<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 25, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-6054
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SUMMIT FAMILY RESTAURANTS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 87-0264039
------------------------------ -------------------
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
440 LAWNDALE DRIVE, SALT LAKE CITY, UTAH 84115
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
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:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
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(Title of class)
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. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the last price at which the stock was
traded on December 15, 1995, was $5.563. As of December 19, 1995, there were
4,801,102 shares of Common Stock, $0.10 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index is on pages 32 through 35 of
this report. This report contains 60 pages.
<PAGE> 2
PART I
ITEM 1. BUSINESS
DESCRIPTION AND GENERAL DEVELOPMENT
Summit Family Restaurants Inc. (the "Company") is a Delaware corporation
organized in l985 as the successor to a California corporation which was
organized in l963. Effective April 4, 1995, the Company changed its corporate
name to Summit Family Restaurants Inc. from JB's Restaurants, Inc. The name
change was made to reflect the Company's diverse family restaurant concepts.
On November 30, 1995, an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") was executed between the Company and CKE Restaurants, Inc.,
a Delaware corporation ("CKE"), pursuant to which a wholly-owned subsidiary of
CKE will merge with the Company, and CKE's wholly-owned subsidiary will be the
surviving entity. Consideration for the merger to be paid to the Company's
shareholders for each share of common stock and for each share of preferred
stock will consist of $3.00 in cash and .20513 shares of CKE common stock,
provided that the average CKE common stock price is between $12.25 per share and
$17.00 per share at the closing. If the average CKE common stock price is higher
than $17.00 or lower than $12.25 at the closing, the exchange ratio may be
adjusted accordingly. The transaction is conditioned upon the Company's
shareholders approving the transaction and the usual and customary conditions to
closing, including, without limitation, accuracy of the parties' representations
and warranties, performance of the parties' covenants and obligations under the
Merger Agreement and obtaining proper consents of third parties as necessary.
Certain conditions under the Merger Agreement have not been met and CKE and the
Company are holding discussions with regard to the alternatives available.
As of September 25, 1995, the Company operated 80 JB's Restaurants: forty in
Arizona, seven in Idaho, five in Montana, eight in New Mexico, fifteen in Utah,
one in Washington and four in Wyoming, and franchised twenty-four JB's
Restaurants: five in Arizona, three in Idaho, two in Montana, one in New Mexico,
two in South Dakota, five in Utah, two in Washington and four in Wyoming. The
Company also operated six Galaxy Diners: one in Arizona, one in Idaho and four
in Utah, and sixteen franchised HomeTown Buffet restaurants: eight in Arizona,
two in Colorado, two in New Mexico, three in Utah and one in Wyoming.
A summary of the number of Company operated restaurants in operation in each of
the last three fiscal years follows:
<TABLE>
<CAPTION>
NUMBER NUMBER OF NUMBER OF
OF JB'S NET JB'S COMPANY
NUMBER OF RESTAURANTS RESTAURANTS OPERATED
RESTAURANTS CONVERTED TRANSFERRED RESTAURANTS
FISCAL NUMBER OF RESTAURANTS SOLD TO GALAXY TO AT END OF
YEAR OPENED OR ACQUIRED OR CLOSED DINERS FRANCHISEES FISCAL YEAR
- ------ --------------------------------- ----------- ----------- ------------ -----------
GALAXY
JB'S DINER SBARRO HOMETOWN
---- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 - - 1 2 8(1) - 7 113
1994 - 1 - 8 14(2) 1 3 104
1995 - 5 - 2 1 5 3 102
</TABLE>
(1) - Included 3 Sbarro restaurants and 5 JB's Restaurants
(2) - Included 10 Sbarro restaurants and 4 JB's Restaurants
In November 1991, the Company invested $3.8 million with Americana Entertainment
Group, Inc., the predecessor of HomeTown Buffet, Inc. for capital stock and
options. In July 1993, the Company sold shares of preferred stock in HomeTown
Buffet, Inc. ("HTBB") for $2.5 million. In the fourth quarter of fiscal 1993,
HTBB concluded an initial public offering ("IPO") of its common stock. In the
third quarter of fiscal 1994, the Company sold shares of HTBB common stock for
$16.8 million resulting in a pre-tax gain of $14.7
1
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million. On September 25, 1995, the estimated fair value of the Company's
ownership of HTBB common stock was $13.25 per share or $7.0 million. Since
September 25, 1995, the Company has sold shares of HTBB common stock for $4.8
million resulting in a pre-tax gain of $4.0 million. As of December 15, 1995,
the Company owns 130,000 shares of HTBB common stock.
JB'S RESTAURANTS
MENU AND FORMAT. JB's Restaurants are family style restaurants offering a
variety of breakfast, lunch and dinner selections at moderate prices. The
breakfast menu, in the majority of JB's Restaurants, features an
"All-You-Can-Eat" breakfast buffet, four new "Fast Break Breakfasts" currently
priced at $1.98 to $2.29 along with skillets and other traditional breakfast
fare. The lunch and dinner menu consists of a variety of sandwiches including
JB's popular new hoagie sandwiches as well as steak, chicken, pasta and seafood
entrees and features a soup and salad bar add-on for a modest upcharge. The
restaurants' soup and salad bar features homestyle soups, salads, fresh fruits
and vegetables. The restaurants also feature the JB's Bakery with a full line of
freshly baked products including cookies, muffins, pecan sticky buns and gourmet
double-crust and cream-filled pies.
The Company's JB's Restaurants range in size from 3,600 square feet to 7,600
square feet with an average of 4,875 square feet. Seating capacity for the
Company's JB's Restaurants ranges from approximately 95 to 240. The JB's
Restaurants decor is designed to provide an appealing and relaxed atmosphere.
The Company's JB's Restaurants are typically open l8 hours a day, seven days a
week. With the exception of the breakfast buffet and the soup and salad bar, all
entrees are cooked to order and served by waiters and waitresses with an average
check of approximately $5.00.
The Company seeks to locate its JB's Restaurants in commercial districts
adjacent to middle and upper income residential areas. The restaurant buildings
are typically free standing and located on the corner of main arteries.
REMODELING PROGRAM. Remodeling is an integral part of the Company's strategic
plan. The JB's Restaurants typically have been remodeled every five to seven
years with 16 of the current 104 JB's Restaurants having been remodeled to the
current remodeling scheme. The Company's present remodeling program is designed
to improve the image of the Company's existing JB's Restaurants to a much warmer
and more charming look featuring new custom designed carpets and specialty
fabrics for the upholstery, both with a variety of pleasing patterns and colors,
and extensive decorative artifacts and wall hangings, giving the restaurant a
more appealing "country charm" look.
OPERATIONS. The Company's JB's Restaurant concept is organized into two
divisions, each supervised by a Division Vice President who reports to the
Senior Vice President, Family Restaurant Operations, who reports to the
Company's President. Within each division are five or six District Managers who
are each responsible for the operations of approximately six to nine
restaurants.
Each JB's Restaurant has a general manager who directs the restaurant's daily
operations and two assistant managers. To become a general manager, an employee
generally must complete the Company's management training program and, unless
previously experienced as a full service restaurant general manager, serve as an
assistant manager for approximately one year. General managers are responsible
for hiring, providing ongoing staff training, and for the overall operation of
the restaurant. General and assistant managers participate in a performance
based incentive program in addition to a competitive base salary.
ADVERTISING AND PROMOTIONS. As part of the Company's strategy to focus on
improving its core markets and increasing revenues from existing stores, the
Company executes a marketing program focusing on television and newspaper
advertising. Advertising spending was approximately 4.0% of JB's Restaurant
revenues in fiscal 1995 and the Company expects to continue this level of
advertising spending in the future.
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<PAGE> 4
FRANCHISING. The Company is presently concentrating on franchise development of
new JB's Restaurants in small towns in states where JB's Restaurants already
operate and in states contiguous to current markets. In addition, the Company
continues to franchise current Company operated JB's Restaurants in small
isolated cities and other strategically advantageous situations.
The Company's franchise agreement presently requires the payment of an initial
franchise fee of $35,000 per restaurant and requires the payment of continuing
royalty fees of 4% of gross revenues. Under the Company's "Employee Ownership
Program", which is designed to offer management employees the opportunity to
become franchisees, individuals receive a credit against the initial franchise
fee for one franchised restaurant based on the number of years of service with
the Company. A credit of $12,500 is given for 10-14 years of service, $18,750
for 15-19 years of service and $25,000 for over 20 years of service.
The Company has the right to audit and receive annual financial statements from
franchisees. Franchise agreements generally have an initial term of 20 years
with no renewal options. The Company also retains the right to terminate a
franchise agreement for a variety of reasons, including insolvency or
bankruptcy, failure to operate the restaurant according to standards or failure
to pay fees.
During the six fiscal years ended September 25, 1995, the Company transferred a
total of fifteen operating JB's Restaurants to franchisees. At the end of fiscal
1995, the Company had twenty-four franchised restaurants: five in Arizona, three
in Idaho, two in Montana, one in New Mexico, two in South Dakota, five in Utah,
two in Washington and four in Wyoming. Since September 25, 1995, the Company has
transferred one additional operating JB's Restaurant located in Wyoming to a
franchisee.
GALAXY DINERS
GENERAL. In fiscal year 1994, the Company developed the Galaxy Diner concept
intended to be used initially as a conversion vehicle for underperforming JB's
Restaurants. Longer-term, subject to available financing, the Company expects to
open new Company operated Galaxy Diners as well as potentially franchise the
concept. The Company converted its first underperforming JB's Restaurant to a
Galaxy Diner in June, 1994 and five additional conversions were completed in
fiscal year 1995.
MENU AND FORMAT. The Galaxy Diner is designed to bring back memories of '57
Chevy's, Elvis, the Jitterbug and great home-cooked food. The Galaxy Diner
offers a high energy, fun atmosphere, and offers outstanding food.
The interior of each Galaxy Diner features two distinct dining areas - one
centered around a full 1950's soda fountain with black, white and red tile,
stainless steel, faux marble and mirrors, while the other dining area is more
family oriented and casual, with star-patterned carpeting and mahogany colored
tables and chairs. Other decor features include nostalgic signs, black and white
photographs of 1950's film and music celebrities, and an entire wall dedicated
to photos and memorabilia depicting local hometown sports and celebrity
personalities of the era. In the front lobby a Wurlitzer juke box plays all the
favorite golden oldies while neon blue stars on the ceiling welcome guests to
this "blast from the past".
Even the employee uniforms reflect the 50's period with red and white bowling
shirts on the servers, poodle skirts on the hostesses, and checkered pants and
paper hats on the soda jerks. Many of the popular uniform pieces, along with
other trendy signature apparel is on display and available for sale at the
Galaxy Diner.
The award winning menu covers all dayparts - breakfast, lunch and dinner, plus
special menus have been devised for the soda fountain and a full kids menu on a
separate activity sheet. Included in the eight page main menu are entrees such
as "Monster Mash" Hash, "Blueberry Hill" Flapjacks, the "best burgers in the
Galaxy", "Ty Cobb" Salad, "Route 66" Pileup appetizer, "Bring My Baby Back"
Ribs, and selections from the "Mama's and the Pastas". The soda fountain brings
back many of the traditional favorites, including flavored cokes, malts and
shakes, and ice cream sodas. One of the house fountain specialties is the
Hollywood Boulevard Brownie Sundae built with fudge brownies cut in the shape of
stars.
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The Galaxy Diners have an average check of approximately $6.00.
OPERATIONS. The Galaxy Diners are supervised by a District Manager, who reports
to the Senior Vice President, Family Restaurant Operations, who reports to the
Company's President. Each Galaxy Diner has a general manager who directs the
restaurant's daily operations and three 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 products. The Company has a performance based incentive program
covering all its restaurant managers in addition to a competitive base salary.
HOMETOWN BUFFET RESTAURANTS
GENERAL. The Company has a franchise and exclusive area development agreement
with HomeTown Buffet, Inc., under which, as amended, the Company has the
exclusive rights to develop and operate HomeTown Buffet restaurants, as a
franchisee, in Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and
Wyoming. Under the terms of the agreement, the Company is required to open a
minimum of 17 HomeTown Buffet restaurants in these states prior to June 30,
1996. As of December 15, 1995, the Company operated 16 HomeTown Buffet
restaurants.
Under the terms of the development agreement, the Company pays an initial fee of
$25,000 for each location. After the third location opened, the Company paid a
development fee of $100,000 and an additional $50,000 was paid at the time the
eleventh location was opened. The development fee is being applied against the
$25,000 initial fee in increments of $10,000 per location for each of the next
15 locations. In addition, the Company had two one year options to extend the
exclusive area development agreement which requires the Company to open 5
additional locations in each option period. The Company has exercised the first
option. A $50,000 fee is due upon the execution of the franchise agreement for
the 18th location which will be applied against the $25,000 initial fee in
increments of $10,000 per location for each of the next 5 locations. The second
option expires December 31, 1997.
For each location, the Company enters into a franchise agreement 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>
CONCEPT AND MENU. HomeTown Buffet restaurants are located both in shopping
"strip centers" and as free standing restaurants. The restaurants occupy between
8,000 - 13,000 square feet, seat 265 - 460 people and employ 75 - 100 people.
HomeTown Buffet restaurants are generally open seven days per week, 12 hours per
day serving lunch, dinner and dessert items with a special brunch offering on
Sundays.
HomeTown Buffet restaurants feature a "scatter bar" buffet system with eight
separate food islands in an "all-you-can-eat" format, offering a wide variety of
fresh "made in the kitchen" menu items including soups, salads, hot entrees,
vegetables, non-alcoholic beverages, and a dessert bar. It also features a
display bakery where customers can see the desserts and baked goods prepared
fresh throughout the day. Customers pay upon entry to the restaurant and select
the items and portions of their choice. This system allows customers to serve
themselves from the food island of their choice without standing in long lines.
The concept has an average check of approximately $5.50.
OPERATIONS. The franchised HomeTown Buffet restaurants are operated through a
100% wholly-owned subsidiary of the Company, HTB Restaurants, Inc., and are
operated and supervised separately from the JB's Restaurant and Galaxy Diner
operations. The HomeTown Buffet restaurants are supervised directly by two
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district managers who report to the Senior Vice President, 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.
PURCHASING
Purchasing for all of the Company's restaurants is supervised by the Senior Vice
President, Food Services. Two national food service distributors distribute
substantially all non-perishable items to the restaurants twice per week.
Perishable items are generally purchased locally. The Company believes that
there are other distributors who are able to service the Company's needs and
that alternative sources of supply are generally available for all items
regularly used in the restaurants.
INFORMATION AND REPORTING SYSTEMS
Through the use of management information systems including a computerized point
of sale system in each unit, the Company maintains centralized financial and
accounting controls for all of its restaurants. Weekly reports of individual
restaurant sales, labor costs, food costs and other expenses together with
comparisons to preceding weeks, give management current indications of its
operations on a per-unit basis as well as on a Company-wide basis.
LICENSES, TRADEMARKS AND SERVICE MARKS
Under franchise agreements with HomeTown Buffet, Inc., the Company has exclusive
rights to operate and develop HomeTown Buffet restaurants in Arizona, Colorado,
Idaho, Montana, Nevada, New Mexico, Utah and Wyoming. The term of the franchise
right, including the use of trademarks and service marks, for each restaurant is
the shorter of 20 years or the lease term with a right to renew for additional
10-year periods. The Company's franchise rights are subject to termination if
the Company fails to comply with the provisions of the franchise agreements,
including the payment of franchise fees.
The Company believes that its rights in its trademarks and service marks are
important to its marketing efforts and a valuable part of its business. The
Company owns a number of trademarks and service marks that have been registered,
or for which applications are pending, with the United States Patent and
Trademark Office including, but not limited to, JB's(R), JB's Restaurants(R),
JB's Bakery(R), JB's is family(R), fast break breakfast,SM fast break,SM and
Galaxy Diner(R). It is the Company's policy to pursue registration of its marks
whenever possible and to vigorously oppose any infringement of its marks.
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 business is highly competitive with respect to price, service,
restaurant location and food quality and is often affected by changes in
consumer tastes, economic conditions, population and traffic patterns. The
Company competes within each market with locally-owned restaurants as well as
with national and regional restaurant chains, many of which operate more
restaurants and have greater financial resources and longer operating histories
than the Company. There is also active competition for management and hourly
personnel, as well as for attractive commercial real estate sites suitable for
restaurants.
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GOVERNMENTAL REGULATION
The Company's business is subject to and affected by various federal, state and
local laws. Each restaurant must comply with state, county and municipal
licensing and regulation requirements relating to health, safety, sanitation,
building construction and fire prevention. Difficulties in obtaining or failure
to obtain required licenses or approvals could delay or prevent the development
of additional restaurants.
The Company is subject to Federal Trade Commission ("FTC") regulation and
various state laws that regulate the offer and sale of franchises. The FTC
requires the Company to provide prospective franchisees with a franchise
offering circular containing prescribed information about the Company and its
franchise operations. Some states in which the Company has existing franchisees
and a number of states in which the Company might consider franchising regulate
the sale of franchises; several states require the registration of franchise
offering circulars. Beyond state registration requirements, several states
regulate the substance of the franchisor-franchisee relationship and, from time
to time, bills are introduced in Congress aimed at imposing federal registration
on franchisors. Many of the state franchise laws limit, among other things, the
duration and scope of noncompetition and termination provisions of franchise
agreements.
The Company's restaurants are subject to federal and state laws governing wages,
working conditions, citizenship requirements and overtime. From time to time
legislative proposals are considered by governmental authorities that could, if
enacted, have a material effect on the Company's business. Examples of recently
considered legislation include mandatory health insurance for the Company's
employees and increased state or federal minimum wages. These types of proposals
could materially increase the Company's operating costs. There is no assurance
that the Company would be able to pass such increased costs on to its guests or
that, if it was able to do so, it could do so in a short period of time.
EMPLOYEES
As of December 15, l995 the Company employed approximately 4,500 persons, of
whom approximately 57 were corporate personnel. All other employees are involved
directly in the operation of the Company's restaurants.
The Company considers its employee relations to be good and believes that its
employee turnover rate is consistent with the industry average. Most employees,
other than restaurant management and corporate personnel, are paid on an hourly
basis. The Company believes that it provides working conditions and wages that
are comparable with those of its competition. The Company's employees are not
covered by a collective bargaining agreement.
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ITEM 2. PROPERTIES
The Company's home offices are located at 440 Lawndale Drive in Salt Lake City,
Utah, which the Company leases.
The following is a summary of the Company's restaurant properties as of
September 25, 1995:
<TABLE>
<CAPTION>
JB'S HOMETOWN GALAXY DINER TOTAL
---- -------- ------------ -----
<S> <C> <C> <C> <C>
COMPANY OPERATED RESTAURANTS
Owned 14 -- -- 14
Leased 66 16 6 88
--- --- --- ---
80 16 6 102
=== === === ===
FRANCHISED RESTAURANTS
Owned 3 -- -- 3
--- --- --- ---
Subleased 14 -- -- 14
--- --- --- ---
17 -- -- 17*
=== === === ===
NON-OPERATING PROPERTIES
Owned -- -- -- --
Leased 9 -- -- 9
--- --- --- ---
9 -- -- 9 **
=== === === ===
TOTAL
Owned 17 -- -- 17
Leased 89 16 6 111
--- --- --- ---
106 16 6 128
=== === === ===
</TABLE>
*At September 25, 1995, the Company had 24 franchised restaurants of
which it is sublessor for the 17 properties noted.
**Of the 9 non-operating properties; 8 are subleased. The ninth
non-operating property was subleased in fiscal year 1996.
Lease terms range from 10 to 25 years with most leases providing for 20-year
terms with options to renew for an additional 5 to 20 years. In most instances,
the Company has acquired lease or sublease rights to leases whose remaining
initial terms are from five to twenty years. The amount of rent paid and the
method of computing rent vary; most leases provide for a fixed rental to be
applied against a percentage of gross sales, usually 2.5% to 7% for a JB's
Restaurant or Galaxy Diner and 3% to 5% for a HomeTown Buffet restaurant.
Typically, the Company is responsible for maintenance and repair of the leased
premises and the payment of real estate taxes and insurance related to the
restaurant.
Management believes that the properties are adequate for their intended
purposes.
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The following is a geographic summary of the Company and franchised restaurant
locations as of September 25, 1995:
<TABLE>
<CAPTION>
COMPANY FRANCHISED TOTAL
------- ---------- -----
<S> <C> <C> <C>
JB'S RESTAURANT
Arizona 40 5 45
Idaho 7 3 10
Montana 5 2 7
New Mexico 8 1 9
South Dakota -- 2 2
Utah 15 5 20
Washington 1 2 3
Wyoming 4 4 8
--- --- ---
TOTAL JB'S RESTAURANTS 80 24 104
=== === ===
GALAXY DINER
Arizona 1 -- 1
Idaho 1 -- 1
Utah 4 -- 4
--- --- ---
TOTAL GALAXY DINERS 6 -- 6
=== === ===
HOMETOWN BUFFET
Arizona 8 -- 8
Colorado 2 -- 2
New Mexico 2 -- 2
Utah 3 -- 3
Wyoming 1 -- 1
--- --- ---
TOTAL HOMETOWN BUFFETS 16 -- 16
--- --- ---
TOTAL RESTAURANTS 102 24 126
=== === ===
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
During the fourth quarter of fiscal year 1995, the plaintiff in the matter of
Robbins v. HomeTown Buffet, Inc. et al., dismissed with prejudice the action
which had been filed in U.S. District Court for the Southern District of
California on October 27, 1994, and alleged violations of federal securities
laws. The action had named the Company and two of its officers among the 21
defendants. No consideration was paid by the Company or any other defendant in
connection with the dismissal.
In addition, the Company is engaged in ordinary and routine litigation
incidental to its business. Management does not anticipate that any amount which
it may be required to pay by reason thereof will have a material effect on the
Company's consolidated statements of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market on the
NASDAQ National Market System under the symbol SMFR. The following table sets
forth, for the quarters indicated, the high and low closing sales prices per
share as reported on the National Market System.
<TABLE>
<CAPTION>
FISCAL YEAR 1995 1994
------------------------- -----------------------
HIGH LOW HIGH LOW
------- ------- ------ ------
<S> <C> <C> <C> <C>
First Quarter $6.00 $3-5/8 $7-3/4 $5-5/8
Second Quarter 5-5/8 4.00 8-1/4 5-7/8
Third Quarter 5-3/4 3-5/8 8-1/4 4-1/2
Fourth Quarter 5-1/2 3-5/8 6-1/8 3-7/8
</TABLE>
As of December 18, 1995, there were 521 holders of record of the Company's
common stock.
The Company has not declared a cash dividend in the last three fiscal years. The
Company currently reinvests its financial resources into the growth of the
business and consequently does not expect to pay cash dividends in the
foreseeable future. The Company's Series A Convertible Preferred Stock, issued
in October 1993, contains a restriction on the payment of dividends until August
18, 1996.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below, except store data, has
been derived from the historical consolidated financial statements of the
Company. The selected consolidated financial data for the years ended September
30, 1991, September 28, 1992, September 27, 1993, September 26, 1994, and
September 25, 1995 have been derived from financial statements which were
audited by KPMG Peat Marwick LLP, independent public accountants.
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.
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Total Revenues $ 121,099,000 $ 115,367,000 $ 114,768,000 $ 124,045,000 $ 127,294,000
Income (loss) from operations (5,052,000) (5,641,000)(1) (4,651,000)(2) 911,000 (3) (245,000)(4)
Income (loss) before income taxes (6,097,000) 6,826,000 (5) (3,797,000)(6) (1,307,000)(3) (1,686,000)(4)
Net Income (loss) (5,044,000) 3,756,000 (7) (2,314,000) (771,000)(8) (991,000)
-----------------------------------------------------------------------------------------
PER SHARE:
Net income (loss) $ (1.05) $ 0.66 $ (0.49) $ (0.17) $ (0.22)
Dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted avg. shares outstanding 4,794,000(9) 5,723,000(10) 4,693,000 4,585,000 4,534,000
-----------------------------------------------------------------------------------------
BALANCE SHEET DATA :
Total assets $ 70,884,000 $ 76,608,000 $ 67,716,000 $ 73,745,000 $ 74,768,000
Tangible assets 69,735,000 75,209,000 66,276,000 71,780,000 72,150,000
Stockholders' equity 40,127,000 44,336,000 32,598,000 34,156,000 34,830,000
Long-term debt 10,150,000 13,093,000 19,243,000 22,259,000 22,824,000
-----------------------------------------------------------------------------------------
Debt to capital 20% 23% 37% 39% 40%
-----------------------------------------------------------------------------------------
PER SHARE:
Stockholders' equity $ 6.99 $ 7.73 $ 6.85 $ 7.43 $ 7.61
Tangible book value $ 6.79 $ 7.49 $ 6.55 $ 7.00 $ 7.04
Shares outstanding 5,744,816(10) 5,735,473(10) 4,755,759 4,597,388 4,577,486
-----------------------------------------------------------------------------------------
OTHER DATA:
Operating Units
JB's Restaurants-Company 80 89 97 109 136
JB's Restaurants-Franchised 24 19 14 5 3
HomeTown Buffet restaurants 16 14 6 4 --
Galaxy Diner restaurants 6 1 -- -- --
Sbarro restaurants -- -- 10 12 4
-----------------------------------------------------------------------------------------
TOTAL 126 123 127 130 143
-----------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1994 is net of a charge for property dispositions of $2.0 million.
(2) Fiscal 1993 is net of a charge for property dispositions of $4.3 million.
(3) Fiscal 1992 is net of a charge for property dispositions of $3.2 million.
(4) Fiscal 1991 is net of a charge for property dispositions of $3.1 million
and a deferred compensation revaluation of $0.4 million.
(5) Fiscal 1994 is net of a charge for property dispositions of $2.0 million,
a loss on the disposition of a note receivable of $1.6 million and a gain
on the sale of HomeTown Buffet, Inc. common stock of $14.7 million.
(6) Fiscal 1993 is net of a charge for property dispositions of $4.3 million,
and a gain on the sale of HomeTown Buffet, Inc. preferred stock of $1.7
million.
(7) Fiscal 1994 is net of an extraordinary loss of $350,000 (net of tax
benefit) resulting from extinguishment of debt.
(8) Fiscal 1992 is net of the cumulative effect of a change in accounting
principle of $214,000.
(9) Excludes 946,714 shares of Series A Convertible Preferred Stock as they
are anti-dilutive.
(10) Includes 946,714 shares of Series A Convertible Preferred Stock.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES AND SELECTED OPERATING DATA. The following table sets forth for the
periods indicated, certain information regarding the Company's revenues and
selected operating data for the last three fiscal years. All references herein
to years, i.e., "1995," "1994" or "1993," are to fiscal years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
FISCAL YEAR 1995 1994 1993
- ------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Total revenues $121,099 $115,367 $114,768
Percentage change
from prior year 5.0 0.5 (7.5)
- ------------------------------------------------------------------------------------------
JB'S RESTAURANTS
- ------------------------------------------------------------------------------------------
Company owned units
at end of year 80 89 97
Franchised units at
end of year 24 19 14
Company Restaurants transferred
to franchisees, net 3 3 7
Company Restaurants converted to
Galaxy Diner 5 1 -
Company Restaurants closed 1 4 5
Company average annual
sales per unit $ 940 $ 953 $ 938
Percentage change
from prior year (1.4) 1.5 3.0
Same store sales percentage
change from prior year (3.6) (3.2) (1.3)
- ------------------------------------------------------------------------------------------
GALAXY DINERS
- ------------------------------------------------------------------------------------------
Company owned units
at end of year (1) 6 1 -
- ------------------------------------------------------------------------------------------
HOMETOWN BUFFETS
- ------------------------------------------------------------------------------------------
Units operated as a franchisee
at end of year 16 14 6
Average annual sales per unit $ 2,503 $ 2,674 (1)
Percentage change from
prior year (6.4) (1) (1)
- ------------------------------------------------------------------------------------------
SBARRO
- ------------------------------------------------------------------------------------------
Units operated as a franchisee
at end of year - - 10
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Average annual sales per unit, percentage change from prior year and same
store sales percentage change from prior year data is either not available
or is not presented due to the relatively small number of units open for a
full year.
11
<PAGE> 13
In 1995, as compared with 1994, total revenues increased 5.0% primarily due to
an increase in the number of HomeTown Buffet restaurants and Galaxy Diners in
operation which more than offset the decline in revenues resulting from the
decrease in the number of JB's Restaurants and the 3.6% decline in JB's
Restaurants same store sales. The average annual sales decrease per JB's
Restaurant of 1.4% reflected a decrease in average guest counts of 1.7%
partially offset by a 0.3% increase in the average guest purchase.
In 1994, as compared with 1993, total revenues increased 0.5%, primarily due to
the opening of eight new HomeTown Buffet restaurants in 1994 partially offset by
the closure of four underperforming JB's Restaurants, the franchising of three
JB's Restaurants, the disposition of all Sbarro restaurants and a 3.2% decline
in JB's Restaurants same store sales. The average annual sales increase per JB's
Restaurant of 1.5% reflected an increase in the average guest purchase of 3.7%
partially offset by a decrease in average guest counts of 2.2%.
COSTS AND EXPENSES; STATEMENT OF OPERATIONS DATA. The following table sets forth
costs as a percentage of revenues during the last three fiscal years as well as
statement of operations data:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FISCAL YEAR 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Costs and expenses
Food costs 33.0 32.6 31.9
Labor costs 35.0 34.9 33.3
Occupancy and other expenses 23.8 23.3 22.8
General and administrative
expenses 6.9 7.1 6.5
Depreciation and amortization 5.5 5.3 5.8
Charge for property dispositions -- 1.7 3.7
- --------------------------------------------------------------------------------
Total costs and expenses 104.2 104.9 104.0
- --------------------------------------------------------------------------------
Loss from operations (4.2) (4.9) (4.0)
Interest expense (1.3) (1.7) (2.2)
Interest income 0.4 0.6 0.4
Gain on sale of HomeTown
Buffet, Inc. stock -- 12.7 1.5
Gains on sales of restaurants
to franchisees and other 0.1 0.6 1.0
Loss on disposition of note
receivable -- (1.4) --
- --------------------------------------------------------------------------------
Income (loss) before income
taxes and extraordinary item (5.0) 5.9 (3.3)
Income taxes (benefit) (0.8) 2.3 (1.3)
- --------------------------------------------------------------------------------
Income (loss) before
extraordinary item (4.2) 3.6 (2.0)
Extraordinary loss resulting from
extinguishment of debt-net of tax -- 0.3 --
- --------------------------------------------------------------------------------
Net income (loss) (4.2)% 3.3% (2.0)%
- --------------------------------------------------------------------------------
</TABLE>
FOOD COSTS. The increase in food costs as a percentage of total revenues in
1995, as compared with 1994, was primarily the result of an increase in the
number of HomeTown Buffet restaurants, which operate at a higher food cost
percentage than the Company's JB's Restaurants and Galaxy Diners, and higher
produce prices in all restaurant concepts during the third quarter of 1995 due
to the inclement weather in California. The increase in food costs as a
percentage of total revenues in 1994, as compared with 1993, was primarily the
result of an increase in the number of HomeTown Buffet restaurants which operate
at a higher food cost percentage than the Company's JB's Restaurants.
12
<PAGE> 14
LABOR COSTS. The increase in labor costs as a percentage of total revenues in
1995, as compared to 1994, was primarily due to the decline in same store sales
in the JB's Restaurants along with an increase in manager salaries (0.5
percentage points) offset by lower workers compensation costs (-0.4 percentage
points). The increase in labor costs as a percentage of total revenues in 1994,
as compared to 1993, was primarily due to costs incurred in training and
increased scheduling designed to improve customer service in the JB's
Restaurants along with a decrease in same store sales.
OCCUPANCY AND OTHER EXPENSES. The increase in occupancy and other expenses as a
percentage of total revenues in 1995, as compared to 1994, primarily reflected
higher pre-opening costs along with the decline in JB's Restaurants same store
sales. The increase in occupancy and other expenses as a percentage of total
revenues in 1994, as compared to 1993, primarily reflected higher equipment rent
as the Company leased most equipment in its new HomeTown Buffet restaurants (0.5
percentage points), higher smallware and supply costs (0.4 percentage points),
higher pre-opening costs resulting from the increased number of HomeTown Buffet
restaurant openings (0.2 percentage points) along with the decline in JB's
Restaurants same store sales partially offset by a decrease in marketing
expenditures (-0.6 percentage points).
GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in general and administrative
expenses as a percentage of total revenues in 1995, as compared to 1994, was
primarily due to reduced employee relocation costs along with the 5.0% increase
in total revenues. The increase in general and administrative expenses as a
percentage of total revenues in 1994, as compared with 1993, was primarily the
result of an increase in salaries (0.6 percentage points) and relocation costs
(0.2 percentage points) resulting from upgrading the Company's administrative
staff support and an increase in legal expenses (0.2 percentage points).
Additionally, in 1993 the Company incurred one-time executive search costs and
wrote-off financing costs that were not incurred in 1994 (-0.4 percentage
points).
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization as
a percentage of total revenues in 1995, as compared with 1994, primarily
reflected depreciation associated with remodeled JB's Restaurants and Galaxy
Diner conversions and the decrease in same store JB's Restaurants sales
partially offset by the increase in the number of HomeTown Buffet restaurants
which operate with lower depreciation and amortization as a percent of revenues.
The decrease in depreciation and amortization as a percentage of total revenues
in 1994, as compared with 1993, primarily reflected higher per store revenue
resulting from the disposition of underperforming restaurants and the increase
in the number of HomeTown Buffet restaurants which operate with lower
depreciation and amortization as a percent of revenues.
CHARGE FOR PROPERTY DISPOSITIONS. The charge of $1,982,000 for 1994 was
primarily related to the disposition of JB's Restaurants. The charge of
$4,264,000 for 1993, was primarily related to the disposition of certain JB's
Restaurants, Sbarro restaurants, non-operating properties and the termination of
exclusive area development rights with Sbarro, Inc.
INTEREST EXPENSE. The decrease in interest expense as a percentage of total
revenues in 1995, as compared with 1994, reflected lower outstanding debt
balances along with the 5.0% increase in total revenues. The decrease in
interest expense as a percentage of total revenues in 1994, as compared to 1993,
reflected lower outstanding debt partially resulting from the prepayment, in
April 1994, of $4.6 million of outstanding 11.1% interest bearing debt payable
to financial institutions.
INTEREST INCOME. The decrease in interest income as a percentage of total
revenues in 1995, as compared with 1994, was primarily a result of lower cash
and short term investment balances. The increase in interest income as a
percentage of total revenues in 1994, as compared to 1993 primarily resulted
from an increase in invested cash balances and an increase in notes receivable
resulting from the sale of restaurants to franchisees.
GAIN ON SALE OF HOMETOWN BUFFET, INC. STOCK. The $14.7 million gain in 1994
reflected the sale of 1,056,780 shares of HomeTown Buffet, Inc. ("HTBB") common
stock. The $1.7 million gain in 1993 reflected the sale of 250,000 shares of
HTBB preferred stock.
13
<PAGE> 15
LOSS ON DISPOSITION OF NOTE RECEIVABLE. The charge of $1,564,000 in 1994
reflected the Company's acceptance of $2.5 million as full repayment of a note
receivable related to the sale of a combined restaurant and motel.
INCOME TAXES. The Company's effective income tax rate was 17.3%, 39.8% and 39.1%
in 1995, 1994 and 1993, respectively. The effective tax rate in all three years
reflected federal and state income tax rates offset (benefited) by targeted jobs
tax credits. The 1995 tax rate is further impacted by a $1,535,000 reserve
against net deferred tax assets that may not be realized in the future.
EXTRAORDINARY LOSS RESULTING FROM EXTINGUISHMENT OF DEBT. The charge of $350,000
(net of tax) in 1994 reflected the prepayment premium and the write-off of
unamortized loan acquisition costs associated with the Company's prepayment of
$4.6 million of outstanding 11.1% interest bearing debt payable to financial
institutions.
LIQUIDITY & CAPITAL RESOURCES
The Company's primary sources of working capital have been cash flow from
operations, borrowings and sale of assets. The Company requires capital
principally for the acquisition and construction of new restaurants, remodeling
and conversion of existing restaurants, and renewals of equipment and leasehold
improvements. During 1996, the Company anticipates its capital requirements will
be primarily for renewals of equipment and leasehold improvements and expects to
fund these capital requirements through cash on hand at the end of the year,
internally generated funds and the sale of all, or a portion of, the Company's
investment in HTBB common stock.
