<PAGE> 1
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 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
FILE NO. 0-14968
EATERIES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1230348
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3240 W. BRITTON ROAD
OKLAHOMA CITY, OKLAHOMA 73120
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (405) 755-3607
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, $.002 PER SHARE
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, 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
amendments to this Form 10-K. (X)
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of April 1, 1997 was $6,851,457. Number of
shares outstanding as of April 1, 1997 - 3,866,630 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Following is a list of annual reports, proxy statements, and Rule 424(b)
or (c) prospectuses which are incorporated by reference into the Form 10-K and
the Part of the Form 10-K into which the document is incorporated - The
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders is
incorporated by reference in Part III, Items 10, 11, 12 and 13.
<PAGE> 2
EATERIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART 1 PAGE
- ------ ----
<S> <C>
Item 1. Business .......................................................... 1
Item 2. Properties ........................................................ 8
Item 3. Legal Proceedings ................................................. 8
Item 4. Submission of Matters to a Vote of
Security Holders .................................................. 8
PART II
- -------
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ................................... 8
Item 6. Selected Financial Data ........................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 11
Item 8. Financial Statements and Supplementary Data ....................... 18
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ............................... 18
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant ................ 18
Item 11. Executive Compensation ............................................ 18
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 18
Item 13. Certain Relationships and Related Transactions .................... 18
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .. 18
INDEX TO EXHIBITS .......................................................... 18
SIGNATURES ................................................................. 20
INDEX TO FINANCIAL STATEMENTS .............................................. 21
</TABLE>
i
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ITEM 1. BUSINESS
IN GENERAL
Eateries, Inc. (the "Company") owns, operates and franchises a 51-unit (43
Company, 8 franchise) chain of Garfield's and Pepperoni Grill restaurants.
These casual theme, dinnerhouse restaurants are located primarily in regional
malls in 22 states. The Company opened its first restaurant in 1984 in
Oklahoma City, Oklahoma. The Company's restaurants are family-oriented,
providing an upscale alternative to traditional fast-food. The restaurants are
designed to appeal to a divergent customer base that grew up on fast-food, but
now prefers a more sophisticated menu, the availability of alcoholic beverages,
a comfortable ambiance, speed, value and convenience. Both restaurant concepts
feature a varied selection of moderately-priced, high quality food and beverage
items with table service dining.
In January 1995, the Company acquired substantially all the assets of the
"Pepperoni Grill" restaurant located in Oklahoma City, Oklahoma, along with all
rights to the use of the trademarks associated with the concept. Pepperoni
Grill features a variety of Italian entrees with special emphasis on brick-oven
baked pizza. The warm European bistro atmosphere is accented with an
exhibition kitchen, light woods and booths covered in tapestry. All menu items
are prepared on the premises with the entire entree presentation being
performed within view of the guest, making the kitchen part of the restaurant's
atmosphere. An in-store bakery makes all the breads and daily desserts. Over
60 different wine selections are offered along with 25 wines available by the
glass.
In 1996, the Company constructed and opened six (6) Garfield's and a test
Casa Ole' Mexican restaurant in major regional malls and one Pepperoni Grill in
a free-standing location. The Company expects to add up to five additional
restaurants in 1997. The primary expansion emphasis will be on Company rather
than franchised restaurants. However, management will visit with qualified,
interested parties as potential franchisees. Early results of the Casa Ole'
test do not indicate the likelihood of continuing its expansion.
The Company's principal offices are located at 3240 West Britton Road,
Oklahoma City, Oklahoma 73120. Its telephone number is (405) 755-3607.
GARFIELD'S RESTAURANT & PUB
MENU
Each Garfield's restaurant offers a diverse menu of freshly prepared
traditional and innovative entrees, including steak, seafood, chicken,
hamburgers, Mexican, Italian, and sandwiches along with a variety of
appetizers, salads and desserts. Menu offerings are revised by the Company
semi-annually to improve sales. The Company's senior management actively
participates in the search for new menu items. In February, 1996 the Company
hired a Director of Product Research and Development to further assist in
developing new menu selections. Garfield's restaurants also offer a separate
lower-priced children's menu.
In an effort to further define the strengths of various mall-based
Garfield's, management is testing six urban stores as "Garfield's Cafe's."
These units are located in major urban markets and lack the ability to be
marketed due to exorbitant advertising costs. This lack of visibility
negatively impacts sales and profitability. Thus, "Garfield's Cafe's" have
repositioned menus that offer greater value, lower costs, a simpler and thus
faster mix of menu selections. Food costs for items in "Cafe" stores are lower
than traditional Garfield's. "Cafe" stores also feature specials designed to
drive sales and profits. Early results are very encouraging and management will
continue to monitor and fine tune "Cafe" results.
1
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RESTAURANT LAYOUT
Garfield's restaurants are constructed in regional malls in accordance
with uniform design specifications and are generally similar in appearance and
interior decor. Restaurants are furnished and styled in a colorful motif,
highlighting the travels of the Company's namesake, "Casey Garfield", including
exhibits, photographs, souvenirs and other travel-related furnishings. Tables
are covered with paper and customers are encouraged to doodle with crayons
provided at each table.
The size and shape of Garfield's restaurants vary depending largely upon
the location but typically average 4,500 to 5,500 square feet, and seat
approximately 200 guests. The Company's prototype Garfield's to be constructed
in 1997 will approximate 4,700 square feet.
HOURS OF OPERATION
Depending on location, most restaurants are open from 11:00 a.m. until
11:00 p.m. on weekdays and Sunday, and later on Friday and Saturday.
UNIT ECONOMICS
Historically, the cost of opening a new Garfield's restaurant has varied
widely due to the different restaurant configuration and sizes, regional
construction cost levels, and certain other factors. The Company currently
leases the restaurant premises in major regional malls and builds-out the
leased space to meet the Garfield's concept specifications of style and decor.
Total construction costs for a typical Garfield's opened in 1996 were
approximately $968,000, of which approximately $428,000 was funded through
landlord finish-out allowances, bringing the Company's net investment to
approximately $540,000 per unit. Management believes it's unit economics are
among the best in the industry.
SITE SELECTION
All Garfield's restaurants are located in regional shopping malls. The
Company considers the location of a restaurant to be critical to its long-term
success and has devoted significant effort to the investigation and evaluation
of potential mall sites. The site selection process focuses on historical sales
per foot by mall tenants and proximity to entertainment centers within and out
of the mall as well as accessibility to major traffic arteries. The Company
also reviews potential competition in the area and utilizes an Equifax site
selection model to "rate" each potential location based upon a multitude of
different criteria. Senior management inspects and approves each mall
restaurant site. The Company expects to locate future Garfield's in regional
malls. It takes approximately 18 weeks to complete construction and open a
Garfield's.
2
<PAGE> 5
RESTAURANT LOCATIONS
The following table sets forth the location of the existing Garfield's
restaurants.
<TABLE>
<CAPTION>
COMPANY-OWNED RESTAURANTS FRANCHISED RESTAURANTS
STATE # OF UNITS STATE # OF UNITS
----- ---------- ----- ----------
<S> <C> <C> <C>
Alabama ......... 1 Colorado ....... 1
Arkansas ........ 1 Iowa ........... 2
Florida ......... 3 Oklahoma ....... 5
Georgia ......... 1 --
Illinois ........ 4 Total .......... 8
Indiana ......... 2
Kentucky ........ 1
Louisiana ....... 2
Michigan ........ 2
Mississippi ..... 4
Missouri ........ 4
New York ........ 2
North Carolina .. 1
Ohio ............ 2
Oklahoma ........ 3
South Carolina .. 1
Tennessee ....... 1
Texas ........... 2
West Virginia ... 1
Wisconsin ....... 2
--
Total ........... 40
==
</TABLE>
PEPPERONI GRILL RESTAURANTS
The original Pepperoni Grill restaurant, located in Oklahoma City,
Oklahoma was purchased by Eateries, Inc. in January, 1995. It is located in a
recently renovated mall and its menu features a variety of Italian entrees with
special emphasis on brick-oven baked pizza. The warm European bistro atmosphere
is accented with an exhibition kitchen, light woods and booths covered in
tapestry. All menu items are prepared on the premises with the entire entree
presentation being performed within view of the guest, making the kitchen part
of the restaurant's atmosphere. An in-store bakery makes all the breads and
daily desserts. Pepperoni Grill's signature bakery item is a Tuscan parmesan
black pepper bread that is served with all entrees along with the traditional
olive oil and balsamic vinegar. Over 60 different wine selections are offered
along with 25 wines available by the glass.
The Company purchased the Pepperoni Grill restaurant primarily because of
its many similarities to the existing Garfield's concept and its popular
"Italian" based menu. The Pepperoni Grill restaurant concept is similar to
Garfield's as it is a full service dinner house, located in a mall and is
approximately the same size with many operational functions which parallel a
Garfield's.
The Company opened a second Pepperoni Grill restaurant in a regional mall
located in Terre Haute, Indiana in November, 1995, next to an existing
Garfield's. After evaluating the benefits of this strategy and the future
growth potential of the Pepperoni Grill restaurant concept, management decided
to open a free-standing Pepperoni Grill in Edmond, Oklahoma to capitalize on
its strong reputation in the Oklahoma City market. As part of this decision,
management decided to convert the Terre Haute location into a test location for
a Casa Ole' franchise and transferred assets with approximately $275,000 in net
book value to the Edmond location. The Company is considering building one
additional free-standing Pepperoni Grill in Oklahoma during 1997. At this time,
management does not expect any further development of Casa Ole'.
3
<PAGE> 6
RESTAURANT OPERATIONS
MANAGEMENT AND EMPLOYEES
Responsibility for the Company's restaurant operations is organized
geographically with restaurant general managers reporting to area directors of
operations who in turn report to the respective divisional vice president of
operations for Garfield's and Pepperoni Grill. A typical restaurant has a
general manager, two to four assistant managers and average 51 employees,
approximately 81% of whom are part-time.
Area directors of operations as well as restaurant general managers and
associate managers are eligible for cash and stock bonuses, travel incentives,
professional training and attendance at industry conferences. Receipt of these
incentives is based on reaching restaurant performance objectives. The
Company's hourly employees are eligible for performance-based awards for
superior service to the Company and its guests. Employee awards can include
travel incentives, gift certificates, plaques and Company memorabilia. Most
employees other than restaurant management and corporate management are
compensated on an hourly basis.
QUALITY CONTROL
The Company has uniform operating standards and specifications relating to
the quality, preparation and selection of menu items, maintenance and
cleanliness of the premises, and employee conduct. Managers are responsible for
assuring compliance with Company operating procedures. Executive and
supervisory personnel routinely visit each restaurant to evaluate adherence to
quality standards and employee performance.
TRAINING
The Company places a great deal of emphasis on the proper training of its
hourly employees and general and associate managers. In 1995, the Company hired
a full-time Director of Training to oversee all areas of employee education.
The outline for the program is based on the individual expertise of the trainee
and typically lasts about two weeks for hourly employees and up to 8 weeks for
managers. Managers must be certified in a number of skills in restaurant
management, including technical proficiency and job functions, management
techniques and profit and loss responsibilities. These skills are taught
primarily in the restaurant along with classroom training and assigned
projects. Manager training is performed in several geographically dispersed
restaurants. Standard manuals regarding training and operations, products and
equipment and local marketing programs are provided by the Company.
PURCHASING
During 1994, the Company hired a purchasing director to oversee the
relations and negotiations with manufacturers and regional distributors for
most food and beverage products and to ensure uniform quality, competitive
costs and adequate supplies of proprietary products. The Company and its
franchisees purchase substantially all food and beverage products from several
national and regional suppliers. The Company has not experienced any
significant delays in receiving food and beverage inventories or restaurant
supplies.
ADVERTISING AND MARKETING
The Company uses television, newspaper, radio and outdoor advertising to
promote its restaurants. In markets where the Company shares a trade area with
a franchisee, advertising cooperatives are utilized to maximize the Company's
restaurant's visibility. Franchisees of Garfield's units are generally required
to expend up to 4% of sales on restaurant related marketing efforts. In
addition, all Company and franchise restaurants contribute 1/2% of their sales
to a marketing fund used to produce advertising, menu development and point of
sale material to promote increased sales. The Company engages in a variety of
local market promotional activities such as contributing goods, time and money
to charitable, civic and educational programs, in order to increase public
awareness of the Company's restaurants.
4
<PAGE> 7
RESTAURANT REPORTING
Financial controls are implemented through the use of computerized cash
registers and management information systems. Sales reports and food, beverage
and labor cost data are prepared and reviewed weekly for operational control.
EXPANSION STRATEGY
Eateries, Inc. intends to open Company-owned Garfield's restaurants in
regional malls principally throughout the Southwest, Midwest and Southeast
regions of the United States. This expansion strategy is designed to capitalize
on the growing trend to include and expand dining and entertainment facilities
in regional malls. Management believes this mall-based expansion strategy for
Garfield's reduces the risks associated with locating restaurants in new
markets because of the availability of historical trends regarding mall sales
and customer traffic. Further, restaurant construction within a mall typically
requires a substantially smaller investment than construction of a
free-standing restaurant.
Management believes there are sufficient additional mall locations for its
restaurant concepts, particularly as existing malls are expanding and remodeled
with a view toward becoming entertainment and dining centers. The Company
maintains relationships with several leading mall operators who provide the
Company with an ongoing supply of potential mall locations for evaluation. This
will not, however, preclude it from searching other expansion opportunities
such as free-standing sites.
The Company has retained a Director of Real Estate to represent it in site
negotiations. This individual is compensated on a success fee basis. The
Company expects to focus its expansion primarily on the opening of
Company-owned Garfield's and Pepperoni Grill restaurants. Additional
franchising is possible but likely to be a minor part of expansion.
The Company currently is developing three additional Garfield's
restaurants as follows: South Bend, Indiana; Bridgeport, West Virginia;
Richmond, Indiana, and is negotiating for additional locations designated to
open in 1997 and 1998. The Company is also negotiating for a third Pepperoni
Grill location to open in 1997. The Company expects to open up to five
Company-owned restaurants in 1997 and up to ten Company-owned restaurants in
1998.
In addition, management is actively seeking possible merger or acquisition
candidates that it believes will add value to the Company.
FRANCHISE OPERATIONS
GENERAL TERMS
Eight franchised Garfield's are currently operating pursuant to agreements
granted by the Company. The typical franchise agreement provides for (i) the
payment of an initial franchise fee of up to $35,000 and a monthly continuing
royalty fee expressed as a percentage (typically 3% or 4%) of gross sales with
a minimum fee of $2,000 to $2,500 per month; (ii) the payment of 1/2% of gross
sales to the Garfield's Creative Marketing Fund; (iii) quality control and
operational standards; (iv) development obligations for the opening of new
restaurants under the franchise; and (v) the creation and use of advertising.
The franchise term usually ranges from five to 10 years with five-year
renewals. The grant of a franchise does not ensure that a restaurant will be
opened. Under the Company's typical franchise agreement, the failure to open
restaurants can cause a termination of the franchise. Although the Company
largely relies upon standardized agreements for its franchises, it will
continue to adjust its agreements as circumstances warrant.
FUTURE FRANCHISE DEVELOPMENT
The Company has elected to emphasize Company restaurant development and as
a result does not intend to aggressively pursue new restaurant franchising. The
Company had not entered into any new franchise agreements as of April 1, 1997.
COMPANY MANAGED FRANCHISES
The Company currently manages three of its franchised restaurants in
Oklahoma City pursuant to a management agreement with the franchisee who
remains the owner of the restaurants. The Company receives fixed management and
accounting fees in addition to its royalties and other charges under the
franchise agreement.
5
<PAGE> 8
FRANCHISE REVENUE DATA
The following table sets forth fees and royalties earned by the Company
from franchisees for the years indicated.
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Initial franchise fees $ -- $ 50,000 $ --
Continuing royalties $267,000 $258,000 $265,000
</TABLE>
COMPLIANCE WITH FRANCHISE STANDARDS
All franchisees are required to operate their Garfield's restaurants in
compliance with the Company's methods, standards and specifications regarding
such matters as menu items, ingredients, materials, supplies, services,
fixtures, furnishings, decor and signs, although the franchisee has the
discretion to determine the menu prices to be charged. However, as a practical
matter, all franchisees utilize the Company's standardized Garfield's menu. In
addition, all franchisees are required to purchase all food, ingredients,
supplies and materials from suppliers approved by the Company. The Company
enforces the standards required of franchisees. Such enforcement may result in
the closure or non-renewal of certain franchise units, but any such closings or
non-renewals are not expected to have a material adverse effect upon the
Company's results of operations or financial position.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location, food type and quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Some of the Company's competitors have been in existence for a
substantially longer period than the Company and may be better established in
the market area than the Company's restaurants. The restaurant business is
often affected by changes in consumer taste, national, regional or local
economic conditions, demographic trends, traffic patterns and type, number and
location of competing restaurants. In addition, factors such as inflation,
increased food, labor and benefit costs, and the lack of experienced management
and hourly employees may adversely affect the restaurant industry in general
and the Company's restaurants in particular.
SERVICE MARKS
"GARFIELD'S", "CASEY GARFIELD'S" and "PEPPERONI GRILL" are Company service
marks registered with the United States Patent and Trademark Office. The
Company pursues any infringement of its marks within the United States and
considers its marks to be crucial to its operations.
EMPLOYEES
As of March 1, 1997, the Company employed 2,357 individuals, of whom 178
were management or administrative personnel (including 143 who were restaurant
managers or trainees) and 2,179 were employed in non-management restaurant
positions. As of this date, the Company employed 169 persons on a salaried
basis and 2,188 persons on an hourly basis. Each restaurant employs an average
of 51 people.
Most employees, other than restaurant management and corporate management
personnel, are paid on an hourly basis. The Company believes that it provides
working conditions and wages that compare favorably with those of its
competition. As the Company expands, it will need to hire additional management
and its continued success will depend in large part on its ability to attract
and retain good management employees. The Company's employees are not covered
by a collective bargaining agreement.
6
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SEASONALITY
With 42 of the 43 Company-owned restaurants located in regional malls, the
resulting higher pedestrian traffic during the Thanksgiving to New Year holiday
season has caused the Company to experience a substantial increase in
restaurant sales and profits in the Company's fourth fiscal quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Impact of Seasonality."
GOVERNMENT REGULATIONS
The Company's restaurants are subject to licensing and regulation by
alcoholic beverage control, health, sanitation, safety and fire agencies in
each state and/or municipality in which restaurants are located. The Company
has not experienced material difficulties in these areas, however, regulatory
difficulties or failures in obtaining the required licenses or approvals could
delay or prevent the opening of a new restaurant and affect profitability.
Approximately 15% of the Company's food and beverage revenues in 1996 were
attributable to the sale of alcoholic beverages. Alcoholic beverage control
regulations require each of the Company's restaurants to apply to a state
authority and, in certain locations, county or municipal authorities, for a
license or permit to sell alcoholic beverages on the premises and to provide
service for extended hours and on Sundays. Typically, such licenses or permits
must be renewed annually and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations relate to numerous aspects of the daily
operations of the Company's restaurants, including minimum age of patron and
employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages.
In certain states the Company may be subject to "dram-shop" statutes,
which generally provide a person injured by an intoxicated patron the right to
recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance.
The Company's restaurant operations are also subject to federal and state
laws governing such matters as minimum wages, working conditions, overtime and
tip credits. Significant numbers of the Company's food service and preparation
personnel are paid at rates equal to or based upon the federal minimum wage
and, accordingly, further increases in the minimum wage could increase the
Company's labor costs. The enactment of future legislation increasing employee
benefits, such as mandated health insurance, could also significantly adversely
affect the industry and the Company, as could future increases in workers'
compensation rates.
The Company is subject to Federal Trade Commission ("FTC") regulation and
state laws that regulate the offer and sale of franchises. The Company may also
become subject to state laws that regulate substantive aspects of the
franchisor-franchisee relationship. The FTC requires the Company to furnish
prospective franchisees a franchise offering circular containing prescribed
information. A number of states in which the Company might consider franchising
also regulate the offer and sale of franchises and require registration of the
franchise offering with state authorities. The Company believes that it is in
material compliance with such laws.
The Americans With Disabilities Act ("ADA") prohibits discrimination in
employment and public accommodations on the basis of disability. While the
Company believes it is in substantial compliance with the ADA regulations, the
Company could be required to expend funds to modify its restaurants to provide
service to, or make reasonable accommodations for the employment of disabled
persons.
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ITEM 2. PROPERTIES
All of the Company's facilities are occupied under leases, primarily in
regional malls. The majority of the Company's restaurant leases provide for the
payment of base rents plus real estate taxes, insurance and other expenses and
for the payment of a percentage of the Company's sales in excess of certain
sales levels. These leases typically provide for escalating rentals in future
years and have initial terms expiring as follows:
<TABLE>
<CAPTION>
YEAR LEASE TERM EXPIRES NUMBER OF FACILITIES*
----------------------- ---------------------
<S> <C>
1997-1998 ............................................... 1
1999-2000 ............................................... 2
2001-2002 ............................................... 11
2003-2004 ............................................... 12
2005-2006 ............................................... 11
2007 and beyond ......................................... 10
</TABLE>
* Includes two leases which have been executed for locations where
restaurants have not yet been opened and two leases which were terminated
subsequent to December 29, 1996.
The Company's executive offices, located in approximately 7,400 square
feet of office space in Oklahoma City, Oklahoma, are occupied under a lease
which expires in June, 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently engaged in any legal proceedings the outcome
of which is expected to have a material adverse effect upon its business or
financial condition. However, in the ordinary course of its business, the
Company is named in various lawsuits related to the operation of its
restaurants, most of which relate to on-the-job injury claims by its employees
and are typically handled by the Company's insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
its fourth fiscal quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been quoted on the NASDAQ National Market
System under the symbol "EATS" since May 1994. Prior to that date, the
Company's common stock was quoted on the NASDAQ Small-Cap Market. The following
table sets forth, for the quarterly periods indicated, the high and low closing
bid prices for the common stock, as reported by the NASDAQ Markets.
<TABLE>
<CAPTION>
LOW HIGH
----- -----
<S> <C> <C>
1995
First Quarter .......................................... $3.00 $4.13
Second Quarter ......................................... 2.88 3.63
Third Quarter .......................................... 2.63 3.25
Fourth Quarter ......................................... 2.13 3.50
1996
First Quarter .......................................... $2.19 $3.50
Second Quarter ......................................... 3.25 5.75
Third Quarter .......................................... 2.75 4.88
Fourth Quarter ......................................... 3.00 4.75
1997
First Quarter .......................................... $2.94 $4.31
</TABLE>
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Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
On April 1, 1997, the Company's stock transfer agent reported that the
Company's common stock was held by 265 holders of record. However, management
believes there are approximately 1,000 beneficial owners of the Company's
common stock.
The Company has paid no cash dividends on its common stock. The Board of
Directors intends to retain earnings of the Company to support operations and
to finance expansion and does not intend to pay cash dividends on the common
stock for the foreseeable future. The payment of cash dividends in the future
will depend upon such factors as earnings levels, capital requirements, the
Company's financial condition and other factors deemed relevant by the Board of
Directors.
9
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The
selected financial data in the table are derived from the financial statements
of the Company. The following data should be read in conjunction with, and are
qualified in their entirety by, the Company's financial statements and related
notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. (In thousands, except per
share data).
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------
INCOME STATEMENT DATA: 1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 17,913 $ 26,401 $ 38,869 $ 45,811 $ 55,733
Franchise fees and royalties 522 488 267 307 265
Other income 315 369 423 482 418
-------- -------- -------- -------- --------
18,750 27,258 39,559 46,600 56,416
-------- -------- -------- -------- --------
Costs and Expenses:
Cost of sales 5,697 8,231 12,052 13,968 17,070
Operating expenses 10,435 14,891 22,359 26,387 32,219
Pre-opening costs 280 591 568 830 726
General and administrative expenses 1,403 2,101 2,467 3,067 3,666
Provision for restaurant closures
and other disposals -- -- -- 897 --
Depreciation and amortization 484 601 927 1,337 1,886
Interest expense 41 50 48 41 194
-------- -------- -------- -------- --------
18,340 26,465 38,421 46,527 55,761
-------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of accounting change 410 793 1,138 73 655
Provision (benefit) for income taxes 5 293 316 (113) 74
-------- -------- -------- -------- --------
Income before cumulative effect
of change in accounting principle 405 500 822 186 581
Cumulative effect of change in
accounting for income taxes -- 202 -- -- --
-------- -------- -------- -------- --------
Net income $ 405 $ 702 $ 822 $ 186 $ 581
======== ======== ======== ======== ========
Weighted average shares of common
and common equivalent
shares 2,334 3,077 3,940 3,818 3,988
======== ======== ======== ======== ========
Net income per share (1):
Income before cumulative
effect of change in accounting for
income taxes $ .17 $ .16 $ .21 $ .05 $ .15
Cumulative effect of change in
accounting for income taxes -- .07 -- -- --
-------- -------- -------- -------- --------
Net income per share $ .17 $ .23 $ .21 $ .05 $ .15
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) $ (567) $ 2,021 $ 922 $ (1,677) $ (3,456)
Total assets 4,053 11,363 12,933 16,596 18,709
Long-term obligations (2) 117 42 75 1,249 1,471
Stockholders' equity 1,405 7,690 8,625 8,912 9,650
OTHER DATA:
Earnings before interest,
depreciation and taxes (EBITDA) $ 935 $ 1,444 $ 2,113 $ 1,451 $ 2,736
System-wide sales 29,717 39,025 45,891 53,802 64,036
</TABLE>
(1) Based upon the weighted average number of common and dilutive common
equivalent shares (if applicable) outstanding during the period. (See
Note 2 of Notes to Consolidated Financial Statements.)
(2) Includes capital leases and long-term debt obligations, net of current
portions. (See Note 5 of Notes to Consolidated Financial Statements.)
10
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
From time to time, the Company may publish forward-looking statements
relating to certain matters including anticipated financial performance,
business prospects, the future opening of Company-owned and franchised
restaurants, anticipated capital expenditures, and other similar matters. All
statements other than statements of historical fact contained in this Form 10-K
or in any other report of the Company are forward-looking statements. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of that safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. In
addition, the Company disclaims any intent or obligation to update those
forward-looking statements.
INTRODUCTION
As of December 29, 1996, the Company owned and operated 45 restaurants and
franchised eight Garfield's restaurants. The Company currently has three
Garfield's restaurants in development and closed two under-performing
Garfield's restaurants subsequent to December 29, 1996. As of the date of this
report, the entire system includes 43 (40 Garfield's, two Pepperoni Grills and
one Casa Ole') Company-owned restaurants and eight franchise Garfield's
restaurants.
Unlike a majority of its publicly-held competitors which capitalize and
amortize restaurant pre-opening costs over a period of up to 24 months, the
Company expenses such costs as incurred. Pre-opening costs were $726,000 for
the year ended December 29, 1996.
