<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 29, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-29410
IL FORNAIO (AMERICA) CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2766571
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
770 TAMALPAIS DRIVE, SUITE 400
CORTE MADERA, CALIFORNIA 94925
(Address of principal executive offices) (Zip Code)
(415) 945-0500
(Registrant's telephone number, including area code)
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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 5, 1998, there were 5,911,974 shares outstanding of the Registrant's
Common Stock ($.001 par value).
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IL FORNAIO (AMERICA) CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 29, 1998 and
December 28, 1997..................................................3
Statements of Income-Three months ended March 29, 1998 and
March 30, 1997.....................................................4
Statements of Cash Flows-Three months ended
March 29, 1998 and March 30, 1997..................................5
Notes to Financial Statements-..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................7
Part II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
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Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IL FORNAIO (AMERICA) CORPORATION
BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
March 29, December 28,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 733 $ 557
Cash equivalents 13,930 14,714
Restricted cash 796 518
Accounts receivable, net 1,159 1,291
Note receivable 94 121
Inventories 1,710 1,720
Prepaid expenses and other assets 1,150 1,420
Deferred tax assets, net 195 125
------- -------
Total current assets 19,767 20,466
------- -------
Property and equipment, net 30,070 29,255
Deferred tax assets, net 1,769 1,879
Other assets 461 491
------- -------
Total assets $52,067 $52,091
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,377 $ 3,085
Accrued expenses 5,113 6,287
------- -------
Total current liabilities 8,490 9,372
------- -------
Reserve for store closures 345 374
Deferred lease incentives 5,129 5,219
Commitments
Stockholders' equity:
Preferred stock, $.001 par value;
5,000,000 shares authorized; no
shares issued and outstanding, respectively - -
Common stock, $.001 par value;
20,000,000 shares authorized;
5,851,775 and 5,818,513 shares issued and
outstanding, respectively 6 6
Additional paid-in-capital 36,594 36,466
Retained earnings 1,503 654
------- -------
Total stockholders' equity 38,103 37,126
------- -------
Total liabilities and stockholders' equity $52,067 $52,091
======= =======
</TABLE>
See notes to financial statements
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IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
---------------------------
March 29, March 30,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Restaurants $ 17,950 $ 15,807
Wholesale bakeries 1,746 1,564
Retail bakeries -- 311
-------- --------
Total revenues 19,696 17,682
-------- --------
Costs and expenses:
Cost of sales 4,600 4,168
Operating expenses 11,292 10,245
Depreciation and amortization 1,165 992
General and administrative expenses 1,504 1,425
-------- --------
Total costs and expenses 18,561 16,830
-------- --------
Income from operations 1,135 852
Other (income) expenses:
Interest income (271) (50)
Interest expense 14 --
-------- --------
Total other (income) expenses, net (257) (50)
-------- --------
Income before provision for income taxes 1,392 902
Provision for income taxes 543 375
-------- --------
Net income $ 849 $ 527
======== ========
Net income per share:
Basic $ 0.15 $ 0.12
Diluted $ 0.13 $ 0.11
Weighted average shares and common
share equivalents outstanding
Basic 5,831 4,532
Diluted 6,472 4,615
</TABLE>
See notes to financial statements
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IL FORNAIO (AMERICA) CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 29, March 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 849 $ 527
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization 1,165 994
Amortization of deferred lease incentives (90) (310)
Gain on sale of property and equipment -- (60)
Retirement of fixed assets 1 232
Deferred income taxes 40 --
Changes in:
Restricted cash (278) 5
Accounts receivable 132 268
Note receivable 27 (197)
Inventories 10 (55)
Prepaid expenses 107 235
Other assets 30 (45)
Accounts payable 292 (461)
Accrued expenses (1,174) 440
Reserve for store closures (29) --
------- -------
Net cash provided by operating activities 1,082 1,573
------- -------
Cash flows from investing activities:
Capital expenditures (1,818) (1,287)
Proceeds from sale of property and equipment -- 611
------- -------
Net cash used in investing activities (1,818) (676)
------- -------
Cash flows from financing activities:
Payments on debt -- (150)
Proceeds from the issuance of common stock, net -- 203
Exercise of stock options 128 3
------- -------
Net cash provided by financing activities 128 56
------- -------
Increase (decrease) in cash and equivalents (608) 953
Cash and cash equivalents, beginning of period 15,271 1,701
------- -------
Cash and cash equivalents, end of period $14,663 $ 2,654
======= =======
</TABLE>
See notes to financial statements
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IL FORNAIO (AMERICA) CORPORATION
Notes to Condensed Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Il Fornaio (America) Corporation (the "Company") is engaged in
restaurant operations and the production and sale of Italian bakery products for
the wholesale and retail market. As of March 29, 1998, the Company owned and
operated 15 Italian white tablecloth restaurants and five wholesale bakeries in
California, Portland, Oregon, Las Vegas, Nevada, and Denver, Colorado.
The accompanying condensed unaudited financial statements of the
Company for the three months ended March 29, 1998 and March 30, 1997,
respectively, have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these interim condensed financial statements
be read in conjunction with the Company's most recent audited financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended December 28, 1997, filed with the Securities and Exchange Commission.
