two BuddyFreddys
restaurants and one additional restaurant that is not currently operating but
will be converted to one of the Company's buffet concepts. The Company's
restaurants are located in ten western states and Florida and are focused on
providing customers with a wide variety of fresh, high quality food at modest
prices in a warm, friendly atmosphere.
The Company was formed on July 28, 1997 as a wholly-owned subsidiary of CKE
Restaurants, Inc. ("CKE") an operator, franchisor and licensor of 3,981 branded
restaurants in the United States and abroad. On September 30, 1997 the Company
completed an initial public offering (the "Initial Public Offering") of
3,000,000 shares of its common stock at an Initial Public Offering price of
$12.00 per share. Of the 3,000,000 shares of common stock sold in the Initial
Public Offering, 2,400,000 shares were sold by the company and 600,000 shares
were sold by CKE. On October 7, 1997, the underwriters exercised their
over-allotment option and acquired an additional 450,000 shares of common stock
from the Company. The Initial Public Offering generated total net proceeds to
the Company of $30.8 million after commissions and offering expenses. The
Company has used a portion of the proceeds to pay a dividend to CKE and to repay
indebtedness assumed in connection with the acquisition of restaurants. The
remaining proceeds are being used for working capital and general corporate
purposes.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K contains forward looking statements, which are
subject to known and unknown risks, uncertainties and other factors which may
cause the actual results, performance, or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; the
impact of competitive products and pricing; success of operating initiatives;
advertising and promotional efforts; adverse publicity; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; changes in prevailing interest rates and the availability
of financing; food, labor, and employee benefits costs; changes in, or the
failure to comply with, government regulations; weather conditions; construction
schedules; implementation of the Company's acquisition and strategic alliance
strategy; the effect of the Company's accounting polices and other risks
detailed in the Company's Prospectus dated September 24, 1997 and other filings
with the Securities and Exchange Commission.
RECENT DEVELOPMENTS
On October 31, 1997, the Company entered into a strategic alliance (the
"Alliance") with Stacey's Buffet, Inc. ("Stacey's") whereby, among other things,
the Company agreed to provide certain services for 23 Stacey's restaurants and
make loans to Stacey's from time to time up to an aggregate principal amount of
$4,500,000. On February 13, 1998, the Company acquired three Stacey's
restaurants, and the Company and Stacey's mutually agreed to terminate the
Alliance, including cancellation of any future obligations of the Company to
make loans to Stacey's. The Company paid the purchase price for the three
restaurants by the cancellation of Stacey's outstanding indebtedness to the
Company which was incurred as part of the Alliance.
On February 24, 1998, the Company acquired twelve JB's Restaurants from
JB's Restaurants, Inc., a wholly-owned subsidiary of CKE, for $4,265,000,
subject to adjustment. At the time of acquisition, the Company prepaid royalty
fees for one year in the amount of $485,000. The Company will operate the
1
<PAGE> 4
restaurants under franchise agreements with JB's Family Restaurants, Inc. until
such time as they are converted to the Company's small-format buffet concept.
The Company has completed one of the conversions and expects to complete
additional conversions during fiscal 1999.
In addition, during February 1998, the Company, in three separate
transactions, acquired three additional restaurants in the state of Florida. The
purchase price for these restaurants, one of which is a fee property, was
approximately $1.8 million. Two of the restaurants are operated as Maggie's
Buffet restaurants and the third restaurant, which was formerly operated as a
Stacey's Buffet restaurant prior to being closed in 1996, will be converted to
one of the Company's buffet concepts and re-opened during fiscal 1999.
On April 1, 1998, the Company acquired two buffet restaurants located in
Florida, which operate under the brand name of BuddyFreddys. The purchase price
was $1.6 million, subject to adjustment, of which, $400,000 was paid in cash at
closing and the remaining $1.2 million will be paid in equal monthly
installments of $100,000 each beginning April 15, 1998 and continuing through
March 15, 1999. In addition, the Company has loaned the seller $2.4 million. The
loan has a term of one year, is secured by the real property of the purchased
restaurants and bears interest at 8.5% for the first 90 days and 10.0% for the
remainder of the term. It is anticipated that the Company will convert certain
of its other restaurants in the Florida market to the BuddyFreddys concept.
BUSINESS
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 believes that certain elements of its business strategy can
be used successfully to improve the financial performance of its recent and
future acquisitions. Key elements of the Company's business strategy as are
follows:
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's 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.
Management Practices. The Company's management team has implemented a
series of management practices, many of which were developed by CKE, that have
improved the operations of the Company's
2
<PAGE> 5
HomeTown Buffet restaurants. Management believes that many of these practices
and policies can be applied to the Company's 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,
analyze restaurant performance statistics and communicate best-
practices across its restaurant operations. Through the use of its
restaurant-level incentive and bonus programs, as well as its
traditional recognition programs, the Company seeks to motivate its
employees and foster an environment where employees are encouraged to
share their ideas and cost-saving suggestions with management.
- Cost Management. The Company's Service Agreement (the "CKE Service
Agreement"), has enabled the Company 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.
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 and can be converted to buffet restaurants operated or under
development by the Company and (ii) minority investments in or strategic
alliances with other regional buffet restaurant chains. The Company's growth
strategy is designed to capitalize on the opportunities management perceives in
the fragmented buffet segment of the restaurant industry.
Acquisition Strategy. Management believes that the Company will be able to
capitalize on the successful attributes of acquired buffet chains while
increasing their focus on operations, 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 operated
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 operated 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.
3
<PAGE> 6
- 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 pursuant to the terms of the CKE
Service Agreement.
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.
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 easily be
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 in other restaurant chains
provide an attractive investment opportunity for the Company and may lower the
acquisition cost of such chains should the Company ultimately seek to acquire
the chains.
HOMETOWN BUFFET RESTAURANTS
General. The Company, through its subsidiary HTB Restaurants, Inc. ("HTB")
has franchise agreements with HomeTown Buffet, Inc., a wholly-owned subsidiary
of Buffets, Inc., (the "HomeTown Franchisor"), under which HTB, operates
HomeTown Buffet restaurants in Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming.
HTB has entered into a franchise agreement for each location which requires
among other items, the payment of a continuing royalty fee. The royalty fee is
based on the aggregate gross sales of all the Company's HomeTown Buffet
restaurants at the following rates:
<TABLE>
<CAPTION>
ANNUAL GROSS SALES RATE
------------------ ----
<S> <C>
$0 to $1,000,000 4%
$1,000,001 to $2,000,000 3%
$2,000,001 and over 2%
</TABLE>
Each of the franchise agreements has a 20-year term (with two five-year
renewal options). 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.
4
<PAGE> 7
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 agreements. 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 a franchisee violates a material and
substantial provision of the agreement and fails to remedy the violation within
a specified period.
Concept and Menu. HomeTown Buffet restaurants are located both in shopping
"strip centers" and as free standing restaurants. HTB's typical restaurant
format is approximately 10,200 square feet with seating for approximately 375
customers. The restaurant design is based upon standardized construction plans,
with modifications made for each particular site. The restaurants offer fixed
price lunch, dinner and weekend breakfast menus that entitle each customer to
unlimited servings of all menu items and beverages. Prices are approximately
$5.75 for lunch and approximately $7.65 for dinner, and may vary depending on
restaurant location. The restaurants offer reduced prices to children under age
12 and to senior citizens.
HomeTown Buffet restaurants seek to differentiate themselves from other
buffet and cafeteria restaurants by the quality and variety of their food
offerings. The restaurants feature a "scatter bar" buffet system with eight
separate food islands in an "all-you-can-eat" format. 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.
Operations. The HomeTown Buffet restaurants are supervised directly by a
Vice President of HomeTown Buffet operations, who reports to the Company's
President. Each HomeTown Buffet restaurant has a general manager and at least
three co-managers or assistant managers. Managers are required to attend formal
training sessions in management and operations of the restaurant. In addition,
each restaurant manager is required to comply with an extensive operations
manual to assure uniformity of operations and consistent high quality of
products. The Company has a performance based incentive program covering its
general and assistant managers in addition to a competitive base salary.
Individual restaurants typically employ between 70 and 110 non-management
hourly employees (made up of a mix of part-time and full-time workers),
depending on restaurant size and traffic.
CASA BONITA
Concept and Menu. 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, games and
cliff divers. The restaurant's entertainment, combined with high quality,
authentic Mexican food, is designed to attract a diverse customer base,
including tourists and local customers. In addition to typical Mexican menu
offerings, these restaurants feature all-you-can-eat dinners which offer
customers unlimited servings of selected menu items.
The Company focuses on three primary target audiences in its advertising
and promotional programs for its Casa Bonita restaurants: (i) local customers;
(ii) tourists; and (iii) groups and parties. The Company markets aggressively to
attract tourists by placing advertisements in local tourist and special event
guides and by otherwise promoting each Casa Bonita restaurant as a local
attraction. With its large dining areas and
5
<PAGE> 8
private rooms, the Company also promotes Casa Bonita as an ideal setting for
banquets, private parties and other group events.
JJ NORTH'S GRAND BUFFET
Concept and Menu. The Company's seven JJ North's Grand Buffet Restaurants
are located in Idaho (3) Washington (2) Oregon (1) and Utah (1). The restaurants
are approximately 6,000 to 10,000 square feet and seat approximately 210 to 320
customers. The 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 $5.99 for lunch and approximately $7.99 for
dinner, and may vary depending on restaurant location. The restaurants offer
reduced prices to children under age 12 and to senior citizens.
Operations. The JJ North's restaurants are supervised by a Vice President
of Operations who reports to the Company's President. Each restaurant has a
general manager and two assistant managers and typically employs between 40 and
100 hourly employees (made up of a mix of part-time and full-time workers)
depending on restaurant size and traffic.
RELATIONSHIP WITH CKE
In connection with the Initial Public Offering, the Company and CKE entered
into a CKE Service Agreement pursuant to which CKE provides the Company with
certain multi-unit retail infrastructure support in exchange for an annual fee
of $350,000, which fee may be increased up to 10% per year based upon increases
in CKE's cost of providing such services. Such services 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. The CKE Service Agreement has a five year term and will expire, unless
extended, on September 15, 2002. CKE or the Company may terminate the agreement
upon 90 days written notice.
LICENSES, TRADEMARKS AND SERVICE MARKS
The Company purchased the trademarks and service marks for JJ North's Grand
Buffet, Casa Bonitas and BuddyFreddys. The Company has entered into a license
agreement with CKE for use of the "Star" name and design. The Company utilizes
the JB's Restaurant and HomeTown Buffet marks pursuant to various franchise
agreements. The Company also has entered into license agreements for the
Stacey's Buffet mark, which the Company plans to use until such restaurants are
converted to the Company's other buffet concepts. The Company is utilizing the
Maggie's name until such restaurants are converted to one of the Company's other
buffet concepts.
SEASONALITY
The Company's business is seasonal in nature with the spring and summer
quarters being the highest volume periods. The Company's lowest volume periods
typically occur during the fall and winter fiscal quarters.
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
6
<PAGE> 9
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 April 17, 1998, the Company employed approximately 2,940 persons, of
whom approximately 2,775 were restaurant employees, and approximately 165 were
restaurant management, supervisory and corporate personnel. Restaurant employees
include both full-time and part-time workers and all are typically 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.
7
<PAGE> 10
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William P. Foley II....... 53 Chairman of the Board
Robert E. Wheaton......... 45 Chief Executive Officer, President and Director
Theodore Abajian.......... 34 Chief Financial Officer
Charlotte L. Miller....... 41 General Counsel and Secretary
C. Thomas Thompson........ 48 Director
Stuart W. Clifton......... 53 Director
Jack M. Lloyd............. 47 Director
Thomas G. Schadt.......... 56 Director
Norman N. Habermann....... 64 Director
John F. North, Jr......... 49 Director
</TABLE>
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 also serves as the Chairman
of the Board of Checkers Drive-In Restaurants, Inc. and GB Foods Corporation and
as a member of the Boards of Directors of Rally's Hamburgers, Inc., DataWorks
Corporation and Micro General Corporation.
Robert E. Wheaton has served as the Chief Executive Officer, President and
as a director of the Company since its formation in July 1997. Mr. Wheaton also
served as a director of Stacey's Buffet, Inc. from October 31, 1997 to February
4, 1998 and as interim Chief Executive Officer of Stacey's from December 24,
1997 to February 4, 1998. 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 also served as a director of
Stacey's Buffet, Inc. from October 31, 1997 to February 4, 1998. Mr. Abajian has
been the Vice President and Controller of Summit Family Restaurants Inc. 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 approximately 350 Carrows and Coco's
restaurants.
Charlotte L. Miller has been Vice President, General Counsel and Secretary
of the Company since its formation in July 1997. Ms. Miller has been Sr. Vice
President and Chief Administrative Officer of Summit Family Restaurants Inc.
since July 1996 and prior to that time was Sr. Vice President and General
Counsel of Summit.
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
8
<PAGE> 11
the San Francisco Bay Area. Mr. Thompson also currently serves as Vice Chairman
of the Board of Checkers Drive-In Restaurants, Inc. and a member of the Board of
Directors of Rally's Hamburgers, Inc. Mr. Thompson has more than 25 years of
experience in the restaurant industry. He previously held positions with
Jack-in-the-Box.
Stuart W. Clifton has served as a director of the Company since the
completion of the Company's Initial Public Offering in September, 1997. 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.
Thomas G. Schadt has served as a director of the Company since the
completion of the Company's Initial Public Offering in September, 1997. 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 has served as a director of the Company since the
completion of the Company's Initial Public Offering in September, 1997. 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 has served as a director of the Company since the completion
of the Company's Initial Public Offering in September, 1997. 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. has served as a director of the Company since the
completion of the Company's initial public offering in September, 1997. 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.