PERCENTAGE RESULTS OF OPERATIONS AND RESTAURANT DATA
The following table sets forth, for the periods indicated, (i) the
percentages that certain items of income and expense bear to total revenues,
unless otherwise indicated, and (ii) selected operating data:
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Restaurant sales 98.3% 98.3% 98.8%
Franchise fees and royalties 0.7 0.7 0.5
Other income 1.0 1.0 0.7
-------- -------- --------
100.0 100.0 100.0
-------- -------- --------
Costs and Expenses:
Cost of sales (1) 31.0 30.5 30.6
Operating expenses (1) 57.5 57.6 57.8
Pre-opening costs (1) 1.5 1.8 1.3
General and administrative expenses 6.2 6.6 6.5
Provision for restaurant closures
and other disposals -- 1.9 --
Depreciation and amortization (1) 2.4 2.9 3.4
Interest expense 0.1 0.1 0.3
Income before income taxes 2.9 0.2 1.1
Provision (benefit) for income taxes 0.8 (0.2) 0.1
-------- -------- --------
Net income 2.1% 0.4% 1.0%
======== ======== ========
SELECTED OPERATING DATA:
(Dollars in thousands)
System-wide sales:
Company restaurants $ 38,869 $ 45,811 $ 55,733
Franchise restaurants 7,112 7,991 8,303
-------- -------- --------
Total $ 45,891 $ 53,802 $ 64,036
======== ======== ========
Number of restaurants (at end of period):
Company restaurants 34 41 45
Franchise restaurants 8 8 8
-------- -------- --------
Total 42 49 53
======== ======== ========
</TABLE>
(1) As a percentage of restaurant sales.
11
<PAGE> 14
IMPACT OF SEASONALITY
The concentration of restaurants in regional malls where customer traffic
increases substantially during the Thanksgiving to New Year holiday season, has
resulted in the Company experiencing a substantial increase in restaurant sales
and profits during the fourth quarter of each year. The following table
presents the Company's revenues, net income (loss) and certain other financial
and operational data for each fiscal quarter of 1994, 1995 and 1996.
<TABLE>
<CAPTION>
FISCAL QUARTERS
-------------------------------------------------
1ST 2ND 3RD 4TH ANNUAL
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1996:
Revenues $12,772 $13,426 $13,999 $16,219 $56,416
Net income (loss) 37 (166) 109 601 581
Net income (loss) per share .01 (.04) .03 .15 .15
Weighted average shares and
equivalents (000's) 3,932 3,843 4,087 4,088 3,988
Pre-opening costs $ 120 $ 154 $ 230 $ 222 $ 726
Number of Company units at end
of period 42 43 44 45 45
Company restaurant operating
months 124 127 128 134 513
Sales per Company restaurant
operating month $ 102 $ 104 $ 108 $ 119 $ 109
1995:
Revenues $10,475 $10,682 $11,449 $13,994 $46,600
Net income (loss) (1) 25 (45) (642) 848 186
Net income (loss) per share (1) .01 (.01) (.17) .22 .05
Weighted average shares and
equivalents (000's) 3,908 3,727 3,733 3,904 3,818
Pre-opening costs $ 143 $ 198 $ 223 $ 266 $ 830
Number of Company units at end
of period 37 38 38 41 41
Company restaurant operating
months 107 114 113 119 453
Sales per Company restaurant
operating month $ 96 $ 92 $ 100 $ 116 $ 101
1994:
Revenues $ 8,421 $ 9,276 $ 9,945 $11,917 $39,559
Net income 78 27 106 611 822
Net income per share .02 .01 .03 .16 .21
Weighted average shares and
equivalents (000's) 3,958 3,941 3,934 3,926 3,940
Pre-opening costs $ 177 $ 102 $ 120 $ 169 $ 568
Number of Company units at end
of period 28 30 31 34 34
Company restaurant operating
months 80 88 92 98 358
Sales per Company restaurant
operating month $ 103 $ 103 $ 106 $ 121 $ 109
</TABLE>
(1) During the third quarter of 1995, the Company recorded a pre-tax charge
of $897,000 to establish a provision for restaurant closures and other
disposals. The effect of this provision on the reported net income (loss)
and per share data for the third quarter and the fiscal year was
$(639,000) or $(.17) per share.
12
<PAGE> 15
FISCAL YEARS 1996, 1995, AND 1994
REVENUES
Revenues for the year ended December 29, 1996, increased 21% over the
revenues reported for the year ended in 1995. Revenues in 1995 increased 18%
over 1994 levels. The 1996 and 1995 increases were primarily due to increases
in restaurant sales. Restaurant sales for the year ended December 31, 1994,
increased 45% over the same period in 1993.
The number of restaurants operating at the end of each year, the number of
operating months during that year and average sales per operating month were as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Number of units at year end ................... 34 41 45
Number of restaurant operating months ......... 358 453 513
Average sales per restaurant operating month .. $108,600 $101,100 $108,600
</TABLE>
A summary of restaurant sales and related costs expressed as a percentage
of sales are listed below for the fiscal years:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
RESTAURANT SALES:
Food ........................................ 82.0% 83.5% 85.1%
Beverage .................................... 18.0% 16.5% 14.9%
------ ------ ------
Total ....................................... 100.0% 100.0% 100.0%
====== ====== ======
COST OF SALES:
Food ........................................ 31.5% 30.6% 30.7%
Beverage .................................... 28.8% 30.2% 30.5%
Combined .................................... 31.0% 30.5% 30.6%
</TABLE>
Average monthly sales per unit were $108,600 during 1996 compared to
$101,100 during 1995. The 1996 per unit monthly sales increased by $7,500 or
7.4% from 1995 levels. This increase is attributable to the following items:
A stronger, more experienced management team in place at the beginning of
1996. (Several key examples follow).
In November, 1995, the Company created and filled the position of
Divisional Vice President of Operations/Garfield's. The individual
responsible for this position brings 17 years of senior operations'
management experience with two nationally recognized restaurant chains.
The Divisional Vice President is responsible for improving service and
sales of the Garfield's stores as well as recruiting and hiring
experienced store management.
In August, 1995 the Company hired a Vice President of Marketing, a
new position at the Company. The new Vice President of Marketing has over
17 years of marketing experience with a nationally recognized chain of
dinnerhouse restaurants. During the fourth quarter of 1995, a detailed
marketing plan was developed for 1996, with the primary objectives being
to improve same store sales and guest satisfaction. The implementation of
the marketing plan begun during the first quarter of 1996 positively
impacted the Company's same store sales results during 1996.
Following the November, 1995, successful introduction of regional
newspaper advertising, the Company ran four (one during each of the Company's
fiscal quarters) regional newspaper print programs for Garfield's restaurants
during 1996. These programs were used in the majority of the Company's
restaurant markets and have all been successful in increasing revenues and
customer visits.
During 1996, the Company began testing radio and direct mail advertising
campaigns in selective restaurant markets. Initial results have been favorable
and the Company plans to further utilize these campaigns in additional
restaurant markets during fiscal year 1997.
13
<PAGE> 16
The Company also rolled out two new menu revisions (in July and October,
1996) both of which included selective modest price increases (in line with
competitor pricing on comparable food selections) and introduced several new
product selections that were featured in the Company's radio, direct mail and
newspaper advertising campaigns.
While these marketing programs resulted in increased short-term costs,
management believes their effects, along with the local efforts of our
restaurant management, contributed to the Company's significant average monthly
sales per unit increases. (The Company experienced a 7.4% increase in average
unit volumes during 1996 versus the comparable 1995 period). Management expects
it will continue to experience improving sales trends during fiscal year 1997
with higher marketing and promotion costs, of which management believes the
long-term benefits outweigh the short-term costs.
Average monthly sales per unit were $101,100 during 1995 compared to
$108,600 during 1994. The 1995 per unit monthly sales decreased by $7,500 or
6.9% from 1994 levels. The decrease was attributable to the following items:
In late 1994, the Company began testing and rolled out to nineteen stores
in January, 1995, a new menu which contained a combination of several new lower
priced and a la carte selections. The stores with this menu experienced a
reduction in average check amounts and revenues during the first five months of
1995, rather than the overall increase the Company expected. Management reacted
quickly to reverse these declines by beginning implementation of a new menu to
its stores in late June, 1995. The new menu contained many new food selections
and incorporated a pricing strategy similar to menus used by the Company
previous to the January, 1995 menu. A new drink menu was also rolled out to the
stores in late June, 1995. The Company experienced increases in average check
amounts and revenues beginning in the third quarter of 1995 as a result of the
new menus and the trend continued through the end of the year.
The Company's first quarter 1995 three weeks television advertising
campaign coincided with two consecutive weekends of bad weather in the
Company's Northern and Midwestern stores. Thus, the Company incurred the
advertising expense without the normal sales gains it has achieved during past
advertising campaigns. The Company's next major 1995 television advertising
campaign began in late July, 1995 to promote the Company's new food and drink
menus. Advertising was minimal during the second quarter and lower than normal
in the third quarter as management believed its advertising would be more
effective if it was done in conjunction with the introduction of the new menus
and under the direction of the new Vice President of Marketing. As previously
mentioned, the Company hired a Vice President of Marketing in August, 1995. As
a result of this advertising strategy, sales remained weak during the second
and third quarters. When the campaigns were begun, the Company experienced
improvement in sales.
A regional newspaper print program for Garfield's restaurants was
developed and implemented in early November, 1995, for the majority of the
Company's restaurants and resulted in an increase in revenues and operating
results during the fourth quarter of 1995. Also, several new entree selections
were developed during the 1995 fourth quarter holiday season. These items were
priced higher than the usual entree pricing and achieved excellent sales
results during the fourth quarter of 1995.
The affects of the previously noted items, along with the overall increase
in casual dining restaurant development during 1994 and 1995 coupled with the
1995 soft consumer discretionary spending trend contributed to the Company's
same store sales and average monthly sales per unit decreases.
The average monthly sales per unit decreases experienced during 1995 as
compared to 1994 narrowed from $(11,300) during the second quarter to $(4,300)
during the fourth quarter. Management believes its increased focus on and
actions taken in the marketing area beginning in the second quarter of 1995 had
a direct affect on the improvements in average monthly sales per unit
experienced during the second half of 1995 and continuing through 1996.
Continuing royalties were $265,000 in 1996, $258,000 in 1995 and $267,000
in 1994. Continuing royalties were comparable as the same number of franchise
restaurants (eight) were in operation during the three year period. During the
second quarter of 1995, one franchise restaurant closed and a new one opened.
Initial franchise fees recognized in 1995 were $50,000. No initial franchise
fees were recorded in 1996 or 1994.
14
<PAGE> 17
COSTS AND EXPENSES
The following is a comparison of cost of sales and labor costs (excluding
payroll taxes and fringe benefits) as a percent of restaurant sales at
Company-owned restaurants:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cost of sales .................................... 31.0% 30.5% 30.6%
Labor costs ...................................... 28.2% 28.0% 27.6%
---- ---- ----
Total ............................................ 59.2% 58.5% 58.2%
==== ==== ====
</TABLE>
Cost of sales as a percent to sales increased slightly in 1996 (30.6%) as
compared to 1995 (30.5%) primarily due to higher meat and dairy product costs.
These 1996 product cost increases were partially offset by lower produce costs
and the Company's continuing improvements in its purchasing techniques, which
involves the Company entering into agreements with its vendors to fix purchase
prices for certain high volume food products. The cost of sales as a percent to
sales decreased to 30.5% in 1995 as compared to 31.0% in 1994 as a result of
the Company's improvements in its purchasing techniques previously mentioned.
The Company's labor costs as a percent to sales decreased during the three
year period to 27.6% in 1996 from 28.2% in 1994. The Company has continued to
achieve reductions in its labor cost percents through improving store level
monitoring of labor needs and enhanced scheduling techniques.
Restaurant operating expenses (which include labor costs) as a percent of
restaurant sales were 57.5% in 1994, 57.6% in 1995 and 57.8% in 1996. The
increase in operating expenses as a percent to restaurant sales in 1996 as
compared to 1995 was due primarily to higher promotional and advertising
expenses partially offset by lower occupancy costs (primarily rent and
utilities). The modest increase in operating expenses as a percent to
restaurant sales in 1995 versus 1994 was attributable to higher occupancy costs
and repairs and maintenance expenses partially offset by lower advertising and
promotional expenses.
PRE-OPENING COSTS
The Company's accounting policy for restaurant pre-opening costs is to
expense such costs as incurred. Management anticipates that these pre-opening
costs will remain stable with 1996 levels during 1997.
During each of the three years ended December 31, 1994, 1995, and December
29, 1996, the Company incurred and recognized as expense the following amounts
for restaurant pre-opening development costs relative to the corresponding
number of restaurants in various stages of development:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Total pre-opening costs .................... $568,000 $830,000 $726,000
Restaurants ................................ 8 9 8
Average costs per location ................. $ 71,000 $ 92,200 $ 90,700
As a percentage of restaurant sales ........ 1.5% 1.8% 1.3%
</TABLE>
Under the Company's policy of expensing pre-opening costs as incurred,
income from operations, on an annual and quarterly basis, could be adversely
affected during periods of restaurant development.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative costs increased as a percentage of revenues
from 6.2% in 1994 to 6.6% in 1995, and decreased to 6.5% in 1996. The higher
absolute levels of general and administrative costs from 1994 to 1996 are
related primarily to additional personnel costs and related costs of operating
the Company's expanding restaurant group. General and administrative costs as a
percent to sales decreased modestly in 1996 as compared to 1995 as a result of
the Company's revenues increasing at a higher rate than its increase in general
and administrative expenses. General and administrative costs as a percent to
sales increased in 1995 as compared to 1994 primarily due to the strengthening
of the Company's management group through hiring employees to fill new
positions (Vice President of Marketing, Divisional Vice Presidents of
Garfield's and Pepperoni Grill, Director of Training, etc.) management believed
were necessary to effectively operate its restaurants and continue its
expansion plans. The Company anticipates that its costs of supervision and
administration of Company and franchise stores will increase at a slower rate
than revenue increases during the next few years.
15
<PAGE> 18
PROVISION FOR RESTAURANT CLOSURES AND OTHER DISPOSALS
During 1995, the Company approved and began the implementation of a plan
to close certain under-performing restaurants. As of December 29, 1996, the
Company has disposed of three of the four restaurants planned in 1995 for
closure. The remaining restaurant closure was completed in the first quarter of
1997. In addition, the Company identified and closed two additional restaurant
locations (one of which occupied land and building owned by the Company which
is presently held for sale). These restaurants (the 1995 and 1996 identified
closures) collectively accounted for $5,695,000, $3,498,000, and $1,784,000 of
revenues and $(31,000), $(223,000), and $(68,000) of operating losses for
fiscal years 1994, 1995, and 1996, respectively. Management expects the effect
of closing under-performing restaurants to result in improved margins and
increased profitability for the Company in future periods.
As a result of the completed and planned restaurant closures and other
disposals, the Company recorded a pre-tax charge of $897,000 in the third
quarter of 1995. The provision related to lease termination costs, litigation
settlement costs, write-down of property, equipment and leasehold improvements,
and other exits costs. As of December 29, 1996, the Company has a remaining
reserve of approximately $145,000 for settlement of its remaining liabilities
associated with the closures. Management expects to settle these liabilities in
early 1997 and believes the reserve to be sufficient for such purposes.
The Company has eight restaurants as of December 29, 1996, with indicators
of potential impairment. Considerable management judgment and certain
significant assumptions are necessary to estimate future cash flows.
Significant judgments and assumptions used by the Company in evaluating its
assets for impairment include, but may not be limited to: estimations of future
sales levels, cost of sales, direct and indirect costs of operating the assets,
the length of time the assets will be utilized and the Company's ability to
utilize equipment, fixtures and other moveable long-lived assets in other
existing or future locations. In addition, such estimates and assumptions
include anticipated operating results related to certain profit improvement
programs implemented by the Company during 1996 as well as the continuation of
certain rent reductions, deferrals, and other negotiated concessions from
certain landlords. Actual results could vary significantly from management's
estimates and assumptions and such variance could result in a change in the
estimated recoverability of the Company's long-lived assets. Accordingly, the
results of the changes in those estimates could have a material impact on the
Company's future results of operations and financial position. During 1996, the
Company recorded no provision for impairment as management believes there is no
additional impairment under SFAS 121.
In the normal course of business, management performs a regular review of
the strength of its operating assets. It is management's plan to continue to
make such decisions to close under-performing restaurants and/or dispose of
other assets it considers in the best long-term interest of the Company's
shareholders.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased in 1996 to $1,886,000
(3.4% of restaurant sales) compared to $1,337,000 (2.9% of restaurant sales) in
1995 and $927,000 (2.4% of restaurant sales) in 1994. The increase in expense
in 1996 as compared to 1995 is primarily attributable to the increase in net
assets subject to depreciation and amortization in 1996 versus 1995 as the
result of opening additional restaurants. The expense increase in 1995 versus
1994 relates principally to the increase in net assets subject to depreciation
and amortization because of opening additional restaurants, the purchase of the
Pepperoni Grill restaurant in January, 1995 and the remodeling of existing
restaurants.
INTEREST EXPENSE
Interest expense during the three year period ended December 29, 1996, was
$48,000 in 1994, $41,000 in 1995, and $194,000 in 1996. Additionally, the
Company has capitalized approximately $72,000 and $62,000 of interest costs
during 1995 and 1996, respectively (none in 1994). The increase in interest
expense in 1996 as compared to 1995 is attributable to an increase in the 1996
average borrowing balances under the Company's revolving credit agreement
versus 1995 average borrowing balances. The interest rates incurred by the
Company on its borrowings were at similar levels during 1996 and 1995. Interest
expense during the 1995 and 1994 fiscal years were comparable as average
borrowing balances and interest rates incurred during the periods remained
steady.
16
<PAGE> 19
INCOME TAXES
The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." The deferred
provision (benefit) for income taxes was $316,400, $(131,000) and $74,000,
respectively, for 1994, 1995 and 1996.
At December 29, 1996, the Company has recorded a benefit for its deferred
tax assets of approximately $3,043,000. Management believes that approximately
$1,681,000 of the assets will be recognized through the reversal of existing
taxable temporary differences with the remainder to be recognized through
realization of future income. It is management's opinion, based on the
historical trend of normal and recurring operating results, present store
development and forecasted operating results, that it is more likely than not
that the Company will realize the approximately $3,700,000 in the future net
income in the next three years necessary to recognize the deferred tax assets
not otherwise offset by reversing taxable temporary differences; net operating
loss carryforwards do not begin to expire until 2003 and general business tax
credits until 2009. While management of the Company is not presently aware of
any adverse matters, it is possible that the Company's ability to realize the
deferred income tax assets could be impaired if there are significant future
exercises of non-qualified stock options or if the Company were to experience
declines in sales and/or profit margins as a result of loss of market share,
increased competition or other adverse general economic conditions. Management
intends to evaluate the reliazability of the net deferred tax asset at least
quarterly by assessing the need for a valuation allowance.
NET INCOME PER SHARE AMOUNTS
Net income per share amounts are computed by dividing net income by the
weighted average number of common and dilutive common equivalent shares
outstanding during the period as more fully described in Note 2 of the Notes to
Consolidated Financial Statements. Per share amounts are based on total
outstanding shares plus the assumed exercise of all dilutive stock options and
warrants. Common and common equivalent share amounts were 3,939,750, 3,817,997,
and 3,987,661 in 1994, 1995 and 1996, respectively.
IMPACT OF INFLATION
The impact of inflation on the cost of food and beverage products, labor
and real estate can affect the Company's operations. Over the past few years,
inflation has had a lesser impact on the Company's operations due to the lower
rates of inflation in the nation's economy and the economic conditions in the
Company's market area.
Management believes the Company has historically been able to pass on
increased costs through certain selected menu price increases and increased
productivity and purchasing efficiencies, but there can be no assurance that
the Company will be able to do so in the future. Management anticipates that
the average cost of restaurant real estate leases and construction costs could
increase in the future which could affect the Company's ability to expand.
LIQUIDITY AND CAPITAL RESOURCES
At December 29, 1996, the Company's working capital ratio decreased to .50
to 1 compared to .72 to 1 at December 31, 1995. As is customary in the
restaurant industry, the Company has consistently operated during the past two
years with negative working capital and has not historically required large
amounts of working capital. Historically, the Company has leased the vast
majority of its restaurant locations. For the three years in the period ended
December 29, 1996, the Company's expenditures for capital improvements were
$5,453,000, $7,789,000, and $7,307,000, respectively, which were funded out of
cash flows from operating activities of $2,557,000, $3,318,000, and $
2,438,000, respectively, landlord finish-out allowances of $3,167,000,
$2,492,000, and $3,022,000, respectfully, and borrowings under the Company's
credit agreements. In addition, the Company expended approximately $529,000 in
January 1995 for the acquisition of the Pepperoni Grill restaurant and trade
name.
During 1997, the Company expects to construct and open up to five new
Garfield's in regional malls and is considering one new Pepperoni Grill in a
free-standing site. The Company believes the cash generated from its operations
and borrowing availability under its credit facility (described below), will be
sufficient to satisfy the Company's net capital expenditures and working
capital requirements through 1997.
On August 31, 1995, the Company entered into an agreement with a bank for
a revolving line of credit for $3,000,000. In July 1996, the Company's
$3,000,000 revolving line of credit was increased to $5,000,000 and the term
was extended by one year to August, 1999. This revolver is unsecured, has a
three year term and contains customary financial covenants. This credit
facility provides the Company additional borrowing capacity to continue its
expansion plans over the next several years.
17
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are included in a separate section
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
In accordance with General Instruction G(3), a presentation of information
required in response to Items 10, 11, 12, and 13 appear in the Company's Proxy
Statement to be filed pursuant to Regulation 14A within 120 days of the year
end covered hereby, and shall be incorporated herein by reference when filed.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report:
1. Consolidated Financial Statements:
Management's Responsibility for Financial Reporting
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and December 29, 1996
Consolidated Statements of Income for each of the three years in the
period ended December 29, 1996
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 29, 1996
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 29, 1996
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
3. Exhibits.
The following exhibits are filed with this Form 10-K and are identified by
the numbers indicated:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 Amendment to the Amended and Restated Articles of Incorporation. (2)
3.3 Bylaws as amended. (1)
4.4 Specimen Stock Certificate. (3)
4.5 Form of Representative's Warrant. (3)
10.1 Employment Agreement between the Company and Vincent F. Orza, Jr.,
dated October 1, 1995.
10.2 Employment Agreement between the Company and James M. Burke, dated
October 1, 1995.
10.4 Lease Agreement dated May 1, 1987 (as amended June 30, 1990, October
1, 1992 and October 1, 1993) between the Company and Colonial Center,
LTD for the lease of the Company's corporate office facilities in
Oklahoma City, Oklahoma. (3)
10.5 Lease Agreement dated May 28, 1992 between the Company and The Pines
Mall Limited Partnership, an Iowa limited partnership, for the lease
of the Garfield's restaurant facilities at The Pines Mall, Pine bluff,
Arkansas. (3)
10.6 Lease Agreement dated March 16, 1992 between the Company and UM
Partners, an Illinois general partnership, for the lease of the
Garfield's restaurant facilities at University Mall, Carbondale,
Illinois. (3)
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.7 Lease Agreement dated December 17, 1991 (and amended November 10,
1992) between the Company and Columbia Mall Limited Partnership, an
Iowa general partnership, for the lease of the Garfield's Restaurant
facilities at Columbia Mall, Columbia, Missouri. (3)
10.8 Franchise Agreement and Amendment dated August 31, 1993 between the
Company and Wolsey Dublin Company for the Garfield's franchise in
Sioux City, Iowa and non-exclusive development rights to two
additional locations in seven cities in four states over the next two
years. (3)
10.9 Amended and Restated Franchise Agreement and Modification of Amended
and Restated Franchise Agreement dated December 31, 1992 between the
Company and O.E., Inc. for the three Garfield's franchise locations in
the Oklahoma City, Oklahoma metropolitan area. (3)
10.10 Form of Franchise Agreement (revised March 1, 1993).(7)
10.11 Management Agreement dated December 31, 1992 between the Company and
O.E., Inc. for the supervision and accounting services provided by the
Company for three Garfield's franchise locations in the Oklahoma City
metropolitan area. (3)
10.12 Collateral Assignment Agreement dated January 20, 1991, between the
Company and Vincent F. Orza, Jr. (5)
10.13 Collateral Assignment Agreement dated January 20, 1991, between the
Company and James M. Burke. (5)
10.15 Stock Plan for Significant Employees of the Company, dated December 1,
1986. (6)
10.16 1987 Director Stock Incentive Plan. (6)
10.17 Eateries, Inc. Omnibus Equity Compensation Plan. (6)
10.18 Underwriting Agreement between the Company, Pauli & Company
Incorporated, RAS Securities Corp. and certain shareholders of the
Company dated November 15, 1993. (3)
10.22 Asset Sale Agreement dated January 9, 1995 between the Company and
Pepperoni Grill, Inc. and Specialty Restaurants, involving the
purchase of assets of Pepperoni Grill restaurant by the Company. (9)
10.23 Employment Agreement between the Company and Corey Gable, dated
January 1, 1997.
10.24 Employment Agreement between the Company and Peter L. Holloway, dated
January 1, 1995. (9)
10.25 Employee Stock Purchase Plan dated June 15, 1994 (8).
10.26 Amended and restated Eateries, Inc. Omnibus Equity Compensation Plan
dated as of June 15, 1994. (9)
10.27 Option Agreement between the Company and Vincent F. Orza, Jr., dated
January 4, 1996
10.28 Option Agreement between the Company and James M. Burke, dated January
4, 1996
10.29 Option Agreement between the Company and Corey Gable, dated April 5,
1996
10.30 Loan Agreement between the Company and Liberty Bank and Trust Company
of Oklahoma City, National Association, dated August 31, 1995
10.31 First Amendment, dated July 30, 1996, to Loan Agreement between the
Company and Liberty Bank and Trust Company of Oklahoma City, National
Association, dated August 31, 1995
11.1 Computation of net income (loss) per share.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as exhibit to Registrant's Registration Statement on Form S-18
(File No. 33-6818-FW).
(2) Filed as exhibit to Registrant's Quarterly Report on Form 10-Q for the
six months ended June 30, 1988 (File No. 0-14968) and incorporated herein
by reference.
(3) Filed as exhibit to Registrant's Registration Statement on Form S-2 (File
No. 33-69896).
(4) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (File No. 0-14968) and incorporated
herein by reference.
(5) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (File No. 0-14968) and incorporated
herein by reference.
(6) Filed as exhibit to Registrant's Registration Statement on form S-8 (File
No. 33-41279).
(7) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (File No. 0-14968) and incorporated
herein by reference.
(8) Filed as Appendix A to the Company's Notice of Annual Meeting of
Shareholders dated April 29, 1994 and incorporated herein by reference.
(9) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-14968) and incorporated
herein by reference.
(b) No reports on form 8-K were filed during the fiscal quarter ended
December 29, 1996.
19
<PAGE> 22
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.
REGISTRANT:
EATERIES, INC.
Date: April 11, 1997 By: /s/ Vincent F. Orza, Jr.
----------------------------------
Vincent F. Orza, Jr.
President
Chief Executive Officer
Date: April 11, 1997 By: /s/ Corey Cable
----------------------------------
Corey Gable
Vice President/Treasurer Chief
Financial and Accounting Officer
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.
Date: April 11, 1997 By: /s/ Vincent F. Orza, Jr.
----------------------------------
Vincent F. Orza, Jr.
Chairman of the Board,
President and Director
Date: April 11, 1997 By: /s/ James M. Burke
----------------------------------
James M. Burke
Vice President of Operations,
Assistant Secretary and Director
Date: April 11, 1997 By: /s/ Edward D. Orza
----------------------------------
Edward D. Orza,
Director
Date: April 11, 1997 By: /s/ Patricia L. Orza
----------------------------------
Patricia L. Orza,
Secretary and Director
Date: April 11, 1997 By: /s/ Thomas F. Golden
----------------------------------
Thomas F. Golden,
Director
Date: April 11, 1997 By: /s/ Philip Friedman
----------------------------------
Philip Friedman,
Director
20
<PAGE> 23
EATERIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Responsibility for Financial Reporting ........................ F-1
Report of Independent Auditors ............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and December 29, 1996 .. F-3
Consolidated Statements of Income for each of the three years
in the period ended December 29, 1996 ...................................... F-4
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended December 29, 1996 ...................................... F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 29, 1996 ...................................... F-6
Notes to Consolidated Financial Statements ................................. F-7
</TABLE>
21
<PAGE> 24
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Eateries, Inc. has the responsibility for preparing the
accompanying consolidated financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles and include amounts that are based on management's best
estimates and judgment where necessary. Management believes that all
representations made to our external auditors during their examination of the
financial statements were valid and appropriate.
