<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended April 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to _______
Commission File No. 0-12226
CALIFORNIA BEACH RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
California 95-2693503
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
17383 Sunset Boulevard, Suite 140
Pacific Palisades, California 90272
(Address of principal executive office) (ZIP Code)
Registrant's telephone number: (310) 459-9676
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting and non-voting common stock held by
non-affiliates of the Registrant based upon the average bid price in the
over-the-counter market on August 11, 1995 (the date of the last posted quote)
was approximately $12,144.
The number of outstanding shares of the Registrant's Common Stock as of July 21,
1998 was 3,400,932.
Documents incorporated by reference: None
<PAGE> 2
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Registrant are as follows:
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Alan Redhead 55 Chairman of the Board, President,
Chief Executive Officer
J. Christopher Lewis 42 Director
Jefferson W. Asher, Jr. 73 Director
Richard P. Bermingham 59 Director
Robert L. Morrison 51 Director
</TABLE>
The executive officers of the Registrant are Mr. Redhead and
Samuel E. Chilakos, age 33, Vice President - Finance, Chief Financial Officer
and Secretary. Directors hold office until their term of office expires and
their successors are elected and qualified. Executive officers serve at the
discretion of the Board of Directors.
Alan Redhead joined the Registrant in June 1992 as its Chief
Executive Officer ("CEO") and as a member of its Board of Directors and
executive committee. Mr. Redhead resigned as a member of the Board of Directors
and the Executive Committee in November 1992. Mr. Redhead subsequently re-joined
the Board of Directors in September 1993. He became Chairman of the Board in
March 1995. From 1986 to 1992, Mr. Redhead was involved in various restaurant
businesses and a non-profit organization. From 1974 to 1986 Mr. Redhead was with
Hungry Tiger, Inc., including 7 years as its CEO. Hungry Tiger Inc. owned and
operated Hungry Tiger Restaurants, Breakers Seafood Restaurants, Castagnola's
Lobster House and the restaurant and catering operations at the Los Angeles
Music Center.
J. Christopher Lewis, a director of the Registrant since June
29, 1990 and a member of its Audit Committee, has been associated with Riordan,
Lewis and Haden, a venture capital firm, for the past seventeen years. He is
currently a director of Tetra Tech, Inc., Data Processing Resources Corporation,
PIA Merchandising Co. Inc., Steven Myers and Associates, Inc., and several
privately-held companies.
Jefferson W. Asher, Jr. joined the Registrant as a member of
the Board of Directors on November 23, 1992 and is a member of its Stock Plan
and Compensation Committees. Mr. Asher has spent over twenty years as an
independent management consultant and has served as an advisor to several
private companies. Mr. Asher is also a member of the Board of Directors of
Baldor Electric Company, a New York Stock Exchange manufacturer of industrial
electric motors and drives.
2
<PAGE> 3
Richard P. Bermingham joined the Registrant as a member of the
Board of Directors on March 9, 1998 and is a member of its Audit Committee. From
1980 to 1994, Mr. Bermingham was with Collins Foods International, Inc., the
parent company of the Sizzler restaurant chain. Mr. Bermingham served Collins
Foods International, Inc., as a member of its Board of Directors from 1970 to
1994, as President from 1980 to 1987, and as CEO from 1987 to 1994. From 1994 to
1997, Mr. Bermingham served as Vice Chairman and as a member of the Board of
Directors of American Golf Corporation, a privately-held company. Currently, Mr.
Bermingham is a director of Farr, Inc., and several privately-held companies.
Robert L. Morrison joined the Registrant as a member of the
Board of Directors on December 15, 1997 and is a member of its Stock Plan and
Compensation Committees. Mr. Morrison is a partner at the law firm of Pillsbury
Madison & Sutro LLP, a firm he joined in 1972. Mr. Morrison is also a director
of the Friends of Child Advocates, a non-profit organization.
Samuel E. Chilakos joined the Registrant in May 1998 as Vice
President- Finance, Chief Financial Officer and Corporate Secretary. Mr.
Chilakos served as Assistant Controller of All American Communications, Inc.,
from July 1992 through August 1993. Mr. Chilakos attended Pepperdine University
School of Law in Malibu, California, receiving his J.D. degree, Cum Laude, in
1996. From February 1997 to April 1998, Mr. Chilakos was a Senior Consultant in
Ernst & Young LLP's Dispute Resolution and Litigation Services practice in Los
Angeles, California. Mr. Chilakos is a Certified Public Accountant and a member
of the State Bar of California, who also spent three years with the
international accounting firm of Deloitte & Touche LLP.
None of the officers and directors of the Registrant is
related to any other officer or director of the Registrant.
During the year ended April 30, 1998, the Registrant paid
Board of Directors fees of $500 per meeting attended for each outside Board
member.