ITEM 2. PROPERTIES
The Company's headquarters is located in Salt Lake City, Utah.
The Company's restaurants are primarily freestanding locations. As of
January 26, 1998 all of the Company's restaurant facilities were leased in order
to reduce the initial costs of development. 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.
In addition, the Company seeks to obtain construction allowances from the
landlord in order to defray the cost of improvements.
9
<PAGE> 12
As of January 26, 1998, the Company's restaurants are located in the
following states:
<TABLE>
<CAPTION>
NUMBER OF RESTAURANTS
-------------------------------------------
HOMETOWN JJ
STATE BUFFET 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>
ITEM 3. LEGAL PROCEEDINGS
On October 8, 1997, the Company's subsidiaries, HTB and Summit Family
Restaurants Inc. ("Summit"), entered into a settlement agreement with HomeTown
Buffet, Inc., and Buffets, Inc., thereby resolving litigation that had been
initiated by HTB, Summit and CKE on August 9, 1996, in the United States
District Court for the District of Utah, Central Division against Buffets, Inc.
and HomeTown Buffet, Inc. for violation of federal and state antitrust laws and
other claims. The settlement agreement clarified certain relationships between
the parties and certain information to be provided by HTB to HomeTown Buffet,
Inc. No money damages were paid as part of the settlement.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock which began trading on September 30, 1997 after
the completion of the Company's Initial Public Offering, is listed on the NASDAQ
National Market System under the symbol "STRZ". As of March 31, 1998, there were
approximately four record holders of the Company's Common Stock. The following
table sets forth the high and low bid quotations for the Common Stock, as
reported by NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1998
First Quarter............................................. -- --
Second Quarter............................................ -- --
Third Quarter............................................. $16 1/2 $13 1/4
Fourth Quarter............................................ 13 5/8 11 3/8
</TABLE>
In connection with the Company's Initial Public Offering, the Company
declared and paid a cash dividend of $9.3 million to CKE. Other than this
dividend, the Company has never declared or paid dividends on its Common Stock.
The Company expects 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.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information and other data presented below should be
read in conjunction with the "Consolidated Financial Statements", and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this Form 10-K. The selected consolidated
financial data presented below, except store data, has been derived from the
historical consolidated financial statements of the Company and its predecessor.
The operating statement data for the periods ending July 15, 1996, and prior
include only the results of operations of HTB Restaurants, Inc., an operator of
franchised HomeTown Buffet restaurants, and are referred to herein as the
Predecessor Company or Predecessor. Summit Family Restaurants Inc. and its
wholly-owned subsidiary HTB was acquired by CKE on July 15, 1996 (the "Summit
Acquisition"). Operating statement data for periods beginning after July 15,
1996 are herein referred to as the Successor Company or Successor. The operating
statement data for the twenty-eight weeks ending January 27, 1997 include the
results of operations of HTB and the results of operations of the two Casa
Bonita restaurants from October 1, 1996, (the date of the Casa Bonita
acquisition). The fifty-two week period ended January 26, 1998 includes the
results of operations of seven JJ North's Grand Buffet Restaurants operated by
the Company from September 30, 1997, (the date of JJ North's acquisition).
The table also sets forth the pro forma income statement data for the
fifty-two week period ended January 27, 1997, which combines the results of
operations for the Predecessor Company and the Successor Company as if the Casa
Bonita acquisition had occurred on January 26, 1996. The pro forma data set
forth below for the period presented is unaudited and has been prepared by
management solely to facilitate period-to-period comparison and do not purport
to be indicative of the consolidated results of operations that would have
occurred had the acquisition occurred at January 26, 1996, or which may be
expected to occur in the future.
11
<PAGE> 14
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RESTAURANT DATA)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
----------------------------- -------------------------------------
TWENTY-EIGHT THIRTY
FIFTY-TWO WEEKS FROM WEEKS FIFTY-TWO WEEKS ENDED PRO FORMA
WEEKS JULY 16, 1996 ENDED --------------------------- YEAR ENDED
ENDED TO JULY 15, DEC. 18, DEC. 19, DEC. 20, JAN. 27,
JAN. 26, 1998 JAN. 27, 1997 1996 1995 1994 1993 1997
------------- ------------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Total revenues............................ $54,659 $23,632 $23,207 $36,741 $30,871 $13,167 $50,938
Costs and expenses:
Food costs............................ 18,024 8,371 8,569 13,769 11,469 4,918 17,358
Labor costs........................... 17,301 7,565 6,810 10,878 9,089 3,732 15,792
Occupancy and other expenses.......... 10,829 4,732 5,030 8,954 6,769 2,695 10,154
General and administrative............ 2,291 1,062 1,193 1,666 1,762 980 2,424
Depreciation and amortization......... 2,109 988 914 1,232 821 384 1,975
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.......... 50,554 22,718 22,516 36,499 29,910 12,709 47,703
------- ------- ------- ------- ------- ------- -------
Income from operations.................... 4,105 914 691 242 961 458 3,235
Interest expense.......................... (200) (106) (145) (192) (203) (110) (220)
Other Income.............................. 593 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Income before income taxes................ 4,498 808 546 50 758 348 3,015
Income taxes.............................. 1,799 338 216 22 301 139 1,206
------- ------- ------- ------- ------- ------- -------
Net Income................................ $ 2,699 $ 470 $ 330 $ 28 $ 457 $ 209 $ 1,809
======= ======= ======= ======= ======= ======= =======
Net Income per common share -- diluted.... $ 0.76 $ 0.18
======= =======
Weighted average shares outstanding -
diluted................................. 3,528 2,600
BALANCE SHEET DATA:
Total assets.............................. $40,969 $16,783 $16,283 $13,003 $ 9,026
Total debt including current portion...... 2,368 2,609 11,150 6,714 5,076
Stockholders' equity...................... $32,537 $ 9,742 $ 1,806 $ 1,801 $ 2,134
OTHER DATA:
Operating units(1)
HomeTown Buffet....................... 16 16 16 16 14 7 16
JJ North's Grand Buffet............... 7 -- -- -- -- -- --
Casa Bonita........................... 2 2 -- -- -- -- 2
------- ------- ------- ------- ------- ------- -------
TOTAL..................................... 18 18 16 16 14 7 18
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) At the end of the respective periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis should be read in
conjunction with the consolidated financial statements of the Company, and the
notes thereto, presented elsewhere in this Form 10-K. The pro forma results of
operations for the fifty-two weeks ended January 27, 1997, ("Pro Forma Fiscal
1997") include fifty-two weeks of operations for both the Company's sixteen
franchised Hometown Buffet Restaurants and the Company's two Casa Bonita
Restaurants. The results of operations for the period ended January 26, 1998,
("Fiscal 1998") include fifty-two weeks of operations for the Company's sixteen
franchised Hometown Buffet Restaurants, fifty-two weeks of operations for the
Company's two Casa Bonita Restaurants and seventeen weeks of operations for the
seven JJ North's Grand Buffet restaurants operated by the Company. Comparability
of future periods may also from time to time be affected by the implementation
of the Company's acquisition and strategic alliance strategies, and the costs
associated with integrating new restaurants or under performing or unprofitable
restaurants, if any, acquired or otherwise operated by the Company may have a
material adverse effect on the Company's results of operations.
12
<PAGE> 15
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of total revenues for Pro Forma Fiscal 1997, the twenty-eight weeks
ended January 27, 1997, and Fiscal 1998.
<TABLE>
<CAPTION>
THE COMPANY
----------------------------------- PRO FORMA
FIFTY-TWO FIFTY-TWO
WEEKS TWENTY-EIGHT WEEKS
ENDED WEEKS ENDED ENDED
JANUARY 26, 1998 JANUARY 27, 1997 JANUARY 27, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
TOTAL REVENUES..................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Food costs.................................... 33.0 35.4 34.1
Labor costs................................... 31.6 32.0 31.0
Occupancy and other expenses.................. 19.8 20.0 19.9
General and administrative expenses........... 4.2 4.5 4.8
Depreciation and amortization................. 3.9 4.2 3.9
----- ----- -----
TOTAL COSTS AND EXPENSES........................... 92.5 96.1 93.7
----- ----- -----
INCOME FROM OPERATIONS............................. 7.5 3.9 6.3
Interest expense.............................. (0.4) (0.5) (0.4)
Other income.................................. 1.1 -- --
----- ----- -----
Income before income taxes.................... 8.2 3.4 5.9
INCOME TAX EXPENSE................................. (3.3) (1.4) (2.4)
----- ----- -----
NET INCOME......................................... 4.9% 2.0% 3.5%
===== ===== =====
</TABLE>
Comparison of Pro Forma Fiscal 1997 to Fiscal 1998
Total revenues increased $3.7 million or 7.3% from $50.9 million in Pro
Forma Fiscal 1997 to $54.6 million in fiscal 1998. The increase was attributable
to the addition of seven JJ North's grand Buffet Restaurants in Fiscal 1998
($2.7 million) and a 2.5% or $1.0 million increase in same store sales at the
Company's HomeTown Buffet Restaurants.
Food costs as a percent of total revenues decreased from 34.1% in Pro Forma
Fiscal 1997 to 33.0% in Fiscal 1998. The decrease is primarily attributable to a
1.7% decrease in food cost in the Company's HomeTown Buffet restaurants
resulting from improved restaurant operations and purchasing economies.
Labor costs as a percent of total revenues increased from 31.0% in Pro
Forma Fiscal 1997 to 31.6% in Fiscal 1998. The increase was primarily
attributable to addition of seven JJ North's Restaurants which operate at a
higher labor cost than the Company's sixteen HomeTown Buffet Restaurants.
General and administrative expenses as a percentage of total revenues
decreased from 4.8% in Pro Forma Fiscal 1997 to 4.2% in Fiscal 1998. The
decrease is primarily attributable to lower general and administrative costs
resulting from the July 1996 acquisition of the Predecessor by CKE.
Other income in Fiscal 1998 represents interest income on cash balances and
notes receivable ($321,000) and management fee income ($272,000) resulting from
the Company's strategic alliance with Stacey's Buffet, Inc.
Comparison of the twenty-eight weeks ended January 27, 1997, to Fiscal 1998
Due to the differing lengths of time included in each period presented, the
comparison of these periods may not be meaningful or indicative of future
results.
Revenues increased $31.1 million or 131.8% from $23.6 million for the
twenty-eight weeks ended January 27, 1997, to $54.7 million for Fiscal 1998. The
increase is attributable to the full year impact of the Company's HomeTown
Buffet and Casa Bonita restaurants, $18.9 million and $8.5 million respectively,
the
13
<PAGE> 16
addition of seven JJ North's Grand Buffet Restaurants in Fiscal 1998 ($2.7
million) and a 2.5% or $1.0 million increase in same store sales at the
Company's HomeTown Buffet Restaurants.
Food costs as a percentage of total revenues decreased from 35.4% for the
twenty-eight weeks ended January 27, 1997, to 33.0% for Fiscal 1998. The
decrease is attributable to the inclusion of Casa Bonita for a full year, which
operates at a lower level of food costs.
Labor costs as a percentage of total revenues decreased from 32.0% for the
twenty-eight weeks ended January 27, 1997, to 31.6% for Fiscal 1998. The
decrease is attributable to a consistent improvement in labor costs in the Casa
Bonita restaurants.
Occupancy and other, general and administrative and depreciation and
amortization expenses as a percentage of total revenues have all decreased in
Fiscal 1998 as compared to the twenty-eight weeks ended January 27, 1997. These
decreases are attributable to the inclusion of Casa Bonita for a full year.
Other income in Fiscal 1998 represents interest income on cash balances and
notes receivable ($321,000) and management fee income ($272,000) resulting from
the Company's strategic alliance with Stacey's Buffet, Inc.
14
<PAGE> 17
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company, prior to the reorganization, historically financed operations
through a combination of cash on hand, cash provided from operations and
available borrowings under bank lines of credit. As of January 26, 1998, the
Company had $15.4 million in cash and cash equivalents.
Cash provided by operations was approximately $6.0 million for Fiscal 1998
and approximately $1.9 million for the twenty-eight weeks ended January 27,
1997. The Company completed an Initial Public Offering on September 30, 1997
generating net proceeds after commissions and offering expenses of $30.8
million. Concurrent with the Initial Public Offering, the Company used $9.3
million to pay a dividend to CKE, $4.5 million to acquire certain JJ North's
restaurants, $1.1 million to acquire the net assets of two Casa Bonita
restaurants and $2.0 million to fund capital additions. As of January 26, 1998,
the Company has loaned $3.4 million to North's and $710,000 to Stacey's. In
addition, the Company, through its credit agreement with North's has committed
to lend up to an additional $350,000 to North's. The Company expects to provide
these funds through available cash on hand.
On February 13, 1998, the Company acquired three Stacey's Buffet
restaurants located in Florida from Stacey's for $1.0 million. The purchase
price was paid by cancellation of Stacey's debt to the Company which was
incurred as part of the strategic alliance between the two companies. The
company and Stacey's have mutually agreed to terminate their strategic alliance
including any future obligations of the Company to make loans to Stacey's.
During the first quarter of fiscal 1999, the Company completed several
acquisitions of restaurants utilizing, in aggregate, approximately $8.9 million
in cash (see Note 11 -- Subsequent Events included in the Notes to Consolidated
Financial Statements). The largest of the acquisitions was twelve JB's
Restaurants from CKE. These restaurants will be converted to the Company's
small-format buffet concept at a cost of $250,000 to $300,000 each. One of these
conversions was completed in the first quarter of fiscal 1999.
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 Company's 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 the acquisition of regional buffet 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 at a lower cost than new unit openings.
These costs consist primarily of exterior and interior appearance modifications
and certain kitchen and food service equipment. There can be no assurance that
the Company will be able to acquire additional restaurant chains or locations
or, if acquired, that these restaurants will have a positive contribution to the
Company's results of operations.