To meet its responsibility, management has established and maintains a
comprehensive system of internal control that provides reasonable assurance as
to the integrity and reliability of the consolidated financial statements, that
assets are safeguarded, and that transactions are properly executed and
reported. This system can provide only reasonable, not absolute, assurance that
errors and irregularities can be prevented or detected. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal control is subject to close scrutiny by management and is revised as
considered necessary.
The Board of Directors of Eateries, Inc. have engaged Ernst & Young LLP,
independent auditors, to conduct an audit of and express an opinion as to the
fairness of the presentation of the 1996 consolidated financial statements.
Their report is included on the following page.
/s/ Vincent F. Orza, Jr.
- -----------------------------
Vincent F. Orza, Jr.
President and Chairman
Chief Executive Officer
/s/ Corey Gable
- -----------------------------
Corey Gable
Vice President/Treasurer
Chief Financial Officer
April 11, 1997
F-1
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Eateries, Inc.
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheets of Eateries,
Inc. and subsidiaries as of December 31, 1995 and December 29, 1996 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 29, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Eateries, Inc. and subsidiaries at December 31, 1995 and December 29, 1996,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 29, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
March 26, 1997,
except for the last paragraph of Note 5, as to which the date is
April 9, 1997
F-2
<PAGE> 26
EATERIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 1,001,954 $ 695,481
Receivables:
Franchisees ............................................ 88,448 53,685
Insurance refunds ...................................... 283,883 164,219
Landlord finish-out allowances ......................... 748,288 188,866
Other .................................................. 232,480 394,776
Deferred income taxes (Note 8) .............................. 389,000 387,000
Inventories ................................................. 1,368,673 1,400,262
Prepaid expenses and deposits ............................... 179,020 209,929
------------ ------------
Total current assets ............................... 4,291,746 3,494,218
Property and equipment, at cost (Notes 4 and 5):
Land and buildings .......................................... 175,376 125,167
Furniture and equipment ..................................... 7,455,322 9,322,453
Leasehold improvements ...................................... 19,064,963 23,453,916
Assets under capital leases ................................. 123,420 123,420
------------ ------------
26,819,081 33,024,956
Less: Landlord finish-out allowances ........................ 12,409,951 13,896,522
------------ ------------
14,409,130 19,128,434
Less: Accumulated depreciation and amortization ............. 4,047,414 5,444,896
------------ ------------
Net property & equipment ............................... 10,361,716 13,683,538
Deferred income taxes (Note 8) .................................. 991,000 975,000
Landlord finish-out allowances receivable (Note 2) .............. 429,000 --
Other assets .................................................... 522,493 555,945
------------ ------------
$ 16,595,955 $ 18,708,701
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to vendor ..................................... $ 13,139 $ --
Accounts payable ............................................ 2,967,109 4,359,571
Accrued liabilities:
Compensation ........................................... 1,259,896 1,388,058
Taxes, other than income ............................... 395,930 456,681
Other (Note 6) ......................................... 711,699 572,022
Restaurant closure costs (Note 7) ...................... 596,039 145,575
Current portion of long-term obligations (Note 5) ........... 25,305 28,308
------------ ------------
Total current liabilities ..................... 5,969,117 6,950,215
Deferred credit ................................................. 353,482 575,517
Other liabilities ............................................... 111,900 62,500
Long-term obligations, net of current portion (Note 5) .......... 1,249,023 1,470,715
Commitments (Note 4)
Stockholders' equity (Note 9):
Preferred stock, $.002 par value, none outstanding .......... -- --
Common stock, $.002 par value, 4,019,134 and 4,143,391 shares
outstanding at December 31, 1995 and December 29, 1996,
respectively ........................................... 8,038 8,287
Additional paid-in capital .................................. 9,154,420 9,340,519
Retained earnings ........................................... 1,084,593 1,666,092
------------ ------------
10,247,051 11,014,898
Treasury stock, at cost, 274,039 and 282,761 shares at
December 31, 1995 and December 29, 1996, respectively .. (1,334,618) (1,365,144)
------------ ------------
Total stockholders' equity .................... 8,912,433 9,649,754
------------ ------------
$ 16,595,955 $ 18,708,701
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 27
EATERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 31, December 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Food and beverage sales ......................... $ 38,869,481 $ 45,810,664 $ 55,732,807
Franchise fees and royalties .................... 266,872 307,653 264,954
Other ........................................... 422,756 482,123 418,476
------------ ------------ ------------
Total revenues ............................ 39,559,109 46,600,440 56,416,237
Cost of sales ........................................ 12,051,825 13,967,757 17,070,384
------------ ------------ ------------
27,507,284 32,632,683 39,345,853
Operating expenses (Note 6) .......................... 22,358,999 26,387,127 32,218,754
Pre-opening costs (Note 2) ........................... 568,129 830,000 726,000
General and administrative expenses .................. 2,466,743 3,067,610 3,665,207
Provision for restaurant closures
and other disposals (Note 7) .................... -- 897,000 --
Depreciation and amortization ........................ 927,128 1,336,919 1,886,323
Interest expense ..................................... 47,628 41,186 194,070
------------ ------------ ------------
26,368,627 32,559,842 38,690,354
------------ ------------ ------------
Income before provision (benefit) for income taxes ... 1,138,657 72,841 655,499
Provision (benefit) for income taxes (Note 8) ........ 316,400 (113,000) 74,000
------------ ------------ ------------
Net income ........................................... $ 822,257 $ 185,841 $ 581,499
============ ============ ============
Weighted average common and
common equivalent shares ........................ 3,939,750 3,817,997 3,987,661
============ ============ ============
Net income per share ................................. $ 0.21 $ 0.05 $ 0.15
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 28
EATERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES TREASURY STOCK ADDITIONAL
--------------------- -------------------- PAID-IN RETAINED
AUTHORIZED ISSUED AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- ------ ------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ......... 20,000,000 3,857,019 $7,714 249,018 $(1,240,781) $8,846,528 $ 76,495 $7,689,956
Issuance of common stock:
Exercise of stock options ....... 94,191 189 68,801 68,990
Employee bonuses ................ 1,680 3 9,650 9,653
Tax benefit from the exercise of
non-qualified stock options
(Note 8) ........................ 130,000 130,000
Treasury stock acquired (Note 9) ... 23,104 (88,086) (88,086)
Other .............................. (7,385) (7,385)
Net income ......................... 822,257 822,257
---------- --------- ------ ------- ----------- ---------- ---------- ----------
Balance, December 31, 1994 ......... 20,000,000 3,952,890 7,906 272,122 (1,328,867) 9,047,594 898,752 8,625,385
Issuance of common stock:
Exercise of stock options ....... 53,833 107 33,476 33,583
Employee stock purchase plan .... 12,411 25 26,350 26,375
Tax benefit from the exercise of
non-qualified stock options
(Note 8) ........................ 47,000 47,000
Treasury stock acquired (Note 9) ... 1,917 (5,751) (5,751)
Net income ......................... 185,841 185,841
---------- --------- ------ ------- ----------- ---------- ---------- ----------
Balance, December 31, 1995 ......... 20,000,000 4,019,134 8,038 274,039 (1,334,618) 9,154,420 1,084,593 8,912,433
Issuance of common stock:
Exercise of stock options ....... 97,163 194 60,533 60,727
Employee bonuses ................ 2,750 6 10,941 10,947
Employee stock purchase plan .... 24,044 48 57,432 57,480
Sale of common stock ............ 300 1 1,193 1,194
Tax benefit from the exercise of
non-qualified stock options
(Note 8) ........................ 56,000 56,000
Treasury stock acquired (Note 9) ... 8,722 (30,526) (30,526)
Net income ......................... 581,499 581,499
---------- --------- ------ ------- ----------- ---------- ---------- ----------
Balance, December 29, 1996 ......... 20,000,000 4,143,391 $8,287 282,761 $(1,365,144) $9,340,519 $1,666,092 $9,649,754
========== ========= ====== ======= =========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 29
EATERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------
December 31, December 31, December 29,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 822,257 $ 185,841 $ 581,499
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................ 927,128 1,336,919 1,886,323
(Gain) loss on asset disposals ....................... 9,627 (133,144) (42,544)
Common stock bonus ................................... 9,653 -- 10,947
Provision (benefit) for deferred income taxes ........ 316,400 (113,000) 74,000
(Increase) decrease in operating assets:
Receivables ...................................... (46,784) (209,745) (7,869)
Inventories ...................................... (256,662) (268,464) (31,589)
Prepaid expenses and deposits .................... (317) (45,213) (30,909)
Increase (decrease) in operating liabilities:
Accounts payable ................................. 296,695 1,285,362 154,383
Accrued liabilities .............................. 401,295 1,171,977 (329,300)
Deferred credit .................................. 77,215 (4,659) 222,035
Other liabilities ................................ -- 111,900 (49,400)
------------ ------------ ------------
Total adjustments .................................... 1,734,250 3,131,933 1,856,077
------------ ------------ ------------
Net cash provided by operating activities ............ 2,556,507 3,317,774 2,437,576
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ....................................... (5,453,460) (7,788,654) (7,306,987)
Landlord finish-out allowances ............................. 3,166,297 2,491,931 3,021,883
Net cash payments for restaurant acquisition ............... -- (529,083) --
Proceeds from the sale of property and equipment ........... 4,548 426,214 53,001
Sales of marketable securities ............................. 485,263 514,737 --
Collection of notes receivable ............................. 30,000 -- --
Increase in other assets ................................... (67,916) (24,143) (50,457)
------------ ------------ ------------
Net cash used in investing activities ................ (1,835,268) (4,908,998) (4,282,560)
------------ ------------ ------------
Cash flows from financing activities:
Sales of common stock ...................................... -- 26,375 58,674
Payments on notes payable to vendor ........................ (694,338) (434,362) (13,139)
Payments on long-term obligations .......................... (110,787) (70,619) (25,305)
Net borrowings under revolving credit agreement ............ -- 1,200,000 250,000
Proceeds from issuance of stock on exercise of
stock options ........................................... 31,490 27,833 60,727
Payment of withholding tax liabilities related
to acquisition of treasury stock ........................ (50,586) -- (30,526)
Increase in bank overdrafts included in accounts payable ... -- -- 1,238,080
Other ...................................................... (7,385) -- --
------------ ------------ ------------
Net cash provided by (used in) financing
activities ........................................... (831,606) 749,227 1,538,511
------------ ------------ ------------
Net decrease in cash and cash equivalents ...................... (110,367) (841,997) (306,473)
Cash and cash equivalents at beginning period .................. 1,954,318 1,843,951 1,001,954
------------ ------------ ------------
Cash and cash equivalents at end of period ..................... $ 1,843,951 $ 1,001,954 $ 695,481
============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 30
EATERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND DECEMBER 29, 1996
(1) ORGANIZATION
Eateries, Inc. (the "Company") was incorporated under the laws of the
State of Oklahoma on June 1, 1984. The Company is engaged in the creation,
design, management and operations of restaurants through Company-owned and
franchise restaurants. The Company's restaurants are located primarily in
regional malls in the Southwest, Midwest and Southeast regions of the United
States. The Company's restaurants operate under the name "Garfield's Restaurant
& Pub" ("Garfield's"), "Pepperoni Grill" and "Casa Ole" (as a franchisee). An
analysis of Company-owned and franchised restaurants for the three years in the
period ended December 29, 1996, is as follows:
<TABLE>
<CAPTION>
Company Franchised Total
Units Units Units
----- ----- -----
<S> <C> <C> <C>
At December 31, 1993 26 8 34
Units opened 8 -- 8
--- --- ---
At December 31, 1994 34 8 42
Units opened 9 1 10
Units closed (3) (1) (4)
Purchase of Pepperoni Grill 1 -- 1
--- --- ---
At December 31, 1995 41 8 49
Units opened 8 -- 8
Units closed (3) -- (3)
Unit sold (1) -- (1)
--- --- ---
At December 29, 1996 45 8 53
=== === ===
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Eateries,
Inc. and its wholly-owned subsidiaries, Pepperoni Grill, Inc. and Garfield's
Management, Inc. All significant intercompany transactions and balances have
been eliminated.
FISCAL YEAR
In 1996, the Company changed its fiscal year to a 52/53 week year ending
on the last Sunday in December.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certain highly liquid debt instruments
with a maturity of three months or less when purchased.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of food, beverages and smallwares.
LANDLORD FINISH-OUT ALLOWANCES
Amounts received or receivable from landlords for reimbursement of
improvements to leased facilities are recorded as a reduction of the costs
incurred by the Company for property and equipment. As of December 31, 1995,
there was $429,000 of noncurrent landlord finish-out receivables recorded in
the balance sheet, which represents the amount of landlord finish-out
receivables in excess of capital expenditures incurred.
F-7
<PAGE> 31
DEPRECIATION AND AMORTIZATION
Property and equipment (which includes assets under capital leases) and
landlord finish-out allowances are stated at cost (or amounts received with
respect to landlord finish-out allowances) and are depreciated and amortized
over the lesser of the estimated useful lives of the assets or the remaining
term of the leases using the straight-line method. Estimated useful lives are
as follows:
<TABLE>
<S> <C>
Buildings ........................... 15-30 Years
Furniture and equipment ............. 5-15 Years
Leasehold improvements .............. 3-15 Years
Landlord finish-out allowances ...... 8-15 Years
</TABLE>
ADVERTISING COSTS
Cost incurred in connection with advertising and marketing of the
Company's restaurants are expensed as incurred. Such costs amounted to $683,000
in 1994, $647,000 in 1995 and $797,000 in 1996.
PRE-OPENING COSTS
The costs related to the opening of restaurant locations are expensed when
incurred.
INCOME TAXES
The Company is subject to Federal, State and local income taxes. The
Company records income taxes in accordance with Statement of Financial
Accounting Standards No. ("SFAS") 109 "Accounting for Income Taxes." Under SFAS
109, deferred income taxes are provided on the tax effect of presently existing
temporary differences, net of existing net operating loss and tax credit
carryforwards. The tax effect is measured using the enacted marginal tax rates
and laws that will be in effect when the differences and carryforwards are
expected to be reversed or utilized. Temporary differences consist principally
of depreciation caused by using different lives for financial and tax
reporting, the expensing of smallwares when incurred for tax purposes while
such costs are capitalized for financial purposes and the expensing of costs
related to restaurant closures and other disposals for financial purposes prior
to being deducted for tax purposes.
DEFERRED CREDIT
Certain of the Company's long-term noncancellable operating leases for
restaurant and corporate facilities include scheduled base rental increases
over the term of the lease. The total amount of the base rental payments is
charged to expense on the straight-line method over the term of the lease. The
Company has recorded a deferred credit to reflect the net excess of rental
expense over cash payments since inception of the leases.
FRANCHISE ACTIVITIES
The Company franchises the Garfield's Restaurant & Pub concept to
restaurant operators and, at December 31, 1995 and December 29, 1996, eight
restaurant units were operating under franchise agreements. The initial
franchise fee paid to the Company is recognized as income when substantially
all services have been performed by the franchisor to each franchised location,
which is typically when the related restaurant is opened. The franchisor
provides initial services to the franchisee in the selection of a site,
approval of architectural plans, assistance in the selection of equipment for
the restaurant, distribution of operations manuals and training of franchisee's
personnel prior to the opening of the restaurant. The Company recognized
$50,000 of initial franchise fees for franchised restaurants during 1995 (none
were recognized in 1994 or 1996).
Continuing royalties are recognized as revenue based on the terms of each
franchise agreement, generally as a percentage of sales of the franchised
restaurants. During 1994, 1995 and 1996, the Company recognized $267,000,
$258,000, and $265,000, respectively, of fees from continuing royalties.
Franchisees are required to remit an amount equal to 1/2% of their sales
to the Garfield's Creative Marketing Fund. The franchisees' payments, which
were $44,000, $39,000, and $41,000 during 1994, 1995 and 1996, respectively,
are combined with the franchisor's expenditures to purchase services for
creative advertising and design, market research and other items to maintain
and further enhance the Garfield's concept.
F-8
<PAGE> 32
Franchisee receivables at December 31, 1995 and December 29, 1996, are
comprised principally of uncollected continuing royalties, which are generally
unsecured; however, the Company has not experienced significant credit losses
in prior years and is not aware of any significant uncollectible amounts at
December 29, 1996.
CAPITALIZATION OF INTEREST
Interest attributed to funds used to finance restaurant construction
projects is capitalized as an additional cost of the related assets.
Capitalization of interest ceases when the related projects are substantially
complete. The Company has capitalized approximately $72,000 and $62,000 of
interest costs during 1995 and 1996, respectively (none in 1994). These costs
are included in leasehold improvements in the accompanying balance sheets.
STOCK-BASED COMPENSATION
In 1996, the Company adopted SFAS 123, "Accounting for Stock-Based
Compensation." As permitted by SFAS 123, the Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations in accounting for its
employee stock options because the alternative fair value accounting provided
for under SFAS 123, requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, the Company adopted the provisions of SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Pursuant to SFAS 121, the Company's restaurants are reviewed on an
individual restaurant basis for indications of impairment, whenever events or
circumstances indicate that the carrying value of its restaurants may not be
recoverable. The Company's primary test for an indicator of potential
impairment is operating losses. In order to determine whether an impairment has
occurred, the Company estimates the future net cash flows expected to be
generated from the use of its restaurants and the eventual disposition, as of
the date of determination, and compares such estimated future cash flows to the
respective carrying amounts. Those restaurants which have carrying amounts in
excess of estimated future cash flows are deemed impaired. The carrying value
of these restaurants is adjusted to an estimated fair value by discounting the
estimated future cash flows attributable to such restaurants using a discount
rate equivalent to the rate of return the Company expects to achieve from its
investment in newly-constructed restaurants. The excess is charged to expense
and cannot be reinstated.
Considerable management judgment and certain significant assumptions are
necessary to estimate future cash flows. Significant judgments and assumptions
used by the Company in evaluating its assets for impairment include, but may
not be limited to: estimations of future sales levels, cost of sales, direct
and indirect costs of operating the assets, the length of time the assets will
be utilized and the Company's ability to utilize equipment, fixtures and other
moveable long-lived assets in other existing or future locations. In addition,
such estimates and assumptions include anticipated operating results related to
certain profit improvement programs implemented by the Company during 1996 as
well as the continuation of certain rent reductions, deferrals, and other
negotiated concessions from certain landlords. Actual results could vary
significantly from management's estimates and assumptions and such variance
could result in a change in the estimated recoverability of the Company's
long-lived assets. Accordingly, the results of the changes in those estimates
could have a material impact on the Company's future results of operations and
financial position.
Prior to adopting SFAS 121, the Company accounted for the impairment of
long-lived assets by evaluating the recoverability of assets of restaurant
locations for which management had identified and began a plan to close the
location. The Company continues to use the guidance of FASB Emerging Issues
Task Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity" for guidance in
recognizing costs related to closing restaurants.
NET INCOME PER COMMON SHARE
Per share amounts are computed by dividing net income by the weighted
average number of common and dilutive common equivalent shares outstanding
during the period.
F-9
<PAGE> 33
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
Interest of $48,000, $94,000 and $228,000 was paid for each of the three
years in the period ended December 29, 1996, respectively.
For the three years in the period ended December 29, 1996 the Company had
the following non-cash investing and financing activities.
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Increase (decrease) in current receivables
for landlord finish-out allowances ............... $ (271,429) $ 493,288 $ (559,422)
Increase (decrease) in non-current receivables for
landlord finish-out allowances ................... -- 429,000 (429,000)
Sales of property and equipment in exchange
for notes receivable ............................. -- -- 95,000
Borrowings for capital expenditures under
notes payable to vendor .......................... 664,030 116,567 --
Acquisition of treasury stock upon exercise of
stock options (Note 9) ........................... 37,500 5,751 --
Increase in additional paid-in capital as a result
of tax benefits from the exercise of
non-qualified stock options ...................... 130,000 47,000 56,000
Asset write-offs related to restaurant
closures and other disposals ..................... -- -- 71,932
</TABLE>
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair values of financial instruments for purposes of complying
with SFAS 107, "Disclosures About Fair Values of Financial Instruments":
Cash and cash equivalents, accounts receivable, deposits, accounts payable
and accrued liabilities - The carrying amounts reported in the consolidated
balance sheets approximate fair values because of the short maturity of these
instruments.
Long-term obligations - The revolving credit agreement, which represents
the material portion of long-term obligations in the accompanying consolidated
balance sheets, bears interest at a variable rate, which is adjusted monthly.
Therefore, the carrying values for these borrowings approximate their fair
values.
(3) RESTAURANT ACQUISITION
In January 1995, the Company acquired substantially all of the assets of
the "Pepperoni Grill' restaurant located in Oklahoma City, Oklahoma, along with
rights to use trademarks associated with the restaurant, for a cash purchase
price (including transaction expenses) of $529,000. Additionally, the Company
assumed real estate and equipment leases for the restaurant. The acquisition
has been accounted for under the purchase method. As a result, the Company
recorded inventory, equipment and leasehold improvements totaling $199,000,
trademarks of $125,000 and goodwill of approximately $205,000. The Company is
amortizing the cost of the trademarks and goodwill over 20 years using the
straight-line method and assesses the recoverability of such assets based upon
the expected future cash flows from operations of the Pepperoni Grill concept.
Pro forma results of operations for the year ended December 31, 1994, assuming
that the restaurant acquisition had been made at the beginning of 1994, would
not be materially different than the results reported.
F-10
<PAGE> 34
(4) REAL ESTATE LEASES
The Company leases the majority of its restaurant facilities and its
corporate office under operating leases with initial terms expiring at various
dates through the year 2009. Certain leases contain renewal options ranging
from five to ten years. Most, but not all, leases require the Company to be
responsible for the payment of taxes, insurance and/or maintenance and include
percentage rent and fixed rent escalation clauses. In the normal course of
business, the Company may grant a landlord lien on certain personal property
upon an event of default by the Company. At December 29, 1996, the remaining
minimum rental commitments under long-term noncancellable leases, excluding
amounts related to taxes, insurance, maintenance and percentage rent, are as
follows:
<TABLE>
<S> <C>
1997 .............................. $ 3,026,000
1998 .............................. 3,264,000
1999 .............................. 3,299,000
2000 .............................. 3,267,000
2001 .............................. 3,162,000
Thereafter ........................ 10,964,000
-----------
Total minimum rental commitments .. $26,982,000
===========
</TABLE>
Total minimum rental commitments includes $2,030,000 related to two
locations scheduled for opening in 1997.
The components of rent expense for noncancellable operating leases are
summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rents ........................... $2,013,000 $2,611,000 $2,912,000
Percentage rents ........................ 123,000 131,000 211,000
---------- ---------- ----------
$2,136,000 $2,742,000 $3,123,000
========== ========== ==========
</TABLE>
(5) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
<S> <C> <C>
Revolving line of credit with a bank, interest at the
London Interbank Offered Rates ("LIBOR") plus 2.75%
(8.35% at December 29, 1996) ........................ $ 1,200,000 $ 1,450,000
Obligations under capital leases (A) .................. 74,328 49,023
------------ ------------
1,274,328 1,499,023
Less current portion .................................. (25,305) (28,308)
------------ ------------
$ 1,249,023 $ 1,470,715
============ ============
</TABLE>
(A) At December 29, 1996 the future minimum lease payments for equipment
under capital leases are $32,400 for 1997 and $21,600 for 1998 (amount
representing interest is $4,977).
Maturities of long-term obligations at December 29, 1996 are:
<TABLE>
<S> <C>
1997 $ 28,308
1998 20,715
1999 1,450,000
----------
$1,499,023
==========
</TABLE>
F-11
<PAGE> 35
In August 1995, the Company entered into a loan agreement with a bank
(which replaced a $500,000 line of credit with another bank). This $3,000,000
loan agreement is a three year unsecured revolving facility allowing the
Company to borrow at the national prime interest rate or the LIBOR plus 2.75%
(the interest rate is reset monthly). The Company is required to pay a non-use
fee of 1/2 of 1% per annum on the daily average of the unborrowed amount of the
revolving loan facility. In July, 1996, the loan agreement was amended to allow
the Company to borrow up to $5,000,000 through August 31, 1999. At December 29,
1996, the unborrowed amount under the amended agreement was $3,550,000. The
loan agreement contains, among other things, certain financial covenants and
restrictions. The more significant financial covenants require the Company
maintain or achieve designated amounts of tangible net worth, current ratio and
cash flow coverage ratio. The more significant restrictions contained in the
amended loan agreement include amounts for capital expenditures, number of new
stores, guaranteed debt obligations of any other corporation or individual,
entering into merger, acquisition or significant asset sales agreements and
limitation of borrowings during a designated period ("clean-down period"). The
Company is required to maintain its borrowing under $2,000,000 for 30
consecutive days during the following clean-down periods; November 30, 1996
through January 31, 1997, November 30, 1997 through January 31, 1998 and
November 30, 1998 through January 31, 1999.
During the year ended December 29, 1996, the Company had not met a
financial covenant and certain restriction provisions under the loan agreement.
In April, 1997, these violations were waived by the bank.
(6) RELATED PARTY TRANSACTIONS
An affiliate of the Company is providing marketing and advertising
services. Total costs incurred for such services (primarily radio, television
and print media) were approximately $607,000 in 1994, $424,000 in 1995 and
$168,000 in 1996. A director of the Company is a partner in a law firm that
provides legal services to the Company. During 1994, 1995 and 1996, the Company
incurred $107,000, $127,000 and $148,000, respectively, in legal services with
the firm.
During 1994 and 1996, the Company also acquired common stock from certain
officers and directors (see Note 9).
(7) PROVISION FOR RESTAURANT CLOSURES AND OTHER DISPOSALS
During 1995, the Company approved and began the implementation of a plan
to close certain under-performing restaurants. As of December 29, 1996, the
Company has disposed of three of the four restaurants planned in 1995 for
closure. The remaining restaurant closure was completed in the first quarter of
1997. In addition, the Company identified and closed two additional restaurant
locations (one of which occupied land and building owned by the Company which
is presently held for sale). These restaurants (the 1995 and 1996 identified
closures) collectively accounted for $5,695,000, $3,498,000, and $1,784,000 of
revenues and $(31,000), $(223,000), and $(68,000) of operating losses for
fiscal years 1994, 1995, and 1996, respectively. Management expects the effect
of closing under-performing restaurants to result in improved margins and
increased profitability for the Company in future periods.
As a result of the completed and planned restaurant closures and other
disposals, the Company recorded a pre-tax charge of $897,000 in the third
quarter of 1995. The provision related to lease termination costs, litigation
settlement costs, write-down of property, equipment and leasehold improvements,
and other exits costs. As of December 29, 1996, the Company has a remaining
reserve of approximately $145,000 for settlement of its remaining liabilities
associated with the closures. Management expects to settle these liabilities in
early 1997 and believes the reserve to be sufficient for such purposes.
The Company has eight restaurants as of December 29, 1996, with indicators
of potential impairment. During 1996, the Company recorded no provision for
impairment as management believes there is no additional impairment under SFAS
121.