On October 7, 1992 the Registrant, faced with the loss of its
directors and officers liability insurance, entered into indemnification
agreements with Messrs. Redhead, Lewis and Segal. On November 23, 1992, the
Registrant entered into an indemnification agreement with Mr. Asher. The
Registrant believed that the indemnification agreements were required to induce
the various officers and directors to continue to serve in their existing
capacities. Generally the agreements provide for indemnification by the
Registrant to each of the individuals against expenses, judgments, fines and
penalties incurred in connection with any proceeding to the full extent
permitted by the law of the State of California and the advancement of expenses
prior to any final disposition of a proceeding. Each indemnitee has agreed to
repay any amount advanced if it is determined that the indemnitee was not
entitled to be indemnified pursuant to the agreement. All directors and officers
of the Registrant are entitled to the protection of directors' and officers'
insurance policies that are maintained by the Registrant.
3
<PAGE> 4
At the Annual Meeting of Shareholders held on April 28, 1995,
the Registrant's shareholders approved an amendment to the Registrant's Articles
of Incorporation to eliminate, to the fullest extent permitted by California
law, the monetary liability of directors of the Registrant in performing their
duties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Registrant's
directors, its executive (and certain other) officers, and any persons holding
more than ten percent of the Common Stock are required to report their ownership
of the Common Stock and any changes in that ownership to the Securities and
Exchange Commission ("Commission"). Specific due dates for these reports have
been established and the Registrant is required to report in this document any
failure to file by these dates during the fiscal year ended April 30, 1998. All
of these filing requirements were satisfied by its directors, officers and ten
percent holders, except that Jefferson W. Asher, Jr., a director of the
Registrant, filed late one Form 4 reporting his acquisition of shares of Common
Stock. In making these statements, the Registrant has relied on the written
representations of its directors, officers and its ten percent holders and
copies of the reports that they have filed with the Commission.
ITEM 11 EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain summary
compensation information concerning the Registrant's executive officers for the
three most recent fiscal years:
4
<PAGE> 5
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------
Annual Compensation (1)
---------------------------------------
Securities
Name and Fiscal Underlying
Principal Position Year Salary($) Bonus($) Options/SARs(#)
------------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Alan Redhead, Chairman of 1998 $218,343 $262,341 --
the Board, President and 1997 215,700 -- --
Chief Executive Officer 1996 212,000 30,894 335,000
Mark E. Segal, Vice 1998 $ 96,979 $108,084 --
President--Finance, Chief 1997 114,000 --
Financial Officer and 1996 112,000 21,214 110,000
Secretary*
</TABLE>
* Mr. Segal's employment with the Registrant terminated in March, 1998.
Option Grants in Last Fiscal Year
The following sets forth certain information concerning individual
grants of stock options during the fiscal year ended April 30, 1998 to each of
the Registrant's executive officers. No SARs were granted in the fiscal year
ended April 30, 1998:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price
Name Granted(#) Fiscal Year ($/Share) Expiration Date
---- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Alan Redhead None N/A N/A N/A
Mark E. Segal None N/A N/A N/A
</TABLE>
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
No options were exercised in the fiscal year ended April 30, 1998. The
following table sets forth certain information concerning executive officers and
the aggregated fiscal year-end value of the unexercised options of each of the
named executive officers.
5
<PAGE> 6
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying
Shares Unexercised Value of Unexercised
Acquired on Value Options/SARs at Fiscal In the Money Options/SARs
Exercise(#) Realized($) Year-End (#) at Fiscal Year-End ($)(1)
----------- ----------- --------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alan Redhead None $-- 335,000 -- $ -- $ --
Mark E. Segal None $-- 110,000 -- $ -- $ --
</TABLE>
(1) Market value of underlying securities at year-end, minus the exercise or
base price of "in the money" options.
Other Compensation Agreements
Effective November 14, 1997, the Registrant entered into an
employment agreement with Alan Redhead, the Registrant's Chief Executive
Officer. The agreement sets forth certain of the terms of employment, including
the right to receive twelve months of salary as severance pay upon (i)
termination of employment without cause (as defined in the agreement) or (ii)
resignation for good reason (as defined in the agreement). The term of Mr.
Redhead's agreement is three years and provides for a current base salary of
$214,000 subject to annual cost of living adjustments.
For purposes of Mr. Redhead's employment agreement, "cause" is defined
to mean (i) the willful engaging by the employee in misconduct which is or could
reasonably be expected to become materially injurious to the Registrant,
monetarily or otherwise; (ii) conviction of a felony or any crime involving
moral turpitude; or (iii) participation in any fraud against or theft from the
Registrant. "Good reason" is defined to mean (i) the failure of the Registrant
to vest the employee with the powers and authority of his office or any removal
of the employee from or failure to re-elect the employee to his office; (ii) a
reduction by the Registrant in the employee's base salary; (iii) the requirement
by the Registrant that the employee be based anywhere other than within 25 miles
of the employee's present office location; (iv) the disposition of the business
of the Registrant; or (v) a failure by the Registrant to comply with any
material provision, or group of provisions that are material in the aggregate,
of the employment agreement.
