<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended September 24, 1995 or
Transition report pursuant to section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 33-14051
--------
Family Restaurants, Inc.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0197361
- ------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18831 Von Karman Avenue, Irvine, California 92715
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 757-7900
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 whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
Number of shares of outstanding common stock as of November 6, 1995 is
988,285.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share)
<TABLE>
<CAPTION>
September 24, December 25,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,549 $ 8,239
Restricted cash 0 1,850
Receivables 11,740 11,831
Inventories 11,537 12,916
Other current assets 5,673 8,179
-------- --------
Total current assets 38,499 43,015
Property and equipment, net 390,680 445,354
Reorganization value in excess of amounts
allocable to identifiable assets, net 192,393 197,581
Property held for sale 8,772 339
Other assets 43,752 48,309
-------- --------
$674,096 $734,598
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loans payable to banks $ 92,164 $ 0
Current portion of long-term debt, including
capitalized lease obligations 7,778 6,754
Accounts payable 45,522 41,999
Self-insurance reserves 51,794 50,692
Other accrued liabilities 94,859 96,426
Income taxes payable 2,989 2,625
-------- --------
Total current liabilities 295,106 198,496
Other long-term liabilities 5,463 6,866
Long-term debt, including capitalized lease
obligations, less current portion 479,948 536,495
Stockholders' deficit:
Common stock - authorized 1,500,000 shares, par
value $.01 per share, 997,277 shares issued 10 10
Additional paid-in capital 159,554 159,554
Notes receivable from stockholders (2,181) (2,947)
Accumulated deficit (262,421) (163,876)
Less treasury stock, at cost (8,950 shares) (1,383) 0
-------- --------
Total stockholders' deficit (106,421) (7,259)
-------- --------
$674,096 $734,598
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 3
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
----------------------------
September 24, September 25,
1995 1994
------------- -------------
<S> <C> <C>
Sales $281,337 $289,958
-------- --------
Product cost 78,832 80,996
Payroll and related costs 103,518 104,474
Occupancy and other operating expenses 68,958 66,470
Depreciation and amortization 14,838 13,046
General and administrative expenses 13,012 10,857
Loss on disposition of properties, net 5,453 5,280
Provision for divestitures 41,886 0
Restructuring costs 1,366 0
-------- --------
Total costs and expenses 327,863 281,123
-------- --------
Operating income (loss) (46,526) 8,835
Interest expense, net 15,838 14,063
-------- --------
Loss before income tax provision and
extraordinary item (62,364) (5,228)
Income tax provision 277 858
-------- --------
Net loss before extraordinary item (62,641) (6,086)
Extraordinary gain on extinguishment of debt 0 2,941
-------- --------
Net loss $(62,641) $ (3,145)
======== ========
Net loss per common share:
Loss before extraordinary item $ (63.36) $ (6.10)
Extraordinary item 0 2.95
-------- --------
Net loss $ (63.36) $ (3.15)
======== ========
Weighted average common shares outstanding 988,602 997,262
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 4
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
------------------------------- -----------
Nine Months Eight Months One Month
Ended Ended Ended
September 24, September 25, January 26,
1995 1994 1994
------------- ------------- -----------
<S> <C> <C> <C>
Sales $852,040 $778,592 $64,741
-------- -------- -------
Product cost 241,854 217,664 19,184
Payroll and related costs 315,457 279,321 24,780
Occupancy and other operating expenses 208,741 176,321 13,712
Depreciation and amortization 43,783 34,302 2,800
General and administrative expenses 43,411 34,174 4,071
Loss (gain) on disposition of properties, net 6,848 5,214 (12)
Provision for divestitures 41,886 0 0
Restructuring costs 1,366 0 0
-------- -------- -------
Total costs and expenses 903,346 746,996 64,535
-------- -------- -------
Operating income (loss) (51,306) 31,596 206
Interest expense, net 45,988 37,622 4,097
-------- -------- -------
Loss before reorganization items, income
tax provision and extraordinary item (97,294) (6,026) (3,891)
-------- -------- -------
Reorganization items:
Professional fees 0 0 (4,250)
Payment to Grace 0 0 (15,000)
Other 0 0 (3,029)
Fresh start adjustment 0 0 501,706
-------- -------- -------
Total reorganization items 0 0 479,427
-------- -------- -------
Income (loss) before income tax provision
and extraordinary item (97,294) (6,026) 475,536
Income tax provision 1,251 2,310 55
-------- -------- -------
Income (loss) before extraordinary item (98,545) (8,336) 475,481
Extraordinary gain on extinguishment of debt 0 2,941 72,561
-------- -------- -------
Net income (loss) (98,545) (5,395) 548,042
Preferred dividends 0 0 (1,698)
-------- -------- -------
Net income (loss) attributable to common
shares $(98,545) $ (5,395) $546,344
======== ======== ========
Net loss per common share:
Loss before extraordinary item $ (99.26) $ (8.45)
Extraordinary item 0 2.98
-------- --------
Net loss attributable to common shares $ (99.26) $ (5.47)
======== ========
Weighted average common shares outstanding 992,843 986,827
======== ========
</TABLE>
Net loss per common share for the Predecessor Company is not meaningful due to
debt discharge, the issuance of new common stock and fresh start reporting.