The Company believes that the proceeds from the Initial Public Offering and
its cash flow from operations will be sufficient to satisfy its working capital,
and capital expenditure requirements for at least the next twelve months. If
those sources of capital are insufficient to satisfy the Company's capital
spending and working capital requirements, or if the Company determines to make
any significant acquisitions, or investments in other businesses, the Company
may seek to raise additional funds through public or private equity and/or debt
financings or from other sources. There can be no assurance, however, that
changes in the Company's operating plans, the unavailability of a credit
facility, the acceleration of the Company's expansion plans, lower than
anticipated revenues, increased expenses, potential acquisitions or other events
will not cause
15
<PAGE> 18
the Company to seek additional financing sooner than anticipated. There can be
no assurance that additional financing will be available on acceptable terms or
at all.
YEAR 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of data-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, the
inability of the Company or its suppliers or distributors and other vendors to
resolve such processing issues in a timely manner could have a material adverse
impact on the Company. Accordingly, the Company plans to devote the necessary
resources to resolve all significant year 2000 issues in a timely manner.
IMPACT OF INFLATION
Management recognizes that inflation has an impact on food, construction,
labor and benefit costs, all of which can significantly affect the Company's
operations. Historically, the Company has been able to pass any associated
higher costs due to these inflationary factors along to its customers because
those factors have impacted nearly all restaurant companies, During fiscal 1998
and fiscal 1997, however, management has emphasized cost controls rather than
price increases, given the competitive pressure within the buffet style
restaurant industry.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (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 consolidated 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 Statement of
Financial Accounting Standards No. 14, Financial Reporting for Segments of a
Business Enterprise, but retains the requirement to report information about
major customers. It amends Statement of Financial Accounting Standards 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
16
<PAGE> 19
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.
In December 1997, the American Institute of Certified Public Accountants
(the "AICPA") approved for issuance the Statement of Position ("SOP"), Reporting
on the Costs of Start-Up Activities. The SOP requires that costs incurred during
a start-up activity (including organization costs) be expensed as incurred. The
SOP is effective for fiscal years beginning after December 15, 1998. The Company
currently amortizes pre-opening costs over one year from the time they are
incurred. Management has not determined whether the adoption of this SOP will
have a material impact on the Company's consolidated financial position or
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K."
The following table presents summarized quarterly results for the Successor
Company.
<TABLE>
<CAPTION>
UNAUDITED
-------------------------------------
1ST 2ND 3RD 4TH
------- ------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL YEAR 1998
Total Revenues............................................ $16,581 $12,726 $12,178 $13,174
Operating Income.......................................... 1,553 1,433 684 435
Net Income................................................ 895 832 440 532
Net Income per share -- basic............................. $ 0.35 $ 0.32 $ 0.12 $ 0.10
------- ------- ------- -------
Net Income per share -- diluted........................... $ 0.35 $ 0.32 $ 0.12 $ 0.10
------- ------- ------- -------
FISCAL YEAR 1997
Total Revenues............................................ N/A $ 3,026 $ 9,573 $11,033
Operating Income.......................................... N/A 64 302 548
Net Income................................................ N/A 18 151 301
Net Income per share -- basic............................. N/A $ 0.01 $ 0.06 $ 0.12
------- ------- -------
Net Income per share -- diluted........................... N/A $ 0.01 $ 0.06 $ 0.12
------- ------- -------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information pertaining to directors and executive officers of the
registrant is hereby incorporated by reference to the Company's Proxy Statement
to be used in connection with the Company's 1998 Annual Meeting of Stockholders,
to be filed with the Commission within 120 days of January 26, 1998. Information
concerning the current executive officers of the Company is contained in Item 1
of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information pertaining to executive compensation is hereby incorporated
by reference to the Company's Proxy Statement to be used in connection with the
Company's 1998 Annual Meeting of Stockholders, to be filed with the Commission
within 120 days of January 26, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information pertaining to security ownership of certain beneficial
owners and management is hereby incorporated by reference to the Company's Proxy
Statement to be used in connection with the Company's 1998 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 26,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information pertaining to certain relationships and related
transactions is hereby incorporated by reference to the Company's Proxy
Statement to be used in connection with the Company's 1998 Annual Meeting of
Stockholders, to be filed with the Commission within 120 days of January 26,
1998.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets -- as of January 26, 1998 and
January 27, 1997.......................................... F-2
Consolidated Statements of Income -- for the 52-weeks ended
January 26, 1998, 28-weeks ended January 27, 1997,
30-weeks ended July 15, 1996 and 52-weeks ended December
18, 1995.................................................. F-4
Consolidated Statements of Stockholders' Equity -- for the
52-weeks ended January 26, 1998, 28-weeks ended January
27, 1997, 30-weeks ended July 15, 1996 and 52-weeks ended
December 18, 1995......................................... F-5
Consolidated Statements of Cash Flows -- for the 52-weeks
ended January 26, 1998, 28-weeks ended January 27, 1997,
30-weeks ended July 15, 1996 and 52-weeks ended December
18, 1995.................................................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted since the required information is not
present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
(A)(3) EXHIBITS:
An "Exhibit Index" has been filed as a part of this Form 10-K
beginning on Page E-1 hereof and is incorporated herein by
reference.
(B) CURRENT REPORTS ON FORM 8-K:
A current report on Form 8-K dated November 17, 1997 was filed
during the fourth quarter of the fiscal year to report the
Company's Strategic alliance and credit agreement with Stacey's
Buffet, Inc.
A current report on Form 8-K/A dated December 12, 1997 was filed
during the fourth quarter of the fiscal year to amend a report on
Form 8-K filed on October 17, 1997.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STAR BUFFET, INC.
(Registrant)
April 24, 1998 By: /s/ ROBERT E. WHEATON
------------------------------------
Robert E. Wheaton
President and Chief Executive
Officer
(principal executive officer)
April 24, 1998 By: /s/ THEODORE ABAJIAN
------------------------------------
Theodore Abajian
Chief Financial Officer Officer
(principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of l934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William P. Foley, II Chairman of the Board April 24, 1998
- -----------------------------------------------------
William P. Foley, II
/s/ ROBERT E. WHEATON President and Chief Executive April 24, 1998
- ----------------------------------------------------- Officer and Director
Robert E. Wheaton
/s/ STUART W. CLIFTON Director April 24, 1998
- -----------------------------------------------------
Stuart W. Clifton
/s/ JACK M. LLOYD Director April 24, 1998
- -----------------------------------------------------
Jack M. Lloyd
/s/ THOMAS G. SCHADT Director April 24, 1998
- -----------------------------------------------------
Thomas G. Schadt
Director April , 1998
- -----------------------------------------------------
Norman N. Habermann
/s/ JOHN F. NORTH, JR. Director April 24, 1998
- -----------------------------------------------------
John F. North, Jr.
</TABLE>
20
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Star Buffet, Inc.:
We have audited the accompanying consolidated balance sheets of Star
Buffet, Inc. and subsidiaries (Successor Company) as of January 26, 1998 and
January 27, 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for the 52-week period ended January 26,
1998 and the 28-week period ended January 27, 1997 (Successor Period) and the
statements of income, stockholders' equity and cash flows of HTB Restaurants,
Inc. (Predecessor Company) for the 30-week period ended July 15, 1996 and the
52-week period ended December 18, 1995 (Predecessor Period). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 aforementioned Successor consolidated financial
statements present fairly, in all material aspects, the financial position of
Star Buffet, Inc. (and CKE operations that became Star) and subsidiaries as of
January 26, 1998 and January 27, 1997, and the results of their operations and
their cash flows for the Successor Period, in conformity with generally accepted
accounting principles. Further, in our opinion, the aforementioned Predecessor
consolidated financial statements present fairly, in all material respects, the
results of operations and cash flows of HomeTown Buffet, Inc. for the
Predecessor Period, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
July 16, 1996, CKE acquired all of the outstanding stock of HTB Restaurants,
Inc. in a business combination accounted for as a purchase. As a result of the
acquisition, the consolidated financial information for the periods 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
Salt Lake City, Utah
March 16, 1998
F-1
<PAGE> 24
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $15,387,000 $ 353,000
Short term investments.................................... -- 180,000
Current portion of notes and other receivables............ 336,000 71,000
Inventories............................................... 493,000 383,000
Deferred income taxes, net................................ 110,000 193,000
Prepaid expenses.......................................... 204,000 84,000
----------- -----------
Total current assets:....................................... 16,530,000 1,264,000
Property, buildings and equipment, at cost, less accumulated
depreciation.............................................. 15,077,000 12,430,000
Real property and equipment under capitalized leases, at
cost, less accumulated amortization....................... 2,287,000 2,396,000
Notes receivable, net of current portion.................... 3,235,000 --
Deposits and other.......................................... 2,167,000 375,000
Goodwill, less accumulated amortization..................... 1,380,000 --
Franchise costs less accumulated amortization............... 293,000 318,000
----------- -----------
Total assets................................................ $40,969,000 $16,783,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 25
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade.................................... $ 2,212,000 $ 2,226,000
Payroll and related taxes................................. 1,643,000 1,207,000
Sales and property taxes.................................. 1,178,000 632,000
Rent, licenses and other.................................. 822,000 367,000
Current maturities of obligations under capital leases.... 259,000 239,000
Other current liabilities................................. 209,000 --
----------- -----------
Total current liabilities................................... 6,323,000 4,671,000
Capitalized lease obligations, net of current maturities.... 2,109,000 2,370,000
Stockholders' Equity:
Preferred stock, $.001 par value; authorized 1,500,000
shares; none issued or outstanding..................... -- --
Common stock, $.001 par value; authorized 18,500,000
shares; issued and outstanding 5,450,000 shares in 1998
and 2,600,00 shares in 1997............................ 5,000 2,000
Additional paid-in capital................................ 31,768,000 9,270,000
Retained earnings......................................... 764,000 470,000
----------- -----------
Total stockholders' equity.................................. 32,537,000 9,742,000
Total liabilities and stockholders' equity.................. $40,969,000 $16,783,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 26
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
----------------------------------- ---------------------------------
FIFTY-TWO TWENTY-EIGHT THIRTY FIFTY-TWO
WEEKS WEEKS WEEKS WEEKS
ENDED ENDED ENDED ENDED
JANUARY 26, 1998 JANUARY 27, 1997 JULY 15, 1996 DECEMBER 18, 1995
---------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Total revenues....................... $54,659,000 $23,632,000 $23,207,000 $36,741,000
----------- ----------- ----------- -----------
Costs and expenses
Food costs......................... 18,024,000 8,371,000 8,569,000 13,769,000
Labor costs........................ 17,301,000 7,565,000 6,810,000 10,878,000
Occupancy and other expenses....... 10,829,000 4,732,000 5,030,000 8,954,000
General and administrative
expenses........................ 2,291,000 1,062,000 1,193,000 1,666,000
Depreciation and amortization...... 2,109,000 988,000 914,000 1,232,000
----------- ----------- ----------- -----------
Total costs and expenses............. 50,554,000 22,718,000 22,516,000 36,499,000
----------- ----------- ----------- -----------
Income from operations............... 4,105,000 914,000 691,000 242,000
Interest expense..................... (200,000) (106,000) (145,000) (192,000)
Interest income...................... 321,000 -- -- --
Other income......................... 272,000 -- -- --
----------- ----------- ----------- -----------
Income before income taxes........... 4,498,000 808,000 546,000 50,000
Income tax expense................... 1,799,000 338,000 216,000 22,000
----------- ----------- ----------- -----------
Net income........................... $ 2,699,000 $ 470,000 $ 330,000 $ 28,000
=========== =========== =========== ===========
Net income per common
share -- basic..................... $ 0.77 $ 0.18
=========== ===========
Weighted average shares outstanding--
basic.............................. 3,515,000 2,600,000
----------- -----------
Net income per common
share -- diluted................... $ 0.76 $ 0.18
=========== ===========
Weighted average shares outstanding -
diluted............................ 3,528,000 2,600,000
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 27
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
- -----------------------
Beginning Balance
December 19, 1994................. 10 $ 0 $ 1,000,000 $ 778,000 $ 1,778,000
Net Income.......................... -- -- -- 28,000 28,000
--------- ------ ----------- ------------ ------------
Beginning Balance
December 18, 1995................. 10 $ 0 1,000,000 806,000 1,806,000
Net Income.......................... -- -- -- 330,000 330,000
--------- ------ ----------- ------------ ------------
Ending Balance
July 15, 1996....................... 10 $ 0 $ 1,000,000 $ 1,136,000 $ 2,136,000
========= ====== =========== ============ ============
=====================================================================================================
SUCCESSOR COMPANY
- ---------------------
Beginning Balance
July 15, 1996..................... 2,600,000 $2,000 $ 8,025,000 $ -- $ 8,027,000
Net Activity with Principal
Stockholder....................... -- -- 1,245,000 -- 1,245,000
Net Income.......................... -- -- -- 470,000 470,000
--------- ------ ----------- ------------ ------------
Beginning Balance
January 27, 1997.................. 2,600,000 2,000 9,270,000 470,000 9,742,000
Net Activity with Principal
Stockholder....................... -- -- (8,272,000) (2,405,000) (10,677,000)
Issuance of common stock............ 2,850,000 3,000 30,770,000 -- 30,773,000
Net Income.......................... -- -- -- 2,699,000 2,699,000
--------- ------ ----------- ------------ ------------
Ending Balance
January 26, 1998.................. 5,450,000 $5,000 $31,768,000 $ 764,000 $ 32,537,000
========= ====== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 28
STAR BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
--------------------------- --------------------------
TWENTY-EIGHT FIFTY-TWO
FIFTY-TWO WEEKS THIRTY WEEKS
WEEKS ENDED ENDED WEEKS ENDED ENDED
JANUARY 26, JANUARY 27, JULY 15, DECEMBER 18,
1998 1997 1996 1995
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 2,699,000 $ 470,000 $330,000 $ 28,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 2,109,000 988,000 914,000 1,232,000
Provision for losses on other assets.... 75,000 -- -- 100,000
Non-cash investment income.............. (78,000) -- -- --
Change in operating assets and
liabilities:
Receivables........................... 207,000 (114,000) 21,000 (22,000)
Inventories........................... (109,000) (5,000) 39,000 (48,000)
Prepaid expenses...................... (154,000) 178,000 (202,000) 138,000
Deposits.............................. (24,000) -- -- --
Deferred taxes........................ (124,000) 100,000 (78,000) (136,000)
Accounts payable-trade................ (14,000) 273,000 (280,000) 183,000
Other accrued liabilities............. 1,377,000 27,000 72,000 123,000
------------ ---------- -------- ----------
Net cash provided by operating activities.... $ 5,964,000 $1,917,000 $816,000 $1,598,000
Cash flows used in investing activities:
Loan to JJ North's: note and line of
credit................................ (3,400,000) -- -- --
Deposits on future acquisitions......... (1,936,000) -- -- --
Acquisition of six JJ North's
restaurants net of cash acquired...... (3,590,000) -- -- --
Acquisition of property, buildings and
equipment............................. (1,972,000) (103,000) (68,000) (3,527,000)
Deferred organization and franchise
costs................................. (67,000) -- -- (125,000)
Sale (Purchase) of Short Term
Investments........................... 180,000 (180,000) -- --
------------ ---------- -------- ----------
Net cash used in investing activities........ (10,785,000) (283,000) (68,000) (3,652,000)
Cash flows from financing activities:
Proceeds from issuance of common
stock................................. 30,773,000 -- -- --
Net activity with principle
shareholder........................... (10,677,000) (1,245,000) (546,000) 1,998,000
Principal payment on capital leases..... (241,000) (245,000) (110,000) (46,000)
------------ ---------- -------- ----------
Net cash provided by (used in) by
financing activities.................. 19,855,000 (1,490,000) (656,000) 1,952,000
Net increase in cash and cash equivalents.... 15,034,000 144,000 92,000 (102,000)
Cash and cash equivalents at beginning of
period..................................... 353,000 209,000 117,000 219,000
------------ ---------- -------- ----------
Cash and cash equivalents at end of period... $ 15,387,000 $ 353,000 $209,000 $ 117,000
============ ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 29
STAR BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of certain significant accounting policies not disclosed
elsewhere in the footnotes to the consolidated financial statements is set forth
below.