The Omnibus Stock Plan
The Omnibus Stock Plan (the "Plan") was adopted by the Board of
Directors in March 1995 and was approved by the shareholders of the Registrant
on April 28, 1995. The Plan provides for the issuance of a maximum of 1,000,000
shares of Common Stock. The Plan provides for the issuance of stock options,
stock appreciation rights, restricted stock and other awards (collectively
"awards").
6
<PAGE> 7
The shares awarded shall be authorized but unissued shares. If an award
granted under the Plan expires, terminates or lapses for any reason, without the
issuance of shares of Common Stock thereunder, or if the Registrant receives any
shares of Common Stock as the exercise price of any award, such shares shall
again be available under the Plan.
Under the Plan, options or awards granted and outstanding as of the
date the Plan terminates are not affected or impaired by such termination. In
the event of a merger, consolidation, reorganization, recapitalization,
spin-off, stock dividend or stock split, or combination or other increase or
reduction in the number of issued shares of Common Stock, or extraordinary cash
dividend or any other similar event, the Board of Directors or the Committee (as
defined herein) may, in order to prevent the dilution or enlargement of rights
under awards, make such adjustments in the number and type of shares covered by,
or with respect to which payments are measured under, outstanding awards and the
exercise prices specified therein as may be determined to be appropriate and
equitable. The Committee may provide in the agreement evidencing any award for
adjustments to such award in order to prevent the dilution or enlargement of
rights thereunder or to provide for acceleration of benefits thereunder in the
event of a change in control, merger, consolidation, reorganization,
recapitalization, sale or exchange of substantially all assets or dissolution
of, or spinoff or similar transaction by, the Registrant.
The options granted to date by the Committee provide that such options
shall become fully exercisable upon a "change of control" of the Registrant. A
"change of control" is deemed to have occurred (i) if individuals who, as of the
date of such award, constitute the board of directors of the Registrant
("Incumbent Board") cease for any reason to constitute at least a majority of
the board, provided that a person becoming a director subsequent to the date of
the award whose election, or nomination for election by the Registrant's
shareholders, was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest) shall be considered a member of the Incumbent
Board; or (ii) upon approval by the shareholders of the Registrant of (a) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the shareholders of the Registrant immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 60% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated corporation's then
outstanding voting securities, (b) a liquidation or dissolution of the
Registrant or (c) the sale of all or substantially all of the Registrant's
assets; or (iii) upon the acquisition (other than from the Registrant) by any
person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 51% or
more of either the then outstanding shares or the combined voting power of the
Registrant's then outstanding voting securities entitled to vote generally in
the election of directors, but excluding, for this purpose, any such acquisition
by the Registrant or
7
<PAGE> 8
any of its subsidiaries, or any employee benefit plan (or related trust) of the
Registrant or its subsidiaries, or any corporation with respect to which,
following such acquisition, more than 60% of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners of the voting securities of the
Registrant immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of the
then outstanding combined voting power of the then outstanding voting securities
of the Registrant entitled to vote generally in the election of directors.
The purpose of the Plan, which, in addition to non-qualified stock
options and stock appreciation rights, provides for the granting of incentive
stock options (which qualify under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and restricted stock and various
types of awards described herein, is to promote the long term financial
interests and growth of the Registrant by (i) attracting and retaining executive
personnel, (ii) motivating executive personnel by means of growth-related
incentives; (iii) providing incentive compensation opportunities that are
competitive with those of other comparable corporations, and (iv) furthering the
identity of interests of participants with those of the shareholders of the
Registrant.
The Plan is not subject to the Employee Retirement Income Security Act
of 1974. The Plan is not qualified under Section 401(a) of the Code.
Participants in the Plan are selected by the Stock Plan Committee of
the Board of Directors (the "Committee") which administers the Plan. The Plan
contemplates that awards will be granted to key employees, to directors and to
consultants, and that participants will be such employees or directors of or
consultants to the Registrant and its affiliates, including officers of the
Registrant, as from time to time are designated as such by the Committee. The
Plan requires that the Committee consist of at least two directors of the
Registrant who are "non-employee directors" as such term is used in Rule 16b-3
under the Exchange Act. Members of the Committee are selected by and serve at
the pleasure of the Board of Directors. Each member of the Committee is a
director of the Registrant. Under the Plan and subject to the limitations
thereunder, the Committee is authorized: (i) to select participants in the Plan,
(ii) to make awards in such forms and amounts as it shall determine, (iii) to
impose such limitations, restrictions and conditions upon such awards as it
shall deem appropriate, (iv) to interpret the Plan and to adopt, amend and
rescind administrative guidelines and other rules and regulations relating to
the Plan, (v) to correct any defect or omission or to reconcile any
inconsistency in the Plan or in any award granted thereunder and (vi) to make
all other determinations and to take all other actions necessary or advisable
for the implementation and administration of the Plan.
