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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
December 29, 1999 0-14370
BUFFETS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1462294
(State of incorporation) (IRS Employer Identification No.)
1460 Buffet Way, Eagan, MN 55121
(Address of principal executive offices) (Zip code)
(651) 994-8608
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Preferred Share Purchase Rights
7% Convertible Subordinated Notes due 2002
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the shares of voting stock held by
non-affiliates of the registrant was approximately $336,931,000 at March 21,
2000, based on the closing sale price for that date as reported on The NASDAQ
National Market.
On March 21, 2000, there were 41,546,812 shares of common stock of the
Company, par value $.01 per share, outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 2000 Annual Meeting to
be held May 9, 2000 are incorporated by reference in Part III. Portions of
Registrant's Annual Report to Shareholders for the fiscal year ended December
29, 1999 (the "1999 Annual Report") are incorporated by reference in Parts I, II
and IV.
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PART I
ITEM 1. BUSINESS
GENERAL
Buffets, Inc., a Minnesota corporation ("Buffets" or the "Company"),
was organized in 1983. Its executive offices are located at 1460 Buffet Way,
Eagan, Minnesota 55121. In September 1996, Buffets acquired HomeTown Buffet,
Inc., a Delaware corporation ("HomeTown Buffet"), as discussed below. References
herein to the "Company" are to Buffets, Inc. and its subsidiaries,
Dinertainment, Inc., Distinctive Dining, Inc., HomeTown Buffet, Inc., OCB
Restaurant Co., OCB Realty Co., OCB Purchasing Co., OCB Property Co., Restaurant
Innovations, Inc. and Tahoe Joe's, Inc. unless the context indicates otherwise.
On September 20, 1996, HomeTown Buffet merged with Country Delaware,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, with
HomeTown Buffet as the surviving corporation (the "Merger"). Under the Merger,
HomeTown Buffet became a wholly-owned subsidiary of the Company. In connection
with the Merger, which was accounted for as a pooling of interests, the Company
issued a total of 13,733,728 shares of its common stock in exchange for all
outstanding shares of HomeTown Buffet common stock (at an exchange ratio of 1.17
shares of Company common stock for each share of HomeTown Buffet common stock).
The Company also assumed options covering, in the aggregate, 1,967,167 shares of
the Company's common stock in substitution for previously outstanding options to
acquire shares of HomeTown Buffet's common stock. In addition, the Company
guaranteed the obligations of HomeTown Buffet under its outstanding 7%
Subordinated Convertible Notes, and the Company's common stock will be issued
upon any conversion thereof. Approximately $41.5 million in principal amount of
these notes were outstanding at the time of the Merger.
The Company is principally engaged in the development and operation of buffet
style restaurants under the names Old Country Buffet(R) ("OLD COUNTRY BUFFET")
("COUNTRY BUFFET" in the states of Colorado and Wyoming), HomeTown Buffet(R)
("HOMETOWN BUFFET") and Granny's Buffet ("GRANNY'S BUFFET"). The Company
obtained a federal trademark registration covering the words OLD COUNTRY BUFFET
in June of 1985. Under the Merger, the Company gained access to a perpetual
license to the HOMETOWN BUFFET mark, including a California state trademark
registration and a U.S. trademark application pending to register HOMETOWN
BUFFET. The Company obtained federal trademark registration of the name "THE
ORIGINAL ROADHOUSE GRILL" in June of 1999 and the name "COUNTRY ROADHOUSE BUFFET
& GRILL" in February of 2000. The
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trademark Country Harvest Buffet(R) is licensed to the Company by Country
Harvest Buffet Restaurants, Inc. for possible use at certain restaurants
acquired from that company. "Tahoe Joe's" is a registered trademark of Tahoe
Joe's, Inc. The trademark "Granny's Buffet" was purchased pursuant to the
Granny's Buffet acquisition.
As of March 22, 2000, the Company operated 403 Company-owned
restaurants (253 OLD COUNTRY BUFFET, 126 HOMETOWN BUFFET, 11 Original Roadhouse
Grill(R) ("ORIGINAL ROADHOUSE GRILL"), six Granny's Buffet(R) ("GRANNY'S
BUFFET"), three Country Roadhouse Buffet & Grill(R) ("COUNTRY ROADHOUSE BUFFET
& GRILL"), three Tahoe Joe's Famous Steakhouse(R) ("TAHOE JOE'S FAMOUS
STEAKHOUSE"), and one Soup `N Salad Unlimited(SM) (SOUP `N SALAD)) in 38 states
(including two new openings and the sale of two restaurants since fiscal
year-end 1999). The Company contemplates that approximately 16 to 22 (eight to
ten buffet style restaurants and eight to twelve non-core buffet restaurants)
primarily freestanding Company-owned restaurants will be opened in 2000. In
addition, the Company has 24 franchised restaurants (five OLD COUNTRY BUFFET and
19 HOMETOWN BUFFET) in operation in ten states.
The Company's buffet restaurants offer a wide variety of freshly
prepared menu items, currently including soups, salads, entrees, vegetables,
non-alcoholic beverages and desserts, presented in a self-service buffet format
in which customers select the items and portions of their choice. The
restaurants' typical dinner entrees currently include chicken, carved roast beef
and ham, and two or three other hot entrees such as casseroles, shrimp and fish.
Chicken, fish and two or three other entrees usually are offered at lunch. The
Company's restaurants utilize uniform menus, recipes and ingredient
specifications, except for certain variations adopted in response to regional
preferences.
The Company's buffet restaurants have an average size of approximately
10,000 square feet, seat from 225 to 600 people, and generally include areas
that can be partitioned to accommodate private meetings and group outings. The
decor is attractive and informal. To date, the Company has located its
restaurants primarily within or adjacent to strip or neighborhood shopping
centers and, to a lesser extent, regional malls. The Company has 114
freestanding locations, 25 of which it owns. The Company's buffet restaurants
generally are open from 11:00 a.m. to 8:00 p.m. or 9:00 p.m. A majority of the
Company's buffet restaurants also serve breakfast from 8:00 a.m. to 11:30 a.m.
on weekends.
SCATTER SYSTEM FORMAT
Buffet items generally are presented to diners using a "scatter system"
rather than a conventional straight buffet serving
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line. Under the scatter system, six to eight separate food islands or counters
are typically used to present various courses of each meal to diners (for
example, salads on one island, desserts on another), with diners able to proceed
directly to those islands presenting the menu items they desire at the time. The
scatter system promotes easier food access and has helped reduce the long lines
that often occurred during peak hours in the Company's restaurants originally
utilizing the conventional straight-line serving format.
SMALL BATCH PREPARATION
To ensure freshness, hot foods and bakery items are prepared repeatedly
throughout the day in relatively small batches. Restaurant managers closely
monitor the servicing area for the quality and availability of all items. The
Company believes the freshness achieved through small batch preparation
contributes significantly to the high quality of its food.
ALL-INCLUSIVE PRICE
Depending on the market area, the Company's buffet restaurants
currently charge an all-inclusive price of $5.89 to $6.59 for lunch, Monday
through Saturday, and $6.99 to $9.19 for dinner Monday through Sunday. On
Saturday and Sunday, certain restaurants serve breakfast at prices ranging from
$5.89 to $6.69. Reduced prices are available to senior citizens who purchase an
annual senior club card for $1.00 per year and to children under the age of ten
or twelve depending on the market area. Children's prices for all meals are $.45
to $.70 per year of their age from two through ten or twelve depending on the
market and in limited markets $2.59 to $4.49 depending on age. Customers pay
prior to entering the dining area and are assisted to tables by restaurant
employees. They may return for second helpings and additional beverages and
desserts without additional charge. This all-inclusive pricing approach exists
at virtually all of the Company's buffet restaurants, although alternative
pricing and service arrangements are occasionally implemented on a test basis.
BUFFET RESTAURANT OPERATIONS AND CONTROLS
GENERAL. In order to maintain a consistently high level of food quality
and service in all of its restaurants, the Company has established uniform
operational standards which are implemented by the managers of each restaurant.
All restaurants are required to be operated in accordance with rigorous
standards and specifications relating to the quality of ingredients, preparation
of food, maintenance of premises and employee conduct.
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MENU SELECTION AND PURCHASING. Headquarters personnel prepare and
periodically revise standard recipes and menus and a list of approved
ingredients and supplies based upon the quality, availability, cost and customer
acceptance of various menu items. Food quality is maintained through centralized
coordination with suppliers and frequent restaurant visits by District
Representatives and other management personnel.
The Company purchases its food and beverage inventories and restaurant
supplies from independent suppliers approved by headquarter personnel, who
negotiate quality specifications, delivery schedules and pricing and payment
terms (typically 28 days) directly with the suppliers. Although all supplier
invoices are paid from Company headquarters, restaurant managers place orders
for inventories and supplies with, and receive shipments directly from,
suppliers. Restaurant managers approve invoices before forwarding them to
Company headquarters for payment. To date, the Company has not experienced any
difficulties in obtaining food and beverage inventories or restaurant supplies,
and the Company does not anticipate that any material difficulties will develop
in the foreseeable future.
RESTAURANT MANAGEMENT. Each buffet restaurant typically employs a
Senior General Manager or General Manager, Kitchen Manager, Service Manager, and
one to two assistant managers. Each of the Company's restaurant General Managers
has primary responsibility for day-to-day operations in one of the Company's
restaurants, including customer relations, food service, cost controls,
restaurant maintenance, personnel relations, implementation of Company policies
and the restaurant's profitability. A portion of each general manager's and
other restaurant manager's compensation depends directly on the restaurant's
profitability. In addition, restaurant managers may be eligible to received
stock options under the Company's current stock option program entitling them to
acquire an equity interest in the Company. In 1997, the Company also implemented
a "PRIDE" program providing financial incentives to General Managers making a
three year service commitment in a single restaurant. The program was designed
to enhance the retention of restaurant managers and to build a sense of
proprietorship. The Company believes that its compensation policies have been
important in attracting, motivating and retaining qualified operating personnel.
Each restaurant general manager reports to a District Representative,
each of whom in turn reports to a Regional Director (currently 12 persons). Each
Regional Director reports to one of four divisional heads (two divisional Vice
Presidents and two Senior Regional Directors), who in turn report to the
Company's Executive Vice President of Operations.
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The Company maintains centralized financial and accounting controls for
its restaurants. On a daily basis, restaurant managers forward customer counts,
sales, labor costs and deposit information to Company headquarters. On a weekly
basis, restaurant managers forward a summarized profit and loss statement, sales
report, and supplier invoices. Payroll data is generally forwarded every two
weeks.
MANAGEMENT TRAINING. The Company has a series of training programs that
are designed to provide managers with the appropriate knowledge and skills
necessary to be successful in their current position. All new restaurant
managers hired from outside the Company and hourly employees considered for
promotion to restaurant management are required to complete nine days of
classroom training at the corporate headquarters in Eagan, Minnesota. After
their initial instruction, new management candidates then continue their
training for two to four weeks in a certified training restaurant in the field.
The information covered includes basic management skills, food production, labor
management, operating programs and human resource management.
Advancement is tied to both current operational performance and
training. Individuals designated for promotion to the position of General
Manager attend a specialized 8 day training program conducted at the corporate
headquarters. This program focuses on advanced management skills with emphasis
on team building and performance accountability.
In addition to these programs, a series of field seminars are conducted
for all existing management covering topics from ServSafe, the Company's food
safety procedures, to management and human resource skills.
OTHER (NON-BUFFET) RESTAURANT CONCEPTS.
The Company currently operates four restaurant concepts, comprising 18
restaurants, that differ from the core buffet business. The newest concept, SOUP
`N SALAD UNLIMITED opened in December 1999. It is a limited buffet, offering
assorted soups, salads, breads and sandwiches. The Company purchased two TAHOE
JOE'S FAMOUS STEAKHOUSES in April 1999 and has opened one additional unit in
2000. The three Tahoe Joe's Famous Steakhouses are upscale casual dining
restaurants featuring steaks, seafood, and various other entrees served in large
portions in a fun atmosphere. Three COUNTRY ROADHOUSE BUFFET & GRILLs are
currently in operation, featuring many of the elements of the Company's buffet
restaurants, while adding display cooking of grill offerings in a relaxed
country atmosphere. The 11 Company operated ORIGINAL
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ROADHOUSE GRILL restaurants do not utilize buffet style food service, but
instead feature steaks, seafood and other entrees ordered from a menu and then
prepared using an "on display" grill. At the commencement of HomeTown's
development activities involving its ORIGINAL ROADHOUSE GRILL restaurants, it
engaged a predecessor in interest to Roadhouse Grill, Inc. to provide certain
consulting services in exchange for the payment of defined consulting fees. That
agreement was terminated by the mutual agreement of the parties in March, 1998
and the Company and Roadhouse Grill, Inc. are free to develop their respective
variant on the ROADHOUSE GRILL theme without restriction. The Company agreed, as
part of the termination understanding, to rename its existing and future
ROADHOUSE GRILL restaurants with an alternative name that adds one or more words
before "ROADHOUSE" or "ROADHOUSE GRILL" and subsequently adopted the ORIGINAL
ROADHOUSE GRILL tradename. The ORIGINAL ROADHOUSE GRILL and the Tahoe Joe's
Famous Steakhouse restaurants are currently the Company's only units serving
alcohol. The real estate leases for the buffet restaurants generally reserve the
right to serve alcohol although this privilege has not been exercised to date.
FRANCHISING AND JOINT VENTURES
OLD COUNTRY BUFFET FRANCHISES. There are currently five franchised OLD
COUNTRY BUFFET restaurants in Nebraska and Oklahoma, owned by two franchisees.
The Company's OLD COUNTRY BUFFET franchise agreements generally have initial
terms of 15 years and require the franchisee to pay an initial fee of $25,000
and continuing royalties equal to four percent of the franchisee's sales. The
Company has an agreement with each franchisee whereby the Company has options
exercisable at various times over the next several years to repurchase the Old
Country Buffet restaurants developed by such franchisee at a predetermined
formula price based principally on restaurant gross sales.
HOMETOWN BUFFET FRANCHISES. HomeTown Buffet has three franchisees: HTB
Restaurants, Inc. ("HTB Restaurants"), Chi-Chi's, Inc. ("Chi-Chi's") and Carlton
A. Hargrave, Inc. ("Hargrave").
With respect to each franchised restaurant, HTB Restaurants and
HomeTown Buffet entered into a separate franchise agreement. HTB Restaurants
paid an initial franchise fee for each new HOMETOWN BUFFET restaurant opened and
a percentage royalty fee based on gross sales. Under its agreements with HTB
Restaurants, HomeTown Buffet has a right of first refusal with respect to the
sale of the HOMETOWN BUFFET restaurants operated by HTB Restaurants and any
transfer of franchise rights granted by HomeTown to HTB Restaurants would
require HomeTown Buffet's consent, which may not be unreasonably withheld.
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In May 1993, Chi-Chi's opened a HOMETOWN BUFFET restaurant in Peabody,
Massachusetts. Chi-Chi's opened a second franchised unit in March 1994 in
Wichita, Kansas.
Hargrave operates a single franchised restaurant in Calexico,
California, which opened in December 1993. HomeTown Buffet served as general
contractor for the restaurant and in connection with the construction loaned
Hargrave approximately $150,000. The loan was fully paid in 1994. In April 1995
HomeTown Buffet made a loan to Hargrave in the principal amount of $100,000 and
an additional $100,000 in October 1995 under a promissory note that permits
Hargrave to borrow up to $200,000 in principal amount. The note provides for
interest to be paid at 1% above the announced reference rate of USBank. All
outstanding principal and interest on the note was due on December 31, 1995 and
remains due and payable at this time. HomeTown Buffet agreed to defer Hargrave's
franchise royalty payments, commencing April 1995. Hargrave resumed paying
franchise royalty payments starting July 17, 1997 with prior unpaid royalties
still due and payable.
HomeTown Buffet's standard franchise agreement has a 15-year term (with
two five-year renewal options) and provides for a one-time payment to HomeTown
Buffet of an initial franchise fee and a continuing royalty fee at a variable
rate of between 2% and 4% of gross sales. HomeTown Buffet collects weekly sales
reports from its franchisees as well as periodic and annual financial
statements.
Each HOMETOWN BUFFET franchisee is responsible for selecting the
location for its restaurant, subject to HomeTown Buffet approval. HomeTown
Buffet considers such factors as demographics, competition, traffic volume and
patterns, parking, site layout, size and other physical characteristics in
approving proposed sites. In addition, all site and building plans and
specifications must be approved by HomeTown Buffet.
Franchisees must operate their HOMETOWN BUFFET restaurants in
compliance with HomeTown Buffet's operating and recipe manuals. Franchisees are
not required to purchase food products or other supplies through HomeTown
Buffet's or the Company's suppliers. Each franchised restaurant is required at
all times to have a designated Manager and Assistant Manager who have completed
the required manager training program. For the opening of a restaurant, HomeTown
Buffet provides consultation and makes its personnel generally available to a
franchisee. In addition, HomeTown Buffet sends a team of personnel to the
restaurant for up to two weeks to assist the franchisee and its managers in the
opening, the initial marketing and training effort as well as the overall
operation of the restaurant.
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The HOMETOWN BUFFET franchisees do not currently have any contractual
rights to develop additional HomeTown Buffet restaurants, and they and their
affiliates are constrained from certain development activities involving other
buffet restaurants.
HomeTown Buffet may terminate a franchise agreement for a number of
reasons, including a franchisee's failure to pay royalty fees when due, failure
to comply with applicable laws, or repeated failure to comply with one or more
requirements of the franchise agreement. Many state franchise laws limit the
ability of a franchisor to terminate or refuse to renew a franchise. Generally,
a franchisee may terminate a franchise agreement only if HomeTown Buffet
violates a material and substantial provision of the agreement and fails to
remedy the violation within a specified period.
JOINT VENTURES. The Company has taken advantage of joint venture
opportunities from time to time, principally as a means of entering new
geographic markets or testing new restaurant concepts.
On March 7, 1997, the Company used this approach to test a new
restaurant concept under the tradename PIZZAPLAY. The PIZZAPLAY concept combines
Italian-style buffet service with family oriented games. One location opened
December 2, 1997 in Columbus, Ohio and was closed in early 1999. The Company
holds 80% of the outstanding capital stock of Dinertainment, Inc., the
subsidiary that operated the one PIZZAPLAY restaurant.
On April 7, 1999 the Company acquired an 80% interest in Tahoe Joe's
Inc., an operator of two restaurants and the Tahoe Joe's Famous Steakhouse
concept for approximately $6.8 million, net of liabilities and cash acquired.
One additional restaurant has been opened in 2000.
The Company at present is not actively seeking to grant additional
franchises or enter into additional joint ventures relating to its various
restaurant concepts. It may, however, continue to utilize joint ventures from
time to time to test new restaurant concepts.
COMPETITION
The food service industry is highly competitive. Menu, price, service,
convenience, location and ambiance are all important competitive factors, with
the relative importance of many such factors varying among different segments of
the consuming public.
By providing a wide variety of food and beverages at
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reasonable prices in an attractive and informal environment, the Company seeks
to appeal to a broad range of value-oriented consumers. The Company believes
that its primary competitors in this industry segment are other buffet and
cafeteria restaurants, and traditional family and casual dining restaurants with
full menus and table service. Secondary competition arises from many other
sources including but not limited to home meal replacement, fast food, and
others. The Company believes that its success to date has been due to its
particular approach combining pleasant ambiance, high food quality, breadth of
menu, cleanliness and reasonable prices with satisfactory levels of service and
convenience.
Sales are seasonal, with a lower percentage of annual sales occurring
in most of its current market areas during the winter months. Sales may also be
affected by unusual weather patterns or matters of public interest that compete
for the customers' attention.
ADVERTISING AND PROMOTION
The Company's advertising spending was 1.3% and 2.0% of restaurant
sales during 1997 and 1998, respectively. In 1999, the Company increased its
advertising to 2.4% of restaurant sales and expects to increase spending to
approximately 2.7% of restaurant sales in 2000.
REGULATION
The Company's restaurants must be constructed to meet federal, state
and local building and zoning requirements and must be operated in accordance
with state and local regulations relating to the preparation and serving of
food. The Company is also subject to various federal and state labor laws which
govern its relationships with its employees, including those relating to minimum
wages, overtime and other working conditions. Environmental regulations have not
had a material effect on the operations of the Company. The Company to date has
been successful in obtaining all necessary permits and licenses and complying
with applicable regulations, and does not expect to encounter any material
difficulties in the future with respect to these matters, subject to the
discussion in the section below captioned "RISK FACTORS ASSOCIATED WITH
REGULATION."
TRADEMARKS
In June 1985, the Company obtained a federal trademark registration
covering the words "Old Country Buffet." As previously stated, the Company has
subsequently obtained trademark
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protection for additional marks used in its business, including exclusive
license rights to the trademarks of HOMETOWN BUFFET in connection with the
Merger, ORIGINAL ROADHOUSE GRILL, COUNTRY ROADHOUSE BUFFET & GRILL, and PIZZA
PLAY. Generally, federal registration of a trademark gives the registrant the
exclusive use of the trademark in the United States in connection with the goods
or services associated with the trademark, subject to the common law rights of
any other person who began using the trademark (or a confusingly similar mark)
prior to the date of federal registration. Because of the common law rights of
such a pre-existing restaurant in certain portions of Colorado and Wyoming, the
Company's restaurants in those states use the name "Country Buffet." The Company
filed application for federal registration of the trademark "SOUP 'N SALAD
UNLIMITED" "Tahoe Joe's" is registered trademark of Tahoe Joe's, Inc. The
trademark "Granny's Buffet" was purchased pursuant to the Granny's Buffet
acquisition. The Company intends to take appropriate steps to develop and
protect its various marks.
EMPLOYEES
As of February 23, 2000, the Company employed approximately 25,000
persons, including approximately 440 supervisory and administrative, 1,835
managerial, and 22,725 restaurant employees. Approximately 58% of the Company's
restaurant employees work part-time. Relations with employees have been
satisfactory and no work stoppages due to labor disputes have occurred. The
Company anticipates that its work force will increase by approximately 5% by the
end of 2000, subject to unexpected turnover levels, availability of qualified
personnel and changes in restaurant development plans.
RESTAURANT DEVELOPMENT
GENERAL. The Company opened or acquired 25 restaurants and closed eight
in 1999 and expects to open or acquire approximately 16 to 22 primarily
freestanding restaurants in 2000 (approximately eight to ten buffet restaurants
and eight to twelve non-core buffet restaurants. When freestanding units
predominate the overall new unit development, such as is expected in 2000, the
Company can expect to realize higher development costs associated with the cost
of land, greater expense for constructing the building shell, and incrementally
higher expenditures for labor, materials, and general construction risks.
The ability of the Company to open new restaurants, and the allocation
of new restaurants among the Company's currently available and future concepts,
depends on a number of factors, including its ability to find suitable locations
and negotiate acceptable leases and land purchases, its ability to attract and
retain a sufficient number of qualified restaurant managers, the
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comparative potential return and risk associated with the particular restaurant
concept, and the availability of capital. The Company actively and continuously
attempts to identify and negotiate leases and land purchases for additional new
locations, and expects that it will be able to achieve its intended development
schedule for 2000, though there is no assurance that this will be the case.
GEOGRAPHIC EXPANSION STRATEGY. The Company initially concentrated its
restaurant development in the Midwest and then after several years expanded to
other regions of the country. The Merger strengthened the Company's presence in
California and other key markets. The Company currently operates in 38 states,
41 states including franchised restaurants. The Company generally attempts to
cluster its restaurants in geographic areas to achieve economies of scale in
costs of supervision, marketing and purchasing.
SITE SELECTION CRITERIA. The primary criteria typically considered by
the Company in selecting new locations are a high level of customer traffic,
convenience to both lunch and dinner customers in demographic groups (such as
families and senior citizens) that tend to favor the Company's restaurants, and
the occupancy cost of the proposed restaurant. The Company has historically
found that these criteria frequently are satisfied by well-located strip
shopping centers that benefit from cotenancy with strong national retailers and
visibility to high traffic roads. All but 153 of the Company's current
restaurants are located in such centers. Thirty-nine of the other 153
restaurants are located in regional or other enclosed shopping malls and 114 are
located in freestanding structures. The Company predominately pursues
freestanding locations when the projected return on investment falls within
acceptable ranges or unique market positioning objectives are involved. The
Company typically requires a population density of at least 100,000 within five
miles of each new location, and currently is concentrating its development
efforts on urban areas that can accommodate a number of Company restaurants. The
Company has developed a small market prototype for test in four markets with a
population of at least 75,000. There is no certainty that the test will prove
successful or that the smaller prototype unit will be developed beyond the test
restaurant. Because OLD COUNTRY BUFFET or HOMETOWN BUFFET restaurants typically
draw a significant volume of customers, and because of the Company's financial
strength, the Company often has been able to negotiate favorable lease terms.
RESTAURANT CONSTRUCTION. In an effort to better control costs and
improve quality, the Company is closely involved in the construction of its
restaurants, and also in the acquisition and
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installation of fixtures and equipment. The Company, through its subsidiary OCB
Realty Co., generally acts as its own general contractor, using restaurant
designs prepared by the Company's own staff with final documents completed by an
outside architectural firm. The Company normally satisfies the equipment and
other restaurant supply needs of its new restaurants by purchasing from
equipment suppliers. Restaurants located in shopping centers typically open
approximately 11 weeks after construction begins, while freestanding restaurants
typically open approximately 17 weeks after construction begins. Freestanding
restaurants opened in 1999 cost an average of approximately $1,235,000 for
building and leasehold improvements and approximately $666,000 for equipment and
furnishings. It is expected that restaurants opening in 2000 will be primarily
freestanding buildings.
FORWARD-LOOKING INFORMATION
This Form 10-K, together with the Company's other ongoing securities
filings, press releases, conference calls and discussions with securities
analysts and other communications contains certain forward-looking statements
that involve risks and uncertainties. These statements relate to the Company's
future plans, objectives, expectations and intentions. These statements may be
identified by the Company using words such as "expects," "anticipates,"
"intends," "plans" and similar expressions. The Company's actual results could
differ materially from those disclosed in these statements, to various factors,
including the following "RISK FACTORS" and factors set forth elsewhere in this
Form 10-K. The Company assumes no obligation to publicly release the results of
any revision or updates to forward-looking statements or these risk factors to
reflect future events or unanticipated occurrences.
RISK FACTORS
Current and prospective shareholders should carefully consider the
following risk factors before trading in the Company's securities. This list of
risk factors is not exclusive. If any of the following risks actually occur,
they could have a material negative effect on the Company's business, financial
condition, operating results or cash flows. This could cause the trading price
of the Company's securities to decline, and security holders may lose part or
all of their investment in the Company.
RISKS ASSOCIATED WITH NEW DEVELOPMENT
The Company has historically added restaurants each year either through
new construction, acquisition, or both. It
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currently expects that this practice will continue in 2000 to the extent
described above in the section captioned "Restaurant Development." However, a
large number of variables affect restaurant development and the Company cannot
predict with certainty the ultimate level of restaurant additions, if any, in
any particular fiscal year. This is due to the unique aspects associated with
development transactions, such as the date sites become available, the speed
with which the Company can obtain required permits, the availability of
construction labor and materials, and how quickly the new restaurants can be
staffed. These factors also make it difficult to predict when new restaurants
will open and produce revenue.
Variables influencing new restaurant additions include the level of
success in identifying suitable locations and the negotiation of acceptable
leases and land purchases. This may become more difficult as competition
heightens for optimal sites. Other variables include, but are not limited to,
general competitive factors, land covenants restricting the Company's use of
sites, and signage restrictions imposed by land owners or governmental entities.
Traditionally, the Company has used cash flow from operations as its
primary funding for restaurant additions. The Company cannot guarantee that this
source of capital will be sufficient to attain the desired development levels if
adverse changes occur affecting revenues, profitability or cash flow from
operations. The Company's recent focus on freestanding rather than mall
locations has reduced the frequency and amount of landlord contributions towards
construction costs, reducing the capital available for development. The
Company's ability to purchase (rather than build) additional restaurants also
depends on the factors described in this section, as well as other factors.
These factors include the Company's ability to convert purchased restaurants to
one of the Company's existing restaurant concepts and to integrate them into the
Company's business or, alternatively, to successfully operate the acquired
business using its existing format.
Acquisitions involve a number of risks that could adversely affect the
Company's operating results, including the diversion of management's attention,
the assimilation of the operations and personnel of the acquired companies, the
amortization of acquired intangible assets and the potential loss of key
employees and established customers. No assurances can be given that any
acquisition or investment by the Company will not materially and adversely
affect the Company or that any such acquisition will enhance the Company's
business. If the Company ever determines to make major acquisitions of other
businesses or assets, the Company may be required to sell additional equity or
debt securities or
15
<PAGE> 16
obtain additional credit facilities. The sales, if any, of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders.
RESTAURANT OPERATIONAL RISKS
The Company's restaurant operations are affected by changes in the cost
of food and labor and its ability to anticipate such changes. Operations depend
upon the complete and timely delivery of food and non-food items to the
restaurants. Consequently, interruptions in the flow of such products,
variations in product specifications, changes in product costs and similar
factors can have a material impact on the Company's results.
There have been historical instances of other reputable food service
companies being materially and adversely impacted by food-borne illness
incidents. Some of these incidents have involved third party food suppliers and
transporters outside of their reasonable control. The Company has rigorous
internal standards, training and other programs to attempt to minimize the risk
of these occurrences. However, the Company cannot guarantee that these efforts
will be fully effective in preventing all food-borne illnesses. New illnesses
resistant to current precautions may also develop in the future.