F-12
<PAGE> 36
(8) INCOME TAXES
The provision (benefit) for income taxes consist of the following (see
Note 2):
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State -- -- --
---------- ---------- ----------
-- -- --
---------- ---------- ----------
Deferred:
Federal 264,400 (110,000) 44,000
State 52,000 (3,000) 30,000
---------- ---------- ----------
316,400 (113,000) 74,000
---------- ---------- ----------
Provision (benefit) for income taxes $ 316,400 $ (113,000) $ 74,000
========== ========== ==========
</TABLE>
The components of deferred tax assets and liabilities consist of the
following at:
<TABLE>
<CAPTION>
December 31, December 29,
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ....................... $ 1,702,000 $ 2,169,000
General business tax credits ........................... 400,000 687,000
Restaurant closures and other disposals ................ 260,000 54,000
Deferred rent credit ................................... 41,000 68,000
Other .................................................. 45,000 65,000
------------ ------------
Total deferred tax assets ........................... 2,448,000 3,043,000
Valuation allowance for deferred tax assets ............ -- --
------------ ------------
Total deferred tax assets, net of allowance ......... 2,448,000 3,043,000
------------ ------------
Deferred tax liabilities:
Smallwares expensed for tax purposes ................... 272,000 338,000
Tax depreciation in excess of financial depreciation ... 787,000 1,325,000
Other .................................................. 9,000 18,000
------------ ------------
Total deferred tax liabilities ...................... 1,068,000 1,681,000
------------ ------------
Net deferred tax assets ................................ $ 1,380,000 $ 1,362,000
============ ============
</TABLE>
At December 29, 1996, the Company has recorded a benefit for its deferred
tax assets of $3,043,000. Management believes that $1,681,000 of these assets
will be recognized through the reversal of existing taxable temporary
differences with the remainder to be recognized through realization of future
income. It is management's opinion based on the historical trend of normal and
recurring operating results, present store development, and forecasted
operating results that it is more likely than not that the Company will realize
the approximately $3,700,000 in future net income in the next three years
necessary to realize the deferred tax assets not otherwise offset by reversing
taxable temporary differences. Net operating loss carryforwards do not begin to
expire until 2003 and general business tax credits until 2009. While management
is not presently aware of any adverse matters, it is possible that the
Company's ability to realize the deferred income tax assets could be impaired
if there are significant future exercises of non-qualified stock options or the
Company were to experience declines in sales and/or profit margins as a result
of loss of market share, increased competition or other adverse general
economic conditions.
F-13
<PAGE> 37
A reconciliation of theoretical income taxes follows:
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected tax provision at 34% $ 387,100 $ 24,800 $ 223,000
Permanent differences 6,200 8,500 12,100
State tax provisions, net of federal benefit 34,200 2,200 19,700
Tax effect of general business tax credits (107,800) (149,000) (180,800)
Other, net (3,300) 500 --
---------- ---------- ----------
Income tax provision (benefit) $ 316,400 $ (113,000) $ 74,000
========== ========== ==========
</TABLE>
The Company estimates that at December 29, 1996, the tax net operating
loss carryforward was approximately $5,900,000 (which principally relates to
the tax benefit from the exercise of non-qualified stock options, the benefit
of which was recognized through paid-in capital) which is available for
utilization in various years through 2010.
(9) STOCKHOLDERS' EQUITY
The Company has authorized 10,000,000 shares of $.002 par value preferred
stock. None of the preferred stock has been issued. The rights, preferences and
dividend policy have not been established and are at the discretion of the
Company's Board of Directors.
The Company has authorized 20,000,000 shares of common stock at a par
value of $.002 per share. In conjunction with an offering of common stock in
1993, the Company issued to the underwriters warrants to purchase 67,500 common
shares of the Company. Such warrants are exercisable beginning on November 22,
1994, at an initial exercise price of $5.89 per share. The exercise price
escalates each anniversary date with a final exercise price of $6.56 per share
on the fourth anniversary of the issuance of the warrants. The warrants expire
on November 22, 1998. The exercise price and the number of shares of common
stock for which the warrants are exercisable are subject to adjustment upon the
occurrence of certain dilutive events.
In May 1989, the Company's shareholders approved the Eateries, Inc.
Omnibus Equity Compensation Plan ("the Plan") (which was amended in June 1994
by approval of the shareholders). The Plan consolidated the Company's equity
based award programs which are described as follows:
DIRECTOR OPTION PLAN
Non-qualified stock options granted and outstanding include 286,993
director options. Under the Plan each director receives options to purchase
50,000 shares of common stock upon initial election to the Board of Directors.
These options vest over a five-year period at 20% per year and expire five
years from the date vested (last expiring in 2001). As a result of an amendment
to the Plan in 1994, any director who has served as a director of the Company
for five years, upon election for any additional terms, shall be granted an
option to purchase 10,000 shares of common stock for each additional year
elected. These options fully vest after one year of additional service by the
director and expire five years from the date vested (last expiring in 2002).
MANAGEMENT OPTIONS
Non-qualified stock options granted and outstanding include 542,500
management options, which are vested over three to five-year periods and expire
five years from the date vested (last expiring in 2006).
F-14
<PAGE> 38
A summary of stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Exercise Price Average
Shares Per Share Exercise Price
--------- --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 (of which approximately
338,000 options are exercisable at weighted average
prices of $.65) ..................................... 394,974 $ .50 - $ 1.25 $ .72
Granted ................................................ 172,500 $3.375 - $ 6.00 $4.53
Options exercised:
Director ............................................ (19,191) $ 1.25 $1.25
Management .......................................... (75,000) $ .50 - $ .625 $ .60
Forfeited .............................................. (22,794) $ 1.25 $1.25
-------
Outstanding at December 31, 1994 (of which approximately
269,000 options are exercisable at weighted average
prices of $.78) ..................................... 450,489 $ .50 - $ 6.00 $2.15
Granted ................................................ 120,000 $2.875 - $3.875 $3.20
Options exercised:
Director ............................................ (23,333) $ .625 - $ 1.00 $ .79
Management .......................................... (30,500) $ .50 $ .50
Forfeited .............................................. (65,000) $3.375 - $ 5.50 $5.01
-------
Outstanding at December 31, 1995 (of which approximately
283,000 options are exercisable at weighted average
prices of $1.65) .................................... 451,656 $ .625 - $ 6.00 $2.20
Granted ................................................ 495,000 $2.625 - $4.375 $2.91
Options exercised:
Director ............................................ (97,163) $ .625 $ .63
Forfeited .............................................. (20,000) $3.375 $3.38
------- --------------- -----
Outstanding at December 29, 1996 (of which approximately
362,000 options are exercisable at weighted average
prices of $2.51) .................................... 829,493 $ .625 - $ 6.00 $2.77
======= =============== =====
</TABLE>
As of December 29, 1996, the Plan provides for issuance of options up to
2,494,017 shares and has 619,380 shares of common stock reserved for future
grant under the Plan.
RESTRICTED MANAGEMENT OPTIONS
As of December 31, 1995 and December 29, 1996, there were 120,000 and
20,000, respectively, restricted stock options (not granted under the Plan)
which primarily vest over a four year period at 25% per year and expire five
years from the date vested (last expiring in 2004). A summary of restricted
stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Exercise Price Average
Shares Per Share Exercise Price
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 and 1994 .................... -- -- --
Granted ...................................................... 120,000 $3.00 - $3.125 $3.02
-------
Outstanding at December 31, 1995 (none are exercisable) ...... 120,000 $3.00 - $3.125 $3.02
Forfeited .................................................... (100,000) $3.00 $3.00
------- -------------- -----
Outstanding at December 29, 1996 (of which 5,000 options
are excerisable at a price of $3.13 per option share) ...... 20,000 $3.125 $3.13
======= ============== =====
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In June 1994, the Company's shareholders approved the Employee Stock
Purchase Plan under the Company's Omnibus Equity Compensation Plan. The Stock
Purchase Plan enables substantially all employees to subscribe to shares of
common stock on an annual offering date at a purchase price of 85% of the fair
market value of the shares on the offering date or, if lower, 85% of the fair
market value of the shares on the exercise date, which is one year from the
annual offering date. A maximum of 200,000 shares are authorized for
subscription over the ten year term of the plan (10,000 shares reserved for
issuance at December 29, 1996, for the offering period ending on December 1,
1997). No shares were issued under the plan during 1994. During 1995 and 1996,
12,411 and 24,044 shares, respectively, were issued under the Plan.
F-15
<PAGE> 39
STOCK BONUS PLAN
The Plan provides for up to 200,000 shares of stock to be awarded to
non-executive employees at the Compensation Committee's discretion over
specified future periods of employment. A total of 20,961 shares have been
issued under the Plan leaving 179,039 shares available for issuance.
TREASURY STOCK TRANSACTIONS
As provided for in each stock option agreement, option holders can satisfy
amounts due for the exercise price and applicable required withholding taxes on
the exercise by delivery to the Company shares of common stock having a fair
market value equal to such amounts due to the Company. During 1994, 1995 and
1996, the Company acquired 23,104, 1,917 and 8,722 common shares, respectively,
in lieu of cash for such amounts due to the Company related to the exercise of
stock options. (Also see Note 8 regarding the tax benefits from the exercise of
stock options.)
PRO FORMA INFORMATION FOR STOCK OPTIONS
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 6.34%
and 5.71%; a dividend yield of 0%; volatility factors of the expected market
price of the Company's common stock of .28 and .28 and a weighted-average
expected life of the options of 7.7 years. The weighted average grant date fair
value of options issued in 1995 and 1996 was $1.21 and $1.08, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options and stock purchase
plan have characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options and stock purchase plan.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Pro forma net income $149,714 $419,269
Pro forma net income per share $ 0.04 $ 0.11
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 2000.
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Annual
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1996
Total revenues $12,772 $13,426 $13,999 $16,219 $56,416
Gross profit 8,931 9,350 9,773 11,292 39,346
Net income (loss) 37 (166) 109 601 581
Net income (loss) per share 0.01 (0.04) 0.03 0.15 0.15
1995
Total revenues $10,475 $10,682 $11,449 $13,994 $46,600
Gross profit 7,261 7,399 8,096 9,877 32,633
Net income (loss) 25 (45) (642) 848 186
Net income (loss) per share 0.01 (0.01) (0.17) 0.22 0.05
1994
Total revenues $ 8,421 $ 9,276 $ 9,945 $11,917 $39,559
Gross profit 5,903 6,511 6,866 8,227 27,507
Net income 78 27 106 611 822
Net income per share 0.02 0.01 0.03 0.16 0.21
</TABLE>
F-16
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 Amendment to the Amended and Restated Articles of Incorporation. (2)
3.3 Bylaws as amended. (1)
4.4 Specimen Stock Certificate. (3)
4.5 Form of Representative's Warrant. (3)
10.1 Employment Agreement between the Company and Vincent F. Orza, Jr.,
dated October 1, 1995.
10.2 Employment Agreement between the Company and James M. Burke, dated
October 1, 1995.
10.4 Lease Agreement dated May 1, 1987 (as amended June 30, 1990, October
1, 1992 and October 1, 1993) between the Company and Colonial Center,
LTD for the lease of the Company's corporate office facilities in
Oklahoma City, Oklahoma. (3)
10.5 Lease Agreement dated May 28, 1992 between the Company and The Pines
Mall Limited Partnership, an Iowa limited partnership, for the lease
of the Garfield's restaurant facilities at The Pines Mall, Pine bluff,
Arkansas. (3)
10.6 Lease Agreement dated March 16, 1992 between the Company and UM
Partners, an Illinois general partnership, for the lease of the
Garfield's restaurant facilities at University Mall, Carbondale,
Illinois. (3)
10.7 Lease Agreement dated December 17, 1991 (and amended November 10,
1992) between the Company and Columbia Mall Limited Partnership, an
Iowa general partnership, for the lease of the Garfield's Restaurant
facilities at Columbia Mall, Columbia, Missouri. (3)
10.8 Franchise Agreement and Amendment dated August 31, 1993 between the
Company and Wolsey Dublin Company for the Garfield's franchise in
Sioux City, Iowa and non-exclusive development rights to two
additional locations in seven cities in four states over the next two
years. (3)
10.9 Amended and Restated Franchise Agreement and Modification of Amended
and Restated Franchise Agreement dated December 31, 1992 between the
Company and O.E., Inc. for the three Garfield's franchise locations in
the Oklahoma City, Oklahoma metropolitan area. (3)
10.10 Form of Franchise Agreement (revised March 1, 1993).(7)
10.11 Management Agreement dated December 31, 1992 between the Company and
O.E., Inc. for the supervision and accounting services provided by the
Company for three Garfield's franchise locations in the Oklahoma City
metropolitan area. (3)
10.12 Collateral Assignment Agreement dated January 20, 1991, between the
Company and Vincent F. Orza, Jr. (5)
10.13 Collateral Assignment Agreement dated January 20, 1991, between the
Company and James M. Burke. (5)
10.15 Stock Plan for Significant Employees of the Company, dated December 1,
1986. (6)
10.16 1987 Director Stock Incentive Plan. (6)
10.17 Eateries, Inc. Omnibus Equity Compensation Plan. (6)
10.18 Underwriting Agreement between the Company, Pauli & Company
Incorporated, RAS Securities Corp. and certain shareholders of the
Company dated November 15, 1993. (3)
10.22 Asset Sale Agreement dated January 9, 1995 between the Company and
Pepperoni Grill, Inc. and Specialty Restaurants, involving the
purchase of assets of Pepperoni Grill restaurant by the Company. (9)
10.23 Employment Agreement between the Company and Corey Gable, dated
January 1, 1997.
10.24 Employment Agreement between the Company and Peter L. Holloway, dated
January 1, 1995. (9)
10.25 Employee Stock Purchase Plan dated June 15, 1994 (8).
10.26 Amended and restated Eateries, Inc. Omnibus Equity Compensation Plan
dated as of June 15, 1994. (9)
10.27 Option Agreement between the Company and Vincent F. Orza, Jr., dated
January 4, 1996
10.28 Option Agreement between the Company and James M. Burke, dated January
4, 1996
10.29 Option Agreement between the Company and Corey Gable, dated April 5,
1996
10.30 Loan Agreement between the Company and Liberty Bank and Trust Company
of Oklahoma City, National Association, dated August 31, 1995
10.31 First Amendment, dated July 30, 1996, to Loan Agreement between the
Company and Liberty Bank and Trust Company of Oklahoma City, National
Association, dated August 31, 1995
11.1 Computation of net income (loss) per share.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Filed as exhibit to Registrant's Registration Statement on Form S-18
(File No. 33-6818-FW).
(2) Filed as exhibit to Registrant's Quarterly Report on Form 10-Q for the
six months ended June 30, 1988 (File No. 0-14968) and incorporated herein
by reference.
(3) Filed as exhibit to Registrant's Registration Statement on Form S-2 (File
No. 33-69896).
(4) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (File No. 0-14968) and incorporated
herein by reference.
(5) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (File No. 0-14968) and incorporated
herein by reference.
(6) Filed as exhibit to Registrant's Registration Statement on form S-8 (File
No. 33-41279).
(7) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 (File No. 0-14968) and incorporated
herein by reference.
(8) Filed as Appendix A to the Company's Notice of Annual Meeting of
Shareholders dated April 29, 1994 and incorporated herein by reference.
(9) Filed as exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-14968) and incorporated
herein by reference.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT, dated as of October 1, 1995, between EATERIES,
INC., an Oklahoma corporation (the "COMPANY"), and VINCENT F. ORZA, JR., an
Oklahoma resident ("ORZA").
ORZA currently serves as the President, and CEO of the Company under a
year to year Employment Contract dated January 1, 1993 and extended to December
31, 1995;
The Company desires to enter into a three (3) year Employment Contract
with ORZA to be effective on January 1, 1996 in substitution of his existing
year to year Employment Agreement and ORZA desires to accept such Employment
Contract in accordance with the terms and conditions hereinafter set forth.
NOW THEREFORE, ORZA and the Company, in consideration of the mutual
covenants and promises herein contained do hereby agree as follow:
1. Term. The Company shall employ ORZA, and ORZA shall serve as
the President and CEO of the Company, on the terms and conditions of this
Employment Contract for a three (3) year term commencing January 1, 1996, and
ending December 31, 1998, unless extended or terminated earlier as hereinafter
provided. The initial three (3) year Term of this Employment Contract shall be
automatically extended for one (1) additional calendar year on the 31st day of
each December during Term hereof unless ORZA is given written notice by the
Compensation Committee of the Board of Directors of the Company sixty (60) days
prior to the 31st day of December that the Term is not to be thus automatically
extended for one (1) additional year. If thus extended each year, then on
January 1st of each year, this Employment Contract shall have three (3) years
remaining to the Term hereof.
2. Duties and Services. During the Term hereof ORZA shall be
employed in the business of the Company as President and CEO and shall perform
such services diligently, faithfully and consistent with the responsibilities
of such positions. In performance of his duties ORZA shall report to the Board
of Directors of the Company. ORZA shall be available to travel as the needs of
the business require.
3. Compensation.
(a) Salary. As a compensation for his services
hereunder, the Company shall pay ORZA, during the Term, a salary
payable in equal bi-weekly installments at the
<PAGE> 2
annual rate of $200,000.00, subject to annual re-evaluation by the
Compensation Committee of the Board of Directors of the Company. The
annual re-evaluation shall be based in part upon the attainment of
corporate objectives mutually agreed upon by ORZA and the Board of
Directors of the Company. Nothing contained herein shall preclude
ORZA from participating in future executive bonus plans, pension or
profit sharing, deferred compensation, stock option, or other employee
benefit plans of the Company, if he meets the eligibility requirements
therefor.
(b) Options. As additional compensation ORZA has been
granted nonqualified options of Eateries, Inc. ORZA shall be entitled
to additional grants of nonqualified stock options of Eateries, Inc.
upon approval of the Compensation Committee of the Board of Directors
of the Company.
4. Expenses and Vacation. ORZA shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses
necessarily incurred in the performance of his duties hereunder, upon
submission and approval of written statements and bills in accordance with the
then regular policies and procedures of the Company. ORZA shall be entitled to
a car allowance payable in equal bi-weekly installments of $325.00 commencing
January 1, 1996. ORZA shall be entitled to reasonable vacations in accordance
with the then regular policies and procedures of the Company governing
executives.
5. Representations and Warranties of ORZA. ORZA represents and
warrants to the Company that (a) he is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Contract, the performance of his duties hereunder, or the other rights of the
Company hereunder and (b) he is under no physical or mental disability that
would hinder his performance of duties under this Employment Contract.
6. Confidential Information. All trade secrets, or other
proprietary or confidential information which ORZA may now possess, may obtain
during or after the Term hereof, or may create prior to the end of the period
ORZA is employed by the Company under this Contract or otherwise relating to
the business of the Company or its affiliates shall not be published,
disclosed, or made accessible by him to any other person, firm, or corporation
either during or after the termination of his employment or used by him except
during the Term hereof in the business and for the benefit of the Company.
ORZA shall return all tangible evidence of such trade secrets, or other
proprietary or confidential information to the Company prior to or at the
termination of his employment.
-2-
<PAGE> 3
"Trade secrets" shall include, but not be limited to recipes developed or
utilized by the Company, as well as methods of operations developed and
utilized by the Company.
Additionally, during the Term hereof, ORZA shall not acquire, directly
or indirectly, any interest in any restaurants with concepts similar to Company
restaurants, unless specifically authorized by the Board or Directors of the
Company in writing. Notwithstanding the foregoing, ORZA shall not be prevented
from owning any securities of any competitor of the Company which are regularly
traded on any national securities exchange or in the over-the-counter market;
provided, that the same shall not result in ORZA and his immediate family
owning, legally or beneficially, at any time, ten percent (10%) or more of the
voting securities of any such company. In the event that the provisions of
this section should ever be deemed to exceed the time, geographic or
occupational limitations permitted by applicable law, then such provisions
shall be reformed to the maximum time, geographic, or occupational limitations
permitted by applicable law.
7. Termination. Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Term hereof,
(a) either (i) ORZA shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) months, (ii) ORZA shall be
convicted of a felony crime by a court of last resort, (iii) ORZA
shall commit any act or omit to take any action in bad faith and to
the substantial detriment of the Company, or (iv) ORZA shall breach
any term of this Contract and such breach shall directly cause a
material adverse impact upon the Company and he shall fail to cure and
correct such breach within ten (10) days after notice to ORZA by the
Company of the same, or such longer period as may be necessary with
due diligence to cure such breach then, and in each case, the Company
shall have the right to give notice of termination of ORZA's services
hereunder as of a date (not earlier than ten (10) days from such
notice in the case of items (ii), (iii) or (iv) and not earlier than
six (6) months from such notice in the case of item (i) to be
specified in such notice and this Agreement shall terminate on the
date so specified; or
(b) ORZA shall die, then this Employment Contract shall
terminate on the date of ORZA death,
Whereupon ORZA or his estate, as the case may be, shall be entitled to
receive only his salary at the rate provided in Section
-3-
<PAGE> 4
3 to the date on which termination shall take effect. In the event of ORZA's
death, his estate or designated beneficiary shall receive, in addition to the
foregoing amount, an amount equal to two (2) year's salary payable by the
Company upon receipt of the life insurance proceeds of ORZA's key man insurance
policy, if any and if not sufficient then within ninety (90) days of ORZA's
death.
8. Merger, Et Cetera. In the event of a future disposition of
(or including) the properties and business of the Company, substantially as an
entirety, by merger, consolidation, sale of assets, or otherwise, then the
Company may elect:
(a) To assign this Contract and all of its rights and
obligations hereunder to the acquiring of surviving entity; provided
that such entity shall be capable of assuming and performing and shall
assume in writing and perform all of the obligations of the Company
hereunder; provided further that the Company (in the event and so long
as it remains in business as an independent going enterprise) shall
remain liable for the performance of its obligations hereunder in the
event of an unjustified failure of the acquiring entity to perform its
obligations under this Contract; and provided finally that the duties
assigned ORZA are commensurate with those held prior to the merger and
that a relocation of more than 50 miles from the city limits of the
City of Oklahoma City, is not required to fulfill such duties; or
(b) In addition to its other rights of termination, to
terminate this Contract upon at least thirty (30) days' written notice
by paying ORZA one (1) year's salary and car allowance at the rate
provided in Section 3 and 4 on the date which such termination shall
take effect.
9. Liquidation Damages. The parties hereto covenant and agree
that, in the event the Company shall breach the terms of this Employment
Contract or the Contract shall terminate under Section 8 (b), it shall pay to
ORZA, as liquidated damages for such breach or termination, an amount equal to
that which would have been received by him under Section 3(a) and 4 for then
remaining Term of this Employment Contract, plus reasonable attorneys' fees, if
any. Such amount shall be promptly paid upon a determination of breach or
termination, but in no event later than thirty (30) days after such
determination.
10. Survival. The covenants, agreements, representation, and
warranties contained in or made pursuant to this Employment Contract shall
survive ORZA's termination of employment, irrespective of any investigation
made by or on behalf of any party.
-4-
<PAGE> 5
11. Modification. This Employment Contract sets forth the entire
understanding of the parties with respect to the subject matter hereof, and may
be modified only by a written instrument duly executed by each party.
12. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt, to the
party to whom it is to be given at the then address of such party (or to such
other address as the party shall have furnished in writing). Notice to the
estate of ORZA shall be sufficient if addressed to ORZA as provided in this
Section 12. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
13. Waiver. Any waiver by either party of a breach of any
provision of this Contract shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any provision in this
Contract. The failure of a party to insist upon strict adherence to any term
of this Contract on one or more occasions shall not be considered a waiver or
deprive that party of the right hereafter to insist upon strict adherence to
that term or any other term of this Contract. Any waiver must be in writing
and signed by the parties.
14. Binding Effect. ORZA's rights and obligations under this
Contract shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims of ORZA's
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Contract shall be binding upon and inure to the benefit of
ORZA and his heirs and personal representatives, and shall be binding upon and
inure to the benefit of the Company and its successors and those who are its
assigns.
15. No Third Party Beneficiaries. This Employment Contract does
not create, and shall not be construed as creating, any rights enforceable by
any person not a party to this Employment Contract (except as provided in
Section 14).
16. Headings. The headings in this Employment Contract are solely
for the convenience of reference and shall be given no effect in the
construction or interpretation of this Contract.
17. Counterparts: Governing Law. This Employment Contract may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by and construed
-5-
<PAGE> 6
in accordance with the laws of the State of Oklahoma, without given effect to
the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Employment
Contract as of the date first above written.
"COMPANY"
EATERIES, INC., an Oklahoma corporation
By: /s/
-----------------------------------
Vice President
"ORZA"
/s/
---------------------------------------
VINCENT F. ORZA, JR.
As approved by a vote of the Compensation Committee of the Board of Directors
of Eateries, Inc. on September 7, 1995.
-6-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT, dated as of October 1, 1995, between EATERIES,
INC., an Oklahoma corporation (the "COMPANY"), and JAMES M. BURKE, an Oklahoma
resident ("BURKE").
BURKE currently serves as the Vice President-Operations of the Company
under a year to year Employment Contract dated January 1, 1993 and extended to
December 31, 1995;
The Company desires to enter into a three (3) year Employment Contract
with BURKE to be effective on January 1, 1996 in substitution of his existing
year to year Employment Agreement and BURKE desires to accept such Employment
Contract in accordance with the terms and conditions hereinafter set forth.
NOW THEREFORE, BURKE and the Company, in consideration of the mutual
covenants and promises herein contained do hereby agree as follow:
1. Term. The Company shall employ BURKE, and BURKE shall serve
as the Vice President-Operations of the Company, on the terms and conditions of
this Employment Contract for a three (3) year term commencing January 1, 1996,
and ending December 31, 1998, unless extended or terminated earlier as
hereinafter provided. The initial three (3) year Term of this Employment
Contract shall be automatically extended for one (1) additional calendar year
on the 31st day of each December during Term hereof unless BURKE is given
written notice by the Compensation Committee of the Board of Directors of the
Company sixty (60) days prior to the 31st day of December that the Term is not
to be thus automatically extended for one (1) additional year. If thus
extended each year, then on January 1st of each year, this Employment Contract
shall have three (3) years remaining to the Term hereof.
2. Duties and Services. During the Term hereof BURKE shall be
employed in the business of the Company as Vice President-Operations and shall
perform such services diligently, faithfully and consistent with the
responsibilities of such positions. In performance of his duties BURKE shall
report to the Board of Directors of the Company. BURKE shall be available to
travel as the needs of the business require.
3. Compensation.
(a) Salary. As a compensation for his services
hereunder, the Company shall pay BURKE, during the Term, a salary
payable in equal bi-weekly installments at the annual rate of
$140,000.00, subject to annual re-evaluation by the Compensation
Committee of the Board of Directors of the Company. The annual
re-evaluation shall be based in part upon the attainment of corporate
objectives mutually agreed upon by BURKE and the Board of Directors of
the Company. Nothing contained herein shall preclude BURKE from
participating in future executive bonus plans, pension or profit
sharing, deferred compensation, stock
<PAGE> 2
option, or other employee benefit plans of the Company, if he meets
the eligibility requirements therefor.
(b) Options. As additional compensation BURKE has been
granted nonqualified options of Eateries, Inc. BURKE shall be
entitled to additional grants of nonqualified stock options of
Eateries, Inc. upon approval of the Compensation Committee of the
Board of Directors of the Company.
4. Expenses and Vacation. BURKE shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses
necessarily incurred in the performance of his duties hereunder, upon
submission and approval of written statements and bills in accordance with the
then regular policies and procedures of the Company. BURKE shall be entitled
to a car allowance payable in equal bi-weekly installments of $235.00
commencing January 1, 1996. BURKE shall be entitled to reasonable vacations in
accordance with the then regular policies and procedures of the Company
governing executives.
5. Representations and Warranties of BURKE. BURKE represents and
warrants to the Company that (a) he is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Contract, the performance of his duties hereunder, or the other rights of the
Company hereunder and (b) he is under no physical or mental disability that
would hinder his performance of duties under this Employment Contract.