The Board of Directors or the Committee may suspend or terminate the
Plan or any portion thereof at any time and may amend it from time to time in
such
8
<PAGE> 9
respects as the Board of Directors or the Committee may deem advisable;
provided, however, that no such amendment will be made, without shareholder
approval to the extent such approval is required by law, agreement or the rules
of any exchange upon which the Common Stock is listed, and provided further,
that the Plan will terminate no later than March 9, 2005. No such amendment,
suspension or termination will impair the rights of participants under
outstanding awards without the consent of the participants affected thereby or
make any change that would disqualify the Plan, or any other plan of the
Registrant intended to be so qualified from the exemption provided by Rule
16b-3.
The Committee may amend or modify any award in any manner to the extent
that the Committee would have had the authority under the Plan to initially
grant such award. No such amendment or modification will impair the rights of
any participant under any award without the consent of such participant.
Under the Plan, a participant to whom an option is granted will have
the right to purchase the number of shares of Common Stock covered by the
option, subject to the terms and provisions of the Plan. The option price to be
paid by a participant is determined by the Committee and is set forth in a stock
option agreement between the Registrant and the participant. Such price cannot
be less than 100% of the fair market value of the Common Stock on the date on
which the option in respect thereof is granted as to incentive stock options
within the meaning of Section 422 of the Code, or any successor provision, and
the par value of a share of Common Stock as to other options.
Under the Plan, the purchase price of an option is payable in cash or
by the surrender, at the fair market value on the date on which the option is
exercised, of shares of Common Stock, by any combination of cash and such shares
or with any other consideration.
In addition, the Plan authorizes the Committee to grant stock
appreciation rights ("SAR"). No SARs have been granted under the Plan.
SARs and options which are not incentive stock options may, in the
Committee's discretion, provide that in connection with exercises thereof the
holders will receive cash payments in amounts necessary to reimburse holders for
their income tax liability resulting from such exercise and the payment made
pursuant to this provision.
Incentive stock options (within the meaning of Section 422 of the Code)
may be granted at the option of the Committee under the Plan. The fair market
value of the Common Stock is determined as of the time of award of the option to
which it is subject. Incentive stock options are subject to a $100,000 exercise
limitation per year.
9
<PAGE> 10
Any option granted under the Plan must be fully exercised prior to its
expiration on the date determined by the Committee or on an earlier termination
date in the case of termination of employment or consultant status.
With respect to the options granted to date, the Committee has provided
in the stock option agreement that if such participant's employment by the
Registrant or its subsidiaries is terminated for any reason, other than death or
disability, such participant may exercise an option within the period ending on
the earlier of three months after such termination or the date the option
expires in accordance with its terms. If such participant dies or is disabled
prior to termination of employment, he or his legatees, executors, distributees
or personal representatives may, subject to the provisions of the Plan, exercise
the option granted to such participant within the period ending on the earlier
of (i) twelve months after the date of such death or disability or (ii) the date
the option expires in accordance with its terms.
The option of a participant who dies after termination may be exercised
in respect to the same number of shares in the same manner and to the extent as
if such participant were then living.
The right of any participant to exercise an option granted to such
participant may not be transferred, assigned, pledged or hypothecated in any way
other than by will or the laws of descent and distribution. Options are
exercisable by a participant during his lifetime only by him.
The Plan also permits the Committee to grant shares of Common Stock to
a participant subject to the terms and conditions imposed by the Committee
("restricted stock"). No shares of restricted stock have been awarded under the
Plan.
Under the Plan, in addition to stock options, stock appreciation rights
and restricted stock, participants may be awarded performance shares,
convertible debentures, other convertible securities and any other forms of
awards that the Committee in its discretion may determine are consistent with
the objectives and limitations of the Plan. No such awards have been granted
under the Plan.
On August 1, 1995, the Registrant and Bank of America NT & SA ("Bank")
entered into an amendment to stock purchase agreement under which the Registrant
agreed to issue the Bank securities equivalent in form if more than 600,000
shares of Common Stock in the aggregate are issued by the Registrant under the
Plan or other similar plan, or otherwise, to directors, officers, employees,
consultants, or other persons providing services to the Registrant for so long
as the Bank or its permitted successor holds not less than 75% of the shares of
Common Stock currently held by the Bank. Until August 1, 1996, the Bank would
pay only nominal consideration for any stock issued pursuant to the amendment,
and thereafter would, with certain exceptions, pay the same consideration as
provided in any such issuances of shares in excess of the 600,000 share amount.
See
10
<PAGE> 11
"Certain Relationships and Related Transactions--December 1994 Private Placement
and Debt Restructurings."