The Company also shares a risk common to all multi-unit food service
businesses. Specifically, one or more instances of food-borne illness in a
Company or franchised restaurant, poor health inspection scores, or negative
publicity can have a material negative impact extending far beyond the
restaurant involved to affect some or all of the Company's other foodservice
operations. This risk exists even if it is later determined that the incidents
were wrongly attributed to the Company's restaurants, or that the negative
publicity was false or misleading.
The Company's buffet restaurants utilize a service format that is
heavily dependent upon self-service by its customers. Any development that would
materially impede or prohibit the Company's continued use of a self service food
service approach would have a material adverse impact on the Company's primary
business.
The Company has an active Research and Development Department. The R&D
function exists to enhance the food offerings, food preparation systems, and
general service delivery of the Company's existing restaurant concepts. It is
also utilized to create new restaurant concepts for test. Innovations may also
arise as the result of acquisitions or joint ventures. New restaurant concepts
share a common characteristic due to their lack of a track record, that of
unpredictable long term potential. Consequently, during
16
<PAGE> 17
the early period of a new restaurant concept's life it is often unclear whether
it will turn into a major expansion vehicle or merely be a limited-unit test of
short duration.
The Company believes that it has been benefitted by television
marketing programs in recent years. Marketing programs are generally most
effective in the period immediately following their introduction when they
initiate trial usage by new customers. In the markets where the Company utilize
television marketing, virtually all have received coverage for more than a year.
It is therefore possible that future advertising in these markets will be less
successful than when the programs were first aired. The final level of
television advertising expenditures in 2000 will depend on the effectiveness of
the commercials, the availability and cost of advertising air time, and changes
in the Company's marketing priorities.
The Company periodically reviews the operating results of individual
restaurants to determine if impairment charges on underperforming assets are
necessary, and the need for restaurant closings, and it is reasonable to expect
that such actions will be required from time to time in the future. Impairment
charges reduce the profits of the Company. They are required by accounting
principles when an asset, such as a restaurant, performs so poorly that the
Company determines that the asset is worth less than its value as stated in the
Company's accounting records.
The Company's sales volumes fluctuate seasonally, and are generally
higher in the summer months and lower in the winter months overall.
The Company has not experienced a significant overall impact from
inflation. If operating expenses increase due to inflation, the Company recovers
increased costs by increasing menu prices. However, competition may limit or
prohibit future such increases, as discussed in the section below entitled
"COMPETITIVE RISKS."
Previous results at the Company's restaurants and at the Company
overall may not be indicative of future performance, as a result of any or all
of the risk factors discussed in the various sections in this Form 10-K
incorporating the words "RISK FACTORS."
HUMAN RESOURCE RELATED RISKS
The Company operates in the service sector and is extremely dependent
upon the availability of qualified restaurant personnel. Availability of staff
varies widely from location to location. Difficulty in recruiting and retaining
personnel can increase the cost of restaurant operations and temporarily delay
the openings of
17
<PAGE> 18
new restaurants. It can also cause higher employee turnover in the affected
restaurants. Additionally, competition for qualified employees exerts pressure
on wages paid to attract qualified personnel, resulting in higher labor costs,
together with greater expense to recruit and train them.
The operation of buffet style restaurants is materially different than
certain other restaurant concepts. Consequently, the retention of executive
management that is familiar with the Company's core business is important to the
Company's continuing success. The departure of multiple executives in a short
period of time could have an adverse impact on the Company's business.
The Company strives to maintain favorable relations with its employees
through various programs and initiatives. It believes that these efforts have
contributed to the organization's historical success as well as having
contributed to the absence of any collective bargaining. Adverse developments in
these areas could negatively affect the Company's business.
Various employment related legal risks also exist, which are discussed
in more detail in the sections below entitled "REGULATORY FACTORS" and
"LITIGATION RISKS."
RISKS ASSOCIATED WITH NON-COMPANY OWNED RESTAURANT OPERATIONS
The Company is limited in the manner in which it can regulate its
franchised restaurants, especially in real-time. If a franchised restaurant
fails to meet the Company's franchisor operating standards, the Company's own
restaurants could be adversely affected due to customer confusion or negative
publicity. A similar risk exists with respect to totally unrelated foodservice
businesses if customers mistakenly associate such unrelated businesses with the
Company's own operations.
RISKS ASSOCIATED WITH GENERAL CONDITIONS
The confidence of consumers generally, together with changes in
consumer preferences, can have a significant impact on the Company's results.
Positive or negative trends in weather condition can have an exceptionally
strong influence on the Company's business. This effect is heightened by the
fact that most of the Company's restaurants are in geographic areas experiencing
extremes in weather. The Company's success also depends to a significant extent
on factors affecting discretionary consumer spending, including economic
conditions, disposable consumer income and consumer confidence. Adverse changes
in these factors could reduce guest traffic or impose practical limits on
pricing, either of which could materially adversely affect the
18
<PAGE> 19
Company's business, financial condition, operating results or cash flows.
COMPETITIVE RISKS
The Company operates in a highly competitive industry. Competitive
pressures may have the affect of limiting the Company's ability to increase
prices, with consequent pressure on operating earnings. This environment makes
it more difficult for the Company to continue to provide high service levels
while maintaining the Company's reputation for superior value, without adversely
affecting operating margins.
REGULATORY FACTORS
The Company is subject to extensive government regulation at a federal,
state and local government level. These include, but are not limited to,
regulations relating to the sale of food (and alcoholic beverages in the
Company's full service restaurants). In the past, the Company has been able to
obtain and maintain necessary governmental licenses, permits and approvals.
However, difficulty or failure in obtaining them in the future could result in
delaying or canceling the opening of new restaurants. Local authorities may
suspend or deny renewal of the Company's governmental licenses if they determine
that the Company's conduct does not meet the standards for initial grant or
renewal. Although the Company has satisfied governmental licensing requirements
for its existing restaurants, the Company cannot be sure that these approvals
will be forthcoming at future locations. This risk would be even higher if there
was a major change in the licensing requirements affecting the Company's types
of restaurants.
The Company is also subject to certain states' "dram shop" statutes
with respect to its restaurants that serve alcohol. These statutes generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment that served alcoholic beverages to the intoxicated person.
The Company carries liquor liability coverage as part of its existing
comprehensive general liability insurance. If the Company were to significantly
expand the number of restaurants serving alcohol, an adverse trend in alcohol
related judgments in excess of the Company's insurance coverage, or the
Company's failure to obtain and maintain insurance coverage, could materially
and adversely affect the Company.
Various federal and state labor laws govern the Company's relationship
with its employees and affect operating costs. These laws include minimum wage
requirements, overtime, unemployment tax rates, workers' compensation rates,
citizenship requirements and
19
<PAGE> 20
sales taxes. Significant additional government-imposed increases in the
following areas could materially adversely affect the Company's business,
financial condition, operating results or cash flow:
* minimum wages
* mandated health benefits
* paid leaves of absence
* increased tax reporting
* revisions in the tax payment requirements for employees who
receive gratuities
The Federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. The Company
believes that its restaurants are designed to be accessible to the disabled.
However, mandated modifications to the Company's facilities to make different
accommodations for disabled persons could result in material unanticipated
expense.
The Company is subject to federal, state and local laws, regulations
and ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous materials resulting from, sites
of past spills, disposals or other releases of hazardous materials (together,
"Environmental Laws"). In particular under applicable Environmental Laws, the
Company may be responsible for remediation of environmental conditions and maybe
subject to associated liabilities (including liabilities resulting from lawsuits
brought by private litigants) relating to its restaurants and the land on which
its restaurants are located, regardless of whether the Company leases or owns
the restaurants or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. There can
be no assurance that environmental conditions relating to prior, existing or
future restaurants or restaurant sites will not have a material adverse affect
on the Company.
LITIGATION RISKS
The Company is from time to time the subject of complaints or
litigation from guests alleging illness, injury or other loss associated with
the Company's restaurants. Adverse publicity resulting from these allegations
may materially adversely affect the Company and the Company's restaurants. This
may be true whether or not the allegations are valid or the Company is liable.
20
<PAGE> 21
In addition, employee claims against the Company based on, among other things,
discrimination, harassment or wrongful termination may divert the Company's
financial and management resources that would otherwise be used to benefit the
future performance of the Company's operations. The Company has been subject to
these employee claims from time to time, and a significant increase in the
number of these claims or successful claims could materially adversely affect
the Company's business, financial condition, operating results or cash flows.
The Company is currently defending a lawsuit based on alleged violations of the
securities laws by the Company. See "LEGAL PROCEEDINGS" below for a discussion
of this lawsuit and the related risks.
YEAR 2000 ISSUE RISKS
Computer programs have historically been written to abbreviate dates by
using two digits instead of four digits to identify a particular year. The
so-called "year-2000 problem" or "millennium bug" is the inability of computer
software or hardware (collectively, "Systems") to recognize or properly process
dates ending in "00" and dates after the year 2000. Significant attention was
focused on the year 2000 to update or replace such Systems in order to avoid
System failures, miscalculations, or business interruptions that might otherwise
result.
As of March 13, 2000, the Company has not experienced and does not
anticipate any adverse effects on the Company's Systems and operations as a
result of year-2000 issues. Further, as of March 13, 2000, the Company has not
experienced any operating problems or product failures as a result of year-2000
issues with its vendors, service providers, or customers.
The "year-2000" project costs for 1997, 1998 and 1999 total $3.4
million of which $2.0 million were hardware and software upgrades and $1.4
million were consultant fees.
RISKS ASSOCIATED WITH PURCHASING, OWNING, OR SELLING THE COMPANY'S SECURITIES
The Company's securities currently trade publicly on the NASDAQ
National Market. The market price of the Company's securities fluctuate
significantly. These price changes do not necessarily correlate to movements in
the overall stock market. The stock market has from time to time experienced
extreme price and volume fluctuations, which has often been unrelated or
disproportionate to the operating performance of particular companies.
Fluctuations or decreases in the trading price of the Company's securities may
adversely affect the ability of security
21
<PAGE> 22
holders to trade in the Company's securities. In addition, such fluctuations
could adversely affect the Company's ability to raise capital through future
equity financing should the Company determine at some point that it is in its
best interest to do so.
ITEM 2. PROPERTIES
The Company has completed development and moved into a new
Company-owned corporate headquarters building located in Eagan, Minnesota as of
March 13, 2000. The facility replaces three leased buildings whose leases expire
April 30, 2000. The new building contains approximately 100,000 square feet and
consolidates the executive offices, training facility, and warehouse. The costs
associated with the building, improvements, equipment and fixtures for the Eagan
facility total $15.7 million. The building is situated on one of four parcels
acquired in 1995 for $2.1 million, including improvement costs. The Company also
owns a 72,000 square foot facility in Marshfield, Wisconsin that it utilizes for
the fabrication of cabinetry, fixtures and upholstery of chairs and booths for
its restaurants. The Company operates a regional and executive office in San
Diego, California. This office is comprised of approximately 2,800 square feet.
Its lease expires October 24, 2001, with one two-year extension available.
Until 2001, the Company remains obligated under certain leases related
to approximately 32,000 square feet of office space in San Diego, California,
previously utilized by HomeTown Buffet as its headquarters. All of that space
has been sublet to third parties. However, the amount of rent receivable by the
Company pursuant to such subleases is less than the rent payable by the Company
pursuant to the principal leases.
Most of the Company's restaurants are located in leased facilities,
although the Company has increasingly considered land purchases for freestanding
restaurants in instances where an acceptable return or market positioning
justifies the additional investment. One hundred fourteen restaurants are
located in freestanding buildings, 39 are located in regional or other enclosed
shopping malls, and 250 are located in strip or neighborhood shopping centers.
Most of the leases provide for a minimum annual rent and additional rent
calculated as a percentage of restaurant sales, generally 3% to 5%, if the rents
so calculated exceed the minimum. The initial terms of the Company's leases
generally range from ten to fifteen years, and the leases usually have renewal
options for additional periods of five to fifteen years.
The Company owns substantially all of the equipment, furniture and
fixtures in its restaurants. Leasehold improvements made by
22
<PAGE> 23
the Company in leased premises usually become the property of the landlord upon
expiration or termination of the lease. Historically most of the Company's strip
mall landlords contributed towards a portion of the cost of leasehold
improvements by way of either rent concessions or cash contributions.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that their outcome will not
have a significant effect on the Company's consolidated financial statements.
The Company and seven of its present and/or former directors and
executive officers have been named as defendants in a Corrected, Third Amended,
Consolidated Class Action Complaint (the "third complaint") brought on behalf of
a putative class of all purchasers of common stock of the Company from October
26, 1993 through October 25, 1994 (the "class period") in the United States
District Court for the District of Minnesota. The third complaint alleges that
the defendants made misrepresentations and omissions of material fact during the
class period with respect to the Company's operations and restaurant development
activities, as a result of which the price of the Company's stock allegedly was
artificially inflated during the class period. The third complaint further
alleges that certain defendants made sales of common stock of the Company during
the class period while in possession of material undisclosed information about
the Company's operations and restaurant development activities. Plaintiffs
allege that the defendants' conduct violated the Securities Exchange Act of 1934
and seek damages of approximately $90 million and an award of attorneys fees,
costs and expenses.
The defendants have answered the third complaint, denying all liability
and raising various affirmative defenses. Discovery was substantially completed
as of February 26, 1999. By Order entered on June 17, 1999, as amended by Order
dated August 18, 1999, the District Court certified the proposed plaintiff
class.
Management of the Company continues to believe that the action is
without merit and is vigorously defending it. On May 28, 1999, the defendants
moved for summary judgment on all claims. Plaintiffs also moved for partial
summary judgement against the Company and Mr. Hatlen for a portion of the class
period. The District Court heard oral argument on the respective motions on
December 10, 1999, but has not yet ruled on the motions.
The defendants have given notice of the plaintiffs' claim to its
insurance carrier. The insurance company is reimbursing the
23
<PAGE> 24
defendants for a portion of the costs of defense under a reservation of rights.
Although the outcome of this proceeding cannot be predicted with certainty, the
Company's management believes that while the outcome may have a material effect
on earnings in a particular period, the probability of a material effect on the
financial condition of the Company, not covered by insurance, is slight.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered by this report.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT.
The officers of the Company are elected annually by the Board of
Directors to serve until the next annual meeting of the Board. Sixteen officers
were so elected by the Board of Directors in 1999, including ten executive
officers (currently, those designated as Senior Vice President or higher) who
serve on the Company's "Executive Committee." The following table contains
information regarding the executive officers, and all persons chosen to become
executive officers, of the Company.
<TABLE>
<CAPTION>
Executive Principal Occupation and
Officer Business Experience
Name and Age Since For Last Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Glenn D. Drasher (48) 1997 Executive Vice President of
Marketing of the Company since
January 1997; Executive Vice
President of Country Kitchen
International, family dining
restaurants, June 1996 to January
1997; Vice President of Marketing
of Country Hospitality, September
1993 to June 1996.
David Goronkin (37) 1996 Executive Vice President of
Operations for the Company since
September 1996; Vice President of
Operations of HomeTown Buffet, May
1996 to September 1996; Director
of Operations of HomeTown Buffet,
November 1994 to May 1996.
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Executive Principal Occupation and
Officer Business Experience
Name and Age Since For Last Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
Clark C. Grant (48) 1986 Senior Vice President of Finance
since March 1998; Treasurer of the
Company since May 1986; Executive
Vice President of Finance and
Administration, December 1994 to
March 1998.
Roe H. Hatlen (56) 1983 Co-Founder of the Company;
Chairman and Chief Executive
Officer of the Company since
December 1983.
Kerry A. Kramp (44) 1996 President of the Company since
September 1996, Chief Operating
Officer since August 1998 and
Director since February 2000;
President of HomeTown Buffet from
December 1995 to September 1996
and its Chief Operating Officer
from May 1995 to September 1996;
Vice President of Operations of
HomeTown Buffet from February 1992
to December 1995.
H. Thomas Mitchell (43) 1998 Executive Vice President and Chief
Administrative Officer since March
1998; General Counsel and
Secretary of the Company since
June 1995; Vice President from
June 1995 to March 1998; Corporate
Counsel from June 1994 to June
1995.
Jean C. Rostollan (48) 1991 Executive Vice President of
Purchasing since September 1996;
Assistant Secretary of the Company
since February 1992; Executive
Vice President of Development and
Purchasing, December 1994 to
September 1996.
Executive Principal Occupation and
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Officer Business Experience
Name and Age Since For Last Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
C. Dennis Scott (53) 1996 Co-Founder and Vice Chairman since
September 1996; Chief Operating
Officer of the Company from
September 1996 to August 1998;
Co-Founder of HomeTown Buffet;
Director and Chief Executive
Officer of HomeTown Buffet or its
predecessor companies since 1989.
K. Michael Shrader (56) 1996 Executive Vice President of Human
Resources and Training of the
Company since March 1997; Vice
President of Human Resources of
the Company, September 1996 to
March 1997; Vice President of
Human Resources of HomeTown
Buffet, January 1996 to September
1996; Director of Human Resources
of HomeTown Buffet, August 1995 to
January 1996; Selection Analyst,
the Gallup Organization, February
1995 to August 1995; Self-employed
business consultant, March 1993 to
February 1995.
Neal L. Wichard (57) 1996 Senior Vice President of Real
Estate of the Company since
September 1996; Co-Founder of
HomeTown Buffet; Vice Chairman of
HomeTown Buffet, October 1995 to
September 1996; Secretary and
Director of HomeTown Buffet, July
1990 to September 1996; Executive
Vice President of HomeTown Buffet,
July 1990 to October 1995.
</TABLE>
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<PAGE> 27
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTER
The information set forth under the caption "Market for the Company's
Common Stock and Related Stockholder Matters" on page 25 of the Company's 1999
Annual Report is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth under the caption, "Selected Consolidated
Financial Data" on page 4 of the Company's 1999 Annual Report is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition" on pages 5
through 10 of the Company's 1999 Annual Report is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Quantitative and
Qualitative Disclosure About Market Risk" on page 10 of the Company's 1999
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this Item 8 is incorporated herein by
reference to pages 11 through 25 of the Company's 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference to the sections captioned "Number and
Election of Directors," "Certain Information Regarding the Board of Directors of
the Company" and "Compliance With Section 16(a) of the Securities Exchange Act
of 1934" in the Proxy Statement for the Annual Meeting of Shareholders to be
filed with
27
<PAGE> 28
the Securities and Exchange Commission within 120 days of the close
of the fiscal year ended December 29, 1999. For information concerning executive
officers, see Item 4A of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the section captioned
"Compensation of Executive Officers" in the Proxy Statement for the Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days of the close of the fiscal year ended December 29, 1999;
provided, however, that the subsection thereof entitled "Compensation Committee
Report on Executive Compensation" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated herein by reference to the similarly captioned section in
the Proxy Statement for the Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission within 120 days of the close of the fiscal
year ended December 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the section captioned "Certain
Transactions" in the Proxy Statement for the Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission within 120 days of the
close of the fiscal year ended December 29, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this Report.
1. Financial Statements
Consolidated Balance Sheets at December 30, 1998 and December
29, 1999*
Consolidated Statements of Operations for the Years Ended
December 31, 1997, December 30, 1998, and December 29, 1999*
Consolidated Statements of Stockholders' Equity for
28
<PAGE> 29
the Years Ended December 31, 1997, December 30, 1998 and
December 29, 1999*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, December 30, 1998 and December 29, 1999*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, December 30, 1998 and December 29, 1999*
Notes to Consolidated Financial Statements*
Independent Auditors' Report of Deloitte & Touche LLP*
- ----------------------
*Incorporated herein by reference to pages 11 through 25 of the Company's 1999
Annual Report
2. Supplemental Financial Schedules
None
3. Exhibits
2 Agreement and Plan of Merger by and among the
Company, Country Delaware, Inc., and HomeTown Buffet
(1)
3(a) Composite Amended and Restated Articles of
Incorporation. (2)
3(b) By-laws of the Company. (3)
3(c) Form of Rights Agreement, dated as of October 24,
1995 between the Company and the American Stock
Transfer & Trust Company, as Rights Agent. (4)
4(a) Indenture dated as of November 27, 1995 related to 7%
Convertible Subordinated Notes of HomeTown Buffet due
2002. (5)
4(b) First Supplemental Indenture dated as of September
20, 1996 among the Company, HomeTown Buffet and Wells
Fargo Bank, N.A. (6)
10(a) 1985 Stock Option Plan. (7)*
10(b) 1988 Stock Option Plan. (8)*
29
<PAGE> 30
10(c) 1995 Stock Option Plan. (9) The number of shares
available for grant was increased to 2,500,000 on May
12, 1998. (10)*
10(d) 1997 Non-Employee Director Stock Option Plan. (10)*
10(e) 1999 Stock Option Plan.(11)*
10(f) 2000 Omnibus Stock Plan.*
10(g) Second Amended and Restated Credit Agreement by and
between the Company and First Bank National
Association, now USBank National Association. (12)
10(h) Amendment No. 1 dated as of September 20, 1996 to
Second Amended and Restated Credit Agreement by and
between the Company and First Bank National
Association, now USBank National Association. (13)
10(i) Amendment No. 2 dated as of May 28, 1997 to Second
Amended and Restated Credit Agreement by and between
the Company and First Bank National Association, now
USBank National Association. (14)
10(j) Amendment No. 3 dated as of September 12, 1997 to
Second Amended and Restated Credit Agreement by and
between the Company and First Bank National
Association, now USBank National Association. (15)
10(k) Letter dated as of January 14, 1998 to Second Amended
and Restated Credit Agreement by and between the
Company and First Bank National Association, now
USBank National Association. (16)
10(l) Amendment No. 4 dated as of October 1, 1998 to Second
Amended and Restated Credit Agreement by and between
the Company and USBank National Association. (17)
10(m) Amendment No. 5 dated June 30, 1999 to Second Amended
and Restated Credit Agreement by and between the
Company and USBank National Association. (18)
30
<PAGE> 31
10(n) Amendment No. 6 dated July 14, 1999 to Second Amended
and Restated Credit Agreement by and between the
company and USBank National Association. (19)
10(o) Management Bonus Program. (20)*
10(p) 1991 HomeTown Buffet Stock Option Plan, as amended.
(21)*
10(q) Consolidating Promissory Note issued by Kerry A.
Kramp to the Company and related Stock Pledge
Agreement, each dated December 31, 1996. (22)*
10(r) Promissory Note issued by Michael Shrader to HomeTown
Buffet and related Pledge Agreement, each dated
August 7, 1996. (23)*
10(s) Employment Agreement with Kerry A. Kramp dated
September 20, 1996. (24)*
10(t) Form of Franchise Agreement. (25)*
10(u) Management Agreement with Roe H. Hatlen dated as of
February 15, 2000.*
10(v) Management Agreement with C. Dennis Scott dated as of
February 15, 2000.*
10(w) Management Agreement with Kerry A. Kramp dated as of
February 15, 2000.*
10(x) Management Agreement with David Goronkin dated as of
February 15, 2000.*
13 Annual Report to Shareholders for the fiscal year
ended December 29, 1999.
21 Subsidiaries of the Company.
23(a) Consent of Deloitte & Touche LLP.
27(a) Financial Data Schedule.
- ---------------------------
31
<PAGE> 32
* Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
(1) Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K
dated June 3, 1996.
(2) Incorporated by reference to Exhibits to Registration Statement on Form
S-3 dated June 2, 1993 (Registration No. 33-63694).
(3) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended December 29, 1993.
(4) Incorporated by reference to Exhibits to Report on Form 8-K, dated
October 24, 1995.
(5) Incorporated by reference to Exhibit 4.6 to Registration Statement on
Form 8-A dated November 7, 1996.
(6) Incorporated by reference to Exhibit 4.7 to Registration Statement on
Form 8-A dated November 7, 1996.
(7) Incorporated by reference to Exhibits to Registration Statement on Form
S-1 dated October 25, 1985 (Registration No. 33-171).
(8) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended December 30, 1992.
(9) Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for the quarter ended October 4, 1995.
(10) Incorporated by reference to the Proxy Statement for the May 12, 1998
Annual Meeting of Shareholders.
(11) Incorporated by reference to Exhibit 99 to Registration Statement on
Form S-8 dated February 15, 2000.
(12) Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the quarter ended April 24, 1996.
(13) Incorporated by reference to Exhibit 4.5 to Registration Statement on
Form 8-A dated November 7, 1996.
(14) Incorporated by reference to Exhibit 10.1 to Registration Statement on
Form 8-A dated April 23, 1997.
(15) Incorporated by reference to Exhibit 10(b) to the Company's
32
<PAGE> 33
Quarterly Report on Form 10-Q for the period ended October 8, 1997.
(16) Incorporated by reference to Exhibit 10(I) to Annual Report on Form
10-K for fiscal year ended December 31, 1997.
(17) Incorporated by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the period ended October 7, 1998.
(18) Incorporated by reference to Exhibit 10(a) to Quarterly Report on Form
10-Q for the quarter ended July 14, 1999.
(19) Incorporated by reference to Exhibit 10(b) to Quarterly Report on Form
1-Q for the quarter ended July 14, 1999.
(20) Incorporated by reference to Exhibit 10(j) to Annual Report on Form
10-K for fiscal year ended December 31, 1997.
(21) Incorporated by reference to Exhibit 10.1 to HomeTown Buffet's
Quarterly Report on Form 10-Q for the period ended April 24, 1996 (File
No. 0-22402).
(22) Incorporated by reference to Exhibit 10(h) to Annual Report on Form
10-K for fiscal year ended January 1, 1997.
(23) Incorporated by reference to Exhibit 10(k) to Annual Report on Form
10-K for fiscal year ended January 1, 1997.
(24) Incorporated by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q for the period ended October 9, 1996.
(25) Incorporated by reference from Exhibits to HomeTown Buffet's
Registration Statement on Form S-1, as amended, effective September 22,
1993 (Registration No. 33-67326).
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during the fourth
quarter of the fiscal year ended December 29, 1999.
33
<PAGE> 34
ANNUAL REPORT AND PROXY STATEMENT
With the exception of the matters specifically incorporated herein by
reference to the Company's 1999 Annual Report to Shareholders or to the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 9, 2000, no other portions of the 1999 Annual Report to Shareholders or
Proxy Statement are deemed to be filed as part of this Annual Report on Form
10-K.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Buffets, Inc.
March 28, 2000 By /s/ Roe H. Hatlen
- ------------------- -----------------------
Date Roe H. Hatlen
Chairman of the Board
Pursuant to the requirements of 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 and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacity Date
- ----------- ---------- -------
<S> <C> <C>
/s/ Roe H. Hatlen Chairman of the Board March 28, 2000
- ------------------------ and Chief Executive
Roe H. Hatlen Officer (Principal
Executive Officer)
/s/ Clark C. Grant Senior Vice President March 28, 2000
- ------------------------ of Finance and Treasurer
Clark C. Grant (Principal Financial
Officer)
/s/ Marguerite C. Nesset Vice President of March 28, 2000
- ------------------------ Accounting and
Marguerite C. Nesset Controller (Principal
Accounting Officer)
/s/ C. Dennis Scott Vice Chairman of March 28, 2000
- ------------------------ the Board and Director
C. Dennis Scott
/s/ Kerry A. Kramp President, Chief March 28, 2000
- ------------------------ Operating Officer and
Kerry A. Kramp Director
/s/ Walter R. Barry, Jr. Director March 28, 2000
- ------------------------
Walter R. Barry, Jr.
/s/ Marvin W. Goldstein Director March 28, 2000
- ------------------------
Marvin W. Goldstein
/s/ Alan S. McDowell Director March 28, 2000
- ------------------------
Alan S. McDowell
/s/ Michael T. Sweeney Director March 28, 2000
- ------------------------
Michael T. Sweeney
</TABLE>
35
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
2 Agreement and Plan of Merger by and among
the Company, Country Delaware, Inc.,
and HomeTown Buffet, Inc..........................................Incorporated by Reference
3(a) Composite Amended and Restated Articles
of Incorporation..................................................Incorporated by Reference
3(b) By-laws of the Company............................................Incorporated by Reference
3(c) Form of Rights Agreement, dated as of
October 24, 1995 between the Company
and the American Stock Transfer & Trust
Company, as Rights Agent .........................................Incorporated by Reference
4(a) Indenture dated as of November 27, 1995
related to 7% Convertible Subordinated
Notes of HomeTown Buffet due 2002.................................Incorporated by Reference
4(b) First Supplemental Indenture dated as
of September 20, 1996 among the Company,
HomeTown Buffet and Wells Fargo Bank, N.A.........................Incorporated by Reference
10(a) 1985 Stock Option Plan............................................Incorporated by Reference
10(b) 1988 Stock Option Plan............................................Incorporated by Reference
10(c) 1995 Stock Option Plan............................................Incorporated by Reference
10(d) 1997 Non-Employee Director Stock Option
Plan .........................................................Incorporated by Reference
10(e) 1999 Stock Option Plan............................................Incorporated by Reference
10(f) 2000 Omnibus Stock Plan ..........................................Filed Electronically
10(g) Second Amended and Restated Credit
Agreement by and between the Company
and First Bank National Association,
now USBank National Association...................................Incorporated by Reference
10(h) Amendment No. 1 dated as of September 20,
1996 to Second Amended and Restated Credit
Agreement by and between the Company
First Bank National Association, now
USBank National Association.......................................Incorporated by Reference
10(i) Amendment No. 2 dated as of May 28, 1997
to Second Amended and Restated Credit
Agreement by and between the Company
and First Bank National Association,
now USBank National Association...................................Incorporated by Reference
</TABLE>
<PAGE> 37
<TABLE>
<S> <C> <C>
10(j) Amendment No. 3 dated as of September 12,
1997 to Second Amended and Restated Credit
Agreement by and between the Company and
First Bank National Association, now
USBank National Association.......................................Incorporated by Reference
10(k) Letter dated as of January 14, 1998 to
Second Amended and Restated Credit Agreement
by and between the Company and First Bank
National Association, now USBank
National Association..............................................Incorporated by Reference
10(l) Amendment No. 5 dated June 30, 1999 to
Second Amended and Restated Credit Agreement
by and between the Company and USBank
National Association..............................................Incorporated by Reference
10(m) Amendment No. 6 dated July 14, 1999 to
Second Amended and Restated Credit Agreement
by and between the Company and USBank
National Association..............................................Incorporated by Reference
10(n) Amendment No. 4 dated as of October 1,
1998 to Second Amended and Restated Credit
Agreement by and between the Company and
USBank National Association.......................................Incorporated by Reference
10(o) Management Bonus Program..........................................Incorporated by Reference
10(p) 1991 HomeTown Buffet Stock Option Plan,
as amended........................................................Incorporated by Reference
10(q) Promissory Note issued by Kerry A. Kramp
to the consolidating Company and
related Stock Pledge Agreement, each
dated December 31, 1996...........................................Incorporated by Reference
10(r) Promissory Note issued by Michael Shrader
to HomeTown Buffet and related Pledge
Agreement, each dated August 7, 1996..............................Incorporated by Reference
10(s) Employment Agreement with Kerry A. Kramp
dated September 20, 1996..........................................Incorporated by Reference
10(t) Form of Franchise Agreement.......................................Incorporated by Reference
10(u) Management Agreement with Roe H.