See accompanying notes to condensed consolidated financial statements
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<PAGE> 5
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
----------------------------- -----------
Nine Months Eight Months One Month
Ended Ended Ended
September 24, September 25, January 26,
1995 1994 1994
------------- ------------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers, franchisees
and licensees $ 857,289 $ 782,965 $ 65,341
Cash paid to suppliers and employees (815,147) (735,247) (59,729)
Interest paid, net (40,620) (25,673) (741)
Income taxes received (paid) (887) (891) 157
Charges to provision for divestitures 0 (7,704) (1,001)
Restructuring costs (1,366) 0 0
--------- --------- ---------
Net cash provided by (used in) operating
activities before reorganization items (731) 13,450 4,027
--------- --------- ---------
Reorganization items:
Professional fees 0 0 (4,250)
Payment to Grace 0 0 (15,000)
Other 0 0 (3,029)
--------- --------- ---------
Total reorganization items 0 0 (22,279)
--------- --------- ---------
Net cash provided by (used in) operating
activities (731) 13,450 (18,252)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 9,046 5,396 1,588
Acquisition of Chi-Chi's 0 0 (194,889)
Capital expenditures (32,056) (44,210) (779)
Capitalized opening costs (1,671) (2,118) (21)
Other (730) 1,211 1,491
--------- --------- ---------
Net cash used in investing activities (25,411) (39,721) (192,610)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of Notes 0 0 409,046
Proceeds from working capital borrowings, net 32,564 38,800 0
Payment of notes payable to Marriott, net 0 (21,828) (10,969)
Payment of loan payable to Grace 0 0 (2,900)
Payment of debt issuance costs 0 0 (22,973)
Reductions of long-term debt, including
capitalized lease obligations (6,345) (6,144) (447)
Cash settlement of liabilities subject to
settlement under reorganization proceedings 0 0 (279,055)
Decrease in restricted cash and collateral
deposit 1,850 17 38,688
Proceeds from issuance of common stock, net 0 1,902 92,364
Purchase of treasury stock (1,383) 0 0
Payments of notes receivable from stockholders 766 0 0
--------- --------- ---------
Net cash provided by financing activities 27,452 12,747 223,754
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 1,310 (13,524) 12,892
Cash and cash equivalents at beginning of period 8,239 22,202 9,310
--------- --------- ---------
Cash and cash equivalents at end of period $ 9,549 $ 8,678 $ 22,202
========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 6
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
---------------------------- -----------
Nine Months Eight Months One Month
Ended Ended Ended
September 24, September 25, January 26,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities
net of effects of Chi-Chi's acquisition:
Net income (loss) $ (98,545) $ (5,395) $ 548,042
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 43,783 34,302 2,800
Amortization of debt issuance costs 2,464 2,058 215
Loss (gain) on disposition of properties 6,848 5,214 (12)
Additions (charges) to the provision for
divestitures 41,886 (7,704) (1,001)
Fresh start adjustment 0 0 (501,706)
Extraordinary gain on extinguishment of debt 0 (2,941) (72,561)
Accretion of interest on Discount Notes 9,973 8,232 0
Accrued interest on liabilities settled
under bankruptcy proceedings 0 0 3,113
Decrease (increase) in receivables,
inventories and other current assets 1,014 (1,971) 806
Increase (decrease) in accounts payable,
self-insurance reserves, other accrued
liabilities and income tax payable (8,154) (18,345) 2,052
--------- -------- ---------
Net cash provided by (used in) operating
activities $ (731) $ 13,450 $ (18,252)
========= ======== =========
Supplemental schedule of 1994 investing activities:
The components of acquisition of Chi-Chi's
are as follows:
Current assets $ (8,316)
Property and equipment (155,293)
Goodwill (146,329)
Other assets (14,121)
Current liabilities 56,843
Other long-term liabilities 5,292
Long-term debt assumed 4,694
Issuance of common stock 62,341
---------
$(194,889)
=========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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<PAGE> 7
FAMILY RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. COMPANY. Family Restaurants, Inc. (formerly The Restaurant
Enterprises Group, Inc.) was incorporated in Delaware in 1986 and is primarily
engaged in the operation of full-service restaurants throughout the United
States through its subsidiaries (Family Restaurants, Inc. together with its
subsidiaries shall hereinafter be referred to as the "Company"). At September
24, 1995, the Company operated 672 restaurants in 33 states, with approximately
53% of its restaurants located in California. The Company is the licensor of
234 full-service restaurants in Japan and South Korea, the franchisor of six
family restaurants and three Mexican restaurants in the United States and the
franchisor of 20 Mexican restaurants outside the United States.
Reference to the "Predecessor Company" refers to The Restaurant
Enterprises Group, Inc. and its consolidated subsidiaries (not including
Chi-Chi's) with respect to information relating to periods prior to January 27,
1994 included herein, and reference to the "Successor Company" refers to Family
Restaurants, Inc. and its consolidated subsidiaries, giving effect to the
Acquisition (as defined below) and related transactions as described below,
with respect to information about events occurring upon completion of or after
the Acquisition.
2. FINANCIAL STATEMENTS. The Condensed Consolidated Financial
Statements in this Form 10-Q have been prepared in accordance with Securities
and Exchange Commission Regulation S-X. Reference is made to the Notes to the
Consolidated Financial Statements for the Year Ended December 25, 1994 included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
25, 1994 (the "Form 10-K") for information with respect to the Company's
significant accounting and financial reporting policies as well as other
pertinent information. The Company believes that all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of the interim periods presented have been made. The results of
operations of the Successor Company for the quarter and nine months ended
September 24, 1995 are not necessarily indicative of those for the full year.
The Predecessor Company commenced a prepackaged Chapter 11
reorganization on November 23, 1993, which was confirmed by the United States
Bankruptcy Court for the District of Delaware on January 7, 1994. The
Predecessor Company applied the provisions of the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," in the consolidated
financial statements for the one month ended January 26, 1994.
- 7 -
<PAGE> 8
The accumulated deficit of the Predecessor Company was eliminated as
required by fresh start reporting; additionally, the statement of operations
for the one month ended January 26, 1994 reflects the effects of the
extinguishment of debt resulting from confirmation of the plan of
reorganization and the effects of the adjustments to restate assets and
liabilities to reflect the reorganization value of the Successor Company. As
such, the condensed consolidated balance sheets of the Company as of September
24, 1995 and December 25, 1994 and the accompanying condensed consolidated
statements of operations for the quarter and nine months ended September 24,
1995 and the eight months ended September 25, 1994 represent that of the
Successor Company which, in effect, is a new entity with assets, liabilities
and a capital structure having carrying values not comparable with prior
periods. The condensed consolidated statement of operations for the one month
ended January 26, 1994 represents that of the Predecessor Company.
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.,
Green Equity Investors, L.P. and Foodmaker, Inc. ("Foodmaker") acquired
approximately 98% of the outstanding common stock of the Company (the
"Acquisition"). The Acquisition involved several components, including the
merger of Chi-Chi's with a subsidiary of the Company (the "Chi-Chi's Merger"),
and related transactions.
3. LOSS PER COMMON SHARE. Loss per common share for the Successor
Company is computed based on the weighted average number of shares actually
outstanding. The impact of the "Foodmaker Warrant," which allows Foodmaker to
acquire an additional 111,111 shares of common stock of the Company, and
options has not been included since the impact would be antidilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
presented in the Form 10-K.
As used herein, "comparable restaurants" means restaurants operated by
the Company on January 1, 1994, which continued in operation through the end of
the third quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES.
A. LIQUIDITY
The Company primarily relies on internally generated funds, supplemented
by working capital advances under its revolving credit facility (the "Credit
Facility"), for its liquidity. The Company's viability is therefore dependent
upon its ability to generate sufficient cash flow to meet its obligations on a
timely basis, and to obtain and comply with the terms of its financing
agreements.