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Successor Company
include the accounts for Star Buffet, Inc., together with its direct and
indirect wholly-owned subsidiaries Summit Family Restaurants Inc. ("Summit"),
HTB Restaurants, Inc. ("HTB"), Northstar Buffet, Inc. ("NSBI") and Star Buffet
Management, Inc. ("SBMI") (collectively the "Company"). Certain
reclassifications have been made to the fiscal 1997 consolidated financial
statements to conform to the fiscal 1998 presentation.
ORGANIZATION AND NATURE OF OPERATIONS
The Successor Company was formed by CKE Restaurants, Inc. ("CKE") in July
1997 in connection with the reorganization of CKE's buffet-style restaurant
business. Pursuant to a contribution agreement among the Company and CKE and
certain of their respective subsidiaries, CKE transferred to Summit the net
assets of its two Casa Bonita Mexican theme restaurants (which were acquired by
CKE on October 1, 1996), and Summit transferred substantially all of its assets
and liabilities (primarily those relating to the JB's Restaurant system and
Galaxy Diner restaurants, but excluding 16 HomeTown Buffet restaurants operated
by HTB) to a newly formed subsidiary of CKE. Summit was acquired by CKE on July
15, 1996. Then, CKE contributed the outstanding shares of Summit to the Company
in exchange for 2,600,000 shares of the Company's Common Stock. All of the
parties to the foregoing transactions (the "Formation Transactions") were, upon
completion thereof, direct or indirect wholly-owned subsidiaries of CKE, and
such Formation Transactions were accounted for as a reorganization among
companies under common control. Accordingly, the Successor Period presents
results of operations for the period commencing on July 15, 1996 (the date of
CKE's acquisition of Summit), and include results of operations of the two Casa
Bonita Mexican theme restaurants only from October 1, 1996 (the date of
acquisition by CKE) and the results of operations of seven JJ North's Grand
Buffet Restaurants operated by the Company from September 30, 1997 (the date of
acquisition by the Company.
The operating results for the fifty-two week period ended January 26, 1998,
include 52 weeks of operations for the Company's 16 franchised HomeTown Buffet
restaurants, 52 weeks of operations for the Company's two Casa Bonita
restaurants and 17 weeks of operations for the seven JJ North's Grand Buffet
restaurants operated by the Company. The operations for the 28 week period ended
January 27, 1997, include 28 weeks of operations for the Company's 16 franchised
HomeTown Buffet restaurants, and 17 weeks of operations for the Company's two
Casa Bonita restaurants, but do not include the operations for JJ North's Grand
Buffet restaurants.
The Predecessor Company, HTB Restaurants, Inc., 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. and utilized a 52/53-week fiscal
year which ends in December. The fiscal year ended December 18, 1995 contained
52 weeks. The period ended July 15, 1996 contained 30 weeks.
On October 31, 1997, the Company entered into a strategic alliance (the
"Alliance") with Stacey's Buffet, Inc. ("Stacey's") whereby, among other things,
the Company agreed to provide certain services for 23 Stacey's restaurants and
make loans to Stacey's from time to time up to an aggregate principal amount of
$4,500,000. On February 13, 1998, the Company acquired three Stacey's
restaurants, and the Company and Stacey's mutually agreed to terminate the
Alliance, including cancellation of any future obligations of the
F-7
<PAGE> 30
Company to make loans to Stacey's. The Company paid the purchase price for the
three restaurants by the cancellation of Stacey's outstanding indebtedness to
the Company which was incurred as part of the Alliance.
FISCAL YEAR
The Company utilizes a 52/53 week fiscal year which ends on the last Monday
in January. The first quarter of each year contains 16 weeks while the other
three quarters each contain 12 weeks.
CASH EQUIVALENTS
For purposes of reporting cash flows, highly liquid investments purchased
with original maturities of three months or less are considered cash
equivalents. The carrying amounts reported in the consolidated balance sheets
for these instruments approximate their fair value.
SHORT-TERM INVESTMENTS
Short-term investments (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 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. Goodwill is amortized using the straight-line method
over 40 years.
Accumulated amortization of these intangible assets totaled $127,000 at
January 26, 1998 and $128,000 at January 27, 1997.
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.
F-8
<PAGE> 31
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 to HTB and by CKE to the Company after September 22, 1997 for
certain corporate services and overhead incurred by the Company. Total corporate
allocations included in general and administrative expenses in the accompanying
consolidated statements of earnings amounted to approximately $437,000,
$252,000, $951,000 and $808,000 for the periods ended January 26, 1998, January
27, 1997, July 14, 1996 and December 18, 1995, 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. 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.
Under this method, income tax assets and liabilities are recognized using
enacted tax rates for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A change in tax
rates is recognized in income in the period that includes the enactment date.
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 consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS 128") in fiscal 1998. SFAS 128 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 effect of all common stock equivalents is also required.
NOTE 2 -- INITIAL PUBLIC OFFERING
On September 30, 1997, the Company completed an initial public offering
(the "IPO") of 3,000,000 shares of its Common Stock at an IPO price of $12.00
per share. Of the 3,000,000 share offering, 2,400,000 shares were sold by the
Company and 600,000 shares were sold by CKE. On October 7, 1997, the
underwriters exercised their over-allotment option and acquired an additional
450,000 shares of Common Stock. The IPO generated total net proceeds to the
Company of $30.8 million after commissions and offering expenses. The Company
has used a portion of the proceeds to pay a dividend to CKE and to repay
indebtedness assumed in connection with the acquisition of restaurants. The
remaining proceeds are being used for working capital and general corporate
purposes.
F-9
<PAGE> 32
USE OF PROCEEDS
Of the net proceeds received by the Company from the IPO, the Company made
payments to CKE totaling $10.7 million, which included a dividend of $9.3
million. The nature of these payments was in effect to reimburse CKE for its
equity in HomeTown Buffet and Casa Bonita at the date of the IPO. As a result of
these payments, the stockholders' equity section of the Company at January 26,
1998, reflects the earnings of the Company since the date of the IPO and the net
proceeds from the IPO.
NOTE 3 -- NORTH'S ACQUISITION
Concurrent with the Initial Public Offering, the Company acquired six JJ
North's Grand Buffet Restaurants from North's Restaurants, Inc., ("North's"),
and completed a management agreement for a seventh restaurant. The total cash
consideration paid to North's was approximately $4.5 million which generated
$1.3 million of goodwill. The acquisition was accounted for as a purchase. In
connection with the North's acquisition, the Company has provided a $3.0 million
term loan and a $750,000 line of credit to North's. The term loan and line of
credit are secured by North's remaining restaurants and bear interest at 8.0%.
Selected unaudited proforma combined results of operations for the
fifty-two week period ended January 26, 1998 and the twenty-eight weeks ended
January 27, 1997, as if the acquisition occurred on July 16, 1996, using actual
restaurant-level margins and general and administrative expenses prior to the
acquisition are presented as follows:
<TABLE>
<CAPTION>
FIFTY-TWO
WEEKS TWENTY-EIGHT
ENDED WEEKS ENDED
JANUARY 26, JANUARY 27,
1998 1997
----------- ------------
<S> <C> <C> <C> <C>
Total revenues................................ $60,866,000 $26,249,000
Net income.................................... $ 2,452,000 $ 467,000
Net income per common share -- basic.......... $ .70 $ .18
Net income per common share -- diluted........ $ .70 $ .18
</TABLE>
NOTE 4 -- NOTES RECEIVABLE Notes receivable at January 26, 1998 consists of the
following:
<TABLE>
<S> <C>
Note receivable from JJ North's............................. $3,078,000
Line of credit due from JJ North's.......................... 400,000
----------
3,478,000
Less current portion...................................... 243,000
----------
$3,235,000
==========
</TABLE>
The $3.0 million note receivable stipulates that interest accruing on the
loan will be added to the note balance for the first six months. Interest on the
aggregate balance will then be payable monthly for the next six months.
Beginning November 1, 1999, principal and interest payments will be due monthly
for five years until the loan is fully repaid in October 2003.
The interest on the line of credit is payable monthly for the first six
months with principal and interest payments due monthly thereafter until the
line is repaid by February 2000.
F-10
<PAGE> 33
NOTE 5 -- 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>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
Property and equipment:
Buildings and leasehold improvements...................... $12,535,000 $10,255,000
Furniture, fixtures and equipment......................... 7,648,000 3,012,000
----------- -----------
20,183,000 13,267,000
Less accumulated depreciation and amortization............ (5,106,000) (837,000)
----------- -----------
$15,077,000 $12,430,000
=========== ===========
Real property and equipment under capitalized leases........ $ 3,031,000 $ 2,547,000
Less accumulated amortization............................. (744,000) (151,000)
----------- -----------
$ 2,287,000 $ 2,396,000
=========== ===========
</TABLE>
NOTE 6 -- 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 the rent to be the greater of a
stipulated minimum rent or a specified percentage of sales.
Minimum lease payments for all leases and the present value of net minimum
lease payments for capital leases as of January 26, 1998 (Successor Company) are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
----------- ---------- -----------
<S> <C> <C>
1999................................................. $ 439,000 $ 3,125,000
2000................................................. 405,000 2,752,000
2001................................................. 235,000 2,614,000
2002................................................. 235,000 2,546,000
2003................................................. 235,000 2,573,000
Thereafter........................................... 2,282,000 19,217,000
---------- -----------
Total minimum lease payments:.............. 3,831,000 $32,827,000
========== ===========
Less amount representing interest:................... 1,463,000
----------
Present value of minimum lease payments:............. 2,368,000
Less current portion................................. 259,000
----------
Capital lease obligation excluding current portion... $2,109,000
==========
</TABLE>
F-11
<PAGE> 34
Aggregate rents under noncancelable operating leases during fiscal 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
-------------------------- --------------------------
TWENTY-EIGHT FIFTY-TWO
FIFTY-TWO WEEKS THIRTY WEEKS
WEEKS ENDED ENDED WEEKS ENDED ENDED
JANUARY 26, JANUARY 27, JULY 15, DECEMBER 18,
1998 1997 1996 1995
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Minimum rentals............................... $2,967,000 $ 978,000 $1,617,000 $3,316,000
Contingent rentals............................ 114,000 41,000 28,000 46,000
---------- ---------- ---------- ----------
$3,081,000 $1,019,000 $1,645,000 $3,362,000
========== ========== ========== ==========
</TABLE>
NOTE 7 -- INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
------------------------- -----------------------
JANUARY 26, JANUARY 27, JULY 15, DECEMBER 18,
1998 1997 1996 1995
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Current:
Federal................................. $1,643,000 $196,000 $226,000 $132,000
State................................... 440,000 35,000 68,000 26,000
---------- -------- -------- --------
2,083,000 231,000 294,000 158,000
Deferred:
Federal................................. (238,000) 81,000 (55,000) (115,000)
State................................... (46,000) 26,000 (23,000) (21,000)
---------- -------- -------- --------
(284,000) 107,000 (78,000) (136,000)
---------- -------- -------- --------
$1,799,000 $338,000 $216,000 $ 22,000
========== ======== ======== ========
</TABLE>
A reconciliation of income tax expense at the federal statutory rate to the
Company's provision for taxes on income is as follows:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
------------------------- -----------------------
JANUARY 26, JANUARY 27, JULY 15, DECEMBER 18,
1998 1997 1996 1995
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Income taxes at statutory rate.................... $1,529,000 $274,000 $186,000 $17,000
State income taxes................................ 273,000 47,000 29,000 3,000
Other............................................. (11,000) 17,000 1,000 2,000
Increase in reserve............................... 8,000 -- -- --
---------- -------- -------- -------
$1,799,000 $338,000 $216,000 $22,000
========== ======== ======== =======
</TABLE>
F-12
<PAGE> 35
Temporary differences give rise to a significant amount of deferred tax
assets and liabilities as set forth below:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Leases.................................................... $ 922,000 $ 971,000
Insurance reserves........................................ 113,000 --
Accrued Vacation.......................................... 70,000 45,000
State Taxes............................................... 43,000 28,000
Litigation Reserve........................................ -- 25,000
---------- ----------
Less valuation allowance.................................. (8,000) --
---------- ----------
Total deferred tax assets......................... 1,140,000 1,069,000
---------- ----------
Deferred tax liabilities:
Depreciation.............................................. 799,000 876,000
Other..................................................... 24,000 --
---------- ----------
Total deferred tax liabilities.................... 823,000 876,000
---------- ----------
Net deferred tax assets..................................... $ 317,000 $ 193,000
========== ==========
</TABLE>
While there can be no assurance that the Company will generate any earnings
or any specific level of earnings in the 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 26, 1998 based on the
Company's current and future pre-tax earnings.
