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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
for the fiscal year ended July 2, 1995
/ / Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required) for the
transition period from ____________ to ___________
Commission file number 0-12701
CUCOS INC.
(Exact name of Small Business Issuer in its charter)
Louisiana 72-0915435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Veterans Blvd., Suite 222 70005
Metairie, Louisiana (Zip Code)
(Address of principal executive offices)
Issuer's telephone number: (504) 835-0306
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the Issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
---
Issuer's revenues for its most recent fiscal year: $19,541,109
Aggregate market value (based on the average bid and asked prices in
the over the-counter market) of the voting stock held by non-affiliates of the
Registrant as of September 5, 1995: approximately $1,421,561.
Number of shares outstanding of each of the Issuer's Classes of common
stock as of September 5, 1995: 2,113,747 shares of Common Stock, no par value.
Documents Incorporated By Reference.
Portions of the Registrant's 1995 Annual Report to Shareholders (the
"1995 Annual Report") are incorporated by reference into Part II, and portions
of the definitive Proxy Statement for the 1995 Annual Meeting of Shareholders
(the "1995 Proxy Statement") are incorporated by reference into Part III.
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INTRODUCTORY
Definition. Except where the context indicated otherwise, the
following terms have the following respective meanings when used in this Annual
Report: the "Registrant" means Cucos Inc. and the "Fiscal Year" means the 52
weeks ended July 2, 1995, which is the year for which this Annual Report is
filed.
Presentation and Dates of Information. The Item numbers appearing in
this Annual Report correspond with those used in Securities and Exchange
Commission Form 10-KSB (and, to the extent that it is incorporated into Form
10-KSB, the letters used in the Commission's Regulation S-B) as effective on
the date hereof, which specifies the information required to be included in
Annual Reports to the Commission. The information contained in this Annual
Report is, unless indicated to be given as of a specified date or for a
specified period, given as of September 30, 1995. In computing the aggregate
market value of the Registrant's voting stock held by non-affiliates disclosed
on the cover page to this Annual Report, the following stockholders were
treated as affiliates: all officers and directors of the Registrant; any
person owning more than 10% of the Registrant's Common Stock; and Mrs. Vincent
J. Liuzza, Sr.
PART I
Item 1. Business
The Registrant, which was organized in March 1981 by Vincent
J. Liuzza, Jr., Chairman of the Board and President of the Registrant, and
other members of the Liuzza family, operates and franchises full-service
restaurants serving moderately priced Sonoran and Tex-Mex Mexican appetizers
and entrees and complementary alcoholic beverages. The first Cucos restaurant
opened in a suburb of New Orleans (Metairie) in June 1981. At fiscal year end
on July 2, 1995, 22 restaurants were operating under the Cucos name, 15 of
which are owned by the Registrant and 7 by franchisees. There were
twenty-seven and thirty-one total restaurants in operation at the end of
fiscals 1994 and 1993.
During the fiscal year ended July 4, 1993, the Registrant
continued with its development of its "Cucos Border Cafe" concept, opening one
Cucos Border Cafe in Houma, Louisiana, and remodeling two additional
Registrant-owned restaurants to Border Cafes. Two existing franchisee-owned
restaurants were also remodeled to Border Cafes. During that fiscal year, one
franchised restaurant, which was not operating as a Border Cafe, closed due to
a combination of operating problems and local market conditions.
During the fiscal year ended July 3, 1994, Registrant
experienced a decline in comparable sales per restaurant after nine (9)
consecutive years of increases. Casino gambling on the Gulf Coast adversely
affected results, as did a myriad of openings by indirect competitors in
multiple markets. In addition, the Registrant opened one new Border Cafe
restaurant in the New Orleans market, which temporarily affected the sales of
two other restaurants in New Orleans. To offset these negative trends for the
future, the Registrant began work on its first television commercial and
instituted a major consumer research effort.
During the fiscal year ended July 2, 1995, the Company
experienced a 1.7% decline in comparable sales per restaurant. The
proliferation of casino gaming in Louisiana and Mississippi continue to
adversely affect the Company's sales and profitability. Additional gaming
facilities are planned for both Louisiana and Mississippi. The second
competitive factor hurting sales and profits was the negative study on Mexican
food by the Center for Science in the Public Interest (CSPI), which affected
the complete Mexican Segment. Well known large Mexican chains
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such as Chi-Chis and Pancho's have also reported significant declines in
comparable sales per restaurant during the last twelve months. The third
competitive factor is the continued expansion of Mexican items at other casual
dining restaurants. In addition, the casual segment of the restaurant industry
has moved from using primarily word-of-mouth and radio advertising to
television.
To counteract these trends, management instituted a program to
competitively reposition the Cucos concept by:
o Accelerating the remodeling of all Company and franchised
restaurants.
o Modestly reducing prices to ensure there were sufficient
number of choices at lower price points for our guests.
o Intensifying advertising, including the development of the
Company's first television campaign.
These actions were mostly completed during the Third And
Fourth Quarters. Comparable sales per restaurant for company-owned locations
INCREASED 4.7% for the Fourth Quarter of fiscal 1995. This is the first
quarterly increase in comparable sales per restaurant in almost two years.
NARRATIVE DESCRIPTION OF BUSINESS
REGISTRANT-OWNED RESTAURANTS
General. Cucos restaurants are full-service restaurants which
serve a limited menu of Sonoran and Tex-Mex Mexican appetizers and entrees at
moderate prices. The Registrant's specialties are the "Chimichanga", the "Wild
Tostada", the "Super Taco", the "Alotta Enchilada", the "Burrito Supreme" and
"Fresh-itas", Cucos' version of fajitas. The restaurants also offer the more
traditional tacos, tamales, tostadas, enchiladas, fajitas and burritos. Most
of the dishes are served with Cucos Special Sauce, a spicy beef stock-based
sauce which is prepared by the Registrant from its own secret recipe. The menu
also offers various combination platters; various appetizers, including the
"Macho Nacho", avocado, guacamole and taco salads; half-pound "El Hamburgers"
served with french fries; a deep fried ice cream and banana chimichanga
desserts. In addition, during fiscal 1992 the Registrant introduced its new
"Heart Healthy" menu which was developed in conjunction with Ochsner Hospital
of New Orleans. The "Heart Healthy" menu selections have reduced calories, fat
content and cholesterol without sacrificing flavor. The restaurants also serve
a variety of alcoholic beverages, including American and Mexican beer and the
Registrant's own special-recipe Margaritas, Strawberry Margaritas, Pina
Coladas, Strawberry Coladas and Sangria. The restaurants are open seven days a
week from 11 a.m. until midnight.
The Registrant emphasizes the freshness and quality of its
food and beverages, the size of its portions and its plate presentations. The
Registrant's menu items are designed to appeal to the American palate. Fresh
ingredients are used in preparing the menu items. The Registrant uses a higher
quality beef than the traditional hamburger meat or shredded beef used in many
Mexican restaurants.
Food sales account for approximately 78% of revenues at the
fifteen Registrant-owned restaurants operated in fiscal 1995, with alcoholic
and other beverages representing approximately 22%. Special Luncheon menu
items range in price from $3.99 to $6.95. The prices of the specialty and
combination dinner items range from $5.95 to $8.95. The per person average
check, including beverage for fiscal 1995, is $9.87 and the average dining time
per table is approximately 45 minutes.
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The restaurants are decorated with an abundance of cactus
plants and distinctive neon decorations intended to create a Southwestern
motif. Employees are encouraged to provide friendly service to each restaurant
guest. Management believes that the restaurants have a casual, festive
atmosphere which appeals particularly to adults between the age of 20 and 50.
Restaurant Management and Supervision. Each restaurant is
operated in accordance with uniform standards set by management relating to the
preparation and service of food and drink, appearance and conduct of employees,
and cleanliness of facilities. Food and beverage products are periodically
tested for quality and uniformity of portions. In accordance with the
Registrant's standards, each restaurant is run by a general manager, assisted
by two managers, a kitchen supervisor, a service supervisor and a bar
supervisor. At least one manager is on duty during all serving periods. Each
of Registrant's restaurant general managers receives, in addition to a salary,
incentive compensation calculated as a percentage of sales in excess of a
predetermined base level.
The Registrant's long-term expansion plans require it to
develop additional trained general managers. The Registrant requires
candidates for general manager to undergo a thorough training program designed
to familiarize them with all aspects of the Registrant's operations. A
candidate serves as an assistant manager before becoming a general manager.
Persons selected for training as general managers normally have several years
of food service experience.
Expansion Program. During fiscal year 1996, the Registrant
will consider acquisition of other sites or franchisee-owned restaurants as
they come available. The primary growth in sales for fiscal 1996 will be
accomplished by increasing comparable sales per restaurant through remodeling
of existing restaurants.
The Registrant is planning for expansion of the Cucos system
over the long-term. In this connection, the Registrant is currently studying
the population densities, traffic patterns, income levels, competition and
comparative cost structures for other suitable sites. The Registrant also
intends to expand by further franchising. See "Franchised Restaurants" below.
The ability of the Registrant or a franchisee to open a new
restaurant will depend on locating satisfactory sites, the availability of bank
and lease financing at acceptable terms, having sufficient working capital,
obtaining adequate property, casualty and liquor liability insurance coverages
at a reasonable cost, securing appropriate local government permits, licenses
and approvals, and on the capacity of the Registrant or a franchisee to
supervise construction and to recruit and train management personnel. Such
factors may cause a delay in the Registrant's planned development schedule.
The Registrant believes that its development plan of
controlled growth will occur in the Southeastern United States. The Registrant
expects in most cases to locate Registrant-owned and franchised restaurants in
high traffic, high growth areas of commercial or residential concentration, at
or near shopping centers. Registrant-owned and franchised restaurant sites
will be judged by the Registrant's executive management against certain
criteria as to population density, income levels, amount of competition,
ingress/egress and traffic patterns.
The Registrant believes that there are a number of existing
restaurant facilities which have either closed or are currently operating at a
loss or at marginal levels of profitability. The Registrant believes that a
number of these units may be suitable for conversion to a Cucos restaurant and
can be leased or purchased at attractive prices. The Registrant's strategy for
expansion (with respect to both Registrant-owned and franchised restaurants),
therefore, is primarily to locate units of this type rather than to follow the
strategy of most specialty restaurant chains, which has been to construct new
restaurant facilities on land owned or leased by the chain or to enter
build-to-suit arrangements under which new facilities are built to the
specifications of
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the chain. In addition to the economic benefits of the Registrant's strategy,
such strategy may substantially reduce the delay between the site selection and
the opening of a new restaurant and may allow the Registrant to gain entry into
densely-populated suburban and urban markets in which land is either not
available for the construction of new restaurants or, if available, is
prohibitively expensive. The Registrant's expansion strategy may, however,
subject it to the same adverse factors that caused the existing facility to
operate marginally or unprofitably prior to being converted to a Cucos
restaurant. The Registrant intends to combat these adverse factors by
providing food and service, in renovated facilities, that will appeal to the
available customer base.
The Registrant estimates that the initial investment that will
be required in leasing an existing restaurant facility and converting it for
operation as a Registrant-owned restaurant will be between $550,000 and
$740,000. A new (rather than existing) leased facility could involve
substantially higher costs for leasehold improvements.
When a new Registrant-owned restaurant is opened, the
Registrant temporarily transfers experienced personnel from one or more of its
existing restaurants to the new restaurant. Prior to opening, personnel at the
new location undergo intensive training, which includes several pre-opening
events at which test meals are served.
The success of the Registrant's expansion program will depend
on, among other factors, capital availability, whether the Registrant is able
to attract and retain sufficient qualified, experienced managers and assistant
managers, and whether management will be able to ensure that Registrant-owned
and franchise restaurants operate in accordance with the Registrant's
standards.
Purchasing. Management believes that centralized purchasing
is advantageous to the Registrant in that it has allowed it to take advantage
of certain volume discounts. Fresh produce, beverages and certain other items
are purchased by each Registrant-owned restaurant from local wholesalers. The
Registrant believes that satisfactory local sources of supply are generally
available for all of the other items it regularly uses in its restaurants.
Insurance. Insurance costs have risen considerably in the
restaurant business, especially for those restaurants with liquor licenses.
The Registrant carries fire and casualty insurance on its Registrant-owned
restaurants and liability insurance in amounts which management feels is
adequate for its operations.
Marketing. The Registrant advertises primarily by television
advertising. Its advertising promotes the name "Cucos" and emphasizes quality
dining in a festive atmosphere at moderate prices. Periodically, print and
radio advertising are also used to advertise special events and promotions.
In the summer of 1994, the Center for Science in the Public
Interest (CSPI) published a report to the effect that Mexican food contained
unhealthy amounts of fat, salt and cholesterol. To counter the negative
publicity generated by the publication of this report, the Registrant
emphasizes the health benefits of its "Heart Healthy" selections, which it
believes gives Registrant a competitive edge over those Mexican restaurants
which do not offer comparable menu selections.
FRANCHISED RESTAURANTS
Subsequent to year-end, the Company granted development rights
to construct five franchised restaurants in the State of Louisiana during the
next seven years. At the present time, the Registrant is offering franchises
on a selective basis. No assurances can be given as to the number of franchise
development areas that will be sold during the fiscal year 1996 or the impact
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of development fee revenues upon the Registrant's profitability and cash
position during fiscal year 1996.
The development agreements generally obligate the developer to
construct a specified number of Cucos restaurants within the licensed
territory. The restaurants may be either new restaurants or conversions of
existing restaurants, although the Registrant encourages franchisees to convert
existing restaurants whenever possible (see "Expansion Program"). A developer
must open new Cucos restaurants within the development territory in accordance
with the schedule set forth in the development agreement. If a developer fails
to open restaurants in accordance with the schedule, generally the Registrant
may notify the developer that it is in default under the development agreement
and may terminate the agreement 30 days thereafter if the default has not been
cured.
Generally, a development agreement expires three years after
the latest date set forth in the development schedule. During the first year
after completion of the schedule, the Registrant is prohibited from either
opening a Cucos restaurant or granting a franchise to someone other than the
developer to establish a Cucos restaurant within the licensed territory. If
during the second and third year after the completion of the schedule, the
Registrant desires to establish additional restaurants within the licensed
territory, the developer for that area has a right of first refusal to enter
into additional development agreements with respect to such additional
restaurants so long as the developer is in compliance with the then existing
development agreement. If the developer exercises its right of first refusal,
the developer is required to pay the fees for each restaurant then being
charged to new developers. Upon expiration of the development agreement, the
Registrant may open Registrant-owned restaurants in the previously licensed
territory or grant franchises to other persons to open additional franchised
restaurants in the previously licensed territory.
Development agreements provide for the payment of an initial
nonrefundable development fee by the developer upon execution of the agreement.
The development fee with respect to development agreements is generally $15,000
per restaurant up to five restaurants and $10,000 per restaurant thereafter.
The Registrant anticipates that the amount of the development fee with respect
to future development agreements will be based upon the size and nature of the
area covered by the development agreement.
Prior to the acquisition of a site for a restaurant in the
licensed territory, the developer must submit to the Registrant certain
information concerning the site and certain market information. Upon the
Registrant's approval of the site, the developer is required to enter into a
license agreement with the Registrant with respect to the restaurant to be
developed under the development agreement.
The license agreements generally have terms of 20 years from
the date of their execution. However, if the license agreement pertains to a
franchised restaurant that is leased, the license agreement terminates upon the
earlier of 20 years from the commencement date of the lease or upon the
termination or expiration of the primary term of the lease, plus any options to
renew the lease.
Generally franchisees are required to pay to the Registrant
under the license agreement a continuing royalty fee equal to 4% of gross
revenues at the restaurant. In addition, franchisees are required to pay a
continuing monthly contribution to an advertising materials fund equal to .5%
of gross revenues at the restaurant and if a national advertising fund or a
regional advertising fund applicable to the franchisee's region is established
by the Registrant (the Registrant has not done so to date), the franchisees
must also pay to the Registrant continuing monthly contributions, for use by
such funds, equal to amounts not to exceed 1% and 2% of gross revenues of the
restaurant, respectively, for the national media fund or the regional
advertising
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fund in the franchisee's region. The Registrant has not established a national
or regional advertising fund and accordingly has not required contributions for
such funds.
The license agreement provides that the franchisees will
comply strictly with the Registrant's standards, specifications, processes,
procedures, requirements and instructions regarding the operation of the
franchisee's restaurant. The Registrant is obligated to provide initial
training programs for franchisees and to provide personnel for on-site
assistance in opening each franchised restaurant. The Registrant has the right
to approve the person designated by the franchisee to have overall supervisory
authority over franchised restaurant operations or, if no such overall
operations manager is designed, to approve each restaurant general manager.
Franchisees purchase food products and restaurant supplies
conforming to Registrant's specifications from independent suppliers.
Alternate sources of these items are generally readily available. The
Registrant may sell equipment, food or supplies to franchisees upon request,
but otherwise does not intend to do so. The Registrant continues to sell a
small amount of proprietary advertising materials and confidential recipe spice
packs to franchisees. The Registrant anticipates continuing these sales.
ADMINISTRATION AND RELATED MATTERS
L.B.G., Inc. (formerly Sizzler Family Steak Houses of Southern
Louisiana, Inc.) ("L.B.G.") is a company owned by Vincent J. Liuzza, Jr., the
President and Chairman of the Board of the Registrant, David M. Liuzza, a
former officer of the Registrant, and Mrs. Vincent J. Liuzza, Sr., (as
executrix of the Succession of Vincent J. Liuzza, Sr.) a principal shareholder
of the Registrant. Until February, 1994, L.B.G. operated a franchised Cucos
restaurant.
Under an agreement with L.B.G. dated as of October 1, 1983,
the Registrant provides bookkeeping, accounting and similar administrative
services to L.B.G., which pays the Registrant for a portion of the expenses of
providing these services based on L.B.G.'s proportionate share of the aggregate
gross sales of L.B.G. and the Registrant. As of July 2, 1995, these costs
total about $25,015 per four-week period. Under the above formula, L.B.G.
currently pays the Registrant for about 2.2% of these costs, and the Registrant
bears the remaining 97.8%. For fiscal 1995, approximately $7,000 of these
costs were allocated to L.B.G. The Registrant believes that the terms of this
arrangement with L.B.G. are at least as favorable to it as could be negotiated
with a third party.
The Registrant and L.B.G. also share rental expenses based
upon the square footage of the building occupied by each of them. Under that
formula, the Registrant paid approximately 95% of the building rental and
L.B.G. bore the remaining 5%. In the Fiscal Year ended July 2, 1995, the
Registrant paid rent of $102,405 and L.B.G. paid $4,899.
EMPLOYEES
At July 2, 1995, the Registrant-owned restaurants employed
approximately 829 part-time and full-time persons, of which 50 were managers
and assistant managers, all of whom are full-time. In addition, 23 persons
were employed at the Registrant's executive office. The Registrant endeavors
to control its employee turnover rate by offering to all full-time restaurant
employees certain paid benefits, including life insurance, health insurance and
vacation. None of the Registrant's employees are represented by a labor union.
The Registrant has experienced no work stoppages attributable to labor disputes
and considers its employee relations to be satisfactory.
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COMPETITION
The restaurant business is highly competitive and is often
affected by changes in taste and eating habits, by local and national economic
conditions affecting spending habits, and by population and traffic patterns.
The Registrant believes that the quality and price of food products are the
principal means of competition in the restaurant industry. Also of importance
are site locations, quality and speed of service, cleanliness, advertising and
attractiveness of facilities.
The Registrant presently competes directly with Casa Garcia,
El Patio, Jalapeno's and Chili's at its Metairie locations; with Dos Gringo's
at its Westbank location; with El Chico at its Alexandria and Monroe locations;
with Vera Cruz and Vaquero's at its New Orleans location; and with Chili's and
several independent Mexican restaurants at its other locations. Each location
also competes with numerous restaurants offering other types of
moderately-priced foods and beverages, as well as Mexican appetizers and
entrees. Many of these restaurants are nationally or regionally-known chain
operations which operate more restaurants and have greater financial resources
and greater name recognition than the Registrant.
In addition, gaming operations often offer food at discounted
or below cost prices which provide a new level of indirect competition in the
Registrant's Louisiana and Mississippi markets.
GOVERNMENT REGULATION
Each of the Registrant's restaurants is subject to licensing
and regulation by state liquor control boards and the state police in
Louisiana, and by municipal health, sanitation, safety and fire department
agencies. The Registrant expects that liquor sales and video poker revenues
will account for a significant portion of the Registrant's revenues. During
1995 liquor sales and video poker commissions accounted for about 16.4% and
2.8% of revenues, respectively. The loss of an existing liquor license or
video poker license or the inability to obtain a liquor or video poker license
at a new restaurant would adversely affect the Registrant's operations at that
restaurant. There has been discussion in the media about the possibility of
the authority to issue video poker licenses moving from the State to local
communities. To the Registrant's knowledge, no legislation has been proposed
to affect this change. However, if such legislation were proposed and passed,
each local community where the Registrant's restaurants are located would have
the option to ban video poker, which would have an adverse affect on any
restaurants in that community.
The Registrant is also subject to the Fair Labor Standards
Act, which governs such matters as minimum wages, overtime, and other working
conditions. Many of the Registrant's food service personnel are paid at rates
related to the minimum wage and, accordingly, increases in the minimum wage
increase the Registrant's labor costs.
The Registrant is also subject to the provisions of Americans
with Disabilities Act. The Registrant has remodeled its restaurants to meet
these requirements where necessary.
The Registrant's franchise operations are subject to a variety
of laws regulating the marketing of franchises. Federal Trade Commission
regulations impose certain disclosure requirements on persons engaged in the
business of offering franchises. States in which the Registrant offers
franchises also may have franchising laws that require registration prior to
the offering of franchises for sale in those states or that afford franchisees
substantive rights, including limiting the circumstances under which franchises
may be terminated.