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<PAGE> 9
Operating Cash Flow. During the first nine months of 1995, the Company
reported EBITDA (defined as earnings (loss) before gain (loss) on disposition
of properties, interest, taxes, depreciation and amortization) of $42.6
million. If Chi-Chi's had been included for the one month ended January 26,
1994, pro forma combined EBITDA for the first nine months of 1994 would have
been reported as $75.7 million. The Company has included information
concerning EBITDA herein because it understands that such information is used
by certain investors as one measure of an issuer's historical ability to
service debt. EBITDA should not be considered as an alternative to, or more
meaningful than, operating income (loss) as an indicator of operating
performance or to cash flows from operating activities as a measure of
liquidity.
The Company continues to suffer from declining sales in the Chi-Chi's
restaurants included in its Mexican Restaurant Division (as defined below). On
July 28, 1995, the Company retained the firm of Jay Alix & Associates to
implement such steps as may be necessary in order to improve the Company's
performance, focusing specifically on its Chi-Chi's restaurants. On August 22,
1995, John G. McGregor of Jay Alix & Associates was named president of
Chi-Chi's. A series of actions have been initiated at Chi-Chi's in an effort
to increase sales, improve market share and enhance its profitability. These
actions include: (i) expanded responsibility and authority for individual
restaurant managers in local markets; (ii) local, rather than national,
direction of advertising expenditures and marketing programs; (iii) return to
Chi-Chi's traditional menus and food programs; (iv) revamping of restaurant
manager compensation, tying compensation to performance; and (v) continued
review of operations and elimination of unprofitable or poorly performing
restaurants.
The latter action has resulted in the closing of seven restaurants. In
addition, approximately 60 other marginally profitable or unprofitable
Chi-Chi's restaurants are being offered for sale. In conjunction with this
divestment program, the Company recorded a provision for divestitures of $41.9
million during the third quarter of 1995 which included the write down to
estimated fair value less selling costs of the property and equipment
associated with such restaurants as well as the provision for estimated rent
subsidies on certain restaurant leases.
The balance of the Chi-Chi's restaurants should generate sufficient
cash flow to support their recorded book values. However, this will be
dependent on the success of the actions currently being implemented at
Chi-Chi's, which cannot be guaranteed, and may be subject to future
reevaluation. The current estimated fair market value for the remaining
restaurants is approximately $103 million. If the Company is unsuccessful in
its efforts to improve the performance of Chi-Chi's, the Company will continue
to face short-term liquidity problems.
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<PAGE> 10
Working Capital Deficiency. The Company operates with a substantial
working capital deficiency because (i) restaurant operations are conducted
primarily on a cash (and cash equivalent) basis with a low level of accounts
receivable, (ii) rapid turnover allows a limited investment in inventories and
(iii) cash from sales is usually received before related accounts payable for
food, beverages and supplies become due. The Company had a working capital
deficiency of $164.4 million on September 24, 1995 (excluding the impact of
$92.2 million in loans payable to banks classified as a current liability as
discussed below).
Credit Facility. On the Closing Date, The Company, FRI-M Corporation, a
wholly-owned subsidiary of the Company, and certain subsidiaries of FRI-M
Corporation entered into the Credit Facility. Borrowings in the amount of
$93.0 million (including $6.2 million outstanding on the $14.6 million loan
made on August 1, 1995 to fund an interest payment made on the 9 3/4% Senior
Notes due 2002 (the "Dividend Loan")) were outstanding under the Credit
Facility as of November 6, 1995. Standby letters of credit are issued
under the Credit Facility primarily to provide security for future amounts
payable by the Company under its workers' compensation insurance
program ($38.1 million of such letters of credit were outstanding as
of November 6, 1995).
The Credit Facility contains various covenants including the
maintenance of certain financial ratios. Although the Company has failed to
comply with certain of such financial covenants and anticipates that it may not
comply with such covenants for the fiscal quarter ending on December 31, 1995,
the banks under the Credit Facility (the "Banks") have agreed in principle,
subject to acceptable documentation, to waive such noncompliance, through
January 31, 1996, for periods ending on or prior to January 31, 1996. In
accordance with generally accepted accounting principles, and since the
waivers would only extend to January 31, 1996, at this time the Company has
classified the outstanding balance of $92.2 million at September 24, 1995 as a
current liability in the accompanying condensed consolidated balance sheet.
There can be no assurances that further waivers or amendments will be obtained
after January 31, 1996.
The Company is also negotiating with the Banks to increase the total
commitment available under the Credit Facility by up to $8,000,000 until
January 31, 1996.
The Company and the Banks are currently negotiating an amendment of the
Credit Agreement to effect the changes to the Credit Agreement described above
(the "Amendment"), however, the Amendment is subject to the Banks' approval of
the documentation relating thereto (including the approval of an agreement
pursuant to which certain of the shareholders of the Company agree, subject to
certain conditions, to purchase a participation in up to $8,000,000 of loans
under the Credit Agreement).
Other. Subsequent to August 1, 1995, the Dividend Loan was reduced to
$6.2 million with the proceeds received from the completion of two
sale/leaseback transactions and several equipment financings for new
restaurants. The sale/leasebacks of four additional restaurants, with net
proceeds of approximately $4.2 million, have recently been completed, and these
proceeds are scheduled to be used to further reduce the Dividend Loan. The
Company is exploring several additional sale/leaseback transactions and other
asset sales and financings in an effort to further pay down its outstanding
borrowings under the Credit Facility. However, there can be no assurances that
any such transactions will be consummated. The Company is also exploring the
possible divestiture of certain divisions and operations, and has retained
Donaldson, Lufkin & Jenrette Securities Corporation as a financial advisor to
assist in this process. There can be no assurance, however, that any such
divestitures will be successfully implemented, and as such, the related net
assets have not been classified as held for sale.
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<PAGE> 11
B. CAPITAL EXPENDITURES
As noted in the Condensed Consolidated Statements of Cash Flows, net
cash used in investing activities was $25.4 million for the first nine months
of 1995 versus $192.6 million for the one month ended January 26, 1994 and
$39.7 million for the eight months ended September 25, 1994. Included in
investing activities for 1994 is the acquisition of Chi-Chi's which represented
$194.9 million and the partial conversion of certain Bob's Big Boy restaurants
to the Company's concepts which represented $5.6 million.