6. Confidential Information. All trade secrets, or other
proprietary or confidential information which BURKE may now possess, may obtain
during or after the Term hereof, or may create prior to the end of the period
BURKE is employed by the Company under this Contract or otherwise relating to
the business of the Company or its affiliates shall not be published,
disclosed, or made accessible by him to any other person, firm, or corporation
either during or after the termination of his employment or used by him except
during the Term hereof in the business and for the benefit of the Company.
BURKE shall return all tangible evidence of such trade secrets, or other
proprietary or confidential information to the Company prior to or at the
termination of his employment. "Trade secrets" shall include, but not be
limited to recipes developed or utilized by the Company, as well as methods of
operations developed and utilized by the Company.
Additionally, during the Term hereof, BURKE shall not acquire,
directly or indirectly, any interest in any restaurants with concepts similar
to Company restaurants, unless specifically authorized by the Board or
Directors of the Company in writing. Notwithstanding the foregoing, BURKE
shall not be prevented from owning any securities of any competitor of the
Company which are regularly traded on any national securities exchange or in
the over-the-counter market; provided, that the same shall not result in BURKE
and his immediate family owning, legally or beneficially, at any time, ten
percent (10%) or more of the voting securities of any such company. In the
event that the provisions of this section should ever be deemed to exceed the
time, geographic or occupational limitations permitted by applicable law, then
such provisions shall be reformed to the maximum time, geographic, or
occupational limitations permitted by applicable law.
-2-
<PAGE> 3
7. Termination. Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Term hereof,
(a) either (i) BURKE shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) months, (ii) BURKE shall be
convicted of a felony crime by a court of last resort, (iii) BURKE
shall commit any act or omit to take any action in bad faith and to
the substantial detriment of the Company, or (iv) BURKE shall breach
any term of this Contract and such breach shall directly cause a
material adverse impact upon the Company and he shall fail to cure and
correct such breach within ten (10) days after notice to BURKE by the
Company of the same, or such longer period as may be necessary with
due diligence to cure such breach then, and in each case, the Company
shall have the right to give notice of termination of BURKE's services
hereunder as of a date (not earlier than ten (10) days from such
notice in the case of items (ii), (iii) or (iv) and not earlier than
six (6) months from such notice in the case of item (i) to be
specified in such notice and this Agreement shall terminate on the
date so specified; or
(b) BURKE shall die, then this Employment Contract shall
terminate on the date of BURKE's death,
Whereupon BURKE or his estate, as the case may be, shall be entitled
to receive only his salary at the rate provided in Section 3 to the date on
which termination shall take effect. In the event of BURKE's death, his estate
or designated beneficiary shall receive, in addition to the foregoing amount,
an amount equal to two (2) year's salary payable by the Company upon receipt of
the life insurance proceeds of BURKE's key man insurance policy, if any and if
not sufficient then within ninety (90) days of BURKE's death.
8. Merger, Et Cetera. In the event of a future disposition of
(or including) the properties and business of the Company, substantially as an
entirety, by merger, consolidation, sale of assets, or otherwise, then the
Company may elect:
(a) To assign this Contract and all of its rights and
obligations hereunder to the acquiring of surviving entity; provided
that such entity shall be capable of assuming and performing and shall
assume in writing and perform all of the obligations of the Company
hereunder; provided further that the Company (in the event and so long
as it remains in business as an independent going enterprise) shall
remain liable for the performance of its obligations hereunder in the
event of an unjustified failure of the acquiring entity to perform its
obligations under this Contract; and provided finally that the duties
assigned BURKE are commensurate with those held prior to the merger
and that a relocation of more than 50 miles from the city limits of
the City of Oklahoma City, is not required to fulfill such duties; or
-3-
<PAGE> 4
(b) In addition to its other rights of termination, to
terminate this Contract upon at least thirty (30) days' written notice
by paying BURKE one (1) year's salary and car allowance at the rate
provided in Section 3 and 4 on the date which such termination shall
take effect.
9. Liquidation Damages. The parties hereto covenant and agree
that, in the event the Company shall breach the terms of this Employment
Contract or the Contract shall terminate under Section 8 (b), it shall pay to
BURKE, as liquidated damages for such breach or termination, an amount equal to
that which would have been received by him under Section 3(a) and 4 for then
remaining Term of this Employment Contract, plus reasonable attorneys' fees, if
any. Such amount shall be promptly paid upon a determination of breach or
termination, but in no event later than thirty (30) days after such
determination.
10. Survival. The covenants, agreements, representation, and
warranties contained in or made pursuant to this Employment Contract shall
survive BURKE's termination of employment, irrespective of any investigation
made by or on behalf of any party.
11. Modification. This Employment Contract sets forth the entire
understanding of the parties with respect to the subject matter hereof, and may
be modified only by a written instrument duly executed by each party.
12. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt, to the
party to whom it is to be given at the then address of such party (or to such
other address as the party shall have furnished in writing). Notice to the
estate of BURKE shall be sufficient if addressed to BURKE as provided in this
Section 12. Any notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a notice changing
a party's address which shall be deemed given at the time of receipt thereof.
13. Waiver. Any waiver by either party of a breach of any
provision of this Contract shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any provision in this
Contract. The failure of a party to insist upon strict adherence to any term
of this Contract on one or more occasions shall not be considered a waiver or
deprive that party of the right hereafter to insist upon strict adherence to
that term or any other term of this Contract. Any waiver must be in writing
and signed by the parties.
14. Binding Effect. BURKE's rights and obligations under this
Contract shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims of BURKE's
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Contract shall be binding upon and inure to the benefit of
BURKE and his heirs and personal representatives, and shall be binding upon and
inure to the benefit of the Company and its successors and those who are its
assigns.
-4-
<PAGE> 5
15. No Third Party Beneficiaries. This Employment Contract does
not create, and shall not be construed as creating, any rights enforceable by
any person not a party to this Employment Contract (except as provided in
Section 14).
16. Headings. The headings in this Employment Contract are solely
for the convenience of reference and shall be given no effect in the
construction or interpretation of this Contract.
17. Counterparts: Governing Law. This Employment Contract may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by and construed in accordance with the laws
of the State of Oklahoma, without given effect to the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Employment
Contract as of the date first above written.
"COMPANY"
EATERIES, INC., an Oklahoma corporation
By: /s/
-------------------------------------
President
"BURKE"
/s/
----------------------------------------
JAMES M. BURKE
As approved by a vote of the Compensation Committee of the Board of Directors
of Eateries, Inc. on September 7, 1995.
-5-
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT, dated as of January 1, 1997, between EATERIES,
INC., an Oklahoma corporation (the "COMPANY"), and COREY GABLE, an
Oklahoma resident ("GABLE"), residing at 3200 W. Britton Rd. #35, Oklahoma City,
OK 73120.
The Company desires to engage GABLE to perform services for the
Company, and GABLE desires to perform such services, on the terms and
conditions hereinafter set forth.
1. Term. The Company agrees to employ GABLE, and GABLE agrees to
serve, on the terms and conditions of this Agreement for a period commencing on
the date stated above, and ending December 31, 1997, or for such shorter period
as may be provided herein (the "Employment Period"). Unless action is taken by
the Compensation Committee the contract is automatically extended for
successive one year periods at the same terms and conditions. Unless written
or oral notice of termination is given by either party prior to expiration of a
contract year, the contract is automatically extended for successive one (1)
year periods at the same terms and conditions.
2. Duties and Services. During the Employment Period, GABLE
shall be employed in the business of the Company as Interim Vice President of
Finance, Treasurer and Chief Financial Officer or other position as may be
determined by the Board of Directors, and shall perform services consistent
with whatever such position he may hold. In performance of his duties GABLE
shall be subject to the direction of the Board of Directors of the Company.
GABLE shall be available to travel as the needs of the business require.
3. Compensation.
(a) Salary. As a compensation for his services hereunder,
the Company shall pay GABLE, during the Employment Period, a salary payable in
equal bi-weekly installments at the annual rate of $85,000.00, subject to annual
re-evaluation by the Board of Directors of the Company. The annual
re-evaluation shall be based in part upon the attainment of corporate objectives
mutually agreed upon by GABLE and the Board of Directors of the Company.
Nothing contained herein shall preclude GABLE from participating in future
executive bonus plans, pension or profit sharing, deferred compensation, stock
option, or other employee benefit plans of the Company, if he meets the
eligibility requirements therefor.
(b) Options. As additional compensation GABLE may in the
future, be granted additional nonqualified options at the sole discretion of the
Compensation Committee of the Board of Directors of the Company.
<PAGE> 2
4. Expenses and Vacation. GABLE shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses
necessarily incurred in the performance of his duties hereunder, upon
submission and approval of written statements and bills in accordance with the
then regular policies and procedures of the Company. GABLE reasonable
vacations in accordance with the then regular policies and procedures of the
Company governing executives.
5. Representations and Warranties of GABLE. GABLE represents and
warrants to the Company that (a) he is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder and (b) he is under no physical or mental disability that
would hinder his performance of duties under this Agreement.
6. Confidential Information. All trade secrets, or other
proprietary or confidential information which GABLE may now possess, may obtain
during or after the Employment Period, or may create prior to the end of the
period GABLE is employed by the Company under this Agreement or otherwise
relating to the business of the Company or its affiliates shall not be
published, disclosed, or made accessible by him to any other person, firm, or
corporation either during or after the termination of his employment or used by
him except during the Employment Period in the business and for the benefit of
the Company. GABLE shall return all tangible evidence of such trade secrets, or
other proprietary or confidential information to the Company prior to or at the
termination of his employment. "Trade secrets" shall include, but not be
limited to recipes developed or utilized by the Company, as well as methods of
operations developed and utilized by the Company.
Additionally, during the Employment Period, GABLE shall not acquire,
directly or indirectly, any interest in any restaurants with concepts similar
to Company restaurants, unless specifically authorized by the Board or
Directors of the Company in writing. Notwithstanding the foregoing, GABLE
shall not be prevented from owning any securities of any competitor of the
Company which are regularly traded on any national securities exchange or in
the over-the-counter market; provided, that the same shall not result in GABLE
and his immediate family owning, legally or beneficially, at any time, five
percent (5%) or more of the voting securities of any such company. In the
event that the provisions of this section should ever be deemed to exceed the
time, geographic or occupational limitations permitted by applicable law, then
such provisions shall be reformed to the maximum time, geographic, or
occupational limitations permitted by applicable law.
<PAGE> 3
7. Termination. Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Term hereof,
(a) either (i) GABLE shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of three months, (ii) GABLE shall be
convicted of a felony crime by a court of last resort, (iii) GABLE
shall commit any act or omit to take any action in bad faith and to
the substantial detriment of the Company, or (iv) GABLE shall breach
any term of this Agreement and fail to correct such breach within ten
(10) days after notice to GABLE by the
Company of the same, then, and in each case, the Company
shall have the right to give notice of termination of GABLE's services
hereunder as of a date (not earlier than ten (10) days from such
notice in the case of items (ii), (iii) or (iv) and not earlier than
three months from such notice in the case of item (i) to be
specified in such notice and this Agreement shall terminate on the
date so specified; or
(b) GABLE shall die, then this Agreement shall
terminate on the date of GABLE's death,
In the event of GABLE's death, his estate or designated beneficiary shall
receive bi-weekly installments of salary for a period of one year from his
death. Nothing contained in this Section 7 shall be deemed to limit any other
right the Company may have to terminate GABLE's employment hereunder upon any
ground permitted by law.
8. Merger, Et Cetera. In the event of a future disposition of
(or including) the properties and business of the Company, substantially as an
entirety, by merger, consolidation, sale of assets, or otherwise, then the
Company may elect either of the following options:
(a) To assign this Agreement and all of its rights and
obligations hereunder to the acquiring of surviving corporation;
provided that such corporation shall be capable of assuming and
performing and shall assume in writing all of the obligations of the
Company hereunder; provided further that the Company (in the event and
so long as it remains in business as an independent going enterprise)
shall remain liable for the performance of its obligations hereunder in
the event of an unjustified failure of the acquiring corporation to
perform its obligations under this Agreement; and provided finally that
the duties assigned GABLE are commensurate with those held prior to the
merger and that a relocation of more than 50 miles from the city limits
of the City of Oklahoma City, is not required to fulfill such duties;
or
<PAGE> 4
(b) In addition to its other rights of termination, to
terminate this Agreement upon at least thirty (30) days' written
notice by paying GABLE one half year's salary and at the rate provided
in Section 3 and 4 on the date which such termination shall take
effect.
(c) The options stated in this Section 8 are for the
benefit of the Company and the Company may choose not to exercise
either of them.
9. Liquidation Damages. The parties hereto covenant and agree
that, in the event the Company shall breach the terms of this Agreement or the
Agreement shall terminate under Section 8 (b), it shall pay to GABLE, as
liquidated damages for such breach or termination, an amount equal to that
which would have been received by him under Section 3(a) and 4 for one half
year. Such amount shall be promptly paid upon a determination of breach or
termination, and in accordance with the Company's bi-weekly payroll system
until such time as above noted amount has been paid in full.
10. Survival. The covenants, agreements, representation, and
warranties contained in or made pursuant to this Employment Contract shall
survive GABLE's termination of employment, irrespective of any investigation
made by or on behalf of any party.
11. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
12. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt, to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing). Notice to the estate of GABLE shall be sufficient if
addressed to GABLE as provided in this Section 12. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
13. Waiver. Any waiver by either party of a breach of any
provision of this Contract shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any provision in this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Contract on one or more occasions shall not be considered a
<PAGE> 5
waiver or deprive that party of the right hereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must be
in writing.
14. Binding Effect. GABLE's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance, or the claims of GABLE's
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Agreement shall be binding upon and inure to the benefit of
GABLE and his heirs and personal representatives, and shall be binding upon and
inure to the benefit of the Company and its successors and those who are its
assigns under Section 8.
15. No Third Party Beneficiaries. This Agreement does not create,
and shall not be construed as creating, any rights enforceable by any person
not a party to this Agreement (except as provided in Section 14).
16. Headings. The headings in this Agreement are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
17. Counterparts: Governing Law. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. It shall
be governed by and construed in accordance with the laws of the State of
Oklahoma, without given effect to the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
EATERIES, INC.:
By: /s/ Vincent F. Orza
-----------------------------------
Vice President
GABLE:
/s/ Corey Gable
---------------------------------------
COREY GABLE
As approved by a vote of the Compensation Committee of the Board of Directors
of Eateries, Inc. on November 10, 1995.
<PAGE> 1
EXHIBIT 10.27
OPTION AGREEMENT
(EXECUTIVE)
THIS AGREEMENT is made and entered into as of the 4th day of January,
1996, by EATERIES, INC., an Oklahoma corporation (the "Company"), and VINCENT
F. ORZA, JR. ("Awardee"), an Oklahoma resident.
The Company and Awardee agree as follows:
1. GRANT OF OPTIONS. The Company grants to Awardee options to
purchase Two Hundred Fifty Thousand (250,000) shares of common stock of the
Company (the "Option Shares") at an exercise price of $2.625 per share (the
"Stock Options"). The Stock Options are an award made pursuant to the
Company's Omnibus Equity Compensation Plan (the "Plan") which is incorporated
into and made a part of this Agreement. Unless otherwise indicated, all words
and phrases used in initially capitalized form shall have the meanings given
them in the Plan.
2. VESTING. The Stock Options granted hereby shall vest and become
exercisable in increments of twenty percent (20%) per year with the first
twenty percent (20%) increment vesting and becoming exercisable on the date of
this Agreement, and additional increments of twenty percent (20%) vesting and
becoming exercisable on each successive anniversary of the date of this
Agreement. If the Awardee ceases to be an employee of the Company for any
reason prior to vesting of any of the Stock Options, the then unvested Stock
Options shall be forfeited and expire.
3. TERM. The Stock Options shall expire upon the earlier of: (a)
expiration prior to vesting under paragraph 2 above; or (b) the fifth
anniversary of the date on which they first became exercisable under paragraph
2 above; or (c) if the Stock Options were exercisable at the time the Awardee
ceased to be an employee of the Company, six months after Awardee ceases to be
an employee of the Company for any reason.
4. METHOD OF EXERCISE. To exercise any Stock Options, Awardee shall
give the Company written notice of the exercise of the options, in
substantially the form attached hereto as Exhibit A. Awardee shall pay the
exercise price for the Option Shares at the time of the notice of the exercise
of the Stock Options in cash, in "mature shares" of the Company's common stock
(valued at their Fair Market Value at dates of exercise), in a combination of
cash and "mature shares," or in such other consideration as the Committee
determines is consistent with the purpose of the Plan, this Agreement, and
applicable law. The Company shall issue or shall have its transfer agent issue
one or more certificates for the Option Shares purchased within five (5)
business days after exercise. The Committee may establish other requirements
to provide reasonable procedures for the exercise of the Stock Options.
"Mature shares" are shares of the Company's common stock held by the Awardee
for a period greater than six months prior to the exercise dates.
<PAGE> 2
5. TRANSFERABILITY OF OPTIONS. Awardee shall not have the right to
transfer all or any part of the Stock Options except by will or pursuant to the
laws of descent and distribution.
6. REIMBURSEMENT FOR WITHHOLDING LIABILITIES. Subsequent to the
granting of any Stock Options to Awardee pursuant to this Agreement, Awardee
shall have the obligation to reimburse the Company for any withholding
liabilities for Federal, state, and local income taxes, social security taxes,
and any other taxes which it may incur as a result of the granting, vesting,
and/or exercise of the Stock Options. Awardee shall reimburse the Company no
more frequently than on a monthly basis for those amounts within 30 days after
his receipt of a written accounting of the amounts due. Awardee shall satisfy
the tax withholding reimbursement obligation with cash unless the Compensation
Committee elects to permit or require the Awardee to satisfy such obligation
with the delivery of shares of the Company's common stock having a Fair Market
Value as of the date of delivery of such shares to the Company equal to the
withholding liability or a combination of cash and common stock.
7. MODIFICATION. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
8. NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified
mail, return receipt requested, or delivered against receipt, to the party to
whom it is to be given at the address of such party set forth in the records of
the Company (or to such other address as the party shall have furnished in
writing). Notice to the estate of Awardee shall be sufficient if addressed to
Awardee as provided in this paragraph 8. Any notice or other communication
given by certified mail shall be deemed given at the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
COMPANY:
EATERIES, INC.
By Act of the Compensation
Committee
By: /s/
-----------------------------------
_________________________, Chairman
AWARDEE:
/s/
---------------------------------------
Vincent F. Orza, Jr.
-2-
<PAGE> 3
EXHIBIT A
NOTICE OF EXERCISE OF STOCK OPTIONS
The undersigned hereby gives notice to Eateries, Inc. (the "Company")
of exercise of the stock options issued to him pursuant to the terms of the
Stock Option Agreement between the Company and the undersigned, dated as of
_______________________, to purchase _____________ shares of common stock of
the Company. The undersigned has enclosed a check for $______________ and
delivers ____________ shares of the Company's common stock held of record by
him and having a fair market value of $_____________ as payment of the purchase
price for the shares of common stock.
DATED this ____ day of ______________, 19___.
---------------------------------------------
<PAGE> 1
EXHIBIT 10.28
OPTION AGREEMENT
(EXECUTIVE)
THIS AGREEMENT is made and entered into as of the 4th day of January,
1996, by EATERIES, INC., an Oklahoma corporation (the "Company"), and JAMES M.
BURKE ("Awardee"), an Oklahoma resident.
The Company and Awardee agree as follows:
1. GRANT OF OPTIONS. The Company grants to Awardee options to
purchase One Hundred Thousand (100,000) shares of common stock of the Company
(the "Option Shares") at an exercise price of $2.625 per share (the "Stock
Options"). The Stock Options are an award made pursuant to the Company's
Omnibus Equity Compensation Plan (the "Plan") which is incorporated into and
made a part of this Agreement. Unless otherwise indicated, all words and
phrases used in initially capitalized form shall have the meanings given them
in the Plan.
2. VESTING. The Stock Options granted hereby shall vest and become
exercisable in increments of twenty percent (20%) per year with the first
twenty percent (20%) increment vesting and becoming exercisable on the date of
this Agreement, and additional increments of twenty percent (20%) vesting and
becoming exercisable on each successive anniversary of the date of this
Agreement. If the Awardee ceases to be an employee of the Company for any
reason prior to vesting of any of the Stock Options, the then unvested Stock
Options shall be forfeited and expire.
3. TERM. The Stock Options shall expire upon the earlier of: (a)
expiration prior to vesting under paragraph 2 above; or (b) the fifth
anniversary of the date on which they first became exercisable under paragraph
2 above; or (c) if the Stock Options were exercisable at the time the Awardee
ceased to be an employee of the Company, six months after Awardee ceases to be
an employee of the Company for any reason.
4. METHOD OF EXERCISE. To exercise any Stock Options, Awardee shall
give the Company written notice of the exercise of the options, in
substantially the form attached hereto as Exhibit A. Awardee shall pay the
exercise price for the Option Shares at the time of the notice of the exercise
of the Stock Options in cash, in "mature shares" of the Company's common stock
(valued at their Fair Market Value at dates of exercise), in a combination of
cash and "mature shares," or in such other consideration as the Committee
determines is consistent with the purpose of the Plan, this Agreement, and
applicable law. The Company shall issue or shall have its transfer agent issue
one or more certificates for the Option Shares purchased within five (5)
business days after exercise. The Committee may establish other requirements
to provide reasonable procedures for the exercise of the Stock Options.
"Mature shares" are shares of the Company's common stock held by the Awardee
for a period greater than six months prior to the exercise dates.
<PAGE> 2
5. TRANSFERABILITY OF OPTIONS. Awardee shall not have the right to
transfer all or any part of the Stock Options except by will or pursuant to the
laws of descent and distribution.
6. REIMBURSEMENT FOR WITHHOLDING LIABILITIES. Subsequent to the
granting of any Stock Options to Awardee pursuant to this Agreement, Awardee
shall have the obligation to reimburse the Company for any withholding
liabilities for Federal, state, and local income taxes, social security taxes,
and any other taxes which it may incur as a result of the granting, vesting,
and/or exercise of the Stock Options. Awardee shall reimburse the Company no
more frequently than on a monthly basis for those amounts within 30 days after
his receipt of a written accounting of the amounts due. Awardee shall satisfy
the tax withholding reimbursement obligation with cash unless the Compensation
Committee elects to permit or require the Awardee to satisfy such obligation
with the delivery of shares of the Company's common stock having a Fair Market
Value as of the date of delivery of such shares to the Company equal to the
withholding liability or a combination of cash and common stock.
7. MODIFICATION. This Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
8. NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified
mail, return receipt requested, or delivered against receipt, to the party to
whom it is to be given at the address of such party set forth in the records of
the Company (or to such other address as the party shall have furnished in
writing). Notice to the estate of Awardee shall be sufficient if addressed to
Awardee as provided in this paragraph 8. Any notice or other communication
given by certified mail shall be deemed given at the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
COMPANY:
EATERIES, INC.
By Act of the Compensation
Committee
By:/s/
-----------------------------------
, Chairman
---------------
AWARDEE:
/s/
--------------------------------------
James M. Burke
-2-
<PAGE> 3
EXHIBIT A
NOTICE OF EXERCISE OF STOCK OPTIONS
The undersigned hereby gives notice to Eateries, Inc. (the "Company")
of exercise of the stock options issued to him pursuant to the terms of the
Stock Option Agreement between the Company and the undersigned, dated as of
_______________________, to purchase _____________ shares of common stock of
the Company. The undersigned has enclosed a check for $______________ and
delivers ____________ shares of the Company's common stock held of record by
him and having a fair market value of $_____________ as payment of the purchase
price for the shares of common stock.
DATED this ____ day of ______________, 19___.
--------------------------------------
<PAGE> 1
EXHIBIT 10.29
OPTION AGREEMENT
THIS AGREEMENT is made and entered into as of the 5th day of April,
1996, by EATERIES, INC., an Oklahoma corporation (the "Company"), and COREY
GABLE ("Awardee"), an Oklahoma resident.
The Company and Awardee agree as follows:
1. Grant of Options. The Company grants to Awardee options to
purchase 30,000 shares of the common stock of the Company (the "Option Shares")
at an exercise price of $3.25 per share (the "Stock Options"). The Stock
Options are an award made pursuant to the Company's Omnibus Equity Compensation
Plan (the "Plan") which is incorporated into and made a part of this Agreement.
Unless otherwise indicated, all words and phrases used in initially capitalized
form shall have the meanings given them in the Plan.
2. Vesting. The Stock Options granted hereby shall vest and
become exercisable in increments of thirty three and one-third percent (33
1/3%) per year with the first thirty three and one-third percent (33 1/3%)
increment vesting and becoming exercisable on April 5, 1997, and additional
increments of thirty three and one-third percent (33 1/3%) vesting and becoming
exercisable on April 5, 1998 and April 5, 1999. If the Awardee ceases to be an
employee of the Company for any reason prior to the vesting of any of the Stock
Options, the then unvested Stock Options shall be forfeited and expire.
3. Term. The Stock Options shall expire upon the earlier of:
(a) expiration prior to vesting under paragraph 2 above; or (b) the fifth
anniversary of the date on which they first became exercisable; or (c) if the
Stock Options were exercisable at the time the Awardee ceased to be an employee
of the Company, thirty (30) days after Awardee ceases to be an employee of the
Company for any reason unless such cessation of employment shall be caused by
Awardee's death in which event the Stock Options shall remain exercisable for a
period of six (6) months after Awardee's death.
4. Method of Exercise. To exercise any Stock Options, Awardee
shall give the Company written notice of the exercise of the options, in
substantially the form attached hereto as Exhibit A. Awardee shall pay the
exercise price for the Option Shares at the time of the notice of the exercise
of the Stock Options in cash or in such other consideration as the Committee
determines is consistent with the purpose of the Plan, this Agreement, and
applicable law. The Company shall issue or shall have its transfer agent issue
one or more certificates for the Option Shares purchased within five (5)
business days after exercise. The Committee may establish other requirements
to provide reasonable procedures for the exercise of the Stock Options.
5. Transferability of Options. Awardee shall not have the right
to transfer all or any part of the Stock Options except by will or pursuant to
the laws of descent and distribution.
6. Reimbursement for Withholding Liabilities. Subsequent to the
granting of any Stock Options to Awardee pursuant to this Agreement, Awardee
shall have the obligation to reimburse the Company for any withholding
liabilities for Federal, state, and local income taxes, social security taxes,
and any other taxes which it may incur as a result of the granting, vesting,
and/or exercise of the Stock Options. Awardee shall reimburse the Company no
more frequently than on a monthly basis for those amounts within thirty (30)
days after his receipt of a written accounting of the amounts due. Awardee
shall satisfy the tax withholding reimbursement obligation with cash unless the
Compensation Committee elects to permit or require the Awarded to satisfy such
obligation with delivery of shares of the Company's common stock having a Fair
<PAGE> 2
Market Value as of the date of exercise equal to the withholding liability or a
combination of cash and common stock.
7. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
8. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt, to the
party to whom it is to be given at the address of such party set forth in the
records of the Company (or to such other address as the party shall have
furnished in writing). Notice to the estate of Awardee shall be sufficient if
addressed to Awardee as provided in this paragraph 8. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first set forth above.
COMPANY:
EATERIES, INC.
By Act of the Compensation
Committee
By: /s/
-------------------------------------
, Chairman
-----------------
AWARDEE:
/s/
----------------------------------------
Corey Gable
-2-
<PAGE> 3
EXHIBIT A
NOTICE OF EXERCISE OF STOCK OPTIONS
The undersigned hereby gives notice to Eateries, Inc. (the "Company")
of exercise of the stock options issued to him pursuant to the terms of the
Stock Option Agreement between the Company and the undersigned, dated as of
_________________________, to purchase __________ shares of the common stock of
the Company. The undersigned has enclosed a check for $_______________ and
delivers __________ shares of the Company's common stock held of record by him
and having a fair market value of $_______________ as payment of the purchase
price for the shares of common stock.