The balance sheet data presented herein for December 28, 1997 was derived from
the Company's audited financial statements for the fiscal year then ended. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented have been
made. The interim financial information herein is not necessarily indicative of
results for any future interim periods or for the full fiscal year ending
December 27, 1998.
2. Cash and cash equivalents
Cash-The Company reports all demand deposits and cash on hand as cash.
Cash equivalents-Consist primarily of commercial paper with maturities
of three months or less. Cash equivalents are carried at cost which
approximates market value.
3. Earnings Per Share
Net income per share is computed using the weighted average number of
common shares and dilutive common equivalent shares attributable to
stock options outstanding during the period.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." The Company adopted
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SFAS 128 in the fourth quarter of 1997. As a result, the earnings per
share (EPS) data for prior periods have been restated to conform with
SFAS 128's requirement of dual presentation of basic EPS and diluted
EPS for all entities with complex capital structures. Basic EPS is
computed as net income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock
options, warrants and other convertible securities.
4. Preferred Stock
On September 24, 1997, each outstanding share of Series B, C, E and F
preferred stock was converted into 1.262 shares of common stock upon
the completion of the Company's initial public offering. As of March
29, 1998 and December 28, 1997 there was 5,000,000 shares authorized
and no shares were issued and outstanding.
5. Recent Accounting Pronouncement
On April 3, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants approved Statement
of Position 98-5 ("SOP") entitled "Reporting on the Costs of Start-Up
Activities." The SOP requires entities to expense as incurred all
start-up and preopening costs that are not otherwise capitalizable as
long-lived assets. The SOP will be effective for fiscal years beginning
after December 15, 1998. The Company's adoption of the new accounting
standard will involve the recognition of the cumulative effect of the
change in accounting principle required by the SOP as a one-time charge
against earnings, net of any related income tax effect, retroactive to
the beginning of the fiscal year of adoption. At this time, the Company
is reviewing the new pronouncement and plans to adopt it in the first
quarter of fiscal 1999. This one-time charge against earnings will be
the unamortized balance of such cost as of December 27, 1998.
6. Reclassifications-Certain fiscal 1997 amounts have been reclassified
to conform with fiscal 1998 presentations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. Such forward looking statements may be deemed
to include the timing of anticipated restaurant openings, the projected
investment and costs required for future restaurants and the adequacy of
anticipated sources of cash to fund the Company's future capital requirements
through 1998. Words such as "believes," "anticipates," "expects," "intends" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. Actual events or results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those risks and uncertainties discussed below, as well as other
risks set forth under the caption "Risk Factors" in the Company's Prospectus.
The following discussion should be read in conjunction with the Financial
Statements and the Notes thereto included in Item 1 of this
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Quarterly Report on Form 10-Q and in the Company's Form 10-K for the fiscal year
ended December 28, 1997.
OVERVIEW
The Company's revenues consist of restaurant sales and wholesale bakery
sales and, prior to February 1997, free-standing retail bakery sales. Comparable
restaurant sales are calculated to include a new restaurant only after their
first full month following the eighteenth month of its operation. Comparable
restaurant revenues may fluctuate significantly as a result of a variety of
factors. See "Factors Affecting Operating Results" below.
Cost of sales is composed primarily of the cost of food and beverages.
Operating expenses include payroll and fringe benefit costs, occupancy costs,
marketing costs and other store-level costs. The majority of these costs are
variable and are expected to increase with sales volume. Occupancy costs include
both a fixed and percentage portion of rent. Depreciation and amortization
includes the amortization of pre-opening costs associated with the opening of
new locations. The Company capitalizes pre-opening expenses for each of its new
units and amortizes such costs over the 12-month period following the opening of
the unit. Pre-opening costs consist of direct costs related to hiring and
training the initial workforce and certain other direct costs related to opening
new restaurants. See Note 5 of Notes to Financial Statements.
General and administrative expenses are composed of expenses associated
with all corporate and administrative functions that support existing operations
and provide an infrastructure to support future growth, including management and
staff salaries, employee benefits, travel, information systems and training and
market research. Certain expenses of recruiting and training unit management
personnel are also included as general and administrative expenses.
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The following table sets forth unaudited operating results for the
three-month periods ended March 29, 1998 and March 30, 1997, respectively, as a
percentage of sales in each of these periods. This data has been derived from
the unaudited financial statements.
<TABLE>
<CAPTION>
Three months ended
March 29, March 30,
1998 1997
------ ------
<S> <C> <C>
Revenues:
Restaurants 91.1% 89.4%
Wholesale bakeries 8.9% 8.8%
Retail bakeries -- 1.8%
----- -----
Total revenues 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales 23.4% 23.6%
Operating expenses 57.3% 57.9%
Depreciation and amortization 5.9% 5.6%
General and administrative expenses 7.6% 8.1%
----- -----
Total costs and expenses 94.2% 95.2%
----- -----
Income from operations 5.8% 4.8%
Other (income) expenses:
Interest income -1.4% -0.3%
Interest expense 0.1% 0.0%
----- -----
Total other (income) expenses, net -1.3% -0.3%
----- -----
Income before provision for income taxes 7.1% 5.1%
Provision for income taxes 2.8% 2.1%
----- -----
Net income 4.3% 3.0%
----- -----
</TABLE>
Revenues increased by 11.4% to $19.7 million for the first quarter of 1998 from
$17.7 million for the first quarter of 1997. The increase primarily reflected a
4.6% increase in comparable restaurant sales and a 11.6% increase in comparable
wholesale bakery sales for the first quarter of 1998. In addition, three
noncomparable restaurants opened in 1997, contributed $1.5 million to the
increase. The increase in restaurant revenues is also the result of the benefit
of a moderate menu price increase in the beginning of 1998. These factors more
than offset the $311,000
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decrease in revenues for the first quarter of 1998 attributable to the
disposition of the four remaining free-standing retail bakeries in February
1997.