The Company embarked in 1994 on a comprehensive capital investment
program. The Company expected to spend an aggregate of approximately $100
million to $130 million of discretionary funds under such capital investment
program, in addition to the annual capital expenditures of approximately $16
million to $19 million devoted to normal improvements of the Company's
restaurants. Subsequent to the Acquisition, the Company has remodeled 111
family restaurants and 79 Mexican restaurants at an aggregate cost of
approximately $35.5 million. Due to the deterioration in operating cash flow
as described above, the Company has suspended its remodel program for all
restaurants indefinitely. In addition, expansion of the Family Restaurant
Division (as defined below) has been limited to 10 new restaurants for which
agreements have already been completed. As reported previously, the Company
has no current plans to open new Mexican restaurants. All other capital
projects are being tightly controlled until an improvement in operating cash
flow is realized. The Credit Agreement prohibited the Company from spending
more than $7.0 million on capital expenditures from July 1, 1995 to
October 31, 1995.
RESULTS OF OPERATIONS.
Third Quarter of 1995 as compared to Third Quarter 1994
The Company's total sales for the third quarter of 1995 decreased by
$8,621,000 or 3.0% as compared to total sales for the same period in 1994. The
sales decrease was due to decreases in sales
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<PAGE> 12
of comparable restaurants and restaurants divested or closed. These decreases
were offset, in part, by sales increases for restaurants previously identified
for divestment which are included in the Company's operating results for 1995
but were not included in the Company's operating results in 1994 (24
restaurants as of September 24, 1995), the impact of additional sales of
certain Bob's Big Boy restaurants converted to Coco's and Carrows during 1994
and the additional sales of new restaurants opened during 1994 and 1995. The
breakdown of the decrease in sales for the third quarter of 1995 is set forth
below:
<TABLE>
<CAPTION>
Third Quarter
1995 Sales
Decrease
--------------
($ in thousands)
<S> <C>
Sales of Restaurants Previously
Identified for Divestment $ 9,585
Increase in Sales of New Restaurants (1) 3,989
Increase in Sales of Bob's Big Boy
Restaurants (2) 991
Decrease in Sales of Restaurants Sold
or Closed (6,456)
Decrease in Sales of Comparable
Restaurants (16,730)
--------
Total $ (8,621)
========
</TABLE>
- -----------
(1) Reflects the Company's opening of nine new restaurants in 1994 and
five new restaurants in 1995.
(2) Reflects increased sales for the Bob's Big Boy restaurants converted
to Coco's or Carrows in 1994.
Comparable restaurants as utilized in this calculation excludes
restaurants previously identified for divestment. Sales for comparable
restaurants decreased by $16,730,000 or 7.0% for the third quarter of 1995 as
compared to the same period in 1994. This comparable sales decrease reflects
decreases in both the Family Restaurant Division and Mexican Restaurant
Division, although the Family Restaurant Division reported improved comparable
sales for the second consecutive quarter. Management believes the comparable
sales decrease is due to an increasingly competitive operating environment for
restaurants and in the case of the Family Restaurant Division (which operates
primarily in California), new California smoking legislation effective on
January 1, 1995. The comparable sales decrease in the Mexican Restaurant
Division was entirely due to the poor performance of the Company's Chi-Chi's
restaurants, which continue to suffer from declining sales. As discussed
above, the Company has initiated steps to improve the performance of these
restaurants.
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<PAGE> 13
Product cost decreased by $2,164,000 or 2.7% in the third quarter of
1995 as compared to the same period in 1994. As a percentage of sales, product
cost remained relatively stable at 28.0% in the third quarter of 1995 versus
27.9% in 1994.
Payroll and related costs decreased by $956,000 or 0.9% in the third
quarter of 1995 as compared to the same period in 1994. As a percentage of
sales, payroll and related costs increased from 36.0% in the third quarter of
1994 to 36.8% in 1995 due to the inclusion of restaurants previously identified
for divestment which generally have weaker margins as a result of lower sales
volumes and the impact of declining comparable restaurant sales which puts
pressure on operating margins. Increases in the minimum wage or decreases in
the allowable tip credit (which reduces the minimum wage that must be paid to
tipped employees) increase the Company's payroll cost. The Company's response
to, and the impact of, any future legislation covering minimum wages will
depend on the specific terms of any such legislation.
Occupancy and other operating expenses increased by $2,488,000 or 3.7%
in the third quarter of 1995 as compared to the same period in 1994. This
increase reflects the costs related to restaurants previously identified for
divestment which were not included in the Company's operating results for 1994,
increased media spending and increases in various other operating expenses. As
a percentage of sales, occupancy and other operating expenses increased from
22.9% in the third quarter of 1994 to 24.5% in 1995 due to the factors
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<PAGE> 14
discussed with respect to payroll and related costs and the impact of increased
media spending and increased operating expenses.
Depreciation and amortization expenses increased by $1,792,000 or
13.7% in the third quarter of 1995 as compared to the same period in 1994.
This increase reflects the additional depreciation related to capital
expenditures made from the third quarter of 1994 through the third quarter of
1995 offset, in part, by a decrease in goodwill amortization due to the
write-off of Chi-Chi's goodwill as described in the Form 10-K.
General and administrative expenses increased by $2,155,000 or 19.8%
in the third quarter of 1995 as compared to the same period in 1994. This
increase was due, in part, to a reduction in foreign license fee income (which
is reported as an offset to general and administrative expenses). Also
contributing to the increase were the reversal of corporate bonus accruals,
proceeds from a legal settlement and a note receivable settlement that were
reflected in the third quarter 1994 operating results. As a percentage of
sales, general and administrative expenses increased from 3.7% in the third
quarter of 1994 to 4.6% in 1995, primarily as a result of the foregoing
factors, as well as the decline in sales.
Depreciation and amortization expenses increased by $1,792,000 or
13.7% in the third quarter of 1995 as compared to the same period in 1994.
This increase reflects the additional depreciation related to capital
expenditures made from the third quarter of 1994 through the third quarter of
1995 offset, in part, by a decrease in goodwill amortization due to the
write-off of Chi-Chi's goodwill as described in the December 25, 1994 Form
10-K.
Restructuring costs of $1,366,000 were incurred in the third quarter
of 1995. These costs are primarily related to professional fees paid to
consultants, severance and related costs and other restructuring related
expenses.
The Company reported a loss on disposition of properties of $5,453,000
in the third quarter of 1995 as compared to a loss of $5,280,000 in the same
period in 1994. The loss in 1995 is primarily due to the write-off of costs
associated with cancelled capital projects, both remodels and new restaurant
expansion, and the loss associated with the closure of six restaurants.