DATED this ____ day of _______________, 19____.
--------------------------------------
<PAGE> 1
EXHIBIT 10.30
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into this 31st
day of August, 1995, by and among EATERIES, INC., an Oklahoma corporation
("Eateries"), PEPPERONI GRILL, INC., an Oklahoma corporation ("PGI") (Eateries
and PGI are hereinafter collectively referred to as the "Borrowers" and
individually as a "Borrower"), and LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA
CITY, NATIONAL ASSOCIATION (hereinafter referred to as the "Bank").
RECITALS
A. The Borrowers have requested that the Bank establish a
revolving loan facility, in the principal amount not to exceed $3,000,000, to
refinance and increase the Borrowers' existing $500,000 line of credit at the
Bank.
B. The Bank is willing to establish the requested revolving loan
facility, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and the loan facility to be established hereunder,
and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Borrowers and the Bank hereby covenant and
agree as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 Terms Defined Above. The terms "Borrowers," "Eateries," "PGI"
and "Bank" shall have the respective meanings set forth in the preamble above.
1.2 Certain Definitions. As used herein, the following terms
shall have the meanings indicated below (unless the context otherwise
requires):
"ADVANCE" means a cash loan from the Bank to the Borrowers
under the Revolving Loan.
"AFFILIATE" means any Person who has a relationship with
either Borrower whereby either such Person or such Borrower directly
or indirectly controls or is controlled by or is under common control
with the other, or holds or beneficially owns five percent (5%) or
more of the equity interest in the other or five percent (5%) or more
of any class of voting securities of the other and, in addition, shall
include all officers and directors of each of the Borrowers.
"AGREEMENT" and such terms as "herein," "hereof," "hereto,"
"hereby," "hereunder" and the like mean and refer to this Loan
Agreement, together with any and
<PAGE> 2
all exhibits and schedules attached hereto, and any and all
supplements, modifications or amendments hereto.
"BUSINESS DAY" means that any day, other than a Saturday,
Sunday or legal holiday for commercial banks under the laws of the
State of Oklahoma, during which the Bank is open for substantially all
of its normal banking functions.
"CAPITAL EXPENDITURE" means any payment for any fixed assets
or improvements (including those incurred in connection with the
acquisition or expansion of any Store) or for replacements,
substitutions or additions thereto, and which are required to be
capitalized under GAAP.
"CLEAN-DOWN AMOUNT" means: (a) $600,000 for the Clean-Down
Periods during the periods commencing November 30, 1995 and 1996,
respectively, and ending January 31, 1996 and 1997, respectively; and
(b) $2,000,000 for the Clean-Down Period during the period commencing
November 30, 1997, and ending January 31, 1998.
"CLEAN-DOWN PERIOD" has the meaning set forth in Subsection
2.7.2 hereof.
"CLOSING" means the date and time, as provided in Subsection
4.1 hereof, on which the Loan Documents are executed and delivered by
the appropriate parties thereto, all in form and substance
satisfactory to the Bank.
"COMMITMENT FEE" has the meaning set forth in Subsection 2.6.1
hereof.
"COMPLIANCE CERTIFICATE" means a written certificate to be
delivered by the Borrowers pursuant to Subsection 6.1(c) hereof,
substantially in the form of Exhibit "C" attached hereto.
"DEBT" means, with respect to any Person, (i) all obligations
of such Person which, in accordance with GAAP, would be shown on its
balance sheet as a liability (including, without limitation,
obligations for borrowed money and for the deferred purchase price of
property or services, and obligations evidenced by bonds, debentures,
notes or other similar instruments); (ii) all rental obligations under
leases required to be capitalized under GAAP; (iii) all guaranties
(direct or indirect) and other contingent obligations of such Person
in respect of, or obligations to purchase or otherwise acquire or to
assure payment of, Debt of other Persons; and (iv) Debt of other
Persons secured by a Lien upon Property of such Person, whether or not
assumed.
"DEFAULT" means the occurrence of any event or the existence
of any circumstances which, but for the giving of notice or the
passage of time, or both, would constitute an Event of Default.
2
<PAGE> 3
"DISBURSEMENT REQUEST" means a written request for an Advance,
substantially in the form of Exhibit "B" attached hereto.
"ENVIRONMENTAL LAWS" means all laws, statutes, ordinances, and
regulations of any Governmental Authority pertaining to health,
sanitation, food standards and/or environmental conditions on, under,
about, or in any way relating to any Stores or other Properties of the
Borrowers, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42
U.S.C. Sections 9601 et seq., as amended and in effect from time to
time, and the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Sections 6901 et seq., as amended and in effect from time to
time.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended and as in effect from time to time.
"EVENT OF DEFAULT" means the occurrence of any of the events
or the existence of any of the circumstances specified in Section 8
hereof.
"GAAP" means generally accepted accounting principles in
effect from time to time, applied on a consistent basis throughout the
periods involved, as set forth in the opinions of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and/or Statements of the Financial Accounting Standards
Board which may be applicable as of any determination date.
"GOVERNMENTAL AUTHORITY" means any court or any administrative
or governmental department, commission, board, bureau, authority,
agency or body of any governmental entity, whether foreign or
domestic, and whether national, federal, state, county, city,
municipal or otherwise.
"LIBOR RATE" means, for any calendar month in which interest
on the Revolving Note is determined by reference to the LIBOR Rate,
the "London Interbank Offered Rates (LIBOR)" for dollar deposits
having a term of one (1) month, as published in the "Money Rates"
section of The Wall Street Journal (Southwest Edition) on the last
Business Day of the preceding calendar month.
"LIEN" means any mortgage, pledge, lien, security interest,
assignment, charge, restriction, claim, or other encumbrance, whether
statutory, consensual or otherwise, which is granted, created or
suffered to exist by either of the Borrowers on any of its Properties
and which secures any Debt of such Borrower.
"LOAN DOCUMENTS" means this Agreement, the Revolving Note, and
all other instruments and documents executed or issued, or to be
executed or issued, in favor of the
3
<PAGE> 4
Bank pursuant hereto or in connection with the Revolving Loan, and all
amendments, modifications, extensions and renewals of any of the
foregoing.
"MATERIAL ADVERSE EFFECT" means any event, circumstance or set
of events which (i) has or could reasonably be expected to have any
adverse effect whatsoever on the validity, enforceability or
performance of the Loan Documents, (ii) is material and adverse to the
financial condition, assets, liabilities or business operations of the
Borrowers on a consolidated basis, (iii) does or could reasonably be
expected to impair the ability of the Borrowers to fulfill their
obligations under the terms and conditions of the Loan Documents, or
(iv) causes or creates a Default.
"NATIONAL PRIME RATE" means the "Prime Rate" as published on a
daily basis in the "Money Rates" section of The Wall Street Journal
(Southwest Edition).
"NON-USE FEE" has the meaning set forth in Subsection 2.6.2
hereof.
"OBLIGATIONS" means and include all liabilities, obligations
and indebtedness of the Borrowers to the Bank, of every kind and
description, now existing or hereafter incurred, direct or indirect,
absolute or contingent, due or to become due, matured or unmatured,
whether joint, several or joint and several, whether or not currently
contemplated by the Bank or the Borrowers, including, without
limitation, (i) all liabilities, obligations and indebtedness of the
Borrowers to the Bank arising out of or relating to this Agreement,
the Revolving Loan, the Revolving Note or any other of the Loan
Documents, (ii) all Advances and other amounts from time to time owing
under this Agreement (including interest accruing thereon and fees
payable in respect thereof), (iii) any overdrafts by either of the
Borrowers on any deposit account maintained with the Bank, and (iv)
any and all extensions and renewals of any of the foregoing.
"PBGC" means the Pension Benefit Guaranty Corporation, as
established pursuant to Section 4002 of ERISA, and any successor
thereto or substitute therefor under ERISA.
"PERMIT" means any permit, certificate, consent, franchise,
concession, license, authorization, approval, filing, registration or
notification from or with any Governmental Authority or other Person.
"PERMITTED LIENS" means the following Liens against the
Properties of the Borrowers: (i) deposits to secure payment of
worker's compensation, unemployment insurance and other similar
benefits; (ii) Liens for property taxes not yet due; (iii) statutory
Liens (A) against which there are established reserves in conformity
with GAAP and which are being contested in good faith by appropriate
legal proceedings, (B) which arise in favor of contractors or
subcontractors in connection with the construction or improvement of
Stores, are being contested or disputed in good faith by the
applicable Borrower and do not exceed $100,000 in the aggregate and
the existence of which has
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been disclosed to the Bank, or (C) arise in the ordinary course of
business and secure obligations which are not yet due and not in
default; (iv) Liens in favor of the Bank; and (v) Liens which are in
existence on the date hereof and which are described on Schedule I
attached hereto.
"PERSON" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution,
entity, party or Governmental Authority.
"PROPERTY" means any asset or property, whether real, personal
or mixed, tangible or intangible, which is now or at any time
hereafter owned, operated or leased by either of the Borrowers.
"RATE ELECTION" has the meaning set forth in Subsection 2.5.3
hereof.
"REVOLVING COMMITMENT" means the sum of Three Million Dollars
($3,000,000), unless reduced by the Borrowers in accordance with the
provisions of Subsection 2.10 hereof.
"REVOLVING LOAN" means the revolving loan facility to be
established by the Bank in favor of the Borrowers pursuant to
Subsection 2.1 hereof.
"REVOLVING NOTE" means the promissory note to be executed by
the Borrowers in order to evidence all Advances made under the
Revolving Loan pursuant to Subsection 2.4 hereof, substantially in the
form of Exhibit "A" attached hereto (with appropriate insertions), as
the same may be amended, modified, supplemented, renewed or extended
from time to time.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any or all of its functions.
"STORE" means any restaurant or restaurant location which is
owned, leased and/or operated by either of the Borrowers.
"SUBSIDIARY" means any Person in which either of the Borrowers
owns or controls, directly or indirectly, more than fifty percent
(50%) of the outstanding equity interest.
"TANGIBLE NET WORTH" means the consolidated net worth of the
Borrowers after subtracting therefrom goodwill, franchises, licenses,
patents, trademarks, trade names, copyrights, service marks, brand
names, and all other items of intangible Property.
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1.3 Accounting Terms. Accounting and financial terms used herein
and not otherwise defined with respect to the Borrowers' financial statements
and consolidated financial position shall have the meanings ascribed thereto
pursuant to GAAP.
1.4 Interpretation. All terms defined herein in the singular
shall include the plural, as the context requires, and vice-versa.
1.5 References to Borrowers. Unless the context otherwise
requires, all references herein to the "Borrowers" shall mean "the Borrowers,
jointly, severally and individually," whether or not specifically so stated.
2. LENDING AGREEMENT. Subject to the terms and conditions of this
Agreement and the Loan Documents, and in reliance upon the representations and
warranties contained herein and therein:
2.1 Revolving Loan. The Bank agrees, at the Closing, to establish
a revolving loan facility, to be designated as the "Revolving Loan," in an
aggregate principal amount equal to the Revolving Commitment. The Revolving
Loan may be drawn upon by the Borrowers from time to time, in whole or in part,
on or before August 31, 1998, by requesting Advances in accordance with the
provisions of Subsection 2.3 hereof; provided, however, that the aggregate
principal amount of all Advances at any one time outstanding under the
Revolving Loan shall not exceed the Revolving Commitment as of such date. The
Revolving Loan shall be a revolving facility, and the prepayment of outstanding
Advances shall restore the amount available for reborrowing.
2.2 Use of Proceeds. Advances under the Revolving Loan shall be
used by the Borrowers solely for the purposes of (i) refinancing the Borrowers'
existing revolving line of credit at the Bank, (ii) refinancing and paying off
the Borrowers' existing revolving line of credit at First Enterprise Bank in
the approximate principal amount of $300,000, (iii) providing working capital,
and/or (iv) financing the Borrowers' acquisition and expansion of new and
existing Stores and other Capital Expenditures.
2.3 Borrowing Procedures. The Borrowers shall make each request
for an Advance by delivering to the Bank a properly completed and executed
Disbursement Request no later than 1:00 p.m., Oklahoma City time, on the
requested date of disbursement; provided, however, that the Borrowers make
request an Advance by telephone if such request is confirmed in writing by
delivering to the Bank a properly completed and executed Disbursement Request
within three (3) Business Days after the date of the telephonic request. Not
later than 3:00 p.m., Oklahoma City time, on the date on which any Advance is
requested to be made, the Bank shall credit the amount of the requested Advance
to an account maintained by Eateries with the Bank. Notwithstanding any
provision of this Agreement, the Bank shall not be required to make any Advance
hereunder if any of the conditions precedent in Section 4 hereof has not been
satisfied.
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2.4 Revolving Note. The Advances from time to time outstanding
under the Revolving Loan shall be evidenced by the Revolving Note, which shall
be made, executed and delivered by the Borrowers at the Closing.
Notwithstanding the principal amount stated on the face of the Revolving Note,
the actual principal amount due from the Borrowers on account thereof shall be
the sum of all Advances made by the Bank, less all principal payments actually
received by the Bank in collected funds. All Advances made against the
Revolving Note shall be recorded by the Bank in its books and records, and the
unpaid principal balance so recorded shall be presumptive evidence of the
principal amounts owing thereon.
2.5 Interest.
2.5.1 Options. The unpaid principal amount of all Advances
from time to time outstanding under the Revolving Note shall bear
interest at a rate determined on a monthly basis by reference to the
Prime Rate or the LIBOR Rate, as selected by the Borrowers pursuant to
a Rate Election made in accordance with the provisions of Subsection
2.5.3 hereof, as follows:
(a) If for any calendar month the Borrowers have
selected the Prime Rate option, the unpaid principal balance
of all Advances outstanding during such month shall bear
interest at a fluctuating rate equal to the Prime Rate,
adjusted as of the date of each change therein.
(b) If for any calendar month the Borrowers have
selected the LIBOR Rate option, the unpaid principal balance
of all Advances outstanding during such month shall bear
interest at a fixed rate equal to the applicable LIBOR Rate,
plus two and three-quarters percent (2.75%).
2.5.2 Post-Default Interest. Upon the occurrence of any
Event of Default and until cured to the satisfaction of the Bank, the
unpaid principal amount of all Advances outstanding under the
Revolving Note shall bear interest at a fluctuating rate equal to the
Prime Rate, adjusted as of the date of each change therein, plus two
percent (2%).
2.5.3 Rate Election. On or before the first Business Day
of each calendar month, the Borrowers shall deliver to the Bank a
notice ("Rate Election") stating whether the Borrowers elect that
interest on the Revolving Note for such month be determined by
reference to the Prime Rate or the LIBOR Rate. Each Rate Election so
delivered to the Bank shall be irrevocable. In the event the
Borrowers fail to deliver a Rate Election to the Bank on a timely
basis, interest on the Revolving Note for that month shall bear
interest at a rate determined by reference to the Prime Rate.
2.5.4 Payment. Interest shall be due and payable monthly
in arrears on the last day of each calendar month, commencing
September 30, 1995, and at the maturity of the Revolving Note (whether
at the stated maturity, upon acceleration or otherwise).
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2.5.5 Computation of Interest. Interest on the Advances
outstanding under the Revolving Note shall be computed on the basis of
a year consisting of 360 days and for the actual number of days
elapsed.
2.6 Fees.
2.6.1 Commitment Fee. At the Closing, the Borrowers shall
pay to the Bank a nonrefundable "Commitment Fee" in the amount of
$10,000.
2.6.2 Non-Use Fee. The Borrowers shall pay to the Bank a
nonrefundable "Non-Use Fee" of one-half of one percent (1/2 of 1%) per
annum on the daily average of the unborrowed amount of the Revolving
Commitment. The Non-Use Fee shall be computed on the basis of a year
consisting of 360 days and for the actual number of days elapsed. The
Non-Use Fee shall be payable in arrears on the first Business Day of
each January, April, July and October during the term of this
Agreement, commencing October 1, 1996, and at the maturity of the
Revolving Note (whether at the stated maturity, upon acceleration or
otherwise).
2.7 Principal Payments.
2.7.1 Maturity. The entire outstanding principal balance
of the Revolving Note, together with all unpaid interest accrued
thereon, shall be due and payable in full on August 31, 1998.
2.7.2 Clean-Down Periods. During the period commencing
November 30 of each year and ending on January 31 of the following
year, the Borrowers will designate a period of thirty (30) consecutive
calendar days as a "Clean-Down Period." During each Clean-Down
Period: (a) the aggregate outstanding Advances shall not exceed the
applicable Clean-Down Amount; and (b) the Borrowers shall not request,
and the Bank shall not be obligated to make, any new Advances if the
making of such Advances would cause the aggregate outstanding Advances
to exceed the applicable Clean-Down Amount.
2.8 Optional Prepayments. The Borrowers may, at any time and from
time to time, prepay the outstanding principal amount of the Revolving Note, in
whole or in part, without premium or penalty.
2.9 Making of Payments. All payments, including prepayments, of
principal of, or interest on, the Revolving Note shall be made to the Bank at
its principal office in Oklahoma City, Oklahoma, on or before 2:00 p.m.,
Oklahoma City time, on the date due, in immediately available funds. Whenever
a payment is due on a day other than a Business Day, the due date shall be
extended to the next succeeding Business Day and interest (if any) shall accrue
during such extension.
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2.10 Reduction or Termination of Revolving Loan. The Borrowers
may, from time to time, upon written notice received by the Bank, permanently
reduce the amount of the Revolving Commitment, but only upon repayment of the
amount, if any, by which the unpaid principal balance of the Revolving Note
exceeds the then reduced amount of the Revolving Commitment. Any such
reduction shall be in an amount of at least $100,000. The Borrowers may at any
time on like notice terminate the Revolving Commitment in full by paying the
Revolving Note in full.
2.11 Renewal and Extension. In the event the Revolving Loan is
renewed and extended at maturity, the terms and provisions of this Agreement
shall continue in full force and effect with respect to the Revolving Loan,
except as may otherwise be agreed in writing by the Borrowers and the Bank.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed as obligating the Bank to agree or consent to any such renewal and
extension, and the Borrowers acknowledge that the Bank has not made or given
any assurances regarding renewal and extension of the Revolving Loan.
2.12 Maximum Lawful Interest Rate. It is not the intention of the
Bank or the Borrowers to violate the laws of any applicable jurisdiction
relating to usury or other restrictions on the maximum lawful interest rate.
The Loan Documents and all other agreements between the Borrowers and the Bank,
whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no event shall the interest paid or agreed to be paid
to the Bank for the use, forbearance or detention of money loaned, or for the
payment or performance of any covenant or obligation contained herein or in any
other Loan Document, exceed the maximum amount permissible under applicable
law. If from any circumstances whatsoever fulfillment of any provision hereof
or of any other Loan Document, at the time the performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
law, then, ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such validity. If from any such circumstances the Bank shall ever
receive anything of value deemed interest under applicable law which would
exceed interest at the highest lawful rate, such excessive interest shall be
applied to the reduction of the principal amount owing hereunder, and not to
the payment of interest, or if such excessive interest exceeds any unpaid
balance of principal, such excess shall be refunded to the Borrowers. All sums
paid or agreed to be paid to the Bank for the use, forbearance or detention of
monies shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the Obligations
until payment in full so that the rate of interest on account of such
Obligations is uniform throughout the term thereof. This Subsection 2.12 shall
control every other provision of the Loan Documents and all other agreements
between the Bank and the Borrowers contemplated thereby.
2.12 Appointment of Agent. PGI hereby designates and appoints
Eateries as its sole and exclusive agent for the purposes of requesting and
receiving Advances, submitting reports and certificates hereunder and making
payments or prepayments in accordance herewith.
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3. NEGATIVE PLEDGE. To secure the Obligations, each of the Borrowers
agree that, until the Obligations have been paid and satisfied in full and the
Revolving Commitment has been terminated:
3.1 Liens. Except for Permitted Liens, neither of the Borrowers
will create, grant, assume or suffer to exist any Lien on any of its
Properties.
3.2 Sale of Properties. Neither of the Borrowers will sell,
transfer, convey or otherwise dispose of any of its Properties, whether
pursuant to a single transaction or a series of transactions, except in the
ordinary course of business.
4. CONDITIONS OF LENDING
4.1 Closing. The Closing shall take place at the offices of the
Bank in Oklahoma City on August 31, 1995, at 10:00 a.m., or at such other
place, date and/or time as the parties shall agree in writing.
4.2 Conditions to Initial Funding. The obligation of the Bank to
enter into and perform under this Agreement and to make Advances under the
Revolving Loan is subject to the Borrower's satisfaction of the following
conditions precedent at or as of the Closing:
(a) Loan Documents. This Agreement and the Revolving
Note shall have been duly and validly authorized, executed and
delivered to the Bank, all in form and substance satisfactory to the
Bank.
(b) Corporate Documents. The Bank shall have received
the following with respect to each of the Borrowers: (i) a true and
correct copy of its Articles or Certificate of Incorporation, as
amended, certified by the Oklahoma Secretary of State; (ii) a true and
correct copy of its Bylaws, as amended, certified by its duly elected
and acting corporate secretary; (iii) a good standing certificate
issued by the Oklahoma Secretary of State as to its due incorporation
and good standing under the laws of the State of Oklahoma; and (iv) a
good standing certificate issued by the Secretary of State or
equivalent public official of each other state or jurisdiction in
which it owns any Stores or conducts business.
(c) Resolutions. The Bank shall have received a true and
correct copy of the resolutions adopted by the Board of Directors of
each of the Borrowers duly authorizing the borrowings contemplated
hereunder and such Borrower's execution, delivery and performance of
the Loan Documents.
(d) Incumbency Certificates. The Bank shall have
received certificates executed by the duly elected and acting
corporate secretary of each of the Borrowers stating the names and
titles and containing specimen signatures of the officers authorized
to execute and deliver the Loan Documents on behalf of such Borrower.
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(e) Lien Searches. The Bank shall have received
certified responses to UCC lien search requests reflecting that there
are no effective UCC financing statements on file in any filing office
in the State of Oklahoma or any other states or jurisdictions in which
the Borrowers own any Stores naming either of the Borrowers as debtor
and covering any Properties of the Borrowers, other than financing
statements relating to Permitted Liens.
(f) Insurance Policies. The Bank shall have received
copies of such insurance policies, or binders or certificates of
insurance, in form and substance satisfactory to the Bank, evidencing
that the Borrowers have obtained and are maintaining the minimum
insurance coverages required by this Agreement.
(g) Payoff Letter. The Bank shall have received a
satisfactory payoff letter from First Enterprise Bank (i) stating the
amount necessary to pay off the entire principal balance of and
accrued interest on the Borrowers' existing line of credit at such
bank, (ii) setting forth payment instructions for remitting the payoff
amount, and (iii) stating that, upon its receipt of the payoff amount,
it will cancel and terminate all outstanding loan agreements,
promissory notes and other loan documents previously delivered to it
by the Borrowers, and will release and terminate any and all Liens
held by it on any Properties of the Borrowers.
(h) Other Matters. The Borrowers shall have provided the
Bank with such reports, information, financial statements, and other
documents as the Bank has reasonably requested to evidence the
Borrowers' compliance with the terms and conditions of this Agreement.
(h) Legal Matters. All legal matters incident to the
Loan Documents and the Revolving Loan shall be satisfactory to the
Bank and its counsel.
4.3 Conditions to Advances Under Revolving Loan. The obligation
of the Bank to make any Advance under the Revolving Loan subsequent to the
Closing is subject to the Borrower's satisfaction of the following additional
conditions precedent:
(a) Disbursement Request. The Bank shall have received a
proper request for such Advance in accordance with the provisions of
Subsection 2.3 hereof.
(b) Representations and Warranties. The representations
and warranties set forth herein and in the other Loan Documents shall
be true and accurate (except to the extent any representations or
warranties as to the financial condition of the Borrowers relate
solely to an earlier specified date).
(c) No Defaults. There shall not have occurred and be
continuing any Default or Event of Default.
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(d) No Violation. The making of such Advance shall not
cause the Bank to be in violation of any statute or regulation or any
order or decree of any Governmental Authority.
5. REPRESENTATIONS AND WARRANTIES. In addition to the other
representations and warranties made herein, each of the Borrowers represents
and warrants to the Bank that the following statements are true and correct and
will be true and correct at all times until the Obligations is paid and
satisfied in full:
5.1 Existence. Each of the Borrowers is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma and is duly qualified to conduct business and in good standing under
the laws of all other states and jurisdictions in which it owns any Stores or
conducts business. Each of the Borrowers is duly authorized, qualified and
licensed under all applicable laws, regulations, ordinances and orders of
Governmental Authorities to carry on its business as currently conducted and as
contemplated to be conducted.
5.2 Validity and Binding Nature. The Loan Documents constitute
(or upon execution and delivery will constitute) valid and legally binding
obligations of each of the Borrowers, enforceable in accordance with their
respective terms (subject to any applicable bankruptcy, insolvency and similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity).
5.3 Conflicting Agreements and Restrictions. Neither of the
Borrowers is a party to any contract or agreement or subject to any other
restriction which has or is likely to have a Material Adverse Effect. Neither
the execution and delivery by each of the Borrowers of the Loan Documents to
which it is a party, nor fulfillment or compliance with the terms and
provisions thereof, will (i) conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of any agreement, instrument, undertaking, judgment, decree, order,
writ, injunction, statute, law, rule or regulation to which it is subject or by
which its Properties are bound, (ii) result in the creation or imposition of
any Lien on any Property now or hereafter owned by it pursuant to the
provisions of any mortgage, indenture, security agreement, contract,
undertaking or other agreement, or (iii) require any authorization, consent,
license, approval or authorization of or other action by, or notice or
declaration to, or registration with, any Governmental Authority, or, to the
extent that any such consent or other action may be required, it has been
validly procured or duly taken.
5.4 Actions and Proceedings. There is no action or proceeding
against or investigation of either of the Borrowers, pending or threatened,
which questions the validity of any of the Loan Documents or which is likely to
have a Material Adverse Effect.
5.5 Financial Condition. The audited consolidated financial
statements of Eateries for the fiscal year ended December 31, 1994, and the
unaudited financial statements of Eateries for the six months ended June 30,
1995, copies of which have been furnished to the Bank, are correct
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and complete and fairly present the consolidated financial position of the
Borrowers as of the dates thereof. Such financial statements were prepared in
conformity with GAAP, and there has occurred no material adverse change in the
consolidated financial position of the Borrowers from the effective dates of
such financial statements to the date hereof. Neither of the Borrowers has any
contingent obligations, unusual or long-term commitments, unrealized or
anticipated losses from any unfavorable commitment, or liabilities for taxes
not reflected in such financial statements or in the notes thereto which are
individually or in the aggregate substantial in relation to the consolidated
financial position of the Borrowers.
5.6 Ownership of Properties; Liens. Each of the Borrowers has
good and marketable title to, or valid leasehold interests in, all Properties
owned, leased or used by it in connection with the operation of its business,
and none of such Properties is subject to any Lien of any kind other than
Permitted Liens.
5.7 No Subsidiaries. PGI is a wholly-owned Subsidiary of
Eateries. Except for Eateries' ownership of the stock of PGI, neither of the
Borrowers has any Subsidiaries (other than limited purpose Subsidiaries which
are not operating companies and which individually do not have total assets in
excess of $20,000), owns any stock in any other corporation, or is a partner or
joint venturer in or equity owner of any partnership, joint venture or other
business association.