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information as to the shares of
the Common Stock owned as of July 21, 1998 by (i) each person known to the
Registrant to be the beneficial owner of more than five percent of the Common
Stock, (ii) each director, (iii) each executive officer named in the summary
compensation table, and (iv) all directors and executive officers of the
Registrant as a group. Unless otherwise indicated in the footnotes following the
table, the persons as to whom the information is given had sole voting and
investment power over the shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Amount of Beneficial Ownership(1)
Name and Address of ---------------------------------
Beneficial Owners No. Shares % Ownership
- ------------------- ---------- -----------
<S> <C> <C>
Bank of America National Trust and Savings 1,200,000 35.3%
Association
555 California Street, 18th Floor
Department 15027
San Francisco, CA 94104
Eli Broad 228,345 6.7%
1999 Avenue of the Stars, Suite 3170
Los Angeles, CA 90067
Sand and Sea Partners(2) 302,478 8.9%
300 S. Grand Avenue, 29th Floor
Los Angeles, CA 90071
Sea Fair Partners(2) 332,478 9.8%
300 South Grand Avenue, 29th Floor
Los Angeles, CA 90071
J. Christopher Lewis (2) 634,956 18.7%
300 South Grand Avenue, 29th Floor
Los Angeles, CA 90071
Alan Redhead 680,600(3) 18.2%
California Beach Restaurants, Inc.
17383 Sunset Boulevard, Suite 140
Pacific Palisades. CA 90272
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Amount of Beneficial Ownership(1)
Name and Address of ---------------------------------
Beneficial Owners No. Shares % Ownership
- ------------------- ---------- -----------
<S> <C> <C>
Jefferson W. Asher, Jr. 62,000(4) 1.8%
4118 Stansbury Avenue
Sherman Oaks, CA 91423
Mark E. Segal 148,400(5) 4.2%
California Beach Restaurants, Inc.
17383 Sunset Boulevard, Suite 140
Pacific Palisades, CA 90272
Richard P. Bermingham 0 0%
2105 Stoney Hill Road
Los Angeles, CA 90049
Robert L. Morrison 0 0%
725 Figueroa St., Suite 1200
Los Angeles, CA 90017
John C. Cushman III (6) 268,894 7.9%
601 S. Figueroa St., 47th Floor
Los Angeles, CA 90017-5752
All directors and executive officers as a group (6 1,525,956(7) 39.4%
persons)
</TABLE>
(1) The number of shares and percentages in these columns are based on
3,400,932 shares of Common Stock outstanding.
(2) J. Christopher Lewis, a director of the Registrant, is the general
partner and a limited partner of Sand and Sea Partners and Sea Fair
Partners, which together own 634,956 shares of Common Stock. Mr. Lewis
disclaims beneficial ownership of the shares owned by such partnerships,
except with respect to (i) 25,268 shares which represent a limited
partnership interest in each partnership of approximately 3.8% and (ii)
an additional undetermined number of such shares by virtue of his rights
as a general partner under the limited partnership agreement. As general
partner of such partnership, Mr. Lewis may have the power to direct the
voting or disposition of such shares and therefore may be deemed to
beneficially own all the shares held by such partnerships.
(3) Includes currently exercisable options to purchase 335,000 shares of
Common Stock issued under the Omnibus Stock Plan.
(4) Includes currently exercisable options to purchase 32,000 shares of
Common Stock issued under the Omnibus Stock Plan.
(5) Includes currently exercisable options to purchase 110,000 shares of
Common Stock issued under the Omnibus Stock Plan.
(6) Includes 128,911 shares held by Cushman Sea View Partners, a California
general partnership, 85,938 shares held by Cushman K Sea View Partners,
and 54,045 shares held by the Cushman Family Trust. Mr. Cushman is a
general partner in Cushman Sea View Partners and Cushman
12
<PAGE> 13
K Sea View Partners and may be deemed to beneficially own Cushman
Equities Corporation, which is also a general partner of such
partnerships.
(7) Includes currently exercisable options to purchase 477,000 shares of
Common Stock issued under the Omnibus Stock Plan.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
December 1994 Private Placement and Debt Restructurings
On December 22, 1994, the Registrant completed a $1,600,000 private
placement of its Series A Convertible Preferred Stock ("Series A Preferred
Stock") and 9-3/4% Convertible Subordinated Notes Due October 31, 1995 (the
"Notes") to certain existing shareholders, members of management and new
investors. The purpose of the private placement was to implement certain debt
restructurings of the Registrant as follows: Sea View Restaurants, Inc. ("Sea
View"), a wholly owned subsidiary of the Registrant, was the borrower and the
Registrant was the guarantor under a loan agreement ("Loan Agreement") with the
Bank which, prior to the private placement, had an outstanding principal balance
plus accrued interest of approximately $9,680,000 ("Loan"), which was in
default. The Loan was secured by substantially all of the assets of Sea View. On
August 24, 1994, the Bank recorded a notice of foreclosure with respect to all
of the real property and personal property collateral for the Loan. In light of
these severe financial circumstances, the Registrant's Board of Directors
concluded that a consensual debt restructuring offered the best opportunity to
enable the Registrant to continue its business, preserve value for the
Registrant's shareholders and maintain creditor relationships. Accordingly, the
Registrant entered into a term sheet with the Bank on December 2, 1994, pursuant
to which the Bank agreed not to publish a foreclosure sale notice, or foreclose
on the collateral if certain payments (as described below) were made by the
Registrant to the Bank by December 22, 1994. If the Registrant had not reached
an agreement to restructure the Loan, the Bank would have proceeded with such
foreclosure actions in December 1994.