Cost of sales decreased slightly as a percentage of revenues to 23.4% for the
first quarter of 1998 compared to 23.6% for the first quarter of 1997 primarily
as a result of improved purchasing capabilities and stable food and beverage
prices during the 1998 period.
Operating expenses as a percentage of revenues decreased to 57.3% for the first
quarter of 1998 compared to 57.9% for the first quarter of 1997, attributable
primarily as a result of a decrease in total occupancy costs as a percentage
revenues. This occupancy cost decrease more than offset higher labor costs
resulting from minimum wage increases and a $200,000 write-off related to the
remodel of the Corte Madera restaurant. Depreciation and amortization increased
as a percentage of revenues to 5.9% for the first quarter of 1998 compared to
5.6% for the comparable period in 1997, primarily reflecting increased
pre-opening expenses related to the opening of two new restaurants in the fourth
quarter of 1997.
General and administrative expenses decreased as a percentage of revenues to
7.6% for the first quarter of 1998 compared to 8.1% for the comparable period in
1997, reflecting primarily stable administrative staffing expense levels.
Interest expense increased in the first quarter of 1998 as a result of
short-term borrowing on the Company's bank line of credit. Interest income
increased in the first quarter of 1998 compared to the same period in 1997,
reflecting interest on higher average cash balances as a result of both cash
generated from operations and the proceeds of the Company's initial public
offering in September 1997.
The provisions for income taxes for the three months ended March 29, 1998 and
March 30, 1997 reflected expected income taxes due at federal statutory rates
and state income tax rates, net of the tax benefits. The effective income tax
rates were 39.0% and 41.5% for the three months ended March 29, 1998 and March
30, 1997, respectively.
Net income for the first quarter of 1998 increased by $322,000, or 61.1%, to
$849,000 from $527,000 for the first quarter of 1997. Net income per share
(diluted) for the first quarter of 1998 increased by 18.2% to $0.13 per share as
compared with $0.11 per share for the comparable period in 1997.
FACTORS AFFECTING OPERATING RESULTS
The Company's business is subject to a number of challenges and risks
including, among other things, the risks associated with the Company's pursuit
of a more aggressive growth strategy, risks related to the Company's relatively
small operations base and the geographic concentration of the Company's
restaurants, uncertainties associated with possible changes in food and labor
costs, potentially adverse weather conditions, and the impact of potential
governmental regulation, risks related to the Company's dependence on its key
personnel, uncertainties related to the intensely competitive nature of the
restaurant business, as well as potential liabilities associated with long-term
leases and the potential negative effect of
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the unusually adverse weather conditions experienced this winter on the West
Coast, which have continued beyond the normal rainy season.
The Company's quarterly operating results may fluctuate significantly
as a result of a variety of factors, including general economic conditions,
consumer confidence in the economy, changes in consumer preferences, competitive
factors, weather conditions, the timing of new restaurant openings and related
expenses, net sales contributed by new restaurants, the Company's ability to
execute its business strategy, and increases or decreases in comparable
restaurant revenues. Due to the foregoing factors, results for any one quarter
are not necessarily indicative of results to be expected for any other quarter
or for any year and, from time to time in the future, the Company's results of
operations may be below the expectations of public market analysts and
investors. Comparable restaurant sales results may also vary from period to
period as a result of similar factors. These and other risk factors are
discussed in more detail in the Company's Form 10-K for the fiscal year ended
December 28, 1997 under the caption "Risk Factors."
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, the Company had $15.5 million in cash, restricted cash,
and cash equivalents, including approximately $10.8 million remaining in net
proceeds from the Company's initial public offering.
For the periods presented, the Company has funded its capital requirements
primarily with cash flow generated from new and existing restaurant operations.
The cash flow from operations decreased to $1.1 million for the first three
months of 1998 from $1.6 million during the same period in 1997, due primarily
to the net effect of an increase in comparable restaurant sales and the addition
of new restaurants, which were more than offset by the timing of payments to
vendors. At March 29, 1998, the Company had a credit agreement which provided
for a $5.0 million line of credit under which no borrowings were then
outstanding. At March 31, 1998, the Company replaced that line of credit with a
new $5.0 million revolving line of credit, which expires on March 31, 2000, from
a different financial institution.
Net cash provided by financing activities was $128,000 for the first three
months of 1998 as compared with the $56,000 for the same period in 1997
primarily reflecting the receipt of less cash in the first quarter of 1998 from
the exercise of stock options and the issuance of common stock compared to the
first quarter of 1997.