5.8 Permits. Each of the Borrowers has all Permits and has made
all governmental and regulatory filings, registrations and notifications (i)
which are presently necessary for it to carry on its business as now being
conducted or as contemplated to be conducted, (ii) which are presently
necessary for it to own, lease and operate its Properties as now owned, leased
and operated, or (iii) which if not obtained would have a Material Adverse
Effect. All such Permits are valid and subsisting, and neither of the
Borrowers is in material violation of the terms of any such Permit.
5.9 No Defaults. Neither of the Borrowers is in default of or in
breach under any material contract, agreement or instrument to which it is a
party or by which it or any of its Properties may be bound.
5.10 ERISA. Neither of the Borrowers has incurred any "accumulated
funding deficiency," as such term is defined in Section 302(a)(2) of ERISA,
with respect to any employee pension or other benefit plan or trust maintained
by or related to it, or with respect to which it is required to make
contributions, and neither of the Borrowers has incurred any material liability
to PBGC or otherwise under ERISA in connection with any such plan. No
reportable event described in Sections 4042(a) or 4043(b) of ERISA has
occurred.
5.11 No Violation of Applicable Law. Each of the Borrowers is in
compliance in all material respects with all statutes, rules and regulations
relating to its business and operations in all states and jurisdictions where
it is currently doing business, including, without limitation, those
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<PAGE> 14
relating to health and safety standards, equal employment practices, labor
relations and civil rights.
5.12 Environmental Laws. Each of the Borrowers is in compliance in
all material respects with all applicable Environmental Laws in all
jurisdictions in which its is currently doing business, and neither of the
Borrowers is aware of any violation or claimed violation of any Environmental
Law which has or is likely to have a Material Adverse Effect.
5.13 Taxes. Each of the Borrowers has filed all federal, state and
local tax returns required by law to be filed, and has paid all taxes,
assessments and similar charges shown to be due and payable on said returns, to
the extent that such taxes and assessments have become due, except those being
diligently contested by appropriate legal proceedings, in good faith, and
against which adequate reserves have been established in conformity with GAAP.
At the date of this Agreement, no extensions of time are in effect for
assessments of deficiencies for federal income taxes of either of the
Borrowers.
5.14 Compliance with Board Regulations. No part of the proceeds of
any Advance will be used, and no part of any loan repaid or to be repaid with
the proceeds of any Advance was or will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or margin stock
within the meaning of Regulations G or U of the Federal Reserve Board. The
Properties of the Borrowers do not include any margin securities or margin
stock, and neither of the Borrowers has any present intention of acquiring any
margin securities or margin stock.
5.15 Investment Company Act; Public Utility Holding Company Act.
Neither of the Borrowers is (i) an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or (ii) a "holding company", a "subsidiary
company" thereof or an "affiliate" of a "holding company" or of such a
"subsidiary company", each within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
5.16 Survival of Representations. All representations and
warranties made herein shall survive the delivery of this Agreement and the
Revolving Note and the making of any Advances, and any investigation at any
time made by or on behalf of the Bank shall not diminish its right to rely
thereon. All statements contained in any certificate or other instrument
delivered by or on behalf of the Borrowers under or pursuant to this Agreement
or any other Loan Documents or in connection with the transactions contemplated
hereby or thereby shall constitute representations and warranties made
hereunder.
6. AFFIRMATIVE COVENANTS. Until the Obligations have been paid in full
and all of the Revolving Commitment has been terminated, the Borrowers agree to
perform or cause to be performed the following, unless the Bank shall otherwise
consent in writing:
6.1 Financial Statements and Other Reports.
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(a) Annual Financial Statements and Reports. Within
ninety (90) days after the end of each fiscal year, the Borrowers will
furnish to the Bank a copy of the audited consolidated balance sheet
of Eateries as of the end of such year and the audited consolidated
statements of income, retained earnings, stockholders' equity and cash
flows of Eateries for such fiscal year, each prepared in conformity
with GAAP and setting forth in each case, in comparative form,
corresponding figures from the preceding fiscal year, all in
reasonable detail and satisfactory in scope to the Bank. Such
financial statements shall be duly certified by independent certified
public accountants of recognized standing selected by Eateries and
acceptable to the Bank.
(b) Quarterly Financial Statements. Within forty-five
(45) days after the end of each fiscal quarter (excluding the last
fiscal quarter) of each year, the Borrowers will furnish to the Bank a
copy of the interim unaudited consolidated financial statements of
Eateries, prepared in conformity with GAAP and presented in a manner
consistent with the audited financial statements required under
Subsection 6.1(a) hereof and certified (subject to normal year-end
adjustments) as to fairness of presentation, compliance with GAAP and
consistency by the chief financial officer of Eateries.
(c) Compliance Certificates. Within forty-five (45) days
after the end of each fiscal quarter (excluding the last fiscal
quarter) of each year and within ninety (90) days after the end of the
final fiscal quarter of each year, the Borrowers will furnish to the
Bank a Compliance Certificate, signed by the chief financial officer
of Eateries, (i) stating that such officer, after due inquiry, has no
knowledge of the occurrence of a Default or an Event of Default, (ii)
stating that, to the knowledge of such officer, after due inquiry, the
Borrowers have complied with the terms of the Loan Documents in all
material respects, or, in the event such officer has knowledge of a
Default or an Event of Default or that any of the terms of the Loan
Documents has not been complied with in all material respects, the
nature of such Default or Event of Default or non-compliance will be
specified in such certificate together with any steps being taken by
the Borrowers to correct such Default or Event of Default or
non-compliance, and (iii) containing a computation of, and showing
compliance with, each of the financial covenants contained in
Subsection 7.8.
(d) SEC Reports. The Borrowers will furnish to the Bank
(i) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year, copies of the Annual
Report of Eateries filed with the SEC on Form 10-K (including any
financial statements incorporated by reference therein) for such
fiscal year, (ii) as soon as practicable and in any event within
forty-five (45) days after the end of each fiscal quarter (other than
the last fiscal quarter), copies of the Quarterly Report of Eateries
filed with the SEC on Form 10-Q for such fiscal quarter, and (iii)
promptly upon their becoming available, copies of all other regular
and periodic reports including, without limitation, all periodic
reports filed on Form 8-K, proxy statements and other materials filed
by Eateries with the SEC.
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6.2 Other Reports and Notifications.
(a) Other Financial Information. Within ten (10) days
after each request, each of the Borrowers will furnish the Bank with
such other information concerning its business, operations and
financial condition as may be reasonably requested from time to time
by the Bank.
(b) Litigation. Each of the Borrowers will promptly
notify the Bank, but in any event within seven (7) days, after it
knows of any pending or threatened suit, action, investigation or
administrative proceeding against or affecting such Borrower or any of
its Properties, where the amount sued for or the value of the Property
involved (notwithstanding any insurance coverage therefor) is $500,000
or more.
(c) Notification of Liens. Each of the Borrowers will
promptly notify the Bank, but in any event within seven (7) days,
after it knows of the existence or asserted existence of any Lien on
any of its Properties, excluding only Permitted Liens (other than
statutory Liens of the type described in clause (ii)(B) of the
definition of "Permitted Liens").
(d) Environmental Notices. Each of the Borrowers will
promptly notify the Bank, but in any event within seven (7) days,
after it knows of any violation or claimed violation of any
Environmental Law which has or is likely to have a Material Adverse
Effect.
(e) Events With Respect to ERISA. Each of the Borrowers
will promptly notify the Bank, but in any event within seven (7) days,
after it knows that any reportable event described in Sections 4042(a)
or 4043(b) of ERISA has occurred with respect to any employee pension
or other benefit plan or trust maintained by or related to the
Borrowers or that PBGC has instituted or intends to institute
proceedings under ERISA to terminate any such plan. Such notice shall
contain (i) a certificate of the chief executive officer or chief
financial officer of Eateries setting forth details as to such event
and the action which the Borrowers propose to take with respect
thereto, and (ii) a copy of any notice delivered by PBGC evidencing
its intent to institute such proceedings. Each of the Borrowers will
also furnish to the Bank (or cause each plan administrator to furnish
to the Bank) the annual report for each plan covered by ERISA
maintained by or related to such Borrower as filed with the U.S.
Secretary of Labor not later than ten (10) days after the receipt of a
request from the Bank in writing for such report.
(f) Other Notifications. Each of the Borrowers will
promptly notify the Bank, but in any event within seven (7) days,
after it knows that any of the following has occurred: (i) a Default
or an Event of Default; (ii) any change in the assets, liabilities,
financial condition, business, operations, affairs or circumstances of
either of the Borrowers which might have a Material Adverse Effect;
(iii) any material change in the
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<PAGE> 17
accounting practices and procedures of the Borrowers, including a
change in fiscal year; and (iv) any change in the principal place of
business of the Borrowers.
6.3 Books and Records. Each of the Borrowers will maintain
adequate and accurate books and records of account in conformity with GAAP.
The Bank will have the right to examine and copy such books and records at its
expense, and to discuss the affairs, operations, finances and accounts with the
Borrowers' authorized officers, during business hours and upon reasonable
notice.
6.4 Inspection. Each of the Borrowers will permit any employee or
authorized representative of the Bank to enter upon its premises and inspect
any of its Properties during business hours and upon reasonable notice.
6.5 Taxes; Other Liens. Each of the Borrowers will pay when due
all taxes, assessments, governmental charges or levies owing or payable by it,
and will pay when due all claims for labor, materials, supplies, rent and other
obligations which, if unpaid, might become a Lien against any of its
Properties, except to the extent any of the foregoing are being diligently
contested in good faith by appropriate legal proceedings and against which
there are established adequate reserves in conformity with GAAP.
6.6 Existence. Each of the Borrowers will maintain its corporate
existence and will be duly qualified or licensed to conduct business and in
good standing under the laws of each state or jurisdiction in which it owns any
Stores or conducts any business.
6.7 Licenses and Permits. Each of the Borrowers will maintain all
Permits (i) which are necessary for it to carry on its business as now being
conducted or as contemplated to be conducted, (ii) which are necessary for it
to own and operate its Properties, or (iii) which, if not obtained, would have
a Material Adverse Effect.
6.8 Maintenance of Properties. Each of the Borrowers will
maintain all of its Stores and other Properties in good and workable condition,
repair, and appearance, normal wear and tear excepted.
6.9 Compliance with Laws. Each of the Borrowers will comply in
all material respects with all statutes, laws, rules or regulations to which it
is subject or by which its Properties are bound or affected, including, without
limitation, (i) Environmental Laws (ii) those pertaining to occupational health
and safety standards, (iii) those pertaining to equal employment practices,
labor relations and civil rights, and (iv) those pertaining to its business or
operations, except to the extent that any of the foregoing are being diligently
contested in good faith by appropriate legal proceedings and against which
there are established adequate reserves in conformity with GAAP.
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<PAGE> 18
6.10 Further Assurances. Each of the Borrowers will upon request
cure or cause to be cured any defects or omissions in the execution and
delivery of, or the compliance with, the Loan Documents or the conditions
described in Section 4 hereof.
6.11 Reimbursement of Expenses. The Borrowers will pay or
reimburse the Bank, either at the Closing or within ten (10) days after the
Bank presents a statement therefor, for (i) all reasonable and customary
out-of-pocket expenses incurred by the Bank in connection with the negotiation
and preparation of this Agreement and the Loan Documents and the consummation
of the transactions herein contemplated, including, without limitation, filing
fees, recording costs, examinations of and certifications as to public records,
and attorneys' fees (not to exceed $5,000) and expenses, (ii) all reasonable
and customary out-of-pocket expenses incurred by the Bank in connection with
the administration of this Agreement and the Loan Documents, including, without
limitation, attorneys' fees and expenses incurred in connection with any
amendment, modification, interpretation, termination, waiver or consent with
respect to this Agreement or the other Loan Documents, and (iii) upon the
occurrence of any Event of Default, all amounts reasonably expended, advanced
or incurred by the Bank (A) after notice to the Borrowers, to satisfy any
obligation of the Borrowers under the Loan Documents, or (B) to collect upon
the Revolving Note or any other obligations included in the Obligations, or (C)
to enforce the rights of the Bank under the Loan Documents or to collect the
Obligations, which amounts will include all court costs, attorneys' fees, fees
of auditors and accountants, and investigation expenses reasonably incurred by
the Bank in connection with any such matters. All of the foregoing charges and
expenses shall be considered Obligations for purposes of this Agreement and if
not paid when due shall thereafter bear interest at the Prime Rate, plus two
percent (2%), until paid.
6.12 Insurance. Each of the Borrowers will at all times maintain
in full force and effect, with insurance companies satisfactory to the Bank,
insurance policies in amounts and against risks consistent with insurance
coverage customarily or typically maintained by similar businesses which are
similarly situated. Without limiting the foregoing, such insurance coverage:
(i) will provide the Borrowers with comprehensive general liability insurance
against loss or damage from hazards and risks to the person, rights and
property of others in amounts not less than $1,000,000 per occurrence, and (ii)
will provide that no adverse alteration or cancellation thereof shall be
effective as against the Bank until thirty (30) days after written notice of
such alteration or cancellation is given to the Bank. If requested, each of
the Borrowers will furnish the Bank with copies of all insurance policies in
effect and evidence of premium payment thereon. Neither of the Borrowers will
commit or suffer to be committed any act whereby any insurance required
hereunder will or may be suspended, impaired or defeated, nor suffer or permit
its Properties to be used in a manner not permitted under any applicable
insurance policy then in effect. Each of the Borrowers will notify the Bank at
least fifteen (15) days prior to making any change in the insurance company or
companies providing the insurance coverage required hereunder.
7. NEGATIVE COVENANTS. Until the Obligations have been paid in full and
the Revolving Commitment has been terminated, neither of the Borrowers will
perform or permit to be performed any of the following acts, unless the Bank
shall otherwise consent in writing:
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<PAGE> 19
7.1 Mergers, Consolidations and Reorganization. Neither of the
Borrowers will (i) merge or consolidate with any Person (or enter into any
merger or consolidation agreement or plan), or permit any such merger or
consolidation with it, (ii) adopt or effect any plan of reorganization,
recapitalization, liquidation or dissolution, (iii) form or acquire any
Subsidiaries (other than limited purpose Subsidiaries which are not operating
companies and which individually do not have total assets in excess of
$20,000), (iv) acquire any stock in any other corporation, (iv) become a
partner or joint venturer in or equity owner of any partnership, joint venture
or other business entity, or (vi) acquire all or substantially all of the
assets or properties of any other Person.
7.2 Loans to and Transactions with Affiliates.
7.2.1 Loans. Neither of the Borrowers will make or suffer
to exist any loan, advance or other extension of credit, directly or
indirectly, to or for the benefit of any Affiliate, except for loans,
advances and other extensions of credit made to employees of the
Borrowers in the ordinary course of business which do not exceed
$50,000 in the aggregate at any time outstanding.
7.2.2 Other Transactions. Neither of the Borrowers will
enter into any other transaction with any Affiliate, including,
without limitation, any purchase, sale or exchange of property or the
rendering of any services, except in the ordinary course of and
pursuant to the reasonable requirements of its business and upon fair
and reasonable terms no less favorable to it than would exist in a
comparable transaction with a Person other than an Affiliate.
7.3 Limitation on Contingent Debt. Neither of the Borrowers will,
directly or indirectly, guarantee, co-sign, agree to purchase or repurchase or
provide funds in respect, or otherwise become or remain liable with respect to
Debt of any character of any other Persons, including any Affiliates, which
exceeds $10,000 in the aggregate.
7.4 Changes in Nature of Business. Neither of the Borrowers will
(i) discontinue its business or enter into any business or line of business
which is not related to any business or line of business currently conducted by
such Borrower, or (ii) own, lease or operate any Store under any name or
concept other than the existing "Garfield's" and "Pepperoni Grill" names and
concepts.
7.5 New Stores. The Borrowers will not open or acquire (i) more
than ten (10) new Stores during the fiscal year ending December 31, 1995, (ii)
more than fourteen (14) new Stores during the fiscal year ending December 31,
1996, or (iii) more than twenty (20) new Stores during the fiscal year ending
December 31, 1997.
7.6 Capital Expenditures. The Borrowers will not incur aggregate
Capital Expenditures in excess of (i) $4,200,000 during the fiscal year ending
December 31, 1995, (ii) $6,400,000
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<PAGE> 20
during the fiscal year ending December 31, 1996, and (iii) $8,300,000 during the
fiscal year ending December 31, 1997. For purposes of this Subsection 7.6, (i)
the calculation of the Borrowers' Capital Expenditures for the fiscal year
ending December 31, 1995, shall exclude the payments made by Eateries to acquire
the assets now held by PGI, and (ii) the annual capitalized lease obligations of
the Borrowers' incurred in connection with the proposed sale-leaseback of the
Borrowers' point-of-sale equipment and related software shall be included in the
calculation of the Borrowers' annual Capital Expenditures.
7.7 Sale-Leaseback Transactions. Except for the proposed
sale-leaseback of the Borrowers' point-of-sale equipment and related software,
neither of the Borrowers will make or permit the occurrence of any sale,
transfer or disposition of any of its Properties followed by such Borrower's
leasing or rental of such Property, or any portion thereof, as lessee.
7.8 Financial Covenants.
7.8.1 Tangible Net Worth. The Borrowers will not permit
their Tangible Net Worth at any time to be less (i) $8,000,000 for the
period commencing on the Closing and ending April 30, 1996, (ii)
$8,750,000 for the period commencing on May 1, 1996, and ending April
30, 1997, or (iii) $9,500,000 for the period commencing on May 1,
1997, and ending August 31, 1998.
7.8.2 Debt to Net Worth. The Borrowers will not permit the
ratio of their consolidated Debt to their Tangible Net Worth to exceed
1.50 to 1 at any time.
7.8.3 Current Ratio. The Borrowers will not permit their
current ratio (i.e., the ratio of its current assets to its current
liabilities) to be less than (i) 0.60 to 1 at any time during the
fiscal year ending December 31, 1995, (ii) 0.55 to 1 at any time
during the fiscal year ending December 31, 1996, or (iii) 0.50 to 1 at
any time thereafter.
7.8.4 Cash Flow Coverage Ratio. The Borrowers will not
permit their "Cash Flow Coverage Ratio," determined as of the last day
of any fiscal quarter, to be less than 1.35 to 1. For purposes of
this Subsection 7.8.4, the Borrowers' "Cash Flow Coverage Ratio" as of
any determination date means the fraction whose numerator is equal to
the following:
(i) consolidated net income of the Borrowers for the four
preceding fiscal quarters (excluding extraordinary
gains); PLUS
(ii) depreciation and amortization expense and other
noncash expenses of the Borrowers for the four
preceding fiscal quarters;
and whose denominator is equal to the following:
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<PAGE> 21
(i) the current maturities of the Borrowers' long-term
Debt (which shall exclude in any event the Revolving
Loan) during the four fiscal quarters immediately
following such determination date; PLUS
(ii) the total amount of cash dividends paid by Eateries
during the four fiscal quarters immediately preceding
such determination date; PLUS
(iii) the sum of $600,000 (which amount represents
one-fifth of the Revolving Commitment).
8. EVENTS OF DEFAULT. The occurrence of any of the following events or
existence of any of the following circumstances, unless waived in writing by
the Bank, shall constitute an "Event of Default":
8.1 Nonpayment of Revolving Note. If the Borrowers shall fail to
pay any principal of or interest on the Revolving Note as and when such payment
shall become due and payable (whether at the stated maturity, upon a mandatory
prepayment, or otherwise); or
8.2 Other Nonpayment. If the Borrowers shall fail to pay any
other amount due and payable to the Bank, under the terms of the Loan Documents
or otherwise, within five (5) days after the date such payment shall become due
and payable; or
8.3 Representations and Warranties. If any representation,
statement, certificate, schedule or report made or furnished to the Bank by or
on behalf of either of the Borrowers shall prove to have been false or
erroneous in any material respect as of the date on which such warranty or
representation was made, or if any warranty shall cease to be complied with in
any material respect; or
8.4 Breach of Covenants. If the Borrowers shall fail to perform
or observe any of the covenants or agreements contained in Subsection 6.1, 6.2,
6.3, 6.5, 6.6, 6.7, 6.8, 6.9, 6.11, 6.12, 7.8.1, 7.8.2 or 7.8.3 of this
Agreement and continuance thereof for thirty (30) days after written notice
thereof from the Bank, or (ii) if the Borrowers shall fail to perform or
observe any of the covenants or agreements contained in Subsections 3.1, 3.2,
6.4, 6.10, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 or 7.8.4 of this Agreement; or
8.5 Other Breach of Covenants. If either of the Borrowers shall
fail to perform or observe any covenants or agreements contained in any other
Loan Documents and continuance thereof beyond the expiration of any applicable
grace period expressly stated therein; or
8.6 Insolvency. If either of the Borrowers shall (i) apply for or
consent to the appointment of a custodian, receiver, trustee or liquidator for
itself or any of its Properties, (ii) admit in writing the inability to pay, or
generally fail to pay, its debts as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) commence any proceeding relating
to
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the bankruptcy, reorganization, liquidation, receivership, conservatorship,
insolvency, readjustment of debt, dissolution or liquidation, or if corporate
action is taken for the purpose of effecting any of the foregoing, (v) suffer
any such appointment or commencement of a proceeding as described in clause (i)
or (iv) of this Subsection 8.6, which appointment or proceeding is not
terminated or discharged within sixty (60) days, or (vi) become insolvent; or
8.7 Judgments. If either of the Borrowers shall enter into any
binding settlement or settlements or have entered against them by any court a
final judgment or judgments for amounts not covered by insurance for an
aggregate amount in excess of $500,000; or
8.8 Default on Other Debt. If either of the Borrowers shall fail
to pay any principal or interest on any Debt owing to any Person other than the
Bank as and when the same shall become due and payable and such default shall
continue beyond the expiration of any applicable grace period expressly
provided, or if any default or event of default shall occur under the terms of
any agreement or other document which would entitle the holder or holders
thereof to accelerate the maturity thereof; or
8.9 Breach of Other Agreements. If either of the Borrowers shall
be in breach of or default under any material agreement with any Person and
such breach or default shall remain unremedied for a period of ten (10) days;
or
8.10 Change in Management. If Vincent F. Orza, Jr., shall cease to
serve as chief executive officer of Eateries, or if August A. Hehemann shall
cease to serve as chief financial officer of Eateries; or
8.11 ERISA Non-Compliance. If any employee pension or other
benefit plan or trust maintained by or related to the Borrowers shall incur any
"accumulated funding deficiency," as such term is defined in Section 302(a)(2)
of ERISA (whether or not waived by the Internal Revenue Service), or a
reportable event, as such term is defined in Section 4043(b) of ERISA, shall
occur with respect to any such plan or trust as a result of which the Borrowers
could be obligated to make payments to PBGC aggregating in excess of five
percent (5%) of the Borrowers' Tangible Net Worth, or in connection with the
termination of any such plan or trust either of the Borrowers shall incur a
liability to PBGC under Section 4062, 4063 or 4064 of ERISA; or
8.12 Unenforceability of Loan Documents. If any Loan Document or
any provision thereof shall for any reason cease to be a valid, binding and
enforceable obligation of either of the Borrowers, or if either of the
Borrowers shall so state in writing; or
8.13 Material Adverse Change. If in the opinion of the Bank there
shall occur any change in the condition (financial or otherwise) of either or
both of the Borrowers which is likely to have a Material Adverse Effect and
such change shall not be remedied or corrected within thirty (30) days after
the Bank gives written notice thereof to the Borrowers.
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9. REMEDIES
9.1 Acceleration of Obligations. If any Event of Default specified
in Subsection 8.6 hereof shall occur, the obligations of the Bank hereunder
(including the Revolving Commitment) shall automatically be terminated and the
Revolving Note and all other Obligations shall become immediately due and
payable, all without notice or demand. If any other Event of Default shall
occur, the Bank may, at its option, without notice or demand, terminate its
obligations hereunder (including the Revolving Commitment) and declare the
Revolving Note and all other Obligations to be immediately due and payable,
whereupon the same shall become forthwith due and payable.
9.2 Remedies. Upon the occurrence and during the continuation of
any Event of Default, the Bank shall be entitled to exercise all remedies
available to it under the Loan Documents or otherwise under applicable law.
9.3 Cumulative Remedies. No failure on the part of the Bank to
exercise, and no delay in exercising, any right or remedy under the Loan
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise by the Bank of any right thereunder preclude any other or further
right or exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not alternative.
9.4 Waiver of Default. The Bank may, by an instrument in writing,
waive any Default or Event of Default and any of the consequences of such
Default or Event of Default, but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any consequence of such
subsequent or other Default or Event of Default.
9.5 Deposits; Setoff. Regardless of the adequacy of any
collateral security held by the Bank, any deposits or other sums credited by or
due from the Bank to either of the Borrowers may at any time after the
occurrence and during the continuation of any Event of Default be set off
against the Obligations. The rights granted by this Subsection 9.5 shall be in
addition to the rights of the Bank under any statutory banker's lien or the
common law right of set off. This Subsection 9.5 shall not apply to any monies
of which the applicable Borrower is not the beneficial owner, regardless of the
name in which the money is deposited, nor shall this Subsection 9.5 apply to
any monies which the applicable Borrower is contractually obligated to spend in
whole or in part for the account of others, provided that such Borrower shall
have established special accounts or given the Bank written notice that
particular funds are beneficially owned by others, are dedicated for particular
expenditures, or are subject to such Borrower's contractual obligation to spend
for others. If the applicable Borrower fails to establish such special
accounts and fails to give such notice, the Bank may assume that funds on
deposit to the account of such Borrower belong solely to the named depositor
and are subject to this Subsection 9.5.
9.6 Application of Payments. During the continuation of any Event
of Default, all payments received by the Bank in respect of the Obligations may
be applied by the Bank to any
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liabilities, obligations or indebtedness included in the Obligations selected
by the Bank in its sole and exclusive discretion.
10. GENERAL PROVISIONS. It is further agreed as follows:
10.1 Participating Lender. The Borrowers understand that, although
the Revolving Note and other Loan Documents name the Bank as the holder
thereof, the Bank may from time to time sell one or more participation
interests in the Revolving Loan to one or more financial institutions which are
Affiliates of the Bank or, upon the prior written consent of the Borrowers
(such consent not to be unreasonably withheld), to one or more other financial
institutions. Each of the Borrowers agree that, subject to the terms of the
agreements of participation, each participating lender will be entitled to rely
on the terms of this Agreement and the other Loan Documents as fully as if such
participating lender had been named as the holder of the Revolving Note and
other Loan Documents.
10.2 Hold Harmless. Except for a successful claim against the Bank
by the Borrowers, each of the Borrowers will indemnify and hold the Bank and
each participant in the Revolving Note harmless from all liability, loss,
damages or expense, including reasonable attorney's fees, that the Bank or any
such participant may incur in good faith as a result of entering into the Loan
Documents or establishing the Revolving Loan, or in compliance with or in the
enforcement of the terms of the Loan Documents.
10.3 Notices. All notices, requests and demands required or
authorized hereunder shall be served in person, delivered by certified mail,
return receipt requested, or transmitted by telefacsimile, addressed as
follows:
If to either or both of
the Borrowers: - Eateries, Inc.
3240 W. Britton Road
Suite 202
Oklahoma City, Oklahoma 73120-2032
Attn: August A. Hehemann
Fax: (405) 751-7348
If to the Bank: - Liberty Bank and Trust Company of Oklahoma
City, National Association
100 N. Broadway
Oklahoma City, Oklahoma 73102
Attn: Judy Felder, Vice President
Fax: (405) 231-6761
or at such other address as any party hereto shall designate for such purpose
in a written notice to the other party hereto. Notices served in person shall
be effective and deemed given when
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delivered, notices sent by certified mail shall be effective and deemed given
three (3) Business Days after being deposited in the U.S. mail, postage
prepaid, and notices transmitted by telefacsimile will be deemed given when
sent, as indicated by the sender's written confirmation of transmission.