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MISCELLANEOUS
Customers. No material part of the Registrant's business is
dependent upon a single customer, or a very few customers, the loss of any one
of which would have a material adverse effect on the Registrant. No single
customer accounts for as much as 10% of the Registrant's total revenues.
Seasonality. The Registrant's results are impacted by
seasonality. Usually the highest sales periods occur in late Spring and
Summer, with sales declining in the Fall and Winter. This is especially true
for the Gulf Coast restaurants where sales are more dependent on tourism.
Service Marks and Trademarks. The Registrant is the owner of
United States Service Mark Registrations Nos. 1,509,612, dated October 18,
1988, for the mark CUCOS; and 1,733,801 dated November 17, 1992, for the mark
CUCOS BORDER CAFE and DESIGN. The Registrant is also the owner of United
States Trademark Registrations Nos. 1,405,169, dated August 12, 1986, for the
mark FRESH-ITAS (Cucos' version of fajitas) and 1,465,729, dated November 17,
1987, for the mark FRESH-ITA NACHOS (Cucos' version of fajita nachos). Those
registrations which issued prior to November 16, 1989, have an effective term
of 20 years and those issued on or after November 16, 1989, have an effective
term of 10 years, unless sooner terminated by law, and all may be renewed for
successive terms so long as the marks continue to be used by Registrant in
interstate commerce for the specified services or goods. The Registrant has a
pending application for the mark CUCOS MEXICAN CAFE & DESIGN, the mark of which
has been approved by the Examiner for publication in the Official Trademark
Gazette; and the Registrant has filed an application for the mark THE TASTE TO
MAKE YOU SAY OLE. The Registrant also owns a service mark registration as
issued by the State of Louisiana, dated July 14, 1987, for the name CU-CO's.
This registration is effective for a term of 10 years and may be renewed for
successive terms. All of these registrations are valid and subsisting. In
addition, Registrant is the owner of Copyright Registrations for its Cucos
Power Manual and Video, dated November 4, 1988.
Item 2. Properties.
The following table summarizes certain information concerning
Registrant-owned restaurants located in facilities that are leased from others
as of September 1, 1995.
<TABLE>
<CAPTION>
Lease
Size Dining Lease Option(s)
Location Opened/Acquired (Sq. Ft.) Capacity Expires Through
-------- --------------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
New Orleans -
Metairie June 1981 4250 136 1997 2017
Biloxi, MS April 1982 5600 159 1997 2032
New Orleans -
Westbank September 1983 4800 147 1998* 2010
Monroe, LA June 1984 4284 146 1999** 2019
Slidell, LA November 1984 4200 139 2008*** 2018
Alexandria, LA March 1985 5040 143 2000 2015
New Orleans -
Uptown November 1985 4539 120 2000 2015
Pascagoula, MS December 1989 5160 130 2011 2021
Hammond, LA July 1990 6062 130 1996 2002
Tallahassee, FL July 1991 5258 160 1998 2023
Birmingham, AL March 1992 4560 150 2006 2012
Houma, LA September 1992 6000 148 2007 2027
Birmingham, AL February 1993 5000 160 1996 2016
Montgomery, AL February 1993 5100 170 1997 2007
</TABLE>
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* Exercised Second Three-year option after expiration of first option
in 1995.
** Exercised Second Five-year option after expiration of first option
in 1994.
*** Lease Amendment executed 6/14/93; term 15 years.
The New Orleans-Westbank location, the Slidell location and
the second Birmingham and Montgomery, Alabama, locations are in strip shopping
centers. The Hammond, first Birmingham and Houma locations are in shopping
malls. Eleven locations are free-standing buildings. The restaurant leases
require the Registrant to pay real estate taxes, insurance and utilities, and
to bear repair, maintenance and other expenses normally borne by the lessee
under a triple net lease. The Company owns the land and building of its
Pensacola restaurant.
Item 3. Legal Proceedings.
As previously reported by the Registrant, on May 2, 1991, the
Court of Appeals of Tennessee affirmed the dismissal, without prejudice, by the
Chancery Court of Shelby County, Tennessee, of a complaint styled Tennsonita
(Memphis), Inc., et al. v. Cucos Inc. (Civil Action No. 98110-1), filed against
the Registrant by Tennsonita (Memphis), Inc., Tennsonita Realty, Inc., Joseph
Files, Donald M. Quinn, III, Jerome F. Moeller and James A. Moeller. The
plaintiffs had asserted claims against the Registrant for, among other things,
misrepresentation, breach of contract, fraud and unfair trade practices in the
marketing and sale to the plaintiffs of franchise development rights for the
state of Tennessee, and in the operating support that the Registrant provided
to the plaintiffs in connection with the development of their restaurant in
that territory. The complaint also alleged that the Registrant breached an
agreement with the plaintiffs to purchase plaintiffs' restaurant and
development rights. The relief sought by the plaintiffs included specific
performance of the alleged purchase agreement, compensatory damages in excess
of $1.6 million, punitive damages, treble damages pursuant to the Tennessee
Consumer Protection Act (the "Act"), and attorney's fees pursuant to the Act.
On April 12, 1990, the Chancery Court granted the Registrant's motion to
dismiss, without prejudice, the plaintiffs' claim on the grounds that it had to
be brought in a Louisiana forum pursuant to a contract between the parties.
Also as previously reported by the Registrant, on April 11,
1990, the plaintiffs filed a complaint in the 24th Judicial District Court for
the Parish of Jefferson, Louisiana, against the Company and, as an additional
defendant, its President and Chairman of the Board of Directors, Vincent J.
Liuzza, Jr., entitled Tennsonita (Memphis), Inc. v. Cucos Inc. (case no.
397857-5). The allegations contained therein are substantially similar to
those asserted in the dismissed Tennessee complaint. The relief sought by
plaintiffs includes actual damages, in an amount to be proven at trial,
together with attorney's fees, costs, legal interest, and such other relief as
the Court may deem appropriate. The Registrant and Mr. Liuzza initially filed
certain exceptions to plaintiffs' suit, seeking, among other things, dismissal
of the suit. The District Court overruled these exceptions. However, the
Registrant and Mr. Liuzza presently have pending two additional exceptions,
which have not yet been argued. If these exceptions are ruled favorably upon
by the District Court, the plaintiffs' case would be dismissed by the District
Court, subject to plaintiffs' right to appeal such a decision. There has been
no activity in this litigation for more than two years. On August 3, 1992,
however, plaintiffs advised Registrant that they had closed the restaurant in
Memphis, Tennessee, which closure was necessitated by the continuing damages
and losses suffered by Tennsonita as alleged in the lawsuit. The Registrant
believes the plaintiff's claims are groundless.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Registrant's
security holders, through the solicitation of proxies or otherwise, during the
fourth quarter of the Fiscal Year.
10
<PAGE> 11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters.
Reference is made to the information concerning the market for
the Registrant's common stock, no par value, and related shareholder matters
appearing on page 14 of the 1995 Annual Report. Such information is
incorporated herein by reference to the 1995 Annual Report.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Reference is made to "Management's Discussion and Analysis of
Results of Operation and Financial Condition" appearing on pages 5 through 9 of
the 1995 Annual Report. Such information is incorporated herein by reference
to the 1995 Annual Report.
Item 7. Financial Statements.
Reference is made to the following financial statements and
notes thereto appearing on pages 11 through 14 and 15 through 18 of the 1995
Annual Report. Such information is incorporated herein by reference to the
1995 Annual Report, which is attached as Exhibit 13 to this Annual Report.
<TABLE>
<S> <C>
Statements of Operations Fiscal Years ended July 2, 1995, July 3, 1994, and July
4, 1993
Balance Sheets July 2, 1995, and July 3, 1994
Statements of Cash Flows Fiscal Years ended July 2, 1995, July 3, 1994, and July
4, 1993
Statements of Shareholders' Equity Fiscal Years ended July 2, 1995, July 3, 1994, and July
4, 1993
Report of Ernst and Young LLP, Independent Fiscal Years ended July 2, 1995, July 3, 1994, and July
Auditors 4, 1993
Report of Management Fiscal Years ended July 2, 1995, July 3, 1994, and July
4, 1993
</TABLE>
Notes to Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act of the
Registrant.
Reference is made to the information concerning the directors
of the Registrant and the nominees for re-election as directors appearing under
the caption "Election of Directors" in the
11
<PAGE> 12
1995 Proxy Statement. Such information is incorporated herein by reference to
the 1995 Proxy Statement.
Reference is made to the information concerning the executive
officers of the Registrant who are not directors appearing under the caption
"Executive Officers of the Company" in the 1995 Proxy Statement. Such
information is incorporated herein by reference to the 1995 Proxy Statement.
Reference is made to the information concerning compliance
with Section 16(a) of the Exchange Act appearing under the caption "Compliance
with 16(a) of the Securities Exchange Act of 1934" in the 1995 Proxy Statement.
Such information is incorporated herein by reference to the 1995 Proxy
Statement.
Item 10. Executive Compensation.
Reference is made to the information concerning remuneration
of directors and executive officers of the Registrant appearing under the
captions "Additional Information-Executive Compensation," "Additional
Information-Stock Option Grants During Fiscal 1995," "Additional
Information-Aggregated Stock Option Exercises and Fiscal Year-Ended Option
Values," and "Additional Information-Compensation of Directors," in the 1995
Proxy Statement. Such information is incorporated herein by reference to the
1995 Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Reference is made to the information concerning beneficial
ownership of the Registrant's Common Stock, which is the only class of the
Registrant's voting securities, appearing under the captions "Beneficial
Ownership" and "Election of Directors" in the 1995 Proxy Statement. Such
information is incorporated herein by reference to the 1995 Proxy Statement.
Item 12. Certain Relationships and Related Transactions.
Reference is made to the information regarding certain
relationships and transactions between the Registrant and its directors,
nominees for re-election as directors of the Registrant, its executive
officers, beneficial owners of 5% or more of its Common Stock and any member of
the immediate family of any of the foregoing persons, appearing under the
caption "Additional Information-Certain Relationships and Related Transactions"
in the 1995 Proxy Statement. Such information is incorporated herein by
reference to the 1995 Proxy Statement.
Item 13. Exhibits and Reports on Form 8-K.
EXHIBITS
The following exhibits are filed with this Annual Report or
are incorporated herein by reference:
<TABLE>
<CAPTION>
Exhibit Number Title
--------------
<S> <C> <C>
(1) 2 - Joint Agreement of Merger, dated February 23, 1983, of Cu-Co's of
Biloxi, Inc.
(1) 3-A - Copy of Articles of Incorporation of the Registrant.
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C>
(1) 3-A-1 - Copy of Amendment to Articles of Incorporation of the Registrant.
(1) 3-A-2 - Copy of Amendment to Articles of Incorporation of the Registrant.
(1) 3-A-3 - Copy of Amendment to Articles of Incorporation of the Registrant.
(1) 3-B - Copy of By-Laws of the Registrant.
(2) 3-B-1 - Copy of Amendment to By-Laws of Registrant.
(9) 3-B-2 - Amended and Restated By-Laws of the Registrant.
(3) 4-A - Rights Agreement, dated as of February 5, 1990, between the
Registrant and Commercial National Bank in Shreveport.
(3) 4-B - Letter, dated February 26, 1991, from Whitney National Bank to
the Registrant confirming the change of Rights Agent from
Commercial National Bank in Shreveport to Whitney National Bank.
(3) 4-C - Assignment of Rights Agreement, dated August 30, 1993, among
Whitney National Bank, Boatmen's National Bank and the Registrant
with respect to the change of Rights Agent from Whitney National
Bank to Boatmen's National Bank.
4-D - Copy of Mortgage and Security Agreement dated April 25, 1994,
with First National Bank of Commerce for $450,000.
4-E - Copy of Promissory Note dated October 27, 1994, with First
National Bank of Commerce for $200,000.
4-F - Copy of Promissory Note dated October 27, 1994, with First
National Bank of Commerce for $250,000.
4-G - Copy of Promissory Note dated October 27, 1994, with First
National Bank of Commerce for $500,000.
(10) 4-H - Note Purchase Agreement (with Exhibits).
(10) 4-I - Amendment No. 1 to Rights Agreement.
(1) 10-A - Copy of Registrant's 1983 Stock Option Plan.
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C> <C>
(1) 10-B - Copy of letter agreement between the Registrant and certain
stockholders of the Registrant relating to piggyback registration
rights.
(4) 10-C - Amendment No. 1 to 1983 Stock Option Plan of Cucos Inc.
(5) 10-D - Amendment No. 2 to 1983 Stock Option Plan of Cucos Inc.
(5) 10-E - Amendment No. 3 to 1983 Stock Option Plan of Cucos Inc.
(6) 10-F - Amendment No. 4 to 1983 Stock Option Plan of Cucos Inc.
(7) 10-G - Amendment No. 5 to 1983 Stock Option Plan of Cucos Inc.
(5) 10-H - Form of Incentive Stock Option Agreement for 1983 Stock Option
Plan.
(5) 10-I - Form of Non-Qualified (Employee) Stock Option Agreement for 1983
Stock Option Plan.
(5) 10-J - Form of Non-Qualified (Director) Stock Option Agreement for 1983
Stock Option Plan.
(8) 10-K - Description of Registrant's Bonus Plan.
(9) 10-L - Copy of Registrant's 1993 Stock Option Plan as amended.
(9) 10-M Form of Non-Qualified Stock Option Agreement for 1993 Stock
Option Plan
(9) 10-N Form of Incentive Stock Option Agreement for 1993 Stock Option
Plan
13 - Copy of Registrant's 1995 Annual Report to Shareholders.
23 - Consent of Independent Auditors.
27 - Financial Data Schedule
</TABLE>
________________________________
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-18 (Commission File No. 2-87372A) and incorporated herein by
reference.
(2) Filed as an exhibit to Form 10-K for the fiscal year ended July 1,
1984 (Commission File No. 0-12701) and incorporated herein by
reference.
14
<PAGE> 15
(3) Filed as an exhibit to Form 8-K dated February 23, 1990 (Commission
File No. 0-12701), as amended by Form 8 dated March 12, 1990, and
incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Commission File No. 33-03953) and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Commission File No. 33-15785) and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Commission File No. 33-26941) and incorporated herein by
reference.
(7) Filed as an exhibit to Form 10-K for the fiscal year ended June 28,
1992 (Commission File No. 0-12701) and incorporated herein by
reference.
(8) Filed as an exhibit to Form 10-K for the fiscal year ended June 28,
1987 (Commission File No. 0-12701) and incorporated herein by
reference.
(9) Filed as an exhibit to Form 10-KSB for the fiscal year ended July 3,
1994 (Commission File No. 0-12701) and incorporated herein by
reference.
(10) Filed as an exhibit to Form 8-K filed August 11, 1995 (Commission File
No. 0-12701) and incorporated herein by reference.
The Registrant is a party to various agreements defining the
rights of holders of long-term debt of the Registrant, but no single agreement
authorizes securities in an amount which exceeds 10% of the total assets of the
Registrant. Accordingly, such agreements are omitted as exhibits as permitted
by Item 601(b) (4) (ii) of Regulation S-B.
REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth quarter of
Fiscal Year ended July 2, 1995.
QUALIFICATION BY REFERENCE
Information contained in this Annual Report as to the contents
of any contract or other document referred to or evidencing a transaction
referred to is necessarily not complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to this
Annual Report or incorporated herein by reference, all such information being
qualified in its entirety by such reference.
15
<PAGE> 16
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CUCOS INC.
Date: September 22, 1995 By: /s/ Vincent J. Liuzza, Jr.
Vincent J. Liuzza, Jr.
Chairman of the Board and
President
Date: September 22, 1995 By: /s/ Thomas J. Sandeman
Thomas J. Sandeman
Vice President-Finance and
Treasurer (Principal Financial
Officer and Principal Accounting
Officer)
16
<PAGE> 17
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of September 22, 1995.
/s/ Sidney C. Pulitzer /s/ Thomas J. Grace
Sidney C. Pulitzer, Director Thomas J. Grace, Director and Secretary
/s/ Miguel Uria /s/ William D. Humphries
Miguel Uria, Director William D. Humphries, Director
/s/ David M. Liuzza /s/ Vincent J. Liuzza, Jr.
David M. Liuzza, Director Vincent J. Liuzza, Jr., Chairman of the
Board of Directors and President
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Title
-------------- -----
<S> <C> <C>
(1) 2 - Joint Agreement of Merger, dated February 23, 1983, of Cu-Co's of
Biloxi, Inc.
(1) 3-A - Copy of Articles of Incorporation of the Registrant.
(1) 3-A-1 - Copy of Amendment to Articles of Incorporation of the Registrant.
(1) 3-A-2 - Copy of Amendment to Articles of Incorporation of the Registrant.
(1) 3-A-3 - Copy of Amendment to Articles of Incorporation of the Registrant.
(1) 3-B - Copy of By-Laws of the Registrant.
(2) 3-B-1 - Copy of Amendment to By-Laws of Registrant.
(9) 3-B-2 - Amended and Restated By-Laws of the Registrant.
(3) 4-A - Rights Agreement, dated as of February 5, 1990, between the
Registrant and Commercial National Bank in Shreveport.
(3) 4-B - Letter, dated February 26, 1991, from Whitney National Bank to
the Registrant confirming the change of Rights Agent from
Commercial National Bank in Shreveport to Whitney National Bank.
(3) 4-C - Assignment of Rights Agreement, dated August 30, 1993, among
Whitney National Bank, Boatmen's National Bank and the Registrant
with respect to the change of Rights Agent from Whitney National
Bank to Boatmen's National Bank.
4-D - Copy of Mortgage and Security Agreement dated April 25, 1994,
with First National Bank of Commerce for $450,000.
4-E - Copy of Promissory Note dated October 27, 1994, with First
National Bank of Commerce for $200,000.
4-F - Copy of Promissory Note dated October 27, 1994, with First
National Bank of Commerce for $250,000.
4-G - Copy of Promissory Note dated October 27, 1994, with First
National Bank of Commerce for $500,000.
(10) 4-H - Note Purchase Agreement (with Exhibits).
(10) 4-I - Amendment No. 1 to Rights Agreement.
(1) 10-A - Copy of Registrant's 1983 Stock Option Plan.
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C>
(1) 10-B - Copy of letter agreement between the Registrant and certain
stockholders of the Registrant relating to piggyback registration
rights.
(4) 10-C - Amendment No. 1 to 1983 Stock Option Plan of Cucos Inc.
(5) 10-D - Amendment No. 2 to 1983 Stock Option Plan of Cucos Inc.
(5) 10-E - Amendment No. 3 to 1983 Stock Option Plan of Cucos Inc.
(6) 10-F - Amendment No. 4 to 1983 Stock Option Plan of Cucos Inc.
(7) 10-G - Amendment No. 5 to 1983 Stock Option Plan of Cucos Inc.
(5) 10-H - Form of Incentive Stock Option Agreement for 1983 Stock Option
Plan.
(5) 10-I - Form of Non-Qualified (Employee) Stock Option Agreement for 1983
Stock Option Plan.
(5) 10-J - Form of Non-Qualified (Director) Stock Option Agreement for 1983
Stock Option Plan.
(8) 10-K - Description of Registrant's Bonus Plan.
(9) 10-L - Copy of Registrant's 1993 Stock Option Plan as amended.
(9) 10-M Form of Non-Qualified Stock Option Agreement for 1993 Stock
Option Plan
(9) 10-N Form of Incentive Stock Option Agreement for 1993 Stock Option
Plan
13 - Copy of Registrant's 1995 Annual Report to Shareholders.
23 - Consent of Independent Auditors.
27 - Financial Data Schedule
</TABLE>
________________________________
(1) Filed as an exhibit to the Registrant's Registration Statement on Form
S-18 (Commission File No. 2-87372A) and incorporated herein by
reference.
(2) Filed as an exhibit to Form 10-K for the fiscal year ended July 1,
1984 (Commission File No. 0-12701) and incorporated herein by
reference.
(3) Filed as an exhibit to Form 8-K dated February 23, 1990 (Commission
File No. 0-12701), as amended by Form 8 dated March 12, 1990, and
incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Commission File No. 33-03953) and incorporated herein by
reference.
(5) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Commission File No. 33-15785) and incorporated herein by
reference.
(6) Filed as an exhibit to the Registrant's Registration Statement on Form
S-8 (Commission File No. 33-26941) and incorporated herein by
reference.
(7) Filed as an exhibit to Form 10-K for the fiscal year ended June 28,
1992 (Commission File No. 0-12701) and incorporated herein by
reference.
(8) Filed as an exhibit to Form 10-K for the fiscal year ended June 28,
1987 (Commission File No. 0-12701) and incorporated herein by
reference.
(9) Filed as an exhibit to Form 10-KSB for the fiscal year ended July 3,
1994 (Commission File No. 0-12701) and incorporated herein by
reference.
(10) Filed as an exhibit to Form 8-K filed August 11, 1995 (Commission File
No. 0-12701) and incorporated herein by reference.
<PAGE> 1
EXHIBIT 4-D
This instrument prepared by:
ROBERT L. STONE, Esquire
Clark, Partington, Hart, Larry,
Bond, Stackhouse & Stone
125 W. Romana Street, Suite 800
Pensacola, Florida 32501
(904) 434-9200
STATE OF FLORIDA
COUNTY OF ESCAMBIA MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT, dated the 25th day of April, 1994,
from CUCOS INC., a Louisiana corporation, whose address is 110 Veterans
Boulevard, Metairie, Louisiana 70002 (hereinafter the "Mortgagor"), to FIRST
NATIONAL BANK OF COMMERCE, whose address is 210 Baronne Street, P.O. Box 60279,
New Orleans, Louisiana 70160-0279 (hereinafter the "Mortgagee"), WITNESSETH:
SECTION 1.