Capital expenditures were $1.8 million for the first three months of 1998 as
compared to $1.3 million in the first three months of 1997. The Company is
currently in the process of constructing two additional restaurants which it
intends to open in 1998. A portion of the proceeds from the Company's initial
public offering have been used to fund these investments. Total capital
expenditures are expected to be approximately $7.0 million in 1998. The Company
expects that its planned future restaurants will require, on average, a total
investment by the Company per restaurant, net of anticipated landlord
contributions, of approximately $1.8 million, with additional average
pre-opening costs per restaurant of approximately
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$250,000. The Company also anticipates incurring additional expenditures to
enhance certain of its existing restaurants.
The Company's future capital requirements and the adequacy of its
available funds will depend on many factors, including the pace of expansion,
the size of restaurants developed and the nature of the arrangements negotiated
with landlords. Although no assurance can be given, the Company believes that
anticipated cash flow from operations, borrowings under the credit agreement and
proceeds from the initial public offering will be sufficient to fund its capital
requirements, including planned expansion and ongoing maintenance and renovation
of existing restaurants, at least through 1998. In the event that additional
capital is required, the Company may seek to raise that capital through public
or private equity or debt financings. There can be no assurance that such
capital will be available on favorable terms, if at all.
INFLATION
The primary inflationary factors affecting the Company's operations are
food and labor costs. A large number of the Company's restaurant personnel are
paid at rates based on the applicable minimum wage, and increases in the minimum
wage directly affect the Company's labor costs. To date, inflation (except for
the impact of minimum wage increases) has not had a material impact on the
Company's operations. The minimum wage increased under recent federal
legislation to $5.15 an hour in September 1997 and increased in California to
$5.75 an hour in March 1998. Additional minimum wage increases have recently
been proposed.
Part II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) From December 29, 1997 to March 29, 1998, the Registrant sold and
issued the following unregistered securities:
1. During the period, the Company sold an aggregate of 32,892
shares of its Common Stock to employees of the Company for
consideration in the aggregate amount of $141,079 pursuant to
the exercise of stock options granted under its employee stock
option plans.
The Company claimed exemption from registration under the Securities
Act of 1933, as amended (the "Securities Act") for the sales and
issuances in the transaction described above under Rule 701 promulgated
under the Securities Act, in that they were issued to employee's
pursuant to a written compensatory benefit plan, as provided by Rule
701.
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USE OF PROCEEDS
(d) The Company's Registration Statement on Form S-1 covering the sale of
1,725,000 shares of Common Stock (No. 333-23605) (the "Registration
Statement") was declared effective by the Commission on September 18,
1997. The estimated net proceeds to the Company of the offering
(including the net proceeds from the sale of shares issued upon
exercise of the underwriters over-allotment option on October 1, 1997)
were $11.3 million. From the effective date of the offering to March
29, 1998, the Company has used approximately $500,000 to fund the
construction of new restaurants (architect fees, permits, and a limited
amount of construction on the building). None of such expenses were
paid to affiliates, directors or officers of the Company, associates or
officers or directors or persons or entities owning 10% or more of any
class of equity securities of the Company. The remainder of the net
proceeds were invested in short-term, investment-grade,
interest-bearing securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Revolving Line of Credit Note and Loan Agreement between the
Company and Wells Fargo Bank, N.A., dated March 31, 1998.
11.1 Calculation of net income per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K. None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Il Fornaio (America) Corporation
Date: May 8, 1998 By: /s/ MICHAEL J. HISLOP
---------------------
Michael J. Hislop
President and Chief Executive
Officer
(Principal Executive Officer)
Date: May 8, 1998 By: /s/ PAUL J. KELLEY
------------------
Paul J. Kelley
Vice President, Finance and
Secretary
(Principal Financial and Accounting
Officer)
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WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$5,000,000.00 SAN FRANCISCO, CALIFORNIA
MARCH 31, 1998
FOR VALUE RECEIVED, the undersigned IL FORNAIO (AMERICA) CORPORATION
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at SAN FRANCISCO RCBO, 420 MONTGOMERY STREET
9TH FLR, SAN FRANCISCO, CA 94104, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $5,000,000.00, or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law
to close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2, 3 OR 6 MONTHS, as designated by Borrower, during which all
or a portion of the outstanding principal balance of this Note bears interest
determined in relation to LIBOR; provided however, that no Fixed Rate Term may
be selected for a principal amount less than $500,000.00; and provided further,
that no Fixed Rate Term may be selected for a principal amount less than
$500,000.00; and provided further, that no Fixed Rate Term shall extend beyond
the scheduled maturity date hereof. If any Fixed Rate Term would end on a day
which is not a Business Day, then such Fixed Rate Term shall be extended to the
next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage
equal to 100% less any LIBOR Reserve Percentage.