NOTE 8 -- DEPOSITS AND OTHER
Deposits and other consists of the following:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
Deposit on the acquisition of three Stacey's restaurants.... $1,006,000 $ --
Deposit on acquisition of JJ North's Olympia restaurant..... 929,000 --
Deferred taxes, non current................................. 207,000 --
Miscellaneous deposits...................................... 25,000 375,000
---------- --------
$2,167,000 $375,000
========== ========
</TABLE>
NOTE 9 -- STOCKHOLDERS EQUITY
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.
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
F-13
<PAGE> 36
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.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
401(K) PLAN
Beginning in May 1998, the Company has a 401(k) plan available to certain
employees who have attained age 21, work 30 hours or more per week, and have met
certain minimum service requirements. The plan allows participants to allocate
up to 15% of their annual compensation before taxes for investment in several
investment alternatives.
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan"), was
adopted by the Board of Directors on January 15, 1998, covering an aggregate of
750,000 shares of Common Stock. The Purchase Plan, which is not intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code, will be implemented by quarterly offerings with purchases
coinciding with the Company's fiscal quarters commencing on the effective date
of the Purchase Plan. The purpose of the Purchase 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 Purchase Plan
will be administered by the Board of Directors or a committee appointed by the
Board of Directors.
Employees are eligible to participate if they (i) are employed on an hourly
basis as a restaurant employee for at least 30 hours per week and if they have
been employed by the Company since September 30, 1997 or for at least one year;
(ii) are employed on an hourly basis as a non-restaurant employee for at least
30 hours per week and have been so employed continuously during the preceding 90
days; or (iii) are exempt from the overtime and minimum wage requirements under
federal and state laws and have been so employed by the Company continuously
during the preceding 90 days. The Purchase Plan permits eligible employees to
purchase Common Stock through payroll deductions, which range from 3% to 10% of
the employee's Base Earnings as defined in the Purchase Plan. The price of stock
purchased under the Purchase Plan shall be at the then current fair market
value. Each participant who remains an employee of the Company for at least one
F-14
<PAGE> 37
year after the end of a particular quarterly offering period shall receive, on
the one-year anniversary date of the end of such offering period, a matching
contribution from the Company totaling one-half of a participating Officer's or
Director's contribution, and one-third of other participant's contributions.
Employees may withdraw from the Purchase Plan, effective at the end of a
quarterly offering period, by delivering a notice to the Company no later than
the 15th day prior to the end of such quarterly offering period, and
participation ends automatically on termination of employment. The Board of
Directors may at any time amend or terminate the Purchase Plan, and upon such
termination, each participant is entitled to receive the funds in such
participant's account which have not been used to purchase Common Stock but
shall not be entitled to any future matching contribution.
1997 STOCK INCENTIVE PLAN
The Company recently adopted the 1997 Stock Incentive Plan (the "1997
Plan"), which provides for the grant of options to purchase an aggregate of
750,000 shares of Common Stock. The 1997 Plan provides for the granting of
"incentive stock options," within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and non-statutory options to
directors, officers, employees and consultants of the Company, except that
incentive stock options may not be granted to non-employee directors or
consultants. The purpose of the 1997 Plan is to provide participants with
incentives which will encourage them to acquire a proprietary interest in, and
continue to provide services to, the Company. The 1997 Plan is administered by
the Board of Directors, which has sole discretion and authority, consistent with
the provisions of the 1997 Plan, to determine which eligible participants will
receive options, the time when options will be granted, the terms of options
granted and the number of shares which will be subject to options granted under
the 1997 Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
Outstanding on January 27, 1997............................. --
Options granted at IPO...................................... 608,308
Canceled.................................................... --
Exercised................................................... --
--------
Outstanding on January 26, 1998............................. 608,308
========
Exercisable on January 26, 1998............................. 263,240
========
Exercise price.............................................. $ 12.00
========
Weighted average remaining contractual life in years........ 9.68
========
</TABLE>
The Company applies the intrinsic value method under Accounting Principles
Board Opinion No. 25 in accounting for its Plan and, accordingly, no
compensation cost has been recognized for it's stock options in the financial
statements. Had the Company determined compensation cost based on the fair value
method under Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," ("SFAS 123") at the grant date for its stock
options, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
Net Income as reported...................................... $2,699,000 $ 470,000
Earnings per share -- basic as reported..................... $ .77 $ .18
Earnings per share -- diluted as reported................... $ .76 $ .18
Pro forma net income........................................ $2,285,000 $ 470,000
Earnings per share-basic as reported........................ $ .65 $ .18
Earnings per share-diluted as reported...................... $ .65 $ .18
</TABLE>
F-15
<PAGE> 38
For purposes of the preceding pro forma disclosures required by SFAS 123
the fair value of each stock option has been estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions: no
projected annual dividends, expected volatility of 15%, a risk free interest
rate of 5.83% and an expected life of three years.
Since the pro forma compensation expense for stock-based compensation plans
is recognized over a three year vesting period, the foregoing pro forma
reductions in the Company's net income are not representative of anticipated
amounts in future years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the value of an estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
NOTE 11 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SUCCESSOR PERIOD PREDECESSOR PERIOD
--------------------------------- -----------------------
JANUARY 26, JANUARY 27, JULY 15, DECEMBER 18,
1998 1997 1996 1995
----------- ------------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Cash paid for income taxes............... $1,020,000 -- -- --
Cash paid for interest................... -- -- $145,000 $192,000
Non-cash investing and financing
activities are as follows:
Transfer of current assets and current
liabilities to primary
stockholder......................... $ 335,000 -- -- --
Use of deposit to buy out operating
equipment leases.................... 375,000 -- -- --
</TABLE>
NOTE 12 -- 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 consolidated
statement of operations or financial position or liquidity.
NOTE 13 -- SUBSEQUENT EVENTS
On October 31, 1997, the Company entered into a strategic alliance (the
"Alliance") with Stacey's Buffet, Inc. ("Stacey's") whereby, among other things,
the Company agreed to provide certain services for 23 Stacey's restaurants and
make loans to Stacey's from time to time up to an aggregate principal amount of
$4,500,000. On February 13, 1998, the Company acquired three Stacey's
restaurants, and the Company and Stacey's mutually agreed to terminate the
Alliance, including cancellation of any future obligations of the Company to
make loans to Stacey's. The Company paid the purchase price for the three
restaurants by the cancellation of Stacey's outstanding indebtedness to the
Company which was incurred as part of the Alliance.
On February 24, 1998, the Company acquired twelve JB's Restaurants from
JB's Restaurants, Inc., a wholly-owned subsidiary of CKE, for $4,265,000,
subject to adjustment. At the time of acquisition, the Company prepaid royalty
fees for one year in the amount of $485,000. The Company will operate the
restaurants under franchise agreements with JB's Family Restaurants, Inc. until
such time as they are converted to the Company's small-format buffet concept.
The Company has completed one of the conversions and expects to complete
additional conversions during fiscal 1999.
F-16
<PAGE> 39
In addition, during February 1998, the Company, in three separate
transactions, acquired three additional restaurants in the state of Florida. The
purchase price for these restaurants, one of which is a fee property, was
approximately $1.8 million. Two of the restaurants are operated as Maggie's
Buffet restaurants and the third restaurant, which was formerly operated as a
Stacey's Buffet restaurant prior to being closed in 1996, will be converted to
one of the Company's buffet concepts and re-opened during fiscal 1999.
On April 1, 1998, the Company acquired two buffet restaurants located in
Florida, which operate under the brand name of BuddyFreddys. The purchase price
was $1.6 million, subject to adjustment, of which, $400,000 was paid in cash at
closing and the remaining $1.2 million will be paid in equal monthly
installments of $100,000 each beginning April 15, 1998 and continuing through
March 15, 1999. In addition, the Company has loaned the seller $2.4 million. The
loan has a term of one year, is secured by the real property of the purchased
restaurants and bears interest at 8.5% for the first 90 days and 10.0% for the
remainder of the term. It is anticipated that the Company will convert certain
of its other restaurants in the Florida market to the BuddyFreddys concept.
F-17
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.1 Certificate of Incorporation*
3.2 Bylaws, as amended on September 22, 1997
4.1 Form of Common Stock Certificate**
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 Form of Indemnification Agreement**
10.4 Management Services Agreement with CKE**
10.5 Form Of Franchise Agreement with HomeTown Buffet, Inc.**
10.6 Asset Purchase Agreement with North's Restaurants, Inc.
dated July 24, 1997**
10.6.1 Amendment No. 1 to Asset Purchase Agreement dated as of
September 30, 1997 (incorporated by reference to the
Company's filing on Form 8-K on October 17, 1997)
10.6.2 Amended and Restated Credit Agreement dated as of September
30, 1997 between the Company and North's Restaurants, Inc.
(incorporated by reference to the Company's filing on Form
8-K on October 17, 1997)
10.7 Form of Credit Agreement with Stacey's Buffet, Inc.*
10.8 Form of Contribution Agreement among CKE Restaurants, Inc.,
Summit Family Restaurants Inc. and the Company*
10.9 Form of Bill of Sale and Assumption Agreement between Summit
Family Restaurants Inc. and Taco Bueno Restaurants, Inc.
(formerly known as Casa Bonita Incorporated)*
10.11 Form of Bill of Sale and Assumption Agreement between Summit
Family Restaurants Inc. and JB's Restaurants, Inc.*
10.12 License Agreement with CKE
10.13 Settlement Agreement with HomeTown Buffet, Inc.
11.0 Computation of Earnings Per Share Income
21.1 List of Subsidiaries*
23.4 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedules (included only with electronic
filing)
</TABLE>
- ---------------
* Previously filed as an exhibit to the Registration Statement on Form S-1,
Amendment No. 1 (Registration No. 333- 32249).
** Previously filed as an exhibit to the Registration Statement on Form S-1,
Amendment No. 2 (Registration No. 333- 32249).
E-1
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
STAR BUFFET, INC.,
A DELAWARE CORPORATION
AS AMENDED
ON
SEPTEMBER 22, 1997
<PAGE> 2
AMENDED BYLAWS OF
STAR BUFFET, INC.
A DELAWARE CORPORATION
AMENDED ON SEPTEMBER 22, 1997
BY
WRITTEN CONSENT OF
BOARD OF DIRECTORS
OF
STAR BUFFET, INC.
ARTICLE III
SECTION 2 Subject to any limitations in the Certificate of
Incorporation, the authorized number of directors of the Corporation shall be
eight (8) until changed by an amendment to this Bylaw adopted by the affirmative
vote of a majority of the entire Board of Directors.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I....................................................................... 1
SECTION 1. REGISTERED OFFICE............................................1
SECTION 2. OTHER OFFICES................................................1
SECTION 3. BOOKS........................................................1
ARTICLE II.......................................................................1
SECTION 1. PLACE OF MEETINGS............................................1
SECTION 2. ANNUAL MEETINGS..............................................1
SECTION 3. SPECIAL MEETINGS.............................................1
SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING.........2
SECTION 5. NOTICE; WAIVER OF NOTICE.....................................2
SECTION 6. QUORUM; ADJOURNMENT..........................................2
SECTION 7. VOTING.......................................................2
SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING......2
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE........................3
SECTION 10. STOCK LEDGER................................................3
SECTION 11. INSPECTORS OF ELECTION......................................3
SECTION 12. ORGANIZATION................................................3
SECTION 13. ORDER OF BUSINESS...........................................3
ARTICLE III......................................................................4
SECTION 1. POWERS.......................................................4
SECTION 2. NUMBER AND ELECTION OF DIRECTORS.............................4
SECTION 3. VACANCIES....................................................4
SECTION 4. TIME AND PLACE OF MEETINGS...................................4
SECTION 5. ANNUAL MEETING...............................................4
SECTION 6. REGULAR MEETINGS.............................................5
SECTION 7. SPECIAL MEETINGS.............................................5
SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT................5
SECTION 9. ACTION BY WRITTEN CONSENT....................................5
SECTION 10. TELEPHONE MEETINGS..........................................5
SECTION 11. COMMITTEES..................................................6
SECTION 12. COMPENSATION................................................6
SECTION 13. INTERESTED DIRECTORS........................................6
ARTICLE IV.......................................................................7
SECTION 1. OFFICERS.....................................................7
SECTION 2. APPOINTMENT OF OFFICERS......................................7
SECTION 3. SUBORDINATE OFFICERS.........................................7
SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS..........................7
SECTION 5. VACANCIES IN OFFICES.........................................7
SECTION 6. CHAIRMAN OF THE BOARD........................................7
SECTION 7. VICE CHAIRMAN OF THE BOARD...................................7
SECTION 8. CHIEF EXECUTIVE OFFICER......................................8
SECTION 9. PRESIDENT....................................................8
SECTION 10. VICE PRESIDENT..............................................8
SECTION 11. SECRETARY...................................................8
SECTION 12. CHIEF FINANCIAL OFFICER.....................................8
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE V...................................................................... 9
SECTION 1. FORM OF CERTIFICATES........................................9
SECTION 2. SIGNATURES..................................................9
SECTION 3. LOST CERTIFICATES...........................................9
SECTION 4. TRANSFERS...................................................9
SECTION 5. RECORD HOLDERS..............................................9
ARTICLE VI......................................................................10
SECTION 1. RIGHT TO INDEMNIFICATION....................................10
SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT...........................10
SECTION 3. NON-EXCLUSIVITY OF RIGHTS...................................11
SECTION 4. INSURANCE...................................................11
SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION...11
SECTION 6. INDEMNIFICATION CONTRACTS...................................11
SECTION 7. EFFECT OF AMENDMENT.........................................11
ARTICLE VII .................................................................12
SECTION 1. DIVIDENDS...................................................12
SECTION 2. DISBURSEMENTS...............................................12
SECTION 3. FISCAL YEAR.................................................12
SECTION 4. CORPORATE SEAL..............................................12
SECTION 5. RECORD DATE.................................................12
SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION....................12
SECTION 7. CONSTRUCTION AND DEFINITIONS................................12
SECTION 8. AMENDMENTS..................................................12
</TABLE>
<PAGE> 5
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 OFFICES. 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.