Hatlen dated as of February 15, 2000..............................Filed Electronically
10(v) Management Agreement with C. Dennis
Scott dated as of February 15, 2000...............................Filed Electronically
10(w) Management Agreement with Kerry A.
Kramp dated as of February 15, 2000...............................Filed Electronically
10(x) Management Agreement with David
Goronkin dated as of February 15, 2000............................Filed Electronically
13 Annual Report to Shareholders for the
fiscal year ended December 29, 1999...............................Filed Electronically
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C>
21 Subsidiaries of the Company.......................................Filed Electronically
23(a) Consent of Deloitte & Touche LLP..................................Filed Electronically
27(a) Financial Data Schedule...........................................Filed Electronically
</TABLE>
<PAGE> 1
EXHIBIT 10(f)
BUFFETS, INC.
2000 OMNIBUS STOCK PLAN
1. Purpose. The purpose of the Buffets, Inc. 2000 Omnibus Stock Plan
(the "Plan") is to motivate key personnel to produce a superior return to the
shareholders of the Company by offering such personnel an opportunity to realize
Stock appreciation, by facilitating Stock ownership and by rewarding them for
achieving a high level of corporate financial performance. The Plan is also
intended to facilitate recruiting and retaining key personnel of outstanding
ability by providing an attractive capital accumulation opportunity.
Additionally, the Plan is intended to provide Outside Directors with an
opportunity to acquire a proprietary interest in the Company, to compensate
Outside Directors for their contribution to the Company and to aid in attracting
and retaining Outside Directors.
2. Definitions.
2.1 The terms defined in this Section are used (and
capitalized) elsewhere in the Plan.
(a) "Affiliate" means any corporation that is a
"parent corporation" or "subsidiary corporation" of the
Company, as those terms are defined in Code Section 424(e) and
(f), or any successor provisions.
(b) "Agreement" means a written contract (i)
consistent with the terms of the Plan entered into between the
Company or an Affiliate and a Participant and (ii) containing
the terms and conditions of an Award in such form and not
inconsistent with this Plan as the Committee shall approve
from time to time, together with all amendments thereto, which
amendments may be unilaterally made by the Company (with the
approval of the Committee) unless such amendments are deemed
by the Committee to be materially adverse to the Participant
and not required as a matter of law.
(c) "Award" or "Awards" means a grant made under this
Plan in the form of Restricted Stock, Options, Stock
Appreciation Rights, Performance Units, Stock or any other
stock-based award.
(d) "Board" means the Board of Directors of the
Company.
(e) "Code" means the Internal Revenue Code of 1986,
as amended and in effect from time to time or any successor
statute.
(f) "Committee" means the two or more Non-Employee
Directors designated by the Board to administer the Plan under
Plan Section 3.1 and constituted so as to permit grants
thereby to comply with Exchange Act Rule 16b-3 and Code
Section 162(m).
(g) "Company" means Buffets, Inc., a Minnesota
corporation, or the successor to all or substantially all of
its businesses by merger, consolidation, purchase of assets or
otherwise.
(h) "Effective Date" means the date specified in Plan
Section 12.1.
(i) "Employee" means an employee (including an
officer or director who is also an employee) of the Company or
an Affiliate.
(j) "Event" means any of the following:
(1) The acquisition by any individual, entity
or group (within the meaning of Exchange Act
Sections 13(d)(3) or 14(d)(2)) of beneficial
ownership (within the
<PAGE> 2
meaning of Exchange Act Rule 13d-3) of 30% or more
of either (i) the then-outstanding shares of common
stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of
the then-outstanding voting securities of the Company
entitled to vote generally in the election of the
Board (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions
shall not constitute an Event:
(A) any acquisition of common stock
or voting securities of the Company directly
from the Company,
(B) any acquisition of common stock
or voting securities of the Company by the
Company or any of its wholly owned
Subsidiaries,
(C) any acquisition of common stock
or voting securities of the Company by any
employee benefit plan (or related trust)
sponsored or maintained by the Company or
any of its Subsidiaries, or
(D) any acquisition by any
corporation with respect to which,
immediately following such acquisition, more
than 70% of, respectively, the
then-outstanding shares of common stock of
such corporation and the combined voting
power 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 all or substantially all of
the individuals and entities who were the
beneficial owners, respectively, of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities
immediately before such acquisition in
substantially the same proportions as was
their ownership, immediately before such
acquisition, of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be;
(2) Individuals who, as of the Effective
Date, constitute the Board (the "Incumbent Board")
cease for any reason to constitute at least a
majority of the Board; provided, however, that any
individual becoming a director of the Board after the
Effective Date whose election, or nomination for
election by the Company's shareholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest;
(3) Approval by the shareholders of the
Company of a reorganization, merger, consolidation or
statutory exchange of Outstanding Company Voting
Securities, unless immediately following such
reorganization, merger, consolidation or exchange,
all or substantially all of the individuals and
entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately
before such reorganization, merger, consolidation or
exchange beneficially own, directly or indirectly,
more than 70% of, respectively, the then-outstanding
shares of common stock and the combined voting power
of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the
case may be, of the corporation resulting from such
reorganization, merger, consolidation or exchange in
substantially the same proportions as was their
ownership, immediately before such reorganization,
merger, consolidation or exchange, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(4) Approval by the shareholders of the
Company of (i) a complete liquidation or dissolution
of the Company or (ii) the sale or other disposition
of all or
2
<PAGE> 3
substantially all of the assets of the Company, other
than to a corporation with respect to which,
immediately following such sale or other disposition,
more than 70% of, respectively, the then-outstanding
shares of common stock of such corporation and the
combined voting power 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 all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately before such
sale or other disposition in substantially the same
proportion as was their ownership, immediately before
such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be.
Notwithstanding the above, an Event shall not be
deemed to occur with respect to a recipient of an Award if the
acquisition of the 30% or greater interest referred to in
paragraph (1) is by a group, acting in concert, that includes
that recipient of an Award or if at least 30% of the
then-outstanding common stock or combined voting power of the
then-outstanding voting securities (or voting equity
interests) of the surviving corporation or of any corporation
(or other entity) acquiring all or substantially all of the
assets of the Company shall be beneficially owned, directly or
indirectly, immediately after a reorganization, merger,
consolidation, statutory share exchange or disposition of
assets referred to in paragraphs (3) or (4) by a group, acting
in concert, that includes that recipient of an Award.
(k) "Exchange Act" means the Securities Exchange Act
of 1934, as amended and in effect from time to time, or any
successor statute.
(l) "Exchange Act Rule 16b-3" means Rule 16b-3
promulgated by the Securities and Exchange Commission under
the Exchange Act, as now in force and in effect from time to
time or any successor regulation.
(m) "Fair Market Value" as of any date means, unless
otherwise expressly provided in the Plan:
(i) the closing price of a Share on the date
immediately preceding that date or, if no sale of
Shares shall have occurred on that date, on the next
preceding day on which a sale of Shares occurred
(A) on the composite tape for New
York Stock Exchange listed shares, or
(B) if the Shares are not quoted on
the composite tape for New York Stock
Exchange listed shares, on the principal
United States Securities Exchange registered
under the Exchange Act on which the Shares
are listed, or
(C) if the Shares are not listed on
any such exchange, on the National
Association of Securities Dealers, Inc.
Automated Quotations National Market System,
or
(ii) if clause (i) is inapplicable, the mean
between the closing "bid" and the closing "asked"
quotation of a Share on the date immediately
preceding that date, or, if no closing bid or asked
quotation is made on that date, on the next preceding
day on which a closing bid and asked quotation is
made, on the National Association of Securities
Dealers, Inc. Automated Quotations System or any
system then in use, or
(iii) if clauses (i) and (ii) are
inapplicable, what the Committee determines in good
faith to be 100% of the fair market value of a Share
on that date, using such criteria as it shall
determine, in its sole discretion, to be appropriate
for valuation.
3
<PAGE> 4
However, if the applicable securities exchange or
system has closed for the day at the time the event occurs
that triggers a determination of Fair Market Value, whether
the grant of an Award, the exercise of an Option or Stock
Appreciation Right or otherwise, all references in this
paragraph to the "date immediately preceding that date" shall
be deemed to be references to "that date." In the case of an
Incentive Stock Option, if this determination of Fair Market
Value is not consistent with the then current regulations of
the Secretary of the Treasury, Fair Market Value shall be
determined in accordance with those regulations. The
determination of Fair Market Value shall be subject to
adjustment as provided in Plan Section 16.
(n) "Fundamental Change" shall mean a dissolution or
liquidation of the Company, a sale of substantially all of the
assets of the Company, a merger or consolidation of the
Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a
statutory share exchange involving capital stock of the
Company.
(o) "Incentive Stock Option" means any Option
designated as such and granted in accordance with the
requirements of Code Section 422 or any successor provision.
(p) "Insider" as of a particular date means any
person who, as of that date is an officer of the Company as
defined under Exchange Act Rule 16a-1(f) or its successor
provision.
(q) "Non-Employee Director" means a member of the
Board who is considered a non-employee director within the
meaning of Exchange Act Rule 16b-3(b)(3) or its successor
provision and an outside director for purposes of Code Section
162(m).
(r) "Non-Statutory Stock Option" means an Option
other than an Incentive Stock Option.
(s) "Option" means a right to purchase Stock,
including both Non-Statutory Stock Options and Incentive Stock
Options.
(t) "Outside Director" means a director who is not an
Employee.
(u) "Participant" means a person or entity to whom an
Award is or has been made in accordance with the Plan.
(v) "Performance Cycle" means the period of time as
specified in an Agreement over which Performance Units are to
be earned.
(w) "Performance Units" means an Award made pursuant
to Plan Section 11.
(x) "Plan" means this Buffets, Inc. 2000 Omnibus
Stock Plan, as may be amended and in effect from time to time.
(y) "Restricted Stock" means Stock granted under Plan
Section 7 so long as such Stock remains subject to one or more
restrictions.
(z) "Section 16" or "Section 16(b)" means Section 16
or Section 16(b), respectively, of the Exchange Act or any
successor statute and the rules and regulations promulgated
thereunder as in effect and as amended from time to time.
(aa) "Share" means a share of Stock.
(bb) "Stock" means the common stock, par value $.01
per share, of the Company.
4
<PAGE> 5
(cc) "Stock Appreciation Right" means a right, the
value of which is determined in relation to the appreciation
in value of Shares pursuant to an Award granted under Plan
Section 10.
(dd) "Subsidiary" means a "subsidiary corporation,"
as that term is defined in Code Section 424(f), or any
successor provision.
(ee) "Successor" with respect to a Participant means
the legal representative of an incompetent Participant, and if
the Participant is deceased the estate of the Participant or
the person or persons who may, by bequest or inheritance, or
pursuant to the terms of an Award, acquire the right to
exercise an Option or Stock Appreciation Right or to receive
cash and/or Shares issuable in satisfaction of an Award in the
event of the Participant's death.
(ff) "Term" means the period during which an Option
or Stock Appreciation Right may be exercised or the period
during which the restrictions or terms and conditions placed
on Restricted Stock or any other Award are in effect.
(gg) "Transferee" means any member of the
Participant's immediate family (i.e., his or her children,
step-children, grandchildren and spouse) or one or more trusts
for the benefit of such family members or partnerships in
which such family members are the only partners.
2.2 Gender and Number. Except when otherwise indicated by the
context, reference to the masculine gender shall include, when used,
the feminine gender and any term used in the singular shall also
include the plural.
3. Administration and Indemnification.
3.1 Administration.
(a) The Committee shall administer the Plan. The
Committee shall have exclusive power to (i) make Awards, (ii)
determine when and to whom Awards will be granted, the form of
each Award, the amount of each Award (except as to the amount
of the Initial Outside Director Option and the Annual Outside
Director Option, as provided in Plan Section 9.3), and any
other terms or conditions of each Award consistent with the
Plan, and (iii) determine whether, to what extent and under
what circumstances, Awards may be settled, paid or exercised
in cash, Shares or other Awards, or other property or
canceled, forfeited or suspended. Each Award shall be subject
to an Agreement authorized by the Committee. Notwithstanding
the foregoing, the Board shall have the sole and exclusive
power to administer the Plan with respect to Awards granted to
Outside Directors, including any grants made under Plan
Section 9.3(g).
(b) Solely for purposes of determining and
administering Awards to Participants who are not Insiders, the
Committee may delegate all or any portion of its authority
under the Plan to one or more persons who are not Non-Employee
Directors.
(c) To the extent within its discretion and subject
to Plan Sections 15 and 16, other than price, the Committee
may amend the terms and conditions of any outstanding Award.
(d) It is the intent that the Plan and all Awards
granted pursuant to it shall be administered by the Committee
so as to permit the Plan and Awards to comply with Exchange
Act Rule 16b-3, except in such instances as the Committee, in
its discretion, may so provide. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with the
intent expressed in this Section 3.1(d), that provision to the
extent possible shall be interpreted and deemed amended in the
manner determined by the Committee so as to avoid the
conflict. To the extent of any remaining irreconcilable
conflict with this intent, the provision shall be deemed void
as applicable to Insiders to the extent permitted by law and
in the manner deemed advisable by the Committee.
5
<PAGE> 6
(e) The Committee's interpretation of the Plan and of
any Award or Agreement made under the Plan and all related
decisions or resolutions of the Board or Committee shall be
final and binding on all parties with an interest therein.
Consistent with its terms, the Committee shall have the power
to establish, amend or waive regulations to administer the
Plan. In carrying out any of its responsibilities, the
Committee shall have discretionary authority to construe the
terms of the Plan and any Award or Agreement made under the
Plan.
3.2 Indemnification. Each person who is or shall have been a
member of the Committee, or of the Board, and any other person to whom
the Committee delegates authority under the Plan, shall be indemnified
and held harmless by the Company, to the extent permitted by law,
against and from any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by such person in connection with
or resulting from any claim, action, suit or proceeding to which such
person may be a party or in which such person may be involved by reason
of any action taken or failure to act, made in good faith, under the
Plan and against and from any and all amounts paid by such person in
settlement thereof, with the Company's approval, or paid by such person
in satisfaction of any judgment in any such action, suit or proceeding
against such person, provided such person shall give the Company an
opportunity, at the Company's expense, to handle and defend the same
before such person undertakes to handle and defend it on such person's
own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person
or persons may be entitled under the Company's Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power
that the Company may have to indemnify them or hold them harmless.
4. Shares Available Under the Plan.
(a) The number of Shares available for distribution
under this Plan shall not exceed 2,000,000 (subject to
adjustment pursuant to Plan Section 16).
(b) Any Shares subject to the terms and conditions of
an Award under this Plan that are not used because the terms
and conditions of the Award are not met may again be used for
an Award under the Plan. But Shares with respect to which a
Stock Appreciation Right has been exercised whether paid in
cash and/or in Shares may not again be awarded under this
Plan.
(c) Any unexercised or undistributed portion of any
terminated, expired, exchanged, or forfeited Award, or any
Award settled in cash in lieu of Shares (except as provided in
Plan Section 4(b)) shall be available for further Awards.
(d) For the purposes of computing the total number of
Shares granted under the Plan, the following rules shall apply
to Awards payable in Shares where appropriate:
(i) each Option shall be deemed to be the
equivalent of the maximum number of Shares that may
be issued upon exercise of the particular Option;
(ii) an Award (other than an Option) payable
in some other security shall be deemed to be equal to
the number of Shares to which it relates;
(iii) where the number of Shares available
under the Award is variable on the date it is
granted, the number of Shares shall be deemed to be
the maximum number of Shares that could be received
under that particular Award; and
(iv) where two or more types of Awards (all
of which are payable in Shares) are granted to a
Participant in tandem with each other, such that the
exercise of one type of Award with respect to a
number of Shares cancels at least an equal number of
Shares of the other, each such joint Award shall be
deemed to be the equivalent of the maximum number of
Shares available under the largest single Award.
6
<PAGE> 7
Additional rules for determining the number of Shares
granted under the Plan may be made by the Committee, as it
deems necessary or desirable.
(e) No fractional Shares may be issued under the
Plan; however, cash shall be paid in lieu of any fractional
Share in settlement of an Award.
(f) The maximum number of Shares that may be awarded
to a Participant in any calendar year in the form of Options
is 100,000 and the maximum number of Shares that may be
awarded to a Participant in any calendar year in the form of
Stock Appreciation Rights is 100,000.
5. Eligibility. Participation in the Plan shall be limited to Employees
and to individuals or entities who are not Employees but who provide services to
the Company or an Affiliate, including services provided in the capacity of a
consultant, adviser or director. The granting of Awards is solely at the
discretion of the Committee, except that Incentive Stock Options may only be
granted to Employees and Awards to Outside Directors are subject to the limits
of Section 9.3.
6. General Terms of Awards.
6.1 Amount of Award. Each Agreement shall set forth the number
of Shares of Restricted Stock, Stock or Performance Units subject to
the Agreement, or the number of Shares to which the Option subject to
the Agreement applies or with respect to which payment upon the
exercise of the Stock Appreciation Right subject to the Agreement is to
be determined, as the case may be, together with such other terms and
conditions applicable to the Award as determined by the Committee
acting in its sole discretion.
6.2 Term. Each Agreement, other than those relating solely to
Awards of Shares without restrictions, shall set forth the Term of the
Option, Stock Appreciation Right, Restricted Stock or other Award or
the Performance Cycle for the Performance Units, as the case may be.
Acceleration of the expiration of the applicable Term is permitted,
upon such terms and conditions as shall be set forth in the Agreement,
which may, but need not, include (without limitation) acceleration
resulting from the occurrence of an Event or in the event of the
Participant's death or retirement. Acceleration of the Performance
Cycle of Performance Units shall be subject to Plan Section 11.2.
6.3 Transferability. Except as provided in this Section,
during the lifetime of a Participant to whom an Award is granted, only
that Participant (or that Participant's legal representative) may
exercise an Option or Stock Appreciation Right, or receive payment with
respect to Performance Units or any other Award. No Award of Restricted
Stock (before the expiration of the restrictions), Options, Stock
Appreciation Rights or Performance Units or other Award may be sold,
assigned, transferred, exchanged or otherwise encumbered other than
pursuant to a qualified domestic relations order as defined in the Code
or Title 1 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules thereunder; any attempted transfer in
violation of this Section 6.3 shall be of no effect. Notwithstanding
the immediately preceding sentence, the Committee, in an Agreement or
otherwise at its discretion, may provide (i) that the Award subject to
the Agreement shall be transferable to a Successor in the event of a
Participant's death, or (ii) that the Award (other than Incentive Stock
Options) may be transferable to a Transferee. Any Award held by a
Transferee shall continue to be subject to the same terms and
conditions that were applicable to that Award immediately before the
transfer thereof to the Transferee.
6.4 Termination of Employment. No Option or Stock Appreciation
Right may be exercised by a Participant, all Restricted Stock held by a
Participant or any other Award then subject to restrictions shall be
forfeited, and no payment with respect to Performance Units for which
the applicable Performance Cycle has not been completed shall be made,
if the Participant's employment or other relationship with the Company
and its Affiliates shall be voluntarily terminated or involuntarily
terminated with or without cause before the expiration of the Term of
the Option, Stock Appreciation Right, Restricted Stock or other Award,
or the completion of the Performance Cycle, as the case may be, except
as, and to the extent, provided in the Agreement applicable to that
Award. An Award may be exercised by, or paid to, a
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Transferee or the Successor of a Participant following the death of the
Participant to the extent, and during the period of time, if any,
provided in the applicable Agreement.
6.5 Rights as Shareholder. Each Agreement shall provide that a
Participant shall have no rights as a shareholder with respect to any
securities covered by an Award if and until the date the Participant
becomes the holder of record of the Stock, if any, to which the Award
relates.
7. Restricted Stock Awards.
(a) An Award of Restricted Stock under the Plan shall
consist of Shares subject to restrictions on transfer and
conditions of forfeiture, which restrictions and conditions
shall be included in the applicable Agreement. The Committee
may provide for the lapse or waiver of any such restriction or
condition based on such factors or criteria as the Committee,
in its sole discretion, may determine.
(b) Except as otherwise provided in the applicable
Agreement, each Stock certificate issued with respect to an
Award of Restricted Stock shall either be deposited with the
Company or its designee, together with an assignment separate
from the certificate, in blank, signed by the Participant, or
bear such legends with respect to the restricted nature of the
Restricted Stock evidenced thereby as shall be provided for in
the applicable Agreement.
(c) The Agreement shall describe the terms and
conditions by which the restrictions and conditions of
forfeiture upon awarded Restricted Stock shall lapse. Upon the
lapse of the restrictions and conditions, Shares free of
restrictive legends, if any, relating to such restrictions
shall be issued to the Participant or a Successor or
Transferee.
(d) A Participant or a Transferee with a Restricted
Stock Award shall have all the other rights of a shareholder
including, but not limited to, the right to receive dividends
and the right to vote the Shares of Restricted Stock.
(e) No more than 100,000 of the total number of
Shares available for Awards under the Plan shall be issued
during the term of the Plan as Restricted Stock. This
limitation shall be calculated pursuant to the applicable
provisions of Plan Sections 4 and 16.
8. Other Awards. The Committee may from time to time grant Stock and
other Awards under the Plan including without limitations those Awards pursuant
to which Shares are or may in the future be acquired, Awards denominated in
Stock units, securities convertible into Stock and phantom securities. The
Committee, in its sole discretion, shall determine the terms and conditions of
such Awards provided that such Awards shall not be inconsistent with the terms
and purposes of this Plan. The Committee may, at its sole discretion, direct the
Company to issue Shares subject to restrictive legends and/or stop transfer
instructions that are consistent with the terms and conditions of the Award to
which the Shares relate. No more than 25,000 of the total number of Shares
available for Awards under the Plan shall be issued during the term of the Plan
in the form of Stock without restrictions.
9. Stock Options.
9.1 Terms of All Options.
(a) An Option shall be granted pursuant to an
Agreement as either an Incentive Stock Option or a
Non-Statutory Stock Option. The purchase price of each Share
subject to an Option shall be determined by the Committee and
set forth in the Agreement, but shall not be less than 100% of
the Fair Market Value of a Share as of the date the Option is
granted (except as provided in Plan Section 19).
(b) The purchase price of the Shares with respect to
which an Option is exercised shall be payable in full at the
time of exercise, provided that to the extent permitted by
law, the
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Agreement may permit some or all Participants to
simultaneously exercise Options and sell the Shares thereby
acquired pursuant to a brokerage or similar relationship and
use the proceeds from the sale as payment of the purchase
price of the Shares. The purchase price may be payable in
cash, by delivery or tender of Shares that have been owned by
the Participant for at least the preceding 180 days and having
a Fair Market Value as of the date the Option is exercised
equal to the purchase price of the Shares being purchased
pursuant to the Option, or a combination thereof, as
determined by the Committee, but no fractional Shares will be
issued or accepted.
(c) The Committee may provide, in an Agreement or
otherwise, that a Participant who exercises an Option and pays
the Option price in whole or in part with Shares then owned by
the Participant will be entitled to receive another Option
covering the same number of shares tendered and with a price
of no less than Fair Market Value on the date of grant of such
additional Option ("Reload Option"). Unless otherwise provided
in the Agreement, a Participant, in order to be entitled to a
Reload Option, must pay with Shares that have been owned by
the Participant for at least the preceding 180 days.
(d) Each Option shall be exercisable in whole or in
part on the terms provided in the Agreement. In no event shall
any Option be exercisable at any time after the expiration of
its Term. When an Option is no longer exercisable, it shall be
deemed to have lapsed or terminated.
9.2 Incentive Stock Options. In addition to the other terms
and conditions applicable to all Options:
(i) the aggregate Fair Market Value (determined as of
the date the Option is granted) of the Shares with respect to
which Incentive Stock Options held by an individual first
become exercisable in any calendar year (under this Plan and
all other incentive stock option plans of the Company and its
Affiliates) shall not exceed $100,000 (or such other limit as
may be required by the Code) if this limitation is necessary
to qualify the Option as an Incentive Stock Option and to the
extent an Option or Options granted to a Participant exceed
this limit the Option or Options shall be treated as a
Non-Statutory Stock Option;
(ii) an Incentive Stock Option shall not be
exercisable more than 10 years after the date of grant (or
such other limit as may be required by the Code) if this
limitation is necessary to qualify the Option as an Incentive
Stock Option;
(iii) the Agreement covering an Incentive Stock
Option shall contain such other terms and provisions that the
Committee determines necessary to qualify this Option as an
Incentive Stock Option; and
(iv) notwithstanding any other provision of this Plan
to the contrary, no Participant may receive an Incentive Stock
Option under the Plan if, at the time the Award is granted,
the Participant owns (after application of the rules contained
in Code Section 424(d), or its successor provision), Shares
possessing more than 10% of the total combined voting power of
all classes of stock of the Company or its Subsidiaries,
unless (i) the option price for that Incentive Stock Option is
at least 110% of the Fair Market Value of the Shares subject
to that Incentive Stock Option on the date of grant and (ii)
that Option is not exercisable after the date five years from
the date that Incentive Stock Option is granted.
9.3 Terms and Conditions of Outside Directors' Options.
(a) Initial Outside Directors' Options. Subject to
the terms and conditions of this Plan, any Outside Director
first elected or appointed to the Board on or after May 9,
2000 shall receive, by virtue of serving as a director of the
Company, a single grant of a Non-Statutory Stock Option to
purchase 10,000 Shares (an "Initial Outside Director Option");
provided, however, that, in lieu of the grant of an Initial
Outside Director Option to an Outside Director under this
Plan, the
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Board may grant such Outside Director a similar award under
the Company's Non-Employee Director Stock Option Plan.
(b) Vesting of Initial Outside Directors' Options.
Subject to the provisions of Plan Section 9.3(e), Initial
Outside Directors' Options granted pursuant to this Plan shall
vest and become exercisable immediately on the date of grant.
Each Initial Outside Directors' Option shall be exercisable in
whole or in part.
(c) Annual Outside Director Option Grants. For the
Annual Meeting of Shareholders to be held on May 9, 2000 and
for each Annual Meeting of Shareholders thereafter during the
term of this Plan, each Outside Director serving as an Outside
Director of the Company immediately following the Annual
Meeting shall be granted, by virtue of serving as an Outside
Director of the Company, a Non-Statutory Stock Option to
purchase 5,000 Shares (an "Annual Outside Director Option");
provided, however, that, in lieu of the grant of an Annual
Outside Director Option to an Outside Director under this
Plan, the Board may grant such Outside Director a similar
award under the Company's Non-Employee Director Stock Option
Plan. Each Annual Outside Director Option shall be deemed to
be granted to each Outside Director immediately after an
Annual Meeting and shall be granted regardless of whether or
not an Outside Director previously received, or simultaneously
receives, an Initial Outside Director Option. Initial Outside
Director Options and Annual Outside Director Options together
are sometimes referred to as "Outside Director Options."
(d) Vesting of Annual Director Options. Subject to
the provisions of Plan Section 9.3(e), Annual Outside
Director Options shall vest and become exercisable as
provided in the Agreement. Each Option, to the extent
exercisable, shall be exercisable in whole or in part.
Notwithstanding anything to the contrary in this Plan, all
Annual Outside Director Options shall vest and become
exercisable in full upon the occurrence of an Event or a
proposed Fundamental Change.
(e) Termination of Initial and Annual Outside
Directors' Options. Each Outside Director Option granted
pursuant to this Plan and all rights to purchase Shares
thereunder shall terminate on the earliest of:
(i) ten years after the date that the Outside
Director Option was granted;
(ii) the expiration of the period specified in
the Agreement after the death or permanent
disability of an Outside Director;
(iii) February 14, 2001, if the shareholders of
the Company shall not have approved this
Plan as of or before that date at a duly
held shareholders' meeting; or
(iv) ninety days after the date the Outside
Director ceases to be a director of the
Company, provided, however, that the option
shall be exercisable during this 90-day
period only to the extent the option was
exercisable as of the date the person ceases
to be an Outside Director unless the
cessation results from the director's death
or permanent disability. Notwithstanding the
preceding sentence, if an Outside Director
who resigns or whose term expires then
becomes a consultant or Employee of the
Company within ninety days of such
resignation or term expiration, the Outside
Director Options of such person shall
continue in full force and effect.