Interest expense, net increased by $1,775,000 or 12.6% in the third
quarter of 1995 as compared to the same period in 1994. This increase resulted
from interest on working capital borrowings on the revolving line of credit
which were outstanding throughout the quarter as compared to smaller working
capital borrowing during the third quarter of 1994 and fees paid in connection
with the Fourth Amendment to the Credit Agreement. The interest on working
capital borrowings was partially offset by the impact on interest expense of
other debt reductions.
First Nine Months of 1995 as compared to First Nine Months of 1994
As a result of the impact of the Acquisition on the Company's capital
structure, the Company's adoption of fresh start reporting and the acquisition
of Chi-Chi's, the results of operations for the first nine months of 1995 are
not comparable to those for the first nine months of 1994 which includes eight
months of the Successor Company's operations and one month of the Predecessor
Company's operations. For certain key operating elements of the statement of
operations, however, the following analysis of a comparison of the Successor
Company's operations for the first nine months of 1995 to
- 14 -
<PAGE> 15
the operations (eight months of the Successor Company plus one month of the
Predecessor Company) for the first nine moths of 1994 is provided. Because of
the lack of comparability of results for this time period, depreciation and
amortization and interest expense, net are not discussed.
The Company's total sales for the nine month period increased by
$8,707,000 or 1.0% as compared to total sales for the same period in 1994.
This increase was due to sales from Chi-Chi's restaurants for January 1995 for
which there were no comparable sales in 1994 due to the timing of the Chi-Chi's
Merger on January 27, 1994, the impact of the Bob's Big Boy restaurant
conversions, the additional sales of the new restaurants opened during 1994 and
1995 and sales for restaurants previously identified for divestment which are
included in the Company's operating results for 1995 but were not included in
the Company's operating results in 1994 (24 restaurants as of September 24,
1995). These sales increases were offset, in part, by decreases related to
restaurants divested or closed and a decrease in sales of comparable
restaurants for the nine month period. The breakdown of the increase in sales
for the first nine months of 1995 is set forth below:
<TABLE>
<CAPTION>
First Nine Months
1995 Sales
Increase
-----------------
($ in thousands)
<S> <C>
Chi-Chi's Sales for January 1995 $ 28,891
Sales of Restaurants Previously
Identified for Divestment 32,226
Increase in Sales of New Restaurants (1) 10,446
Increase in Sales of Bob's Big Boy
Restaurants (2) 4,551
Decrease in Sales of Restaurants Sold
or Closed (25,298)
Decrease in Sales of Comparable
Restaurants (42,109)
--------
Total $ 8,707
========
</TABLE>
- ------------
(1) Reflects the Company's opening of nine new restaurants in 1994 and
five new restaurants in 1995. Sales of new Chi-Chi's restaurants are
only included for February through September 1995.
(2) Reflects increased sales for the Bob's Big Boy restaurants converted
to Coco's or Carrows in 1994.
Comparable restaurants as utilized in this calculation excludes
restaurants previously identified for divestment and Chi-Chi's operations for
January 1995. Sales for comparable restaurants decreased by $42,109,000 or
5.6% for the first nine months of 1995 as compared to 1994. This comparable
sales decrease reflects decreases in both the Family Restaurant Division and
Mexican Restaurant Division. The comparable sales decrease is due to an
- 15 -
<PAGE> 16
increasingly competitive operating environment for restaurants, particularly
effective promotional activities during the first quarter of the prior year,
and in the case of the Family Restaurant Division (which operates primarily in
California), new California smoking legislation effective on January 1, 1995.
The comparable sales decrease in the Mexican Restaurant Division was primarily
due to Chi-Chi's.
Product cost increased by $5,006,000 or 2.1% in the first nine months
of 1995 as compared to the same period in 1994. This increase reflects
Chi-Chi's product cost for January 1995 for which there was no comparable cost
in 1994 due to the timing of the Chi-Chi's Merger on January 27, 1994. As a
percentage of sales, product cost increased from 28.1% in the first nine months
of 1994 to 28.4% in 1995.
Payroll and related costs increased by $11,356,000 or 3.7% in the
first nine months of 1995 as compared to the same period in 1994. This
increase reflects the impact of Chi-Chi's January 1995 costs as discussed
previously and costs related to restaurants previously identified for
divestment which were not included in the Company's results for 1994 but are
included in the Company's operating results in 1995. As a percentage of sales,
payroll and related costs increased from 36.1% in the first nine months of 1994
to 37.0% in 1995 due to the inclusion of the restaurants previously identified
for divestment which generally have poorer margins as a result of lower sales
volumes and the impact of declining comparable restaurant sales which puts
pressure on operating margins.
Occupancy and other expenses increased by $18,708,000 or 9.8% in the
first nine months of 1995 as compared to the same period in 1994. This
increase reflects the impact of the same factors affecting payroll and related
costs discussed above and increased media spending. As a percentage of sales,
occupancy and other operating expenses increased from 22.5% in the first nine
months of 1994 to 24.5% in 1995 due to the factors discussed with respect to
payroll and related costs and the impact of increased media spending.
General and administrative expenses increased by $5,166,000 or 13.5% in
the first nine months of 1995 as compared to the same period in 1994, primarily
due to the inclusion of Chi-Chi's general and administrative expenses for
January 1995, which were not included for the same period in 1994, severance
and related costs resulting from corporate staff reductions, a reduction in
foreign license fee income, increased training costs in the Mexican Restaurant
Division and the occurrence of certain income items that offset these expenses
in 1994 such as the reversal of corporate bonus accruals, proceeds from a legal
settlement and a note receivable settlement that did not occur in 1995. As a
percentage of sales, general and administrative expenses increased from 4.5% in
the first nine months of 1994 to 5.1% in 1995, primarily as a result of the
foregoing factors.
- 16 -
<PAGE> 17
SELECTED DIVISION OPERATING DATA.
The Company operates restaurant chains serving two principal market
segments: full-service family restaurants (the "Family Restaurant Division")
and full-service Mexican restaurants (the "Mexican Restaurant Division"). At
September 24, 1995, the Company's Family Restaurant Division included 347
moderately-priced family-oriented restaurants operated primarily under the
Carrows and Coco's names, and the Company's Mexican Restaurant Division
operated 304 full-service restaurants primarily under the El Torito, Chi-Chi's
and Casa Gallardo names. The Company also operated 21 additional restaurants
under other formats.
The following table sets forth certain information regarding the
Company, the Family Restaurant Division and the Mexican Restaurant Division.