During the fiscal year ended September 25, 1995, cash and cash equivalents were
provided by the following sources:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
IN MILLIONS
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Net cash provided by operations $ 4.0
Proceeds from the sale of assets 3.0
Proceeds from the sale of short term investments 2.0
Payments received on notes receivable .1
- -----------------------------------------------------------------------------------------------------------------
Total provided $ 9.1
- -----------------------------------------------------------------------------------------------------------------
During the same period, cash and cash equivalents were applied for the following uses:
- -----------------------------------------------------------------------------------------------------------------
IN MILLIONS
- -----------------------------------------------------------------------------------------------------------------
Other capital expenditures $ 6.9
Capital expenditures for new stores 3.7
Principal payments on long-term debt and capital leases 1.8
Other .1
- -----------------------------------------------------------------------------------------------------------------
Total used $ 12.5
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
During 1995, cash used exceeded cash provided by $3.4 million due primarily to
capital expenditures associated with the conversion of five underperforming JB's
Restaurants to Galaxy Diners, the remodeling of four JB's Restaurants and the
construction of two HomeTown Buffet restaurants.
The current ratio at the end of 1995 was 0.3:1.0 compared to 0.8:1.0 at the end
of 1994. Management does not consider the fact that the current ratio is less
than one to be, itself, an indication of a liquidity problem as the restaurant
business has practically no receivables and minimum inventories that typically
turn faster than accounts payable to suppliers.
14
<PAGE> 16
At the end of 1995, the Company had $2.0 million in letters of credit and $2.2
million in bank loans which were secured by the Company's 528,220 shares of HTBB
common stock and by certain properties owned by the Company. During the third
quarter of 1995, the Company terminated its $3.0 million line of credit in
exchange for the release of the lien on an office/warehouse property which the
Company sold generating net proceeds of approximately $1.5 million. The Company
was not in compliance with certain covenants in its lending agreements at the
end of the year. The Company obtained a waiver from the bank with respect to
these covenants.
As of September 25, 1995, the Company held 528,220 shares of HTBB common stock.
Between September 25, 1995, and December 11, 1995, the Company sold 398,220
shares of HTBB common stock generating net proceeds of $4.8 million resulting in
a pre-tax gain of $4.0 million. $2.1 million of these proceeds were used to
repay the Company's bank loans in full, $700,000 remains in escrow as partial
security against the $2.0 million in letters of credit with the remaining $2.0
million retained by the Company. The letters of credit are secured by certain
properties owned by the Company, by the remaining 130,000 shares of HTBB common
stock and by the escrow account noted above.
In August 1994, the Company entered into a master lease agreement (the
"Agreement") to finance equipment for new HomeTown Buffet restaurants. The
Agreement, among other things, required the Company to maintain a minimum
tangible net worth of at least $40 million. Operating results during fiscal
1995 reduced the Company's net worth to less than $40 million as of September
25, 1995. On December 7, 1995, the lessor notified the Company it was in
default under the terms of the Agreement and demanded a default payment in the
amount of $1,493,938 which represents all remaining rent and other payments due
to the lessor. Upon receipt of the default payment, the lessor is obligated to
transfer to the Company all rights of ownership to the leased assets.
Management is contesting the default and seeks a resolution with the lessor that
would allow the Company to continue periodic rent payments as stipulated under
the Agreement. While the final outcome of this matter cannot be determined at
this time, management, in consultation with legal counsel, believes that such a
resolution can be reached.
The Company opened two new HomeTown Buffet restaurants during 1995, bringing the
total number of HomeTown Buffet restaurants in operation to 16. The Company's
exclusive area development agreement with HomeTown Buffet, Inc. was amended
during the third quarter of 1995 to extend the Company's requirement to open a
minimum of 17 HomeTown Buffet restaurants to June 30, 1996 from December 31,
1995. In addition, in order to maintain its exclusive area development agreement
with HomeTown Buffet, Inc., the Company is required to open an additional 5
HomeTown Buffet restaurants by December 31, 1996. Should the Company not open
the required number of HomeTown Buffet restaurants, the Company would lose its
exclusive area rights.
During 1995, the Company remodeled four of its higher performing JB's
Restaurants bringing to 11 the total number of Company operated JB's Restaurants
remodeled to the latest remodeling scheme. The Company currently has no plans to
remodel any further JB's Restaurants in 1996. The Company continues to routinely
repair and maintain the Company's restaurants. In addition, the Company, in
1995, converted an additional five of its lower performing JB's Restaurants to
Galaxy Diners bringing the number of Galaxy Diners to six at the end of 1995.
Future Galaxy Diner conversions, JB's Restaurants remodels and new HomeTown
Buffet restaurants will be dependent upon the Company improving internal cash
flow and/or finding additional sources of capital including the potential sale
of assets. To the extent that these assets secure certain letters of credit, the
Company expects that it will maintain cash collateral for the letters of credit
when the assets are sold in accordance with the Company's agreement with the
bank noted above. If the Company's earnings do not improve or other sources of
financing are not obtained, the Company would not have the available financing
for capital spending beyond maintenance level capital additions.
Pursuant to certain change of control agreements, the Company may be obligated
to pay benefits to the President and seven Senior Vice Presidents in the event
of a significant change in ownership of the Company.
15
<PAGE> 17
The Merger Agreement described in Item 1 titled "Business" triggered a provision
in the change of control agreements that requires the Company to place in escrow
accounts approximately $1.7 million. Payment of benefits is made upon
involuntary termination of those individuals noted above between the signing of
the Merger Agreement and one year after consummation of the merger or upon the
voluntary termination of employment during the second 90 days following
consummation of the merger. The Company has not yet funded the escrow accounts.
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.
IMPACT OF INFLATION
Many of the Company's employees are paid hourly rates related to the federal and
state minimum wage laws. Accordingly, increases in the minimum wage could
materially increase the Company's labor costs. Currently, there are no further
scheduled increases in the federal minimum wage. In addition, the cost of food
commodities utilized by the Company are subject to market supply and demand
pressures as is evidenced by the recent increase in produce prices (lettuce in
particular) resulting from the unusual weather conditions in the western U.S.
growing regions. Shifts in these costs may have a significant impact on the
Company's food costs. The Company anticipates that increases in these costs can
be offset through pricing and other cost control efforts; however, there is no
assurance that the Company would be able to pass such costs on to its guests or
if it were able to do so, it could do so in a short period of time.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures about
Fair Value of Financial Instruments". SFAS No. 107 extends existing fair value
disclosure practices by requiring all entities to disclose, where practicable,
the fair value of financial instruments, both assets and liabilities, recognized
and not recognized, in the statement of financial position. SFAS No. 107 is
effective for the Company's fiscal year 1996. Management has not yet determined
for which of its financial instruments it is practicable to determine fair
value. It is management's intent to implement SFAS No. 107 in fiscal year 1996.
In May 1993, the FASB issued SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 addresses the accounting by creditors for
impairment of certain loans and requires impaired loans to be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical alternative, at the loan's observable
market price or the fair value of the collateral if the loan is collateralized.
A loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due under the terms of the
loan agreement. SFAS No. 114 is effective for the Company's fiscal year 1996.
Management believes that, if implemented currently, SFAS No. 114 would not have
a material effect on its financial position as of September 25, 1995. It is
management's intent to adopt SFAS No. 114 in fiscal year 1996.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires the assessment of certain long-lived assets, including many intangible
assets, for possible impairment when events or circumstances indicate the
carrying amounts of these assets may not be recoverable. SFAS No. 121 is
effective for the Company's fiscal year 1997 and, upon adoption, any impairment
losses recognized for assets to be held and used must be recorded in continuing
operations while such losses attributable to assets to be disposed of must be
reported as a cumulative effect of a change in accounting principle. The Company
has not yet completed all of the analysis required to estimate the impact of
SFAS No. 121. It is management's intent to implement SFAS No. 121 in fiscal year
1997.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
FREDERICK L. BRYANT. Mr. Bryant, 41, is a general partner of ABS Capital
Partners, L.P. and has been a Managing Director of Alex. Brown & Sons
Incorporated, an investment banking firm, since January 1, 1990. Mr. Bryant was
a Principal at Alex. Brown & Sons Incorporated from January 1, 1988 through
December 31, 1989. Mr. Bryant has been a director of the Company since October
1993 and serves on the Company's Audit Committee and Special Committee. Mr.
Bryant also serves as a director of Transaction Systems Architects, Inc., a
computer software company.
NORMAN N. HABERMANN. Mr. Habermann, 62, is the President of Scobrett Associates,
Inc., which is involved in venture capital and consulting activities. From
December 1986 to February 1994, Mr. Habermann was President and Chief Executive
Officer of The Restaurant Enterprises Group, Inc., and its predecessors. Mr.
Habermann has been a member of the Board since November 23, 1994, when he was
appointed by the Board to fill a vacancy. Mr. Habermann is also a member of the
Company's Audit Committee and serves as Chair of the Company's Special
Committee. Mr. Habermann serves as a director of International Food & Beverage,
Inc., a food manufacturer.
CARL R. HAYS. Mr. Hays, 58, is currently a franchisee of Outback Steakhouse,
Inc., a restaurant company. Mr. Hays was Chief Operating Officer of Al Copeland
Enterprises, Inc. from November 1989 to November 1992. Mr. Hays has served as a
director of the Company since 1987 and is Chair of the Company's Compensation
Committee and a member of the Nominating Committee. Mr. Hays also serves as a
director of Fresh Choice, Inc., a restaurant company.
CLARK D. JONES. Mr. Jones, 60, has been Chairman of the Board of the Company
since 1981. On June 30, 1995, Mr. Jones retired as an employee of the Company,
but remains Chairman of the Board. Since July 1995, Mr. Jones is also one of
three commissioners on the State of Utah Public Service Commission. Mr. Jones
served as Chief Executive Officer of the Company from 1981 to October 1, 1991.
Mr. Jones served as interim President and Chief Executive Officer of the Company
from May 31, 1993 to January 3, 1994. Mr. Jones has served as a director of the
Company since 1971. He is Chair of the Company's Nominating Committee. Mr. Jones
serves as a director of MDT Corporation, a medical technology company.
DON M. MCCOMAS. Mr. McComas, 51, has been President, Chief Executive Officer and
a director of the Company since January 3, 1994. From February 1993 through
December 1993 he was President and Chief Executive Officer of El Torito
Restaurants, Inc. From January 1988 to January 1993, Mr. McComas served as
President and Chief Executive Officer of Carrows Restaurants, Inc.
NORTON PARKER. Mr. Parker, 69, retired in April 1994 from his position of more
than five years as President and Chief Executive Officer of Capital City Bank.
Mr. Parker has served as a director of the Company since 1976 and is Chair of
the Company's Audit Committee and a member of the Company's Nominating
Committee.
WILLIAM L. PATERNOTTE. Mr. Paternotte, 50, has been a Managing Director of Alex,
Brown & Sons Incorporated, an investment banking firm, for more than five years,
and is currently the Director of Marketing and Client Services. Mr. Paternotte
has served as a director of the Company since 1985 and is a member of the
Company's Compensation and Nominating Committees. Mr. Paternotte serves as a
director of Miami Subs Corporation, a restaurant company.
RONALD N. PAUL. Mr. Paul, 61, has been President of Technomic, Inc., a marketing
consulting firm, for more than five years. Mr. Paul has served as a director of
the Company since 1989 and is a member of the Company's Audit Committee and
Special Committee.
THOMAS J. RUSSO. Mr. Russo, 54, is the President, Chairman and Chief Executive
Officer of Miami Subs Corporation, a restaurant company. Until January 1994, Mr.
Russo was Group Chairman and Chief Executive
18
<PAGE> 20
Officer of the Housewares Division of Hanson Industries for more than five
years. Mr. Russo has served as a director of the Company since 1990 and is a
member of the Company's Compensation Committee.
OFFICERS
IDENTIFICATION OF EXECUTIVE OFFICERS
The Company's executive officers are elected annually at the first meeting of
the Board of Directors following each annual shareholders' meeting. The
Company's executive officers as of December 1, 1995 are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Don M. McComas 51 President and Chief Executive Officer
Gary A. Bales 41 Senior Vice President of Marketing and Development
George H. Gehling 48 Senior Vice President of Human Resources and Franchising
Joseph J. Hollencamp 36 Senior Vice President of HomeTown Buffet Operations
Charlotte L. Miller 38 Senior Vice President, General Counsel and Secretary
David E. Pertl 43 Senior Vice President, Chief Financial Officer and Treasurer
Ronald L. Sacks 47 Senior Vice President of Family Restaurant Operations
Daniel Yanez 50 Senior Vice President of Food Services
</TABLE>
INFORMATION ABOUT MR. MCCOMAS IS SET FORTH IN THE BOARD OF DIRECTORS SECTION OF
ITEM 10 OF PART III.
GARY A. BALES. Mr. Bales has been Vice President of Marketing since 1987. In
February 1993, Mr. Bales was given the additional title of Vice President of
Development. In April 1994, Mr. Bales' title was changed to Senior Vice
President of Marketing and Development.
GEORGE H. GEHLING. Mr. Gehling has been Vice President of Human Resources since
November 1988. In February 1993, Mr. Gehling was given the additional title of
Vice President of Franchising. In April 1994, Mr. Gehling's title was changed to
Senior Vice President of Franchising and Human Resources.
JOSEPH J. HOLLENCAMP. Mr. Hollencamp has been the executive responsible for
HomeTown Buffet Operations since August 1991. In June 1993, Mr. Hollencamp was
named Vice President of HomeTown Buffet Operations, and in April 1994, Mr.
Hollencamp's title was changed to Senior Vice President. From August 1990 to
August 1991, Mr. Hollencamp was a private contractor for CSI, a cable television
company.
CHARLOTTE L. MILLER. Ms. Miller has been Vice President, General Counsel and
Secretary since November 1992. In April 1994, Ms. Miller's title was changed to
Senior Vice President, General Counsel and Secretary. Prior to November 1992,
Ms. Miller was an attorney with the firm of Janove & Miller from January 1992 to
November 1992 and with the firm of Watkiss & Saperstein from December 1988 to
January 1992.
DAVID E. PERTL. Mr. Pertl has been Vice President and Chief Financial Officer of
the Company since September 1989. In November 1992, Mr. Pertl was also named
Treasurer. In April 1994, Mr. Pertl's title was changed to Senior Vice
President, Chief Financial Officer and Treasurer.
RONALD L. SACKS. Mr. Sacks joined the Company in April 1990 as Vice President of
Operations. During 1989 and 1990 Mr. Sacks was Vice President of Restaurant
Operations for Country Hospitality, a Carlson Company. In April 1994, Mr. Sacks'
title was changed to Senior Vice President of Family Restaurant Operations.
19
<PAGE> 21
DANIEL YANEZ. Mr. Yanez joined the Company in March 1994 as Vice President of
Food Services. In April 1994, Mr. Yanez' title was changed to Senior Vice
President. From 1969 to March 1994, Mr. Yanez was employed by Carrows
Restaurants, Inc. in various capacities, including Food and Beverage Vice
President from 1984 to March 1994.
FILING OF STOCK OWNERSHIP REPORTS BY DIRECTORS AND OFFICERS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and more than 10% shareholders to file certain
reports of stock ownership with the Securities and Exchange Commission and with
the National Association of Securities Dealers. These persons are also required
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of copies of the forms received by it, or on written
representations from reporting persons, the Company believes that there were no
late filings on Forms 3, 4 or 5, or unreported transactions, during fiscal 1995.
20
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the Company's Chief Executive
Officer in fiscal 1995 and the five named executive officers whose total annual
salary and bonus exceeded $100,000 in fiscal 1995 (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
- ------------------------------------------------------------------------------ ------------
Other
Annual All Other
Name and Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($)(1) ($) (#) ($)(2)
- ------------------ ------ --------- ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Don M. McComas 1995 $ 200,000 $- $ - 10,000 $ 2,564
President & CEO 1994 147,000(3) - 58,049 100,000 114,086
1993 - - - - -
Clark D. Jones 1995 150,263(4) - - 33,000 21,045
Chairman of the Board 1994 175,000 - - 20,000 2,628
1993 168,000 - - 15,000 3,130
David E. Pertl, Senior 1995 125,000 - - 13,000 1,497
Vice President & Chief 1994 125,000 - - - 2,050
Financial Officer 1993 120,000 - - 10,000 2,337
Ronald L. Sacks, Senior 1995 118,500 - - 13,000 1,494
Vice President, Family 1994 118,500 - - 2,000 1,441
Restaurant Operations 1993 113,000 - - 10,000 1,918
Daniel Yanez, Senior 1995 115,000 - - 5,000 888
Vice President, Food 1994 62,000(5) - 7,530 30,000 54,625
Services 1993 - - - - -
Gary A. Bales, Senior 1995 104,000 - - 5,000 1,394
Vice President, Marketing 1994 104,000 - - 2,000 1,616
Development 1993 100,000 - - 10,000 1,815
</TABLE>
(1) Perquisites for each executive officer for each of the three fiscal
years was less than 10% of each executive's salary and bonus combined.
The amounts shown for Messrs. McComas and Yanez for fiscal 1994 are
payments made as a result of taxes incurred in connection with
relocation expenses paid by the Company.
21
<PAGE> 23
(2) Of the amount shown for Mr. Jones for fiscal 1995, $15,851 is paid
retirement benefits, $440 is ESOP Company contributions, $338 is 401(k)
Company contributions, $666 is life insurance premiums paid by the
Company and $3,750 is director fees paid to Mr. Jones as a non-employee
director. Of the amount shown for Mr. McComas for fiscal 1994, $111,690
is relocation expenses and $2,396 is life insurance premiums paid by
the Company on behalf of Mr. McComas. Of the amount shown for Mr. Yanez
for fiscal 1994, $54,057 is relocation expenses and $568 is life
insurance premiums paid by the Company on behalf of Mr. Yanez. The
amounts shown for the other Named Executive Officers represent life
insurance premiums paid by the Company, 401(k) Company contributions to
the Named Executive Officer's account, and ESOP Company contributions
to the Named Executive Officer's account. For fiscal 1995, the amounts
are as follows:
<TABLE>
<CAPTION>
Name Insurance ($) 401(k) ($) ESOP ($)
---- ------------- ---------- --------
<S> <C> <C> <C>
McComas $ 2,564 $ -- $ --
Pertl 888 295 314
Sacks 888 309 298
Yanez 888 -- --
Bales 888 245 261
</TABLE>
(3) The amount indicated is Mr. McComas' actual salary received during
fiscal 1994 which is less than his annualized salary of $200,000
because his employment with the Company did not commence until January
3, 1994.
(4) The amount indicated is Mr. Jones' actual salary received during fiscal
1995 which is less than his annualized salary of $175,000 because his
employment with the Company ended on June 30, 1995.
(5) The amount indicated is Mr. Yanez' actual salary received during fiscal
1994 which is less than his annualized salary of $115,000 because his
employment with the Company did not commence until March 14, 1994.
22
<PAGE> 24
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of stock
options made during fiscal 1995 to the Chief Executive Officer and to the Named
Executive Officers:
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Individual Grants Annual Rates of
----------------------------------------------------------- Stock Price
Number of % of Total Appreciation for
Securities Options Granted Exercise or Option Term (2)
Underlying to Employees Base Price Expiration ---------------------
Options Granted in Fiscal Year ($/Sh)(1) Date 5% ($) 10% ($)
--------------- -------------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Don M. McComas 10,000 (3) 4.7393 $4.500 01/03/05 $28,300 $ 71,718
Clark D. Jones 10,000 (4) 4.7393 5.625 10/15/04 35,375 89,648
23,000 (5) 10.9004 4.000 06/21/05 57,858 146,624
David E. Pertl 8,000 (6) 3.7914 5.625 10/11/04 28,300 71,718
5,000 (7) 2.3696 4.625 09/19/05 14,543 36,855
Ronald L. Sacks 5,000 (8) 2.3696 4.750 04/15/05 14,936 37,851
8,000 (9) 3.7914 4.500 04/19/05 22,640 57,375
Daniel Yanez 5,000 (10) 2.3696 5.625 03/15/05 17,688 44,824
Gary A. Bales 5,000 (11) 2.3696 4.750 04/13/05 14,936 37,851
</TABLE>
(1) The exercise price is equal to the fair market value of the stock on
the date of the grant.
(2) All values shown are pre-tax and are rounded to the nearest whole
dollar. No gain to the optionees is possible without an increase in the
market price of the Company's Common Stock above the market price on
the date of grant. If such increase occurs, shareholders will benefit
commensurately. If no increase in the market price occurs, optionees
will realize no value from stock options.
(3) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable January 3, 1996,
and each year thereafter until fully vested. The options have a term of
10 years.
(4) These options were canceled on June 21, 1995.
(5) These are nonqualified stock options all of which are immediately
exercisable. The options have a term of 10 years.
(6) Twenty percent (20%) of the options listed are exercisable and an
additional twenty percent (20%) will become exercisable October 11,
1996, and each year thereafter until fully vested. The options have a
term of 10 years.
(7) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable September 19, 1996,
and each year thereafter until fully vested. The options have a term of
10 years.
23
<PAGE> 25
(8) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable April 15, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
(9) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable April 19, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
(10) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable March 15, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
(11) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable April 13, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information regarding individual exercises of
stock options made during fiscal 1995 by the Chief Executive Officer and each of
the Named Executive Officers:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Value Underlying Unexercised In-The-Money Options at
Shares Acquired Realized Options at FY-End (#) FY-End ($)(1)(2)
---------- -------------------------- -------------------------
Name on Exercise (#)($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ----- -------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Don M. McComas - $ - 55,000 55,000 $ - $ 1,250
Clark D. Jones - - 43,000 - 26,875 -
David E. Pertl - - 16,000 19,500 - -
Ronald L. Sacks - - 12,400 20,600 - 1,000
Daniel Yanez - - 12,000 23,000 - -
Gary A. Bales - - 14,400 12,600 - -
</TABLE>
(1) All values shown are pre-tax and are rounded to the nearest whole
dollar.
(2) Based on the 1995 fiscal year-end fair market value of $4.625 per share
of Common Stock as quoted by the National Association of Securities
Dealers Automated Quotation System.
Directors' Compensation
For serving on the Board of Directors, each director who is not an employee of
the Company is paid $250 per month and $1,500 per board meeting, with no
additional compensation for committee meetings if the committee meeting is held
on the same day as a board meeting. Fees for committee meetings, with the
exception of the Special Committee, are $500 per meeting or $750 per meeting for
serving as chair. Members of the Special Committee are paid $1,000 per meeting
attended in person, plus $1,000 per month to Mr. Habermann, as Chair of the
Special Committee, and $250 per month to the other members of the Special
Committee, as long as the Special committee is continuing its assignment.
During fiscal 1995, Mr. Jones was granted nonqualified stock options to purchase
23,000 shares. Also, Mr. Habermann was granted nonqualified stock options to
purchase 5,000 shares, and Messrs. Bryant, Hays, Parker,
24
<PAGE> 26
Paternotte, Paul and Russo each were granted nonqualified stock options to
purchase 2,000 shares pursuant to the Formula Grant provisions of the 1992 Stock
Option Plan (the "Formula Grants").
EXECUTIVE AGREEMENTS
EMPLOYMENT AGREEMENT FOR PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Company entered into an Employment Agreement with Don M. McComas on November
24, 1993, with a commencement date of January 3, 1994. The Employment Agreement
is for a term of three years and shall automatically renew for two years on
January 3, 1997, and every two years thereafter unless either party provides
written notice of intent not to renew 90 days or more prior to the renewal date.
Pursuant to the Employment Agreement, Mr. McComas initially received a base
salary of $200,000 which will be reviewed annually, and moving and transition
allowances. In addition, Mr. McComas receives an automobile allowance and
participates in the Executive Incentive Compensation Plan, the Executive Long
Term Incentive Plan and the 1992 Executive Long-Term Stock Award Plan. Pursuant
to the Employment Agreement, the Compensation Committee granted options to Mr.
McComas to purchase 75,000 shares of the Company's stock under the incentive
stock option provisions of the 1992 Stock Option Plan and 25,000 shares under
the nonqualified stock option provisions of the 1992 Stock Option Plan. The
Employment Agreement includes a change of control provision under which Mr.
McComas would be paid one dollar less than three times his annual base salary
upon a change of control of the Company, and other provisions as described
below.
EXECUTIVE CHANGE OF CONTROL AGREEMENTS
The Company has entered into agreements with the Named Executive Officers
(except Messrs. Jones and McComas) providing for certain termination benefits in
the event of any actual change in control of the Company. In the event the
Company is acquired, a change in control of the Company occurs, or certain
events likely to result in a change of control (that are enumerated in the
change of control agreements) occur, the Company must pay to an escrow account
one and one half times (1.5) the base salary of the participants which amount
they may demand be paid to them in the event (i) the participants' employment
terminates voluntarily other than for cause, disability, retirement or death
during the first 90 days following the change of control, or (ii) the
participants' employment terminates involuntarily other than for cause,
disability, retirement or death following the change of control; provided
however, the participant's right to demand such payments shall terminate upon
the earlier of (a) two years after the funds have been deposited in the escrow
account, or (b) one year from the date of a change of control. These agreements
are dated August 17, 1995 and expire on September 30, 1996 (unless renewed), and
replace prior similar agreements which have expired.
Amendments to the change of control agreements dated December 1, 1995 state that
in the event the merger contemplated by the Agreement and Plan of Merger and
Reorganization dated November 30, 1995 between the Company and CKE Restaurants,
Inc. (the "CKE Merger") is consummated, the participants may demand the amount
in their escrow account be paid to them if (i) the participants' employment
terminates involuntarily other than for cause, disability, retirement or death
during the first 90 days following the CKE Merger, (ii) the participants'
employment terminates voluntarily other than for cause, disability, retirement
or death during the second 90 days following the CKE Merger, or (iii) the
participants' employment terminates involuntarily other than for cause,
disability, retirement or death following the CKE Merger; provided however, the
participant's right to demand such payments shall terminate upon the earlier of
(a) two years after the funds have been deposited in the escrow account, or (b)
one year from the date of the CKE Merger. All other provisions of the change of
control agreements remain as originally set forth.
Mr. McComas' Employment Agreement, which is described above, contains change of
control provisions that provide for payment of one dollar less than three times
Mr. McComas' annual base salary upon termination of employment under similar
conditions as described above for the Named Executive Officers.
25
<PAGE> 27
RETIREMENT AGREEMENT
In 1985, the Company adopted an unfunded, noncontributory Supplemental Executive
Retirement Plan. No current executives participate in this plan. Six retired
individuals are currently receiving payments under this plan. The Company does
not intend to utilize the plan in the future for any other executives. Benefits
are determined using the participant's average annual base salary of the five
consecutive years during the ten-year period prior to the participant's
retirement which yields the highest average ("Final Average Earnings"), and are
affected by the participant's years of service and age at retirement. Actual
amounts payable under this plan are reduced by benefits paid to the participant
from the Company's Employee Stock Ownership Plan and 401(k) Plan.
Upon his retirement, Mr. Jones received credit for fifteen years of service to
the Company, which is the maximum credit allowed under the plan.
When he retired on June 30, 1995, Mr. Jones' Final Average Earnings were
$182,455. As of December 5, 1995, Mr. Jones' annual retirement benefit equaled
$60,636, including reductions due to early retirement and due to benefits paid
to Mr. Jones from the Company's Employee Stock Ownership Plan and 401(k) Plan.
26
<PAGE> 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of December 1, 1995,
except as noted, with respect to the voting securities of the Company held by
each person who owns of record, or is known by the Company to own beneficially,
more than five percent of any class of voting securities.
<TABLE>
<CAPTION>
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
--------- --------------------------------- ----------------- --------
<S> <C> <C> <C>
Common Kennedy Capital Management, Inc. 514,000 (1)(2) 10.71%
425 North New Ballas Road
St. Louis, MO 63141
Common Heartland Advisors, Inc. 512,500 (3) 10.68%
790 North Milwaukee Street
Milwaukee, WI 53202
Common David L. Babson & Company, Inc. 422,500 (1)(2) 8.81%
One Memorial Drive
Cambridge, MA 02142
Common Dimensional Fund Advisors Inc. 315,150 (4) 6.57%
1299 Ocean Avenue, Suite 1100
Santa Monica, CA 90401
Series A ABS MB (JB) Limited Partnership 946,714 (2) 100.00%
Convertible 135 East Baltimore Street
Preferred Baltimore, MD 21202
</TABLE>
(1) Holdings as of December 5, 1995.
(2) The shareholder has sole voting and sole dispositive power over all
shares listed.
(3) As disclosed by the shareholder in a telephone conversation on December
5, 1995, as of December 5, 1995, Heartland Advisors, Inc. held sold
dispositive power over all of the shares listed. Heartland Advisors,
Inc. has no direct voting control over any of the shares listed;
however, Heartland Group, Inc., a company advised by Heartland
Advisors, Inc., has sole voting power over 430,000 of the shares
listed.
(4) As disclosed by the shareholder in a telephone conversation on December
5, 1995, as of September 30, 1995, Dimensional Fund Advisors Inc. held
sole voting power over 211,750 shares; however, persons who are
officers of Dimensional Fund Advisors Inc. also serve as officers of
DFA Investment Dimensions Group Inc. (the "Fund"), and The DFA
Investment Trust Company (the "Trust"), each an open-end management
investment company registered under the Investment Company Act of 1940.
In their capacity as officers of the Fund and the Trust, these persons
vote 81,300 shares which are owned by the Fund and 22,100 shares which
are owned by the Trust. Dimensional Fund Advisors Inc. holds sole
dispositive power over 315,150 shares.
27
<PAGE> 29
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information as of December 1, 1995,
except as noted, regarding the voting securities of the Company held by
directors and the Named Executive Officers.
<TABLE>
<CAPTION>
Amount and Nature
Title of Name of of Beneficial Percent
Class Beneficial Owner Ownership(1) of Class
-------------- -------------------------------- --------------- ----------
<S> <C> <C> <C>
Common Frederick L. Bryant 9,000 (2) (3) .19%
Common Norman N. Habermann 15,000 (4) .31%
Common Carl R. Hays 11,500 (5) .24%
Common Clark D. Jones 106,534 (6) 2.22%
Common Don M. McComas 60,000 (7) 1.25%
Common Norton Parker 11,500 (5) .24%
Common William L. Paternotte 14,000 (3) (8) .29%
Common Ronald N. Paul 11,500 (5) .24%
Common Thomas J. Russo 12,500 (5) .26%
Common Gary A. Bales 21,864 (9) .46%
Common David E. Pertl 25,760 (10) .54%
Common Ronald L. Sacks 16,978 (11) .35%
Common Daniel Yanez 15,000 (12) .31%
Common Directors and Executive
Officers as a Group
(16 persons) 381,520 (13) 7.95%
</TABLE>
(1) Except as indicated all shares are beneficially owned and sole voting
and investment power is held by the persons named. Does not include
shares issuable upon exercise of options to purchase shares unless they
are exercisable within 60 days.
(2) Includes 7,000 shares subject to presently exercisable options.
(3) Does not include 946,714 shares of Series A Stock owned by ABS MB (JB)
Limited Partnership, an entity related to Alex. Brown & Sons
Incorporated, of which Messrs. Bryant and Paternotte are Managing
Directors.
(4) Includes 5,000 shares subject to presently exercisable options.
(5) Includes 11,500 shares subject to presently exercisable options.
(6) Includes 43,000 shares subject to presently exercisable options, 5,469
shares in the Employee Stock Ownership Plan and 206 shares held in Mr.
Jones' IRA.
28
<PAGE> 30
(7) Includes 55,000 shares subject to presently exercisable options.
(8) Includes 14,000 shares subject to presently exercisable options.
(9) Includes 15,400 shares subject to presently exercisable options, 623
shares in the Employee Stock Ownership Plan and 178 shares in the
Company's 401(k) Plan.
(10) Includes 18,600 shares subject to presently exercisable options, 292
shares in the Employee Stock Ownership Plan and 205 shares in the
Company's 401(k) Plan.
(11) Includes 13,400 shares subject to presently exercisable options, 264
shares in the Employee Stock Ownership Plan and 69 shares in the
Company's 401(k) Plan.
(12) Includes 12,000 shares subject to presently exercisable options.
(13) Includes 277,200 shares subject to presently exercisable options, 7,029
shares in the Employee Stock Ownership Plan and 724 shares in the
Company's 401(k) Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS INVOLVING MANAGEMENT
On October 13, 1993, the Company executed a Certificate of Designations,
Preferences and Rights of Series A Stock and issued 946,714 shares of Series A
Stock. The sole owner of the Series A Stock is ABS MB (JB) Limited Partnership
("ABS"), of which ABS MB Ltd. is the general partner. ABS MB Ltd. is a wholly
owned subsidiary of Alex. Brown Incorporated, which also owns Alex. Brown & Sons
Incorporated. Messrs. Bryant and Paternotte, two of the Company's directors, are
employees of Alex. Brown & Sons Incorporated. Personal funds of Messrs.
Paternotte and Bryant are invested in ABS MB II Employees Limited Partnership
which is one of the limited partners of ABS. Mr. Bryant is Vice President of ABS
MB Ltd. The 946,714 Series A Stock shares owned by ABS represents an approximate
16% ownership position in the Company. As a holder of Series A Stock, ABS has
the right to elect two members to the Board of Directors of the Company. Messrs.
Paternotte and Bryant are the current designees of ABS. The Series A Stock is
nondividend bearing and is convertible to Common Stock on a one-for-one basis at
the option of ABS subject to certain conditions. ABS is entitled to liquidation
preferences, rights to approve certain significant corporate transactions and
certain registration rights.
Mr. McComas and Pam McComas, his wife, are each fifty percent shareholders in
Wheels-Up Aircraft Co., an entity that owns an aircraft utilized by the Company
for employee travel. The Company pays a fee to Wheels-Up Aircraft for the use of
the aircraft. The amounts paid to Wheels-Up Aircraft are reasonable and
competitive. During fiscal 1995 the total amount paid by the Company to
Wheels-Up Aircraft was $42,000.
29
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The financial statements referred to below are attached as pages F-1 to F-19.
<TABLE>
<CAPTION>
PAGE
(A) (1) INDEX TO FINANCIAL STATEMENTS: NUMBER
------
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets -
September 25, 1995 and September 26, 1994 F-2
Consolidated Statements of Operations - Years Ended
September 25, 1995, September 26, 1994, and September 27, 1993 F-4
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended September 25, 1995, September 26, 1994,
and September 27, 1993 F-5
Consolidated Statements of Cash Flows - Years Ended
September 25, 1995, September 26, 1994, and September 27, 1993 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
(A) (2) FINANCIAL STATEMENT SCHEDULES:
All schedules to the Financial Statements for which provision
is made in Article 5 of Regulation S-X are not required under
related instructions, or the information is included in the
Consolidated Financial Statements or notes thereto or are
inapplicable and therefore have been omitted.
(A) (3) EXHIBITS:
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this Form 10-K.
30
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
3 ARTICLES OF INCORPORATION AND BYLAWS:
The following exhibits are attached to this report:
3(a) Certificate of Incorporation, dated February 21, 1985.
3(b) Bylaws, dated February 25, 1985.
3(c) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated February 25, 1987.
3(1) Amendment to Bylaws, dated November 19, 1992.
3(2) Amendment to Bylaws, dated October 27, 1993.
3(3) Certificate of Ownership and Merger Merging JB's Specialty
Restaurants, Inc. into JB's Restaurants, Inc., dated October 15,
1993.
3(4) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated April 4, 1995.
3(5) Certificate of Change of Location of Registered Office and of
Registered Agent, dated July 11, 1995.
3(6) Amendment to Bylaws, dated November 30, 1995.
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES:
The following exhibits are incorporated in this report by reference from
identically numbered exhibits to Annual Reports on Form 10-K previously
filed by the Company:
4(c)(2) Undertaking to furnish to the Securities and Exchange Commission
Long-Term Debt Agreements dated December 22, 1986.
4(f)(g)(h)(3) Note Purchase Agreements between the Company and The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, and Warrants for Common Stock held by The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, dated September 1, 1987.