(f) Allocation of Common Shares. If as of a date on
which an Option or Options are to be awarded pursuant to the
provisions of this Section 9.3, the number of Shares
available for issuance under the Plan is less than the number
of Shares that otherwise would be subject to such Options,
then the following formula shall determine how the remaining
number of Shares are to be allocated:
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(i) if only one Outside Director is to receive
an Option on the date, then that Outside
Director shall receive an Option to purchase
Shares equal to the number of Shares
remaining;
(ii) if two or more Outside Directors are to
receive Options on the date:
(1) all Initial Outside Director Options
shall first be awarded; if, however,
the number of Shares available is
less than the number of options to
purchase Shares that would otherwise
be awarded as Initial Outside
Director Options then each Outside
Director eligible to receive an
Initial Outside Director Option
shall receive the number of Options
that results from the following
equation: the whole number of Shares
available divided by the number of
Outside Directors eligible to
receive such an Option, provided,
however, that no fractional shares
shall be awarded; and if such
allocation occurs, any remaining
Shares shall not be awarded and
shall be deemed not subject to
distribution for purposes of Plan
Section 4; and
(2) if on that date all Initial Outside
Director Options to be awarded are
awarded in the full amount or if no
Initial Outside Director Options are
to be awarded, then each Outside
Director eligible for an Annual
Outside Director Option shall
receive an Annual Outside Director
Option to purchase Shares in the
amount that results from the
following equation: the whole number
of Shares available divided by the
number of Outside Directors eligible
for an Annual Outside Director
Option, provided, however, that no
fractional shares shall be awarded;
and any remaining Shares shall not
be awarded and shall be deemed not
subject to distribution for purposes
of Plan Section 4.
(g) Non-exclusivity of Section 9.3. The provisions of
this Section 9.3 are not intended to be exclusive; the
Committee, in its discretion, may grant Options or other
Awards to an Outside Director.
10. Stock Appreciation Rights. An Award of a Stock Appreciation Right
shall entitle the Participant (or a Successor or Transferee), subject to terms
and conditions determined by the Committee, to receive upon exercise of the
Stock Appreciation Right all or a portion of the excess of (i) the Fair Market
Value of a specified number of Shares as of the date of exercise of the Stock
Appreciation Right over (ii) a specified price that shall not be less than 100%
of the Fair Market Value of such Shares as of the date of grant of the Stock
Appreciation Right. A Stock Appreciation Right may be granted in connection with
part or all of, in addition to, or completely independent of an Option or any
other Award under this Plan. If issued in connection with a previously or
contemporaneously granted Option, the Committee may impose a condition that
exercise of a Stock Appreciation Right cancels a pro rata portion of the Option
with which it is connected and vice versa. Each Stock Appreciation Right may be
exercisable in whole or in part on the terms provided in the Agreement. No Stock
Appreciation Right shall be exercisable at any time after the expiration of its
Term. When a Stock Appreciation Right is no longer exercisable, it shall be
deemed to have lapsed or terminated. Upon exercise of a Stock Appreciation
Right, payment to the Participant or a Successor or Transferee shall be made at
such time or times as shall be provided in the Agreement in the form of cash,
Shares or a combination of cash and Shares as determined by the Committee. The
Agreement may provide for a limitation upon the amount or percentage of the
total appreciation on which payment (whether in cash and/or Shares) may be made
in the event of the exercise of a Stock Appreciation Right.
11. Performance Units.
11.1 Initial Award.
(a) An Award of Performance Units under the Plan
shall entitle the Participant or a Successor or Transferee to
future payments of cash, Shares or a combination of cash and
Shares,
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as determined by the Committee, based upon the achievement of
pre-established performance targets. These performance targets
may, but need not, include (without limitation) targets
relating to one or more of the Company's or a group's, unit's,
Affiliate's or an individual's performance. The Agreement may
establish that a portion of a Participant's Award will be paid
for performance that exceeds the minimum target but falls
below the maximum target applicable to the Award. The
Agreement shall also provide for the timing of the payment.
(b) Following the conclusion or acceleration of each
Performance Cycle, the Committee shall determine the extent to
which (i) performance targets have been attained, (ii) any
other terms and conditions with respect to an Award relating
to the Performance Cycle have been satisfied and (iii) payment
is due with respect to an Award of Performance Units.
11.2 Acceleration and Adjustment. The Agreement may permit an
acceleration of the Performance Cycle and an adjustment of performance
targets and payments with respect to some or all of the Performance
Units awarded to a Participant, upon the occurrence of certain events,
which may, but need not include without limitation an Event, a
Fundamental Change, a recapitalization, a change in the accounting
practices of the Company, a change in the Participant's title or
employment responsibilities, the Participant's death or retirement or,
with respect to payments in Shares with respect to Performance Units, a
reclassification, stock dividend, stock split or stock combination as
provided in Plan Section 16. The Agreement also may provide for a
limitation on the value of an Award of Performance Units that a
Participant may receive.
12. Effective Date and Duration of the Plan.
12.1 Effective Date. The Plan shall become effective as of
February 15, 2000, provided that the Plan is approved by the requisite
vote of shareholders at the meeting of shareholders to be held May 9,
2000 or at any adjournment thereof.
12.2 Duration of the Plan. The Plan shall remain in effect
until all Stock subject to it shall be distributed, all Awards have
expired or lapsed, the Plan is terminated pursuant to Plan Section 15,
or February 15, 2010 (the "Termination Date"); provided, however,
Awards made before the Termination Date may be exercised, vested or
otherwise effectuated beyond the Termination Date unless limited in the
Agreement or otherwise. No Award of an Incentive Stock Option shall be
made more than 10 years after the Effective Date (or such other limit
as may be required by the Code) if this limitation is necessary to
qualify the Option as an Incentive Stock Option. The date and time of
approval by the Committee of the granting of an Award shall be
considered the date and time at which the Award is made or granted.
13. Plan Does Not Affect Employment Status.
(a) Status as an eligible Employee shall not be
construed as a commitment that any Award will be made under
the Plan to that eligible Employee or to eligible Employees
generally.
(b) Nothing in the Plan or in any Agreement or
related documents shall confer upon any Employee or
Participant any right to continue in the employment of the
Company or any Affiliate or constitute any contract of
employment or affect any right that the Company or any
Affiliate may have to change such person's compensation, other
benefits, job responsibilities, or title, or to terminate the
employment of such person with or without cause.
14. Tax Withholding. The Company shall have the right to withhold from
any cash payment under the Plan to a Participant or other person (including a
Successor or a Transferee) an amount sufficient to cover any required
withholding taxes. The Company shall have the right to require a Participant or
other person receiving Shares under the Plan to pay the Company a cash amount
sufficient to cover any required withholding taxes before actual receipt of
those Shares. In lieu of all or any part of a cash payment from a person
receiving Shares under the Plan, the Committee may permit the individual to
cover all or any part of the required withholdings, and to cover any additional
withholdings up to the amount needed to cover the individual's full FICA and
federal, state and local income taxes with respect to income arising from
payment of the Award, through a reduction of the number of
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Shares delivered or delivery or tender return to the Company of Shares held by
the Participant or other person, in each case valued in the same manner as used
in computing the withholding taxes under the applicable laws.
15. Amendment, Modification and Termination of the Plan.
(a) The Board may at any time and from time to time terminate,
suspend or modify the Plan. Except as limited in (b) below, the
Committee may at any time alter or amend any or all Agreements under
the Plan to the extent permitted by law.
(b) No termination, suspension, or modification of the Plan
will materially and adversely affect any right acquired by any
Participant or Successor or Transferee under an Award granted before
the date of termination, suspension, or modification, unless otherwise
agreed to by the Participant in the Agreement or otherwise, or required
as a matter of law; but it will be conclusively presumed that any
adjustment for changes in capitalization provided for in Plan Sections
11.2 or 16 does not adversely affect these rights.
16. Adjustment for Changes in Capitalization. Subject to any required
action by the Company's shareholders, appropriate adjustments, so as to prevent
enlargement of rights or inappropriate dilution -- (i) in the aggregate number
and type of Shares available for Awards under the Plan, (ii) in the limitations
on the number of Shares that may be issued to an individual Participant as an
Option or a Stock Appreciation Right in any calendar year or that may be issued
in the form of Restricted Stock or Shares without restrictions, (iii) in the
number and type of Shares and amount of cash subject to Awards then outstanding,
(iv) in the Option price as to any outstanding Options and, (v) subject to Plan
Section 11.2, in outstanding Performance Units and payments with respect to
outstanding Performance Units -- may be made by the Committee in its sole
discretion to give effect to adjustments made in the number or type of Shares
through a Fundamental Change (subject to Plan Section 17), recapitalization,
reclassification, stock dividend, stock split, stock combination or other
relevant change, provided that fractional Shares shall be rounded to the nearest
whole Share.
17. Fundamental Change. In the event of a proposed Fundamental Change,
the Committee may, but shall not be obligated to:
(a) if the Fundamental Change is a merger or consolidation or
statutory share exchange, make appropriate provision for the protection
of the outstanding Options and Stock Appreciation Rights by the
substitution of options, stock appreciation rights and appropriate
voting common stock of the corporation surviving any merger or
consolidation or, if appropriate, the parent corporation of the Company
or such surviving corporation; or
(b) at least 30 days before the occurrence of the Fundamental
Change, declare, and provide written notice to each holder of an Option
or Stock Appreciation Right of the declaration, that each outstanding
Option and Stock Appreciation Right, whether or not then exercisable,
shall be canceled at the time of, or immediately before the occurrence
of the Fundamental Change in exchange for payment to each holder of an
Option or Stock Appreciation Right, within ten days after the
Fundamental Change, of cash equal to (i) for each Share covered by the
canceled Option, the amount, if any, by which the Fair Market Value (as
defined in this Section) per Share exceeds the exercise price per Share
covered by such Option or (ii) for each Stock Appreciation Right, the
price determined pursuant to Section 10, except that Fair Market Value
of the Shares as of the date of exercise of the Stock Appreciation
Right, as used in clause (i) of Plan Section 10, shall be deemed to
mean Fair Market Value for each Share with respect to which the Stock
Appreciation Right is calculated determined in the manner hereinafter
referred to in this Section. At the time of the declaration provided
for in the immediately preceding sentence, each Stock Appreciation
Right and each Option shall immediately become exercisable in full and
each person holding an Option or a Stock Appreciation Right shall have
the right, during the period preceding the time of cancellation of the
Option or Stock Appreciation Right, to exercise the Option or the Stock
Appreciation Right in whole or in part, as the case may be. In the
event of a declaration pursuant to this Plan Section 17(b), each
outstanding Option and Stock Appreciation Right granted pursuant to the
Plan that shall not have been exercised before the Fundamental Change
shall be canceled at the time of, or immediately before, the
Fundamental Change, as provided in the declaration. Notwithstanding the
foregoing, no person holding an Option or a Stock
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Appreciation Right shall be entitled to the payment provided for in
this Section 17(b) if such Option or Stock Appreciation Right shall
have expired pursuant to the Agreement. For purposes of this Section
only, "Fair Market Value" per Share shall mean the cash plus the fair
market value, as determined in good faith by the Committee, of the
non-cash consideration to be received per Share by the shareholders of
the Company upon the occurrence of the Fundamental Change.
18. Forfeitures. An Agreement may provide that if a Participant has
received or been entitled to payment of cash, delivery of Shares, or a
combination thereof pursuant to an Award within six months before the
Participant's termination of employment with the Company and its Affiliates, the
Committee, in its sole discretion, may require the Participant to return or
forfeit the cash and/or Shares received with respect to the Award (or its
economic value as of (i) the date of the exercise of Options or Stock
Appreciation Rights, (ii) the date of, and immediately following, the lapse of
restrictions on Restricted Stock or the receipt of Shares without restrictions,
or (iii) the date on which the right of the Participant to payment with respect
to Performance Units vests, as the case may be) in the event of certain
occurrences specified in the Agreement. The Committee's right to require
forfeiture must be exercised within 90 days after discovery of such an
occurrence but in no event later than 15 months after the Participant's
termination of employment with the Company and its Affiliates. The occurrences
may, but need not, include competition with the Company or any Affiliate,
unauthorized disclosure of material proprietary information of the Company or
any Affiliate, a violation of applicable business ethics policies of the Company
or Affiliate or any other occurrence specified in the Agreement within the
period or periods of time specified in the Agreement.
19. Corporate Mergers, Acquisitions, Etc. The Committee may also grant
Options, Stock Appreciation Rights, Restricted Stock or other Awards under the
Plan having terms, conditions and provisions that vary from those specified in
this Plan provided that any such awards are granted in substitution for, or in
connection with the assumption of, existing options, stock appreciation rights,
restricted stock or other award granted, awarded or issued by another
corporation and assumed or otherwise agreed to be provided for by the Company
pursuant to or by reason of a transaction involving a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation to which the Company or a subsidiary is a party.
20. Unfunded Plan. The Plan shall be unfunded and the Company shall not
be required to segregate any assets that may at any time be represented by
Awards under the Plan. Neither the Company, its Affiliates, the Committee, nor
the Board of Directors shall be deemed to be a trustee of any amounts to be paid
under the Plan nor shall anything contained in the Plan or any action taken
pursuant to its provisions create or be construed to create a fiduciary
relationship between the Company and/or its Affiliates, and a Participant or
Successor or Transferee. To the extent any person acquires a right to receive an
Award under the Plan, this right shall be no greater than the right of an
unsecured general creditor of the Company.
21. Limits of Liability.
(a) Any liability of the Company to any Participant with
respect to an Award shall be based solely upon contractual obligations
created by the Plan and the Award Agreement.
(b) Except as may be required by law, neither the Company nor
any member of the Board of Directors or of the Committee, nor any other
person participating in any determination of any question under the
Plan, or in the interpretation, administration or application of the
Plan, shall have any liability to any party for any action taken, or
not taken, in good faith under the Plan.
22. Compliance with Applicable Legal Requirements. No certificate for
Shares distributable pursuant to this Plan shall be issued and delivered unless
the issuance of the certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Shares may, at the time, be listed.
23. Deferrals and Settlements. The Committee may require or permit
Participants to elect to defer the issuance of Shares or the settlement of
Awards in cash under such rules and procedures as it may establish under the
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Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts.
24. Other Benefit and Compensation Programs. Payments and other
benefits received by a Participant under an Award made pursuant to the Plan
shall not be deemed a part of a Participant's regular, recurring compensation
for purposes of the termination, indemnity or severance pay laws of any country
and shall not be included in, nor have any effect on, the determination of
benefits under any other employee benefit plan, contract or similar arrangement
provided by the Company or an Affiliate unless expressly so provided by such
other plan, contract or arrangement, or unless the Committee expressly
determines that an Award or portion of an Award should be included to accurately
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of competitive cash compensation.
25. Beneficiary Upon Participant's Death. To the extent that the
transfer of a Participant's Award at his or her death is permitted under an
Agreement, a Participant's Award shall be transferable at death to the estate or
to the person who acquires the right to succeed to the Award by bequest or
inheritance.
26. Change-in-Control Payments.
(a) Notwithstanding the provisions of Plan Section 17 above,
if any Award, either alone or together with other payments in the
nature of compensation to a Participant that are contingent on a change
in the ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company or
otherwise, would result in any portion thereof being subject to an
excise tax imposed under Code Section 4999, or any successor provision,
or would not be deductible in whole or in part by the Company, an
affiliate of the Company (as defined in Code Section 1504, or any
successor provision), or other person making such payments as a result
of Code Section 280G, or any successor provision, such Award and/or
such other benefits and payments shall be reduced (but not below zero)
to the largest aggregate amount as will result in no portion thereof
being subject to such an excise tax or being not so deductible.
(b) For purposes of Plan Section 26(a), (i) no portion of
payments the receipt or enjoyment of which a Participant shall have
effectively waived in writing before the date of distribution of an
Award shall be taken into account; (ii) no portion of such Award,
benefits and other payments shall be taken into account that in the
opinion of tax counsel selected by the Company's independent auditors
and acceptable to the Participant does not constitute a "parachute
payment" within the meaning of Code Section 280G(b)(2), or any
successor provision; and (iii) the value of any non-cash benefit or any
deferred payment or benefit included in such payment shall be
determined by the Company's independent auditors in accordance with the
principles of Code Sections 280G(d)(3) and (4) or any successor
provisions;
(c) Any Award not paid as a result of this Plan Section 26 or
reduced to zero as a result of the limitations imposed hereby, shall
remain outstanding in full force and effect in accordance with the
other terms and provisions of this Plan.
27. Requirements of Law.
(a) To the extent that federal laws do not otherwise control,
the Plan and all determinations made and actions taken pursuant to the
Plan shall be governed by the laws of the State of Minnesota without
regard to its conflicts-of-law principles and shall be construed
accordingly.
(b) If any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not effect
the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
28. Repricing; Shareholder Approval. Except as provided in Plan Section
16, neither the Board nor any committee thereof shall cause the Company to
adjust or amend the exercise price of any outstanding Award, whether through
amendment, relacement grant, or other means, without the prior approval of the
shareholders of the Company.
15
<PAGE> 1
EXHIBIT 10(u)
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of
February 15, 2000 between Buffets, Inc., a Minnesota corporation (the
"Company"), and Roe H. Hatlen (the "Executive").
RECITALS
A. The Executive is a key member of the management of the Company and
has devoted substantial skill and effort to the affairs of the Company.
B. It is desirable and in the best interests of the Company and its
shareholders to continue to obtain the benefits of the Executive's services and
attention to the affairs of the Company.
C. It is desirable and in the best interests of the Company and its
shareholders to provide inducement for the Executive to remain in the service of
the Company in the event of any proposed or anticipated change in control of the
Company and to remain in the service of the Company in order to facilitate an
orderly transition in the event of a change in control of the Company.
D. It is desirable and in the best interests of the Company and its
shareholders that the Executive be in a position to make judgments and advise
the Company with respect to proposed changes in control of the Company without
regard to the possibility that the Executive's employment may be terminated
without compensation in the event of certain changes in control of the Company.
E. The Executive desires to be protected in the event of certain
changes in control of the Company.
F. For the reasons set forth above, the Company and the Executive
desire to enter into this Agreement.
AGREEMENT
Now, therefore, in consideration of the foregoing and the mutual
agreements contained herein, the Company and the Executive agree as follows:
1. Employment. The Executive shall remain in the employ of the
Company for the Term of this Agreement, and during the Term the Executive shall
have such title, duties, responsibilities and authority, and receive such
remuneration and fringe benefits, as the Board of Directors of the Company shall
from time to time provide for the Executive; provided, however, that either the
Executive or the Company may terminate the employment of the
<PAGE> 2
Executive at any time before the expiration of the Term, with or without Cause,
upon at least 30 days' prior written notice to the other party, subject to the
right of the Executive to receive any payment and other benefits that may be due
under Section 3.
2. Events. No amounts or benefits shall be payable or provided for
pursuant to this Agreement unless an Event shall have occurred during the Term
of this Agreement.
(a) Each of the following shall be deemed an "Event" for purposes
of this Agreement:
(1) Any "person" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended, or any successor
statute thereto (the "Exchange Act")) acquires or becomes a
"beneficial owner" (as defined in Rule 13d-3 or any successor rule
under the Exchange Act), directly or indirectly, of securities of
the Company representing 30% or more of the combined voting power
of the Company's then-outstanding securities entitled to vote
generally in the election of directors ("Voting Securities") or
30% or more of the then-outstanding shares of common stock of the
Company ("Common Stock"), provided, however, that the following
shall not constitute an Event pursuant to this Section 2(a)(1):
(A) any acquisition or beneficial ownership by the
Company or a subsidiary of the Company;
(B) any acquisition or beneficial ownership by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or one or more of its subsidiaries;
(C) any acquisition or beneficial ownership by any
corporation (including an acquisition in a transaction of the
nature described in Section 2(a)(3)) with respect to which,
immediately following such acquisition, more than 70%,
respectively, of (i) the combined voting power of the
Company's then-outstanding Voting Securities and (ii) the
Common Stock is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who
beneficially owned Voting Securities and Common Stock,
respectively, of the Company immediately before such
acquisition in substantially the same proportions as their
ownership of such Voting Securities and Common Stock, as the
case may be, immediately before such acquisition;
(2) Continuing Directors shall not constitute a majority of
the members of the Board of Directors of the Company. For purposes
of this
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<PAGE> 3
Section 2(a)(2), "Continuing Directors" are the following: (A)
individuals who, on the date hereof, are directors of the Company,
(B) individuals elected as directors of the Company after the date
hereof for whose election proxies shall have been solicited by the
Board of Directors of the Company or (C) individuals elected or
appointed by the Board of Directors of the Company to fill
vacancies on the Board of Directors of the Company caused by death
or resignation (but not by removal) or to fill newly created
directorships, provided that "Continuing Directors" shall not
include individuals whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to
the threatened election or removal of directors (or other actual
or threatened solicitation of proxies or consents) by or on behalf
of any person or group other than the Board of Directors of the
Company;
(3) Approval by the shareholders of the Company of a
reorganization, merger, statutory share exchange or consolidation
of the Company (other than a reorganization, merger, statutory
share exchange or consolidation with a subsidiary of the Company),
unless immediately following such reorganization, merger,
statutory share exchange or consolidation all or substantially all
of the persons who were the beneficial owners, respectively, of
Voting Securities and Common Stock immediately before such
reorganization, merger, statutory share exchange or consolidation
beneficially own, directly or indirectly, more than 70% of,
respectively, (A) the combined voting power of the
then-outstanding voting securities entitled to vote generally in
the election of directors and (B) the then-outstanding shares of
common stock of the corporation resulting from such
reorganization, merger, statutory share exchange or consolidation
in substantially the same proportions as their ownership,
immediately before such reorganization, merger, statutory share
exchange or consolidation, of the Voting Securities and Common
Stock, as the case may be;
(4) (A) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company or (B) the sale
or other disposition of all or substantially all of the assets of
the Company (in one or a series of transactions), other than to a
corporation with respect to which, immediately following such sale
or other disposition, more than 70% of, respectively, (i) the
combined voting power of the then-outstanding voting securities of
such corporation entitled to vote generally in the election of
directors and (ii) the then-outstanding shares of common stock of
such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who were
the beneficial owners, respectively, of the Voting Securities and
Common Stock immediately before such sale or other disposition in
substantially the same proportions as their ownership, immediately
before such
-3-
<PAGE> 4
sale or other disposition, of the Voting Securities and Common
Stock, as the case may be;
(5) The Company enters into a letter of intent, an agreement
in principle or a definitive agreement relating to an Event
described in Section 2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) that
ultimately results in such an Event, or a tender or exchange offer
or proxy contest is commenced that ultimately results in an Event
described in Section 2(a)(1) or 2(a)(2); or
(6) There shall be an involuntary termination or
Constructive Involuntary Termination of employment of the
Executive, and the Executive reasonably demonstrates that such
event (A) was requested by a party (other than the Board of
Directors of the Company) that had previously taken other steps
reasonably calculated to result in an Event described in Section 2
(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) and that ultimately results in
an Event described in any such Section, or (B) otherwise arose in
connection with or in anticipation of an Event described in any
such Section that ultimately occurs.
Notwithstanding anything stated in this Section 2(a), an Event shall
not be deemed to occur with respect to the Executive if (x) the
acquisition or beneficial ownership of the 30% or greater interest
referred to in Section 2(a)(1) is by the Executive or by a group,
acting in concert, that includes the Executive (provided that if the
acquisition is by a group, the Executive must acquire or own
beneficially 10% or greater of the interest referred to in Section
2(a)(i)) or (y) a majority of the combined voting power of the
then-outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall,
immediately after a reorganization, merger, consolidation or
disposition of assets referred to in Section 2(a)(3) or 2(a)(4), be
beneficially owned, directly or indirectly, by the Executive or by a
group, acting in concert, that includes the Executive (provided that if
the acquisition is by a group, the Executive must beneficially own at
least 10% of the surviving corporation or such other corporation).
(b) For purposes of this Agreement, a "subsidiary" of the
Company includes any entity of which securities or other ownership
interests having general voting power to elect a majority of the board
of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
3. Payments and Benefits. If an Event occurs during the Term of this
Agreement, then the Executive shall be entitled to receive from the Company or
its successor (which includes any person acquiring all or substantially all of
the assets of the Company) a cash payment and other benefits on the following
basis (unless the Executive's employment by the Company is terminated
voluntarily or involuntarily before the occurrence of the earliest Event
-4-
<PAGE> 5
to occur (the "First Event"), in which case the Executive shall be entitled to
no payment or benefits under this Section 3):
(a) If at the time of, or at any time after, the occurrence of
the First Event and before the end of the Transition Period, the
employment of the Executive with the Company is voluntarily or
involuntarily terminated for any reason (unless such termination is a
voluntary termination by the Executive other than a Constructive
Involuntary Termination or is on account of the death or Disability of
the Executive or is a termination by the Company for Cause), the
Executive (or the Executive's legal representative, as the case may
be), subject to the limitations set forth in Sections 3(e) and 3(g),
(1) shall be entitled to receive from the Company or its
successor, upon such termination of employment with the Company or
its successor, a cash payment in an amount equal to three times
the sum of (A) the Executive's then-current annual base salary and
(B) the greater of (i) the Executive's annualized then-current
year's bonus or (ii) the Executive's annual bonus in the year
prior to the then-current year, such payment to be made to the
Executive by the Company or its successor in a lump sum at the
time of such termination of employment; and
(2) shall be entitled for three years after the termination
of the Executive's employment with the Company to participate in
any health, disability and life insurance plan or program in which
the Executive was entitled to participate immediately before the
First Event as if he were an employee of the Company during such
three-year period; provided however, that if the Executive's
participation in any such health, disability or life insurance
plan or program of the Company is barred, the Company, at its sole
cost and expense, shall arrange to provide the Executive with
benefits substantially similar to those that the Executive would
be entitled to receive under such plan or program as if he were
not barred from participation.
(b) The payments provided for in this Section 3 shall be in
addition to any salary or other remuneration otherwise payable to the
Executive on account of employment by the Company or one or more of its
subsidiaries or its successor (including any amounts received before
such termination of employment for personal services rendered after the
occurrence of the First Event) but shall be reduced by any severance
pay which the Executive receives from the Company, its subsidiaries or
its successor under any other policy or agreement of the Company in the
event of involuntary termination of Executive's employment.
(c) The Company shall also pay to the Executive all legal fees
and expenses incurred by the Executive as a result of such termination,
including all such fees and
-5-
<PAGE> 6
expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(d) If at any time from the date of the First Event until the
end of the Transition Period,
(1) the Executive shall not be given substantially
equivalent or greater title, duties, responsibilities and
authority, in each case as compared with the Executive's status
immediately before the First Event, other than for Cause or on
account of Disability;
(2) the Executive's annual base salary or bonus formula
shall be reduced from the Executive's annual base salary or bonus
formula in effect immediately before the First Event;
(3) the Company shall fail to provide the Executive with
benefits under the Company's pension, profit sharing, retirement,
life insurance, medical, health and accident, disability, bonus
and incentive plans and other employee benefit plans and
arrangements that in the aggregate for all such plans and
arrangements are at least as favorable to the Executive as those
benefits covering the Executive immediately before the First Event
or shall fail to provide the Executive with at least the number of
paid vacation days to which the Executive was entitled immediately
before the First Event;
(4) the Company shall have failed to obtain assumption of
this Agreement by any successor as contemplated by Section 5(b)
hereof;
(5) the Company shall require the Executive to relocate to
any place other than a location within 30 miles of the location at
which the Executive performed his primary duties immediately
before the First Event or, if the Executive performed such duties
at the Company's principal executive offices, the Company shall
relocate its principal executive offices to any location other
than a location within 30 miles of the location of the principal
executive offices immediately before the First Event; or
(6) the Company shall require that the Executive travel on
Company business to a substantially greater extent than required
immediately before the First Event;
then a termination of employment with the Company by the Executive thereafter
shall constitute a "Constructive Involuntary Termination."
-6-
<PAGE> 7
(e) Notwithstanding any provision of this Agreement to the
contrary, except the last sentence of this Section 3(e), if the
lump-sum cash payment due and the other benefits to which the Executive
shall become entitled under Section 3(a), either alone or together with
other payments in the nature of compensation to the Executive that are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the Company or otherwise, would constitute a "parachute payment" as
defined in Section 280G of the Code or any successor provision thereto,
such lump-sum payment and/or such other benefits and payments shall be
reduced (but not below zero) to the largest aggregate amount as will
result in no portion thereof being subject to the excise tax imposed
under Section 4999 of the Code (or any successor provision thereto) or
being non-deductible to the Company for federal income tax purposes
pursuant to Section 280G of the Code (or any successor provision
thereto). The Executive in good faith shall determine the amount of any
reduction to be made pursuant to this Section 3(e) and shall select
from among the foregoing benefits and payments those which shall be
reduced. No modification of, or successor provision to, Section 280G or
Section 4999 after the date of this Agreement shall, however, reduce
the benefits to which the Executive would be entitled under this
Agreement in the absence of this Section 3(e) to a greater extent than
they would have been reduced if Section 280G and Section 4999 had not
been modified or superseded after the date of this Agreement,
notwithstanding anything to the contrary provided in the first sentence
of this Section 3(e).
(f) The Executive shall not be required to mitigate the amount
of any payment or other benefit provided for in this Section 3 by
seeking other employment or otherwise, nor (except as specifically
provided in Section 3(a)(2) or 3(b)) shall the amount of any payment or
other benefit provided for in this Section 3 be reduced by any
compensation earned by the Executive as the result of employment by
another employer after termination, or otherwise.