The table includes information with respect to total operations of the Company,
the Family Restaurant Division and the Mexican Restaurant Division (1994
information excludes restaurants previously identified for divestment).
Chi-Chi's data has been included in the Mexican Restaurant Division on a pro
forma basis as if the Acquisition had occurred as of the beginning of fiscal
1994.
- 17 -
<PAGE> 18
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------------- --------------------------
Sept. 24, Sept. 25, Sept. 24, Sept. 25,
1995 1994 1995 1994
--------- --------- --------- ---------
($ in thousands, except average check)
<S> <C> <C> <C> <C>
Family Restaurant Division
Restaurants Open at End of Period:
Owned/operated 347 343 347 343
Franchised and Licensed 236 224 236 224
Sales $126,426 $127,128 $370,056 $375,653
Divisional EBITDA (a) 17,703 16,948 43,385 42,907
Percentage increase (decrease)
in comparable restaurant sales (2.2)% 0.9% (3.2)% 0.9%
Average check $6.41 $6.19 $6.40 $6.08
Mexican Restaurant Division
Restaurants Open at End of Period:
Owned/operated 304 309 304 309
Franchised and Licensed 27 27 27 27
Sales $142,814 $156,164 $441,350 $476,138
Divisional EBITDA (a) 37 9,778 1,181 33,593
Percentage decrease in comparable
restaurant sales (8.6)% (5.4)% (8.0)% (3.3)%
Average check $8.16 $8.07 $8.28 $8.02
Total Company
Restaurants Open at End of Period:
Owned/operated 672 663 672 663
Franchised and Licensed 263 251 263 251
Sales $281,337 $289,958 $852,040 $873,724
EBITDA (b) 17,017 27,161 42,577 75,662
Percentage decrease in comparable
restaurant sales (5.8)% (2.9)% (5.6)% (1.7)%
</TABLE>
- ------------
(a) Divisional EBITDA with respect to any operating division is defined as
earnings (loss) before gain (loss) on disposition of propeties,
unallocated corporation overhead, interest, taxes, depreciation and
amortization.
(b) EBITDA is defined as earnings (loss) before gain (loss) on disposition of
properties, interest, taxes, depreciation and amortization. The Company
has included information concerning EBITDA herein because it understands
that such information is used by certain investors as one measure of an
issurer's historical ability to service debt. EBITDA should not be
considered as an alternative to, or more meaningful than, operating income
(loss) as an indicator of operating performance or to cash flows from
operating activities as a measure of liquidity.
- 18 -
<PAGE> 19
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various litigation matters incidental to its
business. The Company does not believe that any of the existing claims or
actions will have a material adverse effect upon the consolidated financial
position and results of operations of the Company.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
On August 22, 1995, in connection with a reorganization of the
Company's management structure, Barry E. Krantz (Co-President of the Company
and President, Mexican Restaurant Division) and Patricia K. Johnson (Executive
Vice President and Chief Administrative Officer of the Company) left the
Company. On the same date, Kevin S. Relyea was named President of the Company.
On October 27, 1995, the shareholders voted to remove Mr. Krantz as a Director
of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Fourth Amendment to Revolving Credit Agreement dated
as of August 1, 1995 by and among the parties to the
Revolving Credit Agreement.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
- 19 -
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Family Restaurants, Inc.
(Registrant)
By: /s/ Robert T. Trebing, Jr.
--------------------------------
Robert T. Trebing, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: November 8, 1995
- 20 -
<PAGE> 1
EXHIBIT 10.1
FOURTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO THE REVOLVING CREDIT AGREEMENT (the
"Fourth Amendment") is made as of August 1, 1995, among FRI-M Corp., a Delaware
corporation (the "Borrower"), Family Restaurants, Inc., a Delaware corporation
("FRI"), each of the Subsidiary Guarantors, each of the banks identified on the
signature pages hereof (each a "Bank" and, collectively, the "Banks") and
Credit Lyonnais New York Branch, as Agent, Collateral Agent, Issuing Bank and
Swing Line Bank.
W I T N E S S E T H
WHEREAS, the Borrower, FRI, the Subsidiary Guarantors, the
Banks, the Agent, the Collateral Agent, the Issuing Bank and the Swing Line
Bank have entered into the Revolving Credit Agreement, dated as of January 27,
1994, as amended by the First Amendment to the Revolving Credit Agreement,
dated April 15, 1994, by the Second Amendment to the Revolving Credit
Agreement, dated August 15, 1994, and by the Third Amendment to the Revolving
Credit Agreement, dated March 24, 1995 (the "Credit Agreement");
WHEREAS the Borrower is in default under Section 9.01 of the
Credit Agreement as a result of the Borrower's failure to comply with the
financial covenants specified in Section 3. of this Fourth Amendment, and as a
result thereof, the Banks have no further obligations to make Loans or
participate in Swing Line Advances or Syndicated Letters of Credit;
WHEREAS Schedule A to this Fourth Amendment sets forth the
totals of all outstanding Loans, Swing Line Advances and Syndicated Letters of
Credit under the Credit Agreement as of the date hereof;
WHEREAS the Borrower has requested that the Banks waive such
defaults in order that it may borrow funds under the Credit Agreement and
maintain certain limited availability of funds through October 31, 1995;
WHEREAS the Banks have indicated that as a result of the
Borrower's present default under Section 9.01 of the Credit Agreement, except
as expressly provided for in the Credit Agreement as amended hereby, they will
not make any new Loans nor participate in any new Swing Line Advances or
Syndicated Letters of Credit;
<PAGE> 2
WHEREAS Credit Lyonnais is willing to fund a loan to enable
the Borrower to pay a dividend in the amount of $14,625,000 on August 1, 1995
to FRI (the "Dividend Loan"), and all parties hereby acknowledge that, as of
the date hereof, the Banks other than Credit Lyonnais are not required to fund
any portion of the Dividend Loan and that the terms of the Credit Agreement
allow Credit Lyonnais to fund the entire amount; and
WHEREAS, the parties hereto desire to amend the Credit
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements contained herein and in the Credit Agreement, the
parties hereto agree that the Credit Agreement is hereby amended as set forth
herein:
1. Capitalized terms used herein which are not otherwise
defined herein but are defined in the Credit Agreement shall have the meanings
given to them in the Credit Agreement.