4(1)(7) First Amendment to Note Purchase Agreements between the Company and
The Canada Life Assurance Co., Security Mutual Group and Crown
Life Insurance Company, and Warrants for Common Stock held by The
Canada Life Assurance Co., Security Mutual Group and Crown Life
Insurance Company, dated April 30, 1992.
</TABLE>
31
<PAGE> 33
<TABLE>
<S> <C>
4(2)(8) Second Amendment to Note Purchase Agreement between the Company and
Crown Life Insurance Company, The Canada Life Assurance Company
and Security Mutual Life Insurance Company (formerly known as
Security Mutual Group), dated October 26, 1993.
4(3)(8) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of the Company, dated October 11,
1993.
4(4)(8) Registration Rights Agreement by the Company for the benefit of ABS MB
(JB) Limited Partnership, dated October 27, 1993.
10 MATERIAL CONTRACTS:
The following exhibits are incorporated in this report by reference from identically
numbered exhibits to Annual Reports on Form 10-K previously filed by the Company:
*10(a)(1) JB's Supplemental Executive Retirement Plan, adopted 1985.
*10(7)(3) 1987 Non-Qualified Stock Option Plan and form of Agreement,
adopted February 13, 1987.
*10(8)(3) 1987 Employee Incentive Stock Option
Plan and form of Agreement adopted
April 21, 1987.
*10(9)(3) 1984 Incentive Stock Option Plan as Amended on February 13, 1987,
and form of Agreement.
*10(i)(5) Amendment to 1984 and 1987 Incentive Stock Option Plans dated
July 16, 1990.
10(dd)(6) Multiple Unit Agreement between HTB Restaurants, Inc., a
wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc.
dated October 9, 1991 effective November 25, 1991.
10(19)(7) First Amendment to Multiple Unit Agreement dated October 9, 1991
between HTB Restaurants, Inc., a wholly-owned subsidiary of the
Company, and HomeTown Buffet, Inc. dated January 3, 1992.
10(20)(7) Second Amendment to the Multiple Unit Agreement dated October 9,
1991 between HTB Restaurants, Inc. a wholly-owned subsidiary of
the Company, and HomeTown Buffet, Inc. dated June 23, 1992.
*10(22)(7) 1992 Stock Option Plan and Form of Agreement adopted September
24, 1992.
*10(23)(7) 1992 Executive Long-Term Stock Award Plan and Form of Agreement, adopted
by the Board of Directors of the Company dated September 24, 1992.
</TABLE>
32
<PAGE> 34
<TABLE>
<S> <C>
*10(32)(8) Employment Agreement between the Company and Don M. McComas dated
November 24, 1993.
10(33)(8) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991 between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc. dated November
30, 1993.
10(34)(9) Note Cancellation Agreement and Release between the Company and
M. Robert Davis and Kathleen Davis dated August 5, 1994.
*10(35)(9) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain
severance benefits in the event of a change in control of the
Company, dated November 18, 1994.
*10(37)(9) Fiscal Year 1995 Executive Incentive Compensation Plan.
10(38)(9) Underwriting Agreement dated March 23, 1994 between the Company,
HomeTown Buffet, Inc. , other selling shareholders, and
Montgomery Securities.
10(39)(9) Letter dated March 1, 1994 between the Company and Crown Life Insurance
Company, Canada Life Assurance Company and Security Mutual Group
regarding prepayment of notes outstanding by the Company.
*10(40)(9) Executive Long Term Incentive Plan approved by the Board of
Directors on April 8, 1994.
*10(41)(9) 1992 Stock Option Plan as amended on April 8, 1994 and November
18, 1994.
The following exhibits are attached to this report:
10(42) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991, as amended January 3, 1992, June 23, 1992 and
November 30, 1993, between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc., dated July
20, 1995.
*10(43) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain benefits
in the event of a change in control of the company, dated August
17, 1995.
*10(44) Fiscal 1996 Executive Incentive Compensation Plan.
*10(45) Separation Compensation Plan adopted by the Board of Directors,
effective as of September 25, 1995.
</TABLE>
33
<PAGE> 35
<TABLE>
<S> <C>
*10(46) Letter Agreement dated January 4, 1995, between the Company and Joseph
J. Hollencamp for certain benefits in the event of the sale of HTB
Restaurants, Inc., or all of its assets.
10(47) Agreement and Plan of Merger and Reorganization between the Company
and CKE Restaurants, Inc., dated November 30, 1995.
*10(48) Form of Amendment to Agreements, dated August 17, 1995, between
the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks,
George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph
J. Hollencamp for certain benefits in the event of a change in
control of the company, dated December 1, 1995.
11 COMPUTATION OF PER SHARE INCOME (LOSS).
22 SUBSIDIARIES OF THE COMPANY.
24 CONSENT OF KPMG PEAT MARWICK LLP.
RE: FORM S-8 NO. 2-99014; NO. 33-18431; NO. 33-17363; NO. 33-62150; NO.
33-62152; NO. 33-99144.
27 FINANCIAL DATA SCHEDULE.
</TABLE>
*This exhibit is a compensatory plan or management contract filed pursuant to
Item 14(c) of Form 10-K.
34
<PAGE> 36
(B) REPORTS ON FORM 8-K:
The Company has not filed any report on Form 8-K for the
quarter ended September 25, 1995.
(C) EXHIBITS:
Exhibits required to be filed in response to this paragraph of
Item 14 are listed above in subparagraph (a)(3).
(D) FINANCIAL STATEMENT SCHEDULES:
Schedules and report thereon by independent auditors required
to be filed in response to this paragraph of Item 14 are
listed above in subparagraph (a)(2).
- --------------
1 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 29, 1985 and is
incorporated herein by reference.
2 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 28, 1986 and is
incorporated herein by reference.
3 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 27, 1987 and is
incorporated herein by reference.
4 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 25, 1988 and is
incorporated herein by reference.
5 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 24, 1990 and is
incorporated herein by reference.
6 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 30, 1991 and is
incorporated herein by reference.
7 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 28, 1992 and is
incorporated herein by reference.
8 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 27, 1993 and is
incorporated herein by reference.
9 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 26, 1994 and is
incorporated herein by reference.
35
<PAGE> 37
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.
SUMMIT FAMILY RESTAURANTS INC.
(Registrant)
December 20, 1995 By: /s/ Don M. McComas
---------------------------------------
Don M. McComas
President and Chief Executive Officer
(principal executive officer)
December 20, 1995 By: /s/ David E. Pertl
---------------------------------------
David E. Pertl
Senior Vice President, Chief
Financial Officer, and Treasurer
(principal financial officer)
December 20, 1995 By: /s/ Theodore Abajian
---------------------------------------
Theodore Abajian
Vice President and Controller
(principal accounting 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/ Clark D. Jones Chairman of the Board December 20, 1995
- --------------------------------------------
Clark D. Jones
/s/ Don M. McComas President, Chief Executive December 20, 1995
- -------------------------------------------- Officer and Director
Don M. McComas
/s/ Frederick L. Bryant Director December 20, 1995
- --------------------------------------------
Frederick L. Bryant
/s/ Norman N. Habermann Director December 20 1995
- --------------------------------------------
Norman N. Habermann
/s/ Carl R. Hays Director December 20, 1995
- -------------------------------------------
Carl R. Hays
/s/ Norton Parker Director December 20, 1995
- --------------------------------------------
Norton Parker
/s/ William L. Paternotte Director December 20, 1995
- -------------------------------------------
William L. Paternotte
/s/ Ronald N. Paul Director December 20, 1995
- --------------------------------------------
Ronald N. Paul
/s/ Thomas J. Russo Director December 20, 1995
- --------------------------------------------
Thomas J. Russo
</TABLE>
36
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors of
Summit Family Restaurants Inc., Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Summit Family
Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26,
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 25, 1995. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summit Family
Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26,
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended September 25, 1995, in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for investments to adopt the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" during the first quarter of fiscal 1994.
/s/ KPMG Peat Marwick LLP
- --------------------------------------
KPMG Peat Marwick LLP
Salt Lake City, Utah
November 3, 1995, except
as to Note 15 which is
as of December 11, 1995.
F-1
<PAGE> 39
<TABLE>
<CAPTION>
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 25, 1995 SEPTEMBER 26, 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,911,000 $ 5,303,000
Short-term investments 180,000 2,160,000
Receivables
Short-term portion of notes receivable - Note 4 190,000 173,000
Other receivables 1,898,000 3,404,000
Inventories 1,411,000 1,386,000
Deferred Taxes, net - Note 9 76,000 78,000
Prepaid expenses 199,000 309,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,865,000 12,813,000
- -----------------------------------------------------------------------------------------------------------------
PROPERTY, BUILDINGS AND EQUIPMENT, AT COST, LESS
ACCUMULATED DEPRECIATION AND AMORTIZATION -
NOTES 2 & 7 46,797,000 45,672,000
- -----------------------------------------------------------------------------------------------------------------
REAL PROPERTY AND EQUIPMENT UNDER CAPITALIZED
LEASES AT COST, LESS ACCUMULATED AMORTIZATION -
NOTES 2, 7 & 8 6,731,000 7,480,000
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Notes receivable, net of current portion - Note 4 2,696,000 2,580,000
Investment in HomeTown Buffet, Inc. - Note 6 6,999,000 5,678,000
Deposits and other 647,000 986,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 10,342,000 9,244,000
- -----------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSET, AT COST, LESS ACCUMULATED
AMORTIZATION
Lease acquisition costs 414,000 569,000
Other intangible assets 735,000 830,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS 1,149,000 1,399,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $70,884,000 $76,608,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE> 40
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY SEPTEMBER 25, 1995 SEPTEMBER 26, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 6,772,000 $ 6,874,000
Accrued liabilities
Payroll and related taxes 3,334,000 2,764,000
Sales and property taxes 2,071,000 1,855,000
Rent and other 2,045,000 2,762,000
Current maturities of long-term debt - Note 7 2,928,000 1,960,000
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 17,150,000 16,215,000
- ----------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES-
NOTES 6, 7 & 8
Capitalized real property and equipment leases 9,795,000 10,609,000
Notes payable 355,000 2,484,000
- ----------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 10,150,000 13,093,000
- ----------------------------------------------------------------------------------------------------
DEFERRED TAXES, NET - NOTE 9 1,877,000 1,376,000
- ----------------------------------------------------------------------------------------------------
DEFERRED COMPENSATION - NOTE 11 1,580,000 1,588,000
- ----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES - NOTES 8, 14 & 15
STOCKHOLDERS' EQUITY - NOTES 6, 7, 10, 11 & 12
Preferred stock, $1 par value; 1,000,000
shares authorized; 946,714 issued and
outstanding 947,000 947,000
Junior common stock; $.01 par value; 500,000
shares authorized; none outstanding -- --
Common stock, $.10 par value; 10,000,000 shared
authorized; 4,798,102 and 5,288,759 shared
issued 480,000 529,000
Additional paid-in capital 26,389,000 29,581,000
Unrealized gain on investment in HomeTown
Buffet, Inc., net of tax 3,565,000 2,773,000
Retained earnings 8,746,000 13,790,000
- ----------------------------------------------------------------------------------------------------
40,127,000 47,620,000
Less: 500,000 common stock treasury shares in 1994
at cost -- 3,284,000
- ----------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 40,127,000 44,336,000
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,884,000 $76,608,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 41
<TABLE>
<CAPTION>
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL REVENUES $121,099,000 $115,367,000 $114,768,000
- -----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Food costs 40,018,000 37,678,000 36,610,000
Labor costs 42,376,000 40,280,000 38,233,000
Occupancy and other expenses 28,809,000 26,846,000 26,168,000
General and administrative expenses 8,363,000 8,157,000 7,486,000
Depreciation and amortization 6,585,000 6,065,000 6,658,000
Charge for property dispositions -
Note 5 -- 1,982,000 4,264,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 126,151,000 121,008,000 119,419,000
- -----------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (5,052,000) (5,641,000) (4,651,000)
- -----------------------------------------------------------------------------------------------------------------
INTEREST AND OTHER INCOME (EXPENSE):
Interest expense (1,535,000) (1,967,000) (2,486,000)
Interest income 452,000 668,000 487,000
Gain on sale of HomeTown Buffet, Inc.
stock - Note 6 -- 14,700,000 1,727,000
Gains on sales of restaurants to
franchisees and other 38,000 630,000 1,126,000
Loss on disposition of note
receivable - Note 4 -- (1,564,000) --
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND OTHER INCOME
(EXPENSE) (1,045,000) 12,467,000 854,000
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (6,097,000) 6,826,000 (3,797,000)
- -----------------------------------------------------------------------------------------------------------------
INCOME TAXES (BENEFIT) - NOTE 9
Current (1,028,000) 2,413,000 (369,000)
Deferred (25,000) 307,000 (1,114,000)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES (BENEFIT) (1,053,000) 2,720,000 (1,483,000)
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (5,044,000) 4,106,000 (2,314,000)
- -----------------------------------------------------------------------------------------------------------------
EXTRAORDINARY LOSS RESULTING FROM
EXTINGUISHMENT OF DEBT (LESS TAX
BENEFIT OF $233,000) - NOTE 7 -- 350,000 --
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (5,044,000) $ 3,756,000 $ (2,314,000)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) per common share before
extraordinary loss $ (1.05) $ 0.72 $ (0.49)
Extraordinary loss from early
extinguishment of debt, net of tax
benefit -- (0.06) --
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ (1.05) $ 0.66 $ (0.49)
- -----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 4,794,000 5,723,000 4,693,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 42
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN UNREALIZED RETAINED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL GAIN EARNINGS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1992 -- $ -- 5,097,388 $510,000 $24,582,000 $ -- $12,348,000
Common stock issued
Under options -- -- 164,730 17,000 772,000 -- --
Common stock redeemed
and retired -- -- (6,359) (1,000) (32,000) -- --
Net loss -- -- -- -- (2,314,000)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1993 -- -- 5,255,759 526,000 25,322,000 -- 10,034,000
Common stock issued
Under options -- -- 33,000 3,000 162,000 -- --
Preferred stock issued 946,714 947,000 -- -- 4,097,000 -- --
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- -- -- -- -- 2,773,000 --
Net income -- -- -- -- -- -- 3,756,000
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 26, 1994 946,714 947,000 5,288,759 529,000 29,581,000 2,773,000 13,790,000
Common stock contributed to
employee benefit plan -- -- 4,801 -- 13,000 -- --
Treasury stock retired -- -- (495,458) (49,000) (3,205,000) -- --
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- -- -- -- -- 792,000 --
Net income -- -- -- -- -- -- (5,044,000)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 25, 1995 946,714 $947,000 4,798,102 $480,000 $26,389,000 $3,565,000 $ 8,746,000
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TREASURY
STOCK TOTAL
- -----------------------------------------------------------------------
<S> <C> <C>
BALANCE, SEPTEMBER 28, 1992 $(3,284,000) $34,156,000
Common stock issued
Under options -- 789,000
Common stock redeemed
and retired -- (33,000)
Net loss -- (2,314,000)
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1993 (3,284,000) 32,598,000
Common stock issued
Under options -- 165,000
Preferred stock issued -- 5,044,000
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- 2,773,000
Net income -- 3,756,000
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 26, 1994 (3,284,000) 44,336,000
Common stock contributed to
employee benefit plan 30,000 43,000
Treasury stock retired 3,254,000 --
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- 792,000
Net income -- (5,044,000)
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 25, 1995 $ -- $40,127,000
=======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 43
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (5,044,000) $ 3,756,000 $ (2,314,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 6,585,000 6,065,000 6,658,000
Charge for property dispositions -- 1,982,000 4,264,000
Provision for losses -- 1,697,000 108,000
Loss on extinguishment of debt -- 583,000 --
(Gain) loss on disposal of assets 209,000 (592,000) (346,000)
Gain on sale of HomeTown Buffet, Inc. stock -- (14,700,000) (1,727,000)
Change in operating assets and liabilities
Decrease (increase) in receivables 1,561,000 399,000 (1,230,000)
Decrease (increase) in inventories (25,000) (72,000) 70,000
Decrease (increase) in other assets 449,000 (338,000) 296,000
Increase (decrease) in accounts payable (102,000) 1,910,000 292,000
Increase (decrease) in accrued liabilities 319,000 475,000 (731,000)
Increase (decrease) in net deferred taxes (2,000) 308,000 (1,114,000)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,950,000 1,473,000 4,226,000
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of HomeTown Buffet, Inc. stock -- 16,814,000 2,500,000
Payments received on notes receivables 135,000 2,580,000 297,000
Proceeds from sale of assets 3,028,000 1,865,000 2,762,000
Proceeds from sale of short-term investments 1,980,000 -- --
Purchase of short-term investments -- (2,160,000) --
Exercise of options in HomeTown Buffet, Inc. stock -- (120,000) --
Acquisition of intangible assets (45,000) (362,000) (222,000)
Acquisition of property, buildings and equipment (10,620,000) (13,935,000) (4,798,000)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (5,522,000) 4,682,000 539,000
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line-of-credit agreement 815,000 -- 28,325,000
Payments under line-of-credit agreement (815,000) (762,000) (29,650,000)
------------ ------------ -----------
Net payments on revolving line-of-credit -- (762,000) (1,325,000)
Proceeds from issuance of preferred stock -- 5,044,000 --
Proceeds from issuance of common stock, net of
redemptions -- 165,000 756,000
Principal payments on long-term debt and
capital leases (1,820,000) (6,965,000) (5,354,000)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,820,000) (2,518,000) (5,923,000)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (3,392,000) 3,637,000 (1,158,000)
Cash and cash equivalents at beginning of year 5,303,000 1,666,000 2,824,000
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,911,000 $ 5,303,000 $ 1,666,000
=======================================================================================================================
</TABLE>
F-6
<PAGE> 44
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information
Cash paid for interest $ 1,535,000 $ 2,055,000 $ 2,552,000
Cash paid for income taxes 1,000 3,839,000 106,000
- ---------------------------------------------------------------------------------------------------------------------
$ 1,536,000 $ 5,894,000 $ 2,658,000
=====================================================================================================================
Supplemental schedule of noncash investing and
financing activities
Debt incurred for acquisition of property,
buildings and equipment $ -- $ -- $ 1,439,000
Notes and other receivables from sale of
inventory, property and equipment -- 830,000 2,242,000
- ---------------------------------------------------------------------------------------------------------------------
$ -- $ 830,000 $ 3,681,000
=====================================================================================================================
During each of the fiscal years, stores were sold
to franchisees and notes receivable were
recorded in exchange for equipment as
follows - Note 4:
Notes receivable $ 377,000 $ 647,000 $ 1,226,000
Gain recognized (38,000) (630,000) (1,073,000)
Gain deferred (207,000) -- --
Cash received 98,000 157,000 312,000
- ---------------------------------------------------------------------------------------------------------------------
Net book value of equipment sold $ 230,000 $ 174,000 $ 465,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 45
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Summit Family
Restaurants Inc. and its wholly owned subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR
The Company utilizes a 52/53 week fiscal year which ends on the last Monday in
September. Fiscal years 1995, 1994 and 1993 contain 52 weeks.
INVENTORIES
Inventories consist of food, beverages and restaurant supplies and are valued at
the lower of cost, determined by the first-in first-out method, or market.
INVESTMENT SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" during the first quarter of fiscal 1994. As discussed in Note
6, the Company's investment in HomeTown Buffet, Inc. common stock is treated as
an available-for-sale security and is reported at fair market value in the
accompanying consolidated balance sheets. Unrealized holding gains are shown as
a separate component of stockholders equity, net of tax.
Short term investments in the accompanying consolidated balance sheets
(consisting primarily of certificates of deposits, with original maturities of
greater than three months) represent held-to-maturity securities, and
accordingly, have been stated at their cost.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings 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 leaseholds - lesser of lease life or 20 years;
equipment - 5 to 8 years; capitalized leases - lesser of lease life or 20 years.
INTANGIBLE ASSETS
Lease acquisition costs are amortized using the straight-line method over the
remaining terms of the leases, which range from 3-1/2 to 25 years. Other
intangible assets are amortized using the straight-line method over the
estimated period of value, which ranges from 1 to 40 years.
Accumulated amortization totaled $1,913,000 and $1,901,000 in fiscal years 1995
and 1994, respectively.
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.
F-8
<PAGE> 46
FRANCHISING REVENUES AND EXPENSES
The Company is a franchisor of JB's Restaurants and a franchisee of HomeTown
Buffet restaurants. Gains or losses on Company operated JB's Restaurants sold to
franchisees are recognized as a gain or loss in the period the transaction is
completed provided the down payment received from the franchisee represents 20%
or more of the total purchase price. Otherwise, the gain or loss is deferred and
recognized over the period of the franchise agreement. Initial franchise fees
received are recognized as revenue in the period the franchised restaurant
opens. Franchise royalty revenues and all franchising costs are recognized on
the accrual basis.
Initial franchise fee payments related to HomeTown Buffet restaurants are
amortized using the straight-line method over the life of the franchise
agreement. Royalty costs and all other franchise costs are recognized as expense
on the accrual basis.
PROPERTY DISPOSITIONS
Assets which have been identified for closure and held for sale are written down
to management's best estimate of realizable value, including related costs of
disposition.
CASH EQUIVALENTS
Cash equivalents consist of short-term liquid assets with original maturities of
3 months or less.
INCOME TAXES
Income taxes are recorded using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income or
expense in the period that includes the enactment date. A reserve is recorded
for net deferred tax assets that may not be realized in the future.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed using the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during each period.
PRESENTATION
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
F-9
<PAGE> 47
2. PROPERTY, BUILDINGS AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES
The components of property, buildings and equipment and real property under
capitalized leases are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 25, September 26,
1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Property, buildings and equipment
Land $ 5,263,000 $ 5,705,000
Buildings and leasehold improvements 44,023,000 42,653,000
Equipment 34,017,000 34,734,000
- -------------------------------------------------------------------------------------
83,303,000 83,092,000
Less accumulated depreciation
and amortization 36,506,000 37,420,000
- -------------------------------------------------------------------------------------
$46,797,000 $ 45,672,000
=====================================================================================
Real property under capitalized leases, net $15,872,000 $ 16,055,000
Less accumulated amortization 9,141,000 8,575,000
- -------------------------------------------------------------------------------------
$ 6,731,000 $ 7,480,000
=====================================================================================
</TABLE>
3. OTHER RECEIVABLES
The components of other receivables are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 25, September 26,
1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Income taxes $1,189,000 $2,045,000
Landlord receivables -- 830,000
Franchise royalties and rents 326,000 142,000
Other 383,000 387,000
- ------------------------------------------------------------------------------------
$1,898,000 $3,404,000
====================================================================================
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consist of amounts due from corporations and individuals
resulting primarily from the sale of property, buildings and equipment. The
components of notes receivable are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 25, September 26,
1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Sales of restaurants to franchisees $ 2,399,000 $ 2,254,000
Net investment in direct financing lease 487,000 499,000
- ---------------------------------------------------------------------------------------
2,886,000 2,753,000
Less short-term portion 190,000 173,000
- ---------------------------------------------------------------------------------------
$ 2,696,000 $ 2,580,000
=======================================================================================
</TABLE>
In August 1994, the Company accepted $2.5 million as full repayment of the note
receivable related to the sale of a combined restaurant and motel, resulting in
a loss of $1,564,000. The note had a principal and accrued interest balance of
$4.1 million and was due in October 1994. The Company had received no payments
on the note since January 1994 and elected to accept the lesser payment to
eliminate the risks of collection of the full amount and to generate cash for
use in restaurant operations.
The Company has 14 notes relating to the sales of restaurants to franchisees
which are unsecured or secured by receivables, inventory and equipment. Eleven
of the notes bear interest at 10.0%. Two notes bear interest at prime plus 3.0%
and another bears interest at prime plus 0.5%. Payments are made using a 15-year
F-10
<PAGE> 48
amortization with 13 of the notes having a 5-year balloon payment and the other
note having a 10-year balloon payment.
During 1991, the Company entered into a lease with a franchisee on the land and
building for a new JB's Restaurant. The Company's net investment in the direct
financing lease is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 25, September 26,
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Future minimum lease payments receivable $ 913,000 $ 975,000
Less unearned income 426,000 476,000
- --------------------------------------------------------------------------------------
Investment in direct financing lease, net 487,000 499,000
Less current portion 12,000 12,000
- --------------------------------------------------------------------------------------
$ 475,000 $ 487,000
======================================================================================
</TABLE>
At September 25, 1995, future minimum lease payments are as follows: $61,000 in
1996, $61,000 in 1997, $61,000 in 1998, $61,000 in 1999, $61,000 in 2000 and
$608,000 thereafter.
5. CHARGE FOR PROPERTY DISPOSITIONS
In 1994, the charge for property dispositions of $1,982,000 is primarily related
to the disposition of certain JB's Restaurants. The charge of $4,264,000 for
1993 is primarily related to the disposition of certain JB's Restaurants, Sbarro
restaurants, and the termination of its exclusive area development rights with
Sbarro, Inc.
6. INVESTMENT IN HOMETOWN BUFFET, INC.
In November 1991, the Company invested $3.8 million with Americana Entertainment
Group, Inc., the predecessor of HomeTown Buffet, Inc. ("HTBB"), in exchange for
1,266,667 shares of convertible preferred stock. In July 1993, the Company sold
250,000 shares of its preferred stock investment in HTBB for $2.5 million,
resulting in a pre-tax gain of $1.7 million. In the fourth quarter of fiscal
1993, HTBB concluded an initial public offering ("IPO") of its common stock and
commenced trading on NASDAQ under the symbol HTBB. At the completion of the IPO
the outstanding preferred stock automatically was converted to common stock.
During the second quarter of fiscal 1994, the Company exercised its option to
purchase 60,000 shares of HTBB common stock and HTBB announced a three for two
stock split increasing the Company's ownership of HTBB common stock to 1,585,000
shares. In the third quarter of fiscal 1994, the Company sold 1,056,780 shares
of HTBB common stock as a selling shareholder in HTBB's secondary public
offering for $16.8 million resulting in a pre-tax gain of $14.7 million. The
Company's remaining 528,220 shares of HTBB common stock at September 25, 1995,
is pledged as security on certain notes payable (see notes 7 and 15).
On September 27, 1993, the Company reported its investment in HTBB at cost.
During the first quarter of fiscal 1994, the Company elected early adoption of
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". In accordance with SFAS No.
115, the Company's investment in the common stock of HTBB meets the definition
of available-for-sale securities and, as such, is reported at fair value. On
September 25, 1995 and November 3, 1995, the estimated fair value of the
Company's 528,220 shares of HTBB common stock was $13.25 and $12.88 per share or
$7.0 million and $6.8 million respectively. The unrealized gain of $3.6 million
(net of tax) at the fiscal 1995 year-end is recorded as a separate component of
stockholders' equity.
In addition, the Company has a franchise and exclusive area development
agreement with HTBB, under which, as amended, the Company has the exclusive
rights to develop and operate HomeTown Buffet restaurants, as a franchisee, in
eight western states. Under the terms of the agreement, the Company is required
to open a minimum of 17 HomeTown Buffet restaurants in these states prior to
June 30, 1996, and open an additional 5 HomeTown Buffet restaurants prior to
December 31, 1996.
F-11
<PAGE> 49
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of: SEPTEMBER 25, September 26,
1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt secured by land, buildings, equipment and investment
in HomeTown Buffet, Inc.:
Note payable to a bank in monthly installments
through June 1997, interest at 9.13% per annum $ 1,742,000 $ 2,612,000
Note payable to a bank in monthly installments
through January 1997, interest at 8.5% per annum 453,000 747,000
Capitalized real property and equipment lease obligations
payable in monthly installments through 2013, interest at
8.9% to 13.9% 10,485,000 11,249,000
Other notes payable to individuals, financial institutions and
other companies in monthly, quarterly, and annual
installments through 2004, interest at 8.25% to 13.5%;
unsecured or secured by land, buildings, and equipment 398,000 445,000
- ---------------------------------------------------------------------------------------------------------
13,078,000 15,053,000
Less current maturities 2,928,000 1,960,000
- ---------------------------------------------------------------------------------------------------------
$ 10,150,000 $ 13,093,000
=========================================================================================================
</TABLE>
Annual aggregate maturities of long-term debt, including obligations under
capitalized leases, are as follows: $2,928,000 in 1996; $799,000 in 1997;
$848,000 in 1998; $863,000 in 1999; $918,000 in 2000; and $6,722,000 thereafter.
On April 1, 1994, the Company used $5.1 million of the proceeds from the sale of
HTBB common stock to prepay outstanding 11.1% interest bearing debt payable to
financial institutions. The $5.1 million payment included a prepayment premium
of $442,000 and $85,000 of accrued interest. The $442,000 prepayment premium
combined with the write-off of unamortized loan acquisition costs of $141,000
are recorded as an extraordinary loss on extinguishment of debt of $350,000, net
of tax, in the accompanying 1994 consolidated statements of operations.
In connection with the issuance of certain secured notes payable to financial
institutions, the Company issued 8,000 nondetachable warrants, with each warrant
consisting of an option to purchase, as adjusted, 27.4 shares of the Company's
common stock. The warrants are exercisable until July 30, 1996 at $203.25 per
warrant ($7.42 per share of common stock). As of September 25, 1995, no warrants
had been exercised.
8. LONG-TERM LEASES
The Company occupies certain of its restaurants under long-term leases expiring
at various dates through 2035. Most restaurant leases have renewal options for
terms of five to twenty years, and substantially all require the payment of real
estate taxes and insurance. Certain of the leases provide for rent to be the
greater of a stipulated minimum rent or a specified percentage of sales.
Rent expense for fiscal years 1995, 1994 and 1993, was $6,942,000, $5,938,000,
and $5,696,000, respectively. Contingent rentals measured as a percentage of
sales, included in rent expense for fiscal years 1995, 1994 and 1993 were
$292,000, $615,000, and $706,000, respectively.
F-12
<PAGE> 50
Future aggregate minimum rental payments on noncancellable leases as of
September 25, 1995, exclusive of taxes, insurance and percentage rentals based
on sales are as follows:
<TABLE>
<CAPTION>
FURNITURE FIXTURES &
TYPE OF PROPERTY REAL PROPERTY EQUIPMENT
- --------------------------------------------------------------------------------------------------
Year Ended Capital Operating Operating
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ 1,837,000 $ 5,342,000 $ 1,556,000
1997 1,817,000 5,291,000 1,187,000
1998 1,776,000 5,115,000 1,050,000
1999 1,731,000 4,915,000 654,000
2000 1,728,000 4,783,000 74,000
Aggregate thereafter 9,863,000 37,853,000 --
- --------------------------------------------------------------------------------------------------
Total minimum
lease payments 18,752,000 $63,299,000 $ 4,521,000
===================================
Less amount representing
interest (8,267,000)
- --------------------------------------------------------
Present value of minimum lease
payments $10,485,000
========================================================
</TABLE>
Gains related to sale and leaseback transactions have been deferred for
financial reporting purposes and are being amortized over the term of the
leases. Deferred gains of $560,000 at September 25, 1995 and $620,000 at
September 26, 1994 are reflected as a reduction of real property under
capitalized leases in the accompanying consolidated financial statements.
F-13
<PAGE> 51
9. INCOME TAXES
The income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended September 25, 1995
U.S. federal $ (950,000) $ (22,000) $ (972,000)
State and local (78,000) (3,000) (81,000)
- ----------------------------------------------------------------------------------------------
$(1,028,000) $ (25,000) $(1,053,000)
==============================================================================================
Year ended September 26, 1994
U.S. federal $ 2,026,000 $ 258,000 $ 2,284,000
State and local 387,000 49,000 436,000
- ----------------------------------------------------------------------------------------------
$ 2,413,000 $ 307,000 $ 2,720,000
==============================================================================================
Year ended September 27, 1993
U.S. federal $ (310,000) $ (935,000) $(1,245,000)
State and local (59,000) (179,000) (238,000)
- ----------------------------------------------------------------------------------------------
$ (369,000) $(1,114,000) $(1,483,000)
==============================================================================================
</TABLE>
The income tax expense (benefit) attributable to income (loss) before income
taxes and extraordinary item differs from the amounts computed by applying the
U.S. federal statutory tax rate as follows:
<TABLE>
<CAPTION>
September 25, September 26, September 27,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) $(2,073,000) $ 2,321,000 $(1,291,000)
State Income Taxes (81,000) 436,000 (238,000)
General Business Credits (231,000) (230,000) (90,000)
Change in the valuation allowance for
deferred tax assets 1,356,000 -- --
Other, net (24,000) 193,000 136,000
- ------------------------------------------------------------------------------------------------------------
$(1,053,000) $ 2,720,000 $(1,483,000)
============================================================================================================
</TABLE>
F-14
<PAGE> 52
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are summarized below:
<TABLE>
<CAPTION>
SEPTEMBER 25, 1995 SEPTEMBER 26, 1994
- --------------------------------------------------------------------------------------------------------------------------
CURRENT NON-CURRENT Current Non-Current
Deferred tax assets DEFERRED DEFERRED Deferred Deferred
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred compensation $ -- $ 491,000 $ -- $ 520,000
Deferred gain -- 216,000 -- 251,000
Compensated absences, principally due to accrual
for financial reporting purposes 134,000 -- 63,000 --
Provision for store dispositions -- 605,000 -- 1,078,000
State net operating loss carryforward -- 225,000 -- --
General business credits -- 2,214,000 -- 739,000
Alternative minimum tax credits -- 508,000 -- 537,000
Other 84,000 70,000 26,000 117,000
- --------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 218,000 4,329,000 89,000 3,242,000
Less valuation allowance (142,000) (1,783,000) (11,000) (379,000)
- --------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 76,000 2,546,000 78,000 2,863,000
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
- --------------------------------------------------------------------------------------------------------------------------
Plant and equipment, principally due to differences
in depreciation and capitalized interest -- (1,478,000) -- (1,435,000)
Market valuation of investment
in HomeTown Buffet, Inc. -- (2,377,000) -- (1,848,000)
Other -- (568,000) -- (956,000)
- --------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities -- (4,423,000) -- (4,239,000)
- --------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 76,000 $(1,877,000) $ 78,000 $(1,376,000)
==========================================================================================================================
</TABLE>
The valuation allowance for deferred tax assets as of September 25, 1995, and
September 26, 1994, was $1,925,000 and $390,000, respectively.
At September 25, 1995, the Company has general business credit carryforwards for
federal income tax purposes of approximately $2,214,000 which are available to
reduce future federal income taxes, if any, through 2006. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$508,000 which are available to reduce future federal regular income taxes, if
any, over an indefinite period.
10. PREFERRED STOCK
In October 1993, the Company issued 946,714 shares of Series A Convertible
Preferred Stock to ABS MB (JB) Limited Partnership ("ABS"), the general partner
of which is ABS MB Ltd., a merchant banking affiliate of Alex. Brown & Sons
Incorporated for approximately $5.0 million. The preferred stock has a par value
of $1.00, is nondividend bearing and is convertible to common stock on a
one-for-one basis at the option of ABS subject to certain conditions. The
946,714 preferred shares represent an approximate 16% ownership position in the
Company. As holder of the preferred stock, ABS is entitled to liquidation
preferences, rights to approve certain significant corporate transactions and
certain registration rights. Also, as holder of the preferred stock ABS has the
right to elect two of the Company's nine Board members.
11. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan to which the Company
contributes funds as authorized by the Board of Directors. The plan has the
authority to purchase shares of the Company's common stock. All employees of the
Company who have one year of service and are over age 21 participate in the
plan.
F-15
<PAGE> 53
Participant vesting begins with the third year of participation in the
plan at the rate of 20 percent per year. Funds contributed to the plan are used
to retire debt previously incurred, to pay participants who are entitled to
benefits under the plan and to purchase shares of the Company's common stock.
Allocated shares within the plan were 92,737 and 114,857 at September 25, 1995,
and September 26, 1994, respectively. Contributions to the employee stock
ownership plan totaled $0, $85,000 and $90,000 in fiscal years 1995, 1994, and
1993, respectively.
401 (K) PLAN
The Company has a 401(k) plan covering all employees who have attained age 21
and completed one year of service. The plan allows participants to allocate up
to 10% of their annual compensation before taxes for investment in several
investment alternatives. From January 1, 1995, until September 25, 1995, and in
calendar 1994 and 1993, the Company made annual matching contributions of the
Company's stock to the employees' investment portfolio of up to 25% of the first
3% of annual compensation contributed by the employee. An employee must be
employed on December 31 to receive a matching contribution. The Company provided
contributions of $26,000 and $27,000 in fiscal years 1995 and 1994,
respectively, and the Company made no contribution in fiscal 1993.