1
<PAGE> 6
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
2
<PAGE> 7
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.
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.
3
<PAGE> 8
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.
4
<PAGE> 9
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.
5
<PAGE> 10
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.
6
<PAGE> 11
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.
7
<PAGE> 12
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 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
8
<PAGE> 13
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. 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.
9
<PAGE> 14
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
10
<PAGE> 15
stockholders) to have made a determination prior to the commencement of such
suit that 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.
11
<PAGE> 16
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.
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
12
<PAGE> 17
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.
13
<PAGE> 1
EXHIBIT 10.12
LICENSE AGREEMENT
This Agreement is effective as of September 22, 1997 by and between CARL
KARCHER ENTERPRISES, INC., a California corporation, at 1200 N. Harbor
Boulevard, Anaheim, California 92801 ("Licensor") and STAR BUFFET, INC., a
Delaware corporation at 440 Lawndale Drive, Salt Lake City, Utah 84115
("Licensee").
RECITALS
A. Licensor is the owner of the trademark STAR LOGO Design and
variations thereof ("Star Trademarks"). Licensor is the owner of many United
States and International Trademark Registrations for its Star Trademarks.
B. Licensee desires to license from Licensor the STAR BUFFET and STAR
BUFFET and Design marks. Licensor has applied to the U.S. Patent and Trademark
Office to register said STAR BUFFET and STAR BUFFET and Design marks, which are
variations of Licensor's Star Trademarks, depicted on Exhibit "A" attached
hereto and fully incorporated herein.
NOW, THEREFORE, in consideration of the mutual provisions contained
herein, the receipt and sufficiency of which are hereby acknowledged, Licensor
and Licensee agree as follows:
ARTICLE 1
DEFINITIONS
1.1 LICENSED MARKS. The "Licensed Marks" are: (1) the words STAR BUFFET;
(2) the combination of a Star Logo Design, together with an illustration of a
fork and knife; ("STAR BUFFET and Design"), and (3) the words NORTH STAR BUFFET,
as specifically shown in Exhibit "A."
1.2 LICENSED TERRITORY. The "Licensed Territory" is the United States of
America and Canada.
1.3 TERM. The "Term" of this Agreement shall be granted in perpetuity
from the date of this Agreement; however, Licensor may terminate this License
(as defined in Article 2 below) for any reason or for no reason upon thirty (30)
days written notice to Licensee.
ARTICLE 2
GRANT OF LICENSE
2.1 LICENSE. Subject to Licensee's performance of it obligations under
this Agreement, Licensor grants to Licensee a personal, non-transferable,
indivisible, non-exclusive license ("License"), without the right to sub-license
for the Term, to use the
<PAGE> 2
Licensed Marks in connection with its Tradename and restaurant services and food
items sold in the restaurants ("Licensed Use").
Notwithstanding the above, the NORTH STAR BUFFET mark may be
sublicensed from Star Buffet, Inc., a Delaware corporation, to North Star
Buffet, Inc., a _____________ corporation, for as long as (a) North Star Buffet,
Inc. remains a wholly-owned subsidiary of Star Buffet, Inc., and (b) North Star
Buffet, Inc. agrees to abide by the terms of this Agreement.
2.2 RESTRICTIONS. Licensee agrees that it shall not use the Licensed
Marks or any similar marks in connection with any goods or services not set
forth in the Licensed Use. Notwithstanding anything to the contrary contained
herein, all rights not specifically granted in this Agreement to Licensee shall
be reserved and remain always with Licensor.
ARTICLE 3
QUALITY CONTROL
3.1 MODIFICATIONS. Licensee agrees that it will not in any way modify
the Licensed Marks as used in connection with the Licensed Use at any time
without Licensor's prior written consent. Licensor's consent may be withheld for
any reason or no reason.
3.2 GOODWILL. The parties acknowledge and agree that great value is
placed on the Licensed Marks and the goodwill associated therewith, that the
consuming public and the industry now associate the Licensed Marks with goods
and services of consistently high quality, and that the terms and conditions of
this Agreement are necessary and reasonable to assure the consuming public and
the industry that all goods and services provided hereunder are of the same
consistently high quality as goods and services provided by others who are or
may hereafter be licensed to provide goods and services under the Licensed
Marks. Accordingly, Licensor may prohibit Licensee from using the Licensed Marks
in connection with any goods or services which fail to conform to the quality
and standards prescribed by Licensor at Licensor's sole discretion.
3.3 HIGH QUALITY STANDARDS. As early as possible, and in any event prior
to each calendar year and before instituting any change in the goods and
services provided under the Licensed Marks, Licensor shall have the right to
exercise quality control over the goods and services provided by Licensee under
the Licensed Marks by making any changes or corrections in said goods or
services as may be required to maintain the high quality standards prescribed by
Licensor, and Licensee agrees to make and incorporate said changes or
corrections.
3.4 APPROVAL. Licensee shall make no changes in any goods or services
after they have been approved without resubmitting descriptions of the goods or
services for approval. If, during operation, Licensee deviates from the approved
goods or services,
<PAGE> 3
Licensee agrees to submit new descriptions of the goods or services for
approval. Approval or disapproval of such goods or services shall lie in
Licensor's sole discretion. Should Licensor require additional description of
the goods or services at any given time, Licensee agrees to provide such
additional description to Licensor.
3.5 COOPERATION. Licensee agrees to exercise its best efforts to
cooperate with Licensor at all times in the coordination of goods and services
so that they are consistent with the style, image, and quality of other goods
and services provided under the Licensed Marks.
3.6 INSPECTION. Licensor or its representatives may, at all reasonable
business hours, inspect the operations and facilities of Licensee with respect
to this Agreement.
3.7. SUBSTANDARD GOODS OR SERVICES. Licensee agrees not to advertise,
promote, offer for sale, sell, provide or perform or to permit any third party
to advertise, promote, offer for sale, sell, provide or perform substandard
goods or services under the Licensed Marks. Substandard goods or services are
defined as goods and services not meeting the specifications and/or quality
standards of Licensor.
3.8 COMPLIANCE WITH LAWS. Licensee agrees to comply with all applicable
local, state and federal labeling, notice and warning laws, and at all times to
conduct the activities pursuant to this Agreement in a lawful manner.
ARTICLE 4
PROPERTY RIGHTS
4.1 TITLE. Title to the Licensed Marks shall always remain with
Licensor. Licensee shall not acquire any right or interest in the Licensed Marks
except the right to use the same pursuant to this Agreement. Licensee's use of
the Licensed Marks shall inure to Licensor's exclusive benefit.
4.2 INTELLECTUAL PROPERTY RIGHTS. The parties agree that Licensor shall
solely own and have exclusive worldwide right, title and interest in and to all
United States and worldwide trademarks, copyrights, service marks, trade secrets
and all other intellectual property rights in any way regarding the Licensed
Marks and to all other intellectual property rights in any way regarding the
Licensed Marks and to all modifications and derivative marks related thereto.
Licensee shall not challenge or otherwise contest the validity, ownership or
enforceability of the Licensed Marks or any of Licensor's other Trademarks.
4.3 NO USE AFTER TERMINATION. Upon termination of this License, Licensee
agrees to immediately cease all use of the Licensed Marks and any marks
confusingly similar thereto.
<PAGE> 4
ARTICLE 5
GENERAL PROVISIONS
5.1 GOVERNING LAW AND VENUE. This Agreement shall be interpreted and
enforced under the laws of the State of California, without application of its
conflict of law or choice of law rules. Both parties irrevocably submit to the
jurisdiction of the state or federal courts located in Orange County, California
for any action or proceeding regarding this Agreement, and both parties waive
any right to object to such jurisdiction and venue in any way.
5.2 ASSIGNMENT. Licensee acknowledges that the favorable terms of this
Agreement were granted to Licensee only because of Licensee's experience, and
that the substitution of any party by Licensee would destroy the intent of the
parties. Accordingly, except as specifically set forth in paragraph 2.1 hereof,
Licensee shall have no right to assign, delegate, transfer, or otherwise
encumber this Agreement or any portion thereof, without Licensor's prior written
consent which can be arbitrarily withheld.
5.3 SEVERABILITY. If any provision, or part thereof, of this Agreement
is judicially declared invalid, void or unenforceable, each and every other
provision, or part thereof, nevertheless shall continue in full force and
effect.
5.4 ATTORNEYS' FEES. In the event a dispute arises regarding this
Agreement, the prevailing party shall be entitled to its reasonable attorneys'
fees and expenses incurred in addition to any other relief to which it is
entitled.
5.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties regarding the subject matter hereof, and supersedes all
prior or contemporaneous understandings or agreements, whether oral or written.
This Agreement shall be modified or amended only by a writing signed by both
Licensor and Licensee.
5.6 AUTHORITY. The parties executing this Agreement on behalf of
Licensor and Licensee represent and warrant that they have the authority from
their respective governing bodies to enter into this Agreement and to bind their
respective companies to all the terms and conditions of this Agreement.
5.7 NOTICES. All notices, requests, demands and other communications
hereunder, whether or not required, shall be in writing and shall be sent by
registered or certified mail, or by recognized national delivery service,
postage prepaid, return receipt requested, to the address address provided by
the receiving party from time to time.
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth on page 1.
LICENSOR LICENSEE
CARL KARCHER ENTERPRISES, INC. STAR BUFFET, INC.
By: _______________________________ By: _______________________________
Name: Name:
Title: Title:
<PAGE> 1
EXHIBIT 10.13
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is made and entered into as of this
Eighth day of October, 1997, by and among the following entities:
(1) Summit Family Restaurants Inc. ("Summit"), a Delaware corporation
headquartered in Utah;
(2) HTB Restaurants, Inc. ("HTB"), a Delaware corporation headquartered in
Utah, and a subsidiary of Summit;
(3) CKE Restaurants, Inc. ("CKE"), a Delaware corporation headquartered in
California;
(4) Star Buffet, Inc. ("Star Buffet"), a Delaware corporation
headquartered in Utah;
(5) HomeTown Buffet, Inc. ("HomeTown"), a Delaware corporation
headquartered in Minnesota; and
(6) Buffets, Inc. ("Buffets"), a Minnesota corporation headquartered in
Minnesota, and the parent company of HomeTown.
Summit, HTB, and CKE collectively are referred to hereinafter as the "CKE
Entities."
RECITALS
This Agreement is entered into with regard to the following facts:
WHEREAS, certain of the CKE Entities, on the one hand, and HomeTown, on
the other hand, have been parties to a Multiple Unit Agreement ("MUA") relating
to the development and operation of restaurants under the franchise HomeTown
Buffet(R), and to 16 separate Franchise Agreements; and
WHEREAS, in June 1996 Summit and HTB commenced an action against HomeTown
in the Third Judicial District Court for Salt Lake County, State of Utah,
relating to the MUA, which action is entitled Summit Family Restaurants Inc.
and HTB Restaurants Inc. v.