(g) Notwithstanding any other term of this Agreement, if (1)
an Event has not yet occurred, (2) the Board of Directors of the
Company desires to cause the Company to effect a transaction that will
qualify as a pooling-of-interests transaction (a "Pooling Transaction")
and (3) the independent certified public accountants for the Company
advise the Board of Directors that they will be unable to render an
opinion that such transaction will be treated as a Pooling Transaction
solely because of the payments provided for in this Agreement (or in
similar agreements with other employees of the Company), then the
Executive agrees that upon the happening of any Event in connection
with such Pooling Transaction he shall not be entitled to any payments
under this Agreement as a result of such Event to the extent such
payments would in the opinion of the Company's independent certified
public accountants prevent them from providing the Company with a
favorable opinion with respect to the treatment of the desired
transaction as a Pooling Transaction.
-7-
<PAGE> 8
(h) The obligations of the Company under this Section 3 shall
survive the termination of this Agreement.
4. Definition of Certain Additional Terms.
(a) "Cause" means, and is limited to, (1) willful and gross
neglect of his duties by the Executive or (2) an act or acts committed
by the Executive constituting a felony and substantially detrimental to
the Company or its reputation.
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
(c) "Disability" means the Executive's absence from his duties
with the Company on a full-time basis for 180 consecutive business days
as a result of the Executive's incapacity due to physical or mental
illness, unless within 30 days after written notice pursuant to Section
1 is given following such absence the Executive shall have returned to
the full-time performance of his duties.
(d) "Including" means "including without limitation."
(e) Other than in Section 2(a), "person" means an individual,
partnership, corporation, limited liability company, estate, trust or
other entity.
(f) "Transition Period" means the three-year period commencing
on the date of the earliest to occur of an Event described in Section
2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) (the "Commencement Date") and
ending on the third anniversary of the Commencement Date.
5. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the successors, legal representatives and assigns of the
parties hereto; provided, however, that the Executive may not assign,
pledge or otherwise dispose of or transfer any interest in this
Agreement or any payments hereunder, whether directly or indirectly or
in whole or in part, without the written consent of the Company or its
successor.
(b) The Company will require any successor (whether direct or
indirect, by purchase of a majority of the outstanding voting stock of
the Company or all or substantially all of the assets of the Company,
or by merger, statutory share exchange, consolidation or otherwise), by
agreement in form and substance satisfactory to the Executive, to
assume expressly and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such agreement
-8-
<PAGE> 9
before the effectiveness of any such succession (other than in the case
of a merger, statutory share exchange or consolidation) shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled hereunder if the Executive
terminated his employment on account of a Constructive Involuntary
Termination, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of termination. As used in this Agreement, "Company" means the
Company as defined above and any successor to its business and/or
assets as aforesaid that is required to execute and deliver the
agreement provided for in this Section 5(b) or that otherwise becomes
bound by this Agreement by operation of law.
6. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Minnesota, without giving effect to choice-of-law
principles.
7. Notices. All notices, requests and demands given to or made
pursuant hereto shall be in writing and shall be delivered or mailed to any such
party at its address as follows:
(a) In the case of the Company:
Buffets, Inc.
10260 Viking Drive
Eden Prairie, Minnesota 55344
Attention: Chief Executive Officer
(b) In the case of the Executive:
Roe H. Hatlen
10260 Viking Drive
Eden Prairie, Minnesota 55344-7229
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.
8. Severability; Severance. If any portion of this Agreement is held
to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the other portions of this Agreement and the
remaining portions hereof shall remain in full force and effect, and any court
of competent jurisdiction may so modify the objectionable provision so as to
make it valid and enforceable. If any benefits to the Executive provided in this
Agreement are held to be unavailable to the Executive as a matter of law, the
Executive shall be entitled to severance benefits from the Company, in the event
of an involuntary termination or Constructive Involuntary Termination of
employment of the Executive (other than a
-9-
<PAGE> 10
termination on account of the death or Disability of the Executive or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Executive (when taken together with the benefits under this Agreement that are
actually received by the Executive) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Executive during the five-year period before the First Event.
9. Term. The "Term" of this Agreement shall begin on the date hereof
and shall end on the later of (a) December 31, 2005, provided that such period
shall be automatically extended for successive one-year terms thereafter until
notice of termination is given by the Company or the Executive at least 60 days
before December 31, 2005 or the one-year extension period then in effect, as the
case may be, or (b) if the Commencement Date occurs on or before December 31,
2005 (or before the end of the extension year then in effect as provided for in
clause (a) of this Section), the third anniversary of the Commencement Date.
-10-
<PAGE> 11
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
BUFFETS, INC.
By:
--------------------------------
Its:
-------------------------------
EXECUTIVE
-----------------------------------
Roe H. Hatlen
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<PAGE> 1
EXHIBIT 10(v)
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of
February 15, 2000 between Buffets, Inc., a Minnesota corporation (the
"Company"), and C. Dennis Scott (the "Executive").
RECITALS
A. The Executive is a key member of the management of the Company and
has devoted substantial skill and effort to the affairs of the Company.
B. It is desirable and in the best interests of the Company and its
shareholders to continue to obtain the benefits of the Executive's services and
attention to the affairs of the Company.
C. It is desirable and in the best interests of the Company and its
shareholders to provide inducement for the Executive to remain in the service of
the Company in the event of any proposed or anticipated change in control of the
Company and to remain in the service of the Company in order to facilitate an
orderly transition in the event of a change in control of the Company.
D. It is desirable and in the best interests of the Company and its
shareholders that the Executive be in a position to make judgments and advise
the Company with respect to proposed changes in control of the Company without
regard to the possibility that the Executive's employment may be terminated
without compensation in the event of certain changes in control of the Company.
E. The Executive desires to be protected in the event of certain
changes in control of the Company.
F. For the reasons set forth above, the Company and the Executive
desire to enter into this Agreement.
AGREEMENT
Now, therefore, in consideration of the foregoing and the mutual
agreements contained herein, the Company and the Executive agree as follows:
1. Employment. The Executive shall remain in the employ of the
Company for the Term of this Agreement, and during the Term the Executive shall
have such title, duties, responsibilities and authority, and receive such
remuneration and fringe benefits, as the Board of Directors of the Company shall
from time to time provide for the Executive; provided, however, that either the
Executive or the Company may terminate the employment of the
<PAGE> 2
Executive at any time before the expiration of the Term, with or without Cause,
upon at least 30 days' prior written notice to the other party, subject to the
right of the Executive to receive any payment and other benefits that may be due
under Section 3.
2. Events. No amounts or benefits shall be payable or provided for
pursuant to this Agreement unless an Event shall have occurred during the Term
of this Agreement.
(a) Each of the following shall be deemed an "Event" for purposes
of this Agreement:
(1) Any "person" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended, or any successor
statute thereto (the "Exchange Act")) acquires or becomes a
"beneficial owner" (as defined in Rule 13d-3 or any successor rule
under the Exchange Act), directly or indirectly, of securities of
the Company representing 30% or more of the combined voting power
of the Company's then-outstanding securities entitled to vote
generally in the election of directors ("Voting Securities") or
30% or more of the then-outstanding shares of common stock of the
Company ("Common Stock"), provided, however, that the following
shall not constitute an Event pursuant to this Section 2(a)(1):
(A) any acquisition or beneficial ownership by the
Company or a subsidiary of the Company;
(B) any acquisition or beneficial ownership by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or one or more of its subsidiaries;
(C) any acquisition or beneficial ownership by any
corporation (including an acquisition in a transaction of the
nature described in Section 2(a)(3)) with respect to which,
immediately following such acquisition, more than 70%,
respectively, of (i) the combined voting power of the
Company's then-outstanding Voting Securities and (ii) the
Common Stock is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who
beneficially owned Voting Securities and Common Stock,
respectively, of the Company immediately before such
acquisition in substantially the same proportions as their
ownership of such Voting Securities and Common Stock, as the
case may be, immediately before such acquisition;
(2) Continuing Directors shall not constitute a majority of
the members of the Board of Directors of the Company. For purposes
of this
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<PAGE> 3
Section 2(a)(2), "Continuing Directors" are the following: (A)
individuals who, on the date hereof, are directors of the Company,
(B) individuals elected as directors of the Company after the date
hereof for whose election proxies shall have been solicited by the
Board of Directors of the Company or (C) individuals elected or
appointed by the Board of Directors of the Company to fill
vacancies on the Board of Directors of the Company caused by death
or resignation (but not by removal) or to fill newly created
directorships, provided that "Continuing Directors" shall not
include individuals whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to
the threatened election or removal of directors (or other actual
or threatened solicitation of proxies or consents) by or on behalf
of any person or group other than the Board of Directors of the
Company;
(3) Approval by the shareholders of the Company of a
reorganization, merger, statutory share exchange or consolidation
of the Company (other than a reorganization, merger, statutory
share exchange or consolidation with a subsidiary of the Company),
unless immediately following such reorganization, merger,
statutory share exchange or consolidation all or substantially all
of the persons who were the beneficial owners, respectively, of
Voting Securities and Common Stock immediately before such
reorganization, merger, statutory share exchange or consolidation
beneficially own, directly or indirectly, more than 70% of,
respectively, (A) the combined voting power of the
then-outstanding voting securities entitled to vote generally in
the election of directors and (B) the then-outstanding shares of
common stock of the corporation resulting from such
reorganization, merger, statutory share exchange or consolidation
in substantially the same proportions as their ownership,
immediately before such reorganization, merger, statutory share
exchange or consolidation, of the Voting Securities and Common
Stock, as the case may be;
(4) (A) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company or (B) the sale
or other disposition of all or substantially all of the assets of
the Company (in one or a series of transactions), other than to a
corporation with respect to which, immediately following such sale
or other disposition, more than 70% of, respectively, (i) the
combined voting power of the then-outstanding voting securities of
such corporation entitled to vote generally in the election of
directors and (ii) the then-outstanding shares of common stock of
such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who were
the beneficial owners, respectively, of the Voting Securities and
Common Stock immediately before such sale or other disposition in
substantially the same proportions as their ownership, immediately
before such
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<PAGE> 4
sale or other disposition, of the Voting Securities and Common
Stock, as the case may be;
(5) The Company enters into a letter of intent, an agreement
in principle or a definitive agreement relating to an Event
described in Section 2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) that
ultimately results in such an Event, or a tender or exchange offer
or proxy contest is commenced that ultimately results in an Event
described in Section 2(a)(1) or 2(a)(2); or
(6) There shall be an involuntary termination or
Constructive Involuntary Termination of employment of the
Executive, and the Executive reasonably demonstrates that such
event (A) was requested by a party (other than the Board of
Directors of the Company) that had previously taken other steps
reasonably calculated to result in an Event described in Section
2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) and that ultimately results
in an Event described in any such Section, or (B) otherwise arose
in connection with or in anticipation of an Event described in any
such Section that ultimately occurs.
Notwithstanding anything stated in this Section 2(a), an Event shall
not be deemed to occur with respect to the Executive if (x) the
acquisition or beneficial ownership of the 30% or greater interest
referred to in Section 2(a)(1) is by the Executive or by a group,
acting in concert, that includes the Executive (provided that if the
acquisition is by a group, the Executive must acquire or own
beneficially 10% or greater of the interest referred to in Section
2(a)(i)) or (y) a majority of the combined voting power of the
then-outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall,
immediately after a reorganization, merger, consolidation or
disposition of assets referred to in Section 2(a)(3) or 2(a)(4), be
beneficially owned, directly or indirectly, by the Executive or by a
group, acting in concert, that includes the Executive (provided that if
the acquisition is by a group, the Executive must beneficially own at
least 10% of the surviving corporation or such other corporation).
(b) For purposes of this Agreement, a "subsidiary" of the Company
includes any entity of which securities or other ownership interests
having general voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by the Company.
3. Payments and Benefits. If an Event occurs during the Term of this
Agreement, then the Executive shall be entitled to receive from the Company or
its successor (which includes any person acquiring all or substantially all of
the assets of the Company) a cash payment and other benefits on the following
basis (unless the Executive's employment by the Company is terminated
voluntarily or involuntarily before the occurrence of the earliest Event
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<PAGE> 5
to occur (the "First Event"), in which case the Executive shall be entitled to
no payment or benefits under this Section 3):
(a) If at the time of, or at any time after, the occurrence of
the First Event and before the end of the Transition Period, the
employment of the Executive with the Company is voluntarily or
involuntarily terminated for any reason (unless such termination is a
voluntary termination by the Executive other than a Constructive
Involuntary Termination or is on account of the death or Disability of
the Executive or is a termination by the Company for Cause), the
Executive (or the Executive's legal representative, as the case may
be), subject to the limitations set forth in Sections 3(e) and 3(g),
(1) shall be entitled to receive from the Company or its
successor, upon such termination of employment with the Company or
its successor, a cash payment in an amount equal to three times
the sum of (A) the Executive's then-current annual base salary and
(B) the greater of (i) the Executive's annualized then-current
year's bonus or (ii) the Executive's annual bonus in the year
prior to the then-current year, such payment to be made to the
Executive by the Company or its successor in a lump sum at the
time of such termination of employment; and
(2) shall be entitled for three years after the termination
of the Executive's employment with the Company to participate in
any health, disability and life insurance plan or program in which
the Executive was entitled to participate immediately before the
First Event as if he were an employee of the Company during such
three-year period; provided however, that if the Executive's
participation in any such health, disability or life insurance
plan or program of the Company is barred, the Company, at its sole
cost and expense, shall arrange to provide the Executive with
benefits substantially similar to those that the Executive would
be entitled to receive under such plan or program as if he were
not barred from participation.
(b) The payments provided for in this Section 3 shall be in
addition to any salary or other remuneration otherwise payable to the
Executive on account of employment by the Company or one or more of its
subsidiaries or its successor (including any amounts received before
such termination of employment for personal services rendered after the
occurrence of the First Event) but shall be reduced by any severance
pay which the Executive receives from the Company, its subsidiaries or
its successor under any other policy or agreement of the Company in the
event of involuntary termination of Executive's employment.
(c) The Company shall also pay to the Executive all legal fees
and expenses incurred by the Executive as a result of such termination,
including all such fees and
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<PAGE> 6
expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(d) If at any time from the date of the First Event until the end
of the Transition Period,
(1) the Executive shall not be given substantially
equivalent or greater title, duties, responsibilities and
authority, in each case as compared with the Executive's status
immediately before the First Event, other than for Cause or on
account of Disability;
(2) the Executive's annual base salary or bonus formula
shall be reduced from the Executive's annual base salary or bonus
formula in effect immediately before the First Event;
(3) the Company shall fail to provide the Executive with
benefits under the Company's pension, profit sharing, retirement,
life insurance, medical, health and accident, disability, bonus
and incentive plans and other employee benefit plans and
arrangements that in the aggregate for all such plans and
arrangements are at least as favorable to the Executive as those
benefits covering the Executive immediately before the First Event
or shall fail to provide the Executive with at least the number of
paid vacation days to which the Executive was entitled immediately
before the First Event;
(4) the Company shall have failed to obtain assumption of
this Agreement by any successor as contemplated by Section 5(b)
hereof;
(5) the Company shall require the Executive to relocate to
any place other than a location within 30 miles of the location at
which the Executive performed his primary duties immediately
before the First Event or, if the Executive performed such duties
at the Company's principal executive offices, the Company shall
relocate its principal executive offices to any location other
than a location within 30 miles of the location of the principal
executive offices immediately before the First Event; or
(6) the Company shall require that the Executive travel on
Company business to a substantially greater extent than required
immediately before the First Event;
then a termination of employment with the Company by the Executive
thereafter shall constitute a "Constructive Involuntary Termination."
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<PAGE> 7
(e) Notwithstanding any provision of this Agreement to the
contrary, except the last sentence of this Section 3(e), if the
lump-sum cash payment due and the other benefits to which the Executive
shall become entitled under Section 3(a), either alone or together with
other payments in the nature of compensation to the Executive that are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the Company or otherwise, would constitute a "parachute payment" as
defined in Section 280G of the Code or any successor provision thereto,
such lump-sum payment and/or such other benefits and payments shall be
reduced (but not below zero) to the largest aggregate amount as will
result in no portion thereof being subject to the excise tax imposed
under Section 4999 of the Code (or any successor provision thereto) or
being non-deductible to the Company for federal income tax purposes
pursuant to Section 280G of the Code (or any successor provision
thereto). The Executive in good faith shall determine the amount of any
reduction to be made pursuant to this Section 3(e) and shall select
from among the foregoing benefits and payments those which shall be
reduced. No modification of, or successor provision to, Section 280G or
Section 4999 after the date of this Agreement shall, however, reduce
the benefits to which the Executive would be entitled under this
Agreement in the absence of this Section 3(e) to a greater extent than
they would have been reduced if Section 280G and Section 4999 had not
been modified or superseded after the date of this Agreement,
notwithstanding anything to the contrary provided in the first sentence
of this Section 3(e).
(f) The Executive shall not be required to mitigate the amount of
any payment or other benefit provided for in this Section 3 by seeking
other employment or otherwise, nor (except as specifically provided in
Section 3(a)(2) or 3(b)) shall the amount of any payment or other
benefit provided for in this Section 3 be reduced by any compensation
earned by the Executive as the result of employment by another employer
after termination, or otherwise.
(g) Notwithstanding any other term of this Agreement, if (1) an
Event has not yet occurred, (2) the Board of Directors of the Company
desires to cause the Company to effect a transaction that will qualify
as a pooling-of-interests transaction (a "Pooling Transaction") and (3)
the independent certified public accountants for the Company advise the
Board of Directors that they will be unable to render an opinion that
such transaction will be treated as a Pooling Transaction solely
because of the payments provided for in this Agreement (or in similar
agreements with other employees of the Company), then the Executive
agrees that upon the happening of any Event in connection with such
Pooling Transaction he shall not be entitled to any payments under this
Agreement as a result of such Event to the extent such payments would
in the opinion of the Company's independent certified public
accountants prevent them from providing the Company with a favorable
opinion with respect to the treatment of the desired transaction as a
Pooling Transaction.
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<PAGE> 8
(h) The obligations of the Company under this Section 3 shall
survive the termination of this Agreement.
4. Definition of Certain Additional Terms.
(a) "Cause" means, and is limited to, (1) willful and gross
neglect of his duties by the Executive or (2) an act or acts committed
by the Executive constituting a felony and substantially detrimental to
the Company or its reputation.
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
(c) "Disability" means the Executive's absence from his duties
with the Company on a full-time basis for 180 consecutive business days
as a result of the Executive's incapacity due to physical or mental
illness, unless within 30 days after written notice pursuant to Section
1 is given following such absence the Executive shall have returned to
the full-time performance of his duties.
(d) "Including" means "including without limitation."
(e) Other than in Section 2(a), "person" means an individual,
partnership, corporation, limited liability company, estate, trust or
other entity.
(f) "Transition Period" means the three-year period commencing on
the date of the earliest to occur of an Event described in Section
2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) (the "Commencement Date") and
ending on the third anniversary of the Commencement Date.
5. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit
of the successors, legal representatives and assigns of the parties
hereto; provided, however, that the Executive may not assign, pledge or
otherwise dispose of or transfer any interest in this Agreement or any
payments hereunder, whether directly or indirectly or in whole or in
part, without the written consent of the Company or its successor.
(b) The Company will require any successor (whether direct or
indirect, by purchase of a majority of the outstanding voting stock of
the Company or all or substantially all of the assets of the Company,
or by merger, statutory share exchange, consolidation or otherwise), by
agreement in form and substance satisfactory to the Executive, to
assume expressly and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such agreement
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<PAGE> 9
before the effectiveness of any such succession (other than in the case
of a merger, statutory share exchange or consolidation) shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled hereunder if the Executive
terminated his employment on account of a Constructive Involuntary
Termination, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of termination. As used in this Agreement, "Company" means the
Company as defined above and any successor to its business and/or
assets as aforesaid that is required to execute and deliver the
agreement provided for in this Section 5(b) or that otherwise becomes
bound by this Agreement by operation of law.
6. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Minnesota, without giving effect to choice-of-law
principles.
7. Notices. All notices, requests and demands given to or made
pursuant hereto shall be in writing and shall be delivered or mailed to any such
party at its address as follows:
(a) In the case of the Company:
Buffets, Inc.
10260 Viking Drive
Eden Prairie, Minnesota 55344
Attention: Chief Executive Officer
(b) In the case of the Executive:
C. Dennis Scott
10260 Viking Drive
Eden Prairie, Minnesota 55344-7229
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.
8. Severability; Severance. If any portion of this Agreement is held
to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the other portions of this Agreement and the
remaining portions hereof shall remain in full force and effect, and any court
of competent jurisdiction may so modify the objectionable provision so as to
make it valid and enforceable. If any benefits to the Executive provided in this
Agreement are held to be unavailable to the Executive as a matter of law, the
Executive shall be entitled to severance benefits from the Company, in the event
of an involuntary termination or Constructive Involuntary Termination of
employment of the Executive (other than a
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<PAGE> 10
termination on account of the death or Disability of the Executive or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Executive (when taken together with the benefits under this Agreement that are
actually received by the Executive) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Executive during the five-year period before the First Event.
9. Term. The "Term" of this Agreement shall begin on the date hereof
and shall end on the later of (a) December 31, 2005, provided that such period
shall be automatically extended for successive one-year terms thereafter until
notice of termination is given by the Company or the Executive at least 60 days
before December 31, 2005 or the one-year extension period then in effect, as the
case may be, or (b) if the Commencement Date occurs on or before December 31,
2005 (or before the end of the extension year then in effect as provided for in
clause (a) of this Section), the third anniversary of the Commencement Date.
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<PAGE> 11
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
BUFFETS, INC.
By:
----------------------------
Its:
---------------------------
EXECUTIVE
-------------------------------
C. Dennis Scott
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<PAGE> 1
EXHIBIT 10(w)
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of
February 15, 2000 between Buffets, Inc., a Minnesota corporation (the
"Company"), and Kerry A. Kramp (the "Executive").
RECITALS
A. The Executive is a key member of the management of the Company and
has devoted substantial skill and effort to the affairs of the Company.
B. It is desirable and in the best interests of the Company and its
shareholders to continue to obtain the benefits of the Executive's services and
attention to the affairs of the Company.
C. It is desirable and in the best interests of the Company and its
shareholders to provide inducement for the Executive to remain in the service of
the Company in the event of any proposed or anticipated change in control of the
Company and to remain in the service of the Company in order to facilitate an
orderly transition in the event of a change in control of the Company.
D. It is desirable and in the best interests of the Company and its
shareholders that the Executive be in a position to make judgments and advise
the Company with respect to proposed changes in control of the Company without
regard to the possibility that the Executive's employment may be terminated
without compensation in the event of certain changes in control of the Company.
E. The Executive desires to be protected in the event of certain
changes in control of the Company.
F. For the reasons set forth above, the Company and the Executive
desire to enter into this Agreement.
AGREEMENT
Now, therefore, in consideration of the foregoing and the mutual
agreements contained herein, the Company and the Executive agree as follows:
1. Employment. The Executive shall remain in the employ of the Company
for the Term of this Agreement, and during the Term the Executive shall have
such title, duties, responsibilities and authority, and receive such
remuneration and fringe benefits, as the Board of Directors of the Company shall
from time to time provide for the Executive; provided, however, that either the
Executive or the Company may terminate the employment of the
<PAGE> 2
Executive at any time before the expiration of the Term, with or without Cause,
upon at least 30 days' prior written notice to the other party, subject to the
right of the Executive to receive any payment and other benefits that may be due
under Section 3.
2. Events. No amounts or benefits shall be payable or provided for
pursuant to this Agreement unless an Event shall have occurred during the Term
of this Agreement.
(a) Each of the following shall be deemed an "Event" for
purposes of this Agreement:
(1) Any "person" (as defined in Section 13(d) of
the Securities Exchange Act of 1934, as amended, or any
successor statute thereto (the "Exchange Act")) acquires or
becomes a "beneficial owner" (as defined in Rule 13d-3 or any
successor rule under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's
then-outstanding securities entitled to vote generally in the
election of directors ("Voting Securities") or 30% or more of
the then-outstanding shares of common stock of the Company
("Common Stock"), provided, however, that the following shall
not constitute an Event pursuant to this Section 2(a)(1):
(A) any acquisition or beneficial ownership
by the Company or a subsidiary of the Company;
(B) any acquisition or beneficial ownership
by any employee benefit plan (or related trust)
sponsored or maintained by the Company or one or more
of its subsidiaries;
(C) any acquisition or beneficial ownership
by any corporation (including an acquisition in a
transaction of the nature described in Section
2(a)(3)) with respect to which, immediately following
such acquisition, more than 70%, respectively, of (i)
the combined voting power of the Company's
then-outstanding Voting Securities and (ii) the
Common Stock is then beneficially owned, directly or
indirectly, by all or substantially all of the
persons who beneficially owned Voting Securities and
Common Stock, respectively, of the Company
immediately before such acquisition in substantially
the same proportions as their ownership of such
Voting Securities and Common Stock, as the case may
be, immediately before such acquisition;
(2) Continuing Directors shall not constitute a
majority of the members of the Board of Directors of the
Company. For purposes of this
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<PAGE> 3
Section 2(a)(2), "Continuing Directors" are the following: (A)
individuals who, on the date hereof, are directors of the
Company, (B) individuals elected as directors of the Company
after the date hereof for whose election proxies shall have
been solicited by the Board of Directors of the Company or (C)
individuals elected or appointed by the Board of Directors of
the Company to fill vacancies on the Board of Directors of the
Company caused by death or resignation (but not by removal) or
to fill newly created directorships, provided that "Continuing
Directors" shall not include individuals whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the threatened
election or removal of directors (or other actual or
threatened solicitation of proxies or consents) by or on
behalf of any person or group other than the Board of
Directors of the Company;
(3) Approval by the shareholders of the Company of a
reorganization, merger, statutory share exchange or
consolidation of the Company (other than a reorganization,
merger, statutory share exchange or consolidation with a
subsidiary of the Company), unless immediately following such
reorganization, merger, statutory share exchange or
consolidation all or substantially all of the persons who were
the beneficial owners, respectively, of Voting Securities and
Common Stock immediately before such reorganization, merger,
statutory share exchange or consolidation beneficially own,
directly or indirectly, more than 70% of, respectively, (A)
the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of
directors and (B) the then-outstanding shares of common stock
of the corporation resulting from such reorganization, merger,
statutory share exchange or consolidation in substantially the
same proportions as their ownership, immediately before such
reorganization, merger, statutory share exchange or
consolidation, of the Voting Securities and Common Stock, as
the case may be;
(4) (A) Approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company or (B)
the sale or other disposition of all or substantially all of
the assets of the Company (in one or a series of
transactions), other than to a corporation with respect to
which, immediately following such sale or other disposition,
more than 70% of, respectively, (i) the combined voting power
of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and
(ii) the then-outstanding shares of common stock of such
corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who
were the beneficial owners, respectively, of the Voting
Securities and Common Stock immediately before such
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<PAGE> 4
sale or other disposition in substantially the same
proportions as their ownership, immediately before such sale
or other disposition, of the Voting Securities and Common
Stock, as the case may be;
(5) The Company enters into a letter of intent, an
agreement in principle or a definitive agreement relating to
an Event described in Section 2(a)(1), 2(a)(2), 2(a)(3) or
2(a)(4) that ultimately results in such an Event, or a tender
or exchange offer or proxy contest is commenced that
ultimately results in an Event described in Section 2(a)(1) or
2(a)(2); or
(6) There shall be an involuntary termination or
Constructive Involuntary Termination of employment of the
Executive, and the Executive reasonably demonstrates that such
event (A) was requested by a party (other than the Board of
Directors of the Company) that had previously taken other
steps reasonably calculated to result in an Event described in
Section 2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) and that
ultimately results in an Event described in any such Section,
or (B) otherwise arose in connection with or in anticipation
of an Event described in any such Section that ultimately
occurs.
Notwithstanding anything stated in this Section 2(a), an Event shall
not be deemed to occur with respect to the Executive if (x) the
acquisition or beneficial ownership of the 30% or greater interest
referred to in Section 2(a)(1) is by the Executive or by a group,
acting in concert, that includes the Executive (provided that if the
acquisition is by a group, the Executive must acquire or own
beneficially 10% or greater of the interest referred to in Section
2(a)(i)) or (y) a majority of the combined voting power of the
then-outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall,
immediately after a reorganization, merger, consolidation or
disposition of assets referred to in Section 2(a)(3) or 2(a)(4), be
beneficially owned, directly or indirectly, by the Executive or by a
group, acting in concert, that includes the Executive (provided that if
the acquisition is by a group, the Executive must beneficially own at
least 10% of the surviving corporation or such other corporation).
(b) For purposes of this Agreement, a "subsidiary" of the
Company includes any entity of which securities or other ownership
interests having general voting power to elect a majority of the board
of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
3. Payments and Benefits. If an Event occurs during the Term of
this Agreement, then the Executive shall be entitled to receive from the Company
or its successor (which includes any person acquiring all or substantially all
of the assets of the Company) a cash payment and other benefits on the following
basis (unless the Executive's employment by the Company is terminated
voluntarily or involuntarily before the occurrence of the earliest Event
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<PAGE> 5
to occur (the "First Event"), in which case the Executive shall be entitled to
no payment or benefits under this Section 3):
(a) If at the time of, or at any time after, the
occurrence of the First Event and before the end of the Transition
Period, the employment of the Executive with the Company is voluntarily
or involuntarily terminated for any reason (unless such termination is
a voluntary termination by the Executive other than a Constructive
Involuntary Termination or is on account of the death or Disability of
the Executive or is a termination by the Company for Cause), the
Executive (or the Executive's legal representative, as the case may
be), subject to the limitations set forth in Sections 3(e) and 3(g),
(1) shall be entitled to receive from the Company or
its successor, upon such termination of employment with the
Company or its successor, a cash payment in an amount equal to
three times the sum of (A) the Executive's then-current annual
base salary and (B) the greater of (i) the Executive's
annualized then-current year's bonus or (ii) the Executive's
annual bonus in the year prior to the then-current year, such
payment to be made to the Executive by the Company or its
successor in a lump sum at the time of such termination of
employment; and
(2) shall be entitled for three years after the
termination of the Executive's employment with the Company to
participate in any health, disability and life insurance plan
or program in which the Executive was entitled to participate
immediately before the First Event as if he were an employee
of the Company during such three-year period; provided
however, that if the Executive's participation in any such
health, disability or life insurance plan or program of the
Company is barred, the Company, at its sole cost and expense,
shall arrange to provide the Executive with benefits
substantially similar to those that the Executive would be
entitled to receive under such plan or program as if he were
not barred from participation.