2. The Borrower represents and warrants that a pro forma
cash forecast for the period from July 24, 1995 to August 18, 1995 and for the
period from August 21, 1995 to September 22, 1995, and a list of proposed asset
sales and other proceeds of asset financings expected to be completed by the
Borrower have been provided to the Banks and that they have been prepared by
the Borrower in good faith and represent the best estimate of management as to
the matters presented therein, and the Borrower acknowledges that the Banks are
relying on such information in entering into this Fourth Amendment. The
Borrower agrees that it will deliver to the Banks a pro forma cash forecast for
the period from September 25, 1995 to October 31, 1995 (the "October Forecast")
no later than September 5, 1995 (and the failure to provide the October
Forecast by such date shall be an Event of Default on such date without giving
effect to the 30-day cure period referred to in Section 9.01(d).
3. The parties hereto agree that failure by the Borrower to
meet the financial covenants in subsections 8.03(a), (c), (d), (e) and (f) for
the fiscal quarter ending June 1995 or for the four fiscal quarters ending June
1995, for the two fiscal quarters ending September 1995 or the four fiscal
quarters ending September 1995, shall not constitute Defaults or Events of
Default under the Credit Agreement.
4. Section 2.07 of the Credit Agreement is amended to add new
subsections (f) and (g) which shall read in their entirety as follows:
-2-
<PAGE> 3
"(f) Notwithstanding any contrary provision in this Section
2.07, any Net Cash Proceeds received from (i) the disposition of any
assets set forth in the list referred to in Section 2. of the Fourth
Amendment and (ii) the disposition of any other individual asset or
group of related assets (other than sales of inventory in the ordinary
course of business) resulting in net proceeds to the Borrower of more
than $500,000 shall first be applied to repay the outstanding Dividend
Loan and shall thereafter be applied to reduce each Bank's Commitment,
as set forth in and reduced by subsection (g) below, permanently by
such Bank's Pro Rata Share of such Net Cash Proceeds. Any notes or
other securities received in connection with any such disposition or
financing shall be pledged to the Banks until such securities are
liquidated, at which time the Net Cash Proceeds therefrom shall be
applied as set forth in the preceding sentence. Promptly upon receipt
of any such Net Cash Proceeds or marketable securities, FRI or the
Borrower shall deliver to the Agent a certificate signed by the chief
financial officer of FRI or the Borrower, as the case may be, setting
forth the amount of the gross cash proceeds received and the items
deducted therefrom in reasonable detail in order to confirm the amount
of such Net Cash Proceeds and the amount of any marketable securities
received.
(g) Notwithstanding any contrary provision in this Agreement,
no Bank will be obligated to extend any Loans or participate in any
Swing Line Advances or Syndicated Letters of Credit so long as the
total outstandings under this Agreement (exclusive of the Dividend
Loan) exceed (i) $125,100,000 on any day from the date of this Fourth
Amendment to August 3, 1995, (ii) $126,600,000 on any day from August
4, 1995 to August 25, 1995, or (iii) $125,100,000 on any day from
August 26, 1995 to October 31, 1995. After October 31, 1995, no Bank
will be obligated to extend any Loans or participate in any Swing Line
Advances or Syndicated Letters of Credit."
5. Section 7.03(c) of the Credit Agreement is amended to
read in its entirety as follows:
"(c) The Agent shall have received from the Borrower a
certificate signed by an authorized officer of the Borrower setting
forth details as to the use of proceeds of such Loan, Swing Line
Advance or Syndicated
-3-
<PAGE> 4
Letter of Credit. Promptly after the use of the proceeds of any Loan,
Swing Line Advance or Letter of Credit hereunder, the Borrower shall
deliver a certificate to the Agent detailing such use of proceeds in
accordance with the certificate presented pursuant to this Section
7.03(c)."
6. (a) Section 8.03 of the Credit Agreement is amended to
add a new last sentence to subsection (b) which shall read in its entirety as
follows:
"Notwithstanding any contrary provision in this Section
8.03(b), FRI, the Borrower and its Subsidiaries may not make Capital
Investments between July 1, 1995 and October 31, 1995 in an amount in
excess of $7,000,000."
(b) Section 8.03 of the Credit Agreement is further
amended to add a new subsection (g) which shall read in its entirety as
follows:
"(g) The Borrower and FRI shall maintain, for the 12 months ended
October 31, 1995, the minimum consolidated EBITDA, minimum interest
coverage ratio, fixed charge coverage ratio, adjusted fixed charge
coverage ratio and ratio of total indebtedness of the Borrower to
consolidated EBITDA, respectively, set forth in subsections (a), (c),
(d), (e) and (f) for the four fiscal quarters ended 9-95, and shall
deliver the certificates required by subsections 8.01(a)(i) and (iv)
no later than November 15, 1995."
7. Section 9.01 of the Credit Agreement is amended to
add a new subsection (o) which shall read in its entirety as follows:
"(o) (i) On any of the dates set forth below, the cumulative cash
flow of the Borrower for the period from July 24, 1995 to such date
(calculated based on column 11 of the cash forecasts delivered to the
Banks by the Borrower on the date of the Fourth Amendment), shall be
below the default amount set forth opposite such date below:
-4-
<PAGE> 5
<TABLE>
<CAPTION>
Date Default Amount
--------- --------------
<S> <C>
18-Aug-95 ($22,132,000)
01-Sep-95 ($16,365,000)
15-Sep-95 ($17,970,000)
29-Sep-95 ($12,908,000)
</TABLE>
(ii) on October 13, 1995 or on October 27, 1995, the
cumulative cash flow of the Borrower from July 24, 1995 to such date
shall be below the default amount for such date, which default amount
shall be determined, on a basis consistent with the prior periods,
based on the October Forecast at such time as the Borrower delivers
the October Forecast to the Banks pursuant to Section 2. of the
Fourth Amendment."
8. The Borrower hereby covenants and agrees that it
shall deliver to the Banks a comprehensive financial and business plan, in a
form acceptable to the Banks, on or prior to October 1, 1995.
9. Each Bank shall receive a fee of 25 basis points on
such Bank's outstanding Loans, Swing Line Advances and obligations with respect
to outstanding Syndicated Letters of Credit as of the date hereof, payable only
if the parties hereto sign this Fourth Amendment to Revolving Credit Agreement
by 9:45 a.m., California time, on August 1, 1995. Such fee shall be paid on or
before August 31, 1995.
10. The Borrower and FRI represent and warrant that the
execution and delivery of this Fourth Amendment by each of the Borrower, FRI
and the Subsidiary Guarantors has been duly authorized by all necessary
corporate action and this Fourth Amendment is enforceable without any further
approval, authorization or consent.