1.01 PREMISES. Mortgagor, for and in consideration of the premises, as security
for the Secured Indebtedness, as that term is hereinafter defined, and other
good and valuable consideration, the receipt of which is hereby acknowledged,
does hereby bargain, sell, convey and grant unto the Mortgagee, its successors
and assigns, the following (hereinafter collectively the "Premises"):
A. REAL PROPERTY. That certain real property lying and being in Escambia County,
Florida and being more particularly described as follows:
A parcel of land in Government Lot 2, Section 30, Township 1 South,
Range 30 West, Escambia County, Florida, described as follows: All of
Lot 7 and the East 225.00 feet of Lot 6, according to Plat by O.M.
Carter, dated September 20, 1943, and recorded in Deed Book 195, at
Page 238, of the Public Records of said County.
B. IMPROVEMENTS. All buildings, structures and improvements of every nature
whatsoever now or hereafter situated on the Real Property, all building
materials, plans, specifications, drawings and books and records pertaining to
design or construction of any buildings, structures and improvements now or
hereafter situated on the Real Property, and all gas and electric fixtures,
radiators, heaters, engines and machinery, boilers, ranges, elevators and
motors, plumbing and heating fixtures, carpeting and other floor coverings, fire
extinguishers and any other safety equipment required by governmental regulation
or law, washers, dryers, water heaters, mirrors, mantles, air conditioning
apparatus, refrigeration plants, refrigerators, cooking apparatus and
appurtenances, window screens, awnings and storm sashes which are or shall be
attached to said buildings, structures or improvements, all of which are hereby
declared and shall be deemed to be fixtures and accessions to the Real Property
and a part of the Premises as between the parties hereto and all persons
claiming by, through or under them.
C. APPURTENANCES. All easements, rights-of-way, strips and gores of land,
vaults, streets, ways, alleys, and passages, sewer rights, water rights and
powers, minerals, flowers, shrubs, trees and other emblements now or hereafter
located on the Real Property or under or above the same or any part or parcel
thereof and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances, reversions and remainders,
whatsoever, in any way belonging, relating or appertaining to the Real Property
or Improvements or any part thereof, or which hereafter shall in any way belong,
relate or be appurtenant thereto, whether now owned or hereafter acquired by
Mortgagor.
TO HAVE AND TO HOLD the same, together with all and singular the tenements,
hereditaments and appurtenances thereunto belonging or in anywise appertaining,
to Mortgagee, its successors and assigns in fee simple forever.
1.02 PERMITTED ENCUMBRANCES. Mortgagor, for himself, his heirs, successors,
assigns and legal representatives, covenants with Mortgagee, its successors and
assigns, that: (i) Mortgagor is indefeasibly seized of the Premises in fee
simple; that Mortgagor has full power and lawful right to convey the same in fee
simple as aforesaid; that the Premises and every part thereof is free from all
encumbrances of every kind and character except for taxes assessed for the year
of closing and those matters, if any, described on Exhibit "A" attached hereto
and made a part hereof (the "Permitted Encumbrances"); that the Mortgagor will
make such further assurances to perfect the fee simple title to the Premises in
Mortgagee, its successors and assigns, as may reasonably be required; that the
Mortgagor does hereby fully warrant the title to the Premises and every part
thereof and will defend the same against the lawful claims of all persons
whomsoever except for the Permitted Encumbrances; (ii) Mortgagor shall duly,
promptly and fully perform, discharge, execute, effect, complete, comply with
and abide by each and every of the stipulations, agreements, conditions and
covenants of the Note and all other documents or instruments evidencing or
securing the Secured Indebtedness, as those terms are hereinafter defined; (iii)
the Premises and its use fully complies with all applicable building and zoning
codes and other land use regulations, any applicable environmental laws or
regulations, and any other applicable laws or regulations; (iv) no part of the
Real Property has been artificially filled; and (v) Mortgagor has lawful access
to the Premises from a public road.
<PAGE> 2
1.03 SECURED INDEBTEDNESS. This conveyance is intended to be and is a real
property Mortgage and a "Security Agreement" governed by the laws of the State
of Florida concerning mortgages and the Uniform Commercial Code as adopted in
Florida, and is intended to secure the payment of the following (the "Secured
Indebtedness"):
A. The existing indebtedness represented by that certain promissory note (the
"Note") of date even herewith for the sum of FOUR HUNDRED FIFTY THOUSAND AND
NO/100 DOLLARS ($450,000.00) made by the Mortgagor payable to the order of
Mortgagee with interest from date until paid at the rate therein specified, the
said principal and interest payable in the manner and upon the terms, provisions
and conditions set forth in the Note, together with any and all renewals,
extensions, modifications, consolidations and extensions thereof;
B. Such future or additional advances as may be made by Mortgagee at the option
of Mortgagee to the Mortgagor, and also, the payment of any and all notes,
liabilities, and obligations of the Mortgagor to Mortgagee, its successors or
assigns, whether as maker, endorser, guarantor or otherwise, and whether such
notes, liabilities or obligations, or any of them, be now in existence or accrue
or arise hereafter, or be now owned or held by Mortgagee, or be acquired
hereafter, it being the intent and purpose of the Mortgagor to secure, by the
Mortgage, all notes, claims, demands, liabilities and obligations which
Mortgagee, its successors or assigns, may have, hold or acquire at any time
during the life of this Mortgage against the Mortgagor. Provided that,
notwithstanding the foregoing, the total of all amounts secured hereby shall not
exceed at any one time the sum of NINE HUNDRED THOUSAND AND NO/100 DOLLARS
($900,000.00); and provided, further, that all such advances, notes, claims,
demands or liabilities and obligations secured hereby be incurred or arise or
come into existence either on or prior to the date of this Mortgage, or on or
before twenty (20) years after the date of this Mortgage or within such lesser
period of time as may hereafter be provided by law as a prerequisite for the
sufficiency of actual notice or record notice of such advances, notes, claims,
demands or liabilities and obligations as against the rights of creditors or
subsequent purchasers for a valuable consideration. The Mortgagor hereby waives,
on behalf of himself and his successors and assigns, the right to file for
record a notice limiting the maximum principal amount which may be secured by
this Mortgage as provided for in Florida Statutes 697.04(1)(b); and
C. The compliance with all the covenants, agreements and stipulations of this
Mortgage, the Note, and any and all documents or instruments evidencing,
securing or otherwise executed in connection with the Secured Indebtedness.
SECTION 2.
Mortgagor further covenants and agrees as follows:
2.01 PAYMENT OF INDEBTEDNESS. To pay all and singular the principal and interest
and other sums of money payable by virtue of the Secured Indebtedness, as in the
Note, any instrument or instruments evidencing one or more future or additional
advances, and/or this Mortgage provided, promptly on the days that the same
respectively become due.
2.02 MAINTENANCE AND REPAIR. To keep perfect and unimpaired the security hereby
given and to permit, commit or suffer no waste, impairment or deterioration of
the Premises or any part thereof. Mortgagor shall comply with all restrictive
covenants, statutes, ordinances and requirements of any governmental authority
relating to the Premises, and shall not join in, consent to or initiate any
change in such restrictive covenants, statutes, ordinances or requirements
without the express written consent of Mortgagee.
2.03 TAXES, LIENS AND OTHER CHARGES. To pay all and singular the taxes,
assessments, obligations and encumbrances of every nature now on the Premises or
that hereafter may be levied, assessed or imposed thereon when due and payable
according to law and before they become delinquent; and if the same not be
promptly paid Mortgagee may, at any time either before or after delinquency, pay
the same without waiving or affecting its right to foreclose this Mortgage or
any other right hereunder and all sums so paid shall become a part of the
Secured Indebtedness and at the option of Mortgagee, shall bear interest from
the date of each such payment at the maximum rate allowed by law. Upon
notification from Mortgagee, Mortgagor shall pay to Mortgagee, together with and
in addition to the payments of principal and interest payable under the terms of
the Note secured hereby, on installment paying dates in the Note, until said
Note is fully paid or until notification from Mortgagee to the contrary, an
amount reasonably sufficient (as estimated by Mortgagee) to provide Mortgagee
with funds to pay said taxes, assessments, insurance premiums, rents and other
charges next due so that Mortgagee will have sufficient funds on hand to pay the
same thirty (30) days before the date upon which they become past due. In no
event shall Mortgagee be liable for any interest on any amount paid to it as
herein required, and the money so received shall be held in a separate account,
pending payment or application thereof as herein provided. As required by
Mortgagee, Mortgagor shall furnish to Mortgagee, at least thirty (30) days
before the date on which same will become past due, an official statement of the
amount of said taxes, assessments, insurance premiums and rents next due, and
Mortgagee shall pay said charges to the amount of the then unused credit
therefor as and when they become severally due and payable. An official receipt
therefor shall be conclusive evidence of such payment and the validity of such
charges.
2
<PAGE> 3
2.04 INSURANCE. Mortgagor will keep the Premises insured against loss or damage
by fire, flood and such other risks and matters including, without limitation,
business interruption, rental loss, public liability and boiler insurance, as
Mortgagee may from time to time require in amounts required by Mortgagee, not
exceeding in the aggregate 100% of the full insurable value of the Premises and
shall pay the premiums for such insurance as same become due and payable. All
policies of insurance (the "Policies") shall be issued by an insurer acceptable
to Mortgagee and shall contain the standard New York Mortgagee non-contribution
provision naming Mortgagee as the person to which all payments made by such
insurance company shall be paid. Mortgagor will assign and deliver the Policies
to Mortgagee. Not later than thirty (30) days prior to the expiration date of
each of the Policies, Mortgagor will deliver to Mortgagee evidence satisfactory
to Mortgagee of the renewal of each of the Policies. If the Premises shall be
damaged or destroyed, in whole or in part, by fire or other casualty, Mortgagor
shall give prompt notice thereof to Mortgagee. Sums paid to Mortgagee by any
insurer may be retained and applied by Mortgagee toward payment of the Secured
Indebtedness in such priority and proportions as Mortgagee in its discretion
shall deem proper or, at the discretion of Mortgagee, the same may be paid,
either in whole or in part, to Mortgagor for such purposes as Mortgagee shall
designate. If Mortgagee shall receive and retain such insurance money, the lien
of this Mortgage shall be reduced only by the amount thereof received after
expenses of collection and retained by Mortgagee and actually applied by
Mortgagee in reduction of the Secured Indebtedness.
2.05 EXPENSES. To pay all and singular the costs, charges and expenses,
including reasonable attorneys' fees and costs of abstracts of title, incurred
or paid at any time by Mortgagee or its assigns in collecting or attempting to
collect the Secured Indebtedness or in foreclosing or attempting to foreclose
this Mortgage or in enforcing any of its rights hereunder or incurred or paid by
it because of the failure on the part of the Mortgagor promptly and fully to
perform the agreements and covenants of the instrument or instruments evidencing
the Secured Indebtedness and this Mortgage; and said costs, charges and expenses
shall be immediately due and payable and shall be secured by the lien of this
Mortgage.
2.06 CONDEMNATION. Notwithstanding any taking of any property, herein conveyed
and agreed to be conveyed, by eminent domain, alteration of the grade of any
street or other injury to, or decrease in value of, the Premises by any public
or quasi-public authority or corporation, Mortgagor shall continue to pay
principal and interest on the Secured Indebtedness, and any reduction in the
Secured Indebtedness resulting from the application by Mortgagee of any award or
payment for such taking, alterations, injury or decrease in value of the
Premises, as hereinafter set forth, shall be deemed to take effect only on the
date of such receipt; and said award or payment may, at the option of Mortgagee,
be retained and applied by Mortgagee toward payment of the Secured Indebtedness,
or be paid over, wholly or in part, to Mortgagor for the purpose of altering,
restoring or rebuilding any part of the Premises which may have been altered,
damaged or destroyed as a result of any such taking, alteration of grade, or
other injury to the Premises, or for any other purpose or object satisfactory to
Mortgagee, but Mortgagee shall not be obligated to see to the application of any
amount paid over to Mortgagor. If, prior to the receipt by Mortgagee of such
award or payment, the Premises shall have been sold on foreclosure of this
Mortgage, Mortgagee shall have the right to receive said award or payment to the
extent of any deficiency found to be due upon such sale, with legal interest
thereon, whether or not a deficiency judgment on this Mortgage shall have been
sought or recovered or denied, and of the reasonable counsel fees, costs and
disbursements incurred by Mortgagee in connection with the collection of such
award or payment.
2.07 REPAIRS BY MORTGAGEE. Mortgagee shall have the right from time to time to
expend such sums as it shall deem necessary to keep the Premises in good
condition and repair, and all sums so expended shall be added to and become a
part of the Secured Indebtedness and shall bear interest and be payable as
herein provided for the payment of Secured Indebtedness and interest and the
lien of this Mortgage shall extend to and secure the same.
2.08 INDEMNIFICATION. Mortgagor shall protect, indemnify and save harmless
Mortgagee from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
attorneys' fees and expenses) imposed upon or incurred by or asserted against
Mortgagee by reason of (a) ownership of this Mortgage, the Premises or any
interest therein or receipt of any rents; (b) any accident, injury to or death
of persons or loss of or damage to property occurring in, on or about the
Premises or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways; (c) any use, nonuse or
condition in, on or about the Premises or any part thereof or on the adjoining
sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways;
(d) any failure on the part of Mortgagor to perform or comply with any of the
terms of this Mortgage; or (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the Premises or any
part thereof. Any amounts payable to Mortgagee by reason of the application of
this paragraph shall become part of the Secured Indebtedness and shall bear
interest and be payable as herein provided for the payment of the Secured
Indebtedness and interest and the lien of this Mortgage shall extend to and
secure the same. The obligations of Mortgagor under this paragraph shall survive
any termination or satisfaction of this Mortgage.
2.09 HAZARDOUS SUBSTANCES. Mortgagor shall not cause or permit the presence,
use, disposal, storage, or release of any Hazardous Substances (hereinafter
defined) on or in the Premises. Mortgagor shall not do, nor allow anyone else to
do, anything affecting the Premises that is in violation of any Environmental
Law (hereinafter defined). Mortgagor shall promptly give Mortgagee written
notice of any investigation, claim, demand, lawsuit or other action by any
governmental or regulatory agency or private party involving the
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<PAGE> 4
Premises and any Hazardous Substance or Environmental Law of which Mortgagor has
actual knowledge. If Mortgagor learns, or is notified by any governmental or
regulatory authority, that any removal or other remediation of any Hazardous
Substance affecting the Premises is necessary, Mortgagor shall promptly take all
necessary remedial actions in accordance with Environmental Law at Mortgagor's
expense. As used in this paragraph, "Hazardous Substances" are those substances
defined as toxic or hazardous substances by Environmental Law, and the following
substances: (i) gasoline, kerosene, other flammable or toxic petroleum products,
toxic pesticides and herbicides and volatile solvents (other than such small
quantities thereof as are generally recognized as being appropriate to normal
use and to maintenance of the Premises), and (ii) materials containing asbestos
or formaldehyde, and radioactive materials. As used in this paragraph,
"Environmental Law" means federal laws and laws of the jurisdiction where the
Premises are located that relate to health, safety or environmental protection.
To the maximum extent permitted by applicable law, Mortgagor shall indemnify
Mortgagee and Mortgagee's successors, assigns, officers, directors,
shareholders, employees, affiliates and agents (collectively, the "Indemnitees")
against any and all liabilities, losses, damages or expenses suffered or
incurred by Indemnitees as the result of Mortgagor's failure to observe or
perform any of the provisions of this paragraph, as a result of the failure of
Mortgagor or any other person to comply with any Environmental Law affecting the
Premises or as a result of the presence, storage, disposal or treatment on the
Premises of any Hazardous Substance. The indemnification obligations of
Mortgagor under this paragraph shall survive payment or satisfaction of the
Secured Indebtedness and any acquisition of the Premises by Mortgagee by
foreclosure of this Mortgage, by conveyance in lieu of foreclosure or otherwise,
and such provisions shall remain in full force and effect as long as the
possibility exists that Indemnitees may suffer or incur any such liabilities,
losses, damages or expenses.
SECTION 3.
3.01 EVENT OF DEFAULT. Each of the following events shall constitute an "Event
of Default" under this Mortgage: (i) should Mortgagor fail to pay the Secured
Indebtedness or any part thereof, when and as the same shall become due and
payable; (ii) should any warranty or representation of Mortgagor herein
contained, or contained in any instrument, transfer, certificate, statement,
conveyance, assignment or loan agreement given with respect to the Secured
Indebtedness, prove untrue or misleading in any material aspect; (iii) should
the Premises be subject to actual or threatened waste, or any part thereof be
removed, demolished or materially altered so that the value of the Premises be
diminished; (iv) should any federal tax lien or claim of lien for labor or
material be filed of record against Mortgagor or the Premises and not be removed
by payment or bond within thirty (30) days from date of recording; (v) should
any claim of priority to this Mortgage by title, lien or otherwise be asserted
in any legal or equitable proceeding which is not fully covered by applicable
title insurance; (vi) should Mortgagor or any guarantor of the Secured
Indebtedness make any assignment for the benefit of creditors, or should a
receiver, liquidator or trustee of Mortgagor or any guarantor of the Secured
Indebtedness or of any of Mortgagor's or any guarantor's of the Secured
Indebtedness property be appointed, or should any petition for the bankruptcy,
reorganization or arrangement of Mortgagor or any guarantor of the Secured
Indebtedness pursuant to the Federal Bankruptcy Act or any similar statute, be
filed, or should Mortgagor or any guarantor of the Secured Indebtedness be
adjudicated a bankrupt or insolvent, or should Mortgagor or any guarantor of the
Secured Indebtedness in any proceeding admit his insolvency or inability to pay
his debts as they fall due or should Mortgagor, if a corporation, be liquidated
or dissolved; (vii) should Mortgagor fail to keep, observe, perform, carry out
and execute in every particular the covenants, agreement, obligations and
conditions set out in this Mortgage, or in the Note or in any instrument given
with respect to the Secured Indebtedness; (viii) should Mortgagor transfer,
convey, encumber, mortgage, grant a security interest in or otherwise convey any
interest in the Premises whatsoever without the prior written consent of
Mortgagee excluding the creation of a purchase money security interest for
household appliances, a transfer by devise, descent or by operation of law upon
the death of a joint tenant or the grant of any leasehold interest of three (3)
years or less not containing an option to purchase; (ix) should an event of
default or an event that but for the passage of time or giving of notice would
constitute an event of default occur under the terms of any mortgage or any note
secured by said mortgage or any other document or security instrument given in
connection therewith given from Mortgagor to Mortgagee; (x) should an event of
default or an event that but for the passage of time or giving of notice would
constitute an event of default occur under the terms of any other mortgage
encumbering all or any portion of the Premises; or (xi) should Mortgagor
hereafter attempt to limit the maximum principal amount which may be secured by
this Mortgage. Notwithstanding anything herein to the contrary, Mortgagor shall
be entitled to written notice and 30 days to cure any non-monetary defaults
under Section (vii) of this paragraph.
3.02 REMEDIES. If an Event of Default occurs and remains uncured, then in either
or any such event, the aggregate sum or sums secured hereby then remaining
unpaid, with interest accrued at that time, and all moneys secured hereby, shall
become due and payable forthwith, or thereafter, at the option of Mortgagee, or
its assigns, as fully and completely as if all of the said sums of money were
originally stipulated to be paid on such date, anything in the Note or any
instrument or instruments or in this Mortgage to the contrary notwithstanding;
and thereupon, or thereafter, at the option of Mortgagee, or its assigns,
without notice or demand, suit at law or in equity may be prosecuted as if all
moneys secured hereby had matured prior to its institution. The Mortgagee, or
its assigns, may do either or both of the following as to the amount so declared
due and payable: (i) bring an action to enforce payment of the amount so
declared due and payable, with or without bringing an action to foreclose this
Mortgage; and/or (ii) foreclose this Mortgage as to the amount so declared due
and payable, and the Premises, or any part or parts thereof, in one or more
sales as determined by Mortgagee, shall be sold to satisfy and pay the same with
costs, expenses and allowances. In
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<PAGE> 5
addition, Mortgagee shall also be entitled to take such action and avail itself
of such remedies as may be available under the Uniform Commercial Code in effect
in the State of Florida.
3.03 RECEIVER. In the event a suit shall be instituted to foreclose this
Mortgage, Mortgagee, its successors or assigns, shall be entitled to apply at
any time pending such foreclosure suit to the court having jurisdiction thereof
for the appointment of a receiver for all and singular the Premises and of all
the rents, income, profits, issues and revenues thereof, from whatsoever source
derived, with the usual powers and duties of receivers in like cases and such
appointment shall be made by such court as a matter of strict right to
Mortgagee, its successors or assigns, without reference to the adequacy or
inadequacy of the value of the property hereby mortgaged or to the solvency or
insolvency of the Mortgagor, Mortgagor's legal representatives, successors or
assigns, and that such rents, profits, incomes, issues, and revenues shall be
applied by such receiver to the payment of the Secured Indebtedness, costs, and
charges, according to the order of said court. The Mortgagor hereby specifically
waives the right to object to the appointment of a receiver as described herein
and hereby expressly consents that such appointment shall be made as an admitted
equity and is Mortgagee's absolute right, and that the appointment may be done
without notice to the Mortgagor. Mortgagor further consents to the appointment
of Mortgagee or any officer or employee of Mortgagee as receiver.
SECTION 4.
4.01 PRIOR LIENS, LEASEHOLD, OR CONDOMINIUM. If this is a junior Mortgage, or if
this is a mortgage on a leasehold estate, Mortgagor shall pay all installments
of principal and interest and perform each and every covenant and obligation of
the prior mortgage or the lease. Failure of Mortgagor to do so shall constitute
a default hereunder. Upon failure of Mortgagor to do so, Mortgagee may (but
shall not be required to) make such payments or perform such covenants or
obligations and the cost of same, together with interest at the maximum rate
allowed by law, shall be payable by Mortgagor upon demand by Mortgagee and shall
be secured by the lien of this Mortgage. If this is a junior Mortgage and
Mortgagor increases the amount due on any prior mortgage without Mortgagee's
prior written consent, Mortgagee may, at its option, immediately or thereafter
declare this Mortgage and the indebtedness secured hereby due and payable
forthwith and thereupon may, at its option, proceed to foreclose this Mortgage.