(b) The payments provided for in this Section 3 shall be
in addition to any salary or other remuneration otherwise payable to
the Executive on account of employment by the Company or one or more of
its subsidiaries or its successor (including any amounts received
before such termination of employment for personal services rendered
after the occurrence of the First Event) but shall be reduced by any
severance pay which the Executive receives from the Company, its
subsidiaries or its successor under any other policy or agreement of
the Company in the event of involuntary termination of Executive's
employment.
(c) The Company shall also pay to the Executive all legal
fees and expenses incurred by the Executive as a result of such
termination, including all such fees and
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<PAGE> 6
expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(d) If at any time from the date of the First Event until
the end of the Transition Period,
(1) the Executive shall not be given substantially
equivalent or greater title, duties, responsibilities and
authority, in each case as compared with the Executive's
status immediately before the First Event, other than for
Cause or on account of Disability;
(2) the Executive's annual base salary or bonus
formula shall be reduced from the Executive's annual base
salary or bonus formula in effect immediately before the First
Event;
(3) the Company shall fail to provide the Executive
with benefits under the Company's pension, profit sharing,
retirement, life insurance, medical, health and accident,
disability, bonus and incentive plans and other employee
benefit plans and arrangements that in the aggregate for all
such plans and arrangements are at least as favorable to the
Executive as those benefits covering the Executive immediately
before the First Event or shall fail to provide the Executive
with at least the number of paid vacation days to which the
Executive was entitled immediately before the First Event;
(4) the Company shall have failed to obtain
assumption of this Agreement by any successor as contemplated
by Section 5(b) hereof;
(5) the Company shall require the Executive to
relocate to any place other than a location within 30 miles of
the location at which the Executive performed his primary
duties immediately before the First Event or, if the Executive
performed such duties at the Company's principal executive
offices, the Company shall relocate its principal executive
offices to any location other than a location within 30 miles
of the location of the principal executive offices immediately
before the First Event; or
(6) the Company shall require that the Executive
travel on Company business to a substantially greater extent
than required immediately before the First Event;
then a termination of employment with the Company by the Executive
thereafter shall constitute a "Constructive Involuntary Termination."
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<PAGE> 7
(e) Notwithstanding any provision of this Agreement to
the contrary, except the last sentence of this Section 3(e), if the
lump-sum cash payment due and the other benefits to which the Executive
shall become entitled under Section 3(a), either alone or together with
other payments in the nature of compensation to the Executive that are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the Company or otherwise, would constitute a "parachute payment" as
defined in Section 280G of the Code or any successor provision thereto,
such lump-sum payment and/or such other benefits and payments shall be
reduced (but not below zero) to the largest aggregate amount as will
result in no portion thereof being subject to the excise tax imposed
under Section 4999 of the Code (or any successor provision thereto) or
being non-deductible to the Company for federal income tax purposes
pursuant to Section 280G of the Code (or any successor provision
thereto). The Executive in good faith shall determine the amount of any
reduction to be made pursuant to this Section 3(e) and shall select
from among the foregoing benefits and payments those which shall be
reduced. No modification of, or successor provision to, Section 280G or
Section 4999 after the date of this Agreement shall, however, reduce
the benefits to which the Executive would be entitled under this
Agreement in the absence of this Section 3(e) to a greater extent than
they would have been reduced if Section 280G and Section 4999 had not
been modified or superseded after the date of this Agreement,
notwithstanding anything to the contrary provided in the first sentence
of this Section 3(e).
(f) The Executive shall not be required to mitigate the
amount of any payment or other benefit provided for in this Section 3
by seeking other employment or otherwise, nor (except as specifically
provided in Section 3(a)(2) or 3(b)) shall the amount of any payment or
other benefit provided for in this Section 3 be reduced by any
compensation earned by the Executive as the result of employment by
another employer after termination, or otherwise.
(g) Notwithstanding any other term of this Agreement, if
(1) an Event has not yet occurred, (2) the Board of Directors of the
Company desires to cause the Company to effect a transaction that will
qualify as a pooling-of-interests transaction (a "Pooling Transaction")
and (3) the independent certified public accountants for the Company
advise the Board of Directors that they will be unable to render an
opinion that such transaction will be treated as a Pooling Transaction
solely because of the payments provided for in this Agreement (or in
similar agreements with other employees of the Company), then the
Executive agrees that upon the happening of any Event in connection
with such Pooling Transaction he shall not be entitled to any payments
under this Agreement as a result of such Event to the extent such
payments would in the opinion of the Company's independent certified
public accountants prevent them from providing the Company with a
favorable opinion with respect to the treatment of the desired
transaction as a Pooling Transaction.
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<PAGE> 8
(h) The obligations of the Company under this Section 3
shall survive the termination of this Agreement.
4. Definition of Certain Additional Terms.
(a) "Cause" means, and is limited to, (1) willful and
gross neglect of his duties by the Executive or (2) an act or acts
committed by the Executive constituting a felony and substantially
detrimental to the Company or its reputation.
(b) "Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute.
(c) "Disability" means the Executive's absence from his
duties with the Company on a full-time basis for 180 consecutive
business days as a result of the Executive's incapacity due to physical
or mental illness, unless within 30 days after written notice pursuant
to Section 1 is given following such absence the Executive shall have
returned to the full-time performance of his duties.
(d) "Including" means "including without limitation."
(e) Other than in Section 2(a), "person" means an
individual, partnership, corporation, limited liability company,
estate, trust or other entity.
(f) "Transition Period" means the three-year period
commencing on the date of the earliest to occur of an Event described
in Section 2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) (the "Commencement
Date") and ending on the third anniversary of the Commencement Date.
5. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the successors, legal representatives and assigns of the
parties hereto; provided, however, that the Executive may not assign,
pledge or otherwise dispose of or transfer any interest in this
Agreement or any payments hereunder, whether directly or indirectly or
in whole or in part, without the written consent of the Company or its
successor.
(b) The Company will require any successor (whether
direct or indirect, by purchase of a majority of the outstanding voting
stock of the Company or all or substantially all of the assets of the
Company, or by merger, statutory share exchange, consolidation or
otherwise), by agreement in form and substance satisfactory to the
Executive, to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure
of the Company to obtain such agreement
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<PAGE> 9
before the effectiveness of any such succession (other than in the case
of a merger, statutory share exchange or consolidation) shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled hereunder if the Executive
terminated his employment on account of a Constructive Involuntary
Termination, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of termination. As used in this Agreement, "Company" means the
Company as defined above and any successor to its business and/or
assets as aforesaid that is required to execute and deliver the
agreement provided for in this Section 5(b) or that otherwise becomes
bound by this Agreement by operation of law.
6. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Minnesota, without giving effect to choice-of-law
principles.
7. Notices. All notices, requests and demands given to or made
pursuant hereto shall be in writing and shall be delivered or mailed to any such
party at its address as follows:
(a) In the case of the Company:
Buffets, Inc.
10260 Viking Drive
Eden Prairie, Minnesota 55344
Attention: Chief Executive Officer
(b) In the case of the Executive:
Kerry A. Kramp
10260 Viking Drive
Eden Prairie, Minnesota 55344-7229
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.
8. Severability; Severance. If any portion of this Agreement is
held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the other portions of this Agreement and the
remaining portions hereof shall remain in full force and effect, and any court
of competent jurisdiction may so modify the objectionable provision so as to
make it valid and enforceable. If any benefits to the Executive provided in this
Agreement are held to be unavailable to the Executive as a matter of law, the
Executive shall be entitled to severance benefits from the Company, in the event
of an involuntary termination or Constructive Involuntary Termination of
employment of the Executive (other than a
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<PAGE> 10
termination on account of the death or Disability of the Executive or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Executive (when taken together with the benefits under this Agreement that are
actually received by the Executive) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Executive during the five-year period before the First Event.
9. Term. The "Term" of this Agreement shall begin on the date
hereof and shall end on the later of (a) December 31, 2005, provided that such
period shall be automatically extended for successive one-year terms thereafter
until notice of termination is given by the Company or the Executive at least 60
days before December 31, 2005 or the one-year extension period then in effect,
as the case may be, or (b) if the Commencement Date occurs on or before December
31, 2005 (or before the end of the extension year then in effect as provided for
in clause (a) of this Section), the third anniversary of the Commencement Date.
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<PAGE> 11
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
BUFFETS, INC.
By:
---------------------------------
Its:
---------------------------------
EXECUTIVE
-------------------------------------
Kerry A. Kramp
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<PAGE> 1
EXHIBIT 10(x)
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of
February 15, 2000 between Buffets, Inc., a Minnesota corporation (the
"Company"), and David Goronkin (the "Executive").
RECITALS
A. The Executive is a key member of the management of the Company and
has devoted substantial skill and effort to the affairs of the Company.
B. It is desirable and in the best interests of the Company and its
shareholders to continue to obtain the benefits of the Executive's services and
attention to the affairs of the Company.
C. It is desirable and in the best interests of the Company and its
shareholders to provide inducement for the Executive to remain in the service of
the Company in the event of any proposed or anticipated change in control of the
Company and to remain in the service of the Company in order to facilitate an
orderly transition in the event of a change in control of the Company.
D. It is desirable and in the best interests of the Company and its
shareholders that the Executive be in a position to make judgments and advise
the Company with respect to proposed changes in control of the Company without
regard to the possibility that the Executive's employment may be terminated
without compensation in the event of certain changes in control of the Company.
E. The Executive desires to be protected in the event of certain
changes in control of the Company.
F. For the reasons set forth above, the Company and the Executive
desire to enter into this Agreement.
AGREEMENT
Now, therefore, in consideration of the foregoing and the mutual
agreements contained herein, the Company and the Executive agree as follows:
1. Employment. The Executive shall remain in the employ of the Company
for the Term of this Agreement, and during the Term the Executive shall have
such title, duties, responsibilities and authority, and receive such
remuneration and fringe benefits, as the Board of Directors of the Company shall
from time to time provide for the Executive; provided, however, that either the
Executive or the Company may terminate the employment of the
<PAGE> 2
Executive at any time before the expiration of the Term, with or without Cause,
upon at least 30 days' prior written notice to the other party, subject to the
right of the Executive to receive any payment and other benefits that may be due
under Section 3.
2. Events. No amounts or benefits shall be payable or provided for
pursuant to this Agreement unless an Event shall have occurred during the Term
of this Agreement.
(a) Each of the following shall be deemed an "Event" for
purposes of this Agreement:
(1) Any "person" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended, or any successor
statute thereto (the "Exchange Act")) acquires or becomes a
"beneficial owner" (as defined in Rule 13d-3 or any successor
rule under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then-outstanding
securities entitled to vote generally in the election of
directors ("Voting Securities") or 30% or more of the
then-outstanding shares of common stock of the Company
("Common Stock"), provided, however, that the following shall
not constitute an Event pursuant to this Section 2(a)(1):
(A) any acquisition or beneficial
ownership by the Company or a subsidiary of the
Company;
(B) any acquisition or beneficial ownership
by any employee benefit plan (or related trust)
sponsored or maintained by the Company or one or more
of its subsidiaries;
(C) any acquisition or beneficial ownership
by any corporation (including an acquisition in a
transaction of the nature described in Section
2(a)(3)) with respect to which, immediately following
such acquisition, more than 70%, respectively, of (i)
the combined voting power of the Company's
then-outstanding Voting Securities and (ii) the
Common Stock is then beneficially owned, directly or
indirectly, by all or substantially all of the
persons who beneficially owned Voting Securities and
Common Stock, respectively, of the Company
immediately before such acquisition in substantially
the same proportions as their ownership of such
Voting Securities and Common Stock, as the case may
be, immediately before such acquisition;
(2) Continuing Directors shall not constitute a
majority of the members of the Board of Directors of the
Company. For purposes of this
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<PAGE> 3
Section 2(a)(2), "Continuing Directors" are the following: (A)
individuals who, on the date hereof, are directors of the
Company, (B) individuals elected as directors of the Company
after the date hereof for whose election proxies shall have
been solicited by the Board of Directors of the Company or (C)
individuals elected or appointed by the Board of Directors of
the Company to fill vacancies on the Board of Directors of the
Company caused by death or resignation (but not by removal) or
to fill newly created directorships, provided that "Continuing
Directors" shall not include individuals whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the threatened
election or removal of directors (or other actual or
threatened solicitation of proxies or consents) by or on
behalf of any person or group other than the Board of
Directors of the Company;
(3) Approval by the shareholders of the Company of a
reorganization, merger, statutory share exchange or
consolidation of the Company (other than a reorganization,
merger, statutory share exchange or consolidation with a
subsidiary of the Company), unless immediately following such
reorganization, merger, statutory share exchange or
consolidation all or substantially all of the persons who were
the beneficial owners, respectively, of Voting Securities and
Common Stock immediately before such reorganization, merger,
statutory share exchange or consolidation beneficially own,
directly or indirectly, more than 70% of, respectively, (A)
the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of
directors and (B) the then-outstanding shares of common stock
of the corporation resulting from such reorganization, merger,
statutory share exchange or consolidation in substantially the
same proportions as their ownership, immediately before such
reorganization, merger, statutory share exchange or
consolidation, of the Voting Securities and Common Stock, as
the case may be;
(4) (A) Approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company or (B)
the sale or other disposition of all or substantially all of
the assets of the Company (in one or a series of
transactions), other than to a corporation with respect to
which, immediately following such sale or other disposition,
more than 70% of, respectively, (i) the combined voting power
of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and
(ii) the then-outstanding shares of common stock of such
corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the persons who
were the beneficial owners, respectively, of the Voting
Securities and Common Stock immediately before such sale or
other disposition in substantially the same proportions as
their ownership, immediately before such
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<PAGE> 4
sale or other disposition, of the Voting Securities and Common
Stock, as the case may be;
(5) The Company enters into a letter of intent, an
agreement in principle or a definitive agreement relating to
an Event described in Section 2(a)(1), 2(a)(2), 2(a)(3) or
2(a)(4) that ultimately results in such an Event, or a tender
or exchange offer or proxy contest is commenced that
ultimately results in an Event described in Section 2(a)(1) or
2(a)(2); or
(6) There shall be an involuntary termination or
Constructive Involuntary Termination of employment of the
Executive, and the Executive reasonably demonstrates that such
event (A) was requested by a party (other than the Board of
Directors of the Company) that had previously taken other
steps reasonably calculated to result in an Event described in
Section 2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) and that
ultimately results in an Event described in any such Section,
or (B) otherwise arose in connection with or in anticipation
of an Event described in any such Section that ultimately
occurs.
Notwithstanding anything stated in this Section 2(a), an Event shall
not be deemed to occur with respect to the Executive if (x) the
acquisition or beneficial ownership of the 30% or greater interest
referred to in Section 2(a)(1) is by the Executive or by a group,
acting in concert, that includes the Executive (provided that if the
acquisition is by a group, the Executive must acquire or own
beneficially 10% or greater of the interest referred to in Section
2(a)(i)) or (y) a majority of the combined voting power of the
then-outstanding voting securities (or voting equity interests) of the
surviving corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall,
immediately after a reorganization, merger, consolidation or
disposition of assets referred to in Section 2(a)(3) or 2(a)(4), be
beneficially owned, directly or indirectly, by the Executive or by a
group, acting in concert, that includes the Executive (provided that if
the acquisition is by a group, the Executive must beneficially own at
least 10% of the surviving corporation or such other corporation).
(b) For purposes of this Agreement, a "subsidiary" of the
Company includes any entity of which securities or other ownership
interests having general voting power to elect a majority of the board
of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
3. Payments and Benefits. If an Event occurs during the Term of this
Agreement, then the Executive shall be entitled to receive from the Company or
its successor (which includes any person acquiring all or substantially all of
the assets of the Company) a cash payment and other benefits on the following
basis (unless the Executive's employment by the Company is terminated
voluntarily or involuntarily before the occurrence of the earliest Event
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<PAGE> 5
to occur (the "First Event"), in which case the Executive shall be entitled to
no payment or benefits under this Section 3):
(a) If at the time of, or at any time after, the
occurrence of the First Event and before the end of the Transition
Period, the employment of the Executive with the Company is voluntarily
or involuntarily terminated for any reason (unless such termination is
a voluntary termination by the Executive other than a Constructive
Involuntary Termination or is on account of the death or Disability of
the Executive or is a termination by the Company for Cause), the
Executive (or the Executive's legal representative, as the case may
be), subject to the limitations set forth in Sections 3(e) and 3(g),
(1) shall be entitled to receive from the Company or
its successor, upon such termination of employment with the
Company or its successor, a cash payment in an amount equal to
three times the sum of (A) the Executive's then-current annual
base salary and (B) the greater of (i) the Executive's
annualized then-current year's bonus or (ii) the Executive's
annual bonus in the year prior to the then-current year, such
payment to be made to the Executive by the Company or its
successor in a lump sum at the time of such termination of
employment; and
(2) shall be entitled for three years after the
termination of the Executive's employment with the Company to
participate in any health, disability and life insurance plan
or program in which the Executive was entitled to participate
immediately before the First Event as if he were an employee
of the Company during such three-year period; provided
however, that if the Executive's participation in any such
health, disability or life insurance plan or program of the
Company is barred, the Company, at its sole cost and expense,
shall arrange to provide the Executive with benefits
substantially similar to those that the Executive would be
entitled to receive under such plan or program as if he were
not barred from participation.
(b) The payments provided for in this Section 3 shall be
in addition to any salary or other remuneration otherwise payable to
the Executive on account of employment by the Company or one or more of
its subsidiaries or its successor (including any amounts received
before such termination of employment for personal services rendered
after the occurrence of the First Event) but shall be reduced by any
severance pay which the Executive receives from the Company, its
subsidiaries or its successor under any other policy or agreement of
the Company in the event of involuntary termination of Executive's
employment.
(c) The Company shall also pay to the Executive all legal
fees and expenses incurred by the Executive as a result of such
termination, including all such fees and
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<PAGE> 6
expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement.
(d) If at any time from the date of the First Event until
the end of the Transition Period,
(1) the Executive shall not be given substantially
equivalent or greater title, duties, responsibilities and
authority, in each case as compared with the Executive's
status immediately before the First Event, other than for
Cause or on account of Disability;
(2) the Executive's annual base salary or bonus
formula shall be reduced from the Executive's annual base
salary or bonus formula in effect immediately before the First
Event;
(3) the Company shall fail to provide the Executive
with benefits under the Company's pension, profit sharing,
retirement, life insurance, medical, health and accident,
disability, bonus and incentive plans and other employee
benefit plans and arrangements that in the aggregate for all
such plans and arrangements are at least as favorable to the
Executive as those benefits covering the Executive immediately
before the First Event or shall fail to provide the Executive
with at least the number of paid vacation days to which the
Executive was entitled immediately before the First Event;
(4) the Company shall have failed to obtain
assumption of this Agreement by any successor as contemplated
by Section 5(b) hereof;
(5) the Company shall require the Executive to
relocate to any place other than a location within 30 miles of
the location at which the Executive performed his primary
duties immediately before the First Event or, if the Executive
performed such duties at the Company's principal executive
offices, the Company shall relocate its principal executive
offices to any location other than a location within 30 miles
of the location of the principal executive offices immediately
before the First Event; or
(6) the Company shall require that the Executive
travel on Company business to a substantially greater extent
than required immediately before the First Event;
then a termination of employment with the Company by the Executive
thereafter shall constitute a "Constructive Involuntary
Termination."
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<PAGE> 7
(e) Notwithstanding any provision of this Agreement to the
contrary, except the last sentence of this Section 3(e), if the
lump-sum cash payment due and the other benefits to which the Executive
shall become entitled under Section 3(a), either alone or together with
other payments in the nature of compensation to the Executive that are
contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of
the Company or otherwise, would constitute a "parachute payment" as
defined in Section 280G of the Code or any successor provision thereto,
such lump-sum payment and/or such other benefits and payments shall be
reduced (but not below zero) to the largest aggregate amount as will
result in no portion thereof being subject to the excise tax imposed
under Section 4999 of the Code (or any successor provision thereto) or
being non-deductible to the Company for federal income tax purposes
pursuant to Section 280G of the Code (or any successor provision
thereto). The Executive in good faith shall determine the amount of any
reduction to be made pursuant to this Section 3(e) and shall select
from among the foregoing benefits and payments those which shall be
reduced. No modification of, or successor provision to, Section 280G or
Section 4999 after the date of this Agreement shall, however, reduce
the benefits to which the Executive would be entitled under this
Agreement in the absence of this Section 3(e) to a greater extent than
they would have been reduced if Section 280G and Section 4999 had not
been modified or superseded after the date of this Agreement,
notwithstanding anything to the contrary provided in the first sentence
of this Section 3(e).
(f) The Executive shall not be required to mitigate the amount
of any payment or other benefit provided for in this Section 3 by
seeking other employment or otherwise, nor (except as specifically
provided in Section 3(a)(2) or 3(b)) shall the amount of any payment or
other benefit provided for in this Section 3 be reduced by any
compensation earned by the Executive as the result of employment by
another employer after termination, or otherwise.
(g) Notwithstanding any other term of this Agreement, if (1)
an Event has not yet occurred, (2) the Board of Directors of the
Company desires to cause the Company to effect a transaction that will
qualify as a pooling-of-interests transaction (a "Pooling Transaction")
and (3) the independent certified public accountants for the Company
advise the Board of Directors that they will be unable to render an
opinion that such transaction will be treated as a Pooling Transaction
solely because of the payments provided for in this Agreement (or in
similar agreements with other employees of the Company), then the
Executive agrees that upon the happening of any Event in connection
with such Pooling Transaction he shall not be entitled to any payments
under this Agreement as a result of such Event to the extent such
payments would in the opinion of the Company's independent certified
public accountants prevent them from providing the Company with a
favorable opinion with respect to the treatment of the desired
transaction as a Pooling Transaction.
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<PAGE> 8
(h) The obligations of the Company under this Section 3
shall survive the termination of this Agreement.
4. Definition of Certain Additional Terms.
(a) "Cause" means, and is limited to, (1) willful and gross
neglect of his duties by the Executive or (2) an act or acts committed
by the Executive constituting a felony and substantially detrimental to
the Company or its reputation.
(b) "Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute.
(c) "Disability" means the Executive's absence from his duties
with the Company on a full-time basis for 180 consecutive business days
as a result of the Executive's incapacity due to physical or mental
illness, unless within 30 days after written notice pursuant to Section
1 is given following such absence the Executive shall have returned to
the full-time performance of his duties.
(d) "Including" means "including without limitation."
(e) Other than in Section 2(a), "person" means an individual,
partnership, corporation, limited liability company, estate, trust or
other entity.
(f) "Transition Period" means the three-year period commencing
on the date of the earliest to occur of an Event described in Section
2(a)(1), 2(a)(2), 2(a)(3) or 2(a)(4) (the "Commencement Date") and
ending on the third anniversary of the Commencement Date.
5. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the successors, legal representatives and assigns of the
parties hereto; provided, however, that the Executive may not assign,
pledge or otherwise dispose of or transfer any interest in this
Agreement or any payments hereunder, whether directly or indirectly or
in whole or in part, without the written consent of the Company or its
successor.
(b) The Company will require any successor (whether direct or
indirect, by purchase of a majority of the outstanding voting stock of
the Company or all or substantially all of the assets of the Company,
or by merger, statutory share exchange, consolidation or otherwise), by
agreement in form and substance satisfactory to the Executive, to
assume expressly and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain
such agreement
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<PAGE> 9
before the effectiveness of any such succession (other than in the case
of a merger, statutory share exchange or consolidation) shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled hereunder if the Executive
terminated his employment on account of a Constructive Involuntary
Termination, except that for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of termination. As used in this Agreement, "Company" means the
Company as defined above and any successor to its business and/or
assets as aforesaid that is required to execute and deliver the
agreement provided for in this Section 5(b) or that otherwise becomes
bound by this Agreement by operation of law.
6. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Minnesota, without giving effect to choice-of-law
principles.
7. Notices. All notices, requests and demands given to or made
pursuant hereto shall be in writing and shall be delivered or mailed to any such
party at its address as follows:
(a) In the case of the Company:
Buffets, Inc.
10260 Viking Drive
Eden Prairie, Minnesota 55344
Attention: Chief Executive Officer
(b) In the case of the Executive:
David Goronkin
10260 Viking Drive
Eden Prairie, Minnesota 55344-7229
Either party may, by notice hereunder, designate a changed address. Any notice,
if mailed properly addressed, postage prepaid, registered or certified mail,
shall be deemed to have been given on the registered date or that date stamped
on the certified mail receipt.
8. Severability; Severance. If any portion of this Agreement is
held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the other portions of this Agreement and the
remaining portions hereof shall remain in full force and effect, and any court
of competent jurisdiction may so modify the objectionable provision so as to
make it valid and enforceable. If any benefits to the Executive provided in this
Agreement are held to be unavailable to the Executive as a matter of law, the
Executive shall be entitled to severance benefits from the Company, in the event
of an involuntary termination or Constructive Involuntary Termination of
employment of the Executive (other than a
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<PAGE> 10
termination on account of the death or Disability of the Executive or a
termination for Cause) during the term of this Agreement occurring at the time
of or following the occurrence of an Event, at least as favorable to the
Executive (when taken together with the benefits under this Agreement that are
actually received by the Executive) as the most advantageous benefits made
available by the Employer to employees of comparable position and seniority to
the Executive during the five-year period before the First Event.
9. Term. The "Term" of this Agreement shall begin on the date hereof
and shall end on the later of (a) December 31, 2005, provided that such period
shall be automatically extended for successive one-year terms thereafter until
notice of termination is given by the Company or the Executive at least 60 days
before December 31, 2005 or the one-year extension period then in effect, as the
case may be, or (b) if the Commencement Date occurs on or before December 31,
2005 (or before the end of the extension year then in effect as provided for in
clause (a) of this Section), the third anniversary of the Commencement Date.
-10-
<PAGE> 11
In Witness Whereof, the parties have executed this Agreement as of the
date first written above.
BUFFETS, INC.
By:
-----------------------------------
Its:
----------------------------------
EXECUTIVE
--------------------------------------
David Goronkin
-11-
<PAGE> 1
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year (52-53 Weeks) Ended
---------------------------------------------------------------------------
January 3, January 1, December 31, December 30, December 29,
1996 (1) 1997(2) 1997 1998 1999
---------- ---------- ------------ ------------ -----------
(In thousands, except per share amounts and Restaurant Data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales..................................... $ 661,445 $ 750,707 $ 808,529 $ 868,858 $ 936,854
Restaurant costs..................................... 567,290 659,784 712,004 745,282 800,255
--------- --------- --------- --------- ---------
Restaurant profits................................... 94,155 90,923 96,525 123,576 136,599
Selling, general, and administrative expenses........ 40,276 47,594 48,158 60,777 70,985
Merger and merger-related costs...................... 6,584
Duplicate site closing costs......................... 10,702
Impairment of assets and site closing costs.......... 1,370 32,286 1,500 1,538 1,966
Other income (expense)............................... 574 (520) (359) 2,465 3,594
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes.................. 53,083 (6,763) 46,508 63,726 67,242
Income taxes......................................... 20,176 440 17,910 24,375 24,800
--------- --------- --------- --------- ---------
Net earnings (loss).................................. $ 32,907 $ (7,203) $ 28,598 $ 39,351 $ 42,442
========= ========= ========= ========= =========
Earnings (loss) per share:
Basic............................................... $ .74 $ (.16) $ .63 $ .87 $ .99
========= ========= ========= ========= =========
Diluted............................................. $ .73 $ (.16) $ .62 $ .83 $ .95
========= ========= ========= ========= =========
Weighted average common shares assumed outstanding:
Basic............................................... 44,604 45,068 45,257 45,346 42,805
Diluted............................................. 45,578 45,068 49,140 49,726 46,692
BALANCE SHEET DATA:
Property and equipment (net)......................... $ 328,573 $ 327,721 $ 330,647 $ 334,582 $ 353,657
Total assets......................................... 399,752 370,683 403,576 466,849 477,635
Long-term debt (including current portion)........... 64,655 48,633 46,693 44,405 42,151
Stockholders' equity................................. 242,434 236,791 266,687 299,725 306,383
RESTAURANT DATA:
Restaurants opened or acquired during period......... 65 41 18 28 25
Restaurants closed or relocated during period........ (3) (8) (4) (2) (8)
Restaurants open (end of period):
Company-owned....................................... 313 346 360 386 403
Franchised.......................................... 25 24 24 24 24
--------- --------- --------- --------- ---------
Total 338 370 384 410 427
Average weekly sales of Company-owned restaurants
open during period.................................. $ 44,447 $ 43,669 $ 44,242 $ 45,120 $ 46,323
</TABLE>
(1) The Company's fiscal year consisted of 53 weeks.