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan covering the Chairman and certain
former executives, which requires payment upon retirement or disability. Under
the plan, participants receive benefits based upon a multiple of compensation
prior to retirement and years of service (not to exceed 50 percent of average
annual compensation for the highest five-year period) reduced for benefits
payable from the Company's profit sharing and employee stock ownership plans.
The Company expects that participation in the plan will be limited to those
individuals with previously approved deferred compensation agreements. Accruals
for this plan were $133,000, $158,000 and $153,000 for fiscal years 1995, 1994,
and 1993, respectively.
12. STOCK OPTION AND AWARD PLANS
STOCK OPTION PLANS
The Company has stock option plans under which options to purchase the Company's
common stock may be granted to employees and directors at the fair market value
of the stock at the date of grant. Under the plans, options may be granted for a
term of not more than ten years. Incentive stock options granted to employees
through April 7, 1994, become exercisable over a four-year period. Incentive
stock options granted after April 7, 1994 become exercisable over a five-year
period. Nonqualified stock options issued to directors are not subject to
vesting. As of September 25, 1995, shares under option total 782,400 shares of
which 489,350 shares were exercisable at prices ranging from $4.00 to $7.88 per
share.
F-16
<PAGE> 54
The following table presents, for the periods indicated, activity with respect
to the Company's stock option plans:
<TABLE>
<CAPTION>
SEPTEMBER 25, September 26, September 27,
YEARS ENDED 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option, beginning of fiscal year 679,700 527,600 574,430
Options granted (1995 at prices from
$3.63 to $6.00 per share; 1994 at prices from
$4.00 to $7.75 per share; 1993 at prices from
$5.00 to $7.88 per share) 261,000 237,000 207,000
Options expired due to terminations (1995 at prices
from $4.50 to $7.75 per share; 1994 at prices
from $4.88 to $7.75 per share; 1993 at prices from
$4.63 to $7.25 per share) 158,300 51,900 89,100
Options exercised (1995, none; 1994 at prices from
$4.13 to $6.88 per share; 1993 at prices
from $4.13 to $6.87 per share) -- 33,000 164,730
- ----------------------------------------------------------------------------------------------------------------------
Shares under option, end of fiscal year 782,400 679,700 527,600
======================================================================================================================
</TABLE>
EXECUTIVE LONG-TERM STOCK AWARD PLAN
The Company has an Executive Stock Award Plan (the "Plan") adopted in September
1992 by the Board of Directors and approved in February 1993 by the Company's
shareholders. There are 100,000 shares authorized under the Plan to be awarded
to key employees based on the achievement of certain performance objectives
established by the Compensation Committee of the Board of Directors. There were
no shares awarded for fiscal years 1995, 1994 or 1993 under this Plan.
F-17
<PAGE> 55
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes financial information by quarter for the two years
ended September 25, 1995 and September 26, 1994:
<TABLE>
<CAPTION>
Net Income
Gross Net Income (Loss)
Revenues Profit (Loss) Per Share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
1st quarter $ 27,263,000 $18,296,000 $ (876,000) $ (.18)
2nd quarter 27,061,000 18,104,000 (678,000) (.14)
3rd quarter 38,095,000 25,413,000 (1,309,000) (.27)
4th quarter 28,680,000 19,268,000 (2,181,000) (.45)
- ------------------------------------------------------------------------------------------------------------------
$121,099,000 $81,081,000 $(5,044,000) $(1.05)
==================================================================================================================
1994
1st quarter $ 24,228,000 $16,520,000 $ (537,000) $ (.11)
2nd quarter 25,681,000 17,321,000 (290,000) (.06)
3rd quarter 36,948,000 24,932,000 5,765,000 (1) .99
4th quarter 28,510,000 18,916,000 (1,182,000) (.25)
- ------------------------------------------------------------------------------------------------------------------
$115,367,000 $77,689,000 $ 3,756,000 $ .66
==================================================================================================================
</TABLE>
(1) Includes a charge for property dispositions of $1,982,000, a loss on the
disposition of a note receivable of $1,564,000, an extraordinary loss of
$350,000 (net of tax benefit) resulting from the extinguishment of debt and
a gain on the sale of HomeTown Buffet, Inc., common stock of $14,700,000.
See Notes 4, 5, 6 and 7.
Each quarter of the 52 week fiscal years 1995 and 1994 contain 12 weeks, except
for the third quarter, which contains 16 weeks.
14. COMMITMENTS AND CONTINGENCIES
In connection with the sale of restaurants, the Company has assigned its rights
and obligations under real property leases to the buyer. As such, the Company
remains contingently liable for these obligations. Future minimum payments under
these leases amount to $1,294,000 in 1996; $1,245,000 in 1997; $1,202,000 in
1998; $1,164,000 in 1999; $1,069,000 in 2000; and $3,287,000 thereafter.
In addition, the Company is engaged in ordinary and routine litigation
incidental to its business. Management does not anticipate that any amounts
which it may be required to pay by reason thereof will have a material effect on
the Company's consolidated statements of operations or financial position.
15. SUBSEQUENT EVENTS
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
On November 30, 1995, an Agreement and Plan of Merger and Reorganization
("Merger Agreement") was executed between the Company and CKE Restaurants, Inc.,
a Delaware corporation ("CKE"), pursuant to which a wholly-owned subsidiary of
CKE will merge with the Company, and CKE's wholly-owned subsidiary will be the
surviving entity. Consideration for the merger to be paid to the Company's
shareholders for each share of common stock and for each share of preferred
stock will consist of $3.00 in cash and .20513 shares of CKE common stock,
provided that the average CKE common stock price is between $12.25 per share and
$17.00 per share at the closing. If the average CKE common stock price is higher
than $17.00 or lower than $12.25 at the closing, the exchange ratio may be
adjusted accordingly. The transaction is currently expected to close during the
first calendar quarter of 1996, or as soon as practicable thereafter. The
transaction is conditioned upon the Company's shareholders approving the
transaction and the usual and customary conditions to closing, including,
F-18
<PAGE> 56
without limitation, accuracy of the parties' representations and warranties,
performance of the parties' covenants and obligations under the Merger Agreement
and obtaining proper consents of third parties as necessary.
CHANGE IN CONTROL AGREEMENTS
Pursuant to certain change of control agreements, the Company may be obligated
to pay benefits to the President and seven Senior Vice Presidents in the event
of a significant change in ownership of the Company.
The Merger Agreement described above triggered a provision in the change of
control agreements that requires the Company to place in escrow accounts
approximately $1.7 million. Payment of benefits is made upon involuntary
termination of those individuals noted above between the signing of the Merger
Agreement and one year after consummation of the merger or upon the voluntary
termination of employment during the second 90 days following consummation of
the merger. The Company has not yet funded the escrow accounts.
LEASE COMMITMENT
In August 1994, the Company entered into a master lease agreement (the
"Agreement") to finance equipment for new HomeTown Buffet restaurants. The
agreement, among other things, required the Company to maintain minimum tangible
net worth of at least $40 million.
Operating results during fiscal 1995 reduced the Company's net worth to less
than $40 million as of September 25, 1995. On December 7, 1995, the lessor
notified the Company it was in default under the terms of the Agreement and
demanded a default payment in the amount of $1,493,938 which represents all
remaining rent and other payments due to the lessor. Upon receipt of the default
payment, the lessor is obligated to transfer to the Company all rights of
ownership to the leased assets.
Management is contesting the default and seeks a resolution with the lessor that
would allow the Company to continue periodic rent payments as stipulated under
the Agreement. While the final outcome of this matter cannot be determined at
this time, management, in consultation with legal counsel, believes that such a
resolution can be reached.
INVESTMENT IN HOMETOWN BUFFET, INC. COMMON STOCK
As of September 25, 1995, the Company held 528,220 shares of HTBB common stock.
Between September 25, 1995, and December 11, 1995, the Company sold 398,220
shares of HTBB common stock generating net proceeds of $4.8 million resulting in
a pre-tax gain of $4.0 million. $2.1 million of these proceeds were used to
repay the Company's bank loans in full, $700,000 remains in escrow as partial
security against $2.0 million in letters of credit with the remaining $2.0
million retained by the Company. The letters of credit are secured by certain
properties owned by the Company, by the remaining 130,000 shares of HTBB common
stock and by the escrow account noted above.
F-19
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
3 ARTICLES OF INCORPORATION AND BYLAWS:
The following exhibits are attached to this report:
3(a) Certificate of Incorporation, dated February 21, 1985.
3(b) Bylaws, dated February 25, 1985.
3(c) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated February 25, 1987.
3(1) Amendment to Bylaws, dated November 19, 1992.
3(2) Amendment to Bylaws, dated October 27, 1993.
3(3) Certificate of Ownership and Merger Merging JB's Specialty
Restaurants, Inc. into JB's Restaurants, Inc., dated October 15,
1993.
3(4) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated April 4, 1995.
3(5) Certificate of Change of Location of Registered Office and of
Registered Agent, dated July 11, 1995.
3(6) Amendment to Bylaws, dated November 30, 1995.
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES:
The following exhibits are incorporated in this report by reference from
identically numbered exhibits to Annual Reports on Form 10-K previously
filed by the Company:
4(c)(2) Undertaking to furnish to the Securities and Exchange Commission
Long-Term Debt Agreements dated December 22, 1986.
4(f)(g)(h)(3) Note Purchase Agreements between the Company and The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, and Warrants for Common Stock held by The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, dated September 1, 1987.
4(1)(7) First Amendment to Note Purchase Agreements between the Company and
The Canada Life Assurance Co., Security Mutual Group and Crown
Life Insurance Company, and Warrants for Common Stock held by The
Canada Life Assurance Co., Security Mutual Group and Crown Life
Insurance Company, dated April 30, 1992.
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
4(2)(8) Second Amendment to Note Purchase Agreement between the Company and
Crown Life Insurance Company, The Canada Life Assurance Company
and Security Mutual Life Insurance Company (formerly known as
Security Mutual Group), dated October 26, 1993.
4(3)(8) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of the Company, dated October 11,
1993.
4(4)(8) Registration Rights Agreement by the Company for the benefit of ABS MB
(JB) Limited Partnership, dated October 27, 1993.
10 MATERIAL CONTRACTS:
The following exhibits are incorporated in this report by reference from identically
numbered exhibits to Annual Reports on Form 10-K previously filed by the Company:
*10(a)(1) JB's Supplemental Executive Retirement Plan, adopted 1985.
*10(7)(3) 1987 Non-Qualified Stock Option Plan and form of Agreement,
adopted February 13, 1987.
*10(8)(3) 1987 Employee Incentive Stock Option
Plan and form of Agreement adopted
April 21, 1987.
*10(9)(3) 1984 Incentive Stock Option Plan as Amended on February 13, 1987,
and form of Agreement.
*10(i)(5) Amendment to 1984 and 1987 Incentive Stock Option Plans dated
July 16, 1990.
10(dd)(6) Multiple Unit Agreement between HTB Restaurants, Inc., a
wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc.
dated October 9, 1991 effective November 25, 1991.
10(19)(7) First Amendment to Multiple Unit Agreement dated October 9, 1991
between HTB Restaurants, Inc., a wholly-owned subsidiary of the
Company, and HomeTown Buffet, Inc. dated January 3, 1992.
10(20)(7) Second Amendment to the Multiple Unit Agreement dated October 9,
1991 between HTB Restaurants, Inc. a wholly-owned subsidiary of
the Company, and HomeTown Buffet, Inc. dated June 23, 1992.
*10(22)(7) 1992 Stock Option Plan and Form of Agreement adopted September
24, 1992.
*10(23)(7) 1992 Executive Long-Term Stock Award Plan and Form of Agreement, adopted
by the Board of Directors of the Company dated September 24, 1992.
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
*10(32)(8) Employment Agreement between the Company and Don M. McComas dated
November 24, 1993.
10(33)(8) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991 between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc. dated November
30, 1993.
10(34)(9) Note Cancellation Agreement and Release between the Company and
M. Robert Davis and Kathleen Davis dated August 5, 1994.
*10(35)(9) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain
severance benefits in the event of a change in control of the
Company, dated November 18, 1994.
*10(37)(9) Fiscal Year 1995 Executive Incentive Compensation Plan.
10(38)(9) Underwriting Agreement dated March 23, 1994 between the Company,
HomeTown Buffet, Inc. , other selling shareholders, and
Montgomery Securities.
10(39)(9) Letter dated March 1, 1994 between the Company and Crown Life Insurance
Company, Canada Life Assurance Company and Security Mutual Group
regarding prepayment of notes outstanding by the Company.
*10(40)(9) Executive Long Term Incentive Plan approved by the Board of
Directors on April 8, 1994.
*10(41)(9) 1992 Stock Option Plan as amended on April 8, 1994 and November
18, 1994.
The following exhibits are attached to this report:
10(42) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991, as amended January 3, 1992, June 23, 1992 and
November 31, 1993, between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc., dated July
20, 1995.
*10(43) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain benefits
in the event of a change in control of the company, dated August
17, 1995.
*10(44) Fiscal 1996 Executive Incentive Compensation Plan.
*10(45) Separation Compensation Plan adopted by the Board of Directors,
effective as of September 25, 1995.
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
*10(46) Letter Agreement dated January 4, 1995, between the Company and Joseph
J. Hollencamp for certain benefits in the event of the sale of HTB
Restaurants, Inc., or all of its assets.
10(47) Agreement and Plan of Merger and Reorganization between the Company
and CKE Restaurants, Inc., dated November 30, 1995.
*10(48) Form of Amendment to Agreements, dated August 17, 1995, between
the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks,
George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph
J. Hollencamp for certain benefits in the event of a change in
control of the company, dated December 1, 1995.
11 COMPUTATION OF PER SHARE INCOME (LOSS).
22 SUBSIDIARIES OF THE COMPANY.
24 CONSENT OF KPMG PEAT MARWICK LLP.
RE: FORM S-8 NO. 2-99014; NO. 33-18431; NO. 33-17363; NO. 33-62150; NO.
33-62152; NO. 33-99144.
27 FINANCIAL DATA SCHEDULE.
</TABLE>
*This exhibit is a compensatory plan or management contract filed pursuant to
Item 14(c) of Form 10-K.
<PAGE> 1
CERTIFICATE OF INCORPORATION OF
JB'S RESTAURANTS, INC.
FIRST: The name of this corporation is:
JB'S RESTAURANTS, INC.
SECOND: The name and address of the registered agent of the
corporation in the State of Delaware is:
The Corporation Trust Company
1209 Orange Street
Wilmington, County of New Castle, Delaware 19801
THIRD: The purpose of the corporation is to engage in the business of
owning and operating restaurants and to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The total amount of capital stock which this corporation has
the authority to issue is as follows:
Section 1. 10,000,000 shares of common stock, $.10 par value per
share.
Section 2. 1,000,000 shares of preferred stock, $1.00 par value per
share.
<PAGE> 2
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article Fourth, to provide for the
issuance of the shares of preferred stock in series, and to establish from time
to time the number of shares to be included in each series, and to fix the
designation, powers, preferences and relative, participating, optional or other
special rights of the shares of each series and the qualifications, limitations
or restrictions thereof.
The authority of the Board with respect to each series of preferred
stock shall include, but not be limited to, determination of the following:
A. The number of shares constituting the series and the
distinctive designation of the series;
B. The dividend rate on the shares of the series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series;
C. Whether the series will have voting rights, and, if so, the
terms of the voting rights.
D. Whether the series will have conversion privileges, and, if
so, the terms and conditions of the conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
determines;
E. Whether or not the shares of the series will be redeemable,
and, if so, the terms and conditions of redemption, including the date o dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
F. Whether the series shall have a sinking fund for the
redemption or purchase of shares of the series, and, if so, the terms and
amount of the sinking fund;
G. The rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of the series;
2
<PAGE> 3
H. Any other relative terms, rights, preferences and limitations,
if any, of the series as the Board of Directors may lawfully fix under the laws
of the State of Delaware as in effect at the time of the creation of such
series.
Dividends on outstanding shares of preferred stock shall be paid or
declared and set apart for payment, before any dividends shall be paid or
declared and set apart for payment, on the common stock with respect to the
same dividend period.
Section 3. 500,00 shares of junior common stock, $.01 par value
per share.
Shares of junior common stock will have no voting rights associated
with them. No dividends will be paid on outstanding shares of junior common
stock and holders of junior common stock will not participate in any
distribution of the corporation's assets upon liquidation or dissolution.
Except as so provided, and subject to the limitations imposed by law, the Board
of Directors is authorized to determine the relative rights, preferences,
privileges and restrictions granted to or imposed upon shares of junior common
stock, including redemption or conversion rights.
By consent resolution dated February 25, 1985, the corporation's Board
of Directors authorized the issuance of a class of Junior Common Stock,
designated Junior Common Stock "Series A," (hereinafter referred to as Junior
Common Stock), having the following rights and preferences:
RESOLVED, that the 30,000 shares of Junior Common Stock to be
issued to Mr. Jones by the Company be and hereby is declared to have the
following rights, privileges and preferences, including the conversion and
redemption rights set out:
Terms of Conversion. Shares of the Junior Common Stock issued
to Mr. Jones shall be automatically converted into shares of the Company's
Common Stock on a one-for-one basis in accordance with either of the
following methods, on a fiscal year basis:
(a) Mr. Jones may convert shares of the Company's
Junior Common Stock based on the yearly percentage improvement in Return on
Total
3
<PAGE> 4
Average Capital of the Company, rounded to the nearest tenth of one percent.
For purposes of computing the yearly percentage improvement in Return on Total
Average Capital, the current fiscal year's Return shall be divided by the
immediately preceding fiscal year's Return. The percentage thus obtained shall
determine the number of shares Mr. Jones shall convert that fiscal year, based
on the following table:
<TABLE>
<CAPTION>
Number of Shares
Percentage Convertible
---------- ----------------
<S> <C>
Less than 105% -0-
105% to 106.9% 2,000
107% to 108.9% 3,000
109% to 110.9% 4,000
111% to 112.9% 5,000
113% and above 6,000
</TABLE>
(b) Mr. Jones may convert shares of the Junior
Common Stock based on a comparison, rounded to the nearest tenth of one
percent, of the Company's Return on Total Average Capital with the average of
the Returns on Total Average Capital, for their latest fiscal years, of the
following restaurants:
Frisch's Restaurants
Shoney's
Marcus Corporation
Collins Foods
Mr. Steak, Inc.
Shoney's South
VICORP Restaurants, Inc.
The percentage thus obtained shall determine the number of
shares Mr. Jones shall convert that fiscal year, based on the following table:
<TABLE>
<CAPTION>
Number of Shares
Percentage Convertible
---------- ----------------
<S> <C>
Less than 100% -0-
100% to 100.9% 1,000
101% to 103.9% 2,000
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
104% to 106.9% 3,000
107% to 109.9% 4,000
110% to 112.9% 5,000
113% and above 6,000
</TABLE>
Method of Conversion. Mr. Jones shall, within 120 days of
the end of the Company's fiscal year, notify the Company in writing of:
(a) which method Mr. Jones elects to use in computing the
number of shares of Junior Common Stock to be converted for that
fiscal year;
(b) the computation by which the number of shares
eligible for conversion was determined;
(c) the number of shares of Junior Common Stock to be
converted; and
(d) any investment representations requested by the
Company or its legal counsel.
Included with the notice shall be the certificates of Junior Common
Stock representing the number of shares to be converted.
Redemption. Mr. Jones may, upon 30 days advance written
notice to the Company, require the Company to redeem any number of shares of
Junior Common Stock then held by him. Upon such notice and surrender to the
Company of certificates representing the number of shares of Junior Common
Stock Mr. Jones wishes to have redeemed, the Company shall, within 15 days of
its receipt of the notice and certificates, pay Mr. Jones an amount per share
for each share of Junior Common Stock so redeemed computed as follows: the
Junior Common Stock's price per share shall be computed as 1/10th of the price
per share of the Company's Common Stock as quoted by NASDAQ 3 full business
days prior to payment to Mr. Jones of the redemption amount. The shares so
redeemed shall be canceled by the Company.
Definitions. 'Return on Total Average Capital' is defined
as the ratio of i) total net income after taxes plus total interest expense
less an
5
<PAGE> 6
allowance for taxes on the interest expense computed at the actual tax rate
paid by the company, all for the latest fiscal year to ii) total stockholders'
equity plus total long-term debt, including current maturities of long-term
debt, and plus deferred income taxes, all for the fiscal year previous to the
latest fiscal year. The numbers used in determining the Return on Total
Average Capital shall be the fiscal-year figures provided by the company's
annual report to its shareholders or by its audited annual financial
statements. The following example illustrates the computation of the Return on
Total Average Capital for fiscal 1983 for the Company.
<TABLE>
<S> <C>
Net Income (after-taxes) $2,185,000
Interest Expense 1,263,000
Tax on Interest Expense (38.7%) (388,781)
----------
$2,959,219
Stockholder's Equity $9,836,000
Long-Term Debt 10,656,000
Current Maturities 1,378,000
Deferred taxes 264,000
----------
22,104,000
</TABLE>
$2,959,219 / $22,104,000 = 13.4% Return on Total Average Capital.
FIFTH: The name and mailing address of the incorporator of the
corporation is as follows:
<TABLE>
<CAPTION>
Name: Mailing Address:
<S> <C>
Clark D. Jones 1010 West 2610 South
Salt Lake City, Utah 84119
</TABLE>
6
<PAGE> 7
SIXTH: Bylaws may be adopted, amended or repealed by a vote of 80% of
the outstanding stock of the corporation entitled to vote thereon. Bylaws may
also be adopted, amended or repealed by the Board of Directors as permitted by
law. Notwithstanding the foregoing, any bylaw amendment adopted by the Board
of Directors increasing or reducing the authorized number of directors shall
require a resolution adopted by the affirmative vote of not less than 80% of
the directors.
SEVENTH: The number of directors of the Board of Directors of the
corporation will be as specified in the bylaws. The board is divided into three
classes; Class I, Class II and Class III. Each class will be as nearly equal in
number of directors as possible. Each director will serve for a term ending on
the third annual shareholders meeting following the annual meeting at which the
director was elected; provided, however, that the directors first designated
Class I will serve for a term ending on the annual shareholders meeting next
following the end of calendar year 1985. Directors first designated Class II
will serve for a term ending on the second annual shareholders meeting next
following the end of calendar year 1985. Each director will serve until his
successor shall have been duly elected and qualified, unless he resigns, becomes
disqualified, disabled or is otherwise removed.
At each annual election, directors chosen to succeed those whose terms
expire will be of the same class as the directors they succeed, unless, by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors, each director continuing to serve as such will
continue in the class of which he is a member until the expiration of his
current term, or his prior death, resignation or removal. If any newly created
directorship may, consistent with the rule that the three classes be as nearly
equal in number of directors as possible, be allocated to two or more classes,
the Board shall allocate it to the class whose term of office is due to expire
at the next earliest date.
7
<PAGE> 8
EIGHTH: The affirmative vote of the holders of not less than 80% of
the outstanding stock of the corporation entitled to vote shall be required for
approval if (1) this corporation merges or consolidates with any other
corporation if such other corporation and its affiliates are directly or
indirectly the beneficial owners of more than 10% of the total voting power of
all outstanding shares of the voting stock of the corporation (a "Related
Corporation"), or if (2) this corporation sells to or exchanges with a Related
Corporation all or a substantial part of its assets, or if (3) this corporation
issues or delivers any stock or other securities of its issue in exchange or
payment for any properties or assets of a Related Corporation or securities
issued by a Related Corporation, or in a merger of any affiliate of this
corporation with or into a Related Corporation or any of its affiliates;
provided, however, that the foregoing shall not apply to any such merger,
consolidation, sale or exchange, or issuance or delivery of stock or other
securities which was (I) approved by resolution of the Board of Directors
adopted by the affirmative vote of not less than a majority of the directors who
were directors prior to the acquisition of beneficial ownership of more than 10%
of all outstanding shares of the voting stock of the corporation by the Related
Corporation and its affiliates, nor shall it apply to any such transaction
solely between this corporation and another corporation 50% or more of the
voting stock of which is owned by this corporation. "Affiliate" shall have the
definition noted in Article Eleventh. "Control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities, by
contract, or otherwise; and in computing the percentage of outstanding voting
stock beneficially owned by any person the shares outstanding and the shares
owned shall be determined as of the record date fixed to determine the
shareholders entitled to vote or express consent with respect to such proposal.
The shareholder vote, if any, required for mergers, consolidations, sales or
exchanges of assets or issuances of stock or other securities not expressly
provided for in this Article Eighth, shall be such as may be required by
applicable law. A "substantial part" of the corporation's assets shall mean
assets comprising more than 10% of the book value or fair market value of the
total assets of the corporation and its subsidiaries taken as a whole.
NINTH: No action may be taken by shareholders except at an annual or
special meeting of shareholders. No action may be taken by shareholders by
written consent.
8
<PAGE> 9
TENTH: Special meetings of the shareholders of the corporation for any
purpose may be called at any time by a majority of the members of the Board of
Directors or by a committee of the Board of Directors which has been duly
empowered by the Board of Directors to call special meetings. Special meetings
may not be called by any other person.
ELEVENTH: It is the declared intent and policy of this corporation and
its shareholders that all shareholders are entitled (I) to participate, through
an election to sell or otherwise dispose of their shares, in any proposed
acquisition of control of this corporation, and (ii) to be offered a price for
their shares which is fair and equitable under the circumstances.
Section 1. For the purposes of this Article Eleventh:
(a) An "Affiliate" of a specified Person is a
Person that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
(b) The term "Associate", when used to indicate
a relationship with any Person, means (1) any corporation or organization
(other than this corporation or a Subsidiary) of which the Person is an officer
or partner or is, directly or indirectly, the Beneficial Owner of 10% or more
of any class of equity securities, (ii) any trust or other estate in which the
Person has a substantial beneficial interest or as to which the Person serves
in a fiduciary capacity, and (iii) any relative or spouse of the Person, or any
relative of the spouse, who has the same home as the Person, or is an officer
or director of any corporation controlling or controlled by the Person.
(c) "Beneficial Ownership" shall be determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 or any successor rule or, if Rule 13d-3 is
rescinded and there is no successor rule, pursuant to Rule 13d-3 as in effect
on June 15, 1985. In any event, a Person shall also be deemed the "Beneficial
Owner" of any Voting Shares which:
(1) The Person or any of its Affiliates or
Associates beneficially owns, directly or indirectly, or
9
<PAGE> 10
(2) The Person or any of its Affiliates or
Associates (I) has the right to acquire immediately or in the future pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants options or otherwise, or (ii) has sole, or
shares, voting or investment power with respect to pursuant to any agreement,
arrangement, understanding, relationship or otherwise (other than solely by
reason of a revocable proxy granted to the Person for a particular meeting of
shareholders, pursuant to a public solicitation of proxies for the meeting, with
respect to shares of which neither the Person nor any of its Affiliates or
Associates is otherwise deemed the Beneficial Owner), or
(3) Are Beneficially Owned, directly or
indirectly, by any other Person with which the Person or any of its Affiliates
or Associates acts as a partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of this
corporation.
For purposes of computing the percentage Beneficial Ownership of Voting
Shares of a Person in order to determine whether the Person is a Substantial
Shareholder, the outstanding Voting Shares shall include shares deemed owned by
the person through application of this subparagraph (c), but shall not include
any other Voting Shares which may be issuable by this corporation pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, exchange rights, warrants, options or otherwise. For all other purposes,
the outstanding Voting Shares shall include only Voting Shares then outstanding.
(d) "Common Stock" means not only this
corporation's common stock, as authorized by the corporation's Certificate of
Incorporation, but also any capital stock or other security convertible into or
exchangeable for, and any warrant, option or other right to acquire the common
stock of this corporation. If there is at any time more than one class or
series of Common Stock or any warrants, options or other securities convertible
into or exchangeable for Common Stock, all references of this Article Eleventh
to Common Stock or to any Tender Offer, Offer Price or Market Price shall be
deemed to refer to and apply to each class or series of Common Stock and any
securities convertible into or exchangeable for, and any warrants, options or
other rights to purchase Common Stock individually, and the provisions of this
Article
10
<PAGE> 11
Eleventh shall be deemed to apply separately to each class or series of Common
Stock and securities, warrants, options or other rights to purchase Common
Stock, and, in addition, the Offer Price with respect to each series or class of
Common Stock, or securities, warrants, options or other rights to purchase
Common Stock, shall be equivalent to the Offer Prices for the others.
(e) A "Majority of the Board" means a majority of
the total number of the directors which this corporation would have if there
were no vacancies, but only if a majority of the number of directors at the time
of the relevant determination consists of Unrelated Directors. If the majority
does not then consist of Unrelated Directors, a Majority of the Board shall mean
a majority of the then Unrelated Directors.
(f) A "Person" means any individual, firm,
corporation, partnership, association or other entity.
(g) "Subsidiary" means any corporation of which a
majority of each class of equity security (as defined in Rule 3a-11-1 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on June 15, 1985) is owned, directly or indirectly, by this corporation.
(h) "Substantial Shareholder" means any Person,
other than this corporation or any Subsidiary, that is the Beneficial Owner,
directly or indirectly, or more than 10% of the outstanding Voting Shares,
determined solely on the basis of the total number of Voting Shares Beneficially
Owned (and without giving effect to the number or percentage of votes entitled
to be cast in respect of the shares pursuant to this Article Eleventh) in
relation to the total number of Voting Shares issued and outstanding. A Person
shall not be deemed to be a Substantial Shareholder if the Person, prior to the
time the Person becomes the Beneficial Owner, directly or indirectly, of more
than 10% of the outstanding Voting Shares, commences and thereafter consummates
a Tender Offer for all shares of Common Stock then issued and outstanding, the
terms of which shall be approved as in the best interests of the corporation and
its shareholders by a Majority of the Board.
Anything to the contrary notwithstanding, (i) no director or
officer of this corporation, no Affiliate or Associate of the director or
officer, and no group or member of a group of which the officer or director or
any of his
11
<PAGE> 12
Affiliates or Associates is a member shall, solely by reason of their acting in
their capacities, for any purposes hereof, be deemed to be a Substantial
Shareholder, (ii) no employee stock ownership or similar plan or trust of this
corporation or any Subsidiary shall, for any purposes hereof, be deemed to be a
Substantial Shareholder, nor shall any trustee, Affiliate or Associate of the
trustee nor any group of the same, solely by reason of their acting in their
capacities, be deemed to be a Substantial Shareholder, and (iii) no director or
officer of this corporation nor any Affiliate or Associate of the director or
officer shall, by virtue of their acting or agreeing to act in concert with one
another or with any group in opposition to any Tender Offer, accumulation of
shares of Common Stock or other attempt to gain control of this corporation
determined not to be in the best interests of this corporation and its
shareholders by a Majority of the Board, for any purposes hereof, be deemed to
be a Substantial Shareholder.
(i) "Tender Offer" shall mean an offer to acquire
equity securities pursuant to a request or invitation for tenders.
(j) "Unrelated Director" shall mean a Person who
was a member of the Board of Directors as of June 15, 1985 or thereafter
elected by the shareholders or appointed by the Board of Directors of this
corporation prior to the date the Substantial Shareholder became a Substantial
Shareholder, or a Person designated, before his initial election or appointment
as a director, as an Unrelated Director by a Majority of the Board.
(k) "Voting Shares" shall mean any share of the
capital stock of this corporation entitled to vote generally in the election of
directors.
Section 2. Notwithstanding anything in this
Certificate of Incorporation to the contrary, after the date any Person becomes
a Substantial Shareholder and until the Person ceases to be a Substantial
Shareholder, Persons entitled to vote issued and outstanding Voting Share of any
class or series beneficially owned by the Substantial Shareholder in excess of
10% of the then issued and outstanding shares of the class or series shall,
subject to the provisions of the last sentence of this Section 2, be entitled to
cast 1/10 of one vote per share for each share in excess of 10% of the then
issued and outstanding shares of the class or series. If the Substantial
Shareholder consummates a Tender Offer conforming with the provisions of
Sections 4 and 5 of this Article Eleventh, Persons entitled to vote voting
Shares Beneficially Owned by the Substantial
12
<PAGE> 13
Shareholder shall thereafter be entitled to cast the number of votes the Persons
would be entitled to cast in the absence of this Article Eleventh. For purposes
of this Article Eleventh, casting of votes includes voting at any meeting of
shareholders in person or by proxy.
Section 3. Until a Substantial Shareholder
consummates a Tender Offer conforming with the provisions of Sections 4 and 5 of
this Article Eleventh, the Substantial Shareholder and all Persons entitled to
vote Voting Shares of any class or series Beneficially Owned by the Substantial
Shareholder collectively shall not be entitled or permitted to cast in excess of
15% of the total number of votes which the holders of all then outstanding
Voting Shares of the class or series would (after giving effect to the
provisions of Section 2 of this Article Eleventh) be entitled to cast.
Section 4. The Tender Offer referred to in
Sections 2 and 3 of this Article Eleventh means a tender offer to acquire, at
not less than the applicable Offer Prices, all shares of Common Stock then
outstanding and not Beneficially Owned by the Substantial Shareholder and which
provides that if the Substantial Shareholder obtains control of this corporation
it will use its best efforts to promptly consummate a merger in which holders of
all Common Stock not purchased in the Tender Offer will receive the respective
Offer Prices in cash. Any Tender Offer shall be directly regulated by and
conducted in conformance with the provisions of Section 14 (d) of the Securities
Exchange Act of 1934 and the General Rules and Regulations thereunder applicable
to tender offers for equity securities registered under Section 12 of such Act
or any succeeding statutes. The consideration to be received by holders of
common Stock in any Tender Offer shall be in the form of cash exclusively, and
the Tender Offer shall be deemed consummated only when payment in full shall be
made for all duly tendered shares. A Tender Offer shall not be deemed to have
conformed or complied with the provisions of this Section 4 unless (I) the
Substantial Shareholder or its Affiliate requests a certificate of an officer of
this corporation specifying the Offer Prices as contemplated by Section 5(b) of
this Article Eleventh, (ii) the first public announcement thereof setting forth
the Offer Prices (the "Announcement") occurs within forty-five days of receipt
of the certificate specifying the Offer Prices as contemplated in Section 5 (b),
(iii) the Tender Offer is commenced with 30 days after the Announcement, (iv)
the Tender Offer remains upon for at least 20 business days and (v) payment for
shares tendered is made within 30 days after the shares are tendered.
13
<PAGE> 14
Section 5. (a) The "Offer Price" for the
Common Stock in any Tender Offer shall be an amount per share of Common Stock
not less than the greater of:
(1) the Market Price of the Common Stock
immediately prior to the Announcement multiplied by a fraction, the numerator of
which is the highest per share price (including brokerage commissions, transfer
taxes and soliciting dealers' fees) which the Substantial Shareholder paid or
agreed or offered to pay for any shares of Common Stock acquired by it within
two years prior to the Announcement, and the denominator of which is the Market
Price of the Common Stock immediately prior to the initial acquisition by the
Substantial Shareholder of any Common Stock during the two-year period;
(2) the highest price per share of Common Stock
(including brokerage commissions, transfer taxes and soliciting dealers' fees)
paid or agreed or offered to be paid by the Substantial Shareholder to acquire
any shares of Common Stock;
(3) the highest sale price or the average of the
highest bid and asked prices for the Common Stock reported during the 12 months
prior to the Announcement;
(4) the aggregate earnings per share of Common
Stock for the four full consecutive fiscal quarters immediately preceding the
one in which the Announcement is made as to which financial results have been
published by this corporation, multiplied by the price/earnings multiple
determined by a Majority of the Board; or
(5) the book value of the corporation as of a
recent date preceding the Announcement of the Tender Offer, multiplied by the
book value multiple determined by a Majority of the Board.
In making the determinations referred to under "(4)" and "(5)" above, the
Majority of the Board shall act reasonably and may consider all financial and
other data they deem relevant, including but not limited to current and historic
price earnings multiples of this corporation, current and historic price
earnings multiples of other corporations engaged in business similar to
14
<PAGE> 15
this corporation whose shares are publicly traded, current and historic price
earnings multiples of the Substantial Shareholder or any of its Affiliates, and
this corporation's historic and projected financial position, results of
operations, return on investment and other financial criteria, and its business
plans and future prospects.