If this is a Mortgage on a condominium or a planned unit development, Mortgagor
shall perform all of Mortgagor's obligations under the declaration or covenants
creating or governing the condominium or planned unit development, and
constituent documents. If a condominium or planned unit development rider is
executed by Mortgagor and recorded together with this Mortgage, the covenants
and agreements of such rider shall be incorporated into and shall amend and
supplement the covenants and agreements of this Mortgage as if the rider were a
part hereof.
4.02 NOTICES. Any notice, election, or other communication required or permitted
hereunder shall be in writing and shall be either: (i) delivered in person; (ii)
sent by overnight courier service; or (iii) sent by certified or registered
United States mail, return receipt requested, to the addresses for Mortgagor and
Mortgagee set forth on the first page of this Mortgage. Any notice, election, or
other communication delivered or mailed as aforesaid shall, if delivered in
person, be effective upon date of delivery, if couriered by overnight delivery
service be effective on the date of delivery and if mailed, such notice shall be
effective upon date of actual receipt. Any notice delivered to the address or
addresses set forth above to the respective party shall be deemed delivered if
delivery thereof is rejected or refused at the address provided. Each party
hereto may change its address and addressee for notice, election, and other
communication from time to time by notifying the other parties hereto of the new
address and addressee in the manner provided for giving notice herein.
4.03 SUBROGATION. To the extent of the Secured Indebtedness, Mortgagee is hereby
subrogated to the lien or liens and to the rights of the owners and holders
thereof of each and every mortgage, lien or other encumbrance on the Premises
which is paid or satisfied, in whole or in part, from the proceeds of the loan
evidenced by the Secured Indebtedness or from the proceeds of any future or
additional advances, and the liens of said mortgages or other encumbrances,
shall be and the same and each of them hereby are preserved and shall pass to
and be held by Mortgagee herein as security for the Secured Indebtedness, to the
same extent that it would have been preserved and would have been passed to and
been held by Mortgagee had it been duly and regularly assigned, transferred, set
over and delivered unto Mortgagee by separate deed of assignment,
notwithstanding the fact that the same may be satisfied and cancelled of record,
it being the intention that the same will be satisfied and cancelled of record
by the holders thereof at or about the time of the recording of this Mortgage.
4.04 GENERAL. The provisions hereof shall be binding upon and shall inure to the
benefit of Mortgagor, the heirs, executors, administrators, legal
representatives, successors and assigns (including without limitation subsequent
owners of the Premises) and shall be binding upon and inure to the benefit of
Mortgagee, its successors and assigns and any future holder of the Secured
Indebtedness hereby secured, and any successors or assigns of any future holder
of the Secured indebtedness. This Mortgage may not be changed, terminated or
modified orally or in any other manner than by an instrument in writing signed
by the party against whom enforcement is sought. The captions or headings at the
beginning of each Section hereof are for the convenience of the parties and are
not a pan of this Mortgage. In no event shall all charges in the nature of
interest charged or taken on this Mortgage or in connection with the Secured
Indebtedness exceed the maximum allowed by law and in the event such charges
cause the interest to exceed said maximum allowed by law, such interest shall be
recalculated, and such excess shall be credited to principal, it being the
intent of the parties that under no circumstances shall the Mortgagor be
required to pay any charges in the nature
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<PAGE> 6
of interest in excess of the maximum rate allowable by law. In the case any one
or more of the covenants, agreements, terms, or provisions contained in this
Mortgage or in the Note shall be held or found invalid, illegal, or
unenforceable in any respect, the validity of the remaining covenants,
agreements, terms, or provisions contained herein and in the Note shall in no
way be affected, prejudiced, or disturbed thereby. This Mortgage shall be
governed and construed by the laws of the State of Florida. No act of Mortgagee
shall be construed as an election to proceed under any one provision of the
Mortgage or of the applicable statutes of the State of Florida to the exclusion
of any other such provision, anything herein otherwise to the contrary
notwithstanding. Time is of the essence of this Mortgage. No waiver of any
covenant herein or in the obligations secured hereby shall at any time hereafter
be held to be a waiver of any of the other terms hereof or of the Secured
Indebtedness secured hereby, or future waiver of the same covenant. The use of
any gender shall include all other genders. The singular shall include the
plural. Mortgagor will execute and deliver promptly to Mortgagee on demand at
any time or times hereafter, any and all further instruments reasonably acquired
by Mortgagee to carry out the provisions of this Mortgage.
4.05 ENTIRE AGREEMENT, WAIVER OF JURY TRIAL. It is understood and agreed that:
ANY CONTEMPORANEOUS OR PRIOR REPRESENTATIONS, STATEMENTS, UNDERSTANDINGS AND
AGREEMENTS, ORAL OR WRITTEN, BETWEEN MORTGAGOR AND MORTGAGEE ARE MERGED INTO
THIS MORTGAGE, WHICH ALONE FULLY AND COMPLETELY EXPRESSES THEIR AGREEMENT, AND
THAT THE SAME IS ENTERED INTO AFTER FULL INVESTIGATION, NEITHER PARTY RELYING ON
ANY STATEMENT OR REPRESENTATION MADE BY THE OTHER WHICH IS NOT EMBODIED IN THIS
MORTGAGE. MORTGAGEE AND MORTGAGOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANT COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY. THIS PARAGRAPH IS A MATERIAL
INDUCEMENT FOR THE MORTGAGEE MAKING THE LOAN TO MORTGAGOR.
IN WITNESS WHEREOF, the Mortgagor, in pursuance of due and legal action of its
stockholders (or members, in case of a non-profit corporation) and Board of
Directors has executed these presents by causing its name to be signed by its
- ------ President, and its corporate seal to be affixed hereto the day and year
first above written.
<TABLE>
<S> <C>
MORTGAGOR:
Signed sealed and delivered
in the presence of: CUCOS INC., a Louisiana corporation
/s/ MARY ANN BROCKHAUS By: /s/ VINCENT J. LIUZZA, Jr. (SEAL)
Mary Ann Brockhaus Vincent J. Liuzza, Jr.
[Type/Print Name of Witness] Its President
/s/ JULEE MELERINE
Julee Melerine
[Type/Print Name of Witness]
STATE OF LOUISIANA
PARISH OF JEFFERSON
</TABLE>
The foregoing instrument was acknowledged before me this 20th day of April,
1994, by Vincent J. Liuzza, Jr., as President of CUCOS Inc., a Louisiana
corporation, on behalf of the said corporation.
<TABLE>
<S> <C>
/s/ CHRISTOPHER T. GRACE, JR.
SIGNATURE OF NOTARY PUBLIC
STATE OF LOUISIANA
PRINT, TYPE OR STAMP COMMISSIONED
NAME OF NOTARY PUBLIC:
/s/ CHRISTOPHER T. GRACE, JR.
Personally Known [X] OR
Produced Identification [ ]
Type of Identification Produced:
</TABLE>
6
<PAGE> 7
EXHIBIT "A"
Permitted Exceptions to Title
1. Real Estate Taxes for the year 1994 and subsequent years, which are not yet
due and payable.
2. Subject to Grant of Easement recorded in O.R. Book 1865, at Page 819, of the
Public Records of Escambia County, Florida.
Mortgagee hereby permits Mortgagor to place liens upon the Premises,
subordinate to the lien of this mortgage, so long as the indebtedness secured by
said subordinate liens does not exceed $150,000.00.
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<PAGE> 1
EXHIBIT 4-E
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$200,000.00 10-27-1994 10-27-1995 2001 1E0 5021 1631936 MHC MHC
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
BORROWER: CUCOS, INC. (TIN: 72-0915435) LENDER: FIRST NATIONAL BANK OF COMMERCE TIN: 72-0269760
110 VETERANS BOULEVARD P. O. BOX 60279
METAIRIE, LA 70005 210 BARONNE STREET
NEW ORLEANS, LA 70160
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $200,000.00 INITIAL RATE: 8.750% DATE OF NOTE: OCTOBER 27,
1994
PROMISE TO PAY. CUCOS, INC. ("Borrower") promises to pay to the order of First
National Bank of Commerce ("Lender"), in lawful money of the United States of
America the sum of Two Hundred Thousand & 00/100 Dollars (U.S. $200,000.00) or
such other or lesser amounts as may be reflected from time to time on the books
and records of Lender as evidencing the aggregate unpaid principal balance of
loan advances made to Borrower on a revolving line of credit basis as provided
below, together with simple interest assessed on a variable rate basis at the
rate per annum equal to 1.000 percentage point over the index provided below, as
the index under this Note may be adjusted from time to time, one or more times,
with interest being assessed on the unpaid principal balance of this Note as
outstanding from time to time, commencing on October 27, 1994 and continuing
until this Note is paid in full, or until default under this Note with interest
thereafter being subject to the default interest rate provisions set forth
herein.
LINE OF CREDIT. This Note evidences a revolving line of credit "master note".
Advances under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: VINCENT J. LIUZZA. JR.,
CHAIRMAN OF THE BOARD AND PRESIDENT; THOMAS J. SANDEMAN, VICE
PRESIDENT -- FINANCE/ASSISTANT SECRETARY; AND TOM GRACE, CORPORATE SECRETARY.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's deposit accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will have
no obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those acceptable to Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON OCTOBER
27, 1995. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING NOVEMBER 27, 1994, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT UNTIL THIS NOTE IS
PAID IN FULL. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the "NEW YORK
PRIME RATE" (the "Index"). The index is not necessarily the lowest rate charged
by Lender on its loans. If the index becomes unavailable during the term of this
loan, Lender may designate a substitute index after notice to Borrower. Lender
will tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each "DAY". THE INDEX
CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE POINT OVER
THE INDEX, RESULTING IN AN INITIAL RATE OF 8.750% PER ANNUM. Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower may prepay this Note in full at any time by paying the then
unpaid principal balance of this Note, plus accrued simple interest and any
unpaid late charges through date of prepayment. If Borrower prepays this Note in
full, or if Lender accelerates payment, Borrower understands that, unless
otherwise required by law, any prepaid fees or charges will not be subject to
rebate and will be earned by Lender at the time this Note is signed. Unless
otherwise agreed to in writing, early payments under this Note will not relieve
Borrower of Borrower's obligation to continue to make regularly scheduled
payments under the above payment schedule. Early payments will instead reduce
the principal balance due, and Borrower may be required to make fewer payments
under this Note.
LATE CHARGE. If Borrower fails to pay any payment under this Note in full within
10 days of when due, Borrower agrees to pay Lender a late payment fee in an
amount equal to 5.000% of the unpaid amount of the payment, or U.S. $25.00,
whichever is greater, with a maximum of $100.00. Late charges will not be
assessed following declaration of default and acceleration of maturity of this
Note.
DEFAULT. The following actions and/or inactions shall constitute default events
under this Note:
DEFAULT UNDER THIS NOTE. Should Borrower default in the payment of principal
and/or interest under this Note.
DEFAULT UNDER SECURITY AGREEMENTS. Should Borrower or any guarantor violate,
or fail to comply fully with any of the terms and conditions of, or default
under any security right, instrument, document, or agreement directly or
indirectly securing repayment of this Note.
OTHER DEFAULTS IN FAVOR OF LENDER. Should Borrower or any guarantor of this
Note default under any other loan, extension of credit, security right,
instrument, document, or agreement, or obligation in favor of Lender.
<PAGE> 2
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any guarantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may affect any property or other collateral directly or indirectly
securing repayment of this Note.
INSOLVENCY. Should the suspension, failure or insolvency, however evidenced,
of Borrower or any guarantor of this Note occur or exist.
DEATH OR INTERDICTION. Should any guarantor of this Note die or be
interdicted.
READJUSTMENT OF INDEBTEDNESS. Should proceedings for readjustment of
indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or against Borrower or any guarantor.
ASSIGNMENT FOR BENEFIT OF CREDITORS. Should Borrower or any guarantor file
proceedings for a respite or make a general assignment for the benefit of
creditors.
RECEIVERSHIP. Should a receiver of all or any part of Borrower's property,
or the property of any guarantor, be applied for or appointed.
DISSOLUTION PROCEEDINGS. Should proceedings for the dissolution or
appointment of a liquidator of Borrower or any guarantor be commenced.
FALSE STATEMENTS. Should any representation, warranty, or material statement
of Borrower or any guarantor made in connection with the obtaining of the
loan evidenced by this Note or any security agreement directly or indirectly
securing repayment of this Note, prove to be incorrect or misleading in any
respect.
MATERIAL ADVERSE CHANGE. Should any material adverse change occur in the
financial condition of Borrower or any guarantor of this Note or should any
material discrepancy exist between the financial statements submitted by
Borrower or any guarantor and the actual financial condition of Borrower or
such guarantor.
INSECURITY. Should Lender deem itself to be insecure with regard to
repayment of this Note.
LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or
exist under this Note as provided above, Lender shall have the right, at its
sole option, to declare formally this Note to be in default and to accelerate
the maturity and insist upon immediate payment in full of the unpaid principal
balance then outstanding under this Note, plus accrued interest, together with
reasonable attorneys' fees, costs, expenses and other fees and charges as
provided herein. Lender shall have the further right, again at its sole option,
to declare formal default and to accelerate the maturity and to insist upon
immediate payment in full of each and every other loan, extension of credit,
debt, liability and/or obligation of every nature and kind that Borrower may
then owe to Lender, whether direct or indirect or by way of assignment, and
whether absolute or contingent, liquidated or unliquidated, voluntary or
involuntary, determined or undetermined, secured or unsecured, whether Borrower
is obligated alone or with others on a "solidary" or "joint and several" basis,
as a principal obligor or otherwise, all without further notice or demand,
unless Lender shall otherwise elect.
INTEREST AFTER DEFAULT. If Lender declares this Note to be in default, Lender
has the right prospectively to adjust and fix the simple interest rate under
this Note until this Note is paid in full, as follows: (1) If the original
principal amount of this Note is $250,000 or less, the fixed default interest
rate shall be equal to eighteen (18%) percent per annum, or three (3%) percent
per annum in excess of the interest rate under this Note, whichever is greater.
(2) If the original principal amount of this Note is more than $250,000, the
fixed default interest rate shall be equal to twenty-one (21%) percent
<PAGE> 3
10-27-1994 PROMISSORY NOTE Page 2
Loan No (Continued)
per annum, or three (3%) per cent per annum in excess of the interest rate under
this Note at the time of default, whichever is greater.
ATTORNEYS' FEES. If Lender refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay Lender's
reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid debt
then owing under this Note.
NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note
by check and Borrower's check is returned to Lender unpaid due to nonsufficient
funds in my deposit account, Borrower agrees to pay Lender an additional NSF
check charge equal to $15.00.
DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all
renewals and extensions, as well as to secure any and all other loans, notes,
indebtedness and obligations that Borrower (or any of them) may now and in the
future owe to Lender or incur in Lender's favor, whether direct or indirect,
absolute or contingent, due or to become due, of any nature and kind whatsoever
(with the exception of any indebtedness under a consumer credit card account),
Borrower is granting Lender a continuing security interest in any and all funds
that Borrower may now and in the future have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which Borrower is an
account holder (with the exception of IRA, pension, and other tax-deferred
deposits). Borrower further agrees that Lender may at any time apply any funds
that Borrower may have on deposit with Lender or in certificates of deposit or
other deposit accounts as to which Borrower is an account holder against the
unpaid balance of this Note and any and all other present and future
indebtedness and obligations that Borrower (or any of them) may then owe to
Lender, in principal, interest, fees, costs, expenses, and attorneys' fees.
COLLATERAL. This Note is secured by: UCC Financing Statement Collateral.
Collateral securing other loans with Lender may also secure this Note as the
result of cross-collateralization.
FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial
statements and other related information at such frequencies and in such detail
as Lender may reasonably request.
GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby
shall be governed under the laws of the State of Louisiana. Specifically, this
business or commercial Note is subject to La. R.S. 9:3509 et seq.
SPECIAL REQUIREMENT. LOAN MUST BE REDUCED TO A ZERO BALANCE ($0.00) FOR A
NON-CONSECUTIVE THIRTY (30) DAY PERIOD DURING THE TERM OF THE LOAN.
WAIVERS. Borrower and each guarantor of this Note hereby waive demand,
presentment for payment, protest, notice of protest and notice of nonpayment,
and all pleas of division and discussion, and severally agree that their
obligations and liabilities to Lender hereunder shall be on a "solidary" or
"joint and several" basis. Borrower and each guarantor further severally agree
that discharge or release of any party who is or may be liable to Lender for the
indebtedness represented hereby, or the release of any collateral directly or
indirectly securing repayment hereof, shall not have the effect of releasing any
other party or parties, who shall remain liable to Lender, or of releasing any
other collateral that is not expressly released by Lender. Borrower and each
guarantor additionally agree that Lender's acceptance of payment other than in
accordance with the terms of this Note, or Lender's subsequent agreement to
extend or modify such repayment terms, or Lender's failure or delay in
exercising any rights or remedies granted to Lender, shall likewise not have the
effect of releasing Borrower or any other party or parties from their respective
obligations to Lender, or of releasing any collateral that directly or
indirectly secures repayment hereof. In addition, any failure or delay on the
part of Lender to exercise any of the rights and remedies granted to Lender
shall not have the effect of waiving any of Lender's rights and remedies. Any
partial exercise of any rights and/or remedies granted to Lender shall
furthermore not be construed as a waiver of any other rights and remedies; it
being Borrower's intent and agreement that Lender's rights and remedies shall be
cumulative in nature. Borrower and each guarantor further agree that, should any
default event occur or exist under this Note, any waiver or forbearance on the
part of Lender to pursue the rights and remedies available to Lender, shall be
binding upon Lender only to the extent that Lender specifically agrees to any
such waiver or forbearance in writing. A waiver or forbearance on the part of
Lender as to one default event shall not be construed as a waiver or forbearance
as to any other default. Borrower and each guarantor of this Note further agree
that any late charges provided for under this Note will not be charges for
deferral of time for payment and will not and are not intended to compensate
Lender for a grace or cure period, and no such deferral, grace or cure period
has or will be granted to Borrower in return for the importation of any late
charge. Borrower recognizes that Borrower's failure to make timely payment of
amounts due under this Note will result in damages to Lender, including but not
limited to Lender's loss of the use of amounts due, and Borrower agrees that any
late charges imposed by Lender hereunder will represent reasonable compensation
to Lender for such damages. Failure to pay in full any installment or payment
timely when due under this Note, whether or not a late charge is assessed, will
remain and shall constitute an Event of Default hereunder.
SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and
agreements under this Note shall be binding upon Borrower's and each guarantor's
respective successors, heirs, legatees, devisees, administrators, executors and
assigns. The rights and remedies granted to Lender under this Note shall inure
to the benefit of Lender's successors and assigns, as well as to any subsequent
holder or holders of this Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to interpret or to define their
provisions. In this Note, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and
the balance of this Note shall be interpreted as if the deleted provision never
existed.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. LENDER AND BORROWER
HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
BORROWER
CUCOS, INC.
X /s/ VINCENT J. LIUZZA, JR.
--------------------------------
AUTHORIZED OFFICER
X /s/ THOMAS J. SANDEMAN
--------------------------------
AUTHORIZED OFFICER
<PAGE> 1
EXHIBIT 4-F
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
- ----------------------------------- ----------- ----------- --------- ----- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$250,000.00 10-27-1994 10-27-1995 4Q01 1E0 5021 1631936 MHC JKK
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
Borrower: CUCOS, INC. (TIN: 72-0915435) Lender: First National Bank of Commerce TIN: 72-0269760
110 VETERANS BOULEVARD P.O. Box 60279
METAIRIE, LA 70005 210 Baronne Street
New Orleans, LA 70160
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount: $250,000.00 Initial Rate: 8.750% Date of Note: October 27,
1994
PROMISE TO PAY. CUCOS, INC. ("Borrower") promises to pay to the order of First
National Bank of Commerce ("Lender"), in lawful money of the United States of
America the sum of Two Hundred Fifty Thousand & 00/100 Dollars (U.S.
$250,000.00) or such other or lesser amounts as may be reflected from time to
time on the books and records of Lender as evidencing the aggregate unpaid
principal balance of loan advances made to Borrower on a revolving line of
credit basis as provided below, together with simple interest assessed on a
variable rate basis at the rate per annum equal to 1.000 percentage point over
the Index provided below, as the Index under this Note may be adjusted from time
to time, one or more times, with interest being assessed on the unpaid principal
balance of this Note as outstanding from time to time, commencing on October 27,
1994 and continuing until this Note is paid in full, or until default under this
Note with Interest thereafter being subject to the default interest rate
provisions set forth herein.
LINE OF CREDIT. This Note evidences a revolving line of credit "master note".
Advances under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: VINCENT J. LIUZZA, JR.,
CHAIRMAN OF THE BOARD AND PRESIDENT; THOMAS J. SANDEMAN, VICE
PRESIDENT -- FINANCE/ASSISTANT SECRETARY; AND TOM GRACE, CORPORATE SECRETARY.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's deposit accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will have
no obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those acceptable to Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON OCTOBER
27, 1995. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING NOVEMBER 27, 1994, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THIS UNTIL THIS NOTE IS
PAID IN FULL. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the "NEW YORK
PRIME RATE" (the "Index"). The index is not necessarily the lowest rate charged
by Lender on its loans. If the index becomes unavailable during the term of this
loan, Lender may designate a substitute index after notice to Borrower. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each "DAY". THE INDEX
CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE POINT OVER
THE INDEX, RESULTING IN AN INITIAL RATE OF 8.750% PER ANNUM. Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower may prepay this Note in full at any time by paying the then
unpaid principal balance of this Note, plus accrued simple interest and any
unpaid late charges through date of prepayment. If Borrower prepays this Note in
full, or if Lender accelerates payment, Borrower understands that, unless
otherwise required by law, any prepaid fees or charges will not be subject to
rebate and will be earned by Lender at the time this Note is signed. Unless
otherwise agreed to in writing, early payments under this Note will not relieve
Borrower of Borrower's obligation to continue to make regularly scheduled
payments under the above payment schedule. Early payments will instead reduce
the principal balance due, and Borrower may be required to make fewer payments
under this Note.