(i) "Base LIBOR" means the rate per annum for United State dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first
day of a Fixed Rate Term for delivery of funds on said date for a period of
time approximately equal to the number of days in such Fixed Rate Term and in
an amount approximately equal to the principal amount to which such Fixed Rate
Term applies. Borrower understands and agrees that Bank may base its quotation
of the Inter-Bank Market Offered Rate upon such offers or other market
indicators of the Inter-Bank Market as Bank in its discretion deems appropriate
including, but not limited to, the rate offered for U.S. dollar deposits on the
London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual day elapsed) either
(i) at a fluctuating rate per annum EQUAL TO the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be 1.75000%
above LIBOR in effect on the first day of the applicable Fixed Rate Term. When
interest is determined in relation to the Prime Rate, each change in the rate
of interest hereunder shall become effective on the date each Prime Rate change
is announced within Bank. With respect to each LIBOR selection hereunder, Bank
is hereby authorized to note the date, principal amount, interest rate and
Fixed Rate Term applicable thereto and any payments made thereon on Bank's
books and records (either manually or by electronic entry) and/or on any
schedule attached to this Note, which notations shall be prima facie evidence
of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed
REVOLVING LINE OF CREDIT NOTE, PRIME RATE/LIBOR; UNSECURED (EXPDOCS) (02/98),
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Rate Term, Borrower shall give Bank notice specifying: (i) the interest rate
option selected by Borrower; (ii) the principal amount subject thereto; and
(iii) for each LIBOR selection, the length of the applicable Fixed Rate Term.
Any such notice may be given by telephone so long as, with respect to each
LIBOR selection, (A) Bank receives written confirmation from Borrower not later
than 3 Business Days after such telephone notice is given, and (B) such notice
is given to Bank prior to 10:00 a.m., California time, on the first day of the
Fixed Rate Term. For each LIBOR option requested hereunder, Bank will quote the
applicable fixed rate to Borrower at approximately 10:00 a.m., California time,
on the first day of the Fixed Rate Term. If Borrower does not immediately
accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be
subject to a redetermination by Bank of the applicable fixed rate; provided
however, that if Borrower fails to accept any such rate by 11:00 a.m.,
California time, on the Business Day such quotation is given, then the quoted
rate shall expire and Bank shall have no obligation to permit a LIBOR option to
be selected on such day. If no specific designation of interest is made at the
time any advance is requested hereunder or at the end of any Fixed Rate Term,
Borrower shall be deemed to have made a Prime Rate interest selection for such
advance or the principal amount to which such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
(i) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until
such notice has been withdrawn by Bank, then (A) no new LIBOR may be selected
by Borrower, and (B) any portion of the outstanding principal balance hereof
which bears interest determined in relation to LIBOR, subsequent to the end of
the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.
(ii) If any, law, treaty, rule, regulation or determination of a
court or governmental authority or any change therein or in the interpretation
or application thereof (each, a "Change in Law") shall make it unlawful for
Bank ( A) to make LIBOR options available hereunder, or (B) to maintain
interest rates based on LIBOR, then in the former event, any obligation of Bank
to make available such unlawful LIBOR options shall immediately be cancelled,
and in the latter event, any such unlawful LIBOR-based interest rates then
outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime rate: provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect until the
expiration of the Fixed Rate Term applicable thereto, then such permitted
LIBOR-based interest rates shall continue in effect until the expiration of
such Fixed Rate Term. Upon the occurrence of any of the foregoing events,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any fines, fees, charges, penalties or other
costs incurred or payable by Bank as a result thereof and which are
attributable to any LIBOR options made available to Borrower hereunder, and any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect
to any LIBOR options, or change the basis of taxation of
payments to Bank of principal, interest, fees or any other
amount payable hereunder (except for changes in the rate of
tax on the overall net income of Bank); or
(B) impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the
account of, advances or loans by, or any other acquisition
of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce
any amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available
to Borrower hereunder, any reasonable allocation made by Bank attributable to
any LIBOR options made available to Borrower hereunder, any reasonable
allocation made by Bank among its operations shall be conclusive and binding
upon borrower.
(d) Payment of interest. Interest accrued on this note shall be payable
on the LAST day of each MONTH, commencing APRIL 30, 1998.
(e) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on
the basis of a 360-day year, actual days elapsed) equal to 4% above the rate
of interest from time to time applicable to this Note.
(f) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to 0.0%
per annum (computed on the basis of a 360-day year, actual days elapsed) on
the average unused amount of this Note, which fee shall be calculated on a
MONTHLY basis by Bank and shall be due and payable by Borrower in arrears on
the last day of each MONTH.
(g) Collection of Payments. Borrower authorized Bank to collect all
interest and fees due hereunder by charging Borrower's demand deposit account
number 4311-781568 with Bank, or any other demand deposit account
REVOLVING LINE OF CREDIT NOTE, PRIME RATE/LIBOR; UNSECURED (EXPDOCS) (02/98),
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<PAGE> 3
maintained by any Borrower with Bank, for the full amount thereof. Should there
be insufficient funds in any such demand deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
BORROWING AND REPAYMENT:
(a) Use of Proceeds. Advances under this Note shall be available solely
to finance WORKING CAPITAL REQUIREMENTS.
(b) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with, or at any time as a
supplement to, this Note; provided however, that the total outstanding
borrowings under this Note shall not at any time exceed the principal amount
stated above. All payments credited to principal shall be applied first, to the
outstanding principal balance of this Note which bears interest determined in
relation to the Prime Rate, if any, and second, to the outstanding principal
balance of this Note which bears interest determined in relation to LIBOR,
with such payments applied to the oldest Fixed Rate Term first. The unpaid
principal balance of this obligation at any time shall be the total amounts
advanced hereunder by the holder hereof less the amount of any principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on MARCH 31, 2000.