<PAGE> 2
HomeTown Buffet, Inc., Civil No. 960904491 CN ("State Action"), and is pending;
and
WHEREAS, on June 26, 1996 Summit and HTB commenced an arbitration
proceeding against HomeTown before the American Arbitration Association ("AAA")
relating to the MUA ("Arbitration Proceeding"); and
WHEREAS, in August 1996 the CKE Entities commenced an action against
HomeTown and Buffets in the United States District Court for the District of
Utah, Central Division, relating to the MUA and to the merger between HomeTown
and Buffets, which action is entitled Summit Family Restaurants Inc., HTB
Restaurants, Inc., and CKE Restaurants, Inc. vs. HomeTown Buffet, Inc. and
Buffets, Inc., Civil No. 96 CV 0688B ("Federal Action"), and is pending; and
WHEREAS, HomeTown and Buffets strenuously denied that they engaged in any
of the wrongdoing alleged by the CKE Entities in the State Action, the
Arbitration proceeding, the Federal Action, or otherwise; and
WHEREAS, on January 31, 1997, an Award was entered in the Arbitration
Proceeding in favor of HomeTown and against Summit and HTB, holding, among other
things, that HomeTown was entitled to terminate the MUA; and
WHEREAS, by Order and Judgment filed on September 10, 1997, in the action
bearing file number Civil No. 2:97CV 00355B, United States District Court for
the District of Utah, Central Division, confirmed the arbitration Award; and
WHEREAS, on July 28, 1997, CKE announced the formation of Star Buffet,
-2-
<PAGE> 3
announced that all of the issued and outstanding stock of Summit would be
transferred to Star Buffet, and announced that Star Buffet intended to make a
public offering of common stock; and
WHEREAS, a dispute has arisen between Star Buffet and the CKE Entities, on
the one hand, and HomeTown, on the other hand, concerning whether certain of
the proposed transactions that were announced by CKE on July 28, 1997 required
the consent of HomeTown pursuant to Section 12 of each of the 16 separate
Franchise Agreements; and
WHEREAS, in order to avoid the distraction and expense of continued
litigation and arbitration, the undersigned parties are desirous of resolving
their disputes and of discharging and releasing any and all claims which were
or could have been asserted by the CKE Entities against HomeTown and/or
Buffets;
NOW, THEREFORE, for the valuable consideration described below, the
receipt and sufficiency of which hereby are expressly acknowledged, the
undersigned parties mutually agree as follows:
JUDGMENT ON AWARD
1. The undersigned parties agree, consistent with the Order and Judgment
of the United States District Court for the District of Utah, Central Division,
filed on September 10, 1997, in the action bearing file number Civil No. 2:97CV
00355B, that final judgment on the arbitration Award shall be entered forth-
with. The CKE Entities and Star Buffet represent and agree that they will not
appeal such judgment, and hereby waive any right that they might otherwise have
to take an appeal from the judgment confirming the Award. The CKE Entities and
Star Buffet acknowledge and agree that the Award and the related judgment are
-3-
<PAGE> 4
determinative of the issue of whether they, or any of them, have rights to
develop additional HomeTown Buffet(R) franchised restaurants or to an exclusive
territory to own and operate HomeTown Buffet(R) restaurants. Based upon the
Award and its related judgment, the CKE Entities and Star Buffet agree that
they no longer have any such rights.
LIMITED WAIVER OF RIGHTS
2. Pursuant to Section 12.1.3 of each of the 16 Franchise Agreements,
and based upon HTB's representations and warranties that (a) the transfer of
the capital stock of Summit as part of the "Summit Exchange" is as defined and
identified at page 5 of the Amendment No. 2 of the Registration Statement on
Form S-1 filed by Star Buffet with the Securities and Exchange Commission on
September 22, 1997 and that the Summit Exchange has in fact occurred as of the
date hereof, and (b) at no point since Summit's original ownership of the
common stock of HTB through the date of this Agreement has Summit owned less
than all of the outstanding capital stock of HTB, then based upon those
representations and warranties by HTB, HomeTown hereby waives its right to
review whether the capital transfer associated with the Summit Exchange invokes
the provisions set forth in sections 12.1 and 12.3 of each of the 16 Franchise
Agreements, or to consent to such capital transfer insofar as such provisions
do apply. HomeTown does not waive any other provisions of the 16 Franchise
Agreements, nor does it waive Sections 12.1 and 12.3 except with respect to the
"Summit Exchange". Nothing contained herein is, or shall be construed as,
agreement, approval, or acquiescence by HomeTown to the formation of Star
Buffet or to any of its activities or operations. HTB does not concede that
HomeTown has a right to review the capital transfer associated with the "Summit
Exchange" or
-4-
<PAGE> 5
that HomeTown's consent is required with respect to such capital transfer.
DISMISSALS
3. Within five (5) days after the execution of this Agreement, Summit,
HTB, and HomeTown shall cause their respective counsel to enter into a
Stipulation For Dismissal With Prejudice, in the form attached hereto as
Exhibit 1, dismissing the State Action, and all claims that were or could have
been asserted by the plaintiffs in the State Action, with prejudice and on the
merits, but without costs to any party, and to obtain a judgment of dismissal
in accordance with the terms set forth in said Stipulation.
4. Within five (5) days of the execution of this Agreement, the CKE
Entities, HomeTown and Buffets shall cause their respective counsel to enter
into a Stipulation For Dismissal With Prejudice, in the form attached hereto as
Exhibit 2, dismissing the Federal Action, and all claims that were or could
have been asserted by the plaintiffs in the Federal Action, with prejudice and
on the merits, but without costs to any party, and to obtain a judgment of
dismissal in accordance with the terms set forth in said Stipulation.
RELEASE BY THE CKE ENTITIES AND STAR BUFFET
5. The CKE Entities and Star Buffet, on their own behalf and on behalf
of their past and present parent, subsidiary, affiliated, and related
corporations and entities, and their predecessors and successors in interest
(collectively "CKE Releasors"), do hereby release and forever discharge
HomeTown and Buffets, and their past and present parent, subsidiary,
affiliated, and related corporations and entities, their predecessors and
successors in interest, and their respective past and present principals,
agents, officers, directors, employees,
-5-
<PAGE> 6
representatives, insurers, indemnitors and attorneys (collectively "HomeTown
Released Parties"), of and from any and all claims, liabilities, demands,
actions, and causes of action, of every kind and nature whatsoever, whether
known or unknown, existing or not existing, asserted or unasserted, liquidated
or unliquidated, absolute or contingent, in law or in equity, which the CKE
Releasors have ever had, presently have, or may in the future have or claim to
have, against the HomeTown Released Parties, or any of them, by reason of any
matter, event, cause or thing whatsoever arising out of, based in whole or in
part upon, relating to, or existing by reason of:
(a) Any acts, omissions, and/or failures to act that were alleged in
the State Action, the Arbitration Proceeding, and/or the Federal
Action;
(b) Any claims that were or could have been asserted in the State
Action, the Arbitration Proceeding, and/or the Federal Action;
(c) The merger between HomeTown and Buffets;
(d) Any claims under the federal or state antitrust laws, or for
unfair competition, or for breach of any of the 16 Franchise
Agreements, that are based, in whole or in part, upon acts,
omissions, and/or failures to act that occurred prior to the
date hereof; and
(e) The development, ownership, or operation of a buffet-style
restaurant at 6625 E. Southern Avenue, Mesa, AZ 85206, either
under the name of HomeTown Buffet(R) or the name Old Country
Buffet(R).
-6-
<PAGE> 7
6. HomeTown and Buffets, on their own behalf and on behalf of their past
and present parent, subsidiary, affiliated and related corporations and
entities, and their predecessors and successors in interest (collectively
"HomeTown Releasors"), do hereby release and forever discharge the CKE
Entities, their predecessors and successors in interest, and their respective
past and present principals, agents, officers, directors, employees,
representatives, insurers, indemnitors and attorneys (collectively "CKE
Released Parties"), of and from any claims for malicious prosecution, abuse of
process, sanctions under Federal or State rules of procedure, or other like
claims equally limited, related to the filing and prosecution of the State
Action, Arbitration Proceeding and/or the Federal Action by the CKE Entities.
7. The releases contained in Paragraphs 5 and 6 relate to facts and events
that occurred up to and including the date hereof and do not cover events which
might occur in the future.
8. The CKE Entities and Star Buffet hereby acknowledge that they are aware
that they, or their legal counsel, may hereunder discover claims or facts in
addition to, or different from, those that they now know or believe to exist
with respect to the subject matters of the release set forth in Paragraph 5
herein, but acknowledge that it is their expressed intention to hereby fully,
finally and forever settle and release all claims, disputes and differences,
known or unknown, asserted or unasserted, suspected or unsuspected, which do
now exist, may hereafter exist, or may heretofore have existed, without regard
to the subsequent discovery or existence of different or additional claims or
facts.
9. The CKE Entities, Star Buffet, HomeTown and Buffets hereby agree that
-7-
<PAGE> 8
the MUA, and all of the rights and obligations contained therein, are terminated
in their entirety. The 16 Franchise Agreements remain in full force and effect
and the parties intend to fully perform their respective obligations
thereunder. HomeTown and HTB may freely enforce the terms of the Franchise
Agreements subject to the terms of this Agreement.
No Admission Of Liability
-------------------------
10. It is expressly acknowledged and agreed that HomeTown and Buffets at
all times have denied, and still deny, any liability, fault or wrongdoing in
and for the claims that were asserted in the State Action, the Arbitration
proceeding, and the Federal Action. Neither this Agreement nor the settlement
provided herein is, may be construed as, or may be used as, an admission by or
against any undersigned party of any fault, wrongdoing or liability whatsoever.
Miscellaneous Provisions
------------------------
11. This Agreement may not be supplemented or changed orally.
12. No breach of any provision of this Agreement by any party hereto can be
waived by any other party hereto, unless expressly done so in writing. Waiver of
any one breach shall not be deemed to be a waiver of any other breach of the
same or any other provisions hereof.
13. The undersigned parties and their respective counsel have reviewed this
Agreement, and the rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.
14. Each of the parties hereto acknowledges and represents that it has had
the opportunity to consult with legal, financial, tax, and other professional
advisors as it deems
-8-
<PAGE> 9
appropriate in connection with its consideration and execution of this
Agreement. Each party further represents and declares that in executing this
Agreement, it has relied solely upon its own judgment, belief and knowledge,
and the advice and recommendation of its own professional advisors, concerning
the nature, extent and duration of its rights, obligations and claims, and that
it has not been influenced to any extent whatsoever in executing this Agreement
by any representations or statements made by the other party or its
representatives, except those expressly contained or referred to herein.
15. This Agreement shall be binding upon, and shall inure to the benefit
of, the successors and assigns of the parties hereto.
16. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Utah.
17. This Agreement may be executed in counterparts, each of which shall
be deemed to be one and the same instrument. The parties hereto shall exchange
among themselves original signed counterparts. Pending receipt of such original
signed counterparts, the transmission of an executed signature page via
electronic facsimile shall be deemed conclusive evidence that the party
transmitting the signature page has agreed to the totality of the terms of this
Agreement, unmodified, notwithstanding the fact that only the signature page(s)
has been transmitted.
(Remainder of Page Intentionally Blank)
-9-
<PAGE> 10
SUMMIT FAMILY RESTAURANTS INC.
By /s/ CHARLOTTE L. MILLER
-------------------------------------
Its Sr. V.P.
--------------------------------
STATE OF UTAH )
) SS.
COUNTY OF SALT LAKE )
On this Eighth day of October, 1997, before me a Notary Public of the
State of Utah, appeared Charlotte L. Miller, to me personally known to be the
person whose name is subscribed to this document, who being duly sworn did
depose and say that he/she is an officer of the above-decribed corporation;
that he/she is duly authorized to execute this document on behalf of said
corporation and to bind the corporation hereto; and that he/she signed his/her
name hereto on behalf of the corporation and by like authority.
[NOTARIAL SEAL] /s/ DIANE JOSIE
----------------------------------
Notary Public
* * *
-10-
<PAGE> 11
CKE RESTAURANTS, INC.
By /s/ ANDREW F. PUZDER
-------------------------------
Its EVP
------------------------------
STATE OF CALIFORNIA )
) SS.
COUNTY OF SANTA BARBARA )
On this Eighth day of October, 1997, before me a Notary Public of the
State of California, appeared Andrew F. Puzder, to me personally known and
known to be the person whose name is subscribed to this document, who being
duly sworn did depose and say that he/she is an officer of the above-described
corporation; that he/she is duly authorized to execute this document on behalf
of said corporation and to bind the corporation hereto; and that he/she signed
his/her name hereto on behalf of the corporation and by like authority.
[SEAL] /s/ S. PALMER
----------------------------
Notary Public
* * *
-11-
<PAGE> 12
HTB RESTAURANTS, INC.
By /s/ CHARLOTTE L. MILLER
---------------------------
Its Sr. V.P.
---------------------------
STATE OF UTAH )
)SS.
COUNTY OF SALT LAKE )
On this Eighth day of October, 1997, before me a Notary Public of the
State of Utah, appeared Charlotte L. Miller, to me personally known and known
to be the person whose name is subscribed to this document, who being duly
sworn did depose and say that he/she is an officer of the above-described
corporation; that he/she is duly authorized to execute this document on behalf
of said corporation and to bind the corporation hereto; and that he/she signed
his/her name hereto on behalf of the corporation and by like authority.
[SEAL] /s/ DIANE JOSIE
---------------------------
Notary Public
* * *
-12-
<PAGE> 13
STAR BUFFET, INC.
By /s/ CHARLOTTE L. MILLER
-------------------------------------
Its Secretary
--------------------------------
STATE OF UTAH )
) SS.
COUNTY OF SALT LAKE )
On this Eighth day of October, 1997, before me a Notary Public of the
State of Utah, appeared Charlotte L. Miller, to me personally known to be the
person whose name is subscribed to this document, who being duly sworn did
depose and say that he/she is an officer of the above-decribed corporation;
that he/she is duly authorized to execute this document on behalf of said
corporation and to bind the corporation hereto; and that he/she signed his/her
name hereto on behalf of the corporation and by like authority.
[NOTARIAL SEAL] /s/ DIANE JOSIE
----------------------------------
Notary Public
* * *
-13-
<PAGE> 14
HOMETOWN BUFFET, INC.
By /s/ H. THOMAS MITCHELL
-------------------------------------
Its Secretary
--------------------------------
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
On this Eighth day of October, 1997, before me a Notary Public of the State
of Minnesota, appeared H. Thomas Mitchell, to me personally known to be the
person whose name is subscribed to this document, who being duly sworn did
depose and say that he/she is an officer of the above-decribed corporation; that
he/she is duly authorized to execute this document on behalf of said corporation
and to bind the corporation hereto; and that he/she signed his/her name hereto
on behalf of the corporation and by like authority.