LATE CHARGE. If Borrower fails to pay any payment under this Note in full within
10 days of when due, Borrower agrees to pay Lender a late payment fee in an
amount equal to 5.000% of the unpaid amount of the payment, or U.S. $25.00,
whichever is greater, with a maximum of $100.00. Late charges will not be
assessed following declaration of default and acceleration of maturity of this
Note.
DEFAULT. The following actions and/or inactions shall constitute default events
under this Note:
DEFAULT UNDER THIS NOTE. Should Borrower default in the payment of principal
and/or Interest under this Note.
DEFAULT UNDER SECURITY AGREEMENTS. Should Borrower or any guarantor violate,
or fail to comply fully with any of the terms and conditions of, or Default
under any security right, instrument, document, or agreement directly or
indirectly securing repayment of this Note.
OTHER DEFAULTS IN FAVOR OF LENDER. Should Borrower or any guarantor of this
Note default under any other loan, extension of credit, security right,
instrument, document, or agreement, or obligation in favor of Lender.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any guarantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may affect any property or other collateral directly or indirectly
securing repayment of this Note.
INSOLVENCY. Should the suspension, failure or insolvency, however evidenced,
of Borrower or any guarantor of this Note occur or exist.
DEATH OR INTERDICTION. Should any guarantor of this Note die or be
interdicted.
READJUSTMENT OF INDEBTEDNESS. Should proceedings for readjustment of
indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or against Borrower or any guarantor.
ASSIGNMENT FOR BENEFIT OF CREDITORS. Should Borrower or any guarantor file
proceedings for a respite or make a general assignment for the benefit of
creditors.
RECEIVERSHIP. Should a receiver of all or any part of Borrower's property,
or the property of any guarantor, be applied for or appointed.
DISSOLUTION PROCEEDINGS. Should proceedings for the dissolution or
appointment of a liquidator of Borrower or any guarantor be commenced.
FALSE STATEMENTS. Should any representation, warranty, or material statement
of Borrower or any guarantor made in connection with the obtaining of the
loan evidenced by this Note or any security agreement directly or indirectly
securing repayment of this Note, prove to be incorrect or misleading in any
respect.
MATERIAL ADVERSE CHANGE. Should any material adverse change occur in the
financial condition of Borrower or any guarantor of this Note or should any
material discrepancy exist between the financial statements submitted by
Borrower or any guarantor and the actual financial condition of Borrower or
such guarantor.
INSECURITY. Should Lender deem itself to be insecure with regard to
repayment of this Note.
LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or
exist under this Note as provided above, Lender shall have the right, at its
sole option, to declare formally this Note to be in default and to accelerate
the maturity and insist upon immediate payment in full of the unpaid principal
balance then outstanding under this Note, plus accrued interest, together with
reasonable attorneys' fees, costs, expenses and other fees and charges as
provided herein. Lender shall have the further right, again at its sole option,
to declare formal default and to accelerate the maturity and to insist upon
immediate payment in full of each and every other loan, extension of credit,
debt, liability and/or obligation of every nature and kind that Borrower may
then owe to Lender, whether direct or indirect or by way of assignment, and
whether absolute or contingent, liquidated or unliquidated, voluntary or
involuntary, determined or undetermined, secured or unsecured, whether Borrower
is obligated alone or with others on a "solidary" or "joint and several" basis,
as a principal obligor or otherwise, all without further notice or demand,
unless Lender shall otherwise elect.
INTEREST AFTER DEFAULT. If Lender declares this Note to be in default, Lender
has the right prospectively to adjust and fix the simple interest rate under
this Note until this Note is paid in full, as follows: (1) If the original
principal amount of this Note is $250,000 or less, the fixed default interest
rate shall be equal to eighteen (18%) percent per annum, or three (3%) per cent
per annum in excess of the interest rate under this Note, whichever is greater.
(2) If the original principal amount of this Note is more than $250,000, the
fixed default interest rate shall be equal to twenty-one (21%) percent
<PAGE> 2
10-27-1994 PROMISSORY NOTE PAGE 2
LOAN NO (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
per annum, or three (3%) percent per annum in excess of the interest rate under
this Note at the time of default, whichever is greater.
ATTORNEYS' FEES. If Lender refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay Lender's
reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid debt
then owing under this Note.
NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note
by check and Borrower's check is returned to Lender unpaid due to nonsufficient
funds in my deposit account, Borrower agrees to pay Lender an additional NSF
check charge equal to $15.00.
DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all
renewals and extensions, as well as to secure any and all other loans, notes,
indebtedness and obligations that Borrower (or any of them) may now and in the
future owe to Lender or incur in Lender's favor, whether direct or indirect,
absolute or contingent, due or to become due, of any nature and kind whatsoever
(with the exception of any indebtedness under a consumer credit card account),
Borrower is granting Lender a continuing security interest in any and all funds
that Borrower may now and in the future have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which Borrower is an
account holder (with the exception of IRA, pension, and other tax-deferred
deposits). Borrower further agrees that Lender may at any time apply any funds
that Borrower may have on deposit with Lender or in certificates of deposit or
other deposit accounts as to which Borrower is an account holder against the
unpaid balance of this Note and any and all other present and future
indebtedness and obligations that Borrower (or any of them) may then owe to
Lender, in principal, interest, fees, costs, expenses, and attorneys' fees.
COLLATERAL. This Note is secured by: UCC Financing Statement Collateral.
Collateral securing other loans with Lender may also secure this Note as the
result of cross-collateralization.
FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial
statements and other related information at such frequencies and in such detail
as Lender may reasonably request.
GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby
shall be governed under the laws of the State of Louisiana. Specifically, this
business or commercial Note is subject to La. R.S. 9:3509 et seq.
WAIVERS. Borrower and each guarantor of this Note hereby waive demand,
presentment for payment, protest, notice of protest and notice of nonpayment,
and all pleas of division and discussion, and severally agree that their
obligations and liabilities to Lender hereunder shall be on a "solidary" or
"joint and several" basis. Borrower and each guarantor further severally agree
that discharge or release of any party who is or may be liable to Lender for the
indebtedness represented hereby, or the release of any collateral directly or
indirectly securing repayment hereof, shall not have the effect of releasing any
other party or parties, who shall remain liable to Lender, or of releasing any
other collateral that is not expressly released by Lender. Borrower and each
guarantor additionally agree that Lender's acceptance of payment other than in
accordance with the terms of this Note, or Lender's subsequent agreement to
extend or modify such repayment terms, or Lender's failure or delay in
exercising any rights or remedies granted to Lender, shall likewise not have the
effect of releasing Borrower or any other party or parties from their respective
obligations to Lender, or of releasing any collateral that directly or
indirectly secures repayment hereof. In addition, any failure or delay on the
part of Lender to exercise any of the rights and remedies granted to Lender
shall not have the effect of waiving any of Lender's rights and remedies. Any
partial exercise of any rights and/or remedies granted to Lender shall
furthermore not be construed as a waiver of any other rights and remedies; it
being Borrower's intent and agreement that Lender's rights and remedies shall be
cumulative in nature. Borrower and each guarantor further agree that, should any
default event occur or exist under this Note, any waiver or forbearance on the
part of Lender to pursue the rights and remedies available to Lender, shall be
binding upon Lender only to the extent that Lender specifically agrees to any
such waiver or forbearance in writing. A waiver or forbearance on the part of
Lender as to one default event shall not be construed as a waiver or forbearance
as to any other default. Borrower and each guarantor of this Note further agree
that any late charges provided for under this Note will not be charges for
deferral of time for payment and will not and are not intended to compensate
Lender for a grace or cure period, and no such deferral, grace or cure period
has or will be granted to Borrower in return for the imposition of any late
charge. Borrower recognizes that Borrower's failure to make timely payment of
amounts due under this Note will result in damages to Lender, including but not
limited to Lender's loss of the use of amounts due, and Borrower agrees that any
late charges imposed by Lender hereunder will represent reasonable compensation
to Lender for such damages. Failure to pay in full any installment or payment
timely when due under this Note, whether or not a late charge is assessed, will
remain and shall constitute an Event of Default hereunder.
SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and
agreements under this Note shall be binding upon Borrower's and each guarantor's
respective successors, heirs, legatees, devisees, administrators, executors and
assigns. The rights and remedies granted to Lender under this Note shall inure
to the benefit of Lender's successors and assigns, as well as to any subsequent
holder or holders of this Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to interpret or to define their
provisions. In this Note, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and
the balance of this Note shall be interpreted as if the deleted provision never
existed.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. LENDER AND BORROWER
HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
BORROWER:
CUCOS, INC.
X /s/ VINCENT J. LIUZZA, JR.
------------------------------
AUTHORIZED OFFICER
X /s/ THOMAS J. SANDEMAN
------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
PROMISSORY NOTE EXHIBIT 4-G
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$500,000.00 10-27-1994 10-27-1996 3001 1E0 5021 1631936 MHC MHC
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
BORROWER: CUCOS, INC. (TIN: 72-0915435) LENDER: FIRST NATIONAL BANK OF COMMERCE TIN: 72-0269760
110 VETERANS BOULEVARD P. O. BOX 60279
METAIRIE, LA 70005 210 BARONNE STREET
NEW ORLEANS, LA 70160
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $500,000.00 INITIAL RATE: 8.750%DATE OF NOTE: OCTOBER 27, 1994
PROMISE TO PAY. CUCOS, INC. ("BORROWER") PROMISES TO PAY TO THE ORDER OF FIRST
NATIONAL BANK OF COMMERCE ("LENDER"), IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA THE SUM OF FIVE HUNDRED THOUSAND & 00/100 DOLLARS (U.S. $500,000.00) OR
SUCH OTHER OR LESSER AMOUNTS AS MAY BE REFLECTED FROM TIME TO TIME ON THE BOOKS
AND RECORDS OF LENDER AS EVIDENCING THE AGGREGATE UNPAID PRINCIPAL BALANCE OF
LOAN ADVANCES MADE TO BORROWER ON A MULTIPLE ADVANCE BASIS AS PROVIDED BELOW,
TOGETHER WITH SIMPLE INTEREST ASSESSED ON A VARIABLE RATE BASIS AT THE RATE PER
ANNUM EQUAL TO 1.000 PERCENTAGE POINT OVER THE INDEX PROVIDED BELOW, AS THE
INDEX UNDER THIS NOTE MAY BE ADJUSTED FROM TIME TO TIME, ONE OR MORE TIMES, WITH
INTEREST BEING ASSESSED ON THE UNPAID PRINCIPAL BALANCE OF THIS NOTE AS
OUTSTANDING FROM TIME TO TIME, COMMENCING ON OCTOBER 27, 1994 AND CONTINUING
UNTIL THIS NOTE IS PAID IN FULL, OR UNTIL DEFAULT UNDER THIS NOTE WITH INTEREST
THEREAFTER BEING SUBJECT TO THE DEFAULT INTEREST RATE PROVISIONS SET FORTH
HEREIN.
MULTIPLE ADVANCE LOAN. This Note contemplates multiple loan advances. Once the
total amount of principal has been advanced under this Note, Borrower will not
be entitled to further loan advances. Advances under this Note may be requested
orally by Borrower or by an authorized person. Lender may, but need not, require
that all oral requests be confirmed in writing. All communications,
instructions, or directions by telephone or otherwise to Lender are to be
directed to Lender's office shown above. The following party or parties are
authorized to request advances under the line of credit until Lender receives
from Borrower at Lender's address shown above written notice of revocation of
their authority: THOMAS J. SANDEMAN, VICE PRESIDENT -- FINANCE/ASSISTANT
SECRETARY; VINCENT J. LIUZZA. JR., CHAIRMAN OF THE BOARD AND PRESIDENT; AND TOM
GRACE, CORPORATE SECRETARY. Borrower agrees to be liable for all sums either:
(a) advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's deposit accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (a) Borrower
or any guarantor is in default under the terms of this Note or any agreement
that Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those acceptable to Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON OCTOBER
27, 1996. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING NOVEMBER 27, 1994, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT UNTIL THIS NOTE IS
PAID IN FULL. Interest on this Note is computed on a 365/360 simple interest
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the "NEW YORK
PRIME RATE" (the "Index"). The index is not necessarily the lowest rate charged
by Lender on its loans. If the index becomes unavailable during the term of this
loan, Lender may designate a substitute index after notice to Borrower. Lender
will tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each "DAY". THE INDEX
CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE POINT OVER
THE INDEX, RESULTING IN AN INITIAL RATE OF 8.750% PER ANNUM. Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower may prepay this Note in full at any time by paying the then
unpaid principal balance of this Note, plus accrued simple interest and any
unpaid late charges through date of prepayment. If Borrower prepays this Note in
full, or if Lender accelerates payment, Borrower understands that, unless
otherwise required by law, any prepaid fees or charges will not be subject to
rebate and will be earned by Lender at the time this Note is signed. Unless
otherwise agreed to in writing, early payments under this Note will not relieve
Borrower of Borrower's obligation to continue to make regularly scheduled
payments under the above payment schedule. Early payments will instead reduce
the principal balance due, and Borrower may be required to make fewer payments
under this Note.
LATE CHARGE. If Borrower fails to pay any payment under this Note in full within
10 days of when due, Borrower agrees to pay Lender a late payment fee in an
amount equal to 5.000% of the unpaid amount of the payment, or U.S. $25.00,
whichever is greater, with a maximum of $100.00. Late charges will not be
assessed following declaration of default and acceleration of maturity of this
Note.
DEFAULT. The following actions and/or inactions shall constitute default events
under this Note:
DEFAULT UNDER THIS NOTE. Should Borrower default in the payment of principal
and/or interest under this Note.
DEFAULT UNDER SECURITY AGREEMENTS. Should Borrower or any guarantor violate,
or fail to comply fully with any of the terms and conditions of, or default
under any security right, instrument, document, or agreement directly or
indirectly securing repayment of this Note.
OTHER DEFAULTS IN FAVOR OF LENDER. Should Borrower or any guarantor of this
Note default under any other loan, extension of credit, security right,
instrument, document, or agreement, or obligation in favor of Lender.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any guarantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may affect any property or other collateral directly or indirectly
securing repayment of this Note.
INSOLVENCY. Should the suspension, failure or insolvency, however evidenced,
of Borrower or any guarantor of this Note occur or exist.
DEATH OR INTERDICTION. Should any guarantor of this Note die or be
interdicted.
READJUSTMENT OF INDEBTEDNESS. Should proceedings for readjustment of
indebtedness, reorganization, bankruptcy, composition or extension under any
insolvency law be brought by or against Borrower or any guarantor.
ASSIGNMENT FOR BENEFIT OF CREDITORS. Should Borrower or any guarantor file
proceedings for a respite or make a general assignment for the benefit of
creditors.
RECEIVERSHIP. Should a receiver of all or any part of Borrower's property,
or the property of any guarantor, be applied for or appointed.
DISSOLUTION PROCEEDINGS. Should proceedings for the dissolution or
appointment of a liquidator of Borrower or any guarantor be commenced.
FALSE STATEMENTS. Should any representation, warranty, or material statement
of Borrower or any guarantor made in connection with the obtaining of the
loan evidenced by this Note or any security agreement directly or indirectly
securing repayment of this Note, prove to be incorrect or misleading in any
respect.
MATERIAL ADVERSE CHANGE. Should any material adverse change occur in the
financial condition of Borrower or any guarantor of this Note or should any
material discrepancy exist between the financial statements submitted by
Borrower or any guarantor and the actual financial condition of Borrower or
such guarantor.
INSECURITY. Should Lender deem itself to be insecure with regard to
repayment of this Note.
LENDER'S RIGHTS UPON DEFAULT. Should any one or more default events occur or
exist under this Note as provided above, Lender shall have the right, at its
sole option, to declare formally this Note to be in default and to accelerate
the maturity and insist upon immediate payment in full of the unpaid principal
balance then outstanding under this Note, plus accrued interest, together with
reasonable attorneys' fees, costs, expenses and other fees and charges as
provided herein. Lender shall have the further right, again at its sole option,
to declare formal default and to accelerate the maturity and to insist upon
immediate payment in full of each and every other loan, extension of credit,
debt, liability and/or obligation of every nature and kind that Borrower may
then owe to Lender, whether direct or indirect or by way of assignment, and
whether absolute or contingent, liquidated or unliquidated, voluntary or
involuntary, determined or undetermined, secured or unsecured, whether Borrower
is obligated alone or with others on a "solidary" or "joint and several" basis,
as a principal obligor or otherwise, all without further notice or demand,
unless Lender shall otherwise elect.
INTEREST AFTER DEFAULT. If Lender declares this Note to be in default, Lender
has the right prospectively to adjust and fix the simple interest rate under
this Note until this Note is paid in full, as follows: (1) If the original
principal amount of this Note is $250,000 or less, the fixed default interest
rate shall be equal to eighteen (18%) percent per annum, or three (3%) percent
per annum in excess of the interest rate under this Note, whichever is
<PAGE> 2
10-27-1994 PROMISSORY NOTE Page 2
Loan No (Continued)
greater. (2) If the original principal amount of this Note is more than
$250,000, the fixed default interest rate shall be equal to twenty-one (21%)
percent per annum, or three (3%) per cent per annum in excess of the interest
rate under this Note at the time of default, whichever is greater.
ATTORNEYS' FEES. If Lender refers this Note to an attorney for collection, or
files suit against Borrower to collect this Note, or if Borrower files for
bankruptcy or other relief from creditors, Borrower agrees to pay Lender's
reasonable attorneys' fees in an amount not exceeding 25.000% of the unpaid debt
then owing under this Note.
NSF CHECK CHARGES. In the event that Borrower makes any payment under this Note
by check and Borrower's check is returned to Lender unpaid due to nonsufficient
funds in my deposit account, Borrower agrees to pay Lender an additional NSF
check charge equal to $15.00.
DEPOSIT ACCOUNTS. As collateral security for repayment of this Note and all
renewals and extensions, as well as to secure any and all other loans, notes,
indebtedness and obligations that Borrower (or any of them) may now and in the
future owe to Lender or incur in Lender's favor, whether direct or indirect,
absolute or contingent, due or to become due, of any nature and kind whatsoever
(with the exception of any indebtedness under a consumer credit card account),
Borrower is granting Lender a continuing security interest in any and all funds
that Borrower may now and in the future have on deposit with Lender or in
certificates of deposit or other deposit accounts as to which Borrower is an
account holder (with the exception of IRA, pension, and other tax-deferred
deposits). Borrower further agrees that Lender may at any time apply any funds
that Borrower may have on deposit with Lender or in certificates of deposit or
other deposit accounts as to which Borrower is an account holder against the
unpaid balance of this Note and any and all other present and future
indebtedness and obligations that Borrower (or any of them) may then owe to
Lender, in principal, interest, fees, costs, expenses, and attorneys' fees.
COLLATERAL. This Note is secured by: UCC Financing Statement Collateral.
Collateral securing other loans with Lender may also secure this Note as the
result of cross-collateralization.
FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial
statements and other related information at such frequencies and in such detail
as Lender may reasonably request.
GOVERNING LAW. Borrower agrees that this Note and the loan evidenced hereby
shall be governed under the laws of the State of Louisiana. Specifically, this
business or commercial Note is subject to La. R.S. 9:3509 et seq.
WAIVERS. Borrower and each guarantor of this Note hereby waive demand,
presentment for payment, protest, notice of protest and notice of nonpayment,
and all pleas of division and discussion, and severally agree that their
obligations and liabilities to Lender hereunder shall be on a "solidary" or
"joint and several" basis. Borrower and each guarantor further severally agree
that discharge or release of any party who is or may be liable to Lender for the
indebtedness represented hereby, or the release of any collateral directly or
indirectly securing repayment hereof, shall not have the effect of releasing any
other party or parties, who shall remain liable to Lender, or of releasing any
other collateral that is not expressly released by Lender. Borrower and each
guarantor additionally agree that Lender's acceptance of payment other than in
accordance with the terms of this Note, or Lender's subsequent agreement to
extend or modify such repayment terms, or Lender's failure or delay in
exercising any rights or remedies granted to Lender, shall likewise not have the
effect of releasing Borrower or any other party or parties from their respective
obligations to Lender, or of releasing any collateral that directly or
indirectly secures repayment hereof. In addition, any failure or delay on the
part of Lender to exercise any of the rights and remedies granted to Lender
shall not have the effect of waiving any of Lender's rights and remedies. Any
partial exercise of any rights and/or remedies granted to Lender shall
furthermore not be construed as a waiver of any other rights and remedies; it
being Borrower's intent and agreement that Lender's rights and remedies shall be
cumulative in nature. Borrower and each guarantor further agree that, should any
default event occur or exist under this Note, any waiver or forbearance on the
part of Lender to pursue the rights and remedies available to Lender, shall be
binding upon Lender only to the extent that Lender specifically agrees to any
such waiver or forbearance in writing. A waiver or forbearance on the part of
Lender as to one default event shall not be construed as a waiver or forbearance
as to any other default. Borrower and each guarantor of this Note further agree
that any late charges provided for under this Note will not be charges for
deferral of time for payment and will not and are not intended to compensate
Lender for a grace or cure period, and no such deferral, grace or cure period
has or will be granted to Borrower in return for the imposition of any late
charge. Borrower recognizes that Borrower's failure to make timely payment of
amounts due under this Note will result in damages to Lender, including but not
limited to Lender's loss of the use of amounts due, and Borrower agrees that any
late charges imposed by Lender hereunder will represent reasonable compensation
to Lender for such damages. Failure to pay in full any installment or payment
timely when due under this Note, whether or not a late charge is assessed, will
remain and shall constitute an Event of Default hereunder.