(c) Advances. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) LAURENCE B. MINDEL or MICHAEL J. HISLOP or PAUL J. KELLEY or
PETER P. HAUSBACK, any one acting alone, who are authorized to request advances
and direct the disposition of any advances until written notice of the
revocation of such authority is received by the holder at the office designated
above, or (ii) any person, with respect to advances deposited to the credit of
any account of any Borrower with the holder, which advances, when so deposited,
shall be conclusively presumed to have been made to or for the benefit of each
Borrower regardless of the fact that persons other than those authorized to
request advances may have authority to draw against such account. The holder
shall have no obligation to determine whether any person requesting an advance
is or has been authorized by any Borrower.
PREPAYMENT:
(a) Prime Rate. Borrower may repay principal or any portion of this Note
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may repay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of $500,000.00; provided however, that if the outstanding
principal balance of such portion of this Note is less than said amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof. In consideration of Bank providing this prepayment option to Borrower,
or if any such portion of this Note shall become due and payable at any time
prior to the last day of the Fixed Rate Term applicable thereto by acceleration
or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is
the sum of the discounted monthly differences for each month from the month of
prepayment through the month in which such Fixed Rate Term matures, calculated
as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this
Note, or any defined event of default under any loan agreement now or at any
time hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event
of Default" under this Note.
MISCELLANEOUS:
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(a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal, interest,
fees and charges outstanding hereunder to be immediately due and payable
without presentment, demand, notice of nonperformance, notice of protest,
protest or notice of dishonor, all of which are expressly waived by each
Borrower, and the obligation, if any, of the holder to extend any further
credit hereunder shall immediately cease and terminate. Each Borrower shall pay
to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), expended or incurred by the holder in connection with the enforcement
of the holder's rights and/or the collection of any amounts which become due to
the holder under this Note, and the prosecution or defense of any action in any
way related to this Note, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought by
Bank or any other person) relating to any Borrower or any other person or
entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
IL FORNAIO (AMERICA) CORPORATION
By: x /s/ Laurence B. Mindel
------------------------------------
LAURENCE B. MINDEL
CHAIRMAN OF THE BOARD AND C.E.O.
By: x /s/ Paul J. Kelley
-------------------------------------
PAUL J. KELLEY
VICE PRESIDENT, FINANCE, C.F.O. AND SECRETARY
REVOLVING LINE OF CREDIT NOTE, PRIME RATE/LIBOR; UNSECURED (EXPDOCS) (02/98),
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WELLS FARGO BANK LOAN AGREEMENT
- -------------------------------------------------------------------------------
This Loan Agreement (this "Agreement") is entered into by and between IL
FORNAIO (AMERICA) CORPORATION ("Borrower") and WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") and sets forth the terms and conditions which govern all
Borrower's commercial credit accommodations from Bank, whether now existing or
hereafter granted (each, a "Credit" and collectively, "Credits"), which terms
and conditions are in addition to those set forth in any other contract,
instrument or document (collectively with this Agreement, the "Loan Documents")
required by this Agreement or heretofore or at any time hereafter delivered to
Bank in connection with any Credit.
1. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties to Bank, which representations and warranties
shall be true as of the date hereof and on the date of each extension of credit
under each Credit with the same effect as though made on each such date:
(a) Legal Status. Borrower is a CORPORATION, duly organized and
existing and in good standing under the laws of the State of DELAWARE, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required or in which the failure to be qualified
or licensed could have a material adverse effect on Borrower.
(b) Authorization and Validity. Each of the Loan Documents has been
duly authorized, and upon its execution and delivery to Bank will constitute a
legal, valid and binding obligation of Borrower or the party which executes the
same, enforceable in accordance with its respective terms.
(c) No Violation. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of law or
regulation, or contravene any provision of Borrower's Articles of Incorporation
or By-Laws, or result in any breach of or default under any agreement,
indenture or other instrument to which Borrower is a party or by which Borrower
may be bound.
(d) No Litigation. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower except as disclosed by Borrower to
Bank in writing prior to the dates hereof.
(e) Financial Statements. The most recent annual financial statement
of Borrower, and all interim financial statements delivered to Bank since the
date of said annual financial statement, true copies of which have been
delivered by Borrower to Bank prior to the date hereof, are complete and
correct, present fairly the financial condition of Borrower and disclose all
liabilities of Borrower, and have been prepared in accordance with generally
accepted accounting principles. Since the date of such financial statements
there has been no material adverse change in the financial condition of
Borrower, nor has Borrower mortgaged, pledged, granted a security interest in
or otherwise encumbered any of its assets or properties except in favor of Bank
or as otherwise permitted by Bank in writing.
(f) Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year
except as disclosed by Borrower to Bank in writing prior to the date hereof.
II. ADDITIONAL TERMS.
a. Conditions Precedent. The obligation of Bank to grant any Credit
is subject to the condition that Bank shall have received all contracts,
instruments and documents, duly executed where applicable, deemed necessary by
Bank to evidence such Credit and all terms and conditions applicable thereto,
all of which shall be in form and substance satisfactory to Bank.
b. Application of Payments. Each payment made on each Credit shall
be applied first, to any interest then due, second, to any fees and charges
then due, and third, to the outstanding principal balance thereof.