Notwithstanding the foregoing, a Majority of the
Board, in its discretion, may determine, that, in lieu of an amount per share of
Common Stock not less than the greater of the amounts determined in accordance
with Section 5 (a) (1), (2), (3), (4) or (5) above, the Offer Price shall be an
amount per share of Common Stock which shall not be less than a price per share
of Common Stock established and determined in writing by an independent,
nationally recognized investment banking firm selected by a Majority of the
Board as a fair and appropriate price (considering this corporation as a going
concern or on the basis of its value in liquidation, whichever circumstance
would result in the higher price) for the sale of this corporation in a
privately negotiated, arm's-length transaction with a Person other than a
Substantial Shareholder or an Affiliate or Associate of a Substantial
Shareholder, in light of then prevailing economic conditions, the business and
assets of and future prospects for this corporation, the benefits expected to be
derived by the acquiring Person (s) from an acquisition of or combination with
this corporation, recent examples of similar transactions and other factors
deemed relevant by the investment banking firm in making determinations or
recommendations as to price in arm's-length acquisition transctions in which a
reasonable amount of time is available to secure a purchaser.
(b) This corporation shall furnish to any
Substantial Shareholder requesting in writing (such request to be addressed to
the president at the principal executive offices of this corporation), within 90
days after receipt of the request, a certificate of an officer of this
corporation specifying the Offer Prices for the Common Stock determined pursuant
to Section 5(a). Each request by a Substantial Shareholder shall specify the
prices paid or agreed or offered to be paid for shares of Common Stock referred
to in Section 5(a) (1) and (2) above and shall contain an agreement to pay the
reasonable fees and expenses of the investment banking firm engaged by the
corporation pursuant to Section 5(a) above if the Substantial Shareholder does
not make a Tender Offer complying with the provisions of Section 3 and 4 of this
Article Eleventh.
15
<PAGE> 16
Section 6. For purposes of Section 5 of this
Article Eleventh, the "Market Price" of a share of Common Stock on any
particular date shall mean the average of the latest bid and asked prices, as
published by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or, if the Common Stock is then listed or admitted to trading
on a national securities exchange, the last sale price regular way therefor as
reported in the consolidated transaction reporting system for securities listed
or traded on such exchange, or, in case no such reported sale takes place, the
average of the latest bid and asked prices regular way therefor as reported in
the consolidated transaction reporting system for securities listed or traded on
such exchange, for each of the 45 trading days in which shares of Common Stock
shall have been traded immediately preceding the date. If no sales or bid and
asked prices are available, "Market Price" shall be determined by a Majority of
the Board on a basis they deem reasonable.
Section 7. A Majority of the Board shall
determine for the purposes of this Article Eleventh, on the basis of information
known to them, (i) the number of Voting Shares Beneficially Owned by any Person,
(ii) whether a Person is an Affiliate or Associate of another, (iii) whether a
Person has an agreement, arrangement or understanding with another as to the
matters referred to in Section 1 (c) of this Article Eleventh, (iv) whether the
purchase price offered pursuant to any Tender Offer conforms to the requirements
as to minimum Offer Prices set forth in Section 5 of this Article Eleventh,
and/or (v) any other factual matter relating to the applicability,
interpretation or effect of this Article Eleventh.
Section 8. A Majority of the Board may demand
that any Person it reasonably believes is a Substantial Shareholder (or holds of
record Voting Shares Beneficially Owned by any Substantial Shareholder) supply
this corporation with complete information as to (i) the record owner(s) of all
shares Beneficially Owned by the Person that it is reasonably believed is a
Substantial Shareholder, (ii) the number of, and class or series of, shares
Beneficially Owned by the Person who it is reasonably believed is a Substantial
Shareholder and held of record by each record owner and the number(s) of the
stock certificate(s) evidencing such shares, and (iii) any other factual matter
relating to the applicability or effect of this Article Eleventh, as may
reasonably be requested of the Person, and the Person shall furnish such
information within 10 days after receipt of the demand.
16
<PAGE> 17
Section 9. Except as otherwise provided by law,
the presence, in person or by proxy, of the holders of record of shares of
capital stock of this corporation entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this Article Eleventh) entitled to be cast by the holders of shares of capital
stock of this corporation entitled to vote shall constitute a quorum at all
meetings of the shareholders, and every reference in his Certificate of
Incorporation to a majority or other proportion of stock or voting stock (or the
holders thereof) for purposes of determining any quorum requirement or any
requirement for shareholder consent or approval shall be deemed to refer to such
majority or other proportion of the votes (or the holders thereof then entitled
to be cast in respect of the capital stock of this corporation (after giving
effect, if required, to the provisions of this Article Eleventh).
Section 10. Any determinations made by a Majority
of the Board or by a majority of the Board of Directors pursuant to this Article
Eleventh in good faith and on the basis of such information as was then
reasonably available shall be conclusive and binding upon this corporation and
its shareholders, including any Substantial Shareholder.
Section 11. Anything to the contrary contained in
this Article Eleventh notwithstanding and without limiting the powers, rights
and obligations of the Board of Directors, the Board of Directors is entitled
and authorized, consistent with its duties as such and its obligations to this
corporation and its shareholders, to consider the terms of any proposed Tender
Offer or acquisition proposed by any Person, and to determine if and whether to
recommend acceptance or rejection thereof, notwithstanding compliance thereof
with the other provisions of this Article Eleventh, and in connection therewith,
to take or authorize any and all appropriate and proper action deemed in the
judgment of the Board of Directors in the best interests of this corporation and
the shareholders in the event the Board of Directors shall determine to
recommend rejection thereof.
Section 12. Nothing contained in this Article
Eleventh shall be construed to relieve any Substantial Shareholder from any
fiduciary obligation imposed by law.
Section 13. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of
17
<PAGE> 18
80% or more of the votes entitled to be cast in respect of the capital stock of
the corporation shall be required to amend or repeal, or to adopt any provision
inconsistent with this Article Eleventh.
TWELFTH: (a) A director of the corporation, or the entire
Board of Directors of the corporation, may be removed by the shareholders
without cause only upon the affirmative vote of the holders of not less than 80%
of the stock entitled to vote upon the election of directors.
(b) A director may be removed for cause only by
the affirmative vote of the holders of a majority of the stock entitled to vote
upon his election.
(c) As used herein, "cause" for the removal of a
director shall be deemed to exist if (i) there has been a finding by not less
than 80% of the entire Board of Directors that cause exists and the directors
have recommended removal to the shareholders, or (ii) any other cause defined by
law.
THIRTEENTH: The corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on shareholders herein are granted subject to this reservation.
Notwithstanding the foregoing, the provisions set forth in Articles Sixth,
Seventh, Eight, Ninth, Tenth, Eleventh, Twelfth and this Article Thirteenth, may
not be repealed or amended in any respect unless such repeal or amendment is
approved by the affirmative vote of the holders of not less than 80% of the
total voting power of all outstanding shares of voting stock of this
corporation.
FOURTEENTH:
Section 1. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines
18
<PAGE> 19
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable for misconduct in the
performance of his duty to the corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery of the State of Delaware or such other court shall deem
proper.
Section 3. To the extent that any person
referred to in Sections 1 and 2 of this Article Fourteenth has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred
to therein or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
19
<PAGE> 20
Section 4. Any indemnification under Sections 1
and 2 of this Article Fourteenth (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Sections 1 and 2. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum of disinterested directors, or (b) by
the shareholders.
Section 5. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the manner provided in section 4 of
this Article Fourteenth upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as provided in this Article Fourteenth.
Section 6. The indemnification provided by this
Article Fourteenth shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any statute, by-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 7. The corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against liability under the provisions of
this Article Fourteenth.
THE UNDERSIGNED, being the incorporator hereinbefore
named, for the purpose of forming a corporation to do business both within and
20
<PAGE> 21
without the State of Delaware and in pursuance of the Delaware General
Corporation Law, does hereby make and file this certificate.
/s/ Clark D. Jones
------------------
Clark D. Jones
Acknowledgment
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE
The foregoing Certificate of Incorporation of JB's Restaurants, Inc.,
was acknowledged before me this 21st day of February, 1985, by Clark D. Jones,
the person signing the Certificate, who further acknowledged that it is his deed
and act that the facts stated therein are true.
/s/ Debra J. Buckley
--------------------
NOTARY PUBLIC
Residing at Salt Lake
My Commission Expires:
4/11/87
- -------------
21
<PAGE> 1
BYLAWS
OF
JB'S RESTAURANTS, INC.
ARTICLE I
OFFICES
The principal office of the corporation shall be located at 2610 West 1010
South in Salt Lake City, Utah. The corporation may have such other offices as
the Board of Directors may designate or as the business of the corporation may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the shareholders
shall be held at the time and place specified each year by the Board of
Directors, for the purpose of electing Directors and for the transaction of any
other business that may come before the meeting.
SECTION 2. Special Meetings. Special meetings of the shareholders,
for purposes described in the notice of meeting, may be called by the Board of
Directors or by a committee of the Board of Directors which has been duly
empowered by the Board of Directors to call special meetings. No other persons
may call or require the calling of a special meeting.
SECTION 4. Notice of Meeting. Written notice to each shareholder
stating the time and place of the meeting and, in case of a special meeting,
the purposes for
<PAGE> 2
which the meeting is called, shall be delivered not less than ten nor more than
sixty days before the date of the meeting.
SECTION 5. Determining Shareholders of Record. The Board of
Directors may provide a record date for the determination of shareholders
entitled to notice of and to vote at any meeting of shareholders. The record
date shall not be less than ten nor more than sixty days prior to the date of
the meeting. Only shareholders of record on the record date are entitled to
notice of and to vote at the meeting or any adjournment thereof.
SECTION 6. Voting Lists. The officer in charge of the stock ledger
of the corporation shall make a complete list of the shareholders entitled to
vote at each meeting of shareholders or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each
shareholder. Such list shall be made available at the location specified in the
written notice of meeting for ten days prior to the meeting and shall be
produced and kept open at the meeting for the inspection of any shareholder.
SECTION 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may, without further notice adjourn the meeting to a future date
at which a quorum is present or represented. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 8. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after three years from the date of its execution, unless otherwise provided in
the proxy.
SECTION 9. Voting of Shares. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of shareholders.
<PAGE> 3
SECTION 10. Organization and Conduct of Meeting. The Board of
Directors shall designate a person to act as chairman of the meeting. The
chairman shall appoint a secretary of the meeting. The chairman of any meeting
of shareholders shall determine the order of business and the procedure at the
meeting, including the regulation of the manner of voting and the conduct of
discussion as the chairman sees fit.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by its Board of Directors.
SECTION 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be nine. Each director shall hold office
until the next annual meeting of shareholders and until his successor shall
have been elected and qualified.
SECTION 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The Board of
Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than the resolution.
SECTION 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any three
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the time and place for holding any special meeting
called by them.
SECTION 5. Notice. Notice of any special meeting shall be given at
least one day previous thereto by written notice delivered personally or mailed
to each director. The attendance of a director at a meeting shall constitute a
waiver of notice of the meeting, except where a director attends a meeting to
object to the transaction of any business because the meeting is not lawfully
called or convened.
<PAGE> 4
SECTION 6. Quorum. Five directors shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice.
SECTION 7. Manner of Acting. Except as stated in the corporation's
Certificate of Incorporation, the act of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
SECTION 8. Action Without a Meeting. Any action that may be taken by
the Board of Directors at a meeting may be taken without a meeting if a consent
in writing, setting forth the action taken, is signed by all of the Directors.
SECTION 9. Meetings by Conference Telephone. Any director may
participate in any meeting of the Board of Directors, or any committee thereof,
by means of conference telephone or similar communications equipment that
enables all persons participating in the meeting to hear one another.
Participation in the meeting by conference telephone shall constitute presence
in person at the meeting.
SECTION 10. Vacancies. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.
SECTION 11. Presumption of Assent. A director of the corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to the action with the person acting
as the secretary of the meeting.
<PAGE> 5
ARTICLE IV
OFFICERS
SECTION 1. Number. The officers of the corporation shall be a
President, one or more Vice Presidents, a Secretary, Assistant Secretaries, a
Treasurer, and Assistant Treasurers each of whom shall be elected by the Board
of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors, including a
Chairman of the Board.
SECTION 2. Election and Term of Office. The officers shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as practicable. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3. Removal. Any officer or agent may be removed by the Board
of Directors whenever, in its judgment, the best interests of the corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment of
an officer or agent shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. President. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He may sign certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board of Directors from time to time.
<PAGE> 6
SECTION 6. Vice Presidents. In the absence of the President or in
event of his death, inability or refusal to act, the Vice President who has
served in such capacity for the longest time shall perform the duties of the
President, unless a contrary method of succession has been set forth in a Board
of Director's resolution then in effect. When the Vice President is acting in
the capacity of the President, he shall have all the powers of and be subject
to all the restrictions upon the President. The Vice Presidents shall perform
such other duties as from time to time may be assigned to them by the President
or by the Board of Directors.
SECTION 7. Secretary and Assistant Secretaries. The Secretary and
Assistant Secretaries shall: (a) keep the minutes of the proceedings of the
shareholders and of the Board of Directors in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents, the execution of which on behalf
of the corporation under its seal is duly authorized; (d) keep a register of
the post office address of each shareholder which shall be furnished to the
Secretary by the shareholder; (e) sign with the President certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general perform all duties
incident to the office of the Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
SECTION 8. Treasurer and Assistant Treasurers. The Treasurer and
Assistant Treasurers shall: (a) have charge and custody of and be responsible
for all funds and securities of the corporation; (b) receive and give receipts
for moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositaries as shall be selected and (c) in general perform
all of the duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the President or by the Board of
Directors.
SECTION 9. Salaries. The salaries of the officers shall be fixed by
the Board of Directors and no officer shall be prevented from receiving a
salary by reason of the fact that he is also a director of the corporation.
<PAGE> 7
SECTION 10. Delegation of Authority. The Board of Directors may
delegate the powers or duties of any officer to any other officer or agents,
notwithstanding any provision of these Bylaws.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing shares
of the corporation shall be in such form as shall be determined by the Board of
Directors. The certificates shall be signed by, or contain facsimile signatures
of, the President and the Secretary or by such other officers authorized by law
and by the Board of Directors so to do, and sealed with the corporate seal or
its facsimile. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation or its transfer agent for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the corporation
as the board of Directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation kept at an
office of the corporation or by transfer agents designated as such. The person
in whose name shares stand on the books of the corporation shall be deemed by
the corporation to be the owner thereof for all purposes.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall end on the last Sunday in September
of each year.
ARTICLE VII
DIVIDENDS
<PAGE> 8
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law.
ARTICLE VIII
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE IX
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any shareholder or director of the corporation under the provisions of
these Bylaws or under the provisions of the Certificate of Incorporation or
under the provisions of the General Corporation Law of Delaware, a waiver
thereof in writing, signed by the person or persons entitled to such notice
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XIII
AMENDMENTS
Except as expressly restricted by the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the
Board of Directors at any regular or special meeting of the Board of Directors.
Dated: February 25, 1985
/s/ Jennifer E. MacLachlan
--------------------------
Assistant Secretary
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
JB'S RESTAURANTS, INC.
(Pursuant to Section 242)
Clark D. Jones and Charlotte L. Miller certify that:
1. They are the President and Secretary, respectively of JB's
Restaurants, Inc., a Delaware corporation (the "Company").
2. Article Fourteenth of the Company's Certificate of Incorporation
is amended in full as follows:
FOURTEENTH:
Section 1. Elimination of Certain Liability of Directors. A director of
the corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
<PAGE> 2
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. The corporation shall indemnify
and hold harmless any person who was or is made a party to or is threatened to
be made a party to or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent. The corporation's indemnification hereby shall be 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 amendment, only to the
extent that the amendment permits the corporation to provide broader
indemnification rights than the law permitted the corporation to provide prior
to the amendment), against all expense, liability and loss (including attorneys
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by the person in
connection therewith and the indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators. 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, except
that, if the Delaware General Corporation Law requires, the payment of expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
the person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the
<PAGE> 3
corporation of an undertaking, by or on behalf of the director or officer, to
repay all amounts advanced if it shall ultimately be determined that the
director or officer is not entitled to be indemnified under this Section or
otherwise. The corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section is not paid in full by the corporation within
thirty days after a written claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting the
claim. It shall be a defense to any action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the corporation) that the claimant has not met the standards
of conduct which make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or shareholders) to have made a determination prior to the commencement
of the action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel or
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section 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
shareholders or disinterested directors or otherwise.
<PAGE> 4
(d) 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 the person against expense,
liability or loss under the Delaware General Corporation Law.
3. The foregoing Amendment was approved by the Company's Board of
Directors.
4. The foregoing Amendment was approved by the Company's
shareholders at the 1987 Annual Shareholders Meeting on Friday, February 13,
1987 by more than 50% of the number of shares entitled to be voted.
The undersigned hereby certify that they have personal knowledge
that the information set forth above is true.
Date: 2/25/87 /s/ Clark D. Jones
---------------- ------------------------------
Clark D. Jones, President
Date: 2/25/87 /s/ Charlotte L. Miller
---------------- ------------------------------
Charlotte L. Miller, Secretary
<PAGE> 1
AMENDMENT TO BYLAWS
OF
JB'S RESTAURANTS, INC.
NOVEMBER 19, 1992
At a regularly scheduled meeting of the Board of Directors of
JB's Restaurants, Inc. (the Company), for which adequate notice was given, and
upon motion duly made and seconded, the Board of Directors of the Company
unanimously
RESOLVED, TO AMEND THE BYLAWS OF THE COMPANY TO REQUIRE EIGHT RATHER
THAN NINE DIRECTORS AND THEREBY AMEND ARTICLE III SECTION 2 OF THE BYLAWS TO
READ AS FOLLOWS:
SECTION 2. Number, Tenure and Qualifications. The number of directors
of the corporation shall be eight. Each director shall hold office
until the next annual meeting of shareholders and until his successor
shall have been elected and qualified.
Dated this 19th day of November, 1992.
/s/ Charlotte L. Miller
-----------------------
Charlotte L. Miller
Corporate Secretary
<PAGE> 1
SECOND AMENDMENT TO BYLAWS OF
JB'S RESTAURANTS, INC.
October 27, 1993
By unanimous written consent of the Board of Directors of JB's
Restaurants, Inc., a Delaware corporation (the "Company"), dated October 27,
1993, the Board of Directors amended Article III, Section 2. of the Bylaws of
the Company in its entirety to read as follows:
SECTION 2. Number, Tenure and Qualifications. The
number of directors of the corporation shall be nine. Each
director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected
and qualified.
Dated this 27th day of October, 1993.
/s/ Charlotte L. Miller
-----------------------
Charlotte L. Miller
Corporate Secretary
<PAGE> 1
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
JB'S SPECIALTY RESTAURANTS, INC.
INTO
JB'S RESTAURANTS, INC.
(Pursuant to Section 253 of the
General Corporation Law of Delaware)
JB's Restaurants, Inc., a Delaware corporation (the "Corporation"),
does hereby certify:
FIRST: That the Corporation is incorporated pursuant to the General
Corporation Law of the State of Delaware.
SECOND: That the Corporation owns all of the outstanding shares of
each class of capital stock of JB's Specialty Restaurants, Inc., a Delaware
corporation.
THIRD: That the Corporation, by the following resolutions of its
Board of Directors, duly adopted on the 15th day of October, 1993, determined
to merge into itself JB's Specialty Restaurants, Inc. on the conditions set
forth in such resolutions.
RESOLVED, that JB's Restaurants, Inc. merge into
<PAGE> 2
itself its subsidiary, JB's Specialty Restaurants, Inc., and assume all
of said subsidiary's liabilities and obligations; and FURTHER RESOLVED,
that the President and Secretary of this Corporation be and they hereby
are directed to make, execute and acknowledge a certificate of
ownership and merger setting forth a copy of the resolution to merge
said JB's Specialty Restaurants, Inc. into this Corporation and to
assume said subsidiary's liabilities and obligations and the date of
adoption thereof and to file the same in the office of the Secretary of
State of the State of Delaware and a certified copy thereof in the
office of the Recorder of Deeds of New Castle County.
IN WITNESS WHEREOF, said JB's Restaurants, Inc. has caused its
corporate seal to be affixed and this certificate to be signed by Clark D.
Jones, its President, and Charlotte L. Miller, its Secretary, this 15th day of
October, 1993.
JB'S RESTAURANTS, INC.
By: /s/ Clark D. Jones
-------------------------
Clark D. Jones, President
ATTEST:
2
<PAGE> 3
By: /s/ Charlotte L. Miller
------------------------------
Charlotte L. Miller, Secretary
3
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
JB'S RESTAURANTS, INC.
(Pursuant to Delaware Code, Title 8, Section 242)
Don M. McComas hereby certifies that:
1. he is the President of JB's Restaurants, Inc. (the
"Corporation");
2. Article First of the Corporation's Certificate of
Incorporation is hereby amended in its entirety as follows:
FIRST: The name of this corporation is:
Summit Family Restaurants Inc.
3. the foregoing amendment was duly approved by the Corporation's
Board of Directors and the Corporation's shareholders.
The undersigned hereby certifies, under penalties of perjury, that the
foregoing amendment is his individual act and deed, and the act and deed of the
Corporation, and that the facts stated above are true.
Date: April 4, 1995 /s/ Don M. McComas
-------------------------
Don M. McComas, President
<PAGE> 1
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED
OFFICE AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is:
Summit Family Restaurants Inc.
2. The registered office of the corporation within the State of
Delaware is hereby changed to 32 Loockerman Square, Suite L-100, City of Dover
19904, County of Kent.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to The Prentice-Hall Corporation System, Inc., the
business office of which is identical with the registered office of the
corporation as hereby changed.
4. The corporation has authorized the changes hereinbefore set
forth by resolution of its Board of Directors.
Signed on July 11, 1995.
/s/ Charlotte L. Miller
----------------------------------
[Typed title of authorized officer]
Senior V.P. & Secretary
<PAGE> 1
THIRD AMENDMENT TO BYLAWS OF
SUMMIT FAMILY RESTAURANTS INC.
November 30, 1995
At a meeting of the Board of Directors of Summit Family Restaurants
Inc., (the "Company"), for which adequate notice was given, and upon motion
duly made and seconded, the Board of Directors of the Company unanimously
RESOLVED, to amend the Bylaws of the Company to provide that the
fiscal year end on the last Monday in September rather than the last Sunday in
September, and thereby amend Article VI of the Bylaws to read as follows:
The fiscal year of the corporation shall end on the last
Monday in September of each year.
FURTHER RESOLVED, that the foregoing amendment to Article VI of the
Bylaws shall be effective as of the beginning of fiscal year 1989.
Dated this 30th day of November, 1995.
/s/ Charlotte L. Miller
-----------------------
Charlotte L. Miller
Corporate Secretary
<PAGE> 1
July 20, 1995
C. Dennis Scott, President
HomeTown Buffet, Inc.
9171 Towne Centre Drive
Suite 575
San Diego, CA 92122
Dear Mr. Scott:
Summit Family Restaurants Inc. understands that HomeTown Buffet, Inc.
waives the requirement that the seventeenth HomeTown Buffet Restaurant location
be opened on or before December 31, 1995 as required by Item II Development,
paragraph 1, of the Multiple Unit Agreement dated October 9, 1991 as amended by
the First and Second Amendments dated January 3, 1992, June 23, 1992,
respectively, and the letter amendment dated November 30, 1993. Summit
understands that HomeTown Buffet, Inc. will allow Summit Family Restaurants
Inc. until June 30, 1996 to open the seventeenth location. Also, Summit
understands that all other requirements of the development schedule in the
Multiple Unit Agreement remain in effect. Please indicate your agreement with
the above by signing where indicated below.
If you have any questions, please contact me.
Very Truly Yours,
SUMMIT FAMILY RESTAURANTS INC.
/s/ Charlotte L. Miller
---------------------------------------
Charlotte L. Miller
Senior Vice President, General Counsel
CLM:dj
cc: Don M. McComas
/s/ C. Dennis Scott
--------------------------------------
C. Dennis Scott, President
HomeTown Buffet, Inc.
<PAGE> 1
August 17, 1995
VIA HAND DELIVERY
Name~
SUMMIT FAMILY RESTAURANTS INC.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
Re: Change of Control
Dear Salutation~:
The Board of Directors considers you a key member of the management
team of Summit Family Restaurants Inc., formerly JB's Restaurants, Inc., (the
"Company"). The Company is desirous of retaining well qualified executives and
key personnel and to assure both itself and you of continuity of management in
the event of any actual or threatened change in control of the Company. The
persons in control of the Company subsequent to change in control of the Company
may be unwilling to recognize fully your past contributions or reward you upon
your termination from employment with severance payments that the Board of
Directors would normally deem appropriate in such extraordinary circumstances.
Further, any change in control of the Company is likely to occur pursuant to a
tender offer for the Company's stock at a substantial premium over the market
price for said stock. Your contributions in the past have, and after the
signing of this agreement will have, largely aided in creating the premium a
tender offeror is willing to pay and such contributions should be rewarded by
the Company. Finally, the Board of Directors recognizes that the threat of a
major change in the control of the Company would be of significant concern to
you. The purpose of this letter is to set forth our mutual agreement regarding
your eligibility to receive termination pay under certain specified conditions,
as set forth below, in order to foster and encourage your continued attention
and dedication to your assigned duties in the event of such potentially
disturbing and disruptive circumstances. The Company shall be bound, in
consideration of your continued service, to do the following:
1. Upon the occurrence of any of the following events between August 17,
1995 and September 30, 1996, and successive one year periods
thereafter, if renewed by the Company, the Company will thereupon pay
to an escrow account at Zions First National Bank (the "Escrow Agent")
one and one-half (1 1/2) times your "base salary" (as hereinafter
defined), or at the discretion of the Company, deliver to the Escrow
Agent, and maintain, an irrevocable letter of credit in an equal face
amount issued by a bank with assets of at least $1,000,000,000,:
<PAGE> 2
Name~
August 17, 1995
Page 2
(a) The Company enters into an agreement or letter of intent, the
consummation of which would result in the occurrence of an
event enumerated in Section 2(a);
(b) any person (including the Company) publicly announces an
intention to take or to consider taking actions which if
consummated would constitute an event enumerated in Section
2(a);
(c) any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, who
is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding
securities; or
(d) the Board adopts a resolution to the effect that, for purposes
of this agreement, an event requiring funding has occurred.
2. (a) If, after the occurrence of any event enumerated in Section 1
above but before the occurrence of any event enumerated in
this Section 2(a), your employment by the Company (1)
terminates involuntarily for any reason other than for cause,
disability, retirement on or after the date you reach normal
retirement age, or death, or (2) materially changes (as
defined herein) and you voluntarily terminate your employment
with the Company within sixty (60) days immediately following
such material change, the Escrow Agent will pay to you, or, if
you fail to survive, to your beneficiaries on your behalf, the
amount required to be deposited or secured by a letter of
credit as described in paragraph 1 above in the manner and
subject to the conditions set forth herein, upon your written
demand.
If, after the occurrence of any event enumerated in this
Section 2(a), your employment by the Company (1) terminates
involuntarily for any reason other than for cause, disability,
retirement on or after the date you reach normal retirement
age, or death, or (2) terminates voluntarily within ninety
(90) days immediately following the occurrence of any event
enumerated in this Section 2(a), or (3) materially changes (as
defined herein) and you voluntarily terminate your employment
within sixty (60) days immediately following such material
change, the Escrow Agent will pay to you, or, if you fail to
survive, to your beneficiaries on your behalf, the amount
required to be deposited or secured by a letter of credit as
described in paragraph 1 above in the manner and subject to
the conditions set forth herein, upon your written demand.
<PAGE> 3
Name~
August 17, 1995
Page 3
The events enumerated in this Section 2(a) are as follows:
(i) any person (other than the Company, any trustee or
other fiduciary holding securities under an
employee benefit plan of the Company, or any
company owned, directly or indirectly, by the
stockholders of the Company in substantially the
same proportions as their ownership of stock of
the Company), becomes the beneficial owner,
directly or indirectly, of securities of the
Company representing 50% or more of the combined
voting power of the Company's then outstanding
securities;
(ii) during any period of two consecutive years (not
including any period prior to the execution of
this agreement), individuals who at the beginning
of such period constitute the Board, and any new
director (other than a director designated by a
person who has entered into an agreement with the
Company to effect a transaction described in
Section 2(a)(i) or (iii)) whose election by the
Board or nomination for election by the Company's
stockholders was approved, by a vote of at least
two-thirds (2/3) of the directors then still in
office who either were directors at the beginning
of the period or whose election or nomination for
election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other
Company, other than (1) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) more than 50%
of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation or (2) a merger or consolidation
effected to implement a recapitalization of the
Company (or similar transaction) in which no
person acquires more than 50% of the combined
voting power of the Company's then outstanding
securities;
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an
agreement for the sale or disposition by the
Company of all or substantially all of the
Company's assets.
<PAGE> 4
Name~
August 17, 1995
Page 4
(b) If your employment is voluntarily terminated for any reason
after the occurrence of an event enumerated in Section 1 above
(other than as a result of a material change in your
employment with the Company as referenced in Section 2 (a)
above), but prior to the occurrence of an event enumerated in
Section 2(a), you shall forfeit your right to any payment
under this agreement.
(c) The amount so deposited for you will be paid in one lump sum
as soon as practicable after your demand; provided, however,
that the Escrow Agent shall have the right to deduct any
amounts required by federal or state laws with respect to this
agreement (including, without limitation, any amount required
to be withheld in order for the Company to obtain a tax
deduction with respect to the payments made pursuant to this
agreement).
(d) Your right to make a demand hereunder shall terminate upon the
expiration of two (2) years from the date of deposit of funds
with the Escrow Agent as provided in Section 1 above or, if
earlier, one (1) year from the date of an event set forth in
Section 2(a) above, unless you have become entitled to make,
and in fact have made, a demand within that time period.
(e) The term "for cause" shall mean an act by you of dishonesty or
fraud constituting a crime under applicable state or federal
law, which act is materially damaging or materially
detrimental to the business or operations of the Company,
provided that you shall have received written notice from the
Board of such act and shall have continued to engage in such
act after thirty (30) days following receipt of such notice,
which notice shall specifically identify the manner in which
the Board believes that you have engaged in such act.
Notwithstanding the foregoing, you shall not be deemed to have
been terminated for cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice to
you and an opportunity for you, together with your counsel, to
be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of an act of dishonesty
or fraud constituting a crime under the applicable state or
federal law, and continuing such as aforesaid after a notice
from the Board, and specifying the particulars thereof in
detail. Your conduct, in connection with actions taken in
response to a possible Section 2(a) event that were approved
by the Board prior to such event shall not, under any
circumstance, be deemed conduct giving rise to termination for
cause.
(f) The term "material change in employment" with the Company
shall mean (i) a ten percent (10%) or greater decrease in your
annual salary (ii) a diminution in
<PAGE> 5
Name~
August 17, 1995
Page 5
title (iii) a decrease in your duties and responsibilities that
results in you no longer having the duties and responsibilities
associated with your current title or that have been associated
with your title during your employment with the Company, or
(iv) a requirement that you relocate more than fifty (50) miles
from the current offices of the Company. A material change in
employment that results in your voluntary termination within
sixty (60) days immediately following the material change shall
be considered an involuntary termination for the purposes of
this letter agreement.
(g) Upon termination of your employment under any circumstances
giving rise to a right to payment hereunder, the Company shall
provide you with appropriate notices under Section 4980B of the
Internal Revenue Code, as amended ("COBRA") (or other
applicable state or federal law) to enable you to continue your
health insurance coverage under the health insurance plan
offered by the Company to its employees at the time of your
termination. Provided that you complete both of the conditions
identified in (A) and (B) below, the Company shall continue to
pay the portion of the premiums applicable to your health
insurance benefits that the Company paid prior to your
termination through the earlier of (1) eighteen (18) months
immediately following your termination of employment or (2)
such time as you commence employment with an entity or
individual from whom health insurance benefits are available to
you, regardless of whether such benefits are comparable to the
benefits you had been receiving from the Company prior to your
termination. Nothing herein prevents you from continuing your
health insurance benefits beyond the time period referenced
above as allowed by the terms, conditions and limitations of
the applicable health insurance plan and applicable state and
federal law; provided however, that you will be responsible to
pay the entire premium to continue such coverage.
Conditions (A) and (B) are as follows:
(A) You must complete in a timely manner and
return to the Company all documents requested by
the Company for you to elect to extend your health
insurance coverage under the medical plan of the
Company as permitted by COBRA or other applicable
state or federal law or other forms requested by
the Company; and
(B) You must continue to pay in a timely manner
that portion of the premium you were obligated to
pay prior to your termination.
This provision shall not be interpreted to and is not intended
to increase the time during which health insurance benefits
are available to you under the
<PAGE> 6
Name~
August 17, 1995
Page 6
Company's health insurance plan beyond eighteen (18) months
following your termination. Your rights, if any, to health
insurance under the Company's health insurance plan pursuant to
COBRA (or any other state or federal law) shall commence
immediately upon your termination of employment and not upon
the termination of the Company's payment of any portion of your
health insurance benefit. Nothing herein is intended to limit
your right, if any, to continue your COBRA benefits, if any,
beyond eighteen (18) months as allowed by federal or state law,
subject to all conditions or limitations of the health
insurance plan and provided you pay the entire premium
necessary to continue your COBRA benefits.
(h) If your employment is terminated under any circumstances giving
rise to a right to payment hereunder, then through the earlier
of (1) eighteen (18) months after such termination or (2) until
you become employed with an entity or individual from whom such
benefits are available, regardless of whether such benefits are
comparable, the Company shall arrange to provide you with life
and disability insurance benefits substantially similar to
those which you are receiving immediately prior to your
termination of employment so long as you pay in a timely manner
any portion of such premiums for such benefits that you were
required to pay prior to your termination.
3. The Company may withdraw the amount so deposited with the Escrow Agent
pursuant to Section 1 above when and only when two (2) years have
expired from the date of deposit or, if earlier, one (1) year from the
date of an event set forth in Section 2(a) above, and no proper demand
has been made during that time, or when the conditions requiring the
deposit have ceased to exist for a period of ninety (90) days without a
demand right having been created, or when your right to a payment under
this agreement has been forfeited by you, whichever occurs first. If,
before the expiration of such period, there shall occur another event
of the kind described in Section 1 above or Section 2(a) above, the
Company will not be required to make an additional deposit (except to
the extent necessary by an increase in your base salary after the last
funding event), but the two (2) year/one (1) year period shall then be
measured from the date of the last such event. Notwithstanding a
deposit with the Escrow Agent on your behalf pursuant to Section 1
above, you shall continue to be entitled to receive all of your normal
and usual benefits from the Company until a termination of your
employment shall occur.
4. The Company agrees to pay the charges of the Escrow Agent for its
services under this agreement, and the Company will be entitled on a
monthly basis to any interest or other income arising from the amount
so deposited prior to the date of your demand hereunder. Any interest
or other income arising from the amount so deposited after the date of
your demand hereunder shall be paid to you.
<PAGE> 7
Name~
August 17, 1995
Page 7
5. The escrow arrangement will be subject to the Escrow Agent's usual
rules and procedures, and the Company will indemnify the Escrow Agent
against any loss or liability for any action taken by it in good faith
in such capacity.
6. This agreement shall be independent of any other contract or agreement
that may exist between you and the Company from time to time. This
agreement shall not restrict the Company's right to terminate your
employment with the Company nor your rights to terminate employment
with the Company. No merger or consolidation with any other entity, or
sale of all or substantially all of the Company's assets shall occur
without assumption of this agreement by the purchaser or payment by the
purchaser or Company of the sum set forth in Section 1.
7. As used in this agreement, "person" shall be deemed to have the same
meaning as when used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), and "beneficial owner" shall
have the same meaning as when used in Rule 13d-3 promulgated pursuant
to the Exchange Act. As used in this agreement, "Company" refers not
only to Summit Family Restaurants Inc. but also to its successors by
merger or otherwise.