SUCCESSORS AND ASSIGNS LIABLE. Borrower's and each guarantor's obligations and
agreements under this Note shall be binding upon Borrower's and each guarantor's
respective successors, heirs, legatees, devisees, administrators, executors and
assigns. The rights and remedies granted to Lender under this Note shall inure
to the benefit of Lender's successors and assigns, as well as to any subsequent
holder or holders of this Note.
CAPTION HEADINGS. Caption headings of the sections of this Note are for
convenience purposes only and are not to be used to interpret or to define their
provisions. In this Note, whenever the context so requires, the singular
includes the plural and the plural also includes the singular.
SEVERABILITY. If any provision of this Note is held to be invalid, illegal or
unenforceable by any court, that provision shall be deleted from this Note and
the balance of this Note shall be interpreted as if the deleted provision never
existed.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. LENDER AND BORROWER
HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER.
BORROWER
CUCOS, INC.
X /s/ VINCENT J. LIUZZA, JR.
------------------------------
AUTHORIZED OFFICER
X /s/ THOMAS J. SANDEMAN
------------------------------
AUTHORIZED OFFICER
<PAGE> 1
[CUCOS LOGO]
CUCOS INC. 1995 ANNUAL REPORT
<PAGE> 2
[CUCOS LOGO]
RESTAURANT LOCATIONS
<TABLE>
<S> <C>
COMPANY RESTAURANTS FRANCHISED RESTAURANTS
ALABAMA ARKANSAS
Birmingham (2) Fort Smith
Montgomery FLORIDA
FLORIDA Boynton Beach
Pensacola Jacksonville
Tallahassee LOUISIANA
LOUISIANA Metairie
Alexandria MISSISSIPPI
Gretna Hattiesburg
Hammond
Houma
Metairie
Monroe
New Orleans
Slidell
MISSISSIPPI
Biloxi
Pascagoula
</TABLE>
[MAP]
TABLE OF CONTENTS
<TABLE>
<S> <C>
Restaurant Locations Inside Front Cover
Financial Summary 1
Letter to Shareholders 2
Selected Financial Data 4
Management's Discussion and Analysis 5
Statements of Operations 11
Balance Sheets 12
Statements of Cash Flows 13
Statements of Shareholders' Equity 14
Stock Data (unaudited) 14
Notes to Financial Statements 15
Report of Independent Auditors 19
Report of Management 19
Directors & Officers 20
Corporate Information Inside Back Cover
</TABLE>
CUCOS INC. IS A FULL-SERVICE, CASUAL DINING RESTAURANT CHAIN OFFERING
MODERATELY PRICED MEXICAN APPETIZERS, ENTREES AND COMPLEMENTING BEVERAGES.
CUCOS WAS FOUNDED IN 1981 AND CURRENTLY OPERATES FIFTEEN COMPANY-OWNED AND FIVE
FRANCHISED RESTAURANTS LOCATED IN THE SOUTHEASTERN UNITED STATES.
<PAGE> 3
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
PERCENT CHANGE
1995 1994 1993 95 vs. 94 94 vs. 93
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
System Sales . . . . . . . $ 29.4 million $ 31.0 million $ 34.0 million -5.2 -8.8
Company Revenues . . . . . $ 19.5 million $ 22.9 million $ 21.3 million -14.6 +7.5
Net income (Loss) before
Cumulative Effect . . $ (1,518) thousand $ 208 thousand $ 202 thousand n/a +3.0
Cumulative Effect* . . . . $ -- 152 thousand -- n/a n/a
-------- ------ ------ ----- -----
Net Income (Loss) . . . . . $ (1,518) thousand $ 360 thousand $ 202 thousand n/a +78.2
-------- ------ ------ ----- -----
Per Share
Net income (Loss) before
Cumulative Effect . . $ (.72) $ 0.10 $ 0.09 n/a +11.1
Cumulative Effect* . . . . $ -- 0.07 -- n/a n/a
-------- ------ ------ ----- -----
Net Income (Loss)
Per Share . . . $ (.72) $ 0.17 $ 0.09 n/a +88.0
-------- ------ ------ ----- -----
Number of Restaurants**
Company-owned . . . . 15 15 18 -- -16.7
Franchised . . . . . . 7 12 13 -41.7 -7.7
-------- ------ ------ ----- -----
Total . . . . . . 22 27 31 -18.5 -12.9
-------- ------ ------ ----- -----
Net Book Value Per Share . $ 1.06 $ 1.73 $ 1.59 -39.3 +8.8
</TABLE>
* During Fiscal 1994 the company adopted SFAS #109 resulting in a
nonrecurring Cumulative Effect Adjustment to income of $152,000 ($.07 per
share).
** As of year end.
[CUCOS LOGO]
1
<PAGE> 4
LETTER TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDER:
Fiscal 1995 was one of the most difficult years the Company has ever
faced. We adopted aggressive measures to deal with the multiple problems facing
the Company, and, fortunately, those strategies appear to be paying off. We are
now more optimistic about the Company's future than we have been for some time.
Let me review for you the "bad news" of 1995, the highlights of our strategies,
and the "good news" resulting from the implementation of these strategies.
THE BAD NEWS
The Net Loss for Fiscal 1995 was $1,518,328 ($.72 per share) compared
to a profit of $359,940 ($.17 per share) in Fiscal 1994. The Net Loss for the
Fourth Quarter ended July 2, 1995, was $398,247 ($.19 per share) compared to
Net Income $85,811 ($.04 per share) for the Fourth Quarter ended July 3, 1994.
In the 1994 Annual Report we discussed significant changes in the
marketplace. The study on Mexican food by the Center for Science in the Public
Interest affected Cucos as well as the entire Mexican segment. We have
completed the first year since the announcement by CSPI and hope that the worst
of the negative impact is behind us. The second major change in the marketplace
is the expansion of casino and riverboat gaming in Louisiana and Mississippi.
This has shifted considerable discretionary spending away from eating and
drinking establishments. The impact of these changes in the marketplace has
lasted longer and has been deeper than we originally expected. In addition, the
casual segment of the restaurant industry has moved from using primarily
word-of-mouth and radio advertising to using television advertising. These
factors significantly changed our competitive position in the marketplace.
During Fiscal 1995 we experienced the second consecutive annual decline in
comparable restaurant sales after nine years of increases. Sales per restaurant
for company-owned restaurants declined 1.7% in 1995 on top of a 3.4% decline in
1994.
Franchised Operations results were also disappointing. During the
year, two franchised restaurants opened, while seven franchised restaurants
closed. Four of the seven restaurant closings were at the Company's insistence
due to the franchisees' noncompliance with their franchise or lease agreements.
Two additional franchised restaurants closed due to losses incurred from the
Macon, Georgia, flood in August of 1994.
Four of the franchised restaurants that closed were previously
subleased by the Company to franchisees. We decided to abandon these sites as
franchise or company-operated locations and are attempting to sublease or sell
these properties to independent third parties. Reserves of $927,846 were
established during Fiscal 1995 to cover the rent and related expenses
associated with franchisee closings.
THE STRATEGIES
To counteract the negative trends noted above, we began a program to
become the aggressor in the marketplace by:
2
<PAGE> 5
o Accelerating our remodeling program.
o Selectively reducing prices to ensure there are sufficient
choices at lower price points for our guests.
o Doubling the level of advertising, including the Company's first
TV campaigns.
These actions were mostly completed during the Third and Fourth
Quarters of Fiscal 1995.
We also instituted a major cost reduction program including a 10% pay
cut for all officers and supervisors and a staff reduction of 8%. In addition
to economizing (obviously) on the cost of our Annual Report, we decided to
discontinue the quarterly report, since the mailing of our Quarterly Report to
Shareholders duplicates most of the information included in our press release,
which many of you also receive. This will result in savings of thousands of
dollars in printing and mailing expenses. If you wish to be added to our press
release list, please contact Mr. Sandeman, our Vice President-Finance, at the
number or address noted on the back cover of this Annual Report.
THE GOOD NEWS
For the Fourth Quarter of Fiscal 1995, comparable sales per restaurant
for company-owned locations INCREASED 4.7%. This was the first quarterly
increase in comparable sales per restaurant in almost two years.
Sales have continued to improve in Fiscal 1996. For the first ten
weeks of Fiscal 1996, sales per company-owned restaurant increased by about
10.0% compared to the same period in Fiscal 1995. Since year end we have
remodeled one additional restaurant and have begun a second. THE INVESTMENT IN
THE LONG-TERM STRATEGIES OF REMODELING, REPRICING AND REMARKETING IS WORKING.
To ensure completion of these strategies, we completed a $500,000 financing
through the issuance of zero-coupon convertible Notes due June 30, 2015. In
addition, subsequent to year end, the Company signed a multi-unit franchise
agreement allowing a new franchisee to open up to five restaurants in the next
seven years.
We are becoming increasingly confident that our strategies are
correct, that we are headed in the right direction. If present trends continue,
we will have positive results to report during Fiscal 1996.
Our Annual Meeting will again be held at Cucos Border Cafe at 3000
Veterans Boulevard in Metairie, Louisiana, on October 26, 1995, at 3:00 P.M. I
look forward to seeing you.
Sincerely,
/s/ VINCENT J. LIUZZA, JR.
Vincent J. Liuzza, Jr.
Chairman and President
Cucos Inc.
3
<PAGE> 6
SELECTED FINANCIAL DATA
OPERATING STATEMENT DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
JULY 2 July 3 July 4 June 28 June 30
Revenues: 1995 1994 1993 1992 1991
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales of Food and Beverages $ 18,812,719 $ 22,023,962 $ 20,499,109 $16,708,230 $13,591,230
Franchise Fees and Royalties 354,719 409,345 518,856 669,636 810,162
Commissary, Rent and Other Income 373,671 441,203 324,271 409,714 443,637
------------ ------------ ------------ ----------- -----------
Total Revenues 19,541,109 22,874,510 21,342,236 17,787,580 14,845,029
Restaurant Costs and Expenses:
Cost of Sales 4,900,784 5,538,354 5,086,291 4,233,082 3,443,358
Restaurant Labor and Benefits 6,344,056 7,469,706 6,857,383 5,474,489 4,328,474
Other Operating Expenses 3,054,604 3,465,149 3,431,125 2,896,573 2,277,169
Occupancy Costs 2,173,439 2,609,042 2,318,803 1,821,775 1,494,359
Preopening Costs -- 110,396 157,628 170,119 238,186
------------ ------------ ------------ ----------- -----------
Total Restaurant Expenses 16,472,883 19,192,647 17,851,230 14,596,038 11,781,546
Operations and Franchise Expenses 2,323,976 1,409,101 1,267,320 1,358,109 1,174,375
Corporate Expenses 1,800,396 1,665,850 1,683,524 1,401,506 1,504,357
Interest Expense 416,092 398,972 338,632 269,148 234,662
------------ ------------ ------------ ----------- -----------
Income (Loss) Before Income Taxes and Cumulative
Effect of Accounting Change (1,472,238) 207,940 201,530 162,779 150,089
Income Taxes 46,090 -- -- -- --
------------ ------------ ------------ ----------- -----------
Income (Loss) Before Cumulative Effect of
Accounting Change (1,518,328) 207,940 201,530 162,779 150,089
Cumulative Effect of Accounting Change -- 152,000 -- -- --
------------ ------------ ------------ ----------- -----------
Net Income (Loss) $ (1,518,328) $ 359,940 $ 201,530 $ 162,779 $ 150,089
============ ============ ============ =========== ===========
Weighted Shares Outstanding 2,113,747 2,179,773 2,144,474 2,113,747 2,083,747
============ ============ ============ =========== ===========
Income Per Share:
Income (Loss) Before Cumulative Effect
of Accounting Change $ (0.72) $ 0.10 $ 0.09 $ 0.08 $ 0.07
Cumulative Effect of Accounting Change -- 0.07 -- -- --
------------ ------------ ------------ ----------- -----------
Net Income (Loss) Per Share $ (0.72) $ 0.17 $ 0.09 $ 0.08 $ 0.07
============ ============ ============ =========== ===========
BALANCE SHEET DATA
Current Assets $ 2,024,356 $ 2,564,960 $ 2,657,931 $2,273,987 $ 1,867,333
Property, Equipment (Net) 5,844,173 6,141,364 6,173,240 4,323,484 3,856,887
Total Assets 8,419,431 9,257,078 8,949,663 6,800,313 5,856,679
Current Liabilities 3,320,725 3,160,206 3,202,129 1,847,628 1,895,822
Long-Term Debt 2,838,359 2,253,862 2,241,464 1,598,145 767,887
Shareholders' Equity 2,249,348 3,767,676 3,407,736 3,206,206 3,013,426
SELECTED BALANCE SHEET RATIOS
Current Ratio 0.61 0.81 0.83 1.23 0.98
Long-Term Debt/Equity Ratio 1.26 0.60 0.66 0.50 0.25
Net Book Value Per Share $1.06 $1.73 $1.59 $1.52 $1.45
</TABLE>
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth the relative percentage that certain
items in the Company's operating statements bear to total revenues (except
restaurant cost and expenses which are a percentage of sales) and the percent
increase (decrease) of the actual components of the statements of income for
the indicated periods.
PERCENTAGE BREAKDOWN
<TABLE>
<CAPTION>
FISCAL YEAR ENDED % CHANGE
1995 1994 1993 95 vs.94 94 vs.93
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of Food and Beverages 96.27% 96.28% 96.05% (14.58)% 7.44%
Franchise Fees and Royalties 1.82 1.79 2.43 (13.34) (21.11)
Commissary, Rent and Other Income 1.91 1.93 1.52 (15.31) 36.06
------ ------ ------ ------- ----
Total Revenues 100.00 100.00 100.00 (14.57) 7.18
Restaurant Costs and Expenses:
Cost of Sales 26.05 25.15 24.81 (11.51) 8.89
Restaurant Labor and Benefits 33.72 33.92 33.45 (15.07) 8.93
Other Operating Expenses 16.24 15.73 16.74 (11.85) .99
Occupancy Costs 11.55 11.84 11.31 (16.70) 12.52
Preopening Costs -- 0.50 0.77 N/A (29.96)
------ ------ ------ ------- ----
Total Restaurant Expenses 87.56 87.14 87.08 (14.17) 7.51
Operations and Franchise Expenses 11.89 6.16 5.94 64.93 11.19
Corporate Expenses 9.21 7.28 7.89 8.08 (1.05)
Interest Expense 2.13 1.74 1.59 4.29 17.82
------ ------ ------ ------- ----
Income (Loss) Before Income Taxes and
Cumulative Effect (7.53) 0.91 0.94 N/A 3.18
Income Taxes 0.24 0.00 0.00 N/A N/A
------ ------ ------ ------- ----
Income (Loss) Before Cumulative Effect
of Accounting Change (7.77)% 0.91% 0.94% N/A 3.18%
====== ====== ====== ======= ====
</TABLE>
5
<PAGE> 8
1995 COMPARED TO 1994
During the fiscal year ended July 2, 1995, revenues declined to
$19,541,109, down 14.57%, compared to $22,874,510 in fiscal 1994. Sales of
Food and Beverages decreased 14.58% to $18,812,719 in fiscal 1995 from
$22,023,962 in fiscal 1994. This decrease was primarily due to having 15
restaurants in operation for all of fiscal 1995 compared to 18 for most of
fiscal 1994, and to a 1.7% decline in comparable sales per restaurant.
Comparable sales per restaurant declined for a number of reasons. On July
18,1994, the Center for Science In the Public Interest (CSPI) issued a study
labeling Mexican food as unhealthy. Obviously, we disagree with this study and
its methods. However, the impact of this negative press has been felt
throughout the Mexican Restaurant Segment. National Mexican restaurant chains
have experienced sales declines as high as 15%. The second significant reason
for the decline in comparable sales per restaurant is casino gaming. Gaming
continues to grow on the Mississippi Gulf Coast, New Orleans, and the rest of
the state of Louisiana. The short to intermediate impact of casino gaming will
continue to be negative on Cucos. Casino gaming results in a reallocation of
discretionary income, and casinos often sell food at or below cost.
Despite these negative influences, we were able to build comparable
sales per restaurant by 4.7% during the fourth quarter. This improvement was
primarily due to our remodeling program, the introduction of TV advertising
and a price decrease. The fourth quarter increase in comparable sales per
restaurant reversed a two year downtrend in this important sales statistic.
Franchise Fees and Royalties decreased to $354,719 in 1995 from
$409,345 in 1994. Royalties from franchised restaurants declined $71,811 to
$272,109 in 1995 from $343,920 because of lower sales from franchised
restaurants. During 1995 two franchised restaurants opened, and seven
franchised restaurants closed due to the factors noted above, in addition to
increased competition from other casual dining chains. License Fee Revenues
were $20,609 in 1995 compared to $14,425 in 1994. There were two franchised
restaurants opened in 1995 compared to one in fiscal 1994. Franchise
Development Fee Revenues were $12,000 in 1995 compared to $1,000 in 1994. In
addition, Development Fee Revenues from forfeiture of development rights was
$50,000 in both fiscal 1995 and 1994.
Commissary, Rent and Other Income decreased to $373,671 in 1995 from
$441,203 in 1994. This decline is primarily due to a $72,286 decline in rental
income, because of the closing of four franchised restaurants previously
subleased to franchisees, and a $13,483 decline in commissary sales, offset by
an increase of $29,268 in management fees. The Company manages one restaurant
for an affiliated franchisee for a fee of 5.0% of sales.
Restaurant Costs and Expenses decreased 14.17% to $16,472,883 in
fiscal 1995 from $19,192,647 in 1994 primarily due to having three fewer
restaurants in 1995 compared to 1994. Total restaurant expenses as a
percentage of Sales of Food and Beverages were 87.56% in 1995 compared to
87.14% in 1994. Cost of Sales as a percentage of Sales of Food and Beverages
increased to 26.05% from 25.15% in 1994 due to a price decrease and higher
produce costs. Restaurant Labor and Benefits declined .20% as a percentage of
Sales of Food and Beverages to 33.72% in 1995 from 33.92% in 1994. This
decline as a percent of sales is primarily due to decreased health insurance
and workman's compensation costs during fiscal 1995. Other Operating Expenses,
which include such expenses as utilities, restaurant supplies, and advertising
and promotion costs, declined 11.85% to $3,054,604 in 1995 from $3,465,149 in
1994, primarily due to having three fewer restaurants in operation in 1995
compared to 1994. Media advertising costs due to the new television
advertising campaigns increased to $541,620 in 1995 (up 39.0%) compared to
spending of $389,550 in 1994. Occupancy Costs include rent, common area
maintenance, taxes, insurance, and depreciation. These costs decreased
slightly as a percentage of sales to 11.55% of Sales of Food and Beverages in
1995 compared to 11.84% in 1994. Preopening costs were $0 in 1995 compared to
$110,396 in 1994. Preopening costs are amortized over twelve months.
Amortization of these costs from the four restaurants opened or purchased in
1993 was completed in 1994. No new company-owned restaurants opened during
fiscal 1995.
Operations and Franchise Expenses increased $914,875 (64.93%) and as a
percentage of Total Revenues increased to 11.89% in 1995 from 6.16% in 1994.
The dollar increase primarily represents the costs associated with three
franchisees ceasing operations at four restaurants subleased to them by the
Company. These costs consisted of the establishment of a reserve for asset
impairment, a reserve established for rent and other costs during the time
required for disposal, and amounts for bad debts associated with these
franchisees. During 1995 the Company established a reserve for asset
impairment of $190,826 for the Bossier City and Cutler Ridge restaurants.
Management expects that the rental streams to be generated by the subleases of
these two properties will be insufficient to recapture the Company's complete
investment in leasehold improvements at these two locations. In addition, a
reserve of $392,823
6
<PAGE> 9
1995 COMPARED TO 1994 (CONTINUED)
for future rental and other costs was established for the four locations to
cover the estimated expenses to carry the properties during the time required
for sublease or disposal. In addition, the Company increased its provision for
doubtful accounts by $344,197, primarily to reflect receivable losses
associated with the closure of these four restaurants plus three additional
franchised restaurants during fiscal 1995. One of the properties was subleased
before year-end. Management is in various stages of sublease negotiations for
the remaining properties and will continue to pursue disposition at terms
favorable to the Company. At year-end there was $172,123 remaining in the
reserves for rents and related costs.
Corporate Expenses increased in absolute terms ($134,546) and as a
percentage of revenues (1.93%). The increase between years is due to an
increase in professional fees (primarily legal fees) of $49,000, marketing
consulting fees of $23,000, marketing research of $39,000 and construction and
real estate of $18,000. Interest Expense increased to $416,092 in 1995 from
$398,972 in 1994, primarily reflecting the increased level of debt due to
remodeling five restaurants during the fiscal year.
These factors resulted in a loss before income taxes of $1,472,238 in
1995 compared to a profit of $207,940 in 1994. There was a federal tax
provision of $46,090 in 1995 compared to zero in 1994. The Company has
provided a valuation allowance for deferred tax assets related primarily to net
operating loss carryforwards, which may not be realized through future taxable
income and the future reversals of existing taxable temporary differences.