Additionally, Sea View was the issuer of a certain Contingent
Promissory Note ("Contingent Note") payable to jojo's Restaurant, Inc., a
wholly-owned subsidiary of Family Restaurants, Inc. (collectively "FRI"). The
Contingent Note became payable upon the renewal of the Concession Agreement
between Sea View and the County of Los Angeles with respect to the Registrant's
Gladstone's 4 Fish restaurant. The Contingent Note was in the principal amount
of $5,000,000 with contingent accrued interest of 12.5% from April 2, 1990 of
approximately $4,000,000. The Registrant and Sea View were in default under the
Loan, and in the event of the renewal of the Concession Agreement, would be
unable to pay the Contingent Note. The Bank required as a condition to the debt
restructuring that the Contingent Note be settled. Accordingly, as part of the
debt restructuring, the Registrant paid FRI $500,000 on December 22, 1994 in
full satisfaction of the Contingent Note.
The Bank agreed to compromise the Loan by amending the Loan Agreement
to provide for the payment by Sea View of an aggregate of $4,700,000, payable
$300,000 on December 2, 1994; $1,000,000 not later than December 22, 1994; and
the balance of
13
<PAGE> 14
$3,400,000 in two notes: a senior secured note in the principal amount of
$3,000,000, bearing interest at the rate of 12% per annum and payable at varying
monthly amounts through October 31, 1997, and a junior secured note in the
principal amount of $400,000, accruing interest at 12% per annum with both
interest and principal payable in a single lump sum on October 31, 1997. Such
notes were guaranteed by the Registrant. As additional consideration for the
restructuring of the Loan, and pursuant to the terms of a Stock Purchase
Agreement dated as of December 22, 1994 between the Registrant and the Bank (the
"Stock Purchase Agreement"), the Registrant issued to the Bank on December 22,
1994, 1,223,556 shares of Series A Preferred Stock that converted into 1,200,000
shares of Common Stock on May 1, 1995 upon the filing of a Certificate of
Amendment to the Articles of Incorporation of the Registrant effecting the
one-for-33.286962 reverse stock split ("Reverse Stock Split") (constituting 30%
of the combined voting power of all outstanding shares of capital stock on a
fully diluted basis). Additionally, as described below, the Bank is entitled to
participate together with investors in the private placement in certain demand
and incidental registration rights with respect to future registered offerings
by the Registrant of its capital stock and the Bank is entitled to participate
in any future equity offerings by the Registrant to the extent required to
maintain its then percentage equity ownership in the Registrant. The Registrant
has a right of first refusal under the Stock Purchase Agreement with respect to
any private sale or transfer of the shares held by the Bank.
The private placement was effected pursuant to the terms of a
Securities Purchase Agreement among the Registrant and the purchasers, dated as
of December 22, 1994 ("the Securities Purchase Agreement"). The purchasers
invested $1,600,000 consisting of $817,290 of Series A Preferred Stock and
$782,710 of Notes. Sand and Sea Partners and Sea Fair Partners, California
limited partnerships of which J. Christopher Lewis, a director of the
Registrant, is general partner, each purchased 126,026 shares of Series A
Preferred Stock for $103,000 in cash and $209,500 principal amount of Notes. Eli
Broad, an over 10% shareholder of the Registrant at the time, purchased 168,036
shares of Series A Preferred Stock for $137,334 in cash and $37,666 principal
amount of Notes; Alan Redhead, President and Chief Executive Officer and a
director of the Registrant, purchased 352,384 shares of Series A Preferred Stock
for $288,000 in cash; and Mark E. Segal, then Vice President - Finance, Chief
Financial Officer and Secretary of the Registrant, purchased 39,154 shares of
Series A Preferred Stock for $32,000 in cash. Each share of Series A Preferred
Stock automatically converted into .980748 shares of Common Stock (or a total of
2,180,748 shares, approximately 55% of the outstanding Common Stock of the
Registrant on a fully diluted basis) upon the effective date of the Reverse
Stock Split. On April 28, 1995, the Registrant's shareholders approved the
Reverse Stock Split. A Certificate of Amendment to the Articles of Incorporation
of the Registrant was filed on May 1, 1995 to effect the Reverse Stock Split.