(2) On September 20, 1996, a wholly-owned subsidiary of the Company merged
into HomeTown Buffet, Inc. As a result of the merger, HomeTown Buffet
became a wholly-owned subsidiary of the Company. The merger was accounted
for as a pooling of interests. Accordingly, the Selected Consolidated
Financial Data include the accounts and operations of the Company and
HomeTown Buffet for all periods presented. In connection with the merger,
the Company reorganized certain merger and merger-related costs in 1996.
4
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company operates and franchises high-quality, scatter bar buffet
restaurants under the names Old Country Buffet (241), HomeTown Buffet (126),
Country Buffet (13) and Granny's Buffet (6). The Company also operates eleven
Original Roadhouse Grill restaurants, three Country Roadhouse Buffet & Grill
restaurants, two Tahoe Joe's Famous Steakhouse restaurants and one Soup 'N Salad
Unlimited restaurant. The Company opened its first Old Country Buffet restaurant
on March 22, 1984. As of December 29, 1999, the Company operated 403
Company-owned restaurants in total, and had 24 franchisee-operated restaurants.
Certain information concerning the operating results of the Company is presented
in the table below.
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Restaurant sales............................... 100.0% 100.0% 100.0%
------- ------- -------
Restaurant costs:
Food costs................................... 33.9 32.3 31.6
Labor costs.................................. 29.8 30.3 31.0
Direct and occupancy costs................... 24.4 23.2 22.8
------- ------- -------
Total restaurant costs..................... 88.1 85.8 85.4
------- ------- -------
Restaurant profits............................. 11.9 14.2 14.6
Selling, general, and
administrative expenses...................... 6.0 7.0 7.6
Impairment of assets and site closing costs.... .1 .2 .2
------- ------- -------
5.8 7.0 6.8
Other income................................... .3 .4
------- ------- -------
Earnings before income taxes................... 5.8 7.3 7.2
Income taxes................................... 2.3 2.8 2.7
------- ------- -------
Net earnings................................... 3.5% 4.5% 4.5%
======= ======= =======
Number of Company-owned
restaurants open at end of period............ 360 386 403
Average weekly sales of Company-owned
restaurants open during period............... $44,242 $45,120 $46,323
</TABLE>
Restaurant sales include only sales of restaurants owned by the Company
and its subsidiaries. Restaurant costs reflect only direct restaurant operating
costs, including food, labor, and direct and occupancy costs. Labor costs
include compensation and benefits for both hourly and restaurant management
employees. Direct and occupancy costs consist primarily of costs of supplies,
maintenance, utilities, rent, real estate taxes, insurance, depreciation and
amortization. Selling, general, and administrative expenses reflect all costs
not directly related to the operation of restaurants, consisting primarily of
corporate administrative compensation and overhead, district and regional
management compensation and related management expenses, advertising and
promotional costs and the costs of recruiting, training and supervising
restaurant management personnel.
5
<PAGE> 3
Restaurant Sales
Restaurant sales for 1999 increased $68.0 million or 7.8% over sales in
1998, which in turn had increased by $60.3 million or 7.5% over those achieved
in 1997. The increases in total revenues during the three years have been
primarily due to sales generated by new restaurants and price increases. In
1999, the Company opened or acquired 25 restaurants, compared with 28 opened or
acquired restaurants in 1998 and 18 in 1997. In 1999, the Company closed six
underperforming restaurants and closed two additional restaurants for
relocation. In 1998, the Company closed two underperforming restaurants. In
1997, the Company closed three under-performing restaurants and one duplicate
site restaurant. During 2000, the Company expects to open approximately 16 to 22
restaurants, approximately 8 to 10 buffet restaurants and 8 to 12 non-core
buffet restaurants. The Company's price increases have been in line with
inflation for the past three years.
Average weekly sales per restaurant increased 2.7% from 1998 to 1999,
increased 2.0% from 1997 to 1998 and increased 1.3% from 1996 to 1997.
Comparable sales per restaurant increased 1.9% from 1998 to 1999, increased 2.5%
from 1997 to 1998 and decreased .9% from 1996 to 1997. The comparable restaurant
sales statistics exclude restaurants that have been open, converted to another
concept or remodeled for less than two full fiscal years. The average weekly
sales statistics, on the other hand, reflect the performance of all the
Company's owned restaurants, both new and old. The Company manages its business
on average weekly sales, rather than comparable restaurant sales, as the best
measure of comparative restaurant sales performance.
Sales are seasonal, with a lower percentage of annual sales occurring
in most of the Company's current market areas during the winter months.
Restaurant Costs
As a percentage of restaurant sales, total restaurant costs decreased
to 85.4% in 1999 from 85.8% in 1998 and 88.1% in 1997. Food costs as a
percentage of sales decreased to 31.6% in 1999 from 32.3% in 1998 primarily due
to a decrease in the cost of produce and general groceries. Food costs as a
percentage of sales decreased to 32.3% in 1998 from 33.9% in 1997 primarily due
to a decrease in the cost of various meats and general groceries. Labor costs as
a percentage of sales increased to 31.0% in 1999 from 30.3% in 1998, which in
turn had increased from 29.8% in 1997. The increase in labor costs in the past
three fiscal years was primarily due to increases in management and employee
wages as a result of a more competitive labor market and increased training and
staffing of hourly and management employees to better serve the customer. Direct
and occupancy costs as a percentage of sales were 22.8%, 23.2% and 24.4% in
1999, 1998 and 1997, respectively. The Company's policy of expensing all
pre-opening costs when incurred adversely affects restaurant costs and
restaurant profits during the periods when new restaurants are developed and
opened. However, the majority of new restaurants are profitable within the
second period after opening.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses in 1999 increased $10.2
million to $71.0 million, and increased as a percentage of sales to 7.6% in 1999
from 7.0% in 1998. Selling, general, and administrative expenses in 1998
increased $12.6 million to $60.8 million, and increased as a percentage of sales
to 7.0% from 6.0% in 1997. The increase in selling, general, and administrative
expenses in 1999 from 1998 was due primarily to an increase in advertising
expenses and an increase in information system department costs related to the
Company's year 2000 testing and compliance review. The Company is anticipating
increasing its marketing spending in 2000 to approximately $28.4 million, which
includes the development of four new television commercials to run in 2000,
compared to $22.5 million in 1999 and $17.2 million in 1998. The increase in
selling, general, and administrative costs as a percentage of sales in 1998 from
1997 was due primarily to an increase in advertising costs. Advertising costs
represented 2.4% of sales during 1999, compared with 2.0% of sales during 1998
and 1.3% of sales during 1997.
Impairment of Assets and Closing Costs
The Company reviews long-lived assets by location for impairment when
there is a significant drop in average weekly sales and a corresponding trend of
increasing operating losses, as required by Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." The cost of closing and impairing
assets of restaurants in fiscal 1999, 1998 and 1997 was $2.0 million, $1.5
million and $1.5 million, respectively.
The Company currently operates certain restaurants which generate net
losses and are performing significantly below the performance of its best
restaurants. The Company's management actively addresses underperforming units
to improve their performance. However, such efforts are not always successful.
Consequently, in the future, it is reasonably possible that the Company will
incur future impairment charges (although these are not currently estimable).
These charges will generally arise as estimates used in the evaluation and
measurement of impairments relating to the restaurants written down are refined
based on new
6
<PAGE> 4
information or as a result of future events or changes in circumstances that
cause other restaurants to be impaired. Also, any future expenditures for
impaired restaurants that would normally be capitalized will have to be
immediately evaluated for recoverability.
Other Income
The increase in other income in 1999 from 1998 and in 1998 from 1997 is
primarily due to an increase in interest income offset by a decrease in interest
expense.
Income Taxes
Income taxes as a percentage of earnings before income taxes were
36.9%, 38.2% and 38.5% in 1999, 1998, and 1997, respectively. The effective
income tax rate is higher than the statutory rate primarily due to state income
taxes. In early 2000, the Company reached a tentative agreement with the
Internal Revenue Service on tax issues through 1997. The decrease in the 1999
effective tax rate when compared to 1998 is primarily due to the Company
reducing its accrual for income taxes to reflect this likely settlement.
Liquidity and Capital Resources
The Company's restaurants generate cash immediately through sales. The
majority of new restaurants are profitable within the second period after
opening. The Company does not have significant assets in the form of trade
receivables or inventory, and often receives several weeks of trade credit from
food and supply purveyors; therefore, the Company's operations generate
substantial cash which is available to fund new restaurants. The investment of
cash flow from operations in restaurant property and equipment and the
repurchase of common stock may result in a "working capital deficit" (current
liabilities exceeding current assets) which, to a considerable extent,
represents interest-free financing from trade creditors that the Company intends
to continue to utilize.
In fiscal 1999, net cash provided by operating activities decreased by
approximately $21.6 million to $90.6 million, as compared with $112.2 million in
1998 and $75.6 million in 1997. The decrease in net cash provided by operations
in 1999 was primarily due to a decrease in deferred income taxes. The decrease
in deferred income taxes was primarily attributable to a decrease in tax
depreciation.
Cash flows used in investing activities totaled $74.2 million, $51.6
million and $42.5 million for fiscal 1999, 1998 and 1997, respectively. In 1999,
cash flows used in investing activities consisted of capital expenditures
primarily for new and acquired restaurants, the Company's new corporate office,
and restaurant conversions and remodels, offset by cash received from landlords.
Cash flows used in investing activities in 1998 and 1997 consisted of capital
expenditures primarily for new restaurants, conversion of restaurants,
restaurants acquired and remodeling restaurants, offset by cash received from
landlords.
Cash flows used in financing activities were $38.1 million, $9.6
million and $0.9 million for fiscal 1999, 1998 and 1997, respectively. Cash
flows used in financing activities in 1999 consisted of the repurchase of
3,570,000 shares of common stock for $36.6 million and debt payments of $2.3
million, partially offset by $0.8 million received from the exercise of employee
stock options. Cash flows used in financing activities in 1998 consisted of the
repurchase of 756,000 shares of common stock for $10.4 million and debt payments
of $2.3 million, partially offset by $3.1 million received from the exercise of
employee stock options. Cash flows used in financing activities in 1997
consisted primarily of debt payments of $1.9 million partially offset by $1.0
million received from the exercise of employee stock options.
The Company currently has an unsecured revolving line of credit of up
to $50 million, with interest payable at the option of the Company at the
applicable "eurodollar rate," "certificate of deposit rate," or the "reference
rate" of the bank at the time of the advance. On October 1, 1998, the Company
amended the agreement to reduce the commitment fee to .1875% per annum on the
unused base commitment amount, $20 million, and .05% per annum on the unused
reserve commitment amount, $30 million. In July 1999, the Company extended the
agreement for three years through June 30, 2002. On July 1, 2002, providing no
default or event of default has occurred and is continuing, the line of credit
is convertible, at the Company's option, to a three-year term loan, maturing on
July 1, 2005. As of and for the fiscal years ended December 29, 1999, December
30, 1998 and December 31, 1997, the Company had no borrowings outstanding under
this credit line.
Letters of credit are issued by the Company during the ordinary course
of business through a major domestic bank as required by certain insurance
policies. As of December 29, 1999 the Company had outstanding letters of credit
for $6.7 million.
In 1995, HomeTown Buffet issued $41.5 million in aggregate principal
amount of 7.0% subordinated convertible notes due on December 1, 2002. The notes
are convertible into shares of the Company's common stock at a conversion price
of $11.67, subject to adjustment under certain conditions, at any time until
maturity. The notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company. The notes became redeemable in whole
or
7
<PAGE> 5
in part, at the option of the Company, at any time on or after December 2, 1998.
During 1998, $35,000 of the notes were converted into 3,000 shares of common
stock at the discretion of the debtholder. There were no conversions in 1999.
On December 9, 1999, the Company completed the acquisition of six
Granny's Buffet restaurants located in the Pacific Northwest for $9.8 million.
On April 7, 1999, the Company acquired an 80% interest in Tahoe Joe's
Inc., an operator of two restaurants and the Tahoe Joe's Famous Steakhouse
concept, for approximately $6.8 million, net of liabilities and cash acquired.
On June 30, 1998, the Company completed the acquisition of eleven
restaurants from Country Harvest Buffet Restaurants, Inc. for $5.6 million. The
Company has converted ten of the Country Harvest Buffet restaurants to the
Company's buffet style restaurants and one restaurant to an Original Roadhouse
Grill.
On May 12, 1998, the Company's Board of Directors authorized the
expenditure of up to $40 million for the purchase of outstanding shares of the
Company's common stock, to be effected from time to time in transactions on the
Nasdaq National Market or otherwise. On June 3, 1999, the Company's Board of
Directors authorized the expenditure of up to an additional $40 million for the
purchase of outstanding shares of the Company's common stock, to be effected
from time to time in transactions on the Nasdaq National Market or otherwise. As
of December 29, 1999, the Company had repurchased $47.1 million of its common
stock (4,326,000 shares at an average price of $10.88).
The Company requires significant amounts of capital to fund its growth.
During 2000, the Company expects to open approximately 16 to 22 restaurants,
approximately 8 to 10 buffet restaurants and 8 to 12 non-core buffet
restaurants. The Company expects to spend approximately $40 to $45 million in
aggregate on these new restaurants, for leasehold improvements depending upon
the level of contributions obtained from landlords. The Company also expects to
spend $7 to $10 million in various remodeling and improvement costs at existing
facilities. In addition, the Company periodically evaluates the purchase of
existing restaurants and/or restaurant concepts.
The Company also expects to spend approximately $6.0 million during the
first quarter of 2000 on its new corporate office location in Eagan, Minnesota
with the completion date scheduled for March 2000.
The Company has traditionally located its restaurants within or
adjacent to strip or neighborhood shopping centers in principally leased
facilities. However, depending upon the availability of suitable mall locations,
or in order to obtain optimal locations within particular markets, the Company
also purchases or ground-leases land on which it constructs freestanding
restaurants. The Company currently has 114 freestanding locations, 25 of which
it owns. In 1999, all of the new restaurants opened were freestanding units, one
of which was constructed on land owned by the Company. It is anticipated that
all of the restaurants to be opened in 2000 will be freestanding units. The
capital expenditure required for a freestanding location can be over 100%
greater than for a mall location. If the Company further pursues development of
freestanding locations, the cost per location and related cash requirements will
increase substantially over the Company's historical costs of development and
will not be offset by landlord contributions that typically have been associated
with in-line mall locations. The Company is also finding that new restaurant
concepts have had the impact of increasing pre-opening costs for each location.
Sources of capital for restaurants to be opened or converted in 2000
and early 2001 are anticipated to be funds from existing cash and cash
equivalents, cash provided by operations, credit received from trade suppliers,
landlord contributions for leasehold improvements and current and expected
future bank financing. The Company believes that these sources will be adequate
to finance operations and the additional restaurants and conversions included in
the Company's restaurant development plans for 2000 and early 2001. However, in
order to remain prepared for further significant growth in future years, the
Company will continue to evaluate its financing needs and seek additional
funding if appropriate. The Company has not paid any cash dividends on its
common stock and, pursuant to its credit agreement, is restricted from declaring
or paying cash dividends without the approval of the Company's lender.
External Factors Affecting Future Performance
The primary inflationary factors affecting the Company's
operations are food and labor costs. A large number of the Company's
non-management restaurant personnel are paid at or near the minimum wage level
or their compensation is otherwise affected by changes in the prevailing minimum
wage. Accordingly, changes in minimum wage rates affect the Company's labor
costs. The cost impact of possible federal health care reform legislation and
the Company's ability to recover such cost increases in the form of higher
prices is not determinable at this time.
Impact of Year 2000
Computer programs have historically been written to abbreviate dates by
using two digits instead of four digits to identify a particular year.
8
<PAGE> 6
The so-called "year-2000 problem" or "millennium bug" is the inability of
computer software or hardware (collectively, "Systems") to recognize or properly
process dates ending in "00" and dates after the year 2000. Significant
attention was focused on the year 2000 to update or replace such Systems in
order to avoid System failures, miscalculations, or business interruptions that
might otherwise result.
As of March 13, 2000, the Company has not experienced and does not
anticipate any adverse effects on the Company's Systems and operations as a
result of year-2000 issues. Further, as of March 13, 2000, the Company has not
experienced any operating problems or product failures as a result of year-2000
issues with its vendors, service providers, or customers.
The "year-2000" project costs for 1997, 1998 and 1999 total $3.4
million of which $2.0 million were hardware and software upgrades and $1.4
million were consultant fees.
Litigation
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that their outcome will not
have a significant effect on the Company's consolidated financial statements.
The Company and seven of its present and/or former directors and
executive officers have been named as defendants in litigation brought on behalf
of a putative class of all purchasers of common stock of the Company from
October 26, 1993 through October 25, 1994, in the United States District Court
for the District of Minnesota, as described further in Note F to the Company's
consolidated financial statements included in this Annual Report. Management of
the Company believes that the action is without merit and intends to defend it
vigorously. Although the outcome of this proceeding cannot be predicted with
certainty, the Company's management believes that while the outcome may have a
material effect on earnings in a particular period, the probability of a
material effect on the financial condition of the Company, not covered by
insurance, is slight.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement requires
companies to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. In July 1999, the FASB issued
SFAS No. 137 delaying the effective date of SFAS No. 133 for one year to fiscal
years beginning after June 15, 2000, with earlier adoption encouraged. The
Company has not yet determined the effects SFAS No. 133 will have on its
financial position or the results of its operations.
Forward-looking Information
Certain statements in this Annual Report (which are summarized below)
and in the Company's press releases and oral statements made by or with the
approval of the Company's executive officers constitute or will constitute
"forward-looking statements." These statements may be identified by the use of
words such as "expects," "anticipates," "intends," "plans," and similar
expressions. All forward-looking statements involve risks and uncertainties, and
actual results may be materially different. The following factors are among
those that could cause the Company's actual results to differ materially from
those set forth in such forward-looking statements.
The ability of the Company to open new restaurants, and the allocation
of new restaurants among the Company's currently available and future concepts,
depends on a number of factors, including its ability to find suitable locations
and negotiate acceptable leases and land purchases, its ability to attract and
retain a sufficient number of qualified restaurant managers, the comparative
potential return and risk associated with the particular restaurant concept, and
the availability of capital. The proportion of new restaurants that will be
freestanding units, either owned or leased, rather than in-line mall locations
will depend upon the availability and cost of suitable mall locations. The costs
of restaurant development and conversion will depend upon the level of
contributions from landlords for leasehold improvements, the actual number of
freestanding sites utilized in such development and whether such sites involve
land purchases, the cost of building supplies and general construction risks and
costs. The ultimate level of television advertising expenditures in 2000
will be contingent upon the effectiveness of the commercials, the availability
and cost of advertising air time, and changes in the Company's marketing
priorities. The Company's ability to generate revenue as currently expected,
unexpected expenses and the need for additional funds to react to changes in the
marketplace, including unexpected increases in personnel costs and food supply
costs, may impact whether the Company has sufficient cash resources to fund its
restaurant development and conversion plans for 2000 and early 2001. The
prospect of future restaurant conversions is contingent upon the costs of the
conversions, the financial return anticipated with such conversion, and the
availability of viable alternative concepts.
9
<PAGE> 7
The Company periodically reviews the operating results of individual
restaurants to determine if impairment charges on underperforming assets are
necessary, and the need for restaurant closings, and it is reasonable to expect
that such actions will be required from time to time in the future. There is no
certainty that currently available sources of cash will remain available to the
Company over time.
Other factors that could cause actual results of the Company to differ
materially from those contained in any such forward- looking statements include
general economic conditions, the actions of existing and future competitors,
weather factors, the success of conversions, unforseen health and safety
developments regarding restaurant operations, including food-borne illnesses,
and regulatory constraints. The Company assumes no obligation to publicly
release the results of any revision or updates to these forward-looking
statements to reflect future events or unanticipated occurrences.
Quantitative and Qualitative Disclosures About Market Risks
At December 29, 1999, the Company's cash equivalents, long-term debt,
and capital leases are at fixed interest rates. These financial instruments are
subject to interest rate risk and will decline or increase in value if market
interest rates change. The Company does not expect to recognize any adverse
impact in income or cash flows due to the Company having the ability to hold
these financial instruments until maturity.
10
<PAGE> 8
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
RESTAURANT SALES...................................... $808,529 $868,858 $936,854
RESTAURANT COSTS:
Food costs.......................................... 273,942 280,368 296,452
Labor costs......................................... 240,956 263,478 290,716
Direct and occupancy costs.......................... 197,106 201,436 213,087
-------- -------- --------
Total restaurant costs.......................... 712,004 745,282 800,255
-------- -------- --------
RESTAURANT PROFITS.................................... 96,525 123,576 136,599
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES......... 48,158 60,777 70,985
IMPAIRMENT OF ASSETS AND SITE CLOSING COSTS (NOTE C).. 1,500 1,538 1,966
-------- -------- --------
46,867 61,261 63,648
OTHER (EXPENSE) INCOME:
Franchise fees and royalties........................ 1,395 1,478 1,451
Interest income..................................... 1,668 4,048 4,924
Interest expense.................................... (3,541) (3,310) (3,009)
Other............................................... 119 249 228
-------- -------- --------
(359) 2,465 3,594
-------- -------- --------
EARNINGS BEFORE INCOME TAXES.......................... 46,508 63,726 67,242
INCOME TAXES (NOTE H)................................. 17,910 24,375 24,800
-------- -------- --------
NET EARNINGS.......................................... $ 28,598 $ 39,351 $ 42,442
======== ======== ========
EARNINGS PER SHARE:
BASIC................................................ $.63 $.87 $.99
======== ======== ========
DILUTED.............................................. $.62 $.83 $.95
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
BASIC................................................ 45,257 45,346 42,805
DILUTED.............................................. 49,140 49,726 46,692
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 9
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, December 29,
1998 1999
------------ ------------
(In thousands, except par value amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 94,058 $ 72,260
Receivable from landlords....................................... 2,772 1,092
Inventory....................................................... 4,645 4,705
Prepaid rents................................................... 1,321 1,891
Other current assets............................................ 2,789 6,951
Refundable income taxes......................................... 3,057 104
Deferred income taxes (NOTE H).................................. 13,302 14,448
-------- -------
TOTAL CURRENT ASSETS.......................................... 121,944 101,451
PROPERTY AND EQUIPMENT:
Land............................................................ 15,688 21,652
Buildings....................................................... 33,256 41,855
Equipment....................................................... 265,230 279,317
Leasehold improvements.......................................... 225,764 247,141
-------- --------
539,938 589,965
Less accumulated depreciation and amortization.................. 205,356 236,308
-------- --------
334,582 353,657
GOODWILL, net of accumulated amortization of $2,424 and $3,061,
respectively.................................................... 8,507 16,393
OTHER ASSETS...................................................... 1,816 6,134
-------- --------
$466,849 $477,635
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 32,436 $ 34,209
Accrued payroll and related benefits............................ 18,291 23,777
Accrued rents................................................... 18,076 19,757
Accrued sales taxes............................................. 3,835 4,033
Accrued insurance............................................... 6,592 5,945
Accrued store closing costs..................................... 6,197 4,401
Other accrued expenses.......................................... 6,168 7,848
Current portion of capital leases (NOTE F)...................... 2,116 686
-------- --------
TOTAL CURRENT LIABILITIES..................................... 93,711 100,656
LONG-TERM DEBT (NOTE D)........................................... 41,465 41,465
LONG-TERM PORTION OF CAPITAL LEASES............................... 824
MINORITY INTEREST (NOTE B)........................................ 265
DEFERRED INCOME TAXES (NOTE H).................................... 31,124 28,866
COMMITMENTS AND CONTINGENCIES (NOTE F)
STOCKHOLDERS' EQUITY (NOTE E):
Preferred stock, $.01 par value; authorized 5,000 shares;
none issued and outstanding
Common stock, $.01 par value; authorized 60,000 shares;
issued and outstanding 45,021 and 41,545 shares, respectively.. 450 415
Additional paid-in capital...................................... 119,792 111,152
Retained earnings............................................... 179,483 194,816
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................... 299,725 306,383
-------- --------
$466,849 $477,635
======== ========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 10
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------- ---------- -------- -----
(In thousands)
<S> <C> <C> <C> <C>
BALANCES, January 1, 1997.................................. $452 $116,330 $120,009 $236,791
Net earnings............................................. 28,598 28,598
Common stock issued under employees' stock option plans.. 2 1,027 1,029
Tax benefit from early disposition of common stock
issued under employees' stock option plans (NOTE H).... 269 269
---- -------- -------- --------
BALANCES, December 31, 1997................................ 454 117,626 148,607 266,687
Net earnings............................................. 39,351 39,351
Common stock issued under employees' stock option plans.. 3 3,124 3,127
Purchase of common stock................................. (7) (1,958) (8,475) (10,440)
Conversion of debt to common stock....................... 35 35
Tax benefit from early disposition of common stock
issued under employees' stock option plans (NOTE H).... 965 965
---- -------- -------- --------
BALANCES, December 30, 1998................................ 450 119,792 179,483 299,725
Net earnings............................................. 42,442 42,442
Common stock issued under employees' stock option plans.. 1 765 766
Purchase of common stock................................. (36) (9,496) (27,109) (36,641)
Tax benefit from early disposition of common stock
issued under employees' stock option plans (NOTE H).... 91 91
---- -------- -------- --------
BALANCES, December 29, 1999................................ $415 $111,152 $194,816 $306,383
==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 11
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................................ $ 28,598 $ 39,351 $ 42,442
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization ......................... 41,192 42,206 43,254
Impairment of assets and site closing costs ........... 1,500 1,538 1,966
Tax benefit from early disposition of common stock .... 269 965 91
Deferred income ....................................... (193) (212)
Deferred income taxes ................................. 2,986 23,545 (3,404)
Changes in assets and liabilities, net of acquisitions:
Inventory ....................................... (1,281) 362 66
Other current assets ............................ 3,435 (2,124) (4,567)
Refundable income taxes ......................... (1,313) (1,744) 2,953
Other assets .................................... (43) 30 88
Accounts payable ................................ 427 2,481 1,474
Accrued payroll and related benefits ............ (709) 2,771 5,466
Accrued store closing costs ..................... (1,996)
Other accrued expenses .......................... 1,368 2,992 2,728
Income taxes payable ............................ (615)
--------- --------- ---------
Total adjustments ........................... 47,023 72,810 48,119
--------- --------- ---------
Net cash provided by operating activities ... 75,621 112,161 90,561
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................ (47,439) (48,085) (60,217)
Purchase of restaurants, less cash acquired ................. (5,557) (16,604)
Cash received from landlords ................................ 4,987 2,075 2,591
--------- --------- ---------
Net cash used in investing activities ....... (42,452) (51,567) (74,230)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital leases .................................. (1,940) (2,253) (2,254)
Repurchase of common stock .................................. (10,440) (36,641)
Proceeds from exercise of employee stock options ............ 1,029 3,127 766
--------- --------- ---------
Net cash used in financing activities ....... (911) (9,566) (38,129)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 32,258 51,028 (21,798)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................ 10,772 43,030 94,058
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................... $ 43,030 $ 94,058 $ 72,260
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash disclosures of investing and financing
activities (NOTE I)
Cash paid during the year for:
Interest (net of capitalized interest of $304, $328,
and $392 in 1997, 1998, and 1999, respectively) ............ $ 3,768 $ 3,322 $ 3,010
Income taxes ................................................. 16,831 1,597 18,161
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 12
BUFFETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 (52 WEEKS),
DECEMBER 30, 1998 (52 WEEKS) AND DECEMBER 29, 1999 (52 WEEKS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business:
Buffets, Inc. and subsidiaries (the "Company") owns and operates a
chain of restaurants under the names of Old Country Buffet, Country Buffet,
HomeTown Buffet, Original Roadhouse Grill, Granny's Buffet, Country Roadhouse
Buffet & Grill, Tahoe Joe's Famous Steakhouse, and Soup 'N Salad Unlimited in
the United States. The Company operates solely in the casual dining industry
segment. The Company had 403 Company-owned restaurants and 24 franchised
restaurants operating as of December 29, 1999. In addition to initial franchise
fees, franchisees pay royalties based on gross sales.
Consolidation:
The consolidated financial statements include the accounts of Buffets,
Inc., and its subsidiaries Dinertainment, Inc., Distinctive Dining, Inc.,
HomeTown Buffet, Inc. ("HomeTown Buffet"), OCB Restaurant Co., OCB Realty Co.,
OCB Purchasing Co., OCB Property Co., Restaurant Innovations, Inc. and Tahoe
Joe's, Inc. All significant intercompany transactions have been eliminated.
Fiscal Year:
The Company's fiscal year, which ends on the Wednesday nearest December
31, is comprised of fifty-two or fifty-three weeks divided into four periods of
sixteen, twelve, twelve and twelve or thirteen weeks, respectively. The fiscal
years ended December 31, 1997, December 30, 1998 and December 29, 1999 were
fifty-two week years.
Cash Equivalents:
The Company considers investments with a maturity of three months or
less to be cash equivalents. The fair value of cash equivalents approximates the
carrying value because of their short-term maturity.
Receivable from Landlords:
The portions of costs for leasehold improvements remaining to be
reimbursed by landlords at year end are recorded as receivables.
Inventory:
Inventory, which consists primarily of food, is stated at the lower of
cost or market. Cost is determined by the first-in, first-out method.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting purposes. Equipment is depreciated over
estimated useful lives, ranging from three to ten years. Leasehold improvements
are amortized over the terms of the related leases, generally ten to twenty-five
years. Buildings are depreciated over estimated useful lives, generally 39 1/2
years.
Goodwill:
Goodwill is amortized on a straight-line basis over primarily fifteen
to twenty-five years.