III. COVENANTS. So long as any Credit remains available or any amounts
under any Credit remain outstanding, Borrower shall, unless Bank otherwise
consents in writing:
a. Insurance. Maintain and keep in force, for each business in
which Borrower is engaged, insurance of the types and in amounts customarily
carried in similar lines of business, including but not limited to fire,
extended coverage, public liability, property damage and workers' compensation,
carried with companies and in amounts satisfactory to Bank, and deliver to Bank
from time to time at Bank's request schedules setting forth all insurance then
in effect.
b. Compliance: Laws and Regulations; Year 2000.
(i) Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of
Borrower's business; and comply with the provisions of all documents pursuant
to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all
LOAN AGREEMENT (03/98), PAGE 1
<PAGE> 6
laws, rules, regulations and orders of any governmental authority applicable to
Borrower and/or its business, and all state or federal environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted
pursuant thereto, which govern or affect any operations and/or properties of
Borrower.
(ii) Perform all acts reasonably necessary to ensure that (A) Borrower and
any business in which Borrower holds a substantial interest, and (B) all
customers, suppliers and vendors that are material to Borrower's business,
become Year 2000 Complaint in a timely manner. Such acts shall include, without
limitation, performing a comprehensive review and assessment of all of
Borrower's systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used herein, "Year 2000
Compliant" shall mean, in regard to any entity, that all software, hardware,
firmware, equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's compliance with the terms hereof as Bank may from time to time
require.
(c) Other Indebtedness. Not create, incur, assume or permit to exist any
indebtedness or other liabilities, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, direct or contingent
(including any contingent liability under any guaranty of the obligations of any
person or entity), except (i) the liabilities of Borrower to Bank, (ii) trade
debt incurred by Borrower in the normal course of its business, and (iii) any
other liabilities of Borrower existing as of, and disclosed to Bank in writing
prior to, the date hereof.
(d) Merger, Consolidation; Transfer of Assets. Not merge into or
consolidate with any other entity; nor make any substantial change in the nature
of Borrower's business as conducted as of date hereof; nor acquire all or
substantially all of the assets of any other person or entity; nor sell, lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
(e) Pledge of Assets. Not mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except in favor of Bank and except any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof.
(f) Financial Statements. Provide to Bank all of the following, in form and
detail satisfactory to Bank, together with such current financial and other
information as Bank from time to time may reasonably request.
(i) As soon as available, but in no event later than 90 days after and as
of the end of each FISCAL year, AN AUDITED financial statement of Borrower,
prepared by an independent certified public accountant acceptable to Bank, to
include a balance sheet, income statement and statement of cash flow, together
with all supporting schedules and footnotes.
(ii) As soon as available, but in no event later than 45 days after and as
of the end of EACH FISCAL QUARTER, a financial statement of Borrower, prepared
by Borrower and certified as correct by an officer of Borrower authorized to
borrow under the most current Corporate Borrowing Resolution delivered by
Borrower to Bank, to include a balance sheet and income statement, together with
all supporting schedules and footnotes.
(g) Financial Condition. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices, except to the extent modified by the
following definitions:
(i) Current Ratio not at any time less than 1.50 to 1.0, with "Current
Ratio" defined as total current assets divided by total current liabilities.
(ii) Tangible Net Worth not at any time less than $30,000,000.00 with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets, plus 100% of future net income.
(iii) Net income after taxes not less than $1.00 on a quarterly basis,
determined as of each fiscal quarter.
(iv) Capital expenditure not to exceed 110% of annual budget.
IV. DEFAULT; REMEDIES.
(a) Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(i) The failure to pay any principal, interest, fees or other charges
when due under any of the Loan Documents.
(ii) Any representation or warranty hereunder or under any other Loan
Document shall prove to be incorrect, false or misleading in any material
respect when made.
(iii) Any violation or breach of any term or condition of this
Agreement or any other of the Loan Documents.
(iv) Any default in the payment or performance of any obligation, or
any defined event of default, under any provisions of any contract, instrument
or document pursuant to which Borrower or any guarantor hereunder has incurred
debt or any other liability of any kind to any person or entity, including Bank.
(v) The filing of a petition by or against Borrower or any guarantor
hereunder under any provisions of the
LOAN AGREEMENT (03/98), PAGE 2
<PAGE> 7
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time, or under any similar or other law relating to
bankruptcy, insolvency, reorganization or other relief for debtors; the
appointment of a receiver, trustee, custodian or liquidator of or for any part
of the assets or property of Borrower or any such guarantor; Borrower or any
such guarantor becomes insolvent, makes a general assignment for the benefit of
creditors or is generally not paying its debts as they become due; or any
attachment or like levy on any property of Borrower or any such guarantor.
(vi) Any material adverse change, as determined solely by Bank, in
the financial condition of Borrower.
(vii) The death or incapacity of any individual guarantor hereunder;
or the dissolution or liquidation of Borrower or of any guarantor hereunder
which is a corporation, partnership or other type of entity.
(viii) Any change in ownership during the term hereof of an aggregate
of 25% or more of the common stock of Borrower.
(b) Remedies. Upon the occurrence of any Event of Default: (i) the entire
balance of principal, interest, fees and charges on each Credit shall, at
Bank's option, become immediately due and payable in full without presentment,
demand, protest or notice of dishonor, all of which are expressly waived by
Borrower; (ii) the obligation, if any, of Bank to extend any further credit to
Borrower under any Credit shall immediately cease and terminate; and (iii) Bank
shall have all rights, powers and remedies available under each of the Loan
Documents, or accorded by law, including without limitation the right to resort
to any security for any Credit. All rights, powers and remedies of Bank shall
be cumulative.