In October 1995, the Registrant effected a subscription rights offering
("Subscription Rights Offering") in which shareholders who did not participate
in the December 1994 private placement or otherwise were excluded by contract
were offered
14
<PAGE> 15
rights to subscribe for 4.7215 shares of Common Stock for each share owned as of
September 11, 1995 at a price of $.83 per share. 244,020 shares of Common Stock
were purchased in the Subscription Rights Offering. The proceeds of the
Subscription Rights Offering of $202,536.60 were used to redeem a portion of the
Notes on a pro rata basis. The unredeemed portion of the Notes converted into
696,207 shares of Common Stock on October 30, 1995.
Pursuant to the terms of the Stock Purchase Agreement and the
Securities Purchase Agreement, the Registrant was obligated, to the extent
permitted under applicable securities laws and subject to reasonable costs, to
use its best efforts to register under the Securities Act of 1933 ("Securities
Act") the resale of the Common Stock issued upon the conversion of the Series A
Preferred Stock and Notes and to maintain such registration for a reasonable
period to facilitate resale. The Registrant effected such registration in
December 1995 (the "Offering").
Also, the Registrant and the Bank entered into an Amendment to Stock
Purchase Agreement dated as of August 1, 1995 ("Amendment"), amending the Stock
Purchase Agreement by providing that the Registrant would, no later than
November 15, 1995, register for resale the Common Stock held by the Bank
pursuant to Rule 415 under the Securities Act and would file amendments in order
to update it at any time for up to two years when requested in writing by the
Bank, with the Registrant bearing all the expenses of such registration and
updates up to certain limits. The Offering effected such registration. The
purchasers of Series A Preferred Stock and Notes in the December 1994 private
placement included in the Offering the shares of Common Stock received by them
(i) upon conversion of the Series A Preferred Stock in connection with the
Reverse Stock Split and (ii) to the extent the proceeds of the Subscription
Rights Offering did not fully redeem the Notes. Certain other shareholders of
the Registrant who had registration rights were also afforded an opportunity to
include shares in the Offering, subject to the terms and conditions of such
registration rights. The Registrant also agreed, in the Amendment, to issue the
Bank securities equivalent in form if more than 600,000 shares of Common Stock
in the aggregate are issued by the Registrant under the Registrant's Omnibus
Stock Plan or other similar plan, or otherwise, to directors, officers,
employees, consultants, or other persons providing services to the Registrant
for so long as the Bank or its permitted successor holds not less than 75% of
the shares of Common Stock currently held by the Bank. Until August 1, 1996, the
Bank would have paid only nominal consideration for any stock issued pursuant to
the Amendment, and thereafter would, with certain exceptions, pay the same
consideration as provided in any such issuance of shares in excess of the
600,000 share amount. See "Executive Compensation--The Omnibus Stock Plan."
Also, investors in the private placement, together with the Bank,
holding at least 20% of the shares of Common Stock into which the Series A
Preferred Stock have been converted have two demand registration rights to
require the Registrant to register such shares for resale under the Securities
Act and applicable state securities laws for resale to the public. This right of
registration shall continue until such time as in the opinion of counsel for the
Registrant such registration is no longer necessary
15
<PAGE> 16
for shareholders to sell the shares of Common Stock without registration. Such
investors, together with the Bank, are also be entitled to certain incidental
registration rights. The Registrant will pay the expenses in connection with any
such incidental registrations and two such demand registrations.
Pursuant to the terms of the Stock Purchase Agreement and the
Securities Purchase Agreement, and in order to provide the Registrant with a
more reasonable capital structure, the Registrant held a meeting of the
shareholders of the Registrant to vote upon, among other things, the Reverse
Stock Split. As noted above, the Reverse Stock Split was approved at the April
28, 1995 Annual Meeting of Shareholders.
Pursuant to the terms of the Stock Purchase Agreement and the
Securities Purchase Agreement, the Registrant agreed to use its best efforts to
effectuate the Subscription Rights Offering, the proceeds of which were used to
partially redeem the Notes. The purpose of the Subscription Rights Offering was
to afford to those shareholders of the Registrant who did not participate in the
December 1994 private placement the opportunity to purchase shares of Common
Stock on terms as substantially similar as practicable to the terms provided to
the investors in the private placement.
Sea View and the Bank entered into a First Amendment to Amended and
Restated Loan Agreement, dated as of August 1, 1995, which amended the covenant
of Sea View regarding maintenance of "Minimum Free Cash Flow" during certain
periods with respect to the accounting treatment of certain expenses, including
expenses of the Offering and the Subscription Rights Offering.