8. As used herein, "base salary" shall mean the average of the base salary
paid to you on a bi-weekly basis during the twelve (12) months
immediately preceding the occurrence of the event enumerated in Section
1(a), (b) or (c), and shall exclude any bonuses, profit sharing
payments, car allowance, and other items of compensation. If your
"base salary" should increase after the occurrence of an event
described in Section 1(a), (b) or (c), and prior to the occurrence of
an event described in Section 2(a), the amount which must be deposited
with the Escrow Agent pursuant to Section 1 shall be adjusted
appropriately by including the increased amount when determining the
average twelve month base salary.
9. Notwithstanding anything to the contrary in this agreement, if the
total amounts payable by the Escrow Agent under this agreement,
together with any other amounts to which you are entitled hereunder and
under any plan, program, arrangement of, or agreement with the Company
would in the aggregate result in the payment of an "excess parachute
payment" as defined in Section 280G(b)(1) of the Internal Revenue Code
of 1986, as amended ("Code"), the total amounts payable under this
agreement and such other payments shall be reduced, in such order and
manner as you may elect, or if you fail to so elect, as the Company
shall determine, to the largest amount which may be paid without any
portion of such amounts being subject to the excise tax imposed by
Section 4999 of the Code. The determination of any reduction in such
amounts shall be made by a public accounting firm of the Company's
choice, which may at the Company's option include the Company's
accounting firm or outside certified public accountant, and such
determination shall be conclusive and
<PAGE> 8
Name~
August 17, 1995
Page 8
binding on you and the Company. You and the Company agree to cooperate
fully with such public accounting firm or accountant to assist in
making any determination. Any excess amounts so determined shall be
returned immediately to the Company upon communication of such
information to Escrow Agent from such public accounting firm.
10. In the event that, following the creation of a demand right pursuant to
Section 2 hereof, you incur any costs or expenses, including attorneys'
fees, in the enforcement of your rights under this agreement or under
any plan for the benefit of employees of the Company, including without
limitation the Company's stock option plans, pension plan, employee
stock ownership plan, thrift and savings plan, bonus arrangement,
supplemental pension plan, then, unless the Company or the
consolidated, surviving or transferee person in the event of a
consolidation, merger or sale of assets, is wholly successful in
defending against the enforcement of such rights, the Company, or such
consolidated, surviving or transferee person, shall promptly pay to you
all such costs and expenses.
11. All notices, requests, demands and other communications which are
required to be or may be given under this agreement shall be in writing
and shall be deemed to have been duly given when delivered in person or
transmitted by telecopy or telex or upon receipt after dispatch by
certified or registered first class mail, postage prepaid, return
receipt requested, to the party to whom the same is given or made:
a. Notice to the Escrow Agent should be sent to:
Zions First National Bank
One Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Department
b. Notice to the Company should be sent to:
President
Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115
<PAGE> 9
Name~
August 17, 1995
Page 9
With a copy to:
General Counsel
Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115
c. Notice to you should be sent to:
Name~
c/o Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115
12. This agreement constitutes the entire agreement and supersedes all
prior agreements and understandings, oral and written, between the
parties hereto with respect to the subject matter hereof.
13. This agreement may not be modified or changed except by a writing,
signed by you and the Company.
Please indicate your acceptance of this agreement by signing one copy
of this letter in the space provided below and returning it to me. The other
copy is for your files.
Yours very truly,
SUMMIT FAMILY RESTAURANTS INC.
Don M. McComas
President and Chief Executive Officer
AGREED TO AND ACCEPTED this
_____ day of ____________________, 199__.
___________________________________
Name1~
<PAGE> 1
RECOMMENDATIONS
FISCAL YEAR 1996
EXECUTIVE COMPENSATION
SALARY
-No salary increases are proposed at this time for the Senior Management
team.
ANNUAL INCENTIVE COMPENSATION
-Recognizing the extraordinary operating circumstances as we enter FY'96, we
wish to adopt a Plan which will encourage and reward focus on financial
performance.
-No payments will be made until budget is exceeded so that, in comparison to
budget, payments will be self-funded. Once budget is achieved, it is
proposed that the first $250,000 of profit dollars above budget be paid out
as incentive. Thereafter, a portion of additional earnings would be paid
out on a declining scale: 50% of the first $200,000 additional earnings;
40% of the next $200,000; 30% of the next $300,000, and; 25% of additional
earnings. The attachment charts this framework, showing total bonus awards
at various performance levels.
-As in past years, actual results will be adjusted for significant
unbudgeted items such as gains or losses associated with the disposition of
assets (such as the sale of HTBB Stock). The Compensation Committee will
review transactions and make recommendations for adjustments to the Board.
-In the event of the disposition of a part of the Company, financial targets
would be adjusted accordingly.
-Provide for partial year awards based on fiscal year-to-date results versus
budget in the event of the disposition of the Company prior to fiscal year
end. Partial year payments, if any, will be pro-rated based on partial year
salary.
EXECUTIVE LONG TERM STOCK AWARD PLAN
-This shareholder approved Plan makes available a total of 100,000 shares
for award. No shares are proposed to be made available for award at this
time.
<PAGE> 2
INCENTIVE VERSUS RESULTS COMPARISON
<TABLE>
<CAPTION>
INCENTIVE
EARNINGS BEFORE -------------------- EARNINGS AFTER
INCENTIVE $'S % INCENTIVE
--------- --- - ---------
<S> <C> <C> <C>
($1,052,508) Plan $0 -- ($1,052,508)
(802,508) 250,000 100% (1,052,508)
(602,000) 350,000 50% (952,000)
(402,000) 430,000 40% (832,000)
($102,000) $520,000 30% ($622,000)
25% of all additional $'s
FY'95 RESULTS
($5,632,654) $0 ($5,632,654)
</TABLE>
<PAGE> 3
POSITIONS COVERED BY ANNUAL INCENTIVE PLAN
<TABLE>
<CAPTION>
NO. OF ANNUAL MAX. % MAX. 35% OF
EMPLOYEES SALARIES OF SALARY INCENTIVE MAX.
--------- -------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Senior Executives 7 $ 846,000 (1)% 332,025 116,209
Vice Presidents 2 135,500 25% 33,875 11,856
Directors 15 754,000 20% 150,800 52,780
Home Office Staff 12 397,000 10% 39,700 13,895
---------- ------- -------
Annual Totals $2,132,500 556,400 194,740
</TABLE>
(1) 50% for President and CFO, 35% for all Senior Executives except the Senior
Vice President of Operations, who is at 40%.
<PAGE> 1
SUMMIT FAMILY RESTAURANTS INC.
Separation Compensation Plan
September 25, 1995
1. PURPOSE. The Summit Family Restaurants Inc. Separation
Compensation Plan (the "Plan") is intended to provide selected employees of
Summit Family Restaurants Inc. and its subsidiaries (the "Company") with certain
benefits upon their involuntary termination of employment. The Plan is meant to
ease the financial hardships that may be experienced by these employees.
2. SCOPE AND DURATION. The benefits of the Plan will be
provided to employees notified of an involuntary termination of employment on or
after September 25, 1995, and on or before December 31, 1995. Any and all
previous plans, policies and practices of any type concerning benefits upon
termination of employment are hereby terminated and superseded by the terms of
the Plan.
Upon termination of employment, an employee's eligibility for
participation in the Company's benefit plans, including the:
(i) COMPANY 401(K) RETIREMENT SAVINGS PLAN
(ii) COMPANY MEDICAL AND DENTAL PLAN
(iii) COMPANY ESOP
(iv) COMPANY HEALTH CARE REIMBURSEMENT ACCOUNT
shall cease, and such employee's rights with respect to the benefits afforded by
such plans shall be in accordance with the provisions of such plans or as
required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA")
or paragraph 5 (C). Further, after termination of employment, an employee will
not accrue vacation time, or paid holidays, nor be eligible for disability
benefits, car allowances or other similar benefits normally associated with
employment.
3. SELECTION OF EMPLOYEES. The terms and conditions of the Plan
are tailored to the business needs of the Company. The only employees eligible
for benefits under this Plan are those employees whose work location is at the
Home Office of the Company or whose work location is outside of the Home Office
and the employee is at the level of district manager or above, and other
employees designated by the Company, from time to time, in its sole discretion.
Within the previous indicated categories of employees, the Company has sole
discretion to determine whether an employee receives benefits under
<PAGE> 2
the Plan. Only an employee described below may be considered for benefits under
the Plan.
A. Employment Termination. An employee is entitled to
benefits under the Plan in the event of an involuntary termination of
employment under circumstances which, in the Company's opinion and sole
discretion, warrant the payment of such benefits.
B. Reassignment. Generally, the Company will exercise
its discretion (i) to deny benefits under the Plan when an employee who
is reassigned to a similar job within the same locale refuses such
reassignment and, (ii) to provide benefits under the Plan when an
employee who is reassigned to a similar job not within the same locale
refuses such reassignment.
In order to be eligible to receive benefits under the Plan, the Company
must determine that the employee's termination of employment is in the best
interest of the Company. Furthermore, and not by way of limitation, no employee
terminated for cause (including unsatisfactory performance) will be eligible to
receive benefits under the Plan.
4. CONDITIONS. Eligible employees may be required to satisfy
such conditions as the Company's management in its sole discretion decides are
appropriate in order for an employee to obtain any benefit under the Plan. For
example, and not by way of limitation, the Company's management may decide in
its discretion that the business requirements of the Company require an employee
to continue in employment through a specified date or until a specified project
has been completed to the Company's management's satisfaction. If continued
employment is necessary to satisfy the condition, an employee's performance of
services during the continued employment must be satisfactory to the Company's
management.
5. BENEFITS. An employee who is eligible for benefits under the
Plan, who satisfies any conditions required under Paragraph 4, above, and whose
employment with the Company is involuntarily terminated on the date specified by
the Company, may receive any or all of the benefits listed below following the
employee's termination of employment with the Company. The determination of
which benefit(s) an employee is to receive will be made by the Company in its
sole discretion.
A. Cash Severance Payment. An employee who the Company
determines to be entitled to this benefit will receive an amount to be
determined by the Company in lieu of advance notice of termination
("Severance Pay").
B. Cash Separation Payment. An employee who the Company
determines to be entitled to this benefit will, subject to execution of
the Release described below, receive an amount to be determined by the
Company pursuant to a letter from the
2
<PAGE> 3
Company to the Employee ("Separation Pay").
Eligible employees will be entitled to receive the above-referenced
cash Separation Pay only after executing, and not revoking, a Release
and covenant not to sue on the form attached to the Plan (the
"Release").
An eligible employee must terminate employment on the date specified by
the Company. The employee will have 45 days from termination of
employment within which to execute the Release and to receive the cash
separation payment. If the employee executes the Release within the
45-day period, the employee will have an additional 7 days from the
date the Release is executed to revoke the Release. If the employee
does not revoke the Release during the 7-day revocation period, the
employee will receive the cash separation payment as soon as
administratively feasible thereafter.
The executed Release must be submitted to the Senior Vice President of
Human Resources, Summit Family Restaurants Inc., 440 Lawndale Drive,
Salt Lake City, Utah 84115, before the end of the 45-day period
following termination of employment. To revoke a Release, an employee
must submit a written letter of revocation to the Human Resources
Senior Vice President, Summit Family Restaurants Inc., 440 Lawndale
Drive, Salt Lake City, Utah 84115, before the end of the 7-day period
following execution of the Release. If the executed Release or letter
of revocation is mailed, it must be postmarked no later than the last
day of the 45-day period following termination of employment (in the
case of the Release) or the 7-day period following execution of the
Release (in the case of the letter of revocation). Employees are
advised to consult with their personal attorneys before executing the
Release.
The foregoing time limits may be reduced by the Company in its sole
discretion, as allowed by applicable law as to any employee or group of
employees.
Employees who do not execute a Release, or who revoke a Release, are
eligible, at the Company's discretion, to receive only Severance Pay in
lieu of notice described above in paragraph 5 A.
C. Health Benefits. During the time an employee
receives Severance Pay under this Plan, such employee will continue to
receive the health benefits the employee received prior to receipt of
the Severance Pay, and the appropriate deductions will be made from the
Severance Pay for the employee's portion of the premium payments.
An employee's medical coverage under the Company's Medical Plan shall
terminate upon the last day of the month in which the employee receives
Severance Pay, with
3
<PAGE> 4
conversion privileges, in accordance with COBRA, as applicable, without
Company subsidization of the COBRA monthly premium.
Health coverage during payment of Separation Pay is only available
through COBRA, without any subsidization by the Company.
D. Additional Payments. An employee who the Company
determines to be entitled to additional severance compensation will be
eligible to receive such additional cash severance compensation as the
Company, in the Company's sole discretion, decides is appropriate. An
employee who does not execute a Release, or who revokes a Release,
shall not be eligible for additional payments.
6. ADMINISTRATION. For purposes of the Plan, the Company's
Senior Vice President of Human Resources is the "Administrator." The
Administrator shall have the full power and authority as the Plan's Named
Fiduciary to manage and control the operation and administration of the Plan, to
correct deficiencies therein, and to supply omissions. The Administrator's
powers shall include, but shall not be limited to, the discretionary power:
A. to determine an employee's eligibility for benefits
pursuant to the Plan; to determine the amounts and time of payment of
Plan benefits; to take any actions necessary to assure timely payments
of benefits to any employee eligible to receive benefits pursuant to
the Plan; and to assure a full and fair review for any employee who is
denied a claim to any benefit pursuant to the Plan;
B. to interpret the Plan and to decide any and all
matters arising hereunder, including the right to remedy possible
ambiguities;
C. to maintain Plan records, to communicate with
employees, and to submit required reports to appropriate regulatory
authorities;
D. to employ other persons (i) to render advice with
respect to any responsibility or authority pursuant to the Plan being
carried out by the Company or the Administrator and (ii) to assist in
the administration of the Plan; and
E. to exercise any discretion and to take other action
necessary or appropriate to the effective administration of the Plan.
The Administrator shall have full and exclusive discretionary power and
authority to make factual determinations, to interpret the Plan, to make benefit
and eligibility determinations, and to determine all questions arising in the
administration, interpretation, and application of the Plan.
All decisions, actions and interpretations of the Administrator in the
administration of
4
<PAGE> 5
the Plan shall be final, binding and conclusive upon all parties. The
Administrator and any employee appointed by the Administrator to administer the
Plan shall be indemnified by the Company against personal liability for actions
taken in good faith in the discharge of their duties under the Plan.
Indemnification rights granted hereunder are in addition to, and not in lieu of,
any rights to indemnification to which the individual may be entitled pursuant
to law or the by-laws of the Company.
The Administrator may designate other persons to carry out such of the
Administrator's responsibilities hereunder for the operation and administration
of the Plan as the Administrator deems advisable, and may delegate to the
persons so designated such of his powers as the Administrator deems necessary to
carry out such responsibilities. Such designation and delegation shall be
subject to such terms and conditions as the Administrator deems proper. Any
action or determination made or taken in carrying out responsibilities hereunder
by persons so designated by the Administrator shall have the same force and
effect for all purposes as if such action or determination had been made or
taken by the Administrator.
7. CLAIMS PROCEDURE.
A. Application. An employee who is determined by the
Administrator not to be entitled to benefits under the Plan may file
with the Administrator a signed, written application for benefits
specifically identifying the benefits claimed and describing all facts
and circumstances entitling the employee to benefits under the Plan.
B. Decision. Within ninety (90) days after receipt of a
claim for benefits, the Administrator shall notify the employee of the
Administrator's decision. If the claim is denied, in whole or in part,
the Administrator's notice of denial shall be in writing and shall
state:
(i) the specific reasons for denial of the claim
with specific references to pertinent Plan provisions on which the
denial was based;
(ii) a description of any additional materials or
information necessary for the employee to perfect the claim and an
explanation of why the materials or information are necessary; and
(iii) an explanation of the Plan's claim review
procedure.
C. Appeal. In the event a claim for benefits is denied,
or if an employee receives no response to a claim within ninety (90)
days of its submission (in which case the claim for benefits shall be
deemed to have been denied), the employee or the employee's duly
authorized representative, at the employee's sole expense, may request
reconsideration of the denial by the Administrator, by filing a written
request for reconsideration with the Administrator within sixty (60)
days of the receipt of the
5
<PAGE> 6
written notice of denial or sixty (60) days from the date the claim is
deemed to be denied. In pursuing such request, the employee or the
employee's duly authorized representative may:
(i) review pertinent documents; and
(ii) submit issues and comments in writing to the
Administrator.
D. Reconsideration. The Administrator shall afford any
employee requesting reconsideration a full and fair review of the
decision denying the employee's claim. The Administrator has the sole
discretion to determine whether to hold a hearing to review any or all
issues raised by the employee. The Administrator shall issue a written
decision to the employee within sixty (60) days after receipt of the
request for reconsideration (unless special circumstances require an
extension of time, in which case a decision shall be rendered as soon
as possible, but not later than one hundred twenty (120) days after the
request for review). The Administrator's decision shall give specific
reasons for the decision, written in a manner calculated to be
understood by the employee and shall include specific references to the
pertinent Plan provisions upon which the decision is based. If the
decision on reconsideration is not furnished within the time specified
above, the claim shall be deemed denied on reconsideration.
8. AMENDMENT AND TERMINATION. The Company retains the right, at
any time and from time to time, to amend or terminate the Plan for any reason,
and without either the consent of or a prior notification to any employee.
Furthermore, the Plan shall automatically terminate when all employees who were
notified of their involuntary termination of employment on or prior to December
31, 1995, have received all of the benefits to which they are entitled under the
Plan.
The Plan has been adopted by the Company to better reflect changing
operations and management requirements. Because the Company's particular
business needs may change from time to time, it is not possible to predict how
or when circumstances might arise that will result in changes in or the
elimination of the Plan. The Company retains complete and full discretion to
modify, amend or cancel the Plan at any time and for any reason.
Only the President of the Company or the Administrator of the Plan can
make decisions to modify, amend or cancel the Plan and such decisions must be in
writing. Other employees are not likely to know about proposals for changes or
the likely outcome of consideration of such proposals. In any event, no Company
manager or employee is authorized to discuss, give opinions, predict or
otherwise comment on possible future announcements relating to changes in, or
the elimination of, the Plan or the adoption of new separation benefit plans.
All Company employees are cautioned that they may not rely on such discussion,
opinion, prediction or other managerial or employee comment or speculation.
6
<PAGE> 7
The Company, in its discretion, may adopt new or modified separation
benefit plans or may withdraw or change existing plans or programs in ways that,
depending on one's individual circumstances, might be more or less advantageous
than the current Plan. If in the Company's view business conditions require, the
Company may subsequently implement other separation programs with such
provisions as the Company in its sole discretion deems appropriate.
9. MISCELLANEOUS.
A. Effect on Employment. The Plan shall not confer upon
a person any right to be employed by, or to be continued in the
employment of, the Company.
B. Alienation and Assignment. No benefit under the Plan
may be assigned or alienated, voluntarily or involuntarily.
C. Facility of Payment. If the Administrator deems any
person incapable of receiving benefits to which the person is entitled
by reason of minority, illness, infirmity, or other incapacity, the
Administrator may direct that payment be made directly for the benefit
of such person or to any person selected by the Administrator to
disburse it, whose receipt shall be complete acquittance therefor. To
the extent thereof, such payment shall discharge all liability of the
Plan.
D. Lost Employees. If the Administrator is unable to
locate an employee to whom payment is due after making reasonable
efforts to locate the employee, any benefit payable under the Plan
shall be deemed forfeited. However, if an employee is declared dead
under applicable state law as of a date within the period the employee
otherwise would be receiving payments under Paragraph 5.A. above, any
payments not made to the deceased employee shall be made in accordance
with Paragraph 9.E., below.
E. Death. If an employee dies while entitled to receive
payments under Paragraph 5.A. above, any remaining payments shall be
made to the employee's spouse as of the date of the employee's death
or, if none, to the employee's estate. The payments will be made at the
same time that they would have been made if the employee had survived
(or, if later, as soon as administratively feasible after the Company
receives all documents and determinations necessary to make payments in
respect of the deceased employee).
F. Source of Payments. All benefits under the Plan shall
be paid exclusively by the Company out of its general assets, and the
Company shall have no obligation to fund the Plan.
G. Severability. If any provisions of the Plan shall be
held invalid or
7
<PAGE> 8
unenforceable, such invalidity or unenforceability shall not affect any
other provision, and the Plan shall be construed and enforced as if the
provision had not been included.
H. Headings and Captions. The headings and captions in
this document are provided for reference and convenience only, shall
not be considered part of the Plan, and shall not be used in the
construction of the Plan.
I. Gender and Number. Except where otherwise clearly
indicated by context, the neuter shall include the masculine and the
feminine, the singular shall include the plural, and vice-versa.
J. Withholding. All benefits under the Plan shall be
paid subject to applicable withholding requirements.
10. TECHNICAL DETAILS.
A. Information about the Plan Sponsor and Plan
Administrator.
(i) The Plan Sponsor is Summit Family Restaurants
Inc.
(ii) The Plan Sponsor's address is 440 Lawndale
Drive Salt Lake City, Utah 84115.
(iii) The Plan Sponsor's telephone number is
(801) 463-5500.
(iv) The Employer Identification Number assigned
by the Internal Revenue Service to the Plan Sponsor is
87-0264039.
(v) The Administrator of the Plan is the
Company's Senior Vice President of Human Resources.
(vi) The Administrator's telephone number is (801)
463-5500 and address is 440 Lawndale Drive, Salt Lake City,
Utah 84115.
All inquiries and requests for information, for document examination,
and for copies of documents should be directed to the Senior Vice President of
Human Resources, Summit Family Restaurants Inc., 440 Lawndale Drive, Salt Lake
City, Utah 84115. All personal data about an employee that might have a bearing
on an employee's right to participate under the Plan, or on an employee's
benefits, should also be directed to the Company's Senior Vice President of
Human Resources at the above address. The Administrator is the agent for the
service of legal process; legal process also may be served on the Plan Sponsor.
8
<PAGE> 9
B. Identification of the Plan.
(i) The Name of the Plan is the "Summit Family
Restaurants Inc. Separation Compensation Plan."
(ii) The Plan Number assigned by the Sponsor is
550.
(iii) The Plan is a welfare benefit plan providing
separation pay benefits.
(iv) The last day of the Plan's fiscal year is
December 31.
11. STATEMENT OF ERISA RIGHTS. The following "Statement of
ERISA Rights" is provided pursuant to Section 2520.102- 2(t), Title 29, Code of
Federal Regulations. It does not describe the Plan. The "Statement" should not
be construed as (a) legal advice or (b) material for which any party related to
the plan is responsible. The "Statement" is the product of the U.S.
Department of Labor.
As a participant in the Plan you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 ("ERISA").
ERISA provides that all plan participants shall be entitled to:
(1) Examine, without charge, at the Administrator's office or
at other specified locations, all Plan documents, including insurance
contracts, collective bargaining agreements (where applicable), and
copies of all documents filed by the Plan with the U.S. Department of
Labor, such as detailed annual reports and Plan descriptions.
(2) Obtain copies of all Plan documents and other Plan
information upon written request to the Administrator. The
Administrator may make a reasonable charge for the copies.
(3) Receive a summary of the Plan's annual financial report.
The Administrator is required by law to furnish each participant with a
copy of this summary annual report.
In addition to creating rights for Plan participants, ERISA imposes
duties upon the people who are responsible for the operation of the Plan. The
people who operate your Plan, called "fiduciaries" of the Plan, have a duty to
do so prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your employer or any other person, may fire you
or otherwise discriminate against you in any way to prevent you from obtaining a
benefit under the Plan or exercising your rights under ERISA. If your claim for
a benefit under the Plan is denied in whole or in part, you must receive a
written
9
<PAGE> 10
explanation of the reason for the denial. You have the right to have the
Administrator review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the rights
summarized above. For instance, if you request materials from the Administrator
and do not receive them within 30 days, you may file suit in federal court. In
such a case, the court may require the Administrator to provide the materials
and pay you up to $100 a day until you receive the materials, unless the
materials were not sent because of reasons beyond the control of the
Administrator. If you have a claim for benefits that is denied or ignored, in
whole or in part, you may file suit in a state or federal court.
If it should happen that Plan fiduciaries misuse the Plan's funds, or
if you are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor or you may file suit in a federal
court. The court will decide who should pay court costs and legal fees. If you
are successful, the court may order the person you have sued to pay these costs
and fees. If you lose, the court may order you to pay these costs and fees if,
for example, it finds your claim to be frivolous.
If you have any questions about your Plan, you should contact your
Administrator. If you have any questions about this statement or about your
rights under ERISA, you should contact the nearest Area Office of the U.S.
Labor-Management Services Administration, Department of Labor.
Notes: The Department of Labor has issued a number of administrative
exemptions from certain reporting and disclosure requirements. Some of
these exemptions may apply to the Plan from time to time. For example,
many plans are exempted from preparing and filing annual reports and
summary annual reports. To the extent that any of these exemptions
apply to the Plan, the above "Statement of ERISA Rights" must be
considered to be modified.
----------------------------------------------------------------
The foregoing Separation Compensation Plan is executed this 25th day of
September, 1995, by the undersigned officer of Summit Family Restaurants Inc,
George H. Gehling, its Senior Vice President of Human Resources.
/s/ George H. Gehling
-----------------------------
George H. Gehling
Senior Vice President of Human Resources
10
<PAGE> 1
January 4, 1995
Mr. Joseph J. Hollencamp
1010 West 2610 South
Salt Lake City, Utah 84119
Re: Incentive Plan
Dear Joe:
As you know, JB's Restaurants, Inc. ("JB's") has had some preliminary
conversations with HomeTown Buffet, Inc., regarding the potential sale of JB's
HomeTown Buffet restaurants. Currently, those discussions have not progressed
very far, but from time to time in the next year or two, the discussions may
continue and may result in more serious consideration of the sale of the JB's
HomeTown Buffet restaurants to HomeTown Buffet, Inc. JB's values your
contributions as HomeTown Buffet Senior Operations Vice President and we do not
want the discussions of sale, the possibility of a sale, or the actual sale to
interfere with your contributions to, or your relationship with JB's. Also, the
financial performance and operations of the HomeTown Buffet restaurants could
have an impact on the sales price of the restaurants if a sale occurs.
Therefore, in anticipation of a possible sale transaction, the Board of
Directors has approved the following incentive plan for you which is in addition
to and separate from any other incentive plans in which you participate at JB's.
Within thirty (30) days after the close of the sale of all of the
HomeTown Buffet restaurants operated by JB's or under construction at the time
of the sale, to HomeTown Buffet, Inc. on or before September 30, 1996, JB's
shall pay to you the incentive payment described below ("Incentive Payment").
For the purposes of the Incentive Payment, the "sale" of the restaurants shall
be considered to have occurred upon the physical and legal transfer of all the
restaurants to HomeTown Buffet, Inc. and the receipt of payment by JB's for the
sale. In order for you to be eligible to receive the Incentive Payment, you must
be employed in good standing with JB's as the Senior Vice President of
Operations of JB's HomeTown Buffet division.
<PAGE> 2
Mr. Joseph J. Hollencamp
January 4, 1995
Page 2
The maximum Incentive Payment for which you may be eligible shall be
one percent (1%) of the final sales price received by JB's for the restaurants,
but in no event more than $400,000. You will be eligible for a percentage of the
total Incentive Payment based upon the timing of the sale as follows:
If the sale occurs after December 19, 1994 and on or before March 13,
1995, you will be eligible to receive 20% of the total Incentive
Payment.
If the sale occurs after March 13, 1995, and on or before July 3, 1995,
you will be eligible to receive 40% of the total Incentive Payment.
If the sale occurs after July 3, 1995, and on or before September 25,
1995, you will be eligible to receive 60% of the total Incentive
Payment.
If the sale occurs after September 25, 1995, and on or before December
25, 1995, you will be eligible to receive 80% of the total Incentive
Payment.
If the sale occurs after December 25, 1995, and on or before September
30, 1996, you will be eligible to receive 100% of the total Incentive
Payment.
This letter agreement is not a contract of employment, but an incentive
plan related solely to the potential sale of the HomeTown Buffet restaurants to
HomeTown Buffet, Inc. Therefore, you will remain an at-will employee, subject to
the terms of any change of control agreement. If such a sale is not consummated
on or before September 30, 1996, this letter agreement shall terminate and be of
no force or effect; however, the parties may agree to extend this letter
agreement in the event that a potential sale may occur at a later date. Any
agreement to sell the HomeTown Buffet restaurants shall be solely at the
discretion of JB's and you shall not have any claim pursuant to any agreement
between JB's and any purchaser of any or all of the HomeTown Buffet restaurants
as a third party beneficiary or otherwise.
The purpose of this letter agreement is to provide you sufficient
incentive to maintain high standards of operation, sales and profits even though
JB's may transfer the ownership of these restaurants at some future date.
<PAGE> 3
Mr. Joseph J. Hollencamp
January 4, 1995
Page 3
If this letter agreement is acceptable to you, please sign where
indicated below and return the original to me.
Very truly yours,
JB'S RESTAURANTS, INC.
/s/ Don M. McComas
-----------------------------
Don M. McComas
President & Chief Executive Officer
/s/ Joseph J. Hollencamp Date 01/05/95
- ----------------------------- --------------------
Joseph J. Hollencamp
<PAGE> 4
SECOND AMENDMENT TO BYLAWS OF
JB'S RESTAURANTS, INC.
October 27, 1993
By unanimous written consent of the Board of Directors of JB's
Restaurants, Inc., a Delaware corporation (the "Company"), dated October 27,
1993, the Board of Directors amended Article III, Section 2. of the Bylaws of
the Company in its entirety to read as follows:
SECTION 2. Number, Tenure and Qualifications.
The number of directors of the corporation shall be nine. Each
director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected
and qualified.
Dated this 27th day of October, 1993.
/s/ Charlotte L. Miller
-----------------------------
Charlotte L. Miller
Corporate Secretary
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SUMMIT FAMILY RESTAURANTS INC.
AND
CKE RESTAURANTS, INC.
DATED: NOVEMBER 30, 1995
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1
MERGER AND CLOSING
1.1 Formation of Merger Sub. . . . . . . . . . . . . . . . . . . . 1
1.2 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . 2
1.5 Certificate of Incorporation and Bylaws . . . . . . . . . . . 2
ARTICLE 2
CONVERSION OF SECURITIES; DISSENTING SHARES
2.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . 2
2.2 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Exchange of Certificates . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SUMMIT
3.1 Organization, Good Standing and Authority . . . . . . . . . . 5
3.2 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Exchange Act Reports and Financial Statements . . . . . . . . 6
3.7 Information in Registration Statement and Proxy Statement . . 7
3.8 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 7
3.9 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Title to Properties . . . . . . . . . . . . . . . . . . . . . 9
3.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . 10
3.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . 11
3.18 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 11
3.19 Absence of Certain Developments . . . . . . . . . . . . . . . 11
</TABLE>
(i)
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CKE
4.1 Organization, Good Standing and Authority . . . . . . . . . . 13
4.2 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Exchange Act Reports and Financial Statements . . . . . . . . 14
4.7 Information in Registration Statement and Proxy Statement . . 15
4.8 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 15
4.9 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 16
4.12 Absence of Certain Developments . . . . . . . . . . . . . . . 16
ARTICLE 5
ACTIONS BY SUMMIT AND CKE
PENDING THE MERGER
5.1 Maintenance of Business . . . . . . . . . . . . . . . . . . . 17
5.2 Certain Prohibited Transactions . . . . . . . . . . . . . . . 18
5.3 Registration Statement/Proxy Statement . . . . . . . . . . . . 19
5.4 Investigation by CKE . . . . . . . . . . . . . . . . . . . . . 19
5.5 Title Reports . . . . . . . . . . . . . . . . . . . . . . . . 20
5.6 Consents and Best Efforts . . . . . . . . . . . . . . . . . . 20
5.7 Notification of Certain Matters . . . . . . . . . . . . . . . 20
5.8 Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . 21
5.9 Letter of Summit's Accountants . . . . . . . . . . . . . . . . 21
5.10 Letter of CKE's Accountants . . . . . . . . . . . . . . . . . 21
5.11 Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . 21
5.12 New York Stock Exchange Listing . . . . . . . . . . . . . . . 22
5.13 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 22
5.14 Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . 22
5.15 Change of Control Letters . . . . . . . . . . . . . . . . . . 23
5.16 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
(ii)
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ARTICLE 6
CONDITIONS TO SUMMIT'S OBLIGATIONS
6.1 Completion of Other Transactions . . . . . . . . . . . . . . 24
6.2 Representations, Warranties and Covenants . . . . . . . . . 24
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 No Governmental Proceeding or Litigation . . . . . . . . . . 25
6.5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 25
6.7 Corporate Documents . . . . . . . . . . . . . . . . . . . . 25
6.8 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.9 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 7
CONDITIONS TO CKE'S OBLIGATIONS
7.1 Completion of Other Transactions . . . . . . . . . . . . . . 26
7.2 Representations, Warranties and Covenants . . . . . . . . . 26
7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 No Governmental Proceeding or Litigation . . . . . . . . . . 27
7.5 Certificates and Opinions . . . . . . . . . . . . . . . . . 27
7.6 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 27
7.7 Corporate Documents . . . . . . . . . . . . . . . . . . . . 27
7.8 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.9 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 27
7.10 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 8
ACTIONS BY SUMMIT
AND CKE AFTER THE CLOSING
8.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . 28
8.2 Directors' and Officers' Insurance . . . . . . . . . . . . . 28
ARTICLE 9
TERMINATION AND AMENDMENT
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . 28
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . 29
9.3 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
(iii)
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ARTICLE 10
DEFINITIONS
10.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 11
MISCELLANEOUS
11.1 Survival of Representations, Etc. . . . . . . . . . . . . . 35
11.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.4 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . 36
11.5 Entire Agreement; Amendments and Waivers . . . . . . . . . . 36
11.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 36
11.7 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.10 Specific Performance . . . . . . . . . . . . . . . . . . . . 37
11.11 Attorneys Fees . . . . . . . . . . . . . . . . . . . . . . . 37
11.12 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.13 Confidential Information . . . . . . . . . . . . . . . . . . 37
</TABLE>
SUMMIT DISCLOSURE SCHEDULE
CKE DISCLOSURE SCHEDULE
(iv)
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization, dated as
of November 30, 1995 (this "Agreement"), is by and among Summit Family
Restaurants Inc., a Delaware corporation ("Summit"), and CKE Restaurants, Inc.,
a Delaware corporation ("CKE"). Capitalized terms not otherwise defined have
the meanings set forth in Article 10.
RECITALS
A. The respective Boards of Directors of Summit and CKE
have determined that the merger (the "Merger") of Summit with and into a
newly-formed wholly-owned subsidiary ("Merger Sub") of CKE, with Merger Sub
surviving the Merger, would be advantageous and beneficial to their respective
corporations and stockholders.
B. For United States federal income tax purposes, the
parties intend that the Merger qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and promises contained herein and for other good
and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
MERGER AND CLOSING
1.1 FORMATION OF MERGER SUB. Prior to the Effective
Time, CKE shall organize Merger Sub as a wholly-owned subsidiary of CKE
incorporated under the laws of the State of Delaware.
1.2 THE MERGER. At the Effective Time, in accordance
with this Agreement and the applicable provisions of the Delaware General
Corporation Law ("DGCL"), Summit shall in the Merger merge with and into Merger
Sub, with Merger Sub surviving the Merger, the separate existence of Summit
shall cease, and Merger Sub shall continue as the surviving corporation as set
forth in the Certificate of Merger. Merger Sub is sometimes referred to herein
as the "Surviving Corporation."
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<PAGE> 7
1.3 CLOSING. The closing of the Merger and the other
transactions contemplated herein (the "Closing") shall be held at 10:00 a.m.,
Utah time on February 28, 1996 or such later date to which Summit and CKE shall
agree (the "Closing Date") at the offices of Summit, unless the parties hereto
otherwise agree. After satisfaction or waiver of all conditions to the
Closing, the parties hereto will cause the Merger to be consummated on the
Closing Date by filing with the Secretary of State of the State of Delaware a
certificate of merger as is required by, and executed in accordance with, the
relevant provisions of DGCL (the time of such filing being the "Effective
Time").
1.4 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, the separate corporate
existence of Summit shall cease and Merger Sub shall be the Surviving
Corporation and shall have all of the rights, privileges, immunities and power
and shall be subject to all duties and liabilities of a corporation organized
under the DGCL.