V. MISCELLANEOUS
(a) No Waiver. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under this Agreement, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing.
(b) Notices. All notices, requests and demands required under this
Agreement must be in writing, addressed to the applicable party at its address
specified below or to such other address as any party may designate by written
notice to each other party, and shall be deemed to have been given or made as
follows: (i) if personally delivered, upon delivery; (ii) if sent by mail, upon
the earlier of the date of receipt or 3 days after deposit in the U.S. mail,
first class and postage prepaid; and (iii) if sent by telecopy, upon receipt.
(c) Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (i) the negotiation and preparation of this
Agreement and the other Loan Documents, and Bank's continued administration of
each Credit, (ii) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (iii) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with
any bankruptcy proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by Bank or any other person)
relating to any Borrower or any other person or entity.
(d) Successors; Assignment. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interests or rights hereunder without
Bank's prior written consent. Bank reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in Bank's rights and benefits under each of the Loan Documents. In
connection therewith Bank may disclose all documents and information which Bank
now has or may hereafter acquire relating to any Credit, Borrower or its
business, any guarantor of any Credit or the business of any such guarantor, or
any collateral for any Credit.
(e) Controlling Agreement; Amendment. In the event of any direct conflict
between any provision of this Agreement and any provision of any other Loan
Document, the terms of this Agreement shall control. This Agreement may be
amended or modified only in writing signed by Bank and Borrower.
(f) No Third Party Beneficiaries. This Agreement is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a
third party beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other Loan Document to which
it is not a party.
(g) Severability of Provisions. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
LOAN AGREEMENT (03/98), PAGE 3
<PAGE> 8
(i) Cancellation of Prior Loan Agreements. This Agreement cancels and
supersedes all prior loan agreements between Borrower and Bank relating to any
Credit.
VI. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any action,
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such administrator as the parties
shall mutually agree upon in accordance with the AAA Commercial Arbitration
Rules. All Disputes submitted to arbitration shall be resolved in accordance
with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections afforded it under
12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (C) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an
award the right to judicial review of (1) whether the findings of fact rendered
by the arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule statute
of California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to
a referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to
the AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced
in accordance with California Code of Civil Procedure Sections 644 and 645.
LOAN AGREEMENT (03/98), PAGE 4
<PAGE> 9
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of
March 31, 1998.
IL FORNAIO (AMERICA) CORPORATION WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Laurence B. Mindel By: /s/ ALEX J. McCOMBS
----------------------------- ------------------------------
LAURENCE B. MINDEL ALEX J. McCOMBS
CHAIRMAN OF THE BOARD AND C.E.O. Title: Vice President
---------------------------
By: /s/ Paul J. Kelley Address: 420 Montgomery Street 9th Flr
----------------------------- San Francisco, CA 94104
PAUL J. KELLEY
VICE PRESIDENT, FINANCE, C.F.O. AND SECRETARY
Address: 770 TAMALPAIS DRIVE
SUITE 400
CORTE MADERA, CA 94925
LOAN AGREEMENT (03/98), PAGE 5
<PAGE> 1
EXHIBIT 11.1
IL FORNAIO
CALCULATION OF NET INCOME PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Three months ended
---------------------------
March 29, March 30,
1998 1997
-------- --------
<S> <C> <C>
Net income available to common
stockholders $ 849,000 $ 527,000
Basic EPS
Weighted average shares
outstanding 5,830,579 4,532,097
--------- ---------
Net income per share-Basic $ 0.15 $ 0.12
========= =========
Diluted EPS
Weighted average shares
outstanding 5,830,579 4,532,097
Add: dilutive stock options 641,202 82,982
--------- ---------
Total 6,471,781 4,615,079
--------- ---------
Net income per share-Diluted $ 0.13 $ 0.11
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 15,459
<SECURITIES> 0
<RECEIVABLES> 1,340
<ALLOWANCES> 87
<INVENTORY> 1,710
<CURRENT-ASSETS> 19,767
<PP&E> 46,897
<DEPRECIATION> 16,827
<TOTAL-ASSETS> 52,067
<CURRENT-LIABILITIES> 8,490
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 38,097
<TOTAL-LIABILITY-AND-EQUITY> 52,067
<SALES> 19,696
<TOTAL-REVENUES> 19,696
<CGS> 4,600
<TOTAL-COSTS> 18,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 1,392
<INCOME-TAX> 543
<INCOME-CONTINUING> 849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 849
<EPS-PRIMARY> .15
<EPS-DILUTED> .13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 2,987
<SECURITIES> 0
<RECEIVABLES> 1,572
<ALLOWANCES> 64
<INVENTORY> 1,406
<CURRENT-ASSETS> 9,068
<PP&E> 41,103
<DEPRECIATION> 15,480
<TOTAL-ASSETS> 35,181
<CURRENT-LIABILITIES> 6,381
<BONDS> 0
0
16,885
<COMMON> 8,186
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,181
<SALES> 17,682
<TOTAL-REVENUES> 17,682
<CGS> 4,168
<TOTAL-COSTS> 16,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 902
<INCOME-TAX> 375
<INCOME-CONTINUING> 527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 527
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