Recoverability of Long-Lived Assets:
The Company reviews long-lived assets and goodwill related to those
assets for impairment whenever events or changes in circumstances indicate the
carrying value amount of an asset or group of assets may not be recoverable. The
Company considers a history of operating losses and the other factors described
in Note C to be its primary indicator of potential impairment. Assets are
grouped and evaluated for impairment at the lowest level for which there are
identifiable cash flows, namely individual restaurants. A restaurant is deemed
15
<PAGE> 13
to be impaired if a forecast of undiscounted future operating cash flows
directly related to the restaurant, including disposal value, if any, is less
than its carrying amount. If a restaurant is determined to be impaired, the loss
is measured as the amount by which the carrying amount of the restaurant exceeds
its fair value. Fair value is based on quoted market prices in active markets,
if available. If quoted market prices are not available, an estimate of fair
value is based on the best information available, including prices for similar
assets or the results of valuation techniques such as discounted estimated
future cash flows as if the decision to continue to use the impaired restaurant
was a new investment decision. The Company generally measures fair value by
discounting estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows. Accordingly, actual results
could vary significantly from such estimates.
Pre-Opening Costs:
Costs incurred in connection with the opening of new restaurants are
expensed as incurred.
Labor:
The Company is currently experiencing a labor market that is
becoming more competitive. This, combined with possible legislation requiring
health insurance for all employees, could cause significant increases in labor
costs in the future.
Income Taxes:
The Company utilizes Statement of Financial Accounting Standard
("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No. 109, the
deferred tax provision is determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax basis of assets and liabilities using
presently enacted tax rates.
Use of Estimates:
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Comprehensive Income:
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 is not
currently applicable to the Company because the Company did not have any items
of other comprehensive income in any of the periods presented.
Earnings Per Share:
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
assumes conversion of convertible subordinated notes as of the beginning of the
year and exercise of stock options using the treasury stock method, if dilutive.
The following is a reconciliation of the numerators and denominators used to
calculate diluted earnings per share:
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Net earnings........................................... $28,598 $39,351 $42,442
Interest on convertible
subordinated notes (after tax)........................ 1,786 1,794 1,829
------- ------- -------
Income available to
common stockholders and assumed
conversion............................................ $30,384 $41,145 $44,271
======= ======= =======
Weighted average common
shares outstanding.................................... 45,257 45,346 42,805
Dilutive effect of:
Convertible subordinated notes........................ 3,556 3,556 3,553
Stock options......................................... 327 824 334
------- ------- -------
Common shares assuming dilution........................ 49,140 49,726 46,692
======= ======= =======
</TABLE>
16
<PAGE> 14
Average shares used in the fiscal 1997, 1998 and 1999 diluted earnings
per share computations exclude stock options to purchase 3,602,000 shares of
common stock at a weighted average price of $11.79, stock options to purchase
946,000 shares of common stock at a weighted average price of $14.51 per share,
and stock options to purchase 3,291,000 shares of common stock at a weighted
average price of $12.35 per share, respectively, due to their antidilutive
effect.
New Accounting Standard:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. In July 1999, the FASB issued SFAS No. 137
delaying the effective date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000, with earlier adoption encouraged. The Company has
not yet determined the effects SFAS No. 133 will have on its financial position
or the results of its operations.
B. ACQUISITIONS
During 1998, the Company acquired eleven restaurants from
Country Harvest Buffet Restaurants, Inc. ("Country Harvest") for
$5,557,000.
During 1999, the Company acquired six Granny's Buffet restaurants for
$9.8 million and an 80% interest in Tahoe Joe's, Inc., an operator of two
restaurants and the Tahoe Joe's Famous Steakhouse concept ("Tahoe Joe's"), for
approximately $6.8 million, net of liabilities and cash acquired.
In connection with the acquisitions, assets purchased, liabilities
assumed, and cash consideration paid were as follows:
<TABLE>
<CAPTION>
Country Granny's Tahoe
Harvest Buffet Joe's
------- -------- -----
<S> <C> <C> <C>
Assets acquired:
Cash................................................. $ 327
Inventory............................................ $ 73 53
Other current assets................................. 85 80
Property and equipment............................... $2,215 2,357 1,161
Excess of purchase price
over net assets acquired........................... 3,342 7,344 1,179
Intellectual property................................ 5,000
Other assets......................................... 35
Liabilities assumed:
Accounts payable..................................... 299
Accrued expenses..................................... 26 178
------ ------ ------
5,557 9,833 7,358
Minority interest......................................... 260
------ ------ ------
Cash consideration paid................................... $5,557 $9,833 $7,098
====== ====== ======
</TABLE>
These acquisitions have been accounted for using the purchase method of
accounting, and the excess of purchase price over net assets acquired are being
amortized over 15 years using the straight-line method. The consolidated
statements of operations include the results of the acquired companies since
their respective acquisition dates. The pro forma effect of these acquisitions
on sales, operating income, and earnings per share were not significant.
C. IMPAIRMENT OF LONG-LIVED ASSETS
The Company determines that an impairment write down is necessary for
certain locations when there is a significant drop in average weekly sales, a
corresponding trend of increasing operating losses and negative cash flows. The
write downs represent a reduction of the carrying amounts of the impaired
restaurants to their estimated fair value, as determined by using discounted
estimated future cash flows. The cost of closing restaurants and write downs for
impairment of assets in 1997, 1998, and 1999 was $1.5 million, $1.5 million, and
$2.0 million, respectively. Considerable management judgement is necessary to
estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
17
<PAGE> 15
D. DEBT
The Company has a $50 million unsecured revolving line of credit which
expires June 30, 2002. On July 1, 2002, providing no default or event of default
has occurred and is continuing, the line of credit is convertible, at the
Company's option, to a three year term loan, maturing on July 1, 2005. Among
other things, pursuant to the agreement with the lender, the Company is required
to maintain specified levels of net worth, is limited in net capital
expenditures to $90 million in any fiscal year, is required to meet various
financial performance criteria, and is restricted from declaring or paying cash
dividends to shareholders without the lender's approval. As of and for the years
ended December 31, 1997, December 30, 1998, and December 29, 1999, the Company
had no borrowings under the line of credit. Quarterly, the Company is required
to pay a commitment fee equal to 3/16 of 1% per annum on the unused base
commitment amount of the revolving line of credit, $20 million, and 1/20 of 1%
per annum on the unused reserve commitment amount, $30 million.
In November 1995, HomeTown Buffet issued $41.5 million of 7.0%
Convertible Subordinated Notes due on December 1, 2002. Interest is payable
semi-annually on June 1 and December 1, commencing June 1, 1996. The notes are
convertible into shares of the Company's common stock at a conversion price of
$11.67, subject to adjustment under certain conditions, at any time until
maturity. During 1998, $35,000 of notes were converted into 3,000 shares of
common stock at the discretion of the debt holder. No notes were converted in
1999. The notes are subordinated in right of payment to all existing and future
senior indebtedness, as defined in the Indenture relating thereto, as amended.
The notes are currently redeemable in whole or in part, at the option of the
Company.
Letters of credit are issued by the Company during the ordinary course
of business through a major domestic bank as required by certain insurance
policies. As of December 29, 1999, the Company had outstanding letters of credit
for $6.7 million.
The fair value of the debt is estimated at its carrying value based
upon current rates available to the Company.
E. STOCKHOLDERS' EQUITY
Authorized Shares:
The Company has 65 million authorized shares, consisting of 5 million
shares of preferred stock with rights and preferences to be established by the
Board of Directors and 60 million shares of common stock.
Shareholder Preferred Stock Purchase Rights in the Event of a Change of Control:
During 1995, the Company adopted a shareholder rights plan and
distributed to its shareholders one preferred share purchase right for each
outstanding share of common stock. The rights become exercisable only after a
person or group acquires beneficial ownership of 20% or more of the Company's
outstanding common stock or announces a tender offer, the consummation of which
would result in beneficial ownership by a person or group of 20% or more of the
Company's outstanding common stock. Each right will entitle its holder to
purchase one one-hundredth share of a new Series A Junior Participating
Preferred Share (consisting of 600,000 shares, par value $.01 per share) at an
exercise price of $65, subject to adjustment. If a person or group acquires
beneficial ownership of 20% or more of the Company's outstanding common stock,
each right will entitle its holder (other than such person or group) to
purchase, at the then current exercise price of the right, that number of shares
of the Company's common stock having a market value of two times the exercise
price of the right, subject to certain possible adjustments. In addition, if the
Company is acquired in a merger or other business combination transaction, each
right will entitle its holder to purchase, at the then current exercise price of
the right, that number of common shares of the acquiring company (or, in certain
cases, one of its affiliates) having a market value of two times the exercise
price of the right. Following the acquisition by a person or group of beneficial
ownership of 20% or more of the Company's outstanding common stock and prior to
an acquisition by any person or group of 50% or more of the Company's
outstanding common stock, the Board of Directors may exchange the outstanding
rights (other than rights owned by such person or group), in whole or in part,
for common stock of the Company (or equivalent securities) at an exchange ratio
per right equal to the result obtained by dividing the exercise price of a right
by the current per share market price of the Company's common stock, subject to
adjustment. The Company may redeem the rights at $.01 per right, subject to
adjustment, at any time prior to an acquisition by a person or group of 20% or
more of the Company's outstanding common stock and -- unless there has been a
change in control of the Company's Board -- during the 20-day period thereafter
(subject to possible extension). The rights expire on November 13, 2005, unless
extended or earlier redeemed or exchanged by the Company.
18
<PAGE> 16
Common Stock Repurchase:
During 1998, the Company acquired 756,000 shares of common stock for
$10,440,000. During 1999, the Company acquired and retired 3,570,000 shares of
common stock for $36,641,000.
Issuance of Common Stock:
During 1998, $35,000 of convertible subordinated notes were converted
into 3,000 shares of common stock at the discretion of the debtholder. During
1999, no convertible subordinated notes were converted.
Stock Options:
Under the Company's 1991, 1995 and 1999 Employee Stock Option Plans and
1997 Non-Employee Director Stock Option Plan (the "Director Plan") (the
"Plans"), 5.5 million shares were reserved for future grants. Collectively,
options outstanding under the Company's stock option plans: 1) are granted at
prices equal to the market value of the stock on the date of the grant, 2)
generally vest ratably over a five year vesting period or 50% vesting after
three years and 25% vesting in years four and five, with the Director Plan
vesting upon grant date, and 3) expire over a period not greater than ten years
from the date of grant. Under the 1995 Stock Option Plan, 2.5 million shares
were reserved for future grants. Under the 1999 Stock Option Plan, 400,000
shares were reserved for future grants to non-officer employees.
A program for three executive officers provides the option to purchase
an aggregate of 275,000 shares for $9.00 per share, the fair market value on the
date awarded. The options vest one third if the fair market value as of the
close of trading exceeds $12 per share for thirty consecutive calendar days, one
third if the price exceeds $16 per share for thirty consecutive calendar days
and one third if the price exceeds $20 per share for thirty consecutive calendar
days. The program also provides that all options become exercisable in May 2006,
to the extent they have not already vested as a consequence of meeting the share
price criteria described above.
A summary of the status of the Company's stock options is presented
below (shares in thousands):
<TABLE>
<CAPTION>
Fifty-Two Weeks Fifty-Two Weeks Fifty-Two Weeks
Ended Ended Ended
December 31, 1997 December 30, 1998 December 29, 1999
------------------ ----------------- -----------------
Wgtd Avg Wgtd Avg Wgtd Avg
Shares Exer Price Shares Exer Price Shares Exer Price
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................................... 4,339 $11.81 4,335 $10.11 4,776 $10.97
Granted..................................... 1,828 9.07 1,319 12.96 1,101 10.67
Exercised................................... (211) 4.80 (403) 7.77 (93) 8.12
Canceled.................................... (1,621) 14.18 (475) 11.34 (481) 11.29
------ ----- -----
Outstanding at end of
year...................................... 4,335 $10.11 4,776 $10.97 5,303 $10.93
====== ====== ====== ====== ===== ======
Options exercisable at
year end.................................. 1,691 $10.15 1,923 $10.56 2,380 $10.78
====== ====== ====== ====== ===== ======
Options available for
future grant.............................. 364 901 502
====== ====== =====
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for the plans. No compensation cost has
been recognized for options issued under the plans when the exercise price of
the options granted is at least equal to the fair value of the common stock on
the date of grant. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for awards in 1997,
1998, and 1999 consistent with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net earnings would have changed to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net earnings, as reported......................................... $28,598 $39,351 $42,442
Net earnings, pro forma........................................... $22,892 $32,594 $35,992
Basic earnings per common
share, as reported............................................. $.63 $.87 $.99
Basic earnings per common
share, pro forma............................................... $.51 $.72 $.84
Diluted earnings per common
share, as reported............................................. $.62 $.83 $.95
Diluted earnings per common
share, pro forma............................................... $.50 $.69 $.81
</TABLE>
19
<PAGE> 17
The fair value of each option grant is estimated on the grant date using the
Black-Sholes option-pricing model with the following assumptions and results for
the grants:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Dividend yield.................................................... None None None
Expected volatility............................................... 62.69% 61.18% 60.90%
Expected life of option........................................... 10 10 10
Risk free interest rate........................................... 6.57% 5.33% 5.81%
Fair value of options on grant date............................... $6.58 $9.72 $8.03
</TABLE>
The following table summarizes information about stock options outstanding at
December 29, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ---------------------------
Wgtd Avg
Range of Remaining Wgtd Avg Wgtd Avg
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- ------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.43-$ 7.38 344 3.95 $ 5.32 248 $ 4.52
7.42- 9.00 723 6.08 8.89 401 8.86
9.06- 9.75 602 6.44 9.50 347 9.48
10.06- 10.50 644 8.68 10.26 120 10.45
10.58- 10.81 680 8.16 10.78 136 10.68
10.90- 11.56 568 7.71 11.20 177 11.17
11.63- 12.63 617 7.49 12.04 245 12.03
12.75- 13.81 645 4.55 13.20 463 13.07
14.13- 24.25 464 6.54 15.79 227 15.88
24.63- 24.63 16 4.20 24.63 16 24.63
----- -----
$ 1.43-$24.63 5,303 6.75 $10.93 2,380 $10.78
===== ==== ====== ===== ======
</TABLE>
F. COMMITMENTS AND CONTINGENCIES
Commitments:
The Company conducts most of its operations from leased restaurant
facilities, all of which are classified as operating leases. The Company also
leases certain equipment under capital lease agreements. Amortization of assets
under capital leases is included in depreciation and amortization expense.
Equipment includes the following capital lease amounts:
<TABLE>
<CAPTION>
December 30, December 29,
1998 1999
----------- ------------
<S> <C> <C>
Equipment.................................................. $9,402 $5,361
Less accumulated amortization.............................. 5,957 4,097
------ ------
$3,445 $1,264
====== ======
</TABLE>
20
<PAGE> 18
The following is a schedule of future minimum rental payments required
under capitalized leases and noncancellable operating leases as of December 29,
1999 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
---------- -----------
<S> <C> <C>
2000.................................................... $709 $ 41,447
2001.................................................... 43,045
2002.................................................... 42,689
2003.................................................... 42,421
2004.................................................... 40,661
Thereafter.............................................. 233,598
---- --------
Total minimum lease payments............................ 709 $443,861
========
Less amount representing
interest (at rates ranging
from 9.14% to 11.80%)................................. 23
----
Present value of net minimum
capital lease - current............................... $686
====
</TABLE>
Certain of these leases require additional rent based on a percentage
of net sales and may require additional payments for real estate taxes and
common area maintenance on the properties. Many of these leases also contain
renewal options exercisable at the election of the Company.
Rent expense was as follows (in thousands):
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
---------- ------------ -----------
<S> <C> <C> <C>
Minimum rents............................. $34,609 $36,508 $39,706
Percentage rents.......................... 1,670 2,048 2,329
------- ------- -------
$36,279 $38,556 $42,035
======= ======= =======
</TABLE>
Contingencies:
The Company is involved in various legal actions arising in
the normal course of business. Management is of the opinion that
their outcome will not have a significant effect on the Company's consolidated
financial statements.
The Company and seven of its present and former directors and executive
officers have been named as defendants in a Corrected, Third Amended,
Consolidated Class Action Complaint (the "Third Complaint") brought on behalf of
a class of all purchasers of common stock of the Company from October 26, 1993
through October 25, 1994 (the "class period") in the United States District
Court for the District of Minnesota. The Third Complaint alleges that the
defendants made misrepresentations and omissions of material fact during the
class period with respect to the Company's operations and restaurant development
activities, as a result of which the price of the Company's stock allegedly was
artificially inflated during the class period. The Third Complaint further
alleges that certain defendants made sales of common stock of the Company during
the class period while in possession of material undisclosed information about
the Company's operations and restaurant development activities. Plaintiffs
allege that the defendants' conduct violated the Securities Exchange Act of 1934
and seek damages of approximately $90 million and an award of attorneys' fees,
costs and expenses.
The defendants have answered the Third Complaint, denying all liability
and raising various affirmative defenses. Discovery was substantially completed
as of February 26, 1999. By Order entered on June 17, 1999, as amended by Order
dated August 18, 1999, the District Court certified the proposed plaintiff
class.
21
<PAGE> 19
Management of the Company continues to believe that the action is
without merit and is vigorously defending it. On May 28, 1999, the defendants
moved for summary judgment on all claims. Plaintiffs also moved for partial
summary judgment against the Company and Mr. Hatlen for a portion of the class
period. The District Court heard oral argument on the respective motions on
December 10, 1999, but has not yet ruled on the motions.
The defendants have given notice of the plaintiffs' claim to its
insurance carrier. The insurance company is reimbursing the defendants for a
portion of the costs of defense under a reservation of rights. Although the
outcome of this proceeding cannot be predicted with certainty, the Company's
management believes that while the outcome may have a material effect on
earnings in a particular period, the probability of a material effect on the
financial condition of the Company, not covered by insurance, is slight.
G. RETIREMENT PLAN
The Company adopted a 401(k) plan beginning June 1, 1997 covering all
employees with one year of service, age 21 or older, who worked at least 1,000
hours in the prior year. The Company's discretionary contributions to the plan
are determined annually by the Board of Directors and are used to match a
portion of employees' voluntary contributions. Participants are 100% vested in
their own contributions immediately and in the Company's contributions 20% per
year of service with the Company such that they are fully vested at the end of
five years of service with the Company. The Company matched a portion of the
employees' contributions totaling $340,000 for 1997 paid in 1998 and $730,000
for 1998 paid in 1999. The Company has accrued $750,000 for a 1999 matching
contribution estimate to be paid in the first quarter of 2000.
H. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Federal:
Current.................................... $12,436 $ 8,400 $24,436
Deferred................................... 2,595 11,010 (2,928)
------- ------- -------
15,031 19,410 21,508
State:
Current.................................... 2,219 2,467 3,677
Deferred................................... 391 1,533 (476)
------- ------- -------
2,610 4,000 3,201
Tax effect from early
disposition of common
stock...................................... 269 965 91
------- ------- -------
$17,910 $24,375 $24,800
======= ======= =======
</TABLE>
22
<PAGE> 20
Deferred income taxes are provided to record the income tax effect of
temporary differences that occur when transactions are reported in one period
for financial statement purposes and in another period for tax purposes. The tax
effect of the temporary differences giving rise to the Company's deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 30, 1998 December 29, 1999
--------------------------- ------------------------
Current Long-Term Current Long-Term
Asset Liability Asset Liability
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Property and equipment.............................. $31,624 $29,995
Deferred rent....................................... $ 6,203 $ 6,794
Self-insurance reserve.............................. 2,380 1,960
Accrued workers' compensation....................... 1,920 2,147
Accrued payroll and related benefits............... 318 1,684
Accrued store closing costs......................... 2,390 1,697
Alternative minimum tax credit carryforward......... (500) (1,129)
Other............................................... 91 166
------- ------ ------- -------
$13,302 $31,124 $14,448 $28,866
======= ======= ======= =======
</TABLE>
The Company has alternative minimum tax credit carryforwards of
$1,129,000 at December 29, 1999, which can be carried forward indefinitely.
Future utilization of the carryforward depends on the profitability of HomeTown
Buffet's operations.
During 1998, the Company revised the useful tax lives of certain
property purchased in prior years for income tax purposes, which resulted in an
increase in tax depreciation expense. The increase in tax depreciation expense
decreased taxable income for income tax purposes. This resulted in an increase
in refundable income taxes and long-term deferred tax liability of $11,002,000
in 1998.
The following is a reconciliation of the expected ordinary federal
income tax expense (at statutory rates) to the actual income tax provided (in
thousands):
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Weeks Ended Weeks Ended Weeks Ended
December 31, December 30, December 29,
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Expected ordinary federal
income tax expense at 35%............................ $16,278 $22,304 $23,535
State income taxes, net of
federal effect....................................... 1,697 2,600 2,081
Settlement of prior years'
tax audit issues..................................... (700)
General business credits............................... (137) (614) (597)
Other................................................. 72 85 481
------- ------- -------
$17,910 $24,375 $24,800
======= ======= =======
</TABLE>
I. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
During 1998, $35,000 of convertible subordinated notes were converted
into 3,000 shares of common stock at the discretion of the debtholder.
23
<PAGE> 21
J. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Year (52 Weeks) Ended December 29, 1999
---------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Restaurant sales.................................. $277,838 $223,037 $222,720 $213,259
Restaurant profits................................ 37,604 35,732 34,509 28,754
Earnings before income taxes...................... 16,470 19,516 18,402 12,854
Net earnings ..................................... $ 10,210 $ 12,101 $ 11,377 $ 8,754
======== ======== ======== ========
Earnings per share:
Basic............................................ $.23 $.28 $.27 $.21
======== ======== ========= ========
Diluted.......................................... $.22 $.27 $.26 $.20
======== ======== ========= ========
Weighted average common shares assumed outstanding:
Basic............................................ 44,238 42,514 42,147 41,843
Diluted.......................................... 48,056 46,437 46,165 45,656
</TABLE>
<TABLE>
<CAPTION>
Year (52 Weeks) Ended December 30, 1998
----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- ---------- --------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Restaurant sales.................................. $256,829 $204,579 $207,128 $200,322
Restaurant profits................................ 33,890 31,962 31,079 26,645
Earnings before income taxes...................... 16,041 18,853 16,760 12,072
Net earnings ..................................... $ 9,865 $ 11,594 $ 10,435 $ 7,457
======== ======== ======== ========
Earnings per share:
Basic............................................ $.22 $.25 $.23 $.17
======== ======== ========= ========
Diluted.......................................... $.21 $.24 $.22 $.16
======== ======== ========= ========
Weighted average common shares assumed outstanding:
Basic............................................ 45,399 45,567 45,393 45,006
Diluted.......................................... 49,572 50,506 49,987 48,890
</TABLE>
24
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors Buffets, Inc.
We have audited the accompanying consolidated balance sheets of
Buffets, Inc. and subsidiaries (the "Company") as of December 30, 1998 and
December 29, 1999 and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years (52 weeks) in
the period ended December 29, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Buffets, Inc. and
subsidiaries as of December 30, 1998 and December 29, 1999 and the results of
their operations and their cash flows for each of the three years (52 weeks) in
the period ended December 29, 1999 in conformity with generally accepted
accounting principles.
/s/ Deloitte and Touche, LLP
Minneapolis, Minnesota
February 11, 2000
STOCK INFORMATION
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol "BOCB." As of March 13, 2000, the approximate number of holders of the
Company's common stock was 8,000 based upon the number of record holders and an
estimate of individual participants in security position listings.
The following table sets forth the range of high and low closing sale
prices for the Company's common stock as reported on The Nasdaq Stock Market for
the period from January 1, 1998 through December 31, 1999.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
Calendar 1998
First Quarter.............................................................. $13 3/4 $ 8 1/2
Second Quarter............................................................. 16 15/16 12 7/8
Third Quarter.............................................................. 15 3/4 10 13/16
Fourth Quarter............................................................. 14 9 3/4
Calendar 1999
First Quarter.............................................................. $11 7/8 $ 8 1/16
Second Quarter............................................................. 11 1/2 9 23/32
Third Quarter.............................................................. 11 7/8 10 3/8
Fourth Quarter............................................................. 11 5/8 9 1/8
</TABLE>
The Company has not paid any cash dividends on its common stock and,
pursuant to its credit agreement, is restricted from declaring or paying cash
dividends without the approval of the Company's lender.
[BOCB/NASDAC LISTED LOGO]
25
<PAGE> 23
CORPORATE DIRECTORY
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS Walter R. Barry, Jr. Private investor
Marvin W. Goldstein Private investor
Roe H. Hatlen Chairman of the Board and Chief Executive Officer of the
Company
Kerry A. Kramp President and Chief Operating Officer of the Company
Alan S. McDowell Private investor
C. Dennis Scott Vice Chairman of the Board
Michael T. Sweeney President of Starbucks Coffee Company Ltd.
- -------------------------------------------------------------------------------------------------------------------
EXECUTIVE Glenn D. Drasher Executive Vice President of Marketing
OFFICERS David Goronkin Executive Vice President of Operations
Clark C. Grant Senior Vice President of Finance and Treasurer
Roe H. Hatlen Chairman of the Board and Chief Executive Officer
Kerry A. Kramp President and Chief Operating Officer
H. Thomas Mitchell Executive Vice President, Chief Administrative Officer,
General Counsel & Secretary
Jean C. Rostollan Executive Vice President of Purchasing
C. Dennis Scott Vice Chairman of the Board
K. Michael Shrader Executive Vice President of Human Resources and Training
Neal L. Wichard Senior Vice President of Real Estate
- -------------------------------------------------------------------------------------------------------------------
OTHER David T. Crowley Vice President of Development & Construction
OFFICERS Brent P. DeMesquita Vice President of Human Resource Planning
and Organizational Development
Brad J. McNaught Vice President of Real Estate
Marguerite C. Nesset Vice President of Accounting and Controller
Kenneth W. Smith Vice President of Field Training
David A. Wagner Vice President of Information Systems
- -------------------------------------------------------------------------------------------------------------------
COUNSEL Faegre & Benson LLP Minneapolis, Minnesota
- -------------------------------------------------------------------------------------------------------------------
REGISTRAR American Stock
Transfer Company New York, New York
- -------------------------------------------------------------------------------------------------------------------
AUDITORS Deloitte & Touche LLP Minneapolis, Minnesota
- -------------------------------------------------------------------------------------------------------------------
TRANSFER American Stock
AGENT Transfer Company New York, New York
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL MEETING
The annual meeting of shareholders will be held Tuesday, May 9, 2000,
starting at 9:00 a.m., Central Standard Time, at the Company's Corporate
Headquarters, 1460 Buffet Way, Eagan, MN 55121
FORM 10-K
A COPY OF THE COMPANY'S FORM 10-K REPORT FOR FISCAL 1999, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN
REQUEST TO CLARK C. GRANT, SENIOR VICE PRESIDENT OF FINANCE AND TREASURER, AT
THE EXECUTIVE OFFICES.
EXECUTIVE OFFICES
Buffets, Inc.
1460 Buffet Way
Eagan, MN 55121
(651)994-8608
BUFFETS, INC. NEWS RELEASES
As a service to our shareholders and prospective investors, copies of the
Company's recent news releases can be found on the Internet at
http://www.buffet.com
Old Country Buffet(R) is a registered trademark of Buffets, Inc.
HomeTown Buffet(R) and Granny's Buffet(R) are registered
trademarks licensed to HomeTown Buffet, Inc.
Original Roadhouse Grill, Country Roadhouse Buffet & Grill, and Soup 'N Salad
Unlimited(sm) are Service Marks of Buffets,Inc.
Tahoe Joe's Famous Steakhouse(R) is a registered trademark
licensed to Tahoe Joe's, Inc.
26
<PAGE> 1
Exhibit 21
----------
Subsidiaries of Buffets, Inc.
State of
Name of Subsidiaries Incorporation Doing Business As
- -------------------- ------------- -----------------
Dinertainment, Inc. Minnesota
Distinctive Dining, Inc. Minnesota Original Roadhouse Grill
HomeTown Buffet, Inc. Delaware HomeTown Buffet
Old Country Buffet
OCB Restaurant Co. Minnesota Old Country Buffet
HomeTown Buffet
Country Roadhouse Buffet
& Grill
Soup 'N Salad Unlimited
OCB Realty Co. Minnesota
OCB Purchasing Co. Minnesota
OCB Property Co. Minnesota
Restaurant Innovations, Inc. Minnesota
Tahoe Joe's, Inc. Delaware Tahoe Joe's Famous
Steakhouse
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-8388, No. 33-30981, No. 33-41958, No. 33-47893, No. 333-1191, No.
333-15857, No. 333-57007, and No. 333-30458 of Buffets, Inc on Form S-8 of our
report dated February 11, 2000 incorporated by reference in the Annual Report on
Form 10-K of Buffets, Inc. for the fiscal year ended December 29, 1999.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 30, 1998 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 29, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> DEC-29-1999
<CASH> 72,260
<SECURITIES> 0
<RECEIVABLES> 1,092
<ALLOWANCES> 0
<INVENTORY> 4,705
<CURRENT-ASSETS> 101,451
<PP&E> 589,965
<DEPRECIATION> 236,308
<TOTAL-ASSETS> 477,635
<CURRENT-LIABILITIES> 100,656
<BONDS> 41,465
0
0
<COMMON> 415
<OTHER-SE> 305,968
<TOTAL-LIABILITY-AND-EQUITY> 477,635
<SALES> 936,854
<TOTAL-REVENUES> 936,854
<CGS> 800,255
<TOTAL-COSTS> 800,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,009
<INCOME-PRETAX> 67,242
<INCOME-TAX> 24,800
<INCOME-CONTINUING> 42,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,442
<EPS-BASIC> .99
<EPS-DILUTED> .95
</TABLE>