[NOTARIAL SEAL] /s/ JULIE SAUSER
----------------------------------
Notary Public
* * *
-14-
<PAGE> 15
BUFFETS, INC.
By /s/ ROE H. HATLER
-------------------------------------
Its CEO
--------------------------------
STATE OF MINNESOTA )
) SS.
COUNTY OF HENNEPIN )
On this Eighth day of October, 1997, before me a Notary Public of the
State of Minnesota, appeared Roe H. Hatler, to me personally known to be the
person whose name is subscribed to this document, who being duly sworn did
depose and say that he/she is an officer of the above-decribed corporation;
that he/she is duly authorized to execute this document on behalf of said
corporation and to bind the corporation hereto; and that he/she signed his/her
name hereto on behalf of the corporation and by like authority.
[NOTARIAL SEAL] /s/ HAROLD T. MITCHELL III
----------------------------------
Notary Public
* * *
-15-
<PAGE> 16
EXHIBIT 1
TO SETTLEMENT AGREEMENT DATED OCTOBER 8, 1997
- --------------------------------------------------------------------------------
IN THE THIRD JUDICIAL DISTRICT COURT FOR SALT LAKE COUNTY
STATE OF UTAH
- --------------------------------------------------------------------------------
SUMMIT FAMILY RESTAURANTS
INC., a Delaware corporation; HTB
RESTAURANTS INC., a Delaware
corporation, STIPULATION FOR
Plaintiffs, DISMISSAL WITH PREJUDICE
vs.
Civil No. 960904491 CN
HOMETOWN BUFFET, INC., a Delaware Judge J. Dennis Fredrick
corporation,
Defendant.
- --------------------------------------------------------------------------------
IT IS HEREBY STIPULATED AND AGREED by and among the parties herein, by
their respective undersigned attorneys, that the above-entitled action and all
claims that were or could have been asserted therein by plaintiffs shall be and
hereby are dismissed with prejudice and on the merits, without costs to any
party.
IT IS FURTHER STIPULATED AND AGREED that the Court may enter an Order for
Judgement in accordance with the terms of this Stipulation without notice to
the parties.
EXHIBIT 1
<PAGE> 17
Date: September _________, 1997. KIMBALL, PARR, WADDOUPS,
BROWN & GEE
By ____________________________________
Clark D. Waddoups (Reg. # ____)
Jonathan O. Hafen (Reg. #A6096)
Suite 1300
185 South State Street
P.O. Box 11019
Salt Lake City, UT 84147
Telephone: (801) 532-7840
Attorneys for Plaintiffs
Date: September ________, 1997. MACKEY PRICE & WILLIAMS
By ____________________________________
Gifford W. Price (Utah Reg. #2547)
Suite 900
170 South Main Street
Salt Lake City, UT 84101
Telephone: (801) 575-5000
Attorneys for Defendant
-2-
<PAGE> 18
TO SETTLEMENT AGREEMENT DATED OCTOBER 8, 1997
________________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
________________________________________________________________________________
SUMMIT FAMILY RESTAURANTS
INC., a Delaware corporation; HTB
RESTAURANTS INC., a Delaware
corporation; and CKE RESTAURANTS
INC., a Delaware corporation,
STIPULATION FOR
Plaintiffs, DISMISSAL WITH PREJUDICE
vs.
HOMETOWN BUFFET, INC., A Delaware Judge Dee Benson
corporation; and BUFFETS, INC., a Civil No. 96 CV 0688B
Minnesota corporation,
Defendants.
________________________________________________________________________________
IT IS HEREBY STIPULATED AND AGREED by and among the parties herein, by
their respective undesigned attorneys, that the above-entitled action and all
claims that were or could have been asserted therein by plaintiffs shall be and
hereby are dismissed with prejudice and on the merits, without costs to any
party.
IT IS FURTHER STIPULATED AND AGREED that the Court may enter an order for
Judgment in accordance with the terms of this Stipulation without notice to the
parties.
EXHIBIT 2
<PAGE> 19
Date: September __, 1997. KIMBALL, PARR, WADDOUPS,
BROWN & GEE
By
-----------------------------------
Clark D. Waddoups (Reg. #_____)
Jonathan O. Hafeu (Reg. #A6096)
Suite 1300
185 South State Street
P.O. Box 11019
Salt Lake City, UT 84147
Telephone: (801) 532-7840
Attorneys for Plaintiff
Date: September __, 1997. MACKEY PRICE & WILLIAMS
By
-----------------------------------
Gifford W. Price (Reg. #2647)
900 First Interstate Plaza
170 South Main Street
Salt Lake City, UT 84101-1655
Telephone: (801) 575-5000
- and -
FAEGRE & BENSON LLP
Wendy J. Wildung (Minn. Reg. #117055)
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Telephone: (612) 336-3000
Attorneys for Defendants
-2-
<PAGE> 20
[HOMETOWN BUFFET LETTERHEAD]
October 8, 1997
VIA FACSIMILE AND OVERNIGHT COURIER
HOMETOWN BUFFET, INC.
Attn: Mr. Tom Mitchell, Secretary
10260 Viking Drive
Eden Prairie, MN 55344
Dear Mr. Mitchell:
As an inducement and partial consideration for HomeTown Buffet, Inc.
("HomeTown") and Buffets, Inc. to enter into the Settlement Agreement dated
October 8, 1997 ("Settlement Agreement") - with HTB Restaurants, Inc. ("HTB")
and its affiliated companies CKE Restaurants, Inc., Summit Family Restaurants
Inc. and Star Buffet, Inc. -- HTB hereby promises and agrees to perform as
described in this letter agreement ("Agreement"). HTB acknowledges that these
promises and agreements are independent of the 16 Franchise Agreements, and do
not limit or otherwise define the provisions of the 16 Franchise Agreements.
However, in order to provide HomeTown with a means of enforcing HTB's
obligations herein, HTB agrees that a breach of any of the provisions of this
Agreement by HTB shall be deemed an event of default under the Franchise
Agreements.
1) Financial Reporting: Immediately upon execution of this Agreement, in
addition to HTB's reporting obligations specified in Section 10 of the
Franchise Agreements, HTB agrees that it will provide to HomeTown financial
information, by restaurant, in the form prescribed by HomeTown, which shall
until further notice utilize a format similar in appearance and having no less
detail and content than as shown on the sample report attached hereto as
Exhibit "A". HTB hereby confirms that HomeTown has indicated that, provided HTB
brings its financial reporting obligations to HomeTown current within ten (10)
days of the date of the Settlement Agreement, for all prior periods where
inadequate reporting was made contrary to the requirements of the 16 Franchise
Agreements, HomeTown will not consider such prior reporting deficiencies an
event of default under any of the 16 Franchise Agreements.
2) Maintenance and Repair: Within one month of the date of this Agreement,
HTB will schedule its senior operating officer to survey the HTB's HomeTown
restaurants jointly with
-1-
<PAGE> 21
Mr. H. Thomas Mitchell
Page 2 of 3
October 8, 1997
a HomeTown operations designee for purposes of discussing the current state of
maintenance and repair of HTB's HomeTown restaurants.
3) Gift Certificates/Be-My-Guest Passes: HTB agrees that it will accept gift
certificates and Be-My-Guest Passes (collectively, "Passes") issued by any
other HomeTown Buffet or Old Country Buffet restaurant, provided that the
organization operating those restaurants in turn accepts HTB's HomeTown Buffet
Passes, and provided that the organization which issued the Passes reimburses
the organization redeeming the Passes from bona-fide customers at the face
value of such Passes. (In the instances of Be-My-Guest Passes, reimbursement
shall be at the then-current meal price that would have otherwise been paid buy
the customer presenting each Pass.) HTB agrees that it will meet with
HomeTown's designee to implement procedures for effecting such reciprocal
acceptance of Passes, such that the protocol is in place and operative within
one month of the date of this Agreement.
4) Location Directory Inclusion: HTB agrees that its franchised HomeTown
Buffet restaurant locations may be listed in a joint HomeTown Buffet/Old
Country Buffet location directory periodically produced by Buffets, Inc.,
provided that the directory discloses the fact that HTB's HomeTown restaurants
are franchised locations. HTB shall not be obligated to contribute towards the
cost of designing or updating the joint location directory nor shall it be
obligated to use the directory. However, if HTB requests copies of the
directories for use in its HomeTown Buffet restaurants, and HomeTown agrees to
provide such directories, HTB shall pay HomeTown its actual cost of printing,
handling and shipping the directories to HTB. Buffets and its affiliates shall
be under no obligation to continue printing the directories or to include HTB
in its listings.
5) Marketing Materials: In addition to complying with Section 9 of the
Franchise Agreements, HTB agrees that the marketing samples it is to provide to
HomeTown Buffet for review shall be submitted at the first available
opportunity, but in no later than two weeks prior to the date when the
marketing materials are scheduled to go to print. HomeTown shall thereafter
review such samples upon receipt from HTB in accordance with the provisions of
Section 9 of the Franchise Agreements. If HTB has not received comments back
from HomeTown within two weeks of HomeTown's receipt of HTB's marketing
samples, it will be deemed that HomeTown has waived review of those specific
samples. If, however, HomeTown reasonably believes that more time is necessary
to review the marketing samples, HomeTown may extend the review period upon
notice to HTB during the initial two week review period,
-2-
<PAGE> 22
Mr. H. Thomas Mitchell
Page 3 of 3
October 8, 1997
accompanied by an explanation of what additional review is deemed required.
6) Franchise Servicing: HTB acknowledges and agrees that HomeTown may utilize
personnel or contractors other than HomeTown employees to perform Franchisor's
obligations under the 16 Franchise Agreements, and specifically consents to
HomeTown's use of individuals who have an affiliation with the Old Country
Buffet restaurants concept in doing so. HTB also agrees that HomeTown or its
affiliates may produce marketing materials, documents, recipes and other
systems reflecting both the HomeTown Buffet and/or Old Country Buffet
trademarks and which may in some instances be utilized in common between both
brands.
HTB and HomeTown mutually agree that any and all disputes and claims between
them under this Agreement, or relating to it, shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Such arbitration shall be subject to
the provisions of Section 15 of the 16 Franchise Agreements entitled
"Arbitration."
HTB acknowledges that these promises and agreements are intended for the
benefit of HomeTown, and that they shall not limit HomeTown's rights or HTB's
obligations under the 16 Franchise Agreements. HomeTown may freely enforce the
terms of the Franchise Agreements together with the additional HTB agreements
contained in this letter.
Sincerely,
HTB Restaurants, Inc.
By: /s/ CHARLOTTE L. MILLER
----------------------------------
Its: Sr. V.P.
----------------------------------
Accepted:
HomeTown Buffet, Inc.
By: /s/ H. THOMAS MITCHELL
----------------------------------
Its: Secretary
----------------------------------
-3-
<PAGE> 1
EXHIBIT 11-1
STAR BUFFET, INC.
COMPUTATION OF EARNINGS
PER SHARE
<TABLE>
<CAPTION>
PERIOD ENDED
-------------------------
JANUARY 26, JANUARY 27,
1998 1997
----------- -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Net Income.................................................. $2,699,000 $ 470,000
---------- ----------
Weighted average number of common shares outstanding during
the year.................................................. 3,515,000 2,600,000
---------- ----------
Basic Earnings per Share.................................... $ 0.77 $ 0.18
========== ==========
DILUTED EARNINGS PER SHARE
Net Income.................................................. $2,699,000 $ 470,000
---------- ----------
Weighted average number of common shares outstanding during
the year.................................................. 3,515,000 2,600,000
Incremental common shares attributable to exercise of
stock options.......................................... 13,000 --
---------- ----------
3,528,000 2,600,000
Diluted Earnings per Share.................................. $ 0.76 $ 0.18
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 23-4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Star Buffet, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-46939 and 333-50767) on Form S-8 of Star Buffet, Inc. of our report dated
March 16, 1998, relating to the consolidated balance sheets of Star Buffet, Inc.
and subsidiaries (Successor Company) as of January 26, 1998 and January 27,
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for the fifty-two week period ended January 26, 1998 and
twenty-eight week period ended January 27, 1997 (Successor Period) and the
statements of income, stockholders' equity, and cash flows of HTB Restaurants,
Inc. for the thirty week period ended July 15, 1996 and the fifty-two week
period ended December 18, 1995 (Predecessor Company), which report appears in
the January 26, 1998 annual report on Form 10-K of Star Buffet, Inc. Our report
refers to a business combination accounted for as a purchase that occurred on
July 16, 1996, the result of which renders the financial information for the
periods before and after the acquisition not comparable.
KPMG Peat Marwick LLP
Salt Lake City, Utah
April 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrants Form 10-K for the year ended January 26, 1998, and is qualified in
its entirety by reference to such financial statements, including the notes
thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-26-1998
<PERIOD-START> JAN-27-1997
<PERIOD-END> JAN-26-1998
<CASH> 15,387,000
<SECURITIES> 0
<RECEIVABLES> 336,000
<ALLOWANCES> 0,
<INVENTORY> 493,000
<CURRENT-ASSETS> 16,530,000
<PP&E> 15,077,000
<DEPRECIATION> 2,074,000
<TOTAL-ASSETS> 40,969,000
<CURRENT-LIABILITIES> 6,323,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> 32,532,000
<TOTAL-LIABILITY-AND-EQUITY> 40,969,000
<SALES> 54,659,000
<TOTAL-REVENUES> 54,659,000
<CGS> 48,445,000
<TOTAL-COSTS> 50,554,000
<OTHER-EXPENSES> (593,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,000
<INCOME-PRETAX> 4,498,000
<INCOME-TAX> 1,799,000
<INCOME-CONTINUING> 2,699,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,699,000
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.76
</TABLE>