As a condition to the closing of the Stock Purchase Agreement and the
Securities Purchase Agreement, Sand and Sea Partners, Sea Fair Partners and the
Bank entered into a Shareholders and Noteholders Agreement dated as of December
22, 1994 (the "Shareholders Agreement") pursuant to which Sand and Sea Partners
and Sea Fair Partners agreed to vote their shares of the Registrant in a manner
that would elect to the Board of Directors of the Registrant two individuals
designated by the Bank until such time as the Bank holds less than 75% of its
current holdings in Common Stock or repayment in full of the Registrant's
$3,400,000 indebtedness to the Bank. The Registrant's three directors also
agreed under the Shareholders Agreement, when requested by the Bank, to take all
Board action and all steps necessary to assist shareholder action in order to
elect two designees of the Bank to the Board of Directors, including increasing
the size of the Board to six. Two Bank nominees were elected to the Board of
Directors at the April 28, 1995 Annual Meeting of Shareholders. Such directors
later resigned. The Shareholders Agreement is subject to the shareholders
agreement dated April 10, 1990 ("1990 Shareholders Agreement") among Sand and
Sea Partners, Sea Fair Partners, John C. Cushman, III, and other investors in a
1990 private placement of Common Stock in the Registrant. The 1990 Shareholders
Agreement provides that Sand and Sea Partners, Sea Fair Partners and other
investors will cause certain representatives of the investor group to
16
<PAGE> 17
be nominated to the Board. During the fiscal year ended April 30, 1998, the
balance of the Loan owed to the Bank was paid in full.
Certain Registration Rights
The Registrant, Richard S. Stevens, Sand and Sea Partners, Sea Fair
Partners, Eli Broad, Cushman/Sea View Partners, Cushman K/Sea View Partners and
certain other shareholders of the Registrant are parties to a Registration
Rights Agreement which, as amended, provides that the Registrant shall use its
best efforts to register under the Securities Act the shares of any of the
shareholders who are party to the Registration Rights Agreement, and who
requests such registration with regard to a certain minimum number of shares of
Common Stock, at certain times when the Registrant otherwise proposes to
register certain of its securities. Such registration rights applied to the
Offering. The parties to the Registration Rights Agreement, except Stevens,
individually and collectively may make a total of two written demands for
registration of their shares so long as the demand relates to at least 20% of
the registrable shares of Common Stock then outstanding. The Registrant will pay
the expenses in connection with any such incidental registrations and two such
demand registrations. In certain circumstances such shareholders also have a
contractual right of first refusal to purchase, on a pro-rata basis, any equity
securities of the Registrant that the Registrant may propose to sell at a price
less than fair market value.
Certain Compensation Arrangements
Reference is made to "Executive Compensation -- Other Compensation
Agreements" for a description of employment arrangements and other arrangements
between the Registrant and certain officers and directors.
Certain Financing Arrangements
On November 24, 1997 Sea View entered into a one year, $1,000,000
unsecured line of credit agreement with Outside LLC, an entity affiliated with
J. Christopher Lewis, one of the Registrant's principal shareholders and a
member of its Board of Directors. This agreement provides for interest of 10% on
all amounts borrowed, requires a commitment fee of 1.25% of the total line and
is guaranteed by the Registrant. The line will be used by Sea View for seasonal
working capital needs as well as for certain renovations to Gladstone's. At
April 30, 1998, $700,000 was borrowed and outstanding under the line of credit.
The line of credit restricts any distribution to the Registrant except for
distributions for taxes paid or for repayment of intercompany loans.
The terms of the new 20-year concession agreement between the County of
Los Angeles and Sea View require Sea View to post a $2,000,000 letter of credit
as a security deposit for rental payments due to the County. In the event that
rents are not paid when due, the County may draw upon the letter of credit. The
letter
17
<PAGE> 18
of credit will be reduced after three years if Sea View completes certain
capital improvement obligations and meets a minimum net worth test for the prior
twelve months.
The Registrant posted the letter of credit by utilizing cash collateral
provided by Overhead Partners, L.P. ("Overhead"), an entity affiliated with J.
Christopher Lewis, one of the Registrant's principal shareholders and a member
of its Board of Directors. The letter of credit expires on October 31, 1998,
unless extended prior to expiration. In consideration of providing the cash
collateral, the Registrant paid Overhead $80,000 for the period November 1, 1997
through April 30, 1998, and will pay an additional fee of $100,000 for the
period beginning May 1, 1998 through October 31, 1998. In the event that any
amounts are drawn down on the letter of credit, such amounts will automatically
convert into a debt obligation of the Registrant, payable with interest ninety
days (or earlier under certain circumstances) from the date of such conversion.
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, in the State of California, on August 28, 1998.
CALIFORNIA BEACH RESTAURANTS, INC.
By: /s/ Alan Redhead
-------------------------------------
Alan Redhead, Chief Executive Officer
By: /s/ Samuel E. Chilakos
-------------------------------------
Samuel E. Chilakos, Chief Financial
Officer
19