10.4 Construction; Applicable Law. This Agreement and all other
Loan Documents have been delivered to and accepted by the Bank in the State of
Oklahoma, are to be performed in the State of Oklahoma and shall be deemed
contracts made under the laws of the State of Oklahoma, and all rights and
obligations hereunder, including matters of construction, validity and
performance, shall be governed by the laws of the State of Oklahoma. Nothing
in this Agreement shall be construed to constitute the Bank as a joint venturer
with the Borrowers or to constitute a partnership. The descriptive headings of
the Sections and Subsections of this Agreement are for convenience only and
shall not be used in the construction of the content of this Agreement.
10.5 Binding Effect. This Agreement and the other Loan Documents
shall be binding on, and shall inure to the benefit of, the parties hereto and
their respective successors and assigns, provided that without the prior,
written consent of the Bank, neither of the Borrowers will assign or transfer
any of its interest, rights or obligations arising out of or relating to the
Loan Documents.
10.6 Exhibits and Schedules. Exhibits and Schedules attached to
this Agreement are incorporated herein for all purposes and shall be considered
a part of this Agreement.
10.7 Entire Agreement; Conflicting Provisions. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
Revolving Loan, and all matters arising out of or related thereto. In the
event of any direct conflict between or among the provisions of this Agreement
and the provisions of any other Loan Documents, the provisions of this
Agreement shall control.
10.8 Waivers. No act, delay, omission or course of dealing between
or among the parties hereto will constitute a waiver of their respective rights
or remedies under this
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<PAGE> 26
Agreement or the other Loan Documents. No waiver, change, modification or
discharge of any of the rights and duties of the parties hereto will be
effective unless contained in a written instrument signed by the party sought
to be bound.
10.9 Jurisdiction and Venue. All actions or proceedings with
respect to this Agreement or any of the other Loan Documents may be instituted
in any state or federal court sitting in Oklahoma City, Oklahoma, as the Bank
may elect, and by execution and delivery of this Agreement, each of the
Borrowers irrevocably and unconditionally (i) submits to the non-exclusive
jurisdiction (both subject matter and person) of each such court, and (ii)
waives (A) any objection that such Borrower may now or hereafter have to the
laying of venue in any of such courts, and (B) any claim that any action or
proceeding brought in any such court has been brought in an inconvenient forum.
10.10 Counterpart Execution. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument. This Agreement shall be binding only when a counterpart
hereof has been executed by an authorized officer or representative of the Bank
at its principal office in Oklahoma City, Oklahoma.
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this
Agreement to be duly executed in multiple counterparts, each of which shall be
considered an original, effective the date and year first above written.
EATERIES, INC.,
an Oklahoma corporation
By:
-----------------------------------
Vincent F. Orza, Jr., President
PEPPERONI GRILL, INC.,
an Oklahoma corporation
By:
-----------------------------------
Vincent F. Orza, Jr., President
LIBERTY BANK AND TRUST COMPANY
OF OKLAHOMA CITY, NATIONAL ASSOCIATION
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Revolving Note
Exhibit B - Form of Disbursement Request
Exhibit C - Form of Compliance Certificate
Schedule I - Schedule of Existing Liens
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EXHIBIT A-1
PROMISSORY NOTE
(Revolving Note)
Due: August 31, 1999
$5,000,000.00 Oklahoma City, Oklahoma
July __, 1996
FOR VALUE RECEIVED, the undersigned, Eateries, Inc., an Oklahoma
corporation, and Pepperoni Grill, Inc., an Oklahoma corporation ( collectively,
the "Makers"), promise to pay to the order of Liberty Bank and Trust Company of
Oklahoma City, National Association ("Bank"), at its principal office in
Oklahoma City, Oklahoma, or at such other place as may be designated in writing
by the holder of this Note, the principal sum of Five Million and No/100
Dollars ($5,000,000.00) or so much thereof as shall be disbursed and remain
outstanding hereunder, together with interest thereon at the rate or rates
specified in Subsection 2.5 of the Loan Agreement (hereinafter defined).
This Note is executed and delivered by Makers pursuant to, and is
entitled to the benefits of, that certain Loan Agreement dated August 31, 1995,
as amended (the "Loan Agreement"), between Makers and Bank. Reference is
hereby made to the Loan Agreement for terms and provisions regarding the
collateral security for payment of this Note, the prepayment rights and
obligations of Makers, the right of the holder of this Note to accelerate the
maturity hereof on the occurrence or existence of any Event of Default
specified therein, and for all other pertinent purposes.
This Note is made, executed and delivered in renewal, extension,
increase and replacement of (but not in payment or satisfaction of) that
certain Promissory Note of Makers dated August 31, 1995, payable to the order
of Bank in the principal amount of $3,000,000.
Principal and interest hereunder shall be due and payable at such
times and in such amounts as are specified in the Loan Agreement; provided that
the entire unpaid principal balance hereof and all accrued interest thereon
shall be due and payable on August 31, 1999.
All payments, including prepayments, of principal of, or interest
hereunder, shall be made to Bank at its principal office in Oklahoma City,
Oklahoma, on or before 2:00 p.m., Oklahoma City time, on the date due, in
immediately available funds. Whenever a payment is due on a day other than a
business day, the due date shall be extended to the next succeeding business
day and interest (if any) shall accrue during such extension.
While any default exists hereunder, all sums herein promised to be
paid shall bear interest at the rate equal to the Default Rate set forth in the
Loan Agreement, accrued from the date of
<PAGE> 29
default to the date on which such default is cured to the satisfaction of the
holder hereof. All past due sums will be paid at the time of and as a condition
precedent to the curing of any default hereunder. During the existence of any
such default, the holder of this Note may apply payments received on any amount
due hereunder or under the terms of any instrument now or hereafter evidencing
or securing any said indebtedness as said holder may determine.
It is the intent of Bank and Makers to conform strictly to all
applicable usury laws, and any interest on the principal balance hereof in
excess of that allowed by said usury laws shall be subject to reduction to the
maximum amount of interest allowed under said laws. If any interest in excess
of the maximum amount of interest allowable by said usury laws is inadvertently
paid to the holder hereof, at any time, any such excess interest shall be
refunded by the holder to the party or parties entitled to the same after
receiving notice of payment of such excess interest.
All advances and payments hereunder will be recorded by Bank in its
books and records, and the unpaid principal balance so recorded shall be
presumptive evidence of the amount owing on this Note.
If, and as often as, this Note is placed in the hands of an attorney
for collection or to defend or enforce any of the holder's right hereunder,
Makers will pay to the holder hereof its reasonable attorneys' fees, together
with all court costs and other expenses paid by such holder.
Makers, endorsers, sureties, guarantors and all other parties who may
become liable for all or any part of this Note severally waive demand,
presentment, notice of dishonor, protest, notice of protest, and notice of
non-payment, and consent to: (a) any and all extensions of time for any term or
terms regarding any payment due under this Note, including partial payments or
renewals before or after maturity; (b) any substitutions or release of
collateral; and (c) the addition, substitution or release of any party liable
for payment of this Note.
No waiver of any payment or other right under this Note or any related
agreement shall operate as a waiver of any other payment or right. All of the
holder's rights hereunder are cumulative and not alternative. This Note shall
inure to the benefit of the successors and assigns of Bank or other holder and
shall be binding upon the successors and assigns of Makers.
THIS NOTE HAS BEEN DELIVERED TO AND ACCEPTED BY THE BANK IN THE STATE
OF OKLAHOMA, IS TO BE PERFORMED IN THE STATE OF OKLAHOMA AND SHALL BE DEEMED A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF OKLAHOMA, AND ALL RIGHTS AND
INDEBTEDNESS HEREUNDER, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OKLAHOMA.
<PAGE> 30
IN WITNESS WHEREOF, Makers have executed this instrument as of the day
and year first above written.
EATERIES, INC.,
an Oklahoma corporation
By:
-------------------------------------
Vincent F. Orza, Jr. President
PEPPERONI GRILL, INC.,
an Oklahoma corporation
By:
-------------------------------------
Vincent F. Orza, Jr., President
<PAGE> 31
DISBURSEMENT REQUEST
To: LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA CITY,
NATIONAL ASSOCIATION (the "Bank")
Attn: Judy Barrett Felder, Vice President
Reference is made to the Loan Agreement dated August 31, 1995 (herein,
together with all amendments and supplements thereto, called the "Loan
Agreement"), by and among Eateries, Inc., and Pepperoni Grill, Inc. (the
"Borrowers"), and the Bank. Capitalized terms used but not otherwise defined
herein have the meanings attributed to them in the Loan Agreement.
The Borrowers hereby request an Advance under the Loan Agreement as
follows:
o Check as applicable:
__ This Disbursement Request is an original request for an Advance
under the Revolving Loan.
__ This Disbursement Request confirms an oral request for an Advance
under the Revolving Loan given to the Bank on ________, 199__.
[Must be no more than three (3) Business Days earlier than the date
of this Disbursement Request.]
o The principal amount of the Advance will be $_______.
o The requested date of disbursement will be _____, 199__. [Must be a
Business Day.]
o The proceeds of the Advance will be used (check as applicable):
__ For working capital purposes; or
__ To provide financing for the following acquisition or expansion of
a new or existing Stores or for other Capital Expenditures
(describe):
<PAGE> 32
Very truly yours,
EATERIES, INC., and
PEPPERONI GRILL, INC.
By:
----------------------------------
Title:
-------------------------------
<PAGE> 33
COMPLIANCE CERTIFICATE
To: LIBERTY BANK AND TRUST COMPANY OF OKLAHOMA CITY,
NATIONAL ASSOCIATION (the "Bank")
Attn: Judy Barrett Felder, Vice President
Reference is made to the Loan Agreement dated August 31, 1995 (herein,
together with all amendments and supplements thereto, called the "Loan
Agreement"), by and among Eateries, Inc., and Pepperoni Grill, Inc. (the
"Borrowers"), and the Bank. Capitalized terms used but not otherwise defined
herein have the meanings attributed to them in the Loan Agreement.
The undersigned hereby certifies, represents and warrants to you as
follows:
1. The undersigned is the chief financial officer of Eateries,
Inc. and in such capacity is authorized to execute and deliver this Compliance
certificate on behalf of the Borrowers.
2. The undersigned has reviewed the activities of the Borrowers
with a view to determining whether the Borrowers have fulfilled their
respective obligations under the Loan Agreement and all other Loan Documents.
3. Except as set forth on Schedule I attached hereto, to the best
knowledge of the undersigned: (a) the Borrowers are compliance in all material
respects with all of the terms and provisions of the Loan Agreement and the
other Loan Documents; (b) all representations and warranties made by the
Borrowers in the Loan Agreement and the other Loan Documents are true and
correct in all material respects as of the date hereof (other than
representations and warranties which refer solely to an earlier specified
date); and (c) no Default or Event of Default has occurred and is continuing
under the Loan Agreement or any of the other Loan Documents.
4. As of __________, the Borrowers were in compliance with the
financial covenants set forth in Section 7.8 of the Loan Agreement, as
demonstrated by the computations set forth in Schedule II attached hereto.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Compliance Certificate this ___ day of ________, 19__.
-------------------------------------
Name: August A. Hehemann
Title: Chief Financial Officer
<PAGE> 34
SCHEDULE I
To Compliance Certificate
Nature of Default or Event of Default or terms of Loan Documents that
have not been complied with in all material respects:
Steps being taken to correct such Default or Event of Default or
noncompliance:
<PAGE> 35
SCHEDULE II
To Compliance Certificate
Subsection 7.8.1 - Tangible Net Worth
Consolidated net worth (per GAAP) $_________
MINUS: Intangible assets - _________
_________
Total consolidated Tangible Net Worth $_________
Minimum required under Subsection 7.8.1:
Closing through April 30, 1996 $8,000,000
May 1, 1996 through April 30, 1997 $8,750,000
May 1, 1997 through August 31, 1988 $9,500,000
Subsection 7.8.2 - Total Debt to Net Worth
A. Total consolidated Debt $_________
B. Tangible Net Worth $_________
Ratio (A divided by B) ____:1.00
Maximum allowed under Subsection 7.8.2 1.50:1.00
Subsection 7.8.3 - Current Ratio
A. Total Current Assets $_________
B. Total Current Liabilities $_________
Ration (A divided by B)
Minimum allowed under Subsection 7.8.3 ____:1.00
During fiscal year ending December 31, 1995 0.60:1.00
During fiscal year ending December 31, 1996 0.55:1.00
After December 31, 1996 0.50:1.00
<PAGE> 36
Subsection 7.8.4 - Cash Flow Coverage Ratio
A. Total consolidated net income (less extraordinary
gains) for prior four fiscal quarters $_________
PLUS: Consolidated depreciation and amortization
expense and other noncash expenses for prior
four fiscal quarters +_________
==========
Total $_________
B. Current maturities of long-term Debt during
subsequent four fiscal quarters (excluding
the Revolving Loan) $_________
PLUS: Total amount of cash dividends paid during
four fiscal quarters immediately preceding
+_________
PLUS: $600,000 +_________
==========
Total $_________
C. Cash Flow Coverage Ratio (A divided by B) ____:1.00
Minimum required under Subsection 7.8.4 1.35:1.00
<PAGE> 1
EXHIBIT 10.31
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT ("Amendment") is made and
entered into effective as of July __, 1996 by and among EATERIES, INC., an
Oklahoma corporation ("Eateries"), PEPPERONI GRILL, INC., an Oklahoma
corporation ("PGI") (Eateries and PGI are hereinafter collectively referred to
as the "Borrowers" and individually as a "Borrower"), and LIBERTY BANK AND
TRUST COMPANY OF OKLAHOMA CITY, NATIONAL ASSOCIATION (hereinafter referred to
as the "Bank").
RECITALS
A. The Borrowers and the Bank entered into that certain Loan
Agreement dated August 31, 1995 (the "Loan Agreement"), pursuant to which the
Bank agreed, on the terms and conditions set forth therein, to establish a
revolving loan facility in favor of the Borrowers in the principal amount not
to exceed $3,000,000 (the "Loan").
B. The Borrowers have requested that the Bank increase the
aggregate principal amount that may be drawn under the Loan from $3,000,000 to
$5,000,000 and have also requested that the Bank renew and extend the Loan for
a one year period until August 31, 1999.
C. The Bank is willing to increase the aggregate principal amount
that may be drawn under the Loan to $5,000,000 and is willing to renew and
extend the Loan to August 31, 1999, on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereby amend
the Loan Agreement as follows:
1. DEFINITIONS.
1.1 Definitions Incorporated by Reference. Capitalized terms used
herein and not otherwise defined have the respective meanings assigned to them
in the Loan Agreement.
1.2 Definition Used Only in This Amendment. For purposes of this
Amendment only, the following term has the meaning indicated below:
"REPLACEMENT REVOLVING NOTE" shall mean the promissory note to be
executed and delivered by the Borrowers pursuant to this Amendment, in
substantially the form attached hereto as Exhibit "A-1."
1.3 Amendments to Definitions in Loan Agreement. The definitions
of the terms "Clean-Down Amount" and "Revolving Commitment" are hereby amended,
from and after the date of this Amendment, to read as follows:
<PAGE> 2
"CLEAN-DOWN AMOUNT" means $2,000,000 for each of the Clean-Down
Periods commencing November 30, 1996, and ending January 31, 1999.
"REVOLVING COMMITMENT" shall mean the sum of Five Million Dollars
($5,000,000), unless reduced by the Borrowers in accordance with the
provisions of Subsection 2.10 hereof.
The parties agree that, from and after the date of this Amendment, unless the
context otherwise requires: (i) all references to the "Revolving Note"
appearing in the Loan Agreement or any other Loan Documents shall mean and
refer to the Replacement Revolving Note, together with any and all renewals,
extensions or replacements thereof, amendments or modifications thereto or
substitutions therefor, and (ii) the term "Loan Documents" shall include the
Replacement Revolving Note.
2. EXTENSION OF REVOLVING LOAN AND MATURITY DATE.
2.1 Renewal and Extension of the Revolving Loan. Subject to the
terms and conditions and relying on the representations and warranties
contained herein and in the Loan Agreement, the Bank agrees to renew and
increase the Revolving Loan from the original principal amount of $3,000,000 to
the amended principal amount of $5,000,000, and further agrees to extend the
maturity of the Revolving Loan to August 31, 1999. Accordingly, the Loan
Agreement is amended as follows:
(a) the definition of "Revolving Commitment" is amended
as set forth in Subsection 1.3 above;
(b) Subsection 2.1 of the Loan Agreement is amended by
replacing the date "August 31, 1998" with the date "August 31, 1999";
and
(c) Subsection 2.7.1 of the Loan Agreement is amended by
replacing the date "August 31, 1998" with the date "August 31, 1999".
2.2 Revolving Note. The Borrowers agree to execute and deliver
the Replacement Revolving Note in renewal, continuation and extension of the
existing Revolving Note, but not in payment or satisfaction thereof.
3. AMENDMENTS TO NEGATIVE COVENANTS IN THE LOAN AGREEMENT.
3.1 Amendment to Subsection 7.5. Subsection 7.5 of the Loan
Agreement is amended by replacing the phrase "(ii) more than fourteen (14) new
Stores during the fiscal year ending December 31, 1996," with the new phrase
"(ii) more than ten (10) new Stores during the fiscal year ending December 31,
1996."
- 2 -
<PAGE> 3
3.2 Amendment to Subsection 7.6. Subsection 7.6 of the Loan
Agreement is amended by replacing the phrase "(ii) $6,400,000 during the fiscal
year ending December 31, 1996," with the new phrase "(ii) $5,200,000 during the
fiscal year ending December 31, 1996."
3.3 Amendment to Subsection 7.8.1. Subsection 7.8.1 of the Loan
Agreement is hereby stricken, and a new Subsection 7.8.1 is hereby added to the
Loan Agreement reading as follows:
7.8.1 Tangible Net Worth. The Tangible Net Worth of the
Borrowers must not at any time be less than: (i) $8,300,000 for
the period commencing on May 1, 1996, and ending April 30,
1997; (ii) $9,100,000 for the period commencing on May 1, 1997,
and ending April 30, 1998; or (iii) $10,000,000 for the period
commencing on May 1, 1998, and ending August 31, 1999.
4. CONDITIONS PRECEDENT. The closing of the transactions contemplated by
this Amendment shall occur simultaneously with the execution and delivery
hereof. At or as of such closing, each of the following conditions precedent
shall be satisfied:
4.1 Execution of Documents. The following document shall have
been duly and validly authorized, executed and delivered by the respective
parties thereto, all in a form and substance satisfactory to the Bank:
(a) This Amendment; and
(b) The Replacement Revolving Note.
4.2 No Defaults. No Default or Event of Default shall have
occurred or be continuing.
5. REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Borrowers contained in the Loan Agreement are hereby restated and
reaffirmed as of the date hereof (except to the extent any representation or
warranty contained in the Loan Agreement as to the financial condition of the
Borrowers relates solely to an earlier date) and shall survive the execution
and delivery of this Amendment. The Borrowers further represent and warrant to
the Bank as follows:
5.1 Binding Obligations. This Amendment, the Loan Agreement (as
amended by this Amendment), and the Replacement Revolving Note constitute valid
and legally binding obligations of the Borrowers, enforceable in accordance
with their respective terms.
5.2 Conflicting Agreements and Restrictions. The Borrowers'
execution, delivery and performance of this Amendment, the Loan Agreement (as
amended by this Amendment), and the Replacement Revolving Note do not and will
not (i) conflict with, or result in a breach of the
- 3 -
<PAGE> 4
terms, conditions or provisions of, or constitute a default under, or result in
any violation of any agreement, instrument, undertaking, judgment, decree,
order, writ, injunction, statute, law, rule or regulation to which the
Borrowers are subject or by which any of their Properties are bound, or (ii)
result in the creation or imposition of any Lien on any Property on any
Property pursuant to the provisions of any mortgage, indenture, security
agreement, contract, undertaking or other agreement, except for security
interests created in favor of the Bank.
5.3 No Consent. The Borrowers' execution, delivery and
performance of this Amendment, the Loan Agreement (as amended by this
Amendment), and the Replacement Revolving Note, do not and will not require any
authorization, consent, license, approval or authorization of or other action
by, or notice or declaration to, or registration with, any Governmental
Authority, or, to the extent that any such consent or other action may be
required, either (i) such consent or other action has been validly procured or
duly taken, or (ii) the Borrowers' failure to procure such consent or take such
other action would not subject the Borrowers to a penalty, or otherwise have a
Material Adverse Effect.
6. MISCELLANEOUS.
6.1 Effect of Amendment. The Loan Agreement, as amended, modified
and supplemented by this Amendment, shall continue in full force and effect in
accordance with its terms and is hereby reaffirmed in every respect as of the
date hereof. To the extent that the terms of this Amendment are inconsistent
with the terms of the Loan Agreement, this Amendment shall control and the Loan
Agreement shall be amended, modified or supplemented so as to give full effect
to the transactions contemplated by this Amendment.
6.2 Exhibits. All exhibits attached hereto are incorporated
herein by reference and constitute a part of this Amendment.
6.3 Descriptive Headings. The descriptive headings of the several
paragraphs of this Amendment are inserted for convenience only and shall not be
used in the construction of the content of this Amendment.
6.4 Reimbursement of Expenses. The Borrowers agree to pay all
reasonable out-of-pocket expenses, including, without limitation, filing fees,
recording costs and attorney's fees and expenses, incurred by the Bank in
connection with preparation of this Amendment and the consummation of the
transactions contemplated hereby.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this
Amendment to be duly executed effective the day and year first above written.
EATERIES, INC.,
an Oklahoma corporation
By: /S/ VINCENT F. ORZA, JR.
-------------------------------------
Vincent F. Orza, Jr., President
PEPPERONI GRILL, INC.,
an Oklahoma corporation
By: /S/ VINCENT F. ORZA, JR.
-------------------------------------
Vincent F. Orza, Jr., President
LIBERTY BANK AND TRUST COMPANY
OF OKLAHOMA CITY, NATIONAL
ASSOCIATION
By: /S/ JUDY BARRETT FELDER
-------------------------------------
Judy Barrett Felder, Vice President
- 5 -
<PAGE> 1
EXHIBIT 11.1
Page 1 of 3
EATERIES, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
1994 Quarter Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Shares for net income per
share computation:
Weighted average shares:
Common shares outstanding
from beginning of period 3,608,001 3,627,192 3,628,872 3,677,268
Common shares issued upon
exercise of stock options 11,301 -- 32,326 2,283
Treasury stock acquired -- -- (4,747) --
----------- ----------- ------------ ------------
3,619,302 3,627,192 3,656,451 3,679,551
Common stock equivalents:
Shares issuable upon exercise
of options (dilutive) 380,239 418,528 336,875 342,979
Assumed repurchase of outstanding
shares up to 20% limitation
(based on average market
price for the quarter) (41,305) (104,658) (59,567) (96,587)
----------- ----------- ------------ ------------
338,934 313,870 277,308 246,392
----------- ----------- ------------ ------------
3,958,236 3,941,062 3,933,759 3,925,943
=========== =========== ============ ============
Net income $ 77,911 $ 26,635 $ 105,906 $ 611,805
=========== =========== ============ ============
Net income per share $ .02 $ .01 $ .03 $ .16
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
<S> <C>
Net income (sum of four quarters
above) $ 822,257
==========
Weighted average number of common
and common equivalent shares
(average of four quarters above) 3,939,750
==========
Net income per share $ .21
==========
</TABLE>
<PAGE> 2
EXHIBIT 11.1
Page 2 of 3
EATERIES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1995 Quarter Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Shares for net income per
share computation:
Weighted average shares:
Common shares outstanding
from beginning of period 3,680,768 3,723,684 3,732,684 3,732,684
Common shares issued upon
exercise of stock options 14,830 3,000 -- --
Common shares issued under
employee stock purchase
plan -- -- -- 4,182
Treasury shares acquired (682) -- -- --
----------- ----------- ------------ ------------
3,694,916 3,726,684 3,732,684 3,736,866
Common stock equivalents (unless
anti-dilutive):
Shares issuable upon exercise
of options (dilutive) 394,813 -- -- 224,146
Assumed repurchase of outstanding
shares up to 20% limitation
(based on average market
price for the quarter) (181,138) -- -- (56,982)
----------- ----------- ------------ ------------
213,675 -- -- 167,164
----------- ----------- ------------ ------------
3,908,591 3,726,684 3,732,684 3,904,030
=========== =========== ============ ============
Net income (loss) $ 25,207 $ (45,071) $ (642,483) $ 848,188
=========== ============ ============
Net income (loss) per share $ 0.01 $ (0.01) $ (0.17) $ 0.22
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
-----------------
<S> <C>
Net income (sum of four
quarters above) $ 185,841
==========
Weighted average number of common
and common equivalent shares
(average of four quarters above) 3,817,997
==========
Net income per share $ 0.05
==========
</TABLE>
<PAGE> 3
EXHIBIT 11.1
Page 3 of 3
EATERIES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
1996 Quarter Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Shares for net income per
share computation:
Weighted average shares:
Common shares outstanding
from beginning of period 3,745,095 3,842,258 3,843,908 3,844,558
Common shares issued upon
exercise of stock options 62,996 -- -- --
Common shares issued upon
sale of common stock -- 198 50 --
Common shares issued upon
common stock bonuses -- 948 593 --
Common shares issued under
employee stock purchase plan -- -- -- 7,662
Treasury stock acquired -- -- -- (3,355)
----------- ----------- ------------ ------------
3,808,091 3,843,404 3,844,551 3,848,865
Common stock equivalents
(unless anti-dilutive):
Shares issuable upon exercise
of options (dilutive) 761,983 -- 864,483 676,983
Assumed repurchase of outstanding
shares up to 20% limitation
(based on average market
price for the quarter) (637,961) -- (622,227) (437,530)
----------- ----------- ------------ ------------
124,022 -- 242,256 239,453
----------- ----------- ------------ ------------
3,932,113 3,843,404 4,086,807 4,088,318
=========== =========== ============ ============
Net income (loss) $ 37,279 $ (165,853) $ 109,354 $ 600,719
=========== =========== ============ ============
Net income (loss) per share $ 0.01 $ (0.04) $ 0.03 $ 0.15
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-----------------
<S> <C>
Net income (sum of four quarters above) $ 581,499
==========
Weighted average number of common and
common equivalent shares (average
of four quarters above) 3,987,661
==========
Net income per share $ 0.15
==========
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-41279) pertaining to the Eateries, Inc. Omnibus Equity
Compensation Plan of our report dated March 26, 1997, except for the last
paragraph of Note 5, as to which the date is April 9, 1997, with respect to the
consolidated financial statements of Eateries, Inc. included in the Annual
Report (Form 10-K) for the year ended December 29, 1996.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 29, 1996 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 29, 1996 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-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 695
<SECURITIES> 0
<RECEIVABLES> 802
<ALLOWANCES> 0
<INVENTORY> 1,400
<CURRENT-ASSETS> 3,494
<PP&E> 19,128
<DEPRECIATION> 5,445
<TOTAL-ASSETS> 18,709
<CURRENT-LIABILITIES> 6,950
<BONDS> 1,471
0
0
<COMMON> 8
<OTHER-SE> 9,641
<TOTAL-LIABILITY-AND-EQUITY> 18,709
<SALES> 55,732
<TOTAL-REVENUES> 56,416
<CGS> 17,070
<TOTAL-COSTS> 51,175
<OTHER-EXPENSES> 4,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 194
<INCOME-PRETAX> 655
<INCOME-TAX> 74
<INCOME-CONTINUING> 581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 581
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