11. The Borrower and FRI, on behalf of themselves, and,
to the extent they may lawfully do so, any of their respective present and
former officers, directors, shareholders, attorneys, agents, successors,
assigns, or anyone acting on their behalf, hereby release the Agent and the
Banks, and any of their respective officers and directors, employees, agents,
shareholders, affiliates, subsidiaries or parent corporations, representatives,
insurers, attorneys, advisors, successors, assigns, or anyone acting on their
behalf, from any liability, whether known or unknown, suspected or unsuspected,
concealed or hidden, accrued or unaccrued, from the beginning of time
-5-
<PAGE> 6
through the date of this Fourth Amendment, in connection with, arising out of
or related to the Credit Agreement and this Fourth Amendment.
To ensure that this Section 11. is fully enforceable in
accordance with its terms, the Borrower and FRI (on behalf of themselves, and,
to the extent they may lawfully do so, any of their respective present and
former officers, directors, employees, shareholders, attorneys, agents,
successors, assigns, or anyone acting on their behalf) hereby knowingly and
voluntarily waive any protection that they might have by virtue of Section 1542
of the California Civil Code, which provides:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
In addition, the Borrower and FRI (on behalf of themselves,
and, to the extent they may lawfully do so, any of their respective present and
former officers, directors, employees, shareholders, attorneys, agents,
successors, assigns, or anyone acting on their behalf), hereby knowingly and
voluntarily waive any protection that may exist under any comparable or similar
statutes and principles of common law of any and all states of the United
States or of the United States.
12. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, UNITED STATES OF
AMERICA.
13. This Fourth Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall together constitute but one and the same
instrument. This Fourth Amendment shall become effective as of the date hereof
upon the delivery to the Agent of executed counterparts from the Company and
the Required Banks and the Agent shall so inform all of the parties hereto.
14. The Credit Agreement, as amended hereby, shall be binding
upon the Borrower, FRI, the Subsidiary Guarantors, the Banks, the Agent, the
Collateral Agent, the Issuing Bank and the Swing Line Bank and their respective
successors and assigns, and shall inure to the benefit of the Company, FRI, the
Subsidiary Guarantors, the Banks, the Agent, the Collateral Agent, the Issuing
Bank and the Swing Line Bank and their respective successors and assigns.
-6-
<PAGE> 7
15. Except as expressly provided in this Fourth Amendment,
all of the terms, covenants, conditions, restrictions and other provisions
contained in the Credit Agreement shall remain in full force and effect. The
Credit Agreement as amended by this Fourth Amendment, the materials delivered
pursuant hereto and the other Credit Documents constitute the entire agreement
and understanding among the parties hereto and supersede all prior agreements
and understandings among them relating to the subject matter hereof and
thereof.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written.
FRI-M CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
FAMILY RESTAURANTS, INC.
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Senior Vice President,
Finance
FRI-FRD CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
FRI-DHD CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
FRI-NA CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
<PAGE> 9
FRI-J CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
FRI-MRD CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
FRI-C CORPORATION
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: Vice President
CHI-CHI'S, INC.
By:
---------------------------
Name: Robert D. Gonda
Title: Treasurer
CCMR OF CUMBERLAND, INC.
By:
---------------------------
Name: Robert D. Gonda
Title: Authorized Signatory
CCMR OF GREENBELT, INC.
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: President
<PAGE> 10
CCMR OF MARYLAND, INC.
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CCMR OF TIMONIUM, INC.
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CHI-CHI'S OF SOUTH CAROLINA, INC.
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: President
CHI-CHI'S OF WEST VIRGINIA, INC.
By:
---------------------------
Name: R.T. Trebing, Jr.
Title: President
COCO'S RESTAURANTS, INC.
By:
---------------------------
Name: Robert D. Gonda
Title: Treasurer
FAR WEST CONCEPTS, INC.
By:
---------------------------
Name: Robert D. Gonda
Title: Treasurer
<PAGE> 11
jojos RESTAURANTS, INC.
By:
--------------------------
Name: Robert D. Gonda
Title: Treasurer
jojos CALIFORNIA FAMILY
RESTAURANTS INC.
By:
--------------------------
Name: Robert D. Gonda
Title: Treasurer
EL TORITO RESTAURANTS, INC.
By:
--------------------------
Name: Robert D. Gonda
Title: Treasurer
CARROWS RESTAURANTS, INC.
By:
--------------------------
Name: Robert D. Gonda
Title: Treasurer
CARROWS CALIFORNIA FAMILY
RESTAURANTS, INC.
By:
--------------------------
Name: Robert D. Gonda
Title: Treasurer
<PAGE> 12
CREDIT LYONNAIS NEW YORK BRANCH
as Agent for the Banks
By:
---------------------------
Name: Frederick Haddad
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
as Collateral Agent for the Banks
By:
---------------------------
Name: Frederick Haddad
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
Signing as a Bank, as the Issuing
Bank and as the Swing Line Bank
By:
---------------------------
Name: Frederick Haddad
Title: Senior Vice President
UNITED STATES NATIONAL BANK OF
OREGON
By:
---------------------------
Name: Janet Jordan
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION, Los Angeles Agency
By:
---------------------------
Name: Hiroaki Koseki
Title: Chief Manager and
Senior Vice President
<PAGE> 13
Schedule A
Outstandings as of July 31, 1995
under Revolving Credit Agreement
<TABLE>
<S> <C>
Letters of Credit $ 38,500,727
LIBOR Loans 75,000,000
Base Rate Loans 6,900,000
Swing-Line Loans 500,000
------------
$120,900,727
============
</TABLE>
LA_LAN01\44663.10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS
ENDED SEPTEMBER 24, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> SEP-24-1995
<CASH> 9,549
<SECURITIES> 0
<RECEIVABLES> 11,740
<ALLOWANCES> 0
<INVENTORY> 11,537
<CURRENT-ASSETS> 5,673
<PP&E> 456,605
<DEPRECIATION> 65,925
<TOTAL-ASSETS> 674,096
<CURRENT-LIABILITIES> 295,106
<BONDS> 430,379
<COMMON> 10
0
0
<OTHER-SE> (106,421)
<TOTAL-LIABILITY-AND-EQUITY> 674,096
<SALES> 852,040
<TOTAL-REVENUES> 852,040
<CGS> 241,854
<TOTAL-COSTS> 903,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,988
<INCOME-PRETAX> (97,294)
<INCOME-TAX> 1,251
<INCOME-CONTINUING> (98,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (98,545)
<EPS-PRIMARY> (99.26)
<EPS-DILUTED> (99.26)
</TABLE>