1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The
Certificate of Incorporation of Merger Sub in effect at the Effective Time
shall be the Certificate of the Surviving Corporation. The Bylaws of Merger
Sub in effect at the Effective Time shall be the Bylaws of the Surviving
Corporation until amended in accordance with applicable law.
ARTICLE 2
CONVERSION OF SECURITIES; DISSENTING SHARES
2.1 CONVERSION OF SECURITIES. At the Effective Time, by
virtue of the Merger and without any action on the part of the parties hereto
each share of Summit Common Stock and Summit Preferred Stock issued and
outstanding immediately prior to the Effective Time, other than shares of
Summit Common Stock and Summit Preferred Stock for which appraisal rights have
been exercised pursuant to Section 262 of the DGCL, will be converted into the
right to receive the Merger Consideration.
"Merger Consideration" means, for each share of Summit Common
Stock and each share of Summit Preferred Stock: (a) $3.00 in cash (without
interest) and (b) a number of shares of CKE Common Stock equal to $3.00 divided
by the Adjusted CKE Price.
"Adjusted CKE Price" means (a) if the Average CKE Price is
equal to or greater than $17.00, $14.625 plus the amount by which the Average
CKE Price exceeds $17.00, (b) if the Average CKE Price is less than $17.00 and
equal to or
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<PAGE> 8
greater than $12.25, $14.625, (c) if the Average CKE Price is less than $12.25
and CKE has not exercised the Fill-Up Election, $14.625 and (d) if the Average
CKE Price is less than $12.25 and CKE has exercised the Fill-Up Election,
$14.625 less the amount by which $12.25 exceeds the Average CKE Price.
"Average CKE Price" means the average of the per share closing
sales prices of CKE Common Stock on the New York Stock Exchange for the 20
consecutive trading days ending two days prior to the Closing Date.
2.2 DISSENTING SHARES. Notwithstanding Section 2.1,
shares of Summit Common Stock and Summit Preferred Stock outstanding
immediately prior to the Effective Time and held by holders who have not voted
in favor of the Merger or consented thereto in writing and who have demanded
appraisal for such shares in accordance with Section 262 of the DGCL shall not
be converted into rights to receive the Merger Consideration, and holders of
such shares of Summit Common Stock and Summit Preferred Stock shall be entitled
to receive payment from Summit of the appraised value of such shares of Summit
Common Stock and Summit Preferred Stock in accordance with the provisions of
such Section 262 unless and until such holders fail to perfect or shall have
effectively withdrawn or lost their rights to appraisal and payment under the
DGCL. If after the Effective Time any such holder fails to perfect or
withdraws or otherwise loses his right to appraisal or payment, such shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Merger Consideration.
2.3 FRACTIONAL SHARES. No fractional shares of CKE
Common Stock shall be issued in the Merger. All fractional shares of CKE
Common Stock that a holder of CKE Common Stock would otherwise be entitled to
receive as a result of the Merger shall be aggregated, and if a fractional
share results from such aggregation, such holder shall be entitled to receive
from Summit, in lieu thereof, an amount in cash (without interest) derived
through the aggregation by Summit of all such fractional shares otherwise
issuable, the sale of such shares of CKE Common Stock in the market and the
distribution of the proceeds thereof calculated by multiplying the average per
share sales price by the fraction of a share of CKE Common Stock to which such
holder would otherwise have been entitled. Under no circumstances will the
aggregate cash consideration paid by CKE in the Merger constitute more than 50%
of the total aggregate consideration paid by CKE in the Merger, with the CKE
Common Stock issued in the Merger being valued at the Adjusted CKE Price.
2.4 EXCHANGE OF CERTIFICATES. From and after the
Effective Time, each holder of an outstanding certificate which immediately
prior to the Effective Time represented outstanding shares of Summit Common
Stock and Summit Preferred Stock shall be entitled to receive in exchange
therefor, upon surrender thereof to an exchange
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<PAGE> 9
agent to be selected by CKE, a certificate or certificates representing the
number of whole shares of CKE Common Stock into which such holder's shares were
converted and a check representing (i) any cash payable in lieu of any
fractional share of CKE Common Stock computed set forth above and (ii) the cash
portion of the Merger Consideration into which such holder's shares were
converted. No holder of a certificate or certificates which immediately prior
to the Effective Time represented shares of Summit Common Stock or Summit
Preferred Stock shall be entitled to receive any dividend or other distribution
from CKE until surrender of such holder's certificate for a certificate or
certificates representing shares of Summit Common Stock or Summit Preferred
Stock. Upon such surrender, there shall be paid to the holder the amount of
any dividends or other distributions (without interest) which became payable on
or after the Effective Time, but which were not paid by reason of the
foregoing, with respect to the number of whole shares of CKE Common Stock
represented by the certificates issued upon such surrender. After the
Effective Time, there shall be no further registration of transfers of Summit
Common Stock and Summit Preferred Stock and holders of certificates
representing Summit Common Stock or Summit Preferred Stock shall not enjoy the
rights and privileges of holders of such stock or CKE Common Stock other than
to exchange the certificates for the Merger Consideration. If, after the
Effective Time, certificates representing Summit Common Stock or Summit
Preferred Stock are presented to the Surviving Corporation, they shall be
cancelled and exchanged for the Merger Consideration. From and after the
Effective Time, CKE shall, however, be entitled to treat certificates for
shares of Summit Common Stock and Summit Preferred Stock which have not yet
been surrendered for exchange and for which appraisal rights have not been
perfected pursuant to the DGCL as evidencing solely the right to receive the
Merger Consideration represented by such certificates, notwithstanding any
failure to surrender such certificates in exchange therefor. If any
certificate for shares of CKE Common Stock is to be issued in a name other than
that in which the certificate for shares of Summit Common Stock or Summit
Preferred Stock surrendered in exchange therefor is registered, it shall be a
condition of such issuance that the person requesting such issuance shall pay
any transfer or other tax required by reason of the issuance of certificates
for such shares of CKE Common Stock in a name other than that of the registered
holder of the certificate surrendered, or shall establish to the satisfaction
of CKE or its agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, CKE shall not be liable to any holder of shares
of Summit Common Stock or Summit Preferred Stock for any shares of CKE Common
Stock (or dividends or distributions with respect thereto) or cash in lieu of
fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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<PAGE> 10
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SUMMIT
Except as otherwise set forth in the Summit Disclosure
Schedule, Summit hereby represents and warrants to CKE as follows:
3.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of
Summit and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. Each of
Summit and its Subsidiaries has full corporate power to carry on its business,
as it is now being conducted, and to own, lease or operate the properties and
assets it now owns, leases or operates. Each of Summit and its Subsidiaries is
qualified to do business, is in good standing and has all required business
licenses in each jurisdiction in which its failure to obtain or maintain such
qualification, good standing or license could have a Material Adverse Effect on
Summit.
3.2 BINDING AGREEMENT. Summit has all requisite
corporate power and corporate authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite corporate action, subject to
approval of Summit's stockholders. This Agreement is a legal, valid and
binding obligation of Summit, enforceable against it in accordance with its
terms, except as enforcement thereof may be limited by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity) and the effect of applicable bankruptcy, insolvency,
moratorium and other similar laws of general application relating to or
affecting creditors' rights generally, including, without limitation, the
effect of statutory or other law regarding fraudulent conveyances and
preferential transfers.
3.3 CAPITALIZATION. The authorized capitalization of
Summit consists solely of (a) 10,000,000 shares of Summit Common Stock, of
which 4,798,102 shares were issued and outstanding as of November 30, 1995; (b)
500,000 shares of $.01 par value junior common stock, none of which are
outstanding on the date hereof; and (c) 1,000,000 shares of Summit Preferred
Stock, of which 946,714 shares were issued and outstanding as of the date
hereof. On the Closing Date there will not be outstanding: (i) any options,
warrants or other rights to purchase from Summit any capital stock of Summit,
except for (x) the options, warrants and other rights to purchase capital stock
of Summit outstanding as of the date of this Agreement as set forth on the
Summit Disclosure Schedule, (y) options, warrants or other rights to purchase
capital stock of Summit granted to employees and officers of Summit as set
forth on the Summit Disclosure Schedule and (z) options, warrants and other
rights to purchase in the aggregate not more than 50,000 shares of Summit
Common Stock granted to new or
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<PAGE> 11
newly promoted employees in the ordinary course of business; (ii) any
securities convertible into or exchangeable for shares of such stock; or (iii)
any other commitments of any kind for the issuance of additional shares of
capital stock or options, warrants or other securities of Summit.
3.4 SUBSIDIARIES. There is set forth in the Summit
Disclosure Schedule (i) the name and percentage ownership by Summit of each of
its Subsidiaries; (ii) the jurisdiction of incorporation, capitalization and
ownership of each Subsidiary; and (iii) the names of the officers and directors
of each Subsidiary.
3.5 NO VIOLATION
(a) Except as set forth in the Summit Disclosure
Schedule, none of Summit or any of its Subsidiaries is (i) in violation of its
respective Charter Documents, or (ii) to Summit's best knowledge, in default in
the performance of any obligation, agreement or condition contained in any
Applicable Agreement, which violation or default could, singly or in the
aggregate, have a Material Adverse Effect on Summit.
(b) Except as set forth in the Summit Disclosure
Schedule, neither the execution or delivery by Summit of this Agreement or the
performance by Summit of its obligations under this Agreement will (i)
constitute a breach or violation under the Charter Documents of Summit or any
of its Subsidiaries; or (ii) conflict with, violate, constitute a material
breach or material violation of or a material default (with the passage of time
or otherwise) under, require the consent of any Person under, give to others
any rights of termination, amendment, acceleration or cancellation of or result
in the imposition of a material Lien on any of the properties or assets of
Summit or any of its Subsidiaries or an acceleration of material indebtedness
pursuant to, any Applicable Agreement.
3.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS.
Summit has furnished or will upon request furnish CKE with copies of its Annual
Report on Form 10-K for the fiscal years ended September 28, 1992, September
27, 1993, September 26, 1994 and September 25, 1995 (when available), in each
case with exhibits, and all other reports filed or required to be filed with
the Securities and Exchange Commission (the "SEC") under applicable laws, rules
and regulations since September 26, 1994 (all such reports being herein
collectively called the "Summit SEC Reports"), each as filed with the SEC.
Each such Summit SEC Report when it became effective or was filed with the SEC,
or as amended, as the case may be, complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable, and the rules and regulations of the SEC thereunder, and
did not on the date of filing or amendment, if any, contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein, in light of the
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<PAGE> 12
circumstances under which they were made, not misleading. The financial
statements contained in said Summit SEC Reports: (i) were prepared in
accordance with the books and records of Summit and its Subsidiaries; (ii) were
prepared in accordance with GAAP and with Regulation S-X promulgated under the
Exchange Act; (iii) fairly present Summit's consolidated financial condition
and the consolidated results of its operations, cash flows and shareholders
equity as at the relevant dates thereof and for the periods covered thereby;
(iv) contain and reflect all necessary adjustments and accruals for a fair
presentation of its consolidated financial condition and the consolidated
results of its operations, cash flows and shareholders equity for the periods
covered by said financial statements; (v) contain and reflect adequate
provisions for all reasonably anticipated liabilities for all taxes, federal,
state, local or foreign, with respect to the periods then ended and all prior
periods; and (vi) with respect to contracts and commitments for the sale of
goods or the provision of services by Summit or any Subsidiary, contain and
reflect adequate reserves for all reasonably anticipated material losses, costs
and expenses in excess of expected receipts.
3.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY
STATEMENT. None of the information supplied or to be supplied by Summit for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by CKE in connection with the issuance of
shares of CKE Common Stock in the Merger (the "Registration Statement"), will,
at the time it becomes effective under the Securities Act and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) the proxy statement relating to the meeting of Summit's
stockholders to be held in connection with the Merger (the "Proxy Statement")
will, at the date mailed to Summit's stockholders, at the time of the meeting
of stockholders to be held in connection with the Merger and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Proxy Statement will, when filed with the SEC by Summit,
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder, except that no representation is
made by Summit with respect to statements made therein about CKE and based on
information supplied by CKE in writing specifically for inclusion in the Proxy
Statement.
3.8 CONSENTS AND APPROVALS. No consent, approval or
authorization of, or declaration, filing or registration with, any United
States federal or state governmental or regulatory authority is required to be
made or obtained by Summit in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, other than any filings required
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under the HSR Act, the Exchange Act and the Securities Act and filings with
NASDAQ.
3.9 NO BROKERS. Except as set forth in the Summit
Disclosure Schedule, neither Summit nor any affiliate thereof has entered into
or will enter into any agreement, arrangement or understanding with any person
or firm which will result in any obligation of Summit to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
3.10 INSURANCE. Summit and its Subsidiaries maintain, with
reputable insurers, insurance in such amounts, including deductible
arrangements, and of such a character as is usually maintained by reasonably
prudent managers of companies engaged in the same or similar business.
3.11 LABOR MATTERS. Except as set forth in the Summit
Disclosure Schedule, (i) there is no labor strike, dispute, slowdown, work
stoppage or lockout pending or, to the best knowledge of Summit, threatened
against or affecting Summit or any Subsidiary and, during the past five years,
there has not been any such action; (ii) there are no union claims to represent
the employees of Summit or any Subsidiary; (iii) neither Summit nor any
Subsidiary is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to
with any labor organization or employee association applicable to employees of
Summit or any Subsidiary; (iv) none of the employees of Summit or any
Subsidiary are represented by any labor organization and none of Summit or any
Subsidiary have any knowledge of any current union organizing activities among
the employees of Summit or any Subsidiary, nor to their best knowledge does any
question concerning representation exist concerning such employees; (v) Summit
and its Subsidiaries are, and have at all times been, in material compliance
with all Applicable Employment Laws and are not engaged in any ULP; (vi) there
is no ULP charge or complaint against Summit or any Subsidiary pending or, to
the best knowledge of Summit, threatened before the NLRB; and (vi) there is no
grievance or arbitration proceeding arising out of any collective bargaining
agreement or other grievance procedure relating to Summit or any Subsidiary.
3.12 ERISA
(a) Summit and its Subsidiaries are in compliance with
the provisions of ERISA and the Code, and (ii) have not incurred any material
liability with respect to any Benefit Plan or Multiemployer Plan to the Pension
Benefit Guaranty Corporation (the "PBGC"), the Internal Revenue Service (the
"IRS"), any Benefit Plan or Multiemployer Plan or any other party (other than
to make premium payments to the PBGC or benefit payments to participants in the
ordinary course of business). Each of
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the Benefit Plans of Summit is in material compliance with all Applicable Laws.
The IRS has determined that each such Benefit Plan that is intended to be a
qualified plan under section 401(a) of the Code is so qualified and Summit is
aware of no event or circumstance that would adversely affect such
determination. The liabilities incurred under each such Benefit Plan are
accurately reflected on the financial statement included in the Summit SEC
Reports. No condition exists or event or transaction has occurred that could
result in Summit or any Subsidiary incurring any liability, fine or penalty
with respect to any Benefit Plan or Multiemployer Plan that could, singly or in
the aggregate, have a Material Adverse Effect on Summit.
(b) Summit has previously furnished the Buyer with (i) a
true and complete copy of each Benefit Plan, (ii) a copy of each trust or other
funding arrangement applicable to each Benefit Plan, (iii) the most recent
summary plan description and any applicable summary of material modifications
of each Benefit Plan, and (iv) the most recently prepared actuarial report and
financial statement, if applicable. Except as contemplated herein, Summit and
its Subsidiaries have no commitment or obligation to (x) create or incur any
material liability with respect to, or cause to exist any other, employee
benefit plan, program or arrangement, (y) enter into any material contract or
agreement to provide compensation or benefits to any individual or (z) modify
or terminate any Benefit Plan, other than with respect to a modification or
termination required by ERISA or the Code.
3.13 TAXES. Except as set forth on the Summit Disclosure
Schedule, all Tax Returns and reports required to be filed by Summit or any of
its Subsidiaries have been filed or will be timely filed (taking into account
extensions), all such Tax Returns are true, correct and complete in all
material respects, and all Taxes, due or claimed to be due from Summit or any
of its Subsidiaries have been paid, other than those currently payable without
penalty or interest and for which an adequate reserve or accrual has been
established. There are no: (a) tax audits pending with respect Tax Returns
filed by Summit or of any of its Subsidiaries, (b) no waivers of the statute of
limitations with respect to any Tax Return filed by Summit of any of the
Subsidiaries or (c) to Summit's best knowledge, no actual or proposed
additional Tax assessments for any fiscal period ending on or prior to the
Closing Date against Summit or any of its Subsidiaries for which an adequate
reserve or accrual has not been established.
3.14 TITLE TO PROPERTIES
Each of Summit and each Subsidiary (a) has legal and valid
title to all the real properties and other assets (tangible, intangible or
mixed) it reflects in the financial statements included in the Summit SEC
Reports as owned, free and clear of all Liens (other than Permitted Liens) and
free and clear of restrictions on the manner in which such property is
presently being used, and (b) enjoys peaceful and undisturbed
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possession under all leases to which it is a party as lessee. All of the
leases to which Summit or any Subsidiary is a party are legal, valid and
binding and in full force and effect, and no payment default by Summit, any
Subsidiary or, to the best knowledge of Summit, any other party thereto has
occurred or is continuing thereunder. Except as set forth in the financial
statements included in the Summit SEC Reports or on the Summit Disclosure
Schedule, no property or asset, the value of which is reflected in the balance
sheets included in the financial statements included in the Summit SEC Reports,
is held under any lease or under any conditional sale or other title retention
agreement. Except for such assets and facilities as are immaterial in the
aggregate to the business of Summit and its Subsidiaries taken as a whole, all
tangible assets and facilities of each of Summit and its Subsidiaries are in
good condition and repair and are adequate for the uses to which they are being
put.
3.15 ENVIRONMENTAL MATTERS
(a) Each of Summit and its Subsidiaries is in compliance
with the provisions of all Environmental Laws, which compliance includes, but
is not limited to, the possession by Summit or its Subsidiaries, as
appropriate, of all licenses, permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof where the failure to comply could, singly or in the
aggregate, have a Material Adverse Effect on Summit. None of Summit or any of
its Subsidiaries has received any communication (written or oral), whether from
a Governmental Authority, employee or otherwise, that alleges that Summit or
any of its Subsidiaries is not in such compliance where the failure to comply
could, singly or in the aggregate, have a Material Adverse Effect on Summit,
and there are no currently existing circumstances known to Summit that, if not
corrected, could prevent such compliance in the future.
(b) There is no Environmental Claim pending or, to the
best knowledge of Summit, threatened against Summit or any of its Subsidiaries
or against any Person whose liability for any Environmental Claim Summit or any
of its Subsidiaries has retained or assumed either contractually or by
operation of law. To the best knowledge of Summit, there is no basis for any
such claim.
3.16 LITIGATION. All Proceedings against Summit or any of
its Subsidiaries or any of their properties or assets, and a brief description
thereof are listed in the Summit Disclosure Schedule. There is no Proceeding
or series of related Proceedings against or affecting Summit or any of its
Subsidiaries or any of their properties or assets, that could, singly or in the
aggregate, have a Material Adverse Effect on Summit. Neither Summit nor any of
its Subsidiaries is subject to any judgment, injunction, decree, writ,
interpretation or order of any Governmental
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Authority that could, singly or in the aggregate, have a Material Adverse
Effect on Summit.
3.17 CONTRACTS AND COMMITMENTS
(a) Except as set forth in the Summit Disclosure
Schedule, neither Summit nor any of its Subsidiaries will have any (i)
agreement for the employment of any individual or agreements that contain any
severance pay liabilities or obligations; or (ii) contract or commitment not
terminable without penalty or cost on notice of thirty (30) days or less and
which contains an obligation to pay and/or accrue more than $100,000 per year,
other than real estate and equipment leases and franchise agreements.
(b) Except as set forth in the Summit Disclosure
Schedule: (i) to the best knowledge of Summit, neither Summit nor any of its
Subsidiaries has breached, nor has received notice in writing or otherwise of
any claim that it has breached, any of the terms of conditions of any
agreement, contract or commitment set forth or required to be set forth in the
Summit Disclosure Schedule, any agreement with HomeTown Buffet, Inc. or any
franchise agreement with respect to a JB's restaurant, which breach or breaches
singly or in the aggregate are reasonably likely to have a Material Adverse
Effect on Summit, and (ii) to the best knowledge of Summit, there are no facts
or conditions which have occurred or are anticipated to occur which, through
the passage of time or the giving of notice, or both, would constitute a breach
under any such contract which breach is reasonably likely to have a Material
Adverse Effect on Summit.
3.18 COMPLIANCE WITH LAWS. Except as set forth on the
Summit Disclosure Schedule, to the best knowledge of Summit, Summit and its
Subsidiaries have complied with all applicable laws, regulations (including,
without limitation, applicable occupational health and safety laws and
regulations, applicable immigration laws and regulations and applicable laws
governing the sale of franchises) and zoning ordinances of foreign, federal,
state and local governments and all agencies thereof which affect the business,
business practices or any owned or leased properties of Summit and its
Subsidiaries and to which Summit and its Subsidiaries may be subject, except
where such failure to comply would not singly or in the aggregate have a
Material Adverse Effect on Summit.
3.19 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth
on the Summit Disclosure Schedule and except as expressly contemplated by this
Agreement, since September 25, 1995, neither Summit nor any of its Subsidiaries
has:
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(i) suffered a Material Adverse Effect in its business,
financial condition, operating results, earnings, assets, customer,
supplier, employee and sales representative relations, business
prospects, business condition or financing arrangements or material
casualty loss or damage to its assets (whether or not covered by
insurance);
(ii) issued, sold or transferred any notes, bonds or other
debt securities or any equity securities, securities convertible,
exchangeable or exercisable into equity securities, or warrants,
options or other rights to acquire equity securities, in each case of
Summit or any Subsidiary thereof;
(iii) redeemed or repurchased, directly or indirectly, any
shares of capital stock or declared, set aside or paid any dividends
or made any other distributions with respect to any shares of its
capital stock;
(iv) borrowed any amount or incurred or become subject to
any liabilities, except liabilities incurred in the ordinary course of
business;
(v) entered into, amended or terminated any lease,
contract, agreement or commitment, or taken any other action or
entered into any other transaction other than in the ordinary course
of business and in accordance with past custom and practice or as
contemplated by this Agreement, or entered into any transaction with
any insider except as contemplated by this Agreement;
(vi) entered into any other material transaction, whether
or not in the ordinary course of business, or materially changed any
business practice;
(vii) made or granted any bonus or any wage, salary or
compensation increase in excess of $50,000 per year to any director,
officer, employee or sales representative, group of employees or
consultant or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee
benefit plan or arrangement or adopted any new employee benefit plan
or arrangement;
(viii) conducted its cash management customs and practices
(including the collection of receivables, inventory control and
payment of payables) other than in the usual and ordinary course of
business in accordance with past custom and practice;
(ix) changed or authorized any change in its Charter
Documents; or
(x) committed to any of the foregoing.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CKE
Except as otherwise set forth in the CKE Disclosure Schedule,
CKE hereby represents and warrants to Summit as follows:
4.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. Each of
CKE and its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. Each of CKE
and its Subsidiaries has full corporate power to carry on its business, as it
is now being conducted, and to own, lease or operate the properties and assets
it now owns, leases or operates. Each of CKE and its Subsidiaries is qualified
to do business, is in good standing and has all required business licenses in
each jurisdiction in which its failure to obtain or maintain such
qualification, good standing or license could have a Material Adverse Effect on
CKE.
4.2 BINDING AGREEMENT. CKE has all requisite corporate
power and corporate authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all requisite corporate action. This Agreement is a
legal, valid and binding obligation of CKE, enforceable against it in
accordance with its terms, except as enforcement thereof may be limited by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity) and the effect of applicable
bankruptcy, insolvency, moratorium and other similar laws of general
application relating to or affecting creditors' rights generally, including,
without limitation, the effect of statutory or other law regarding fraudulent
conveyances and preferential transfers.
4.3 CAPITALIZATION. The authorized capitalization of CKE
consists solely of (a) 50,000,000 shares of CKE Common Stock, of which
19,140,450 shares were issued and outstanding as of the date hereof; and (b)
5,000,000 shares of Preferred Stock, $.01 per share, of which no shares were
issued or outstanding as of the date hereof. On the Closing Date there will
not be outstanding: (i) any options, warrants or other rights to purchase from
CKE any capital stock of CKE, except for (x) the options, warrants and other
rights to purchase capital stock of CKE outstanding as of the date of this
Agreement as set forth on the CKE Disclosure Schedule, or (y) options, warrants
or other rights to purchase capital stock of CKE granted to employees and
officers of CKE as set forth on the CKE Disclosure Schedule; (ii) any
securities convertible into or exchangeable for shares of such stock; or (iii)
any other commitments of any kind for the issuance of additional shares of
capital stock or options, warrants or other securities of CKE other than rights
to purchase not more than 400,000 shares of CKE Common Stock granted to
existing officers, directors and employees and to new or
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newly promoted employees in the ordinary course of business and other than up
to an additional 200,000 shares of CKE Common Stock that may be issued in an
acquisition.
4.4 SUBSIDIARIES. There is set forth in the CKE
Disclosure Schedule (i) the name and percentage ownership by CKE of each of its
Subsidiaries; (ii) the jurisdiction of incorporation, capitalization and
ownership of each Subsidiary; and (iii) the names of the officers and directors
of each Subsidiary.
4.5 NO VIOLATION
(a) Except as set forth in the CKE Disclosure Schedule,
none of CKE or any of its Subsidiaries is (i) in violation of its respective
Charter Documents, or (ii) to CKE's best knowledge, in default in the
performance of any obligation, agreement or condition contained in any
Applicable Agreement, which violation or default could, singly or in the
aggregate, have a Material Adverse Effect on CKE.
(b) Except a set for in the CKE Disclosure Schedule,
neither the execution or delivery by CKE of this Agreement or the performance
by CKE of its obligations under this Agreement will (i) constitute a material
breach or material violation under the Charter Documents of CKE or any of its
Subsidiaries; or (ii) conflict with, violate, constitute a material breach or
material violation of or a material default (with the passage of time or
otherwise) under, require the consent of any Person under, give to others any
rights of termination, amendment, acceleration or cancellation of or result in
the imposition of a material Lien on any of the properties or assets of CKE or
any of its Subsidiaries or an acceleration of material indebtedness pursuant
to, any Applicable Agreement.
4.6 EXCHANGE ACT REPORTS AND FINANCIAL STATEMENTS. CKE
has furnished or will upon request furnish CKE with copies of its Annual Report
on Form 10-K for the fiscal years ended January 31, 1993, 1994 and 1995 and its
Quarterly Reports on Form 10-Q for the quarters ended May 22, 1995 and August
14, 1995, in each case with exhibits, and all other reports filed or required
to be filed with the Securities and Exchange Commission (the "SEC") under
applicable laws, rules and regulations since January 31, 1995 (all such reports
being herein collectively called the "CKE SEC Reports"), each as filed with the
SEC. Each such CKE SEC Report when it became effective or was filed with the
SEC, or as amended, as the case may be, complied in all material respects with
the requirements of the Exchange Act, as applicable, and the rules and
regulations of the SEC thereunder and did not on the date of filing or
amendment, if any, contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements contained in said CKE SEC Reports: (i) were prepared in accordance
with the books
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and records of CKE and its Subsidiaries; (ii) were prepared in accordance with
GAAP and with Regulation S-X promulgated under the Exchange Act; (iii) fairly
present CKE's consolidated financial condition and the consolidated results of
its operations, cash flows and shareholders equity as at the relevant dates
thereof and for the periods covered thereby; (iv) contain and reflect all
necessary adjustments and accruals for a fair presentation of its consolidated
financial condition and the consolidated results of its operations, cash flows
and shareholders equity for the periods covered by said financial statements;
(v) contain and reflect adequate provisions for all reasonably anticipated
liabilities for all taxes, federal, state, local or foreign, with respect to
the periods then ended and all prior periods; and (vi) with respect to
contracts and commitments for the sale of goods or the provision of services by
CKE or any Subsidiary, contain and reflect adequate reserves for all reasonably
anticipated material losses, costs and expenses in excess of expected receipts.
4.7 INFORMATION IN REGISTRATION STATEMENT AND PROXY
STATEMENT. None of the information supplied or to be supplied by CKE for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time it becomes effective under the Securities Act and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (ii) the Proxy Statement will, at the date mailed to Summit's
stockholders, at the time of the meeting of stockholders to be held in
connection with the Merger and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. The
Registration Statement will, when filed with the SEC by CKE, comply as to form
in all material respects with the provisions of the Securities Act and the
rules and regulations thereunder, except that no representation is made by CKE
with respect to statements made therein based on information supplied by Summit
for inclusion in the Registration Statement.
4.8 CONSENTS AND APPROVALS. No consent, approval or
authorization of, or declaration, filing or registration with, any United
States federal or state governmental or regulatory authority is required to be
made or obtained by CKE in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, other than any filings required under the HSR Act, the
Exchange Act, the Securities Act and filings with the New York Stock Exchange.
4.9 NO BROKERS. Except as set forth in the CKE
Disclosure Schedule, neither CKE nor any affiliate thereof has entered into or
will enter into any agreement, arrangement or understanding with any person or
firm which will result in
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any obligation of CKE to pay any finder's fee, brokerage commission or similar
payment in connection with the transactions contemplated hereby.
4.10 LITIGATION. All material proceedings against CKE or
any of its Subsidiaries or any of their properties or assets, and a brief
description thereof are listed in the Disclosure Schedule. There is no
Proceeding or series of related Proceedings against or affecting CKE or any of
the Subsidiaries or any of their properties or assets, that could, singly or
in the aggregate, have a Material Adverse Effect on CKE. Neither CKE nor any
of its Subsidiaries is subject to any judgment, injunction, decree, writ,
interpretation or order of any Governmental Authority that could, singly or in
the aggregate, have a Material Adverse Effect on CKE.
4.11 COMPLIANCE WITH LAWS. Except as set forth on the CKE
Disclosure Schedule, to the best knowledge of CKE, CKE and its Subsidiaries
have complied with all applicable laws, regulations (including, without
limitation, applicable occupational health and safety laws and regulations and
applicable immigration laws and regulations) and zoning ordinances of foreign,
federal, state and local governments and all agencies thereof which affect the
business, business practices or any owned or leased properties of CKE and its
Subsidiaries and to which CKE and its Subsidiaries may be subject, except where
such failure to comply would not singly or in the aggregate have a Material
Adverse Effect on CKE.
4.12 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth
on the CKE Disclosure Schedule and except as expressly contemplated by this
Agreement, since August 14, 1995, neither CKE nor any of its Subsidiaries has:
(i) suffered a Material Adverse Effect in its business,
financial condition, operating results, earnings, assets, customer,
supplier, employee and sales representative relations, business
prospects, business condition or financing arrangements or material
casualty loss or damage to its assets (whether or not covered by
insurance);
(ii) issued, sold or transferred any notes, bonds or other
debt securities or any equity securities, securities convertible,
exchangeable or exercisable into equity securities, or warrants,
options or other rights to acquire equity securities, in each case of
CKE or any Subsidiary thereof;
(iii) redeemed or repurchased, directly or indirectly, any
shares of capital stock or declared, set aside or paid any dividends
or made any other distributions with respect to any shares of its
capital stock;
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(iv) borrowed any amount or incurred or become subject to
any liabilities, except liabilities incurred in the ordinary course of
business;
(v) entered into, amended or terminated any lease,
contract, agreement or commitment, or taken any other action or
entered into any other transaction other than in the ordinary course
of business and in accordance with past custom and practice or as
contemplated by this Agreement, or entered into any transaction with
any insider except as contemplated by this Agreement;
(vi) entered into any other material transaction, whether
or not in the ordinary course of business, or materially changed any
business practice;
(vii) made or granted any bonus or any wage, salary or
compensation increase in excess of $50,000 per year to any director,
officer, employee or sales representative, group of employees or
consultant or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee
benefit plan or arrangement or adopted any new employee benefit plan
or arrangement;
(viii) conducted its cash management customs and practices
(including the collection of receivables, inventory control and
payment of payables) other than in the usual and ordinary course of
business in accordance with past custom and practice;
(ix) changed or authorized any change in its Charter
Documents; or
(x) committed to any of the foregoing.
ARTICLE 5
ACTIONS BY SUMMIT AND CKE
PENDING THE MERGER
Summit and CKE covenant as follows for the period from the
date hereof through the Closing Date:
5.1 MAINTENANCE OF BUSINESS. Summit shall, and shall
cause each Subsidiary to, diligently carry on its business in the ordinary
course consistent with past practice, including, without limitation, meeting
its obligations as they become due and fulfilling its commitments to suppliers.
Summit shall cause its existing insurance policies to be maintained in effect
through the Closing Date.
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5.2 CERTAIN PROHIBITED TRANSACTIONS. Without the prior
written approval of CKE or except as otherwise contemplated under this
Agreement, prior to the Effective Time Summit shall not, and shall cause each
of its Subsidiaries not to:
(a) incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise become responsible for obligations of any other
individual, partnership, firm or corporation, or make any loans or advances to
any individual, partnership, firm or corporation, except in the ordinary course
of business and consistent with past practice and, with respect to
indebtedness, pursuant to existing agreements;
(b) issue any shares of its capital stock or any other
securities or any securities convertible into shares of its capital stock or
any other securities, other than shares issued upon exercise of issued and
outstanding options, warrants and other rights to purchase capital stock of
Summit, which rights are outstanding as of the date hereof and are reflected in
Schedule 3.3 of the Summit Disclosure Schedule;
(c) pay or incur any obligation to pay any dividend on
its capital stock or make or incur any obligation to make any distribution or
redemption with respect to capital stock;
(d) make any change to its Certificate of Incorporation
or bylaws other than the filing of the Certificate of Merger;
(e) mortgage, pledge or otherwise encumber any of its
properties or assets or sell, transfer or otherwise dispose of any of its
properties or assets (other than (i) shares of HomeTown Buffet, Inc. common
stock held by Summit and (ii) restaurants in the process of being disposed of
or transferred as set forth in the Summit Disclosure Schedule) or cancel,
release, compromise or assign any indebtedness owed to it or any claims held by
it, except in the ordinary course of business and consistent with past
practice;
(f) make any investment of a capital nature either by
purchase of stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other
individual, partnership, firm or corporation, except in the ordinary course of
business and consistent with past practice;
(g) make any material tax election or make any material change
in Summit's accounting principles or practices;
(h) enter into any material contracts that would involve
the payment or accrual of payments of more than $100,000 in any fiscal year or
enter into any additional franchise agreements; or
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(i) do any other act which would cause any representation
or warranty of Summit in this Agreement to be or become untrue.
5.3 REGISTRATION STATEMENT/PROXY STATEMENT
Subject to the terms and conditions of this Agreement, Summit
and CKE each agree to use their respective reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable by such party with respect to (i) the prompt
preparation and filing of the Registration Statement by CKE with the SEC under
the Securities Act relating to the offer and sale of the CKE Common Stock in
the Merger and (ii) the prompt preparation and filing by Summit of the Proxy
Statement pertaining to solicitation of approval of Summit's stockholders, the
form of which shall be included as part of the Registration Statement, (iii)
such actions as may be required to have the Registration Statement declared
effective under the Securities Act and to have the Proxy Statement cleared by
the SEC, in each case as promptly as practicable, including by consulting with
the other parties hereto as to, and responding promptly to, any SEC comments
with respect thereto, and (iv) such actions as may be required to be taken
under applicable state securities or blue sky laws in connection with the
issuance of the CKE Common Stock contemplated hereby. Each party hereto shall
promptly consult with the other party with respect to, provide any necessary
information with respect to and provide the other party (and its counsel)
copies of, all filings made with respect to the Registration Statement and the
Proxy Statement. The information supplied by each party for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the time the
Registration Statement (or any amendment or supplement thereto) is declared
effective, (ii) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of Summit and (iii) the
time of the Summit stockholders' meeting, respectively, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading and shall comply as to form in all material respects with the
requirements of the Securities Act. In addition, if at any time prior to the
Effective Time any event or circumstance relating to either Summit or CKE or
any of their respective subsidiaries, or any of their respective officers or
directors, should be discovered by Summit or CKE, as the case may be, and which
are required to be set forth in an amendment or supplement to the Registration
Statement or the Proxy Statement, the discovering party shall promptly inform
the other party of such event or circumstance.