Because of the factors discussed throughout this analysis, management has
increased the valuation allowance. The income tax expense recognized during
fiscal 1995 is a result of this increase in the valuation allowance. Management
believes that the remaining deferred tax assets of $105,910 are realizable
through future taxable income and the future reversals of existing taxable
temporary differences. Uncertainties that effect the ultimate realization of
deferred tax assets include the risk of incurring additional losses in the
future. This risk has been considered in determining the need for a valuation
allowance. During the first quarter of 1994, the Company adopted SFAS No. 109,
"Accounting for Income Taxes" and has reported the cumulative effect of the
change in method of accounting for income taxes as of the beginning of 1994
fiscal year in the financial statements. The cumulative effect on prior years
of this change in accounting principle was $152,000 or $.07 per share. Net
income after giving effect to this accounting change was $359,940 ($.17 per
share) in 1994 compared to an after tax loss of $1,518,328 ($.72) per share in
fiscal 1995.
During the fourth quarter of 1995, the Company was able to reverse the
negative trend in comparable sales per restaurant for the first time in two
years. For the first ten weeks of fiscal 1996, the sales increase noted in the
fourth quarter is continuing. In addition, the Company reorganized management
responsibilities, reduced head count at the corporate headquarters and
instituted several other cost control measures that should favorably affect
results for fiscal 1996.
1994 COMPARED TO 1993
During the fiscal year ended July 3, 1994, revenues rose to
$22,874,510, up 7.18%, compared to $21,342,236 recorded in fiscal 1993. Sales
of Food and Beverages advanced 7.44% to $22,023,962 in the fifty-two weeks
ended July 3, 1994, from $20,499,109 achieved in the fifty-three weeks ended
July 4, 1993. This increase was primarily due to having 18 equivalent
restaurants in operation in 1994 compared to an average of 15.4 restaurants in
operation in fiscal 1993. The increase in sales due to having more restaurants
was partially offset by a decline of 3.4% in comparable sales per restaurant.
Franchise Fees and Royalties decreased to $409,345 in 1994 from
$518,856 in 1993. Royalties from franchised restaurants declined $144,936 to
$343,920 in 1994 from $488,856 because of lower sales from franchised
restaurants due to fewer restaurants. During 1993 one franchised restaurant
closed, and three franchised restaurants were purchased by the Company. During
fiscal 1994 one franchised restaurant opened, four closed, and two restaurants
previously operated by the Company were franchised. License Fee Revenues were
$14,425 in 1994 compared to zero in 1993. Franchise Development Fee Revenues
were $1,000 compared to zero in 1993. In addition, Development Fee Revenues
from forfeiture of development rights increased to $50,000 in fiscal 1994 from
$30,000 recorded in fiscal 1993.
Commissary, Rent and Other Income increased to $441,203 in 1994 from
$324,271 in 1993, primarily due to increased management fees ($46,841) and
higher rent income ($79,550). These increases were offset by a decline in
commissary sales. The Company manages one restaurant for a franchisee for a
management fee of 5.0% of sales.
Restaurant Costs and Expenses increased 7.51% to $19,192,647 in fiscal
1994 from $17,851,230 in
7
<PAGE> 10
1994 COMPARED TO 1993 (CONTINUED)
1993 primarily due to incremental expenses associated with the four new
company-owned restaurants opened or purchased in fiscal 1993. Total restaurant
expenses as a percentage of Sales of Food and Beverages was 87.14% in 1994
compared to 87.08% in 1993. Cost of Sales as a percentage of Sales of Food and
Beverages increased slightly to 25.15% from 24.81% in 1993. Restaurant Labor
and Benefits increased .47 as a percentage of Sales of Food and Beverages to
33.92% in 1994 from 33.45% in 1993. This increase is primarily due to higher
management compensation and associated payroll taxes. Other Operating Expenses,
which include such expenses as utilities, restaurant supplies, and advertising
and promotion costs, increased .99% to $3,465,149 in 1994 from $3,431,125 in
1993. This increase is due to an increase in the average number of restaurants
offset by lower advertising and promotion costs in the older restaurants.
Occupancy Costs include rent, common area maintenance, taxes, insurance, and
depreciation. These costs increased slightly as a percentage of sales to 11.85%
of Sales of Food and Beverages in 1994 compared to 11.31% in 1993. This
increase is primarily due to the fact that the newest restaurants have higher
rent and other occupancy costs compared to the older restaurants. Preopening
costs declined to $110,396 in 1994 from $157,628 in 1993. Amortization of these
costs from the four restaurants opened or purchased in 1993 was completed in
1994.
Operations and Franchise Expenses increased $141,781 (11.19%) and as a
percentage of Total Revenues increased to 6.16% in 1994 from 5.94% in 1993. The
dollar increase primarily represents a $102,700 increase in training expenses
and a $20,286 increase in supervisory expenses associated with the new
restaurants opened or purchased in fiscal 1993. In addition, the provision for
doubtful accounts increased by $22,268 in 1994 compared to 1993.
Corporate Expenses declined in absolute terms ($17,674) and as a
percentage of revenues. In 1993 there were 53 weeks of expenses compared to 52
in 1994, and no moving expenses were incurred in 1994 compared to $20,000 in
1993. In addition, the cost of the real estate and construction functions
declined by $34,977 due to no new company-owned restaurants being built in 1994
compared to one in 1993. These decreases were partially offset by increases in
the other corporate departments.
Interest Expense increased to $398,972 in 1993 from $338,632 in 1993,
primarily reflecting the increased level of debt from the four new restaurants
opened or purchased in 1993.
These factors resulted in income before income taxes and the
cumulative effect of an accounting change of $207,940 in 1994 compared to
$201,530 in 1993. During the first quarter of 1994, the Company adopted SFAS
No. 109, "Accounting for Income Taxes" and has reported the cumulative effect
of the change in method of accounting for income taxes as of the beginning of
1994 fiscal year in the financial statements. The cumulative effect on prior
years of this change in accounting principle was $152,000 or $.07 per share.
Net income after giving effect to this accounting change was $359,940 ($.17 per
share) in 1994 compared to $201,530 ($.09 per share) in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company normally relies on cash flow from operating activities to
finance recurring capital expenditures. A combination of long-term debt and
lease financing is used to fund expansion and remodeling.
As a result of the factors discussed in the previous section of this
analysis, Net Cash Provided By Operating Activities declined to $202,596 in
1995 compared to $863,722 in fiscal 1994 and $1,033,265 recorded in 1993. This
decline was primarily due to the loss of $1,518,328 incurred in fiscal 1995
compared to profits of $359,940 in 1994 and $201,530 in 1993. This decline was
partially offset by the cash produced from having lower inventory and
receivable balances ($158,369) and higher payable balances ($265,141). These
factors resulted in an increase in the Company's working capital deficit from
$595,246 in 1994 to $1,296,369 in 1995. The Company anticipates funding its
working capital deficit through cash provided from operations and drawing down
existing lines of credit. Current assets were $2,024,356, or .61 times current
liabilities of $3,320,725. This compares to a current ratio of .81 at the end
of 1994 and .83 at the end of 1993.
Net cash used for investing activities in 1995 decreased to $748,293
compared to $1,003,767 in 1994 and $1,282,317 in 1993. The primary reason for
the decrease is lower capital expenditures and the sale of the Company's
Gainesville restaurant for $340,000. Capital expenditures declined $105,511 to
$1,099,372, compared to capital expenditures of $1,204,883 in 1994 and
$1,448,551 in 1993. In 1995 capital expenditures were virtually all for
remodeling and upgrading of restaurants. The Company remodeled
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
five of its restaurants in 1995 compared to one major remodeling in 1994 and
two in 1993. In 1995 the Company did not open or buy any restaurants. During
1994 the Company bought the land and building of one of its previously leased
restaurants for $550,000. During 1993 the Company constructed one restaurant
($255,000) and bought three franchised restaurants ($1,350,000).
Virtually all of the 1995 capital expenditures associated with
remodeling was financed with long-term debt or leases. During 1995 a new
credit facility for $950,000 was entered into including $500,000 for
refinancing of long-term debt, a remodeling line for $250,000 and working
capital line for $200,000. Approximately $167,000 remained on the refinancing
line at the end of the fiscal year. In addition, the Company has been
renegotiating the terms of some of its long-term debt from an average maturity
of three and one-half years to five years. At year-end the Company had
successfully reduced its current maturities of long-term debt from $937,651 at
the end of fiscal 1994 to $787,530 at the end of fiscal 1995. Management
expects that additional negotiations will result in further reductions in the
current maturities of long-term debt in 1996. Net cash provided by financing
activities was $497,602 in 1995 compared to $167,958 in 1994 and $242,085 in
1993. The increase in debt in conjunction with the reduction in equity due to
the loss increased the long-term debt to equity ratio compared to prior years.
The long-term debt to equity ratio was 1.26 to 1.00 in 1995 compared to .60 to
1.00 in 1994 and .66 to 1.00 in 1993. The Company has certain covenants as to
liquidity and debt levels with two of its major lenders. At July 2, 1995 the
Company was in compliance with all such covenants. Also, see Prospective
Information section for the details about the sale of $500,000 zero coupon,
convertible secured notes which occurred subsequent to year-end.
Since year-end, the Company has continued to remodel its restaurants.
Sufficient lines of credit are currently in place to fund remodeling of another
two restaurants. Management's capital budget for fiscal 1996 is about $454,000
including these two remodelings.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation in food, labor, construction costs and interest rates can
affect the Company's operations. Many of the Company's employees are paid
hourly rates related to the minimum wage. Accordingly, inflation-related annual
increases in the minimum wage have historically increased the Company's labor
costs.
Management reviews its pricing regularly to ensure it is priced
competitively, that it offers outstanding value to its customers, and that
margins are maintained. Inflation can also affect food costs, rent, taxes,
maintenance, and insurance costs. The Company has offset many of these
increases through increased purchasing efficiencies. While interest rates are
also subject to inflation, the interest rate paid on the Company's cash
investments will partially offset any increase in the interest rates on
existing financing.
SEASONALITY AND REPORTING PERIODS
The Company's results are affected by seasonality. Usually the highest
sales periods occur in late Spring and Summer, with sales declining in the Fall
and Winter. This is especially true for the Gulf Coast restaurants where sales
are more dependent on tourism.
For fiscal 1996, the year will end on June 30, 1996, and will consist
of one sixteen week quarter ending October 22, 1995, and three twelve week
quarters ending January 14, 1996, April 7, 1996, and June 30, 1996.
PROSPECTIVE INFORMATION
The Company regularly provides prospective information and
forward-looking data throughout the Analysis of Results Of Operations and
Financial Condition, and the Liquidity and Capital Resource sections of this
Annual Report. There are two external trends that have and will continue to
negatively affect the Company in 1996. Nationally, the Mexican restaurant
segment has been experiencing negative sales and guest counts per restaurant
for over twelve months. Much larger chains such as Chi-Chi-s, Taco Bell,
Pancho's and El Chico have all reported negative per restaurant sales
comparisons during the last year. In July 1994, the Center for Science in the
Public Interest (CSPI) issued a negative report on Mexican food. We are unable
to predict the extent or the duration of the negative impact of this study. In
addition, gaming has continued to expand in our Mississippi and Louisiana
markets. Opening of additional gaming operations
9
<PAGE> 12
PROSPECTIVE INFORMATION (CONTINUED)
in our markets could further adversely affect our future sales and
profitability. Several of our franchisees are still suffering from the effect
of the report of CSPI and increased competition. Two additional franchised
restaurants closed in fiscal 1996. Additional franchised closings may occur.
In March 1995 the FASB issued Statement 121 that requires impairment
losses to be recorded on long-lived assets used in operations when impairment
indicators are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Statement
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement 121 in the first quarter of
fiscal 1997. The Company does not anticipate that Statement 121 will be
material to the financial statements.
The Company's strategy of remodeling restaurants, reducing prices, and
instituting television advertising appears to be working. Sales per
company-owned restaurant for the first ten weeks of fiscal 1996 have increased
about 10.0% over the comparable ten weeks of fiscal 1995. In addition, the
Company signed a multi-unit franchise development agreement subsequent to
year-end.
In addition, the Company issued $500,000 of zero-coupon convertible
unregistered Notes on July 28, 1995. These Notes are due June 30, 2015, and are
convertible into 527,983 shares of the Company's common stock.
10
<PAGE> 13
STATEMENTS OF OPERATIONS -- CUCOS INC.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
JULY 2 July 3 July 4
1995 1994 1993
---------------- -------------- ---------------
<S> <C> <C> <C>
REVENUES
Sales of Food and Beverages $ 18,812,719 $ 22,023,962 $ 20,499,109
Franchise Fees and Royalties 354,719 409,345 518,856
Commissary, Rent and Other Income 373,671 441,203 324,271
---------------- -------------- ---------------
Total Revenues 19,541,109 22,874,510 21,342,236
RESTAURANT COSTS AND EXPENSES
Cost of Sales 4,900,784 5,538,354 5,086,291
Restaurant Labor and Benefits 6,344,056 7,469,706 6,857,383
Other Operating Expenses 3,054,604 3,465,149 3,431,125
Occupancy Costs 2,173,439 2,609,042 2,318,803
Preopening Costs -- 110,396 157,628
---------------- -------------- ---------------
Total Restaurant Expenses 16,472,883 19,192,647 17,851,230
Operations and Franchise Expenses 2,323,976 1,409,101 1,267,320
Corporate Expenses 1,800,396 1,665,850 1,683,524
Interest Expense 416,092 398,972 338,632
---------------- -------------- ---------------
Income (Loss) Before Income Taxes and Cumulative
Effect of Accounting Change (1,472,238) 207,940 201,530
Income Taxes 46,090 -- --
---------------- -------------- ---------------
Income (Loss) Before Cumulative Effect of
Accounting Change (1,518,328) 207,940 201,530
Cumulative Effect of Accounting Change -- 152,000 --
---------------- -------------- ---------------
Net Income (Loss) $ (1,518,328) $ 359,940 $ 201,530
================ ============== ===============
Weighted Shares Outstanding 2,113,747 2,179,773 2,144,474
================ ============== ===============
Income (Loss) Per Share:
Income (Loss) Before Cumulative Effect of
Accounting Change $ (0.72) $ 0.10 $ 0.09
Cumulative Effect of Accounting Change -- 0.07 --
---------------- -------------- ---------------
Net Income (Loss) Per Share $ (0.72) $ 0.17 $ 0.09
================ ============== ===============
</TABLE>
See notes to financial statements.
11
<PAGE> 14
BALANCE SHEETS -- CUCOS INC.
<TABLE>
<CAPTION>
JULY 2 July 3
1995 1994
--------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 566,740 $ 614,835
Certificate of deposit 33,000 33,000
Receivables:
Trade 616,470 655,821
Due from affiliates 233,942 167,181
Notes receivable from franchisees 28,864 74,932
Less allowance for doubtful accounts 194,034 73,058
--------------- --------------
685,242 824,876
Inventories 219,653 260,044
Prepaids, deferred taxes and other current assets 302,511 490,809
Preopening costs -- 15,143
Property held for resale 217,210 326,253
--------------- --------------
TOTAL CURRENT ASSETS 2,024,356 2,564,960
Deferred Taxes and Noncurrent Receivables 276,737 233,398
Property, Equipment and Other
Land 327,000 327,000
Property and equipment 4,300,009 5,924,318
Building and leasehold improvements 4,275,063 4,228,064
Reacquired franchise rights 528,896 575,021
--------------- --------------
9,430,968 11,054,403
Less accumulated depreciation and amortization 3,586,795 4,913,039
--------------- --------------
5,844,173 6,141,364
Investment in LaMexiCo, L.L.C. 249,053 254,763
Deferred Costs, less accumulated amortization of $15,597
at July 2, 1995, and $14,280 at July 3, 1994 25,112 62,593
--------------- --------------
$ 8,419,431 $ 9,257,078
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt payable to banks $ 313,725 $ 290,000
Trade accounts payable 1,469,585 1,204,444
Accrued expenses and other 564,752 519,853
Accrued payroll 185,133 208,258
Current portion of long-term debt 787,530 937,651
--------------- --------------
TOTAL CURRENT LIABILITIES 3,320,725 3,160,206
Long-Term Debt, less current portion 2,838,359 2,253,862
Deferred Revenue 11,000 75,334
Shareholders' Equity
Preferred Stock, no par value-1,000,000
shares authorized, none issued or outstanding
Common Stock, no par value-20,000,000 shares
authorized, 2,113,747 shares issued and
outstanding at July 2, 1995 and July 3, 1994 4,745,585 4,745,585
Additional paid-in capital 67,849 67,849
Retained earnings (deficit) (2,564,086) (1,045,758)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY 2,249,348 3,767,676
--------------- --------------
$ 8,419,431 $ 9,257,078
=============== ==============
</TABLE>
See notes to financial statements.
12
<PAGE> 15
STATEMENTS OF CASH FLOWS -- CUCOS INC.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
JULY 2 July 3 July 4
1995 1994 1993
--------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,518,328) $ 359,940 $ 201,530
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 912,183 1,012,725 913,011
Decrease in deferred revenue (64,334) (23,000) (50,000)
Loss on sale of assets and other 40,389 19,270 58,729
Cumulative effect of accounting change -- (152,000) --
Asset impairment and rent reserve 578,141 -- --
Costs associated with closed restaurants (219,303) -- --
Equity in earnings of equity investee,
net of distributions 5,710 (10,763) --
Changes in operating assets and
liabilities:
Receivables 117,978 (138,660) (546,345)
Inventories 40,391 37,644 (23,011)
Prepaids and other 176,092 (43,308) (86,928)
Preopening costs 15,143 3,099 (210,816)
Accounts payable 265,141 31,869 445,225
Accrued expenses (123,482) (141,230) 196,695
Accrued payroll (23,125) (91,864) 135,175
--------------- -------------- ---------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 202,596 863,722 1,033,265
INVESTING ACTIVITIES
Change in certificates of deposit -- 117,000 150,000
Purchases of property and equipment (1,099,372) (1,204,883) (1,448,551)
Contributions to equity investee -- (244,000) --
Proceeds from sale of assets 351,079 328,116 16,234
--------------- -------------- ---------------
NET CASH USED IN INVESTING
ACTIVITIES (748,293) (1,003,767) (1,282,317)
FINANCING ACTIVITIES
Change in short-term debt payable to banks 23,725 (45,000) 335,000
Proceeds from long-term borrowings 1,346,200 1,504,953 768,852
Principal payments on borrowings (872,323) (1,291,995) (861,767)
--------------- -------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 497,602 167,958 242,085
--------------- -------------- ---------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (48,095) 27,913 (6,967)
Cash and cash equivalents at beginning of year 614,835 586,922 593,889
--------------- -------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 566,740 $ 614,835 $ 586,922
=============== ============== ===============
</TABLE>
See notes to financial statements.
13
<PAGE> 16
STATEMENTS OF SHAREHOLDERS' EQUITY -- CUCOS INC.
<TABLE>
<CAPTION>
ADDITIONAL RETAINED-
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE AS OF JUNE 28, 1992 $ 4,745,585 $ 67,849 $ (1,607,228) $ 3,206,206
Net income for the year -- -- 201,530 201,530
------------- ------------- -------------- ---------------
BALANCE AS OF JULY 4, 1993 4,745,585 67,849 (1,405,698) 3,407,736
Net income for the year -- -- 359,940 359,940
------------- ------------- -------------- ---------------
BALANCE AS OF JULY 3, 1994 4,745,585 67,849 (1,045,758) 3,767,676
Net loss for the year -- -- (1,518,328) (1,518,328)
------------- ------------- -------------- ---------------
BALANCE AS OF JULY 2, 1995 $ 4,745,585 $ 67,849 $ (2,564,086) $ 2,249,348
============= ============= ============== ===============
</TABLE>
CUCOS INC. - STOCK DATA (UNAUDITED)
The Company's common stock is traded on The NASDAQ Small-Cap Market under
the symbol CUCO. The following table sets forth the range of the high and low
bid and ask prices for each of the quarters indicated for fiscal 1994 and
fiscal 1995.
<TABLE>
<CAPTION>
Fiscal 1994 High Bid-Ask Low Bid-Ask
- ----------- ------------ -----------
<S> <C> <C>
1st Quarter ended 10/24/93 1 3/4-2 1/8 1 3/8-1 3/4
2nd Quarter ended 1/16/94 2 3/8-2 7/8 1 3/4-2 1/8
3rd Quarter ended 4/10/94 2 1/8-2 5/8 1 3/4-2 1/4
4th Quarter ended 7/3/94 1 3/4-2 1/8 1 1/2-2
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995 High Bid-Ask Low Bid-Ask
- ----------- ------------ -----------
<S> <C> <C>
1st Quarter ended 10/23/94 1 1/2-2 1 1/2-2
2nd Quarter ended 1/15/95 2-2 1 1/2-1 7/8
3rd Quarter ended 4/9/95 1 5/8-1 7/8 1 1/4-1 5/8
4th Quarter ended 7/2/95 1 5/8-1 5/8 1 1/4-1 5/8
</TABLE>
On September 5, 1995, the closing bid and ask prices for Cucos common stock
were 1 1/8 bid and 1 5/8 ask.
The foregoing quotations reflect inter-dealer prices, without retail
markup, mark-down or commission and may not necessarily represent actual
transactions.
Since becoming a public company, Cucos Inc. has paid no cash dividends and
has no present intention of paying dividends, but rather will retain its
earnings to provide funds for expansion of its business and other corporate
purposes.
Approximate number of shareholders (including shareholders of record
through nominee registration) as of September 5, 1995: 1,011
Market makers: Herzog, Heine, Geduld, Inc., Legg Mason Wood Walker, Inc.,
Paragon Capital Corp. and Morgan, Keegan & Company.
14
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS -- CUCOS INC.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR: The Company uses a 52/53 week year for financial
reporting purposes with the Company's fiscal year ending on the Sunday closest
to June 30 of each year. Fiscal 1995 and fiscal 1994 were fifty-two week years,
and fiscal 1993 was a fifty-three week year.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on
hand, cash in bank accounts, money market accounts and certificates of deposit
with original maturities of less than three months.
INVENTORIES: Inventories, consisting primarily of food and beverages,
are stated at the lower of cost (first- in, first-out method) or market.