5.4 INVESTIGATION BY CKE. Summit shall, and shall cause
the Subsidiaries to, allow CKE during regular business hours through their
employees, agents, advisors and representatives, to make such investigation of
the business, properties, books and records of Summit and its Subsidiaries, and
to conduct such
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examination of the condition of Summit and its Subsidiaries, as CKE deems
necessary or advisable to familiarize itself and its lenders with such
business, properties, books, records, condition and other matters, and to
investigate the accuracy and completeness of the representations and warranties
of Summit hereunder; provided however, that any information so obtained is
subject to the confidentiality agreement previously entered into. Such access
shall include authorizing Summit's legal, accounting, tax, insurance and
environmental consultants and advisors to cooperate with CKE, its lenders and
their advisors. In particular, Summit and its consultants and advisors shall
cooperate with CKE to allow CKE (a) to conduct full environmental reviews or
studies of Summit's properties and facilities and (b) to arrange for meetings
between CKE and the franchisees under the Summit's franchise agreements;
provided, that representatives from Summit may attend all such meetings.
5.5 TITLE REPORTS
As promptly as possible after the date hereof, Summit shall
order preliminary title reports from a title insurance company or companies
reasonably satisfactory to CKE for all real properties that are owned by
Summit. Summit shall use its best efforts to cause such reports to be delivered
to CKE on or prior to [30] days following the date hereof.
5.6 CONSENTS AND BEST EFFORTS. As promptly as possible
after the date hereof, CKE and Summit shall make all filings required under the
HSR Act. Summit and CKE will, as soon as possible, commence to take all action
required to obtain all consents, approvals and agreements of, and to give all
notices and make all other filings with, any third parties, including
governmental authorities, necessary to authorize, approve or permit the Merger
and the other transactions contemplated by this Agreement. In addition,
subject to the terms and conditions herein provided, each of the parties hereto
covenants and agrees to use its reasonable best efforts to take, or cause to be
taken, all action or do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated hereby and to cause the fulfillment of
the parties' obligations hereunder.
5.7 NOTIFICATION OF CERTAIN MATTERS. Summit shall give
prompt notice to CKE, and CKE shall give prompt notice to Summit, of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate any time from the date hereof to the Closing Date
and (ii) any material failure of Summit or CKE, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, and each party shall use all reasonable efforts to
remedy same. Summit and the CKE acknowledge that they are
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presently unaware of any facts that cause any representation or warranty
contained in this Agreement to be untrue or inaccurate.
5.8 REASONABLE BEST EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Each party shall promptly consult with the
other with respect to, provide any necessary information with respect to and
provide the other (or its counsel) copies of, all filings made by such party
with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby. In addition, if at any time prior to the
Effective Time any event or circumstance relating to either Summit or CKE or
any of their respective Subsidiaries, or any of their respective officers or
directors, should be discovered by Summit or CKE, as the case may be, and which
should be set forth in an amendment or supplement to the Registration Statement
or the Proxy Statement, the discovering party shall promptly inform the other
party of such event or circumstance.
5.9 LETTER OF SUMMIT'S ACCOUNTANTS. Following receipt by
KMPG Peat Marwick LLP, Summit's independent auditors, of an appropriate request
from CKE pursuant to Statement on Auditing Standards ("SAS") No. 72, Summit
shall use its reasonable best efforts to cause to be delivered to CKE a letter
of KMPG Peat Marwick LLP , dated a date within two business days before the
date on which the Registration Statement shall become effective and addressed
to CKE, in form and substance reasonably satisfactory to CKE and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement,
which letter shall be brought down to the Effective Time.
5.10 LETTER OF CKE'S ACCOUNTANTS. Following receipt by
KMPG Peat Marwick LLP, CKE's independent auditors, of an appropriate request
from CKE pursuant to SAS No. 72, CKE shall use its reasonable best efforts to
cause to be delivered a letter of KMPG Peat Marwick LLP , dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to CKE, in form and substance reasonably
satisfactory to CKE and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the Registration Statement, which letter shall be brought down to
the Effective Time.
5.11 STOCKHOLDERS MEETING. Summit shall call a meeting of
its stockholders for the purpose of voting upon this Agreement, the Merger and
related matters. Summit will, through its Board of Directors, recommend to
its stockholders
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approval of such matters and will coordinate and cooperate with respect to the
timing of this meetings and shall use its reasonable best efforts to hold such
meeting as soon as practicable after the date hereof.
5.12 NEW YORK STOCK EXCHANGE LISTING. CKE shall use its
reasonable best efforts to cause the CKE Common Stock to be issued in the
Merger to be approved for listing on the New York Stock Exchange, subject to
official notice of issuance, prior to the Closing Date.
5.13 BENEFIT PLANS
(a) It is CKE's present intent to provide continuing
employees of Summit and its Subsidiaries with employee benefits comparable to
those provided to CKE employees.
(b) CKE will, and will cause the Surviving Corporation
to, honor without modification all employee severance plans (or policies) and
employment and severance agreements of Summit or any of its Subsidiaries hereto
identified in the Summit Disclosure Schedule as such agreements (or policies)
are in effect on the date of this Agreement.
5.14 STOCK OPTION PLANS
(a) On or prior to the Effective Time, Summit and its
Board of Directors (or a committee thereof) shall take all action necessary to
implement the provisions contained herein; provided, that such provisions do
not create an aggregate cash liability at the Effective Time in excess of
$606,000.
(b) At the election of each holder of an option to
purchase shares of Summit Common Stock (a "Summit Stock Option") which is
currently vested under a Summit Stock Option Plan, at the Effective Time, (i)
all Summit Stock Options held by such holder shall become fully exercisable,
(ii) such Summit Stock Options shall be cancelled and (iii) in consideration of
such cancellation, Summit shall pay to such holders of such Summit Stock
Options an amount in respect thereof equal to the product of (x) the excess, if
any, of $6.00 over the respective exercise price thereof and (y) the number of
shares of Summit Common Stock subject thereto, respectively (such payment to be
net of any required withholding taxes). From and after the Effective Time,
each outstanding Summit Stock Option, whether vested or unvested, that is
not so cancelled shall constitute an option to acquire, on the same terms and
conditions as were applicable under such Summit Stock Option, a number of
shares of CKE Common Stock equal to (w) the product of $6.00 and the number of
shares of Summit Common Stock purchasable upon exercise of the Summit Stock
Option prior to the Effective
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Time divided by (x) the Average CKE Price, at an exercise price per share equal
to (y) the aggregate exercise price for the shares of Summit Common Stock
purchasable upon exercise of the Summit Stock Option prior to the Effective Date
divided by (z) the aggregate number of shares of CKE Common Stock purchasable
upon exercise of such Summit Stock Option following the Effective Date.
(c) Except as provided herein or as otherwise agreed to
by the parties, and to the extent permitted by the Summit Stock Option Plan,
the Summit Stock Option Plan shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement, providing for the
issuance or grant of any other interest in respect of the capital stock of
Summit or any of its Subsidiaries shall be deleted as of the Effective Time.
5.15 CHANGE OF CONTROL LETTERS
Summit shall cause the seven employees who have signed the
Change of Control letters dated August 17, 1995 identified in Schedule
3.17(a)(i)(c) and Mr. McComas under the employment agreement dated November 24,
1993 to sign modifications extending to 90 days following the Closing the date
after which such employees may voluntarily resign and obtain the severance
benefits set forth therein.
5.16 EXCLUSIVITY
(a) Until the termination of this Agreement pursuant to
Section 9.1, Summit will not, nor will it permit its officers, directors,
affiliates, representatives or agents, directly or indirectly, to do any of the
following:
(i) discuss, negotiate, undertake, authorize,
recommend, propose or enter into, either as the proposed surviving, merged,
acquiring or acquired corporation, any transaction (other than the Merger)
involving any disposition or other change of ownership of of Summit's stock or
assets, other than acquisitions and dispositions of equipment and other
property in the ordinary course of Summit's business and dispositions of
HomeTown Buffet, Inc. common stock owned by Summit (an "Acquisition
Transaction");
(ii) facilitate, encourage, solicit or initiate or in
any way engage in any discussion, negotiation or submission of a proposal or
offer in respect of an Acquisition Transaction;
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(iii) furnish or cause to be furnished to any Person
any information concerning the business, operations, properties or assets of
Summit in connection with an Acquisition Transaction; or
(iv) otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
Person to do or seek any of the foregoing.
Summit will inform CKE by telephone within 24 hours of its receipt of
any proposal or bid (including the terms thereof and the Person making such
proposal or bid) in respect of any Acquisition Transaction.
ARTICLE 6
CONDITIONS TO SUMMIT'S OBLIGATIONS
The obligations of Summit under this Agreement are subject to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions:
6.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously
with Summit's effectuation of the transactions to be effected by it at the
Closing:
(a) The Registration Statement shall have become
effective under the Securities Act, the Proxy Statement shall have been cleared
by the staff of the SEC and no stop order or proceeding seeking stop orders
shall have been issued with respect to the Registration Statement or the Proxy
Statement.
(b) The Merger shall have been completed and the
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware.
(c) This Agreement and the Merger shall have been
approved and adopted by the holders of the Summit Common Stock and the Summit
Preferred Stock pursuant to and in accordance with the Charter Documents of
Summit.
(d) The CKE Common Stock shall have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance.
6.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of CKE contained in this Agreement shall be true
and correct at and as of the Closing Date as if such representations and
warranties were made at and as of the Closing Date, and CKE shall have
performed in all material respects all
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agreements and covenants required hereby to be performed by it prior to or at
the Closing Date. There shall be delivered to Summit a certificate (signed by
the President or a Vice President of CKE on behalf of the CKE) to the foregoing
effect.
6.3 CONSENTS. All consents, approvals and waivers from
governmental authorities, and other parties necessary to permit Summit to
consummate the transactions as contemplated hereby, shall have been obtained,
unless the failure to obtain any such consent, approval or waiver would not
have a Material Adverse Effect upon Summit.
6.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit,
action, investigation, inquiry or other Proceeding by any Governmental
Authority shall have been instituted or threatened which questions the validity
or legality of the transactions contemplated hereby. No suit, action,
investigation, inquiry or other Proceeding by any Governmental Authority or
other Person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to have a Material Adverse Effect on Summit or its
Subsidiaries.
6.5 CERTIFICATES. CKE will furnish Summit with such
certificates of its officers, directors and others to evidence compliance with
the conditions set forth in this Article 6 as may be reasonably requested by
Summit and Summit shall have received an opinion of counsel to CKE reasonably
acceptable to Summit.
6.6 TAX OPINION. Summit shall have received an opinion
of counsel (a copy of which will be delivered to CKE) to the effect that the
Merger shall constitute a tax-free reorganization within the meaning of Section
368(a) of the Code.
6.7 CORPORATE DOCUMENTS. Summit shall have received from
CKE resolutions adopted by the board of directors of CKE approving this
Agreement and the transactions contemplated hereby, certified by CKE's
corporate secretary.
6.8 HSR ACT. The applicable waiting period, including
any extension thereof, under the HSR Act shall have expired.
6.9 FAIRNESS OPINION. Summit shall have received a
letter from Piper Jaffray Inc. confirming the opinion rendered to Summit's
Board of Directors on or prior to the date hereof to the effect that the terms
of the Merger are fair to the holders of Summit Common Stock from a financial
point of view, a copy of which will be delivered to CKE at the Closing.
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ARTICLE 7
CONDITIONS TO CKE'S OBLIGATIONS
The obligations of CKE under this Agreement, including the
obligation to pay the Merger Consideration as provided hereby, are subject, in
the discretion of CKE, to the satisfaction, on or prior to the Closing Date, of
each of the following conditions:
7.1 COMPLETION OF OTHER TRANSACTIONS. Simultaneously
with or prior to CKE's effectuation of the transactions to be effected by it at
the Closing:
(a) The Registration Statement shall have become
effective under the Securities Act, the Proxy Statement shall have been cleared
by the staff of the SEC and no stop order or proceeding seeking stop orders
shall have been issued with respect to the Registration Statement or the Proxy
Statement.
(b) The Merger shall have been completed and the
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware.
(c) This Agreement and the Merger shall have been
approved and adopted by the holders of the Summit Common Stock and the Summit
Preferred Stock pursuant in accordance with the Charter Documents of Summit.
(d) The CKE Common Stock shall have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance.
7.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Summit contained in this Agreement shall be
true and correct at and as of the Closing Date as if such representations and
warranties were made at and as of the Closing Date, and Summit and each
Subsidiary shall have performed in all material respects all agreements and
covenants required hereby to be performed by any of them prior to or at the
Closing Date. There shall be delivered to CKE a certificate (signed by the
President or a Vice President of Summit on behalf of Summit) to the foregoing
effect.
7.3 CONSENTS. All consents, approvals and waivers from
governmental authorities, and other parties necessary to permit Summit or CKE
to consummate the transactions as contemplated hereby, shall have been
obtained, unless the failure to obtain any such consent, approval or waiver
would not have a Material Adverse Effect upon Summit.
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7.4 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit,
action, investigation, inquiry or other Proceeding by any Governmental
Authority shall have been instituted or threatened which questions the validity
or legality of the transactions contemplated hereby. No suit, action,
investigation, inquiry or other Proceeding by any Governmental Authority or
other Person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to have a Material Adverse Effect on Summit or its
Subsidiaries.
7.5 CERTIFICATES AND OPINIONS. Summit shall furnish CKE
with such certificates of the respective officers of Summit and others to
evidence compliance with the conditions set forth in this Article 7 as may be
reasonably requested by CKE and CKE shall have received an opinion of counsel
to Summit reasonably acceptable to CKE.
7.6 TAX OPINION. CKE shall have received an opinion of
counsel to CKE (a copy of which will be delivered to Summit) to the effect that
the Merger shall constitute a tax-free reorganization within the meaning of
Section 368(a) of the Code.
7.7 CORPORATE DOCUMENTS. CKE shall have received from
Summit resolutions adopted by the respective boards of directors of Summit
approving this Agreement and the transactions contemplated hereby, certified by
the corporate secretary of Summit. CKE shall have also received the corporate
minute books, Certificates of Incorporation, bylaws and stock transfer books of
Summit and each of the Subsidiaries.
7.8 HSR ACT. The applicable waiting period, including
any extension thereof, under the HSR Act shall have expired.
7.9 DISSENTING SHARES. To the extent that holders of
Summit Common Stock and Summit Preferred Stock are entitled to dissent from the
Merger, the holders of not more than 10% of the shares of Summit Common Stock
or Summit Preferred Stock shall have asserted dissenters' rights in accordance
with the DGCL.
7.10 FAIRNESS OPINION. CKE shall have received a letter
from NatWest Markets confirming the opinion rendered to CKE's Board of
Directors on or prior to the date 10 days following to the date hereof to the
effect that the terms of the Merger are fair to the holders of CKE Common Stock
from a financial point of view, a copy of which will be delivered to Summit at
the Closing.
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ARTICLE 8
ACTIONS BY SUMMIT
AND CKE AFTER THE CLOSING
8.1 FURTHER ASSURANCES. On and after the Closing Date,
Summit and CKE will take all appropriate action and execute all documents,
instruments or conveyances of any kind which may be reasonably necessary or
advisable to carry out any of the provisions hereof, including without
limitation, putting CKE in possession and operating control of the business of
Summit.
8.2 DIRECTORS' AND OFFICERS' INSURANCE. CKE shall
either: (i) cause Summit to provide directors' and officers' and fiduciary
liability insurance having substantially similar terms and conditions and
providing substantially similar coverage as the directors' and officers' and
fiduciary liability insurance maintained by Summit at the Effective Time for a
period of one year following the Effective Time for all present directors and
officers of Summit and its Subsidiaries, provided that CKE may substitute
therefor policies of at least the same coverage and amounts containing terms
and conditions which are no less advantageous, or (ii) cause Summit to purchase
runoff extensions under its existing directors' and officers' and fiduciary
liability insurance policies, extending the period for making claims under such
policies for at least one year following the Effective Time; provided, however,
that the total expense for such extensions shall not exceed $40,000.
ARTICLE 9
TERMINATION AND AMENDMENT
9.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time:
(a) by mutual consent of CKE and Summit;
(b) by either CKE or Summit if the Merger shall not have
been consummated before April 15, 1996 despite the good faith effort of such
party to effect such consummation (unless the failure to so consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement, which action or failure to act constitutes
a breach of this Agreement);
(c) by CKE if (i) (A) there are inaccuracies in the
representations and warranties of Summit that would have a Material Adverse
Effect on Summit, or (B) there has been a material breach on the part of Summit
in the covenants of Summit set forth herein, or any failure on the part of
Summit to comply with its material obliga-
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tions hereunder, or any other events or circumstances shall have occurred, such
that, in any such case, Summit could not satisfy on or prior to April 15, 1996,
any of the conditions to the Closing set forth herein, or (ii) Summit's
stockholders do not approve the Merger at the Summit stockholders' meeting;
(d) by Summit if (i) (A) there are inaccuracies in the
representations and warranties of CKE having a Material Adverse Effect on CKE
or (B) there has been a material breach on the part of CKE in the covenants of
CKE set forth herein, or any failure on the part of CKE to comply with its
material obligations hereunder, or any other events or circumstances shall have
occurred, such that, in any such case, CKE could not satisfy on or prior to
April 15, 1996, any of the conditions to the Closing set forth in this
Agreement, (ii) Summit's stockholders do not approve the Merger at the Summit
stockholders' meeting, (iii) prior to the approval of the Merger by Summit's
stockholders, Summit receives a firm offer with respect to an Acquisition
Transaction that is reasonably capable of being financed and, in the good faith
determination of its Board of Directors after consultation with its financial
advisors, is financially superior to the Merger and the Board of Directors of
Summit, after consulting with its outside counsel, determines that to proceed
with the Merger would violate its fiduciary duties under applicable law, or
(iv) if the Average CKE Price is less than $12.25, unless CKE notifies Summit
in writing that it elects to proceed with the Closing by issuing additional
shares of CKE Common Stock to compensate for the reduction in the Average CKE
Price below $12.25 (the "Fill-Up Election"); or
(e) by holders of the Summit Preferred Stock through written
notice to Summit and CKE if the Average CKE Price is less than $12.25, unless
CKE makes the Fill-Up Election.
9.2 EFFECT OF TERMINATION. In the event of a termination
of this Agreement by either Summit or CKE as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of CKE or Summit or their respective officers or
directors (other than as provided in Section 9.3 below for termination by
Summit pursuant to Section 9.1(d)(iii)) except for breach of the
confidentiality provisions of Section 11.13, and except to the extent that such
termination results from the willful breach by a party hereto of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.3 CERTAIN FEES. In the event that Summit terminates
the Agreement pursuant to Section 9.1(d)(iii), Summit shall promptly pay CKE a
cash fee of $800,000. In the event that all conditions to CKE's obligations as
set forth in Article 7 are satisfied and CKE nevertheless fails to proceed with
the Merger, CKE shall forthwith pay Summit a fee of $800,000, in addition to
all other damages that Summit may suffer as a result of such breach.
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ARTICLE 10
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the terms below shall
have the following meanings:
"Adjusted CKE Price" has the meaning set forth in Section 2.1.
"Average CKE Price" has the meaning set forth in Section 2.1.
"Acquisition Transaction" has the meaning set forth in Section
5.14.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" has the meaning set forth in the Preamble hereof.
"Applicable Agreement" means, with respect to any Person, any
bond, debenture, note or any other evidence of indebtedness, indenture,
mortgage, deed of trust, lease, contract, agreement, license or instrument to
which such Person or any of the Subsidiaries is a party or by which any of
their respective properties or assets is bound.
"Applicable Employment Law" means any Applicable Law governing
or respecting employment or the termination thereof, employment practices,
terms and conditions of employment, wages, hours of work, occupational safety
and health, or discriminatory, wrongful or tortious conduct in connection with
the employment relationship.
"Applicable Law" means any law, statute, ordinance, judgment,
injunction, decree, writ, regulation, interpretation, rule or order of any
court or Governmental Authority, and any other governmental restrictions or
requirements, including (without limitation) pursuant to any permit or license
in effect on or prior to the Closing Date.
"Benefit Plan" means, with respect to any Person, an employee
benefit plan (as defined in Section 3(3) of ERISA) whether or not covered by
ERISA, bonus
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or other incentive plan, deferred compensation, severance arrangement,
executive compensation or any material fringe benefit plan or program
maintained or contributed to by such Person or any of its Subsidiaries or with
respect to which such Person or any of its Subsidiaries has an obligation,
actual or potential.
"Charter Documents" means, with respect to any Person, the
articles or certificate of incorporation and by-laws, partnership agreement or
other organizational documents of such Person.
"CKE" has the meaning set forth in the Preamble.
"CKE Common Stock" means the Common Stock, par value $.01 per
share, of CKE.
"CKE Disclosure Schedule" means a schedule delivered by CKE to
Summit as of the date hereof (and which may be amended or modified on or prior
to the Closing Date) which sets forth exceptions to the representations and
warranties contained in Article 4 hereof and certain other information called
for by Article 4 hereof and other provisions of this Agreement.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" has the meaning set forth in Recital B.
"DGCL" has the meaning set forth in Section 1.1.
"Effective Time" has the meaning set forth in Section 1.2.
"Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any Person alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of or resulting from (a) the presence, or release into the environment, of
any Materials of Environmental Concern at any location, whether or not owned or
operated by Summit or any of the Subsidiaries, or (b) any noncompliance with
any Environmental Law.
"Environmental Law" means any and all Applicable Laws relating
to pollution or the protection of human health or the environment or to
emissions, discharges, releases or threatened releases of any Materials of
Environmental Concern
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into the environment (including without limitation ambient air, surface water,
ground water, or land), or otherwise relating to the manufacture, processing,
distribution, generation, treatment, storage, disposal, transport or handling
of any Materials of Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" has the meaning set forth in Section 3.6.
"Fill-Up Election" has the meaning set forth in Section
9.1(d)(iv).
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this
Agreement.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental, administrative or regulatory authority or
agency.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"IRS" has the meaning set forth in Section 3.12.
"Lien" means any mortgage, pledge, lien, encumbrance, charge
or adverse claim, or a security interest of any kind (including, without
limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof and any option or other agreement to sell).
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on (i) the condition (financial or otherwise), results
of operations, assets, liabilities, business or business prospects of such
Person, (ii) the ability of such Person or any of its Affiliates to perform its
obligations hereunder or (iii) the validity or enforceability of this
Agreement.
"Merger" shall have the meaning set forth in Recital A.
"Merger Consideration" has the meaning set forth in Section
2.1.
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"Materials of Environmental Concern" means pesticides,
chemicals, pollutants, contaminants, wastes, toxic substances and hazardous
substances.
"Multiemployer Plan" means, with respect to any Person, on any
date, a multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been made at any time during the six-year period ending on
or prior to such date, by such Person and that is covered by Title IV of ERISA.
"NLRB" means the National Labor Relations Board.
"PBGC" has the meaning set forth in Section 3.12.
"Permitted Liens" means (i) Liens securing indebtedness under
the Summit's credit facility with Zions National Bank; (ii) Liens in favor of
Summit or any Subsidiary; (iii) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (iv) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (v) carriers', warehousemen's, mechanics',
materialmen's, repairmen's, or other similar Liens arising in the ordinary
course of business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings diligently
conducted, (vi) Liens of landlords or of mortgagees of landlords arising by
operation of law, provided that the rental payments secured thereby are not yet
due and payable, (vii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance
and other types of social security; (viii) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances not interfering in any material respect with the
business of Summit or any of its Subsidiaries, (ix) Purchase Money Liens
(including extensions and renewals thereof); (x) any interest or title of a
lessor in property subject to any capital lease obligation or operating lease;
and (xi) Liens arising from filing Uniform Commercial Code financing statements
regarding leases.
"Person" means any individual, partnership, corporation, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity.
"Proceeding" means an action, claim, suit or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
33
<PAGE> 39
"Proxy Statement" has the meaning set forth in Section 3.7.
"Purchase Money Lien" means a Lien granted on an asset or
property to secure incurred incurred solely to finance the purchase, or the
cost of construction or improvement, of such asset or property.
"Registration Statement" has the meaning set forth in Section
3.7.
"SAS" has the meaning set forth in Section 5.8.
"SEC" has the meaning set forth in Section 3.6.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of directors.
"Summit" has the meaning set forth in the Preamble.
"Summit Common Stock" means the Common Stock, par value $.10
per share, of Summit.
"Summit Disclosure Schedule" means a schedule delivered by
Summit to CKE as of the date hereof (and which may be amended or modified on or
prior to the Closing Date) which sets forth exceptions to the representations
and warranties contained in Article 3 hereof and certain other information
called for by Article 3 hereof and other provisions of this Agreement.
"Summit Preferred Stock" means the Series A Convertible
Preferred Stock, par value $1.00 per share, of Summit.
"Summit Stock Option" has the meaning set forth in Section
5.13.
"Summit Stock Option Plans" means the 1987 Nonqualified Stock
Option Plan, the 1987 Incentive Stock Option Plan, the 1984 Incentive Stock
Option Plan, as amended on February 13, 1987, and the 1992 Stock Option Plan,
as amended on April 8, 1994 and November 18, 1994, in each case of Summit.
"Tax or Taxes" means any federal, state, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license,
34
<PAGE> 40
payroll, wage or other withholding, employment, social security, severance,
transfer, stamp, occupation, alternative or add-on minimum, estimated or other
taxes of any kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto) whether
disputed or not.
"Tax Returns" means any United States Federal, state, local
and foreign returns, declarations, elections, statements, reports, schedules
and information returns pertaining to any Tax or the refiling or amendment of
any such Tax Returns previously filed.
"ULP" means an unfair labor practice as defined in the
National Labor Relations Act.
ARTICLE 11
MISCELLANEOUS
11.1 SURVIVAL OF REPRESENTATIONS, ETC. All statements
contained in the Disclosure Schedule or in any certificate or instrument of
conveyance delivered by or on behalf of the parties pursuant to this Agreement
or in connection with the transactions contemplated hereby shall be deemed to
be representations and warranties by the parties hereunder. The
representations and warranties of Summit and CKE contained herein shall not
survive the Closing Date.
11.2 ASSIGNMENT. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by Summit without the prior
written consent of CKE, or by CKE without the prior written consent of Summit.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, and no other person shall
have any right, benefit or obligation hereunder.
11.3 NOTICES. Unless otherwise provided herein, any
notice, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered in person or by courier,
telegraphed, telexed or by facsimile transmission (with confirmation given) or
mailed by certified mail, postage prepaid, return receipt requested (such
mailed notice to be effective on the date of such receipt is acknowledged), as
follows:
35
<PAGE> 41
If to
Summit: Charlotte L. Miller
Senior Vice President &
General Counsel
Summit Family Restaurants Inc.
440 Lawndale Drive
Salt Lake City, Utah 84115-2917
(801) 463-5500 Phone
(801) 463-5585 Facsimile
If to CKE: Richard C. Celio
Senior Vice President &
General Counsel
CKE Restaurants, Inc.
1200 North Harbor Boulevard
Anaheim, California 92801
(714) 774-5796 Phone
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.4 CHOICE OF LAW. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the
laws of the State of Delaware except with respect to matters of law concerning
the internal corporate affairs of any corporate entity which is a party to or
the subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
11.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This
Agreement, together with all exhibits and schedules hereto, constitutes the
entire agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by the party to
be bound thereby. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
11.6 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
36
<PAGE> 42
11.7 INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other such instrument.
11.8 HEADINGS. The headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to
be a part of or to affect the meaning or interpretation of this Agreement.
11.9 EXPENSES. Summit and CKE will each be liable for its
own, costs and expenses incurred in connection with the negotiation,
preparation, execution or performance of this Agreement.
11.10 SPECIFIC PERFORMANCE. The parties hereto agree that
if any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached, irreparable damage would
occur, no adequate remedy at law would exist, and that the parties shall be be
entitled to specific performance of the terms hereof, in addition to actions
for damages and any other remedy at law or equity.
11.11 ATTORNEYS FEES. The parties hereby agree that if any
party hereto pursues a Proceeding to enforce the terms of this Agreement, the
prevailing party in any such Proceeding shall be entitled to recover its
attorneys fees and other costs and expenses incurred in such Proceeding from
the other party.
11.12 PUBLICITY. Neither party shall issue or make or
permit any Affiliate or advisor to issue or make any press release or other
public statement regarding the transactions contemplated hereby, without the
prior approval of the other party, except as required by law in the opinion of
counsel to each party. The parties shall issue a mutually acceptable press
release as soon as possible after execution of this Agreemen and as soon as
practicable after the Closing Date.
11.13 CONFIDENTIAL INFORMATION. The parties acknowledge
that the transaction described herein is of a confidential nature and shall not
be disclosed except to consultants, lenders, advisors and affiliates, or as
required by law, until such time as the parties make a public announcement
regarding the transaction. Neither Summit nor CKE shall make any public
disclosure of the specific terms of this Agreement, except as required by law.
In connection with the negotiation of this Agreement and the preparation for
the consummation of the transactions contemplated hereby, each party
acknowledges that it will have access to confidential information relating to
the other party. Each party shall treat such information as confidential,
preserve the confidentiali-
37
<PAGE> 43
ty thereof and not duplicate or use such information, except to advisors,
consultants, lenders and affiliates in connection with the transactions
contemplated hereby. Summit, at a time and in a manner which it reasonably
determines and after prior notice to and consultation with CKE, may notify
employees, unions and bargaining agents of the fact of the subject transaction.
In the event of the termination of this Agreement for any reason whatsoever,
each party shall return to the other all documents, work papers and other
material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and will use all reasonable efforts, including
instructing its employees and others who have had access to such information,
to keep confidential and not to use any such information, unless such
information is now, or is hereafter disclosed, through no act or omission of
such party, in any manner making it available to the general public.
38
<PAGE> 44
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, or have caused this Agreement to be duly executed on their
respective behalf by their respective officers thereunto duly authorized, as of
the day and year first above written.
SUMMIT FAMILY RESTAURANTS INC.
By /s/ Don M. McComas
------------------------------
Don M. McComas
President and Chief Executive Officer
By /s/ Charlotte L. Miller
------------------------------
Charlotte L. Miller
Senior Vice President &
General Counsel
CKE RESTAURANTS, INC.
By /s/ Joseph N. Stein
------------------------------
Joseph N. Stein
Senior Vice President,
Chief Financial Officer
By /s/ Richard C. Celio
------------------------------
Richard C. Celio
Senior Vice President,
General Counsel
<PAGE> 1
Hand Delivered
December 1, 1995
440 Lawndale Drive
Salt Lake City, Utah 84115
Re: Change of Control Agreement
Dear:
Summit Family Restaurants Inc. ("Summit") has entered into a change of
control letter agreement with you dated August 17, 1995 ("Change of Control
Agreement"). Summit has entered or will enter into an agreement ("CKE
Agreement") with CKE Restaurants, Inc. ("CKE") for the merger of Summit with
a subsidiary of CKE, which transaction the Board of Directors of Summit has
determined is in the best interest of the shareholders, officers and employees
of Summit. CKE has requested an amendment to the Change of Control Agreement
and Summit and you have agreed to amend the Change of Control Agreement as
follows:
1. You agree that in the event you voluntarily terminate your
employment with Summit or Summit's successor within (90) days immediately
following the closing of the transaction contemplated by the CKE Agreement
("Mandatory 90 day Period") you shall forfeit all your benefits under the
Change of Control Agreement and the Change of Control Agreement shall have no
further force or effect. During the Mandatory 90 day Period you shall continue
to receive salary equivalent to your current salary.
2. Summit agrees that the 90 day period described in paragraph
2(a) of the Change of Control Agreement, during which you may voluntarily
terminate your employment and receive your benefits under the Change of Control
Agreement, shall begin immediately following the end of the Mandatory 90 day
Period.
<PAGE> 2
Change of Control Agreement
December 1, 1995
Page 2
3. All other provisions of the Change of Control Agreement shall
remain in full force and effect.
Please indicate your acceptance of the foregoing terms by executing
this letter where indicated below.
Very truly yours,
SUMMIT FAMILY RESTAURANTS INC.
Clark D. Jones
Chairman of the Board
- ----------------------------
- ----------------------------
Signature
- ----------------------------
Date
<PAGE> 1
EXHIBIT 11 COMPUTATION OF PER SHARE INCOME (LOSS).
<PAGE> 2
SUMMIT FAMILY RESTAURANTS INC.
COMPUTATION OF PER SHARE INCOME (LOSS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 25, 1995, SEPTEMBER 26, 1994, AND SEPTEMBER 27, 1993
PRIMARY PER SHARE INCOME (LOSS)
---------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average shares of common stock
outstanding during the year ........... 4,794,000 4,778,000 4,693,000
Common stock equivalents resulting
from common stock options ............. * 76,000 *
Common stock equivalents resulting from
Series A Convertible Preferred Stock .. * 869,000 --
----------- ---------- -----------
Average shares of common stock for
computation of per share
income (loss)......................... 4,794,000 5,723,000 4,693,000
Net income (loss) ....................... $(5,044,000) $3,756,000 $(2,314,000)
Primary per share income (loss) ......... $ (1.05) $ 0.66 $ (0.49)
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED PER SHARE INCOME (LOSS)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average shares of common stock
outstanding during the year (1) (1) (1)
Common stock equivalents resulting
from common stock options
Average shares of common stock for
computation of per share income (loss)
Net income (loss)
Fully diluted per share income (loss)
</TABLE>
- --------------------
(1) Fully diluted per share income (loss) and primary per share income (loss)
are the same.
* Anti-dilutive
<PAGE> 1
EXHIBIT 22 SUBSIDIARIES OF THE COMPANY.
<PAGE> 2
SUBSIDIARIES OF THE COMPANY
1. HTB Restaurants, Inc., a Delaware corporation, doing business as "HomeTown
Buffet"
2. Lucky 7 Inc., a Delaware corporation, previously doing business as "Sbarro"
3. Restaurant Equipment Corporation, a Delaware corporation
<PAGE> 1
EXHIBIT 24 CONSENT OF KPMG PEAT MARWICK LLP.
<PAGE> 2
INDEPENDENT AUDITORS CONSENT
The Board of Directors
Summit Family Restaurants Inc.:
We consent to incorporation by reference in the registration statements No.
2-99014; No. 33-18431; No. 33-17363; No. 33-62150; No. 33-62152; and No.
33-99144 on Form S-8 of Summit Family Restaurants Inc. and subsidiaries of our
report dated November 3, 1995, except as to Note 15 which is as of December 11,
1995, relating to the consolidated balance sheets of Summit Family Restaurants
Inc. and subsidiaries as of September 25, 1995 and September 26, 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three year period ended September 25, 1995,
and all related schedules, which report appears in the September 25, 1995,
annual report on Form 10-K of Summit Family Restaurants Inc. and subsidiaries.
/s/ KPMG Peat Marwick LLP
- ---------------------------------
KPMG Peat Marwick LLP
Salt Lake City, Utah
December 20, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS BALANCE SHEET & STATEMENTS OF OPERATIONS AS OF AND FOR THE FISCAL
YEAR ENDED SEPTEMBER 25, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-25-1995
<PERIOD-START> SEP-27-1994
<PERIOD-END> SEP-25-1995
<CASH> 1,911,000
<SECURITIES> 180,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,411,000
<CURRENT-ASSETS> 5,865,000
<PP&E> 99,175,000
<DEPRECIATION> 45,647,000
<TOTAL-ASSETS> 70,884,000
<CURRENT-LIABILITIES> 17,150,000
<BONDS> 10,150,000
<COMMON> 480,000
0
947,000
<OTHER-SE> 38,700,000
<TOTAL-LIABILITY-AND-EQUITY> 70,884,000
<SALES> 121,099,000
<TOTAL-REVENUES> 121,099,000
<CGS> 40,018,000
<TOTAL-COSTS> 40,018,000
<OTHER-EXPENSES> 58,682,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,535,000
<INCOME-PRETAX> (6,097,000)
<INCOME-TAX> (1,053,000)
<INCOME-CONTINUING> (6,097,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,044,000)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