PROPERTY, EQUIPMENT, AND OTHER: Property, Equipment and Other is
stated on the basis of cost. Depreciation and amortization are computed by the
straight-line method over the assets' useful lives or their lease terms,
whichever is shorter. The useful lives of equipment range from 3-10 years; the
useful lives of leasehold improvements are generally 15 years, and the useful
lives of reacquired franchise rights, which represents the costs to reacquire
franchised restaurants in excess of the tangible assets acquired, are 15 years.
Depreciation and amortization expense was $912,183, $901,145 and $754,411 for
the fiscal years 1995, 1994 and 1993, respectively.
DEFERRED COSTS: Preopening costs include hiring, training and
associated costs of opening new company-owned restaurants. These costs are
capitalized and amortized on a straight-line basis over a one-year period once
the restaurant is opened. Deferred site costs incurred in the selection of
sites for new company-owned restaurants are capitalized and amortized on a
straight-line basis over a 10-year period; costs incurred in the selection of
sites for franchised restaurants are accumulated and expensed when the related
franchise revenue is recognized. If a potential site is abandoned, the deferred
costs related to that site are charged to current operations. Other deferred
costs, primarily trademarks, are amortized on a straight-line basis over 20
years.
FRANCHISE FEES AND ROYALTIES (SEE NOTE I): The Company sells exclusive
rights to develop Cucos restaurants for designated territories, as well as
individual franchises for each restaurant. The area development agreements call
for a nonrefundable fee for territorial exclusivity and for other development
opportunities lost or deferred as a result of the rights granted under the
agreement. Franchise development fee revenue from these agreements is deferred
and recognized as income on a pro rata basis as restaurants are developed in
the designated territory or when the developer forfeits the development rights
under the agreement. Franchise fee revenue from the individual restaurants is
recognized as income when all obligations of the Company are substantially
fulfilled, which occurs when the franchise restaurant begins operations.
Royalty income is based upon a percentage of franchise sales and recognized as
income when earned. Royalties and other receivables are often collaterized by
personal guarantees and sometimes equipment owned by the franchisee.
INCOME TAXES: During the first quarter of fiscal 1994, the Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". As permitted under the Statement, the Company elected not to
restate the financial statements of prior years. The cumulative effect as of
July 5, 1993, of adopting Statement 109 increased net income by $152,000, or
$.07 per share. Under Statement 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined using the
liability method prescribed by Statement 96, which was superseded by Statement
109. Among other changes, Statement 109 changed the recognition and measurement
criteria for deferred tax assets included in Statement 96.
NEW FASB PRONOUNCEMENT: In March 1995 the FASB issued Statement 121
that requires impairment losses to be recorded on long-lived assets used in
operations when impairment indicators are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement
121 in the first quarter of fiscal 1997. The Company does not anticipate that
the adoption of Statement 121 will be material to the financial statements.
NOTE B - DEFERRED COSTS
<TABLE>
<CAPTION>
JULY 2 July 3
1995 1994
----------- ----------
<S> <C> <C>
Site development costs $ 8,146 $ 45,278
Trademarks and other 32,562 31,595
----------- ----------
40,708 76,873
Less accumulated amortization 15,596 14,280
----------- ----------
$ 25,112 $ 62,593
=========== ==========
</TABLE>
15
<PAGE> 18
NOTE C - DEBT
<TABLE>
<CAPTION>
JULY 2 July 3
1995 1994
------------- -------------
<S> <C> <C>
Notes payable to banks and finance companies:
Fixed interest rates from 7.8% to 13.8% $ 1,253,340 $ 958,483
Variable interest rates from prime
to prime plus 1.5% 871,193 442,568
Other, including obligations under capital leases:
Fixed interest rates of 4.3% to 17.3% 1,225,036 1,547,598
Variable interest rates at prime
plus 1.5% 276,320 242,864
------------- -------------
3,625,889 3,191,513
Less current portion 787,530 937,651
------------- -------------
$ 2,838,359 $ 2,253,862
============= =============
</TABLE>
Notes payable to banks and finance companies are collateralized by
restaurant equipment, land, building and leasehold improvements with a carrying
value of approximately $2,164,042 and $1,455,649 at July 2, 1995, and July 3,
1994, respectively. At July 2, 1995, and July 3, 1994, capital lease
obligations of $608,473 and $789,421 respectively, existed, which relate to
restaurant equipment and leaseholds with a net carrying value of $793,504 and
$925,462, respectively. Amortization of assets recorded under capital leases is
included in depreciation expense.
Maturities of long-term debt for each of the next five fiscal years are
$787,530 in 1996; $1,170,270 in 1997; $527,608 in 1998; $689,307 in 1999 and
$218,043 in 2000. Interest expense approximates interest paid for each of the
last three fiscal years. At July 2, 1995, the prime rate was approximately
9.0%.
The Company has three line-of-credit agreements with two banks under which
$500,000 can be borrowed at July 2, 1995. There was $186,275 available under
these agreements as of that date. The first of these agreements is unsecured
and matures in November 1995. The second of these agreements is secured by the
Company's receivables, and matures in October 1995. The weighted average
interest cost on these short-term borrowings at July 2, 1995, is 10.1%.
Certain of the Company's credit and long-term debt agreements contain
covenants which include provisions for the maintenance of net worth, and
various ratios. At July 2, 1995, the Company was in compliance with all such
covenants.
NOTE D - INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
JULY 2 JULY 3
1995 1994
-------------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 619,809 $ 394,188
Tax credit carryforwards 489,158 423,984
Other - net 160,554 --
-------------- ----------
Total deferred tax assets 1,269,521 818,172
Valuation allowance for deferred tax assets (1,132,438) (526,031)
-------------- ----------
137,083 292,141
Deferred tax liabilities:
Tax over book depreciation -- 91,135
Opened site costs 31,173 43,553
Other - net -- 5,453
-------------- ----------
Total deferred tax liabilities 31,173 140,141
-------------- ----------
Net deferred tax assets $ 105,910 $ 152,000
============== ==========
</TABLE>
The components of deferred income taxes for fiscal 1993 follows:
<TABLE>
<CAPTION>
July 4
1993
--------------
<S> <C>
Deferred costs $ 19,250
Deferred revenue 17,000
Depreciation (111,259)
Other (16,594)
Net operating loss carryforward 91,603
--------------
DEFERRED INCOME TAXES $ --
==============
</TABLE>
16
<PAGE> 19
The following is a reconciliation of income taxes at the Federal statutory
rate of 34% to income taxes reported in the statements of operations based on
income before income taxes:
<TABLE>
<CAPTION>
JULY 2 July 3 July 4
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Income tax expense (benefit) at the Federal statutory rate $ (500,561) $ 70,700 $ 68,520
State taxes, net of Federal deductions (58,890) 8,317 8,061
Tax credits (43,786) 2,338 5,440
Graduated tax rate differential -- (11,750) (11,750)
Miscellaneous items not deductible for Federal income taxes 5,687 14,462 26,755
Net operating loss utilized -- (84,067) (97,026)
Change in valuation allowance 643,640 -- --
----------- ----------- ----------
INCOME TAXES $ 46,090 $ -- $ --
=========== =========== ==========
</TABLE>
For Federal income tax purposes, the Company had net operating loss
carryforwards of approximately $1,631,000 and investment and jobs tax credits
carryforwards of approximately $489,000. These carryforwards expire beginning
in 1999.
The Company has provided a valuation allowance for deferred operating loss
carryforwards, which may not be realized through future taxable income and the
reversals of taxable temporary differences. Because of lower than expected
revenues and earnings, management increased the valuation allowance during 1995
resulting in $46,090 of income tax expense.
NOTE E - LEASES
The Company leases eighteen restaurant facilities and its corporate
headquarters under noncancelable operating lease agreements with initial lease
terms expiring between 1995 and 2011. Seventeen of the restaurant leases have
renewal options and fourteen provide for contingent rentals based on sales
performance in excess of specified minimums. Contingent rentals were not
material in any year. Some of the leases also have varying escalation clauses
based either on fixed dollar increases, a percentage of the previous minimum
annual rental, or the consumer price index. The Company subleases one of its
restaurant facilities under a noncancelable sublease agreement with a lease
term expiring 2111.
Future minimum lease and sublease payments were as follows at July 2, 1995:
<TABLE>
<CAPTION>
Lease Sublease Net
-------------- ------------- --------------
<S> <C> <C> <C>
1996 $ 1,374,000 $ 90,000 $ 1,284,000
1997 1,307,000 90,000 1,217,000
1998 1,086,000 90,000 996,000
1999 831,000 90,000 741,000
2000 769,000 90,000 679,000
Thereafter 4,437,000 1,011,000 3,426,000
-------------- ------------- --------------
$ 9,804,000 $ 1,461,000 $ 8,343,000
============== ============= ==============
</TABLE>
Rent expense on all the Company's operating leases was $1,390,000 in 1995,
$1,564,000 in 1994 and $1,408,000 in 1993.
NOTE F - RELATED PARTY TRANSACTIONS
The Company is affiliated with L.B.G., Inc., through common ownership.
L.B.G. Inc. reimburses the Company for accounting and administrative services
based on the gross sales of each company. The Company was reimbursed
approximately $7,000 in 1995, $17,000 in 1994, and $43,000 in 1993 for such
services. The Company also sold meat and produce to the affiliated company each
of the last three years. Total sales were $29,000 in 1995, $327,000 in 1994,
and $449,000 in 1993. In 1993 the Company leased the ground and purchased a
building from the affiliate at a fair market value of $323,000 in exchange for
receivables. The property was then subleased back to the affiliated company at
fair market rents until it was sold on March 21, 1994.
During 1994 the Company purchased a 26.6% interest in LaMexiCo, L.L.C., a
limited liability company, that operates a franchised Cucos at 3000 Veterans
Boulevard in Metairie, Louisiana. The Company also manages the restaurant for
LaMexiCo, L.L.C. and receives 5% of net sales as compensation. The restaurant
opened under the development rights previously owned by L.B.G. Inc. L.B.G. Inc.
currently owns 21.6% of LaMexiCo, L.L.C. The Company received $45,665 in
royalties and $76,109 in management fee revenue from LaMexiCo, L.L.C. in fiscal
1995. The Company received $26,815 in royalties and $46,811 in management fee
revenue from LaMexiCo, L.L.C. during fiscal 1994. The Company accounts for its
interest in LaMexiCo, L.L.C. using the equity method. The Company's share of
the affiliate's earnings was $10,523 in fiscal 1995 and $10,763 in fiscal 1994.
17
<PAGE> 20
NOTE G - STOCK OPTIONS
The Company has two stock option Plans: the 1983 Plan which expired in 1993
and the 1993 Plan, which was adopted by the shareholders in October, 1993.
Officers, directors, and key employees of the Company may be granted incentive
or nonqualified stock options to purchase up to 350,000 and 250,000 shares,
respectively under each of the Plans. No additional options may be granted
under the 1983 Plan. The option price of each incentive stock option granted
may not be less than 100% of the fair market value of the Common Stock at date
of grant. No minimum option price is required for nonqualified stock options,
but the Company's policy is that these options will not be granted with an
exercise price of less than the fair market value of the Common Stock at the
date of grant.
The following table summarizes options outstanding as of the end of fiscal
1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Average Average Average
Shares Price Shares Price Shares Price
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 390,400 $1.75 323,200 $1.75 346,200 $1.77
Granted 7,200 $1.63 79,200 $1.71 31,000 $1.38
Canceled (42,000) $1.85 (12,000) $1.53 (54,000) $1.68
Exercised -- -- -- -- -- --
------- ------- -------
Outstanding at end of year 355,600 $1.73 390,400 $1.75 323,200 $1.75
======= ======= =======
</TABLE>
NOTE H - PER SHARE AMOUNTS
Per share amounts are based on the weighted average number of shares of
Common Stock and dilutive Common Stock equivalents outstanding, which were
2,113,747 in fiscal 1995, 2,179,773 in fiscal 1994 and 2,144,474 in fiscal
1993.
NOTE I - FRANCHISE OPERATIONS
In addition to its company-owned restaurants, the Company had seven, twelve
and thirteen franchised restaurants in operation at the end of fiscal 1995,
1994 and 1993, respectively. Royalty income from franchised restaurants was
$272,109 in 1995, $343,920 in 1994 and $488,856 in 1993. During 1995 two
franchised restaurants opened and seven closed. See Management Discussion Page
6 for a discussion of the costs of three franchisees ceasing operations in
1995. During 1994 one franchised restaurant opened, four franchised restaurants
closed, and two restaurants previously operated by the Company were franchised.
Three franchised restaurants (Birmingham, Montgomery and Pensacola) were
purchased by the Company in the second half of 1993. The acquisitions of the
three franchised restaurants were accounted for using purchase accounting. The
total cost of these acquisitions was $1,290,000, including the collection of
$309,000 in receivables from the franchisees and the assumption of $981,000 in
liabilities. These three restaurants achieved incremental revenues of
$1,131,000 and $74,000 of incremental profits which are included in fiscal
1993's operating results.
NOTE J - SHAREHOLDERS' RIGHTS AGREEMENT
In 1989 the Company declared a distribution of rights to purchase the
Company's Common Stock at a rate of one right for each outstanding share of the
Company's Common Stock. The rights were issued in February 1990. The rights are
not exercisable until ten days following the occurrence of one of the following
events: 1) acquisition by a group or person of 15% or more of the Company's
Common Stock, or 2) an announcement by a potential acquirer of a tender or
exchange offer that would result in the ownership of 15% or more of the
Company's Common Stock. Once exercisable, unless redeemed earlier by the
Company, each right entitles the holder to buy $12 worth of shares of the
Company's Common Stock for an exercise price of $6. The Company may redeem the
rights at $.01 per right at any time until 10 days after 15% or more of the
Company's Common Stock is acquired by a person or group. The rights will expire
on December 31, 1999.
NOTE K - DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution savings plan which is available
to substantially all employees. Eligible employees may contribute up to 20% of
their compensation. The Company contributes an additional amount to the plan
equal to 10% of employee contributions up to 5% of their compensation. Company
contributions were $22,577, $25,186 and $23,189 in fiscal years 1995, 1994 and
1993, respectively.
NOTE L - SUBSEQUENT EVENT
On July 28, 1995, the Company issued $500,000 of zero-coupon convertible
unregistered Notes due June 30, 2015. The notes do not bear interest and are
convertible into 527,983 shares of the Company's common stock. The notes are
not convertible for five years except under certain conditions, primarily those
relating to the sale or control of the Company. The notes are secured by the
assignment of one the Company's leases and a lien on the Company's tangible
personal property located at the restaurant. The proceeds will be used for
working capital purposes.
18
<PAGE> 21
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Cucos Inc.
We have audited the accompanying balance sheets of Cucos Inc. as of July 2,
1995 and July 3, 1994, and the related statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended July 2,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cucos Inc. at July 2, 1995
and July 3, 1994, and the results of its operations and its cash flows for each
of the three years in the period ended July 2, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note A to the financial statements, during the year ended
July 3, 1994, the Company changed its method of accounting for income taxes.
/s/ ERNST & YOUNG LLP
New Orleans, Louisiana
August 18, 1995
REPORT OF MANAGEMENT
The management of Cucos Inc. has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity. The
statements, which include amounts that are based on management's best estimates
and judgments, have been prepared in conformity with generally accepted
accounting principles and are free of material misstatement. Management also
prepared the other information in the annual report and is responsible for its
accuracy and consistency with the financial statements.
We maintain a system of internal control over the preparation of our
published annual financial statements. It should be recognized that even an
effective internal control system, no matter how well designed, can provide
only reasonable assurance with respect to the preparation of reliable financial
statements; further, because of changes in conditions, internal control system
effectiveness may vary over time. The concept of reasonable assurance is based
upon a recognition that the cost of the controls should not exceed the benefit
derived. After judging the cost and benefit factors, we believe our system of
internal control provides this reasonable assurance.
The Audit Committee of the Board of Directors, consisting of one
inside and two outside directors, recommends independent auditors for
appointment by the Board and reviews their reports. Our independent auditors,
Ernst & Young LLP, and our Chief Financial Officer have full and free access to
the Audit Committee. The results of audits and related auditors' opinions and
reports are reviewed by the Committee.
Our financial statements have been audited by Ernst & Young LLP, whose
report appears above. Their report expresses an opinion as to the fair
presentation, in all material respects, of the financial statements and is
based on an independent audit made in accordance with generally accepted
auditing standards.
/s/ VINCENT J. LIUZZA, JR. /s/ THOMAS J. SANDEMAN
Vincent J. Liuzza, Jr. Thomas J. Sandeman
Chairman of the Board and President Chief Financial Officer
19
<PAGE> 22
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
BOARD OF DIRECTORS OFFICERS
VINCENT J. LIUZZA, JR. VINCENT J. LIUZZA, JR.
Founder, Chairman of the Board and Founder, Chairman of the Board and
President since 1981. President of Cucos Inc. since 1981.
Committees: Executive, Audit, Chairman and other Offices-L.B.G.
Compensation, and Stock Option. Inc., (formerly Sizzler Family
Steakhouses of Southern Louisiana,
THOMAS J. GRACE Inc.) since 1969.
Founder and Secretary since 1983.
General Counsel since 1992. THOMAS J. GRACE
Committee: Executive. Secretary since 1983 and General
Counsel since 1992.
WILLIAM D. HUMPHRIES
Director since 1984. Managing General ELIE V. KHOURY
Partner of Walnut Street Capital Vice President-Operations since 1990.
Company, a venture capital Executive Director of Operations
partnership since 1982. (1989-1990). District Supervisor
Committees: Audit and Compensation, (1985-1989).
Chairman-Compensation.
GLENDA T. LIUZZA
DAVID M. LIUZZA Founder, Vice President
Founder and Director since 1995. Marketing/Concept Development since
President and other offices of 1985. Director of Marketing (1983-
L.B.G., Inc., formerly Sizzler Family 1985).
Steakhouses of Southern Louisiana,
Inc. since 1969. President-LaMexiCo, THOMAS J. SANDEMAN
L.L.C., a franchisee of the Company Vice President-Finance and Treasurer
since 1994. since 1983. Vice President-Financial
Planning and Internal Audit-Ponderosa
SIDNEY C. PULITZER Inc. (1977-1983).
Director since 1983. Chairman-Wemco
Inc., a manufacturer of men's
neckwear and sportswear since 1985.
President of the World Trade Center
in 1994. Committees: Compensation,
Stock Option and Audit, Chairman-
Audit.
MIGUEL URIA
Director since 1983. President-Oro
Financial, a registered broker/dealer
since 1988. Prior to 1988, Mr. Uria
served as First Vice President of
Howard, Weil, Labouisse, Friederichs
Incorporated, an investment banking
firm. Committees: Compensation and
Stock Option.
</TABLE>
20
<PAGE> 23
CORPORATE INFORMATION
<TABLE>
<S> <C>
TRANSFER AGENT FORM 10-KSB
Boatmen's Trust Company A copy of Form 10-KSB, the Corporation's annual
St. Louis, Missouri report to the Securities and Exchange Commission,
can be obtained without charge by writing or faxing
SECURITIES COUNSEL your request to:
Drinker Biddle & Reath Thomas J. Sandeman
Philadelphia, Pennsylvania Vice President-Finance
Cucos Inc.
INDEPENDENT AUDITORS 110 Veterans Blvd., Suite 222
Metairie, Louisiana 70005
Ernst & Young LLP Fax No. 1-504-836-3194
New Orleans, Louisiana
FORM 10-QSB
CORPORATE OFFICES
A copy of Form 10-QSB, the Company's quarterly
110 Veterans Blvd., Suite 222 report to the Securities and Exchange Commission,
Metairie, Louisiana 70005 can be obtained without charge by faxing your
504-835-0306 request to:
NASDAQ SYMBOL: CUCO Cucos Inc.
Attn. Investor Relations
ANNUAL MEETING Fax No. (504) 836-3194
The annual meeting of shareholders will be held at ADVERTISING AGENCY
Cucos Border Cafe, 3000 Veterans Boulevard,
Metairie, Louisiana, at 3:00 p.m. on Thursday, Bandy - Carroll - Hellige
October 26, 1995. Louisville, Kentucky
DESIGN FIRM
Thomasgraphics
Baton Rouge, Louisiana
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-KSB) of Cucos Inc. of our report dated August 18, 1995, included in the 1995
Annual Report to Shareholders of Cucos Inc.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-03953, No. 33-15785, No. 33-26941, No. 33-45224 and
No. 33-83712) pertaining to the Stock Option Plan of Cucos Inc. of our report
dated August 18, 1995, with respect to the financial statements of Cucos Inc.
incorporated by reference in this Annual Report (Form 10-KSB) for the year
ended July 2, 1995.
New Orleans, Louisiana /s/ Ernst & Young LLP
September 26, 1995 Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-02-1995
<PERIOD-START> JUL-04-1994
<PERIOD-END> JUL-02-1995
<CASH> 566,740
<SECURITIES> 5,306
<RECEIVABLES> 879,276
<ALLOWANCES> 194,034
<INVENTORY> 219,653
<CURRENT-ASSETS> 2,024,356
<PP&E> 9,430,968
<DEPRECIATION> 3,586,795
<TOTAL-ASSETS> 8,419,431
<CURRENT-LIABILITIES> 3,320,725
<BONDS> 2,838,359
<COMMON> 4,745,585
0
0
<OTHER-SE> (2,496,237)
<TOTAL-LIABILITY-AND-EQUITY> 8,419,431
<SALES> 18,812,719
<TOTAL-REVENUES> 19,541,109
<CGS> 4,900,784
<TOTAL-COSTS> 16,472,883
<OTHER-EXPENSES> 4,124,372
<LOSS-PROVISION> 391,742
<INTEREST-EXPENSE> 416,092
<INCOME-PRETAX> (1,472,238)
<INCOME-TAX> 46,090
<INCOME-CONTINUING> (1,518,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,518,328)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
